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


 
HEARING TO REVIEW U.S. FARM SAFETY NET PROGRAMS IN ADVANCE OF THE 2012 
                                  FARM BILL

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

                                HEARINGS

                               BEFORE THE

                            SUBCOMMITTEE ON
                        GENERAL FARM COMMODITIES
                          AND RISK MANAGEMENT

                                 OF THE

                        COMMITTEE ON AGRICULTURE
                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED ELEVENTH CONGRESS

                             SECOND SESSION

                               __________

                           JUNE 17, 24, 2010

                               __________

                           Serial No. 111-52


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



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                        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                         THOMAS J. ROONEY, Florida
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

                                 ______

      Subcommittee on General Farm Commodities and Risk Management

                   LEONARD L. BOSWELL, Iowa, Chairman

JIM MARSHALL, Georgia                JERRY MORAN, Kansas, Ranking 
BRAD ELLSWORTH, Indiana              Minority Member
TIMOTHY J. WALZ, Minnesota           TIMOTHY V. JOHNSON, Illinois
KURT SCHRADER, Oregon                SAM GRAVES, Missouri
STEPHANIE HERSETH SANDLIN, South     STEVE KING, Iowa
Dakota                               K. MICHAEL CONAWAY, Texas
BETSY MARKEY, Colorado               BLAINE LUETKEMEYER, Missouri
LARRY KISSELL, North Carolina        THOMAS J. ROONEY, Florida
DEBORAH L. HALVORSON, Illinois
EARL POMEROY, North Dakota
TRAVIS W. CHILDERS, Mississippi

                Aleta Botts, Subcommittee Staff Director

                                  (ii)
                             C O N T E N T S

                              ----------                              
                                                                   Page

                        Thursday, June 17, 2010

Boswell, Hon. Leonard L., a Representative in Congress from Iowa, 
  opening statement..............................................     1
Moran, Hon. Jerry, a Representative in Congress from Kansas, 
  opening statement..............................................     2
    Prepared statement...........................................     3
Peterson, Hon. Collin C., a Representative in Congress from 
  Minnesota, prepared statement..................................     4

                                Witness

Miller, Hon. James W. ``Jim'', Under Secretary for Farm and 
  Foreign Agricultural Services, U.S. Department of Agriculture; 
  accompanied by Jonathan W. Coppess, J.D., Administrator, Farm 
  Service Agency; William J. ``Bill'' Murphy, Administrator, Risk 
  Management Agency, Washington, D.C.............................     5
    Prepared statement...........................................     8

                          Submitted Questions

Submitted questions..............................................    35

                        Thursday, June 24, 2010

Boswell, Hon. Leonard L., a Representative in Congress from Iowa, 
  opening statement..............................................   112
    Prepared statement...........................................    42
Marshall, Hon. Jim, a Representative in Congress from Georgia, 
  opening statement..............................................    41
Moran, Hon. Jerry, a Representative in Congress from Kansas, 
  opening statement..............................................    55
Peterson, Hon. Collin C., a Representative in Congress from 
  Minnesota, opening statement...................................    54

                               Witnesses

Nelson, Philip, President, Illinois Farm Bureau Federation; Board 
  Member, American Farm Bureau Federation, Seneca, IL............    43
    Prepared statement...........................................    45
Peppler, Kent, President, Rocky Mountain Farmers Union; 
  Treasurer, National Farmers Union, Denver, CO..................    49
    Prepared statement...........................................    51
Bush, Anthony, Chairman, Public Policy Action Team, National Corn 
  Growers Association, Mt. Gilead, OH............................    55
    Prepared statement...........................................    56
Henderson, David L., President, National Barley Growers 
  Association, Cut Bank, MT......................................    60
    Prepared statement...........................................    61
Joslin, Robinson W., President, American Soybean Association, 
  Sidney, OH.....................................................    64
    Prepared statement...........................................    65
Murphy, Gary, Chairman of the Board, U.S. Rice Producers 
  Association, Bernie, MO; on behalf of USA Rice Federation......    76
    Prepared statement...........................................    78
Simonsen, Gerald, Chairman, Board of Directors, National Sorghum 
  Producers, Ruskin, NE..........................................    84
    Prepared statement...........................................    86
Smith, Eddie, Chairman, National Cotton Council; Cotton Producer, 
  Floydada, TX...................................................    89
    Prepared statement...........................................    91
Thompson, James ``Jim'', Chairman, USA Dry Pea & Lentil Council, 
  Farmington, WA.................................................    99
    Prepared statement...........................................   100
Younggren, Erik, Second Vice President, National Association of 
  Wheat Growers, Hallock, MN.....................................   102
    Prepared statement...........................................   104

                          Submitted Questions

Submitted questions..............................................   121


HEARING TO REVIEW U.S. FARM SAFETY NET PROGRAMS IN ADVANCE OF THE 2012 
                               FARM BILL
                              ----------                              


                        THURSDAY, JUNE 17, 2010

                  House of Representatives,
 Subcommittee on General Farm Commodities and Risk 
                                        Management,
                                  Committee on Agriculture,
                                                   Washington, D.C.
    The Subcommittee met, pursuant to call, at 10:03 a.m., in 
Room 1300 of the Longworth House Office Building, Hon. Leonard 
L. Boswell [Chairman of the Subcommittee] presiding.
    Members present: Representatives Boswell, Herseth Sandlin, 
Kissell, Pomeroy, Moran, Conaway, Luetkemeyer, and Rooney.
    Staff present: Aleta Botts, Liz Friedlander, John Konya, 
Clark Ogilvie, James Ryder, Anne Simmons, Rebekah Solem, Pelham 
Straughn, Jamie Mitchell, and Sangina Wright.

OPENING STATEMENT OF HON. LEONARD L. BOSWELL, A REPRESENTATIVE 
                     IN CONGRESS FROM IOWA

    The Chairman. Okay. We would like to call the Subcommittee 
on General Farm Commodities and Risk Management hearing to 
review U.S. farm safety net programs in advance of the 2012 
Farm Bill to come to order. I would like to thank everyone for 
joining us here today as we review the farm safety net programs 
established in the 2008 Farm Bill. I would especially like to 
thank our witness today, Under Secretary Miller, who will 
provide valuable insight into this issue and help us move 
forward in developing the 2012 Farm Bill. I very much look 
forward to hearing your testimony.
    Being from Iowa, a state with over 92,000 farms and over 30 
million acres in production, I understand the challenges that 
farmers and those in the agriculture business are facing today. 
With Iowa ranking number one in the nation in pork, egg, corn 
and soybean production, the farm bill affects a great deal of 
the state. Much of Iowa's economy is directly or indirectly 
tied to agriculture in some fashion, and we are proud of our 
strong tradition of feeding and now fueling the world. That is 
why it is so important for us to construct a bill that will not 
only help Iowa move forward, but the rest of the country, or 
world, for that matter.
    Those of us involved in agriculture are facing 
unprecedented times. In the past 5 years, many have reaped 
record high prices for their products only to have the bottom 
fall out and stay out for years. Input costs continue to rise 
even as commodity prices do not. Now more than ever, an 
adequate safety net is essential to ensure that we have the 
safest, most plentiful and most affordable food supply in the 
world.
    With 90 million people being added to the world population 
each year, we need to find ways to do more on less. We are 
beginning to see the positive effects of farm safety net 
programs that were established in the 2008 Farm Bill. Take, for 
example, the ACRE Program, which established a new revenue 
guarantee for farmers in states that fall short of its revenue-
per-acre mark. Thus far, the program has not reached the 
enrollment we had hoped for. I am interested to find out today 
how many Iowans have enrolled in ACRE, how the USDA plans to 
encourage interest for this program, and what we in Congress 
can do to improve and simplify the program in the next farm 
bill.
    Disaster programs have been essential to our nation's 
farmers. In the last farm bill, Congress established the SURE 
Program to protect crop producers from incurring significant 
losses from natural disasters. Farmers in Iowa have taken 
advantage of this program. Now Iowa stands as one of the major 
recipients of SURE Program funds for the last 2 years. However, 
because the SURE Program is so complicated and is based on so 
many different variables, it has faced many challenges in its 
implementation. I look forward to hearing more on this program 
from Under Secretary Miller and next week from the commodity 
groups.
    A discussion of the farm safety net would be incomplete 
without a mention of crop insurance. Sign-up and buy-up levels 
for crop insurance products are at high levels, demonstrating 
that farmers appreciate having additional options to help them 
manage their risk. However, certain regions and certain crops 
are underrepresented. Looking ahead, we need to see how we can 
make this program work for more producers. Additionally, I have 
to say that pulling funding out of the program makes the task 
much more difficult. Budgets are tight, but tight budgets do 
not mean we must jeopardize the risk management tools that we 
have today, or put in question what improvements we can make in 
the future. We are making great strides to help the American 
farmer, and I look forward to hearing more about these valuable 
programs from our witness today.
    Thank you again, Under Secretary Miller, for your 
leadership in agriculture and for speaking before the 
Committee. Your testimony will be essential to us as we 
continue to move forward with the 2012 Farm Bill.
    At this time I would like to recognize my friend and 
Ranking Member, Mr. Moran.

  OPENING STATEMENT OF HON. JERRY MORAN, A REPRESENTATIVE IN 
                      CONGRESS FROM KANSAS

    Mr. Moran. Mr. Chairman, thank you. Thank you for calling 
this hearing to review farm policy in advance of the next farm 
bill, and I look forward to hearing from Under Secretary Miller 
and his colleagues about the current farm bill implementation 
and any suggestions that the Department of Agriculture may have 
for the new farm bill.
    I do want to express my concern that this Subcommittee, or 
the full Committee, is not having a hearing to review what we 
are told is the final draft of the standard reinsurance 
agreement. According to USDA, it would like to proceed with the 
crop insurance companies to sign this document within 30 days, 
and while I realize that new reinsurance year is almost upon 
us, I am troubled that the Department is rushing to finalize 
the process at a time in which they have advanced some new 
ideas and further extended some of their thoughts in previous 
drafts into this third draft. I am particularly concerned about 
the new method of determining administrative and operating, 
A&O, subsidies, a new and more rigid cap on agent commissions, 
and they have inserted other miscellaneous provisions that have 
never appeared in previous drafts. I had hoped that the House 
Agriculture Committee, or this Subcommittee, would hold a 
hearing so that we could get an update on the specifics of this 
third draft. It does not appear that that is going to happen.
    The Agriculture Committee has sat by quietly, as I think it 
should, and let the negotiations proceed, but I now think it is 
an appropriate time for us to review what they tell us is the 
final draft. I hope that my colleagues on this Committee will 
ask questions and make comments regarding crop insurance and 
the SRA agreement and that the Department of Agriculture will 
take our opinions and comments seriously. So I would again 
encourage my colleagues today to make certain that if you have 
concerns with the presumed final draft of the SRA that those 
concerns are expressed.
    It is my understanding that the companies are being briefed 
on this third draft in Kansas City tomorrow, and we should have 
little fear that we would be prejudicing the process by 
expressing our concerns.
    More related perhaps to the hearing before us, I would be 
interested in hearing from the Department about how this final 
draft will affect the baseline for the next farm bill. We have 
received assurances from the Department that whatever the 
results are that the baseline will be protected, and I can't 
tell from what I have seen in the draft that that is the case.
    So Mr. Chairman, I am happy to be here and participate in 
this hearing. I look forward to the testimony of our witnesses 
and I thank you again for the manner in which you always treat 
me and appreciate the way you conduct this Committee.
    [The prepared statement of Mr. Moran follows:]

 Prepared Statement of Hon. Jerry Moran, a Representative in Congress 
                              from Kansas

    Thank you Mr. Chairman for calling this hearing to continue our 
review of farm policy in advance of the next farm bill. I look forward 
to hearing from Under Secretary Miller about implementation of current 
farm bill programs and any suggestions the Department might have to aid 
us in crafting the next farm bill.
    However, I am concerned that the Subcommittee is not having a 
hearing to review what we are told is the final draft of the Standard 
Reinsurance Agreement (SRA). According to USDA, it would like Approved 
Insurance Providers (AIP's) to sign this document within thirty days--
that means by July 10, 2010. While I realize that the new reinsurance 
year is almost upon us, I am troubled by the Department's rush to 
finalize this process, especially considering some of the new concepts 
and provisions that have been sprung on the companies in this draft. 
For instance, USDA has proposed a new method to determine the 
Administrative and Operating (A&O) subsidy, a new and more rigid cap on 
agent commissions, and inserted other miscellaneous provisions that 
never appeared in prior drafts.
    The House Agriculture Committee has sat quietly, as it should, and 
let USDA and AIP's negotiate this document. Now that it appears we have 
reached a final draft, I think it is important that this Subcommittee 
publicly scrutinize its provisions before AIP's are forced to sign the 
document. Given that no other hearing is scheduled for this purpose, I 
encourage all Members of the Subcommittee to make your opinions heard. 
If you have concerns, now is the time to publicly voice them because 
this process could be over in a few short days.
    Today is an appropriate time to voice concerns because at this 
point no AIP has signed this draft of the SRA. It is my understanding 
that the AIP's are being briefed on the third draft of the SRA in 
Kansas City tomorrow. Given this fact, Members should have little fear 
that voicing their concerns will prejudice any particular company. I 
hope USDA will listen to Member's concerns, and as a result, make 
changes to this final document.
    I also have concerns about the effect this draft of the SRA will 
have on the farm bill baseline. I am concerned that despite assurances 
from Secretary Vilsack, this will do little to preserve the farm safety 
net baseline as determined by the Congressional Budget Office (CBO) and 
leave this Committee with an even more difficult task of writing the 
next farm bill.
    Again, Mr. Chairman, I appreciate you calling this hearing, I look 
forward to Under Secretary Miller's testimony, and a spirited round of 
questions.

    The Chairman. Well, thank you very much. I am going to 
request that other Members according to our policy, if you 
will, submit their opening statements for the record so the 
witness may begin shortly.
    [The prepared statement of Mr. Peterson follows:]

  Prepared Statement of Hon. Collin C. Peterson, a Representative in 
                        Congress from Minnesota

    Good morning and thank you, Mr. Boswell, for holding today's 
hearing of the Subcommittee on General Farm Commodities and Risk 
Management.
    The Agriculture Committee has really started to lay the ground work 
for the 2012 Farm Bill. We've heard from USDA Secretary Vilsack and 
agricultural academics and economists here in Washington. We've heard 
from producers across the country at field hearings in eight states. 
Now, it's time for the Subcommittees to begin to dig deeper and take 
the next step in writing a new farm bill.
    The farm bill's safety net is necessary for our farmers to produce 
a safe, secure and reliable food supply for the United States and the 
world. The farm bill also covers nutrition, conservation, renewable 
energy, rural development and specialty crop programs. Because this is 
such a large piece of legislation, it's important that we take the time 
to get it right. That is why we are here today.
    Considering today's economic reality, we need to decide if the 
existing farm programs are providing adequate protection and look for 
new ways of doing things that will make better use of the money we 
have. We heard a lot at the field hearings about continuing the status 
quo. Unfortunately, with the budget situation we have, I do not think 
that will be possible. I hope these hearings shed light on what program 
structures might work better than the one we have now using the same or 
less money. Too often, we focus on the all-important funding question 
without spending enough time looking at the structure of what we are 
funding. I hope we are starting early enough in this farm bill process 
to change that.
    I want to welcome USDA Under Secretary for Farm and Foreign 
Agricultural Services Jim Miller to the Committee today. I appreciate 
the good relationship and open communication we have with USDA and look 
forward to continuing that relationship as the farm bill process 
proceeds.
    I'm particularly interested in what Mr. Miller has to say regarding 
implementation of the SURE and ACRE programs, both new programs that 
were part of the 2008 Farm Bill. I think the lessons learned from the 
implementation process will help us better proceed with 2012 Farm Bill 
programs.
    I am committed to writing the next farm bill in an open, 
transparent and bipartisan fashion and I look forward to working with 
my colleagues on both sides of the aisle and from all regions of the 
country to ensure that we write a bill that meets our food, fiber, 
conservation, energy and rural development needs.
    For those that are not able to testify at one of our hearings, we 
are collecting feedback on the Agriculture Committee website. I hope 
that everyone will take the time to share their thoughts with us 
online.
    We have a lot of ground to cover so lets get started.

    The Chairman. We have a new Member on the Committee that 
has joined us. Mr. Moran, would you like to introduce him?
    Mr. Moran. Mr. Chairman, thank you very much. I am honored 
to introduce to my colleagues on the Committee, and the folks 
who have joined us for this hearing, our newest Committee 
Member and a new Subcommittee Member, Mr. Rooney from Florida. 
Recognizing that Florida's agriculture is significantly 
different from Kansas or Iowa, I very much appreciate the point 
of view and diversity that Mr. Rooney will bring to our 
Committee, and I would welcome him. I look forward to working 
with him and again appreciate the way this Subcommittee, and, 
generally, our full House Agriculture Committee works together 
to see that we develop quality farm policy for agriculture 
across the country, and I welcome Mr. Rooney to this 
Subcommittee.
    The Chairman. Okay. Well, thank you. We would like to 
welcome our witness to the table, the Hon. James Miller, Under 
Secretary for Farm and Foreign Agriculture Services, U.S. 
Department of Agriculture, Washington, D.C. That is quite a 
title. We are anxious to hear what you have to share with us. 
Please begin.

        STATEMENT OF HON. JAMES W. ``JIM'' MILLER, UNDER
  SECRETARY FOR FARM AND FOREIGN AGRICULTURAL SERVICES, U.S. 
                   DEPARTMENT OF AGRICULTURE;
           ACCOMPANIED BY JONATHAN W. COPPESS, J.D.,
  ADMINISTRATOR, FARM SERVICE AGENCY; AND WILLIAM J. ``BILL'' 
MURPHY, ADMINISTRATOR, RISK MANAGEMENT AGENCY, WASHINGTON, D.C.

    Mr. Miller. Thank you, Chairman Boswell, Ranking Member 
Moran, Members of the Subcommittee. Thank you once again for 
the invitation to appear before this Subcommittee, and for the 
opportunity to discuss the implementation of the farm safety 
net programs of the 2008 Farm Bill.
    Joining me today are Bill Murphy, the Administrator of the 
Risk Management Agency, and Jonathan Coppess, the Administrator 
of the Farm Service Agency.
    The Department of Agriculture has implemented the majority 
of the farm safety net programs authorized under the farm bill 
since its enactment. In addition to the $12.5 billion paid to 
farmers through direct and countercyclical payments and 
marketing loan benefits, we have also disbursed more than $1.1 
billion under the five new permanent disaster programs.
    Also, on June 10th USDA released the final draft of a new 
standard reinsurance agreement to ensure the crop insurance 
program remains accessible, affordable and sustainable.
    Today I will focus on a few of the farm bill's safety net 
programs, USDA's support of the dairy industry and the Federal 
Crop Insurance Program.
    So turning first to the farm bill programs, at Secretary's 
Vilsack's direction when he first took over the position of 
Secretary of Agriculture, he asked USDA to prioritize the 
implementation of the farm bill programs to allow for the most 
rapid distribution of benefits to the largest number of 
producers. The remaining regulations that have yet to be 
implemented are moving through the process relatively quickly, 
and we are close to having the Title I and Title XII programs 
of the 2008 Farm Bill fully available to our stakeholders.
    In terms of the 2008 Farm Bill, the Average Crop Revenue 
Election Program, or ACRE, as the Chairman mentioned, is a new 
program based on revenue risk as opposed to commodity price 
risk. It provides an alternative to traditional farm programs 
and depends on both a state and farm-level trigger. In 2009, 
eight percent of the eligible farms representing about 13 
percent of base acres enrolled in ACRE. For the 2009 crop year, 
we expect about $400 million in ACRE payments to be made, of 
which about \3/4\ will be paid to wheat producers across the 
country.
    The Supplemental Revenue Assistance Program provides 
assistance to producers for losses due to natural disasters. 
SURE is significantly different from previous disaster programs 
in that losses and revenues are calculated based on all of a 
producer's cropland compared to ad hoc disaster programs of the 
past that were made on a crop-by-crop basis. The SURE program 
also encourages producers to purchase crop insurance and 
provides additional protection to producers for quality losses. 
As of June 1st, payments for 2008 crop losses totaled more than 
$800 million including about $284 million in additional 
payments under the Recovery Act. For 2009 crop losses, SURE 
sign-up and payments will occur later this year, and for the 
2010 crop losses, SURE sign-up and payments will occur in 2011.
    In addition to the Crop Disaster Assistance Program, we 
have implemented the Livestock Indemnity Program, Livestock 
Forage Program and Emergency Livestock Assistance Program, 
ELAP. Upon sign-up, both the indemnity program and the forage 
program payments can be delivered relatively quickly to assist 
our livestock producers. FSA has already made about $87 million 
in LIP payments and $258 million in ELAP payments to date. FSA 
is also compiling ELAP applications so the $50 million in 
annual funding can be prorated among the eligible producers. 
Payments for both the 2008 and the 2009 eligible losses will be 
issued later this summer under that program.
    Turning briefly to dairy, since late 2008 USDA has spent or 
committed more than $1.5 billion to aid our struggling dairy 
producers. This includes more than $900 million paid under the 
Milk Income Loss Contract Program and emergency payments 
totaling $290 million provided in the 2010 Agriculture 
Appropriations Act. We have also expedited the $60 million 
cheese purchase authorized under that same legislation. In 
addition, USDA temporarily increased the purchase prices under 
the Dairy Product Price Support Program during the August to 
October 2009 period, and reactivated the Dairy Export Incentive 
Program.
    This spring, Secretary Vilsack established the Dairy 
Industry Advisory Committee to examine the dairy market and 
explore new program ideas and other ways to assist our dairy 
producers. The Committee held its second meeting in Washington 
on June 3rd and 4th, and is continuing its work through the 
coming months.
    In addition to our FSA programs, Federal crop insurance 
administered by the Risk Management Agency is a vital component 
of the farm economic safety net. As I mentioned, on June 10th 
USDA released the final draft of the new standard reinsurance 
agreement and announced $6 billion in savings over 10 years 
from the modifications contained in that agreement. Two-thirds 
of this saving will go toward paying down the Federal deficit, 
and the remaining \1/3\ will support high-priority risk 
management and conservation programs.
    In 2009, the Federal Crop Insurance Program provided about 
$80 billion in protection on over 264 million acres. The Risk 
Management Agency projects indemnity payments to producers for 
their 2009 crop losses will be about $5.1 billion, and we 
expect the level of coverage for 2010's crop year will be about 
$79 billion, or comparable to the level of coverage that we 
have seen in recent years.
    Since the enactment of the Agriculture Risk Protection Act 
of 2000, participation in the Federal Crop Insurance Program 
has grown, and it has become a key component in ensuring the 
ability of many producers to finance their operations. More 
producers are purchasing buy-up policies with lower deductibles 
along with a tremendous increase in the purchase of revenue 
coverage. RMA has been able to accomplish this growth in 
participation and in the implementation of new policy options 
for both traditional and specialty crop farmers in an 
actuarially sound manner.
    Mr. Chairman, let me conclude by stating how proud I am of 
our staff in both the Risk Management Agency and the Farm 
Service Agency. Their hard work and dedication to agriculture 
in our national office, as well as service centers throughout 
the states, truly epitomize the level of service and 
professionalism that represents the best of public service. In 
particular, I want to thank the FSA personnel in our county 
offices throughout the country. As one who has spent many hours 
in my own county FSA office in the past, and now as part of the 
management team of the Farm Service Agency, I can attest to the 
work ethic, the commitment to our producers and the outstanding 
contribution to the successful implementation of these programs 
that have been made by these men and women throughout the 
United States. This has often occurred in the face of some 
pretty significant obstacles, and some of those obstacles, I 
have to admit I need to take full responsibility for. But 
nonetheless, they have done just a tremendous job in 
implementing a very complex and difficult 2008 Farm Bill.
    As we work toward the beginnings of developing 2012 farm 
legislation, I look forward to working with you, Mr. Chairman, 
with Ranking Member Moran and all the Members of your Committee 
in order to find a way that we can strengthen production 
agriculture through the various elements of the farm economic 
safety net, while also working to build a much brighter future 
for all of our rural communities. This is going to be a 
tremendous challenge, but one for which I believe we can be 
well prepared and one that I pledge the support of the agencies 
that I oversee, and on behalf of the Secretary, the support of 
USDA in working in a collaborative fashion to develop the best 
possible 2012 Farm Bill, while recognizing the many challenges 
as well as opportunities that we will have the opportunity to 
discuss over the next weeks and months.
    Thank you once again for the opportunity to appear before 
the Subcommittee today. I and my colleagues will be pleased to 
respond to any questions that you may have. Thank you.
    [The prepared statement of Mr. Miller follows:]

Prepared Statement of Hon. James W. ``Jim'' Miller, Under Secretary for 
Farm and Foreign Agricultural Services, U.S. Department of Agriculture, 
                            Washington, D.C.

    Mr. Chairman, Ranking Member, and Members of the Subcommittee, 
thank you for the opportunity to discuss implementation of the farm 
safety net programs of the Food, Conservation, and Energy Act of 2008 
(2008 Farm Bill). This hearing provides an opportunity to reflect on 
implementation of the 2008 Farm Bill while thinking ahead to the next 
farm bill.
    The Department of Agriculture (USDA) has expedited vital farm 
safety net programs authorized under the farm bill, and has worked 
diligently to ensure proper administration of other non-farm bill 
programs. USDA has disbursed more than $1.1 billion under the five new 
permanent disaster programs authorized by the farm bill; in addition to 
payments under these new 2008 Farm Bill safety net programs, $12.5 
billion has been paid under the Farm Service Agency (FSA) administered 
safety net programs that include direct payments, countercyclical 
payments, and marketing loan benefits (including loan deficiency 
payments, marketing loan gains and certificate exchange gains for crop 
years 2008 and 2009.) Direct payments, countercyclical payments, and 
marketing loan benefits account for 80 percent, 11 percent, and nine 
percent, respectively of payments made under the FSA administered 
safety net programs. To aid the struggling dairy industry, USDA has 
spent or committed more than $1.5 billion since March 2009, including 
$900 million through the Milk Income Loss Contract Program and $290 
million through last fall's Dairy Economic Loss Assistance Program.
    At the same time, the Federal crop insurance program, administered 
by the Risk Management Agency (RMA), is the primary risk management 
program available to our nation's agricultural producers, and a vital 
component of the farm safety net. It provides risk management tools 
that are compatible with international trade commitments, creates 
products and services that are actuarially sound and market driven, 
harnesses the strengths of both the public and private sectors, and 
reflects the diversity of the agricultural sector.
    On June 10, 2010 USDA released the final draft of a new crop 
reinsurance agreement and announced that $6 billion in savings has been 
created through this action. Two-thirds of this savings will go toward 
paying down the Federal deficit, and the remaining \1/3\ will support 
high priority risk management and conservation programs. By containing 
program costs, these changes will also ensure the sustainability of the 
crop insurance program for America's farmers and ranchers for years to 
come.
    In 2009, the Federal crop insurance program provided about $80 
billion in protection on over 264 million acres. Our current projection 
is that indemnity payments to producers for their 2009 crops will be 
about $5.1 billion on a premium volume (producer paid plus subsidy) of 
over $8.9 billion. Our current projection for 2010 shows the value of 
protection will remain relatively steady at about $79 billion. This 
projection is based on USDA's latest estimates of planted acreage and 
expected changes in market prices for the major agricultural crops.
    Today, I will focus on the major new provisions of Title I farm 
bill programs (in particular, ACRE) and the disaster-related provisions 
of Title XII; I will also provide you with an update on the Federal 
Crop Insurance Program. Together, these programs complement existing 
farm support programs, and ultimately form the backbone of the farm 
safety net.
2008 Farm Bill Implementation
    Twenty regulations are associated with Title I and disaster-related 
programs in the 2008 Farm Bill, of which fourteen have been published 
to date. In 2008, for example, regulations were published in the 
Federal Register related to cotton, the Milk Income Loss Contract 
Program, the Direct/Counter-Cyclical Payment Program, the Average Crop 
Revenue Election Program, and payment limitation reform. In 2009, USDA 
published regulations regarding Title I sugar provisions, Marketing 
Assistance Loans and Loan Deficiency Payments, the Livestock Indemnity 
Program, the Emergency Assistance for Livestock, Honeybees, and Farm-
Raised Fish Program, the Livestock Forage Disaster Program, and the 
Supplemental Revenue Assistance Payments Program. In 2010, USDA 
published regulations for the Tree Assistance Program, clarifying 
amendments to a variety of Title I and disaster program rules, and a 
final rule on payment eligibility and limits.
    USDA elected to pursue some of the more complex and difficult 
programs early in the implementation process. Doing so allowed the most 
rapid distribution of assistance, particularly under the disaster 
programs, to the largest number of producers. The remaining regulations 
are moving faster, as they tend to be more narrowly-defined, less-
complicated, and less decision-intensive programs. We anticipate 
publication of the final Title I regulations later this summer. In 
fact, publication of two regulations--one on various dairy provisions 
(including the Dairy Indemnity Payment Program), and one implementing 
the Geographically Disadvantaged Producers program--is expected 
imminently. The Durum Wheat Quality Program and the regulations 
including changes to the Noninsured Crop Disaster Assistance Program 
(NAP) will be published shortly thereafter.
    Much work has gone into including the voices of farmers, ranchers, 
and other constituents in the development of these regulations. In 
addition, economic analyses and environmental impact considerations, as 
well as an assessment of civil rights and business impacts, have been 
thoroughly considered. Through all of this, we are nearing completion 
in the implementation of the 2008 Farm Bill.
    I would like to share with you some of our experiences in crafting 
and implementing these programs, along with some data on the response 
we have seen on these programs in the field.
Average Crop Revenue Election (ACRE) Program
    ACRE is a new program based on revenue risk, as opposed only to 
price risk. It provides an alternative to traditional farm programs and 
depends on both state- and farm-level triggers. Both the state-level 
and farm-level triggers--which are in turn based on historical average 
yields and national average market prices--must be met before a 
producer receives a payment. Because it is an alternative to 
traditional programs, an ACRE participant forgoes countercyclical 
payments and realizes a 20 percent reduction in direct payments and a 
30 percent reduction in marketing assistance loan rates for all 
commodities on the ACRE-enrolled farm. Once a farm is enrolled in ACRE, 
that farm is required to stay enrolled in ACRE throughout the duration 
of the 2008 Farm Bill (through 2012).
    USDA projected in its 2010 President's Budget baseline that about 
25 percent of base acres would enroll in the program in 2009. 
Projections by the Congressional Budget Office (CBO) and the Food and 
Agricultural Policy Research Institute were even more optimistic, at 
about double USDA's forecast. In 2009, the first year of the program, 
eight percent of eligible farms--representing 13 percent of base acres, 
or about 34 million acres--enrolled in ACRE. Preliminary data indicate 
that an additional 1.2 million acres of new base and 4,000 new farms 
(not in the program last year) are enrolled in ACRE in 2010.
    Several reasons likely explain the modest interest in the program 
relative to earlier expectations. ACRE requires producers to do a 
significant amount of ``homework'' to understand how it would work for 
their farms. This was further complicated by operators' having to 
explain to landlords and, at times, bankers, how ACRE payments compared 
to payments under the traditional programs.
    In addition, the ACRE revenue guarantee for several crops dropped 
dramatically between the time the program was passed into law and the 
summer of 2009, when the first ACRE sign-up ended. For corn, soybeans, 
and other crops, prices declined significantly between 2008 and mid-
2009, reducing guarantees and the likelihood of expected ACRE payments. 
For example, during this time, ACRE guarantee levels dropped about $50 
per acre (eight percent) for corn and $23 per acre (six percent) for 
soybeans. According to statute, ACRE participation is locked in for a 
farm throughout the remainder of the 2008 Farm Bill once that farm is 
enrolled in ACRE. Because of market uncertainties and without a clear 
understanding of this new program, most producers hesitated to commit 
their farms to a multi-year ACRE agreement. Basically, producers found 
themselves trading off the certainty of a portion of direct payments 
for an uncertain amount of ACRE pay-outs over a 4 year period.
    Overall, ACRE participation has been strongest for corn, soybeans 
and wheat. In 2009, about 13 million acres of corn base were enrolled, 
with over half that total in Illinois, Iowa, and Nebraska, and about 
7.6 million acres of soybean base (Illinois and Iowa were again top 
states). More than 9 million acres of wheat base were enrolled in ACRE, 
about 13 percent of the total enrolled wheat base (participating either 
in ACRE or the traditional direct/countercyclical programs). For wheat, 
declining prices, combined with strong educational efforts, improved 
ACRE participation for the crop, particularly in Oklahoma (2.5 million 
acres enrolled) and North Dakota (1.6 million acres).
    For the 2009 crop year, we expect about $400 million in ACRE 
payments to be made (based on the May 2010 World Agricultural Supply 
and Demand Estimates report). Wheat accounts for about \3/4\ of the 
total, largely due to the decline in the national average price in 2009 
as well as yield issues in some states. Of the approximately $400 
million in ACRE payments, about $300 million are expected for wheat, 
$65 million for corn, $14 million for barley, $11 million for sunflower 
seed, and small amounts for several other crops. These estimates are 
preliminary because not all 2009 ACRE yields and ACRE prices have been 
finalized; and because they are calculated under the assumption that 
farm triggers will be met. Across all ACRE commodities, participants in 
Oklahoma, Washington, Illinois, South Dakota, Idaho, and Montana are 
expected to receive about 80 percent of total ACRE payments paid on 
2009 crops.
    Next, I would like to turn to other key safety net programs, 
including the Supplemental Revenue Assistance Payments Program (SURE).
Supplemental Revenue Assistance Payments (SURE) Program
    Title XII of the 2008 Farm Bill authorized the SURE program, which 
provides assistance to crop producers for eligible losses in times of 
natural disasters. To be eligible for SURE, producers must have Federal 
crop insurance or NAP coverage and be located in a county included in 
the geographic area covered by a natural disaster declaration issued by 
the Secretary of Agriculture. The Secretarial disaster designation is 
not required if, in a county without a Secretarial disaster 
designation, a farmer can prove a whole farm loss of more than 50 
percent of normal.
    As of June 1, 2010, payments for 2008 crop losses totaled more than 
$800 million (about $516 million under the SURE program, and $284 
million under the Recovery Act supplement to the SURE program). Major 
recipient states include Iowa ($174 million), North Dakota ($98 
million), and Texas ($77 million). The large payments to Iowa in part 
reflect the speed at which payments were processed in that state; other 
states may, in the end, realize higher totals.
    SURE's whole-farm nature and the number of variables used in the 
calculations makes the program quite complex. SURE is significantly 
different from previous disaster programs in that SURE losses and 
revenues are calculated based on all of a producer's cropland, 
including multiple farms combined, compared to ad hoc disaster program 
calculations made on a crop-by-crop basis. As a result of the whole-
farm focus, a county may receive a Secretarial disaster designation, 
but few producers may receive SURE payments.
    For 2009 crop losses, SURE sign up and payments will occur later 
this year in 2010; and for 2010 crop losses, SURE sign up and payments 
will occur in 2011. This lag between the timing of crop loss and 
disaster payment is due to a statutory requirement regarding the 
calculation of actual farm revenue. Farm revenue depends on the 
National Agricultural Statistics Service's season average prices, which 
are usually released 13 months after the start of the crop year. It 
also depends on other revenue data which are not available until well 
after a crop loss occurs, including marketing loan benefits, ACRE 
payments, crop insurance indemnities, and other government payments 
received by the producer.

Other Disaster Programs
    In addition to SURE, the 2008 Farm Bill authorizes disaster 
assistance programs for livestock losses and tree losses. These 
programs include the Livestock Indemnity Program (LIP), which provides 
assistance to producers who lose livestock due to natural disaster; the 
Livestock Forage Disaster Program (LFP), which compensates livestock 
producers for grazing losses due to drought; and the Emergency 
Assistance for Livestock, Honeybees, and Farm-Raised Fish Program 
(ELAP), which provides assistance for qualifying losses not covered by 
other disaster programs.
    For 2008-2010 losses, more than $87 million has been paid out under 
LIP and more than $258 million for LFP as of June 1, 2010. Both LIP and 
LFP payments can be processed and made quickly, and are providing a 
major boost to livestock producers and rural communities alike across 
the United States. Major LIP recipient states include South Dakota and 
North Dakota; the major LFP recipient states are those that have 
suffered significant drought losses such as Texas, Georgia, California, 
and North Dakota.
    FSA is currently compiling applications for both 2008 and 2009 ELAP 
losses. Once total loss assistance is calculated for each year, 
payments may need to be factored, as ELAP funding is limited to $50 
million per calendar year. FSA plans to issue payments for both 2008 
and 2009 losses this summer.
    The Tree Assistance Program (TAP), which provides assistance for 
losses of trees, vines and shrubs due to natural disaster, completes 
the 2008 Farm Bill disaster assistance program portfolio. FSA began 
accepting TAP applications for calendar year 2008, calendar year 2009, 
and calendar year 2010 losses on May 10, 2010.
Dairy
    Since the beginning of the dairy crisis in late 2008, USDA has 
spent or committed more than $1.5 billion to aid dairy producers 
struggling with low prices and high feed costs. USDA has paid dairy 
producers more than $900 million under the Milk Income Loss Contract 
Program (MILC), authorized under the 2008 Farm Bill. Most of these 
payments occurred in calendar year 2009, although a small payment was 
made for April production in early June, 2010, totaling about $15 
million ($0.2115 per cwt on 7 billion pounds of milk). Although the 
2008 Farm Bill kept the same basic structure to as the MILC program 
authorized prior to enactment of the 2008 Farm Bill, it also included a 
``feed cost adjuster,'' which increases the size of the payment 
depending on ration costs. Of the 11 months payments have been 
triggered under the MILC program since February 2009, the feed cost 
adjuster had an impact on the payment in 5 of those months.
    USDA has also expedited emergency non-farm bill action to aid 
producers. In addition to MILC payments, 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. The $290 million was paid in 
near-record time--with payments beginning within 60 days of the bill 
being signed into law. USDA also has expedited the purchase of cheese 
and cheese products authorized under the Agriculture Appropriations 
Act, to assist dairy producers and provide food banks across the 
country with high-protein cheese. Cheese purchases were contracted in 
January and February 2010 with deliveries beginning in March and 
scheduled to go through December 2010. USDA also temporarily increased 
the purchase prices for cheddar blocks, cheddar barrels, 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).
    DEIP has remaining volumes allocated but has not awarded DEIP 
bonuses in recent months because world prices are currently above U.S. 
prices and the U.S. is competitive in world dairy markets. Awarding 
DEIP bonuses at this time runs the risk of displacing commercial 
exports. DEIP remains available and USDA stands ready to award DEIP 
bonuses should the U.S. become uncompetitive in world dairy markets. We 
have also used our full administrative flexibility to make alternative 
loan servicing options available to dairy producers under Farm Service 
Agency loan programs.
    USDA has received numerous requests recently to increase the DPPSP 
purchase prices to the heightened levels of August-October 2009. Doing 
so, however, would have little, if any, impact at current cheese and 
non-fat dry milk price levels. The all-milk price for calendar year 
2010 is projected at $15.95 per cwt. and $16.30 per cwt. for 2011, 
compared to $12.81 in 2009. When USDA took action to increase the 
purchase prices for cheddar cheese and nonfat dry milk last year, the 
July 2009 all-milk price was $11.30 per cwt., compared to $15.00 per 
cwt. in May 2010. We need to be cautious when some producers are 
expanding production based on current prices and given the projections 
for improved prices in 2010 and 2011 relative to 2009.
    Given the complexity of current dairy policy and the search for new 
directions, I am pleased by the progress of the Dairy Industry Advisory 
Committee as they search for policy recommendations regarding ways to 
reduce dairy price volatility and improve profitability. This 
Committee, under the leadership of Dr. Andrew Novakovic of Cornell 
University, is carefully examining several options that would improve 
the safety net for dairy producers. USDA eagerly awaits the 
recommendations and insights of this Committee as we move into the 2012 
Farm Bill debate.

Sugar
    Compared to expectations at the time the 2008 Farm Bill was 
enacted, the sugar market has been far more favorable for sugar beet 
and sugarcane farmers. The sugar market outlook back in 2008 was fairly 
bleak: U.S. sugar surpluses and low prices were expected as supplies 
outran demand due to the expected influx of low-priced Mexican sugar. 
This imbalance was expected to lead to Federal costs under the sugar 
price support program as low prices led to forfeitures of sugar to the 
Commodity Credit Corporation (CCC). The 2008 Farm Bill's Feedstock 
Flexibility Program, was designed to utilize the expected surplus sugar 
for biofuel production.
    However, since the 2008 Farm Bill was developed, domestic sugar 
production has fallen and demand has increased. The domestic market was 
also severely disrupted by the loss of refining capacity due to the 
disaster at the Savannah refinery and the world sugar price spike in 
Fiscal Year (FY) 2010. The U.S. need for sugar grew faster than Mexican 
imports and, as a result, we increased the FY 2010 sugar import tariff-
rate quota this spring.
    Despite the almost doubling of sugar prices since 2008, sugar users 
in the U.S. are increasingly using sugar to replace other sweeteners in 
their products. The sugar market outlook is now much tighter than in 
2008 and USDA does not anticipate the need for the use of the Feedstock 
Flexibility Program in the near term.

The Federal Crop Insurance Program
    Crop insurance is a vital part of the farm safety net. Producers 
purchase crop or livestock insurance from private insurance agents who 
sell the insurance for private insurance companies. All Federal crop 
insurance is delivered to producers through seventeen private insurance 
companies. These companies sell and service crop insurance under a 
standard reinsurance agreement with the Federal Crop Insurance 
Corporation.
    Producers generally have a choice of crop or livestock policies, 
with coverage they can tailor to best fit their risk management needs. 
In many cases, producers can buy insurance coverage for a yield loss, 
or revenue protection to provide coverage for a decline in yield or 
price. Today, most producers ``buy up'' to higher levels of coverage 
ranging up to 85 percent coverage (smaller deductibles), although a low 
level of catastrophic coverage (CAT) is available for a nominal fee. 
Upon incurring a loss, producers notify their insurance company who 
assigns loss adjusters to determine the cause and amount of loss, with 
indemnity payments usually made within 30 days after the producer signs 
the claim form.
    Crop insurance has been quite successful (see Attachment 1), 
particularly for the major row crops in the primary growing areas. 
Participation has been consistently high (see Attachment 2) and has 
become a foundation for the farm banking system. Lenders often accept, 
or even require, crop insurance as collateral for loans.
    The crop insurance program has seen sustained growth as 
demonstrated by the increasing proportion of acres insured at buy up 
levels over the last decade (see Attachment 3). In 2009, 92 percent of 
insured acres for the ten staple crops had buy up coverage, compared to 
just 73 percent in 1999. Not only are buy up levels increasing, but the 
type of coverage being purchased is shifting to the more comprehensive 
revenue coverage (see Attachment 4). In 2009, revenue coverage 
accounted for 57 percent of the insured acres, compared to just 27 
percent in 1999. In addition, the average coverage level (percent of 
the total crop covered) for buy up insurance has increased. In 2009, 
the average coverage level rose to a record-high of 73 percent. In 
1999, the average was 67 percent.
    This growth has been accomplished in an actuarially sound manner. 
Over the last 2 decades, premiums (including premium subsidy) have been 
sufficient to cover the indemnities paid to producers plus a reasonable 
reserve, as directed by the Federal Crop Insurance Act.
    Despite the significant increases in crop insurance participation, 
there is still room for improvement in some areas. One such area is the 
South, especially Arkansas and Mississippi, where a disproportionate 
number of growers either purchase CAT-level coverage or choose not to 
purchase any coverage at all. A market study commissioned by RMA 
indicates that the low participation is due to producers opting to 
reduce their risk through investments in irrigation systems rather than 
through crop insurance. There is also a perception that, given these 
investments, premium rates are too high. To address this, RMA is 
reviewing the rating methodology for irrigated versus non-irrigated 
practices. Based on that analysis, a range of adjustments may be 
considered, including adjustments by practice which may reduce rates 
for irrigated crops.
    Another opportunity for growth in the crop insurance program is 
with specialty crops (see Attachment 5). So far, participation among 
the specialty crops has tended to not be as high as for the major row 
crops. RMA has been making adjustments to existing products and 
developing new ones that are intended to better meet the unique risk 
management needs of specialty crop producers. For example, in 
California, RMA recently redesigned a yield coverage policy for 
avocados; made changes in the grape crop insurance program giving 
producers greater insurance choices; and implemented a new policy, 
Actual Revenue History, for cherries, navel oranges, and strawberries. 
Crop insurance programs currently being developed include one for 
pistachio nuts, the second largest nut crop produced in California.
    One of the most important considerations for the crop insurance 
program is the premium cost for producers. If premium rates are too 
high, producers will not participate in the crop insurance program. If 
premium rates are too low, actuarial performance will deteriorate. RMA 
continually seeks to improve its premium rating methodology and 
maintain actuarial balance. RMA recently commissioned a comprehensive 
review of it rating methodology by a panel of outside experts. The 
review supported RMA's overall approach to generating premium rates 
based on historical loss experience, but also provided a number of 
recommendations for potential improvements that RMA is pursuing. The 
most critical of these recommendations is for RMA to determine if all 
historical losses should be given the same weight in determining 
current premium rates. This could potentially result in lower premium 
rates in several parts of the country, especially the Corn Belt.
    The 2008 Farm Bill provided an alternative for producers and 
private entities to work with RMA to develop insurance coverage for 
crops not traditionally served, or to improve current insurance 
coverage. Producers or producer groups that are not currently eligible 
for coverage or find a currently reinsured plan of insurance unsuitable 
for their needs may develop a plan of insurance tailored to their 
specific crop or region and submit it to the Federal Crop Insurance 
Corporation (FCIC) Board of Directors (Board) for review. Private 
entities are authorized to submit Concept Proposals for plans of 
insurance to the Board for approval of an advance payment of up to half 
of their estimated research and development costs to assist them in 
researching and developing a completed insurance product. Completed 
products receive reimbursement of the balance of their research and 
development costs and up to 4 years of maintenance expenses. To date, 
the FCIC Board has received 16 Concept Proposals and approved eight for 
advance payments totaling approximately $925,000. Recently approved 
plans of insurance provide coverage for apiculture (bees), cottonseed, 
fresh market beans, oysters, and processing pumpkins.
    A central challenge in certain areas involves addressing declining 
yields when a number of consecutive poor crop producing years can 
negatively impact a producers yield history, and thus lead to lower 
insurance guarantees. Considering repeated loss experience, providing 
producers with a reasonable production guarantee at a reasonable cost 
has proven difficult. While the crop insurance program does employ 
various yield adjustments, a significant shortcoming of the current 
yield adjustments is that they are not equitable across producers, as 
they generally rely on the average yield for the county. This makes 
them less effective for the more productive producers with above-
average yields and potentially overly generous for the less-productive 
producers with below-average yields. RMA continues to seek viable and 
effective solutions to this issue working with all interested parties 
to address concerns regarding Actual Production History databases, and 
to assure that any solutions or alternatives provide consistency in 
program delivery, address the needs of policyholders and assure 
actuarial sufficiency in accordance with the Federal Crop Insurance 
Act.
    One pilot program available in North Dakota, the Personal T-Yield 
(PTY) allows for mitigation of the impact of declining yields on an 
insured's insurance guarantee by using the insured's own production 
history average in lieu of the county T-Yield. While holding some 
promise, a contracted assessment on the feasibility of national 
expansion of the PTY pilot program is due in August 2010.
    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. 
Consistent with the 2008 Farm Bill, RMA contracted for research into 
whether or not sufficient data exists upon which RMA could determine a 
price election for organic crops, and if such data exists, to develop a 
pricing methodology using that data. Also included in the contract was 
research into the underwriting, risk and loss experience of organic 
crops as compared with the same crops produced in the same counties 
during the same crop years using nonorganic methods. Three reports have 
been completed from this study.
    The first report outlined research into data that exists today that 
could support price elections for various organic crops. The second 
report outlined a proposed methodology for development of a price 
election for organic cotton, corn and soybeans. The third report 
presented the results of the contractor's comparative analysis of loss 
experience for organic crops and conventional crops that were produced 
in the same counties during the same crop years.
    RMA intends to establish dedicated price elections for organic 
crops where supported by data and sound economic pricing principles. 
The first of these organic price elections may become available for the 
2011 crop year. In addition, 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.
    Another area of continued challenge to the program involves 
providing coverage for quality losses. RMA provides quality adjustment 
for many crops that is based primarily on standards contained in the 
Official United States Standards for Grain, such as test weight, kernel 
damage, etc. Wheat, for example, is eligible for quality adjustment 
when poor quality results in a grade worse than U.S. #4. While insureds 
and the Approved Insurance Providers have been generally supportive of 
RMA's quality adjustment provisions, producers would like to see a 
higher level threshold for when quality adjustment begins. 
Additionally, producers contend that quality adjustment does not always 
reflect what they are personally discounted at the market place. This 
is often heard earlier in the harvest season when the extent of poor 
quality is not fully known and grain buyers tend to have more severe 
discounts.
    USDA is ensuring that $2 billion in savings from the new SRA will 
be used to strengthen successful, targeted risk management and 
conservation programs. The $2 billion investments in farm bill programs 
include: Releasing approved risk management products, such as the 
expansion of the Pasture, Rangeland, and Forage program; Providing a 
performance based discount or refund, which will reduce the cost of 
crop insurance for certain producers; increasing Conservation Reserve 
Program (CRP) acreage to the maximum authorized level; investing in new 
and amended Conservation Reserve Enhancement Program initiatives, and 
invest in CRP monitoring. In the near future, USDA will release 
detailed information describing the investments that will be made using 
savings generated from a restructured SRA.
    One of the challenges for RMA is to assure market conditions, such 
as market timing or over-supply of a commodity that may influence 
discounts is not allowed to occur within the insurance program thus 
inappropriately increasing losses and thereby increasing producer 
premiums. RMA continually strives to provide standard quality discounts 
that apply to all producers nationwide so everyone is treated equitably 
and the crop insurance program does not become subject to market 
influence and abuse. RMA has continued to work with grower associations 
and others to continually improve the effectiveness of its quality 
adjustment provisions.

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. We can strengthen production agriculture, 
while also building and reinforcing the future of rural communities. 
Production agriculture and rural America deserve no less from the next 
farm bill.
    In the coming months, I look forward to bringing the experiences of 
the many farmers, ranchers, and other rural Americans 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 assist, provide technical assistance, and 
help better frame the debate toward the topics and issues 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.

                              Attachment 1

2009 Total Liability All Crops



 Well, thank you, and I appreciate your strong statement. I do believe 
        that you feel the way you said you feel, that you are 
        absolutely committed to production agriculture and all the 
        things that you have just mentioned. One of the things you 
        mentioned of course is the risk management program for the 
        nation's agriculture producers, the Federal Crop Insurance 
        Program, and there is a lot of concern floating around out 
        there. I can understand why you want Mr. Murphy with you, and 
        Mr. Coppess, you are welcome as well to be here with us. But I 
        guess I will just start off a short point. If that is the case, 
        what you just said, do you believe that removing $6 billion 
        from our farmers and ranchers is in the best interest of the 
    primary risk management program? Question number one.Mr. Miller. We 
believe that the contract proposal that we have submitted to the 
companies, which does according to OMB analysis save $6 billion over 10 
years over the current baseline, is an appropriate approach. Through 
these negotiations, the Risk Management Agency has been very open, 
transparent and willing to discuss a number of options with not only 
the companies who are directly involved in the negotiations, but also 
with other stakeholders including agents and producer groups. What we 
have done generally through these negotiations is developed subsequent 
drafts of a proposed contract in a way that we believe reflects the 
discussions that we have had with these stakeholders. The third draft, 
the changes that Mr. Moran identified, which in some ways are 
significant, really are very reflective of the comments that we have 
received from the stakeholders, and the adjustments that we were 
willing and able to make to address concerns that they had expressed 
about previous drafts.
    In terms of the $6 billion in savings, we believe that addressing 
the Federal deficit is a significant priority, not only for the 
Administration, but, certainly, a priority for USDA as well as for 
Congress. Based off of the scores of previous drafts, the Congressional 
Budget Office had already scored a savings in their last baseline of 
about $3.9 billion. The remaining $2 billion we believe can be used to 
protect the baseline by administrative action undertaken by USDA to 
bolster a number of programs, and provide the opportunity then for 
Congress to determine what priorities it would have for spending as it 
develops the 2012 Farm Bill. Basically those priorities fall into two 
categories: one, improvements to the Federal Crop Insurance Program by 
offering additional policies or discounts. One key program development 
that we hope to implement soon is the Pasture, Rangeland and Forage 
Program that is currently a pilot program, and we hope to expand that 
nationally. This can have significant benefits to livestock producers, 
particularly in the Great Plains, where a significant amount of our 
cattle industry resides.
    In addition, we are working on a program to provide a good 
experience discount in terms of the crop insurance premiums that our 
producers pay in the future. This program again will provide for an 
expenditure of a portion of the savings in order to further reduce the 
premiums that those eligible producers will spend. We are working very 
hard to develop the program, and as we begin to make significant 
headway in that process, we are happy to discuss our ideas with the 
Subcommittee to determine how best to implement this, going forward.
    The other key area for expenditure of a portion of the $2 billion 
is to bolster our conservation programs, most notably the Conservation 
Reserve Program, where we hope to have a general sign-up announced for 
later this summer.
    The Chairman. Well, thank you very much. I think we all agree that 
the first report, the $8+ billion figure, then down to what, $6.8 
billion, I guess we are kind of going in the right direction according 
to what we hear from our farmers and ranchers and so on, but there is a 
lot of concern out there, and you know that. I know that you know that 
so I am not playing that down. Do you feel that, as you explained the 
$4 billion and then the $2 billion, do you understand that the CBO will 
maintain that in the baseline? Is that your understanding?
    Mr. Miller. We cannot speak for the Congressional Budget Office. 
However, we do believe, based on prior action that has been taken by 
CBO in scoring this program where they did score savings under the 
prior contract proposals which the Administration had announced but 
were not in effect, that now we are closer to finalizing this 
agreement, we believe that they will look very hard at the numbers that 
we have developed. The numbers have been confirmed by the Office of 
Management and Budget and CBO should also consider the Administration's 
announcement in terms of how we would utilize the $2 billion that we 
are willing to expend to bolster programs, and take that into 
consideration as they do develop their next baseline.
    The Chairman. Well, thank you. As you know, there is quite a 
meeting going on in Kansas City today or tomorrow, so we will all have 
feedback. I am sure we will continue our dialogue at that time, but I 
appreciate the fact that you are giving us the numbers that we need to 
work with, and I thank you for that.
    At this time I would like to recognize Mr. Moran.
    Mr. Moran. Mr. Chairman, thank you. In consideration of Mr. 
Conaway's, the gentleman from Texas, other scheduling items, I yield my 
time to him. Thank you.
    Mr. Conaway. Thank you, Mr. Chairman. I appreciate it. And Ranking 
Member, thank you very much.
    The keen interest in west and north Texas is the wheat crop this 
year. It is an abundant crop. We are coming out of inventories from 
last year that were held over and we are going to have a record crop 
this year. Export levels in 2009, 2010, the lowest in 25 years, 
2010&11, are not expected to be any better. Storage is full, and there 
is no place to move wheat to. Cash prices are the lowest in memory, so 
to speak. These are dire circumstances facing these wheat farmers. 
Export-wise, we have allowed three export free trade agreements with 
Colombia, Panama, South Korea to languish, now 3 years without action 
by this Congress to move that forward. All three of these countries 
would like to buy our wheat, new markets for our wheat producers here 
in Texas. So I basically have two questions. One, Mr. Miller, besides 
the distressed loan program that you have announced on a county-by-
county basis, how do you see this thing playing out? Is there any kind 
of a light at the end of this tunnel that the wheat farmers can look at 
and deal with?
    And then the second piece of that is, from a leadership standpoint, 
where is the sense of urgency out of the President and out of the 
Secretary Vilsack to move these agreements? These are all positive 
agreements that benefit not only ag producers, but manufacturers all 
across the United States. Panama is expanding the Panama Canal and they 
are buying bulldozers and heavy equipment. Caterpillar can't compete 
with international competition because of the tariffs associated with 
that. So where is the leadership? What are you guys doing to push my 
colleagues on both sides of the aisle to move these agreements? So 
those would be the two questions.
    Mr. Miller. Thank you, Mr. Conaway, and let me respond briefly to 
both of the questions that you raised, and then I would like to ask 
Jonathan Coppess to respond specifically to the issue concerning 
programs that might be available for wheat. But we are well aware of 
the dire situation that is affecting wheat producers nationally as 
prices have fallen, sales have not been as robust as we would like 
either domestically or overseas. As you have noted, specifically to 
Texas as well as parts of Oklahoma, the situation where there is 
certainly a surplus of wheat as result of large crops last year, 
another large crop, and now that problem being compounded by wheat that 
is of much lower quality than would typically be expected in the 
region. We note that protein levels for this year's crop are 
unfortunately down significantly, which is also having a significant 
impact on producer returns. We do have some programs that potentially 
are available. You mentioned the emergency program. Jonathan can 
respond to that more directly. But also through crop insurance, as well 
as through the disaster program, assuming that these areas can be 
designated as disaster areas, the SURE program does have a quality 
adjustment provision that allows for a more localized adjustment based 
on the quality discounts that those producers are facing. That is an 
option that we and your producers need to look into.
    In terms of crop insurance, of course that is the primary risk 
management program available to those producers. As I indicated in my 
testimony, we have seen a significant increase in revenue product 
purchases. That could, certainly, provide some help and some help 
fairly quickly to producers that have been impacted by this situation.
    Turning briefly to the three outstanding free trade agreements that 
you mentioned, from an agricultural perspective, we fully understand 
and we support the enactment of those three free trade agreements. 
While there may be some minor agricultural issues to resolve, 
particularly concerning South Korea, generally speaking, we view each 
of those agreements as being very positive for U.S. agriculture and are 
supportive of their ratification. The Administration has indicated 
their support for the agreement, assuming that some of the outstanding 
issues can be satisfactorily resolved, and those issues vary with each 
agreement, but it is not a long list. You raised the key concern, and 
that is, generating the level of bipartisan support within the Congress 
to ensure that Congress will in fact ratify those agreements should 
they be brought forward. That is a strategy call that needs to be made 
between the White House and the Congressional leadership in terms of 
the timing. But we view them as positive for agriculture and we would 
like to see those agreements ratified.
    I should note, however, that particularly in the case of wheat, 
when one looks at a country like South Korea, they are still a very 
significant wheat customer of ours. But let me ask Mr. Coppess if he 
can respond more specifically to the programs available to your wheat 
producers.
    Mr. Coppess. Thank you, Under Secretary Miller.
    Certainly we are very aware of the problems and have been in 
discussions with our local officials, our state executive directors in 
the area in trying to get a good sense of what is going on and how to 
address it. We do have some difficulties with the programs we have in 
place for the protein issue. A couple things that jump out, you 
mentioned the distress loans, which are available for commodities 
stored on the ground, which comes in about--it is about 75 percent of 
the eligible quantity and it matures on demand in 90 days. We also have 
non-recourse loans at 20 percent of the applicable county loan rate 
when you have low-quality commodities. No other discounts are applied. 
But as we look at the marketing assistance loans and others, the posted 
county prices and everything are not calculated on that local market 
price. And, then of course as Under Secretary Miller mentioned, the 
SURE program has potential depending on disaster declarations and the 
ability to use the quality loss adjustment. At this point in time we 
have a limited set of options that we can use, but we are continuing to 
explore what we can do. We will continue to be in conversation with our 
folks on the ground to make sure we are doing everything we can to 
address it within our authorities.
    Mr. Conaway. Thank you, gentlemen.
    Thank you, Mr. Chairman.
    The Chairman. Thank you.
    We would like to recognize the gentleman from Missouri, Mr. 
Luetkemeyer.
    Mr. Luetkemeyer. Thank you, Mr. Chairman.
    Mr. Miller, I just want to go over briefly some of the information 
you gave us with regards to the Average Crop Revenue Election Program. 
You indicate in your testimony that the participation level and number 
of acres is less than you had anticipated originally. I guess in going 
through some of the testimony here, I am not exactly sure what the 
reasons were. Can you give me reasons why and if those situations are 
going to exist in the future, and in the future of the program itself 
from that standpoint?
    Mr. Miller. I think there are a number of reasons that 
participation is below, not only what USDA estimated, but far below 
what the Congressional Budget Office projected when the 2008 Farm Bill 
was passed. One, it is a brand-new program and it is relatively 
complex. It took a fair amount of time for producers to understand what 
the benefits, as well as the risks, are in that program. I think that 
caused a number of producers to decide that they would wait a year and 
see how the program operated before they made a firm decision to 
participate. Also, under the ACRE Program, once you decide to sign up 
and participate in that program, you are obligated then to participate 
through the life of the farm bill, through 2012. You cannot go in and 
out of the ACRE Program. I think again that caused some hesitation on 
the part of producers, not only in terms of how they might view the 
program operating in any 1 year, but recognizing that they would be 
involved in that program for a long time.
    Also, as has already been indicated in the case of wheat but also 
in commodities, particularly the grain commodities generally, we have 
seen declining prices, which has affected the ACRE guarantee, going 
forward. I think that has made it again a decision that producers have 
to individually weigh as to whether they want to enter the program. I 
think there are a number of factors there. We have seen a modest 
increase in ACRE sign-up this year, but, again, it is going to fall 
short of any of the projections that were made at the time the program 
was approved by Congress.
    Mr. Luetkemeyer. One of the things that is of concern to me is the 
fact that as we as a society continue to get more generations removed 
from the farm, we have fewer people understanding the importance of 
agriculture and where we get our food from and the importance of that 
not only to ourselves as individuals but to our economy as a whole. We 
as a Committee here, obviously it is important for us to make sure that 
there is sound policy in place and sound programs in place to protect 
that part of our economy and that way of life. As we look to the 2012 
Farm Bill, it would seem to me that obviously with the budget deficit 
that we have, there is going to be a strain on us to be able to afford 
the programs that we have. Have you undertaken yet, in regard to review 
of these programs, as to which ones we need to consolidate, how much 
increase we need, how much decrease we need? Have you started to take a 
look at where those savings might be, so we can take a proactive 
approach and say, ``Hey, if you are going to continue to support 
agriculture, this is a must-keep program, this one we can probably 
minimize or we can reduce. This one we have to have so we can make sure 
that we can make a good case to sell what we need to sell here to the 
rest of our Congressional colleagues, as well as the support that we 
need through the Administration.''
    Mr. Miller. Congressman, you have laid out very concisely exactly 
the view of the Secretary and USDA as we look at the 2012 Farm Bill. We 
do need to look and analyze each of these programs, and particularly 
the new programs that were created in 2008 to determine how effective 
they are, are there ways to streamline those programs, is there the 
potential that we have overlaps that working together we could resolve 
in a way that not only saves money, but makes the programs more 
efficient, more effective and certainly more understandable and easier 
to deliver. That is exactly a process that we would love to engage in 
with you and other Members of the Committee as we begin to develop the 
framework for the 2012 farm legislation.
    I also think you made a very important observation concerning the 
fact that we are finding more and more the U.S. population being 
further and further removed from the farm, and in some ways from the 
needs of rural America. We have to look at ways that not only do we 
bolster the safety net for our producers and make it more effective for 
crop and livestock producers, but at the same time we need to work 
together to find ways to create even better opportunities in rural 
America. We need to ensure that those that want to live in rural 
America, whether they are farming or just want to raise their families 
there have the opportunities that are necessary to reinvigorate the 
rural communities all around the country, and again, we want to work 
very closely with you in developing that. We have begun to analyze the 
impacts of these programs. That analysis is far from complete, but we 
are certainly happy to share the results of that work when we have it 
available.
    Mr. Luetkemeyer. Thank you.
    Mr. Chairman, I yield back.
    The Chairman. You are welcome.
    Mr. Pomeroy, 5 minutes.
    Mr. Pomeroy. Thank you, Mr. Chairman.
    This is one of the better teams I have seen in many years I have 
been on this Committee relative to really a thoughtful implementation 
of farm policy. I think it is bolstered by the fact that Mr. Miller 
played such a role when he was on Senate staff, in terms of the 
creation of the farm bill. So this can be one instance where there is 
no doubt about what legislative intent was as the Administration tries 
to implement the new farm bill.
    One area that I think that has proceeded very much along the line 
of what we had hoped to achieve is this permanent disaster program. Mr. 
Miller, I would like your assessment in terms of, to date, how this 
thing has worked.
    Mr. Miller. Thank you, Mr. Pomeroy. First of all, let me make just 
a brief comment that I have relayed to your colleague, Senator Conrad, 
that had I known at the time that I was going to be the one in charge 
of implementing these programs, I may very well have given him 
different advice.
    I certainly think the Permanent Crop Disaster Program is a complex 
program and a significant departure from the ad hoc disaster programs 
we have had in the past. I believe Congress intended it certainly to be 
a departure as a way to provide certain amount of guarantee, or 
certainty, to our producers. But it is complex. It does require both 
producers, as well as FSA and RMA, to work very closely together to 
determine how people enroll in the program and what the level of 
benefits are. I think we have seen some shortcomings in the program. 
While it has encouraged the use of the crop insurance program, which is 
a key factor in determining the benefits, we still find areas of the 
country, even though we do have the SURE program in place, that are not 
purchasing an adequate level of coverage. In many cases for some crops 
purchasing either no crop insurance or only the catastrophic level of 
crop insurance and therefore to the extent that they are eligible for 
benefits under SURE, those benefits would generally be viewed as 
minimal or marginal.
    Mr. Pomeroy. Mr. Miller, my notion on crop insurance is people buy 
to the extent they perceive risk and value. If they see substantial 
production risk, they are more inclined to buy it, provided they see 
value for the premium dollar they are paying. Why is crop insurance 
faring less well in some areas of the country, or for some commodities 
produced?
    Mr. Miller. I think you are absolutely right. It is a producer 
decision concerning the risk that they perceive that they are 
undertaking and the value that they are getting for the crop that they 
are insuring, and the SURE program has added to that value. I don't 
think there is any question about that. But I do believe, and we have 
and are engaged in analyzing the impact of these programs in a number 
of areas. Let me mention one commodity specifically, and that is rice, 
where producers there have generally made a decision that they will 
reduce risk by employing new production techniques, irrigation, for 
instance, because their other weather risks are much more limited. That 
means their costs have probably increased as they have made those 
investments. Their productivity has improved, and so they are viewing 
production risk as much lower than we might view it for a typical row 
crop in North Dakota or Kansas.
    Mr. Pomeroy. Right.
    Mr. Miller. And so I think that is an issue that as we look at 
2012, and we look at how each of these programs interrelates with one 
another, we need to consider some of these rather unique cropping 
situations, as well as some of the regional implications of how these 
programs work. I think the ACRE program also is another case where it 
probably has differing benefits, depending upon what region of the 
country you are in and where you are at in terms of prices and 
production when the program was first implemented.
    Mr. Pomeroy. I want there to be regional equity in these programs, 
and it felt like sometimes the upper Midwest did not benefit from 
programs that had fairness across the regions and across commodities. I 
have been very unsympathetic to the ad hoc disaster bill working its 
way through the Congress right now, although I will note that is 
primarily geared to the region that you spoke of, in terms of not being 
well served by the present program either in structure or initial 
operation. I will be very interested in looking at basically is the 
program that these people aren't insuring when they should be insuring 
over the long term, notwithstanding risk, so that they have this kind 
of ultimate disaster protection or do we have a program design flaw. It 
may be just practice with a new program needs to evolve so that they 
have the--they get the fact that there aren't more ad hoc disaster 
bills coming, this is how they prepare for disaster coverage.
    I know my time has run out. I do want to compliment the effort made 
on the SRA renegotiation. I view the success of the dialogue by the 
volume of complaints coming into my office. This has been a vigorous 
undertaking and there are substantial dollars involved, but the 
complaints coming into my office have been minimal, which means I think 
that there has been perceived by all parties to the discussions meaning 
to the dialogue, a substantive discussion, not a deaf ear to industry 
concerns or private partner concerns. I think you have done a good job.
    Thank you. I yield back.
    The Chairman. Well, thank you, Mr. Pomeroy. Are you indicating you 
would like to have some of my calls that are coming in?
    Mr. Pomeroy. This might be one of those regional things, Mr. 
Chairman.
    The Chairman. Okay. Mr. Moran.
    Mr. Moran. Mr. Chairman, thank you. I would not have yielded my 
time to Mr. Conaway had I known that Mr. Pomeroy was going to intervene 
by his arrival.
    Mr. Under Secretary, you have brought the Administrator of the Farm 
Service Agency with you today. I assume that is for purposes of 
answering my question that I asked Mr. Coppess last week, and again, 
can you now tell us when the general sign-up is going to be for the 
expiring CRP acres?
    Mr. Coppess. Thank you, Mr. Moran, and I understand your 
frustration, and we are continuing to push this through. What I can 
announce for you today is that tomorrow, the 18th, yes, tomorrow, we 
will formally publish the EIS for the CRP. That institutes a 30 day no-
action period. That then puts us later in the summer when we finalize 
the regulation and get the general sign-up moving. We are looking at in 
the late summer timeframe, August, mid-August timeframe.
    Mr. Moran. Mr. Miller, Mr. Coppess may recall my question last week 
was whether or not I could assure my farmers, landowners that by July 1 
they would have a date-certain. More important than that is will they 
have a sign-up before July 1, and the answer to that question is 
clearly no, which creates significant problems in the Midwest on the 
high plains, western Kansas and the western United States in which 
those hundreds of thousands of acres that are expiring. My landowners 
have to make a decision now, certainly in the next several weeks, about 
whether or not they are going to remove the cover crop, remove the 
grass and begin cultivation. Based upon what you are telling me, the 
answer is, they can have no certainty that they would be able to get 
their land into CRP before they have to make that decision.
    Mr. Miller. Yes, based on the timeframe that we have for this, 
there will not be a sign-up before July 1st.
    Mr. Moran. Can you extend that date? Can you tell me there will not 
be a sign-up before some other date? What is the minimum amount of time 
that now has to expire?
    Mr. Miller. Once the EIS is formally published tomorrow, we have a 
30 day no-action period in which we cannot do anything. We have taken 
public comment on the EIS. We turn that into the record of decision on 
the environmental impacts, and then we publish the final regulation for 
that program. At that time, we can announce and begin a general sign-
up.
    Mr. Moran. And that minimum time is how many days or months?
    Mr. Miller. Well, 30 days plus giving a few weeks to at least try 
and turn around the rules quickly as we can and the record of decision. 
I don't have any way of telling you, sitting here today, exactly how 
long it is going to take us to finalize the rule, clear it and get it 
through, but we are pushing this as fast as we can and working as hard 
as we can to get this out knowing the significant issues it faces for 
producers on the ground.
    Mr. Moran. I was going to say I treat you with great respect 
because you understand Nebraska agriculture and therefore understand 
the dilemma that we are in, although we are all mad at Nebraska at the 
moment. So I defer my respect.
    I guess what you are telling me is at least 6 weeks from tomorrow 
is a minimum amount of time.
    Mr. Miller. Without guaranteeing any set time, at least 30 days for 
the comments, and given the pace of trying to get things through at 
least a week or 2, maybe more than that, to get it through the system.
    Mr. Moran. I want to go back, Secretary Miller, to the baseline 
issue, and it is important that we talk about CBO baseline, not OMB 
baseline. That is the one that matters to us. Everything that I have 
been able to understand about this topic is that we will get no credit 
in the CBO baseline for the money that is placed into CRP, and no 
credit for the money that is placed into expanding programs related to 
crop insurance. I also think it is an interesting circumstance that you 
have created by shifting money from crop insurance to CRP, a mandatory 
program, that sets a dangerous precedent in which we take money out of 
the safety net dollars to fund mandatory programs. So that was a 
surprise to me. It doesn't make sense to me. And again, I think that 
the baseline is going to be deteriorated as a result of this SRA 
agreement coming to a conclusion.
    It seems to me, and you can correct me, and I am sure you will, but 
I thought we had an understanding, I wouldn't use the word guarantee, 
no one in Washington guarantees anything, that we had an understanding 
that the Administration in their SRA agreement would ensure that the 
CBO baseline was not harmed as we enter discussions on a new farm bill. 
So, my question is, what was the commitment of the Administration with 
regard to the baseline, and can you tell me today that we will not sign 
an SRA agreement until we get full protection of the amount that is 
coming out of crop insurance that it remains in the Agriculture 
Committee's baseline as we develop a new farm bill?
    Mr. Miller. There were several questions there, Congressman, so let 
me see if I can work through it. In terms of the Administration's 
commitment pertaining to the baseline, the Administration had agreed 
that first of all they understood the baseline issue relative to having 
funding available to write the 2012 Farm Bill. They agreed to work with 
Congress in terms of helping identify an appropriate level of baseline 
that could potentially be protected, recognizing that there are 
additional priorities out there for both Congress and the 
Administration and a significant one of those priorities is deficit 
reduction.
    In terms of the CBO numbers generally, as I said, we don't have 
control over CBO, but I fully understand that those are actually the 
numbers that you have to work with. It is my understanding that in the 
spring CBO baseline relative to the SRA negotiations that were 
occurring at the time, CBO had already assumed $3.9 billion in savings 
from the SRA negotiation, which was already, in your view, a loss to 
the baseline. So recovering that whether through administrative action 
or through actions that Congress might take would have been difficult 
anyway. If we didn't come to a conclusion to the SRA negotiations or if 
Congress wanted to intervene, they probably would have their own PAYGO 
problem in recovering the $3.9 billion. So the Administration has 
agreed to provide \1/3\ of the savings to bolster other programs. That 
will be done through administrative effort and those programs will be 
available for Congress to review during the 2012 Farm Bill. That means 
you can determine at that point the priority that you would place on 
the changes that we have implemented administratively, and the 
additional outlays that we have incurred over the next year or 2 as we 
make these changes.
    You do raise an interesting point concerning the treatment of the 
Conservation Reserve Program. At least my reading of the statute, and 
this may have been an unfortunate oversight, is that the statute calls 
for up to 32 million acres rather than explicitly mandating 32 million 
acres. But that isn't the sole source of the problem that we confront 
both in dealing with the Administration PAYGO problems that we face, or 
the ones that Congress faces. Basically we have ended up in a situation 
where even going back to the previous Administration there were efforts 
to make modifications to the CRP program that required offsets, and 
there were a number of tradeoffs that were made in terms of efforts to 
pay for programs. The previous Administration wanted an open access 
initiative applied to CRP, not to be confused with what was included in 
the 2008 Farm Bill. They were required to pay for that. In order to pay 
for it, they modified their assumptions concerning CRP participation 
and that may have been reasonable, given high prices and the fact that 
there was an assumption, I believe, that land would come out of CRP. 
They didn't implement the program, and during the transition OMB 
applied those PAYGO savings to deficit reduction and so we lost it. 
When we then decided to try to find a way to allow for an extension of 
expiring CRP contracts last year, we had to pay for it. We went back 
and made an assumption about future CRP sign-up in order to get the 
money to pay for the extensions last year. So that meant as we start 
looking at an open sign-up, an open or period this year with the goal 
to achieving, to maximizing CRP participation at 32 million acres, we 
are basically stuck with an offset and that offset is somewhere in the 
neighborhood of $300 million, Jonathan? About $300 million of 
administratively required PAYGO offsets. So it is a problem that I 
think both Congress and the Administration face. I don't want to 
diminish it. That is a significant amount of money. But we think it is 
important to get as close as we can to the 32 million acre level on the 
CRP participation.
    Mr. Moran. So the expectation is that the baseline for the new farm 
bill is reduced by the amount of the savings, savings, in the SRA 
agreement, which is now, what, six point----
    Mr. Miller. Six billion dollars.
    Mr. Moran. Six billion dollars. Three point nine was already--$3.8 
billion was already anticipated, and so a further reduction in the 
baseline of the difference between $6 billion and $3.8 billion.
    Mr. Miller. That would be the additional reduction, and then by 
administrative action we are going to increase outlays that we believe 
CBO should reflect in the baseline as well. As I mentioned, we are 
going to be expanding the Pasture, Rangeland and Forage Program to make 
it a national program. That has a significant PAYGO cost as well. We 
are looking at providing additional good performance discounts to 
producers in terms of their crop insurance premiums. This should also 
be scored, we believe, by CBO as an outlay that would serve to increase 
the baseline that you all have to work with, and so we are looking at a 
$4 billion net reduction for deficit reduction and $2 billion that we 
will be expending through administrative action.
    Mr. Moran. I no longer have any standing to critique the gentleman 
from North Dakota for going over his time, but I do hope maybe the 
Chairman will give me the opportunity to ask some additional questions. 
I want to talk some more about crop insurance if we have the time. 
Thank you, Mr. Chairman.
    The Chairman. Ms. Herseth Sandlin, you are recognized for 5 
minutes.
    Ms. Herseth Sandlin. Thank you, Mr. Chairman.
    Thank you to all of our witnesses today. I appreciate working 
closely with all of you to address the needs of South Dakota's 
agricultural producers. As you know, Secretary Vilsack was in South 
Dakota last fall. Administrator Murphy accompanied him. Yes, you were 
both there. That is right. And I apologize for--well, it hasn't stopped 
raining up in northeastern South Dakota, and we have had terrible 
flooding now in the southeastern part of the state. Before I get to 
that, I have an important question both for Mr. Coppess and Mr. Murphy 
based on some discussions that I think have been happening from your 
state and regional counterparts to think creatively getting ready for 
the next farm bill, is perhaps a new program to assist some folks when 
they get caught in these cycles of very wet weather.
    But the first question I would have, Secretary Miller, is, we heard 
at the recent field hearing that the Agriculture Committee had in Sioux 
Falls, South Dakota, was how complex the ACRE program is. I would like 
to hear your thoughts on two areas, both ACRE and SURE, and what do you 
think is working well in ACRE, what is not working well? A common 
complaint I hear is that to enroll if you are a producer renting or 
leasing land, you have to get the landowner's approval to enroll in 
that program. With SURE, I mean, we have some FSA county offices and I 
know it is taking a long time, manually, to get this done, but we have 
significant backlogs for producers waiting for 2008 SURE payments. I 
know with what the Secretary announced this week, with the new MIDAS 
program, which county offices are going to get that first, how are you 
going to sort of target that? Will all of them eventually get it? What 
is the timetable? Because these are delays that are harder and harder 
to justify and people, especially if they are caught in some of these 
areas where they have been declared as a disaster, either Presidential 
disaster declarations or Secretarial disasters, people are really 
struggling, and so we need to prioritize some of these areas. But if 
you could comment there, and then the question for Mr. Murphy and Mr. 
Coppess, to what degree are you two engaged as your state and regional 
folks are in thinking about new programs to get people a transition 
program, especially if prevented planting is meeting some restrictions. 
I think we should push the reset button if there is a declared disaster 
area in terms of how that is administered. Mr. Miller?
    Mr. Miller. Well, thank you for the question, and you raise a very 
important point as we look at the 2012 Farm Bill. The two programs that 
you mentioned were brand new in 2008. Both of them are complex and yet 
substantially different, and yet if you look at them, in some ways they 
are both trying to do the same thing, and that is to provide further 
help to producers in maintaining their income, particularly during 
declining market prices or if significant crop losses occur.
    I think in terms of ACRE, there were two elements that probably did 
the most to discourage participation in the first year. One was just 
understanding how the program worked, and it took some time for USDA 
and yet we did get a lot of help from the land-grant universities, from 
the extension service and from a number of farm organizations in 
getting the word out and developing some templates that farmers could 
use to pencil in their options and make a comparison between ACRE 
participation versus participating in the traditional program. But, 
just the complexity of it certainly depressed participation, and now 
with the change in market price across a lot of commodities, I think 
that is further depressing participation. But there is no doubt it was 
complex, it was something new, and then you put the SURE program in on 
top of that, we may have created a certain amount of overload for 
producers in trying to understand the 2008 Farm Bill. But the SURE 
program in its own way is complex because of its attempt to link 
disaster payments to the other risk management functions in both crop 
insurance, as well as our countercyclical and marketing loan programs. 
The SURE program also required that we use an average annual price 
which meant that payments were going to be delayed by at least a year 
as we collected the data to calculate what a producer actually received 
for their production.
    I think there are a number of elements that Congress could consider 
but we have to remember, almost every one of those will come at some 
sort of budgetary cost as we look at the 2012 Farm Bill. There may very 
well be a way to consolidate some of these programs and gain, not only 
some efficiencies, but maybe some improvements for the producer in 
their operation. We are certainly happy to work with you in an effort 
to complete an analysis of where we are at, and also to take a look at 
what the results might be if we looked at some consolidations and some 
simplification. And I am sure those that implement these programs at 
the county level as well as our producers, if we could find a way to 
simplify these programs, would be ecstatic.
    Jonathan, do you want to respond to the Congresswoman's other 
question?
    Mr. Coppess. Sure. Thank you, and just quickly, from what we 
discussed last fall, and I recall we weren't able to get up in the 
airplane to see anything because of the rains. You know, one of the 
things we are finding both with kind of wrapping all three of these 
together, ACRE, SURE and how we deal with some of the specific issues 
in South Dakota, is the incredible experience that we are getting now 
as we run through these and the importance of continuing the 
discussions with our field offices, understanding what the farmers are 
dealing with, what the problems are and how we then take that back in 
and analyze these programs and work with you all in providing that 
advice back up. I think our best bet right now is to get as many ideas 
out of the field as we can, get as much understanding out of the field 
on these programs as we can, and then look at the ways that we can 
adjust on that.
    Just one quick point on MIDAS you asked about. It is an important 
effort, an important investment we are making in our capabilities at 
the field level both on the computer side and to clean up some of the 
business processes, forms and issues that we have. We need to take some 
of this complexity of just how we operate all programs as well as 
providing the IT infrastructure and that system there to, if the 
program is complex not make it so complex at the countertop. There is a 
whole lot of that that we want to work in and that we expect to have 
made significant progress on MIDAS by the time we get the new farm bill 
through, and again hopefully that will help us as we are able to 
combine a lot of that learning into the next round.
    Mr. Murphy. From a crop insurance standpoint, I think your growers 
up there will be covered this year with prevented planting as long as 
they maintained insurance. We recognize that 2 to 3 years you can have 
an insurable cause of loss. The coverage continues on with it. As long 
as the producer maintains his insurance coverage, he will be okay. We 
have been having some other problems up there, and that is more of 
availability of acreage for planting. That is a requirement for 
prevented planting. When we go out there and we see trees on some of 
this land, you have to wonder when was the last time it was planted. 
That is sort of the extreme we have been dealing with in other parts of 
that area. But just a grower who farms year in and year out, there 
shouldn't be a problem currently.
    Now, as far as for the thoughts on perhaps a new farm bill, with 
the experience that we have, the growers have with our programs, that 
companies have with our programs, I think we would all be very willing 
to discuss potential improvements there.
    Mr. Miller. Could I make just one additional comment related to one 
point that you mentioned? Part of the complexity of SURE and some of 
the delay, not just in identifying the components and how we would 
implement those components, really is a result of the lack of computer 
technology and the ability to come up with a more simplified process. 
We made the decision, and this is one of the obstacles I take 
responsibility for creating in our county offices, but we made the 
decision that it was more important to get SURE payments available to 
producers even if we had to go through what we consider to be a manual 
calculation. That is still an electronic calculation but with a 
different program. And then turn around once we had the programming 
completed make whatever final adjustments might be necessary, rather 
than to delay the implementation of the program waiting for our systems 
to catch up with us. But that did create a significant load that still 
exists in our county offices, something that is creating some backlog. 
But, the other choice I viewed as just totally unacceptable and that is 
to just sit around and wait. It was more important to get as much money 
as we could delivered to those who needed it and who were eligible for 
payments, and that was the decision we made. I wish it would have been 
more efficient than it was, but, unfortunately, we just didn't have 
that capability.
    The Chairman. Thank you.
    Mr. Moran.
    Mr. Moran. Mr. Chairman, thank you. I join Mr. Miller in his 
comments particularly with Mr. Coppess here about commending our county 
FSA offices in the implementation process. We create tremendous 
challenges, and their ability to respond is very much appreciated.
    I would like to spend a little bit of time on the SRA agreement, 
and what I always try to focus on is what does this mean to the 
availability of crop insurance for farmers, particularly in states like 
mine where the risks are high, weather is not often our friend. There 
is a very unusual, an unusual provision if you want to explain to me 
about the future lawsuits in which if the company is successful in 
their efforts to get money from RMA, they have to pay it back to RMA, 
which I guess diminishes the likelihood that any company is going to 
sue you over the agreement. But beyond that in broader perspective, in 
the first draft we started out with no restrictions on agent 
commissions. In the second draft, the RMA introduced an 80 percent cap 
in direct agent commissions and allowed unlimited profit sharing. And 
now in this draft, perhaps the final draft, you have kept the 80 
percent cap on direct commissions, and then also capped total profit 
sharing and direct commissions at 100 percent of A&O. I think this is a 
move in the wrong direction and this provision should be removed from 
the SRA. In part, it is philosophical. Why is that not a decision 
between companies and their agents? Why is the Federal Government, why 
is RMA intruding into this issue? I don't know how you are going to 
enforce it. I think you are adding a tremendous amount of bureaucracy, 
and this is just a mess, but just broadly I don't understand why this 
is an issue for RMA. This is an issue for crop insurance companies to 
negotiate with their agents, and if you have picked the wrong numbers 
and placed a cap, then it affects the farmer and the rancher. What we 
compete for, what my farmers have in making a decision about who their 
agent is, is who provides the best service. And it seems to me you are 
headed in a direction in which you are reducing the opportunity for 
that competition of who provides the best service to our farmers and 
ranchers.
    And I am surprised by those who say there has been no complaints 
about these issues. My guess is because the agreement was just 
finalized last Friday, and the discussion will occur in Kansas City 
tomorrow. But I just see we are dictating how a business should be run, 
and again, we have enough problems without engaging in that process. 
Mr. Miller?
    Mr. Miller. Well, let me make a couple of comments and then ask Mr. 
Murphy to respond as well. First of all, Congressman, if this were 
purely a private insurance program, I probably would agree with you 
that the government shouldn't be limiting it, but it is not. This is a 
partnership between the Federal Government, the companies and then 
indirectly the agents and the producers that participate in the 
program. We have a responsibility to ensure, as best we can, that the 
companies that participate in this program are financially sound and 
capable of living up to their responsibilities. One of the things that 
we have seen in the past has been the increased liability to the agents 
that companies have undertaken by bidding up commissions, putting their 
financial status in question. In one case a company went bankrupt, 
which put the burden of resolving that issue back on the American 
taxpayer and also on the State of Nebraska. So this is a way, we 
believe, to control what has been an explosion in agent commissions 
based on market price movements, still allow commissions to be at a 
reasonable level through profit sharing, but help ensure also that in 
that competition for agents which is manifest in some parts of the 
country and less so in others that we do have some controls to ensure 
that the companies are able to sustain themselves.
    Mr. Moran. Mr. Miller, before you go to Mr. Murphy, is that not 
taken care of when you change the A&O? When you create a cap on A&O, 
you are going to force companies to make decisions about how to spend 
their money vis-a&2-vis their agents. It just seems to me it is an 
unnecessary step when you address the issue of A&O.
    Mr. Miller. Well, what we have seen with A&O in the past is that 
companies will bid up commissions in some parts of the country, and 
actually shift their underwriting gains and their A&O 
disproportionately to end up with commission rates in some parts of the 
country that are significantly higher than they are in other parts of 
the country. So, just looking at A&O broadly we don't believe 
adequately addresses that problem. Bill, do you want to respond 
further?
    Mr. Murphy. Yes, just to support the Under Secretary's statement 
from a global sort of big picture standpoint. If this was a private 
market, this would be addressed in a number of ways. One of them is 
product design. That will put pressure on commissions. Product pricing 
would put pressure on commissions and bring them into really what the 
market would bear. But since we control the product, we control the 
price. The way competition has become manifest in this program is 
through agent commissions. We are at about 85 percent participation. 
Growers have very high levels. If I am company A and I want to expand 
my market share, basically what I am limited to is increasing 
commissions. Now, within just this last year and certainly in the key 
farm states, I have had agents tell me they have been offered 
commission rates of 30 percent. When we are only giving 18 percent A&O, 
I mean, how do you make that work? The companies continually tell us 
their expenses are four, five percent above what we are giving in A&O. 
If we run into a situation like 2002 again where the companies are 
basically relying on underwriting gains to meet these commitments of 
commissions, we very well could have another failure. You don't have to 
have a bad year. Two thousand and two was not that bad of a year. In 
fact, the company that did default was the only company that year that 
had an underwriting gain. So unfortunately, I understand your angst and 
that of the agents but----
    Mr. Moran. Let me ask this question, which is--I am not sure it is 
a good question to ask, but are you suggesting the kind of underlying 
thought here is that the companies want the SRA, RMA to protect them 
from themselves?
    Mr. Murphy. I don't know if they want us to protect them. I feel 
that we need to do something. If we have another failure in today's 
environment and the dollars we are talking about, I am sure I would be 
called up before this Committee and asked to explain why if I knew a 
potential problem existed, why didn't I react.
    Mr. Moran. Was the failure of the company that you are talking 
about, was it related to agent commissions?
    Mr. Murphy. Yes.
    Mr. Moran. Can you attribute that to--okay.
    Mr. Murphy. Yes, very definitely so. They were relying on a 10 to 
15 percent underwriting gain to meet their commission commitments.
    Mr. Moran. You smiled when I asked about the lawsuit issue. Is 
there something to that that----
    Mr. Murphy. Basically what that is around, there has been some 
threats from different areas in the program that they will take us to 
court over this. We have been to court with the companies on several 
other provisions of the program. In order to ensure that the savings 
are maintained, basically what that provision says that if you overturn 
the new financial aspects of the agreement, we will utilize net book 
quota share to recoup them. Now, you are correct, this is the first 
time the companies have seen this. We are meeting with them tomorrow. 
Our attorneys are meeting next week and we will go through some of 
these concerns, and perhaps we have to state it differently. I am not 
too sure. But that is basically what that provision was for.
    And if I could just expand a little bit on the hard cap, the 
company's financial stability really has more to do with the soft cap. 
The hard cap came about as more of an equity issue. As you know, some 
of the companies in our program, nationwide, are heavily involved in 
the Midwest. That is where the profits have traditionally been made. 
Other companies in other parts of the country don't write at all in the 
Midwest or very little. They thought with the idea of the 80 percent 
soft cap and then being able to share commissions or profits freely 
that they would be at a disadvantage, and they would be forced to move 
into the Midwest purely to get more underwriting gain so that they 
could promise additional funds to their agents. They thought their 
agents would be picked off by other companies. Another one is the 
agents themselves. The way the companies are paying these high 
commissions in certain parts of the country is, they are basically 
taking the A&O from other parts of the country. Agents in Texas, I am 
sure the commissions are around ten percent versus perhaps 20 percent, 
18 to 20 percent, in the Midwest. They are doing the same amount of 
work. Why is one being compensated half of the other? I think that is a 
legitimate concern for the agents. Again, it is because of the 
distorted market we have created, unfortunately, in this partnership.
    I think it also comes to be a barrier for entry into the program 
for new companies. I know this has been an issue with Members here. It 
has been an issue with the companies and agents as well. If you have 
the super high commission schedules, it makes it difficult for a 
company to come in, perhaps with a better way, or an approved way to 
market it, perhaps through some quoting software if they have to match 
immediately high commissions.
    I think it wasn't just one thing, it was actually a number of 
things we were trying to address in it.
    Mr. Moran. I lean forward to look at my next question. The Chairman 
leaned forward to grab ahold of his microphone, so I appreciate the 
Chairman's indulgence, and I thank the witnesses for their testimony.
    The Chairman. I thank you very much for your testimony today and I 
believe we will ask that we can have questions for the record, and we 
will bring this to a close.
    It goes without saying, we are interested in what happens tomorrow 
so we will continue to have dialogue. I think you have been forthright. 
We appreciate it, and we will do our best to see if we can't work our 
way through this. Nobody said it was going to be easy, and so we 
understand that.
    So therefore, under the rules of the Committee, the record of 
today's hearing will remain open for 10 calendar days to receive 
additional material and supplemental written responses from the witness 
to any questions posed by a Member.
    The hearing of the Subcommittee on General Farm Commodities and 
Risk Management is adjourned, and thank you very much.
    Mr. Miller. Thank you, Mr. Chairman. Mr. Moran, thank you.
    [Whereupon, at 11:20 a.m., the Subcommittee was adjourned.]
    [Material submitted for inclusion in the record follows:]

                          Submitted Questions

Questions Submitted by Hon. Leonard L. Boswell, a Representative in 
        Congress from Iowa

Response from Hon. James W. ``Jim'' Miller, Under Secretary for Farm 
        and Foreign Agricultural Services, U.S. Department of 
        Agriculture
    Question 1. I have heard much from folks in Iowa regarding SURE. 
One recent issue that I am hearing is that producers who have GRIP 
plans are not receiving SURE payments because USDA has decided to lower 
the 150% multiplier used by RMA to 100% for the SURE payment 
calculation. Can you elaborate why USDA has decided to do this? What 
would have been the impact in a state like Iowa?
    Answer. The Group Risk Policy (GRP) and the Group Risk Income 
Protection Policy (GRIP) is based on a county average yield, not the 
producer's individual farming operation. Unlike GRP/GRIP, the SURE 
guarantee is based on the individual producers' actual production 
history (APH) rather than a county average yield. For crop insurance 
purposes, the GRP/GRIP liabilities are established by taking an 
expected county yield times a price election times 150 percent 
(multiplier) to derive a maximum protection per acre. The multiplier 
serves two purposes: (1) to account for the decreased variability of 
county-average yields as compared to individual farmer or producer 
yields; and (2) to allow growers with above average yields to purchase 
a higher level of coverage. Under GRP/GRIP covered producers qualify 
for an indemnity if the county yield/revenue trigger is met regardless 
of whether the individual producer suffered a loss.
    The statutory language for SURE instructs Farm Service Agency (FSA) 
to calculate the SURE guarantee by considering those elements that a 
producer elects and is guaranteed by RMA. For example, the payment rate 
that is equal to the price election for the commodity, the payment 
acres, and the payment yield for the commodity equal to the percentage 
of the crop insurance yield elected by the producer.
    The 150 percent multiplier is not part of what Risk Management 
Agency (RMA) guarantees under these types of policies. For GRP, the 
insurance yield guarantee recognized by RMA is based on the expected 
county yield and coverage level elected by the producer. For GRIP, the 
insurance guarantee recognized by RMA is based on the expected county 
yield multiplied by the RMA established price (defined as county 
revenue) and coverage level elected by the producer. Only if there is a 
decrease in the county expected yield (GRP) or county expected revenue 
(GRIP) would the insured be eligible for an indemnity.
    Under a GRP or GRIP policy, the 150 percent multiplier is not 
elected by the producer. In summary, the 150 percent multiplier is not 
used in triggering the loss, it is not elected by the producer, and the 
multiplier is used in a group risk product upon which risk is minimized 
based on the fact that a group loss must be suffered before an 
individual becomes eligible for an indemnity. Only if an indemnity is 
triggered will the grower be able to take advantage of using the 
multiplier in calculating the indemnity. In comparison, under an APH or 
Crop Revenue Coverage (CRC) product a producer must elect all aspects 
of the guarantee, and loss is based on an individual loss.

    Question 2. While USDA was deliberating how to move forward from 
the proposed rule that the Bush Administration published and the 
changes that the previous Administration made to the actively-engaged 
rules, there were a lot of concerns that arose about the various 
structures that farm families had set up to deal with tax and estate 
planning issues.

   Are there still some issues you feel like you haven't 
        addressed? Such as the use of trusts or LLCs for land or 
        equipment ownership?

   How did USDA end up treating folks who are utilizing this 
        type of structure?

    Answer. A change was made in response to the 2008 Farm Bill payment 
limit provisions for revocable trusts. A revocable trust and the 
grantor are considered the same for payment eligibility and payment 
limitation purposes. When land is titled in the name of a revocable 
trust, the landowner exemption can now be extended to the grantor of 
the trust for actively engaged in farming determinations. All payments 
earned by a revocable trust are attributed to the grantor. Before under 
the ``person'' rules, the grantor and the revocable trust were combined 
as one ``person'' for payment limitation purposes. However, the land 
owner exemption only applied to the trust, and not the grantor.
    With direct attribution and the repeal of the permitted entity 
rules, payments are limited annually per individual and legal entity 
regardless of how the business is organized because the payments 
received directly and indirectly through other legal entities count 
toward the payment limit. While the agri-business trend reflects 
increased use of trusts, LLC's and legal entities for liability 
protection, tax and estate planning purposes, and such entities are the 
program participants rather than the individuals who make up the 
entities, the current regulations do not hinder or penalize anyone in 
regard to the receipt of program payments for choosing whatever 
business structure is best suited for their farming or ranching 
operation.

    Question 3. There are numerous producers in South Dakota who are 
seeking wetland determinations and are simply waiting for certification 
from USDA Natural Resources Conservation Service (NRCS). Unfortunately, 
NRCS needs more assistance in certifying wetland determinations since 
only Conservation Technical Assistance Accounts can be used to certify 
wetlands. As it stands, South Dakota's Conservation Technical 
Assistance Accounts is used to provide planning before wetland 
determinations in addition to the salaries for over half of NRCS 
employees in the state. For this reason, there is not enough funds in 
the Conservation Technical Assistance Accounts to allow states like 
South Dakota the proper ability to address wetland determinations. In 
the eastern part of South Dakota alone, there are over 2,000 
determinations waiting for certification:

   What plans does USDA have to allow more technical assistance 
        for NRCS to determine wetlands?

   Would it be possible to allow more flexibility with funds 
        allocated to NRCS so they are able to assess these 2,000 
        determinations with funds other than just Conservation 
        Technical Assistance Accounts?

   Would it be possible to allow a special increase in 
        Conservation Technical Assistance Accounts for states like 
        South Dakota, North Dakota, Minnesota, etc., who have this 
        lingering problem?

    Answer. South Dakota currently has 1,980 pending producer requests 
for certified wetland determinations (CWD). Each CWD takes NRCS 
technical specialists an average of 2.5 days to complete. In addition, 
extreme wet weather in north and east South Dakota could increase the 
current backlog of CWD determination requests.
    South Dakota NRCS has taken actions to streamline the CWD 
determination process in order to help address the backlog. The process 
has been changed so staff will no longer automatically go out and stake 
the set back distances for wetlands in the field. NRCS will provide the 
distances on a map to the producer which he/she can use with their tile 
contractor. We will also provide producers with a GIS shape file of the 
wetland if they have the equipment and the capability to use GPS 
coordinates. This will free up time to allow staff to concentrate on 
doing more determinations.
    Both South and North Dakota NRCS are in the process of revising 
their wetland mapping conventions to allow for determinations to be 
made in the office instead of going out to the field when certain 
parameters are met. We are estimating that approximately 30 percent of 
the determinations we have to do will meet these parameters. This will 
also free up more time for the field to do more determinations.
    Additional resources, like Strategic Watershed Assessment Teams 
(SWAT) in the President's FY 2011 budget, may allow NRCS to exercise 
additional flexibility for addressing needs in critical areas.

    Question 4. It's my understanding that FSA has been meeting with 
both FSA county office staff and producers around the country about how 
things are working out in the field. Any feedback that you're able to 
share with us?
    Answer. Since March 2010, the Farm Service Agency and USDA's Office 
of the Chief Information Officer have organized listening sessions 
around the country to discuss FSA operations--and, more specifically, 
IT Modernization--with staff and producers. These listening sessions 
have been held in North Carolina, Virginia, Wisconsin, Illinois, Iowa, 
Texas, New Mexico, Minnesota, and Montana. They have been hosted by FSA 
Administrator Jonathan Coppess, USDA CIO Chris Smith, and senior staff 
from FSA and USDA.
    We continue to hear about the need for modernization of IT systems 
and business processes in the field offices, both from our staff and 
the farmers they serve. Field staff are currently administering FSA 
programs with antiquated IT and computer systems, many of which are not 
yet web-based. This extends the time it takes to serve a farmer in the 
office, leads to longer waiting periods for office appointments and 
sometimes multiple trips to the FSA office.
    The listening sessions have been a productive opportunity to 
outline for our staff and for producers the changes we anticipate as 
part of FSA's modernization plans. These include the Modernize and 
Innovate the Delivery of Agriculture Systems (MIDAS) projects, which 
will improve hardware and business processes for Farm Programs; the 
Financial Management Modernization Initiative (FMMI) and the Budget and 
Performance Management System (BPMS), which aim to improve our 
financial management systems and better enable FSA to conduct budget 
assessments; and the Web-Based Supply Chain Management (WBSCM) 
initiative to better enable commodity handling, bidding, and other 
aspects of FSA's commodity operations responsibility.
    Open and productive communication continues to be a priority for 
FSA, and we look forward to continuing our dialogue with staff, 
producers and Congress as these important initiatives to modernize FSA 
move forward.

    Question 5. You mentioned the higher levels of sign-up for ACRE 
from wheat producers. How much of that is attributable to the dates 
associated with the program sign-up and the availability of market 
information around those dates?
    Answer. It is difficult to quantify the impact of the change in 
signup dates on ACRE participation. Despite the fact that ACRE 
participation was higher for wheat than for other commodities, the 
majority of producers with wheat base chose to participate in the 
Direct and Counter-cyclical Program (DCP) rather than enroll in ACRE. 
Nine million acres of wheat base enrolled in ACRE compared with 63 
million acres of wheat base enrolled in the DCP. Producers had to not 
only consider potential ACRE payments for program years 2009 through 
2012, but also the trade-offs of a 20 percent reduction in direct 
payments, a 30 percent reduction in loan rates, and a loss of 
countercyclical payments for all program crops. A producer's decision 
regarding whether to elect ACRE for a farm must also consider the 
likelihood that both the state- and farm-level trigger will be met.

    Question 6. Sign-up generally for the ACRE program was considerably 
lower than anticipated. To what do you attribute that response? You 
have indicated there are regional disparities in the signup, 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. In regard to ACRE participation, forty states do have farms 
participating in the program to date and enrollment increased from 
131,427 farms in 2009 to 134,683 farms in 2010. We have worked with 
regional and grass roots farm organizations to assist in the 
educational aspects of the ACRE program, and utilized radio and public 
meetings at the state and local levels to inform producers about the 
ACRE program and to ensure a consistent message is provided to all 
producers. As explained earlier, several factors, many of which are 
unknown at the time of sign-up, such as farm commodity prices and state 
and farm crop yields for all program crops grown on the farm through 
2012, influence a producer's decision to participate in ACRE. The 
disparity in signup across program crops and states likely reflects the 
considerable uncertainty of receiving an ACRE payment in the future and 
the loss in program benefits incurred by a producer that enrolls in 
ACRE and may not reflect differences in county FSA offices generating 
interest in the program.

    Question 7. 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. Yes. To some extent. SURE payments for 2008 crops total 
nearly $1 billion as of July 2, including $350 million under the 
Recovery Act, and 2008 SURE sign-up remains open. Attached to this 
document are two maps; one shows counties which received a Secretarial 
disaster designation in 2008, and the other shows the distribution thus 
far of 2008 SURE payments, including both ``usual'' payments under SURE 
as well as ``additional'' payments under the Recovery Act.
    There are some limitations, however. SURE is a revenue-based 
program. The statute requires that SURE eligibility be determined on a 
whole farm basis. All of an applicant's farming operations and crops, 
even though they may spread across state and county lines, are 
considered as one farm for SURE eligibility. This is different from 
past ad hoc disaster programs in which payments were based on losses 
for an individual crop grown on a particular farm. Consequently, in 
areas such as the Southeast where rice is grown, a normal or above-
normal rice yield may provide enough revenue to eliminate SURE payments 
even if other crops on the producers' farm suffered a loss.

    Question 8. Please explain how the ``crop of economic 
significance'' provision works? It's my understanding that some 
producers are finding themselves not being eligible for payments under 
SURE because they may have a small patch of alfalfa on their 
operations.
    Answer. A crop of economic significance means any crop that 
contributed or is expected to contribute five percent or more of the 
total expected revenue of all crops grown by the producer on that 
producer's farm. If the crop is not considered of economic 
significance, then the risk management purchase requirement for that 
crop is not applicable as a condition for SURE eligibility. To qualify 
for the SURE program payments, a producer must have one crop of 
economic significance that suffered a 10 percent loss and be located in 
a county included in the geographic area covered by a qualifying 
natural disaster declaration or sustain a loss of 50 percent of normal 
production. The SURE payment is equal to 60 percent of the difference 
between the disaster assistance guarantee and the total farm revenue, 
which by statute equals the value of crops produced plus 15 percent of 
direct payments, countercyclical payments, loan deficiency payments, 
marketing loan gains, marketing certificate gains, prevented planting 
payments, crop insurance indemnities, noninsured crop assistance 
payments and the any other natural disaster payments. Thus, as the 2008 
Farm Bill provides, losses sustained on some crops could be offset by 
payments or revenues on other crops reducing a producer's SURE 
payments.

    Question 9. You mentioned that the crop insurance program provides 
risk management tools that are compatible with international trade 
commitments. However, our commodity support programs are compatible 
with our commitments provided they come under the caps that we 
committed to as part of the Uruguay Round and other trade agreements 
currently in place. What do you mean by the statement specific to crop 
insurance?
    Answer. The United States notifies crop insurance to the WTO as 
amber box, i.e., trade-distorting support that is non-product-specific. 
Although under its WTO obligations U.S. amber box support is limited 
($19.1 billion annual ceiling), to date non-product-specific amber box 
support has not been counted against that limit as it has been below 
the de minimis level of five percent of the value of U.S. agricultural 
production. If non-product-specific support were to exceed five percent 
of the value of U.S. agricultural production in any year, then it would 
be counted against our amber box ceiling for that year, which could 
then mean in such year we might exceed the annual ceiling, depending 
also on the total amount of product-specific support provided in the 
same year.

    Question 10. You mentioned in your testimony that the Marketing 
Assistance Loan Program accounts for 9% of the payments going out under 
the title I safety net. Can you share with us which crops and in which 
states you're still seeing any significant use of the marketing loan.
    Answer. Marketing loan benefits totaled about $1.1 billion for the 
2008 and 2009 crops with upland cotton and wheat producers receiving 88 
percent and ten percent, respectively, of those payments. The remaining 
payments were paid to barley, wool, and mohair producers. Most of the 
upland cotton recipients were located in Texas, Mississippi, Arkansas, 
Georgia, and Tennessee, while the wheat recipients were located in 
North Dakota and Montana.

    Question 11. For 2010, national average wheat loan rates per bushel 
by class are $5.75 for durum wheat, $3.81 for hard red spring wheat, 
$3.16 for soft white wheat, $2.71 for hard red winter wheat, and $1.87 
for soft red winter wheat. In Ward County, North Dakota where the durum 
loan rate is $6.08 per bushel and the hard red spring loan rate is 
$3.67, posted county prices as of yesterday were $3.12 for durum and 
$3.53 for hard red spring wheat. While 2010-crop wheat in North Dakota 
won't be eligible for LDPs until after harvest later this summer, 
yesterday's effective LDP rates were $2.96 for durum and $0.14 for hard 
red spring.
    These high durum loan rates likely have skewed producer planting 
decisions not only for durum and HRS wheat but for barley and other 
competing crops. Since wheat loan rates by class need to weight to the 
national wheat loan rate set in statute of $2.94, a higher loan rate 
for one class means lower loan rates for other classes. My 
understanding is that 2010 wheat loan rates were set using the same 
procedure as has been used since the 2002 Farm Bill but that a 
different procedure could be used since it is not specified in statute 
or regulation.
    Were you concerned about the discrepancies in wheat by class loan 
rates for 2010? If not, why not? Did you consider alternative 
procedures in setting 2010 wheat by class loan rates?
    Answer. Our objective in establishing loan rates is to track recent 
price relationships among counties, and, in the case of wheat, among 
classes. As a proxy for county-level prices, we use posted county 
prices (commonly known as PCPs--which are used in establishing 
alternative loan repayment rates for the applicable commodities). The 
methodology that we have used since 2002 is based on the average of the 
most recent two marketing years' daily PCPs near the time the loan rate 
calculations for the coming crop year begin. In the case of 2010-crop 
wheat, we used PCP data for marketing years 2007 and 2008, i.e., June 
1, 2007, through May 31, 2009.
    The relative differences between the 2010-crop wheat class national 
average loan rates indicated above are based on this methodology. When 
prices for wheat and other commodities rose in 2008 to what were, in 
many instances, record levels, the price spread between durum and the 
other major classes of wheat increased substantially. During the 
January&February period of 2008, the daily spreads between the 
Minnesota terminal market price for hard amber durum and hard red 
spring, the next-highest valued class, was as high as $8.10 per bushel. 
The single-day maximum spreads between durum prices and other class 
prices for selected terminal markets were in the range of $11.00&$12.90 
per bushel. While those spreads narrowed substantially between March 
2008 and May 2009, durum versus other class price spreads remained 
sufficiently large to substantially increase durum county loan rates 
for both the 2009 and 2010 crops as well as the spreads between the 
loan rates for durum and other classes of wheat.
    Realizing that 2010-crop durum loan rates would be high relative to 
other wheat classes if the established methodology were used, the Farm 
Service Agency considered options for calculating wheat county loan 
rates, including 3 year and 5 year PCP averages. These alternative 
methods, however, have drawbacks. Although each alternative would have 
moderated 2010-crop durum loan rates, they would also have prolonged 
the effect of the large spread between durum and other wheat class 
prices in determining loan rates for subsequent years.
    Changing the loan rate methodology is not a course we believe 
should be considered lightly. For instance, a year-to-year reduction in 
loan rates for one class could lead to annual calls to change the 
methodology, and, as you point out, adopting a potential methodology 
that increases loan rates for one class will result in loan rate 
reductions for one or more other classes of wheat. Moreover, we need to 
carefully consider whether a possible alternative methodology, if 
adopted, will create large loan deficiency payment rate disparities 
among counties which can also lead to marketing anomalies.

                              Attachments

2008 Secretarial Designations





HEARING TO REVIEW U.S. FARM SAFETY NET PROGRAMS IN ADVANCE OF THE 2012 
                               FARM BILL

                              ----------                              


                        THURSDAY, JUNE 24, 2010

                  House of Representatives,
 Subcommittee on General Farm Commodities and Risk 
                                        Management,
                                  Committee on Agriculture,
                                                   Washington, D.C.
    The Subcommittee met, pursuant to call, at 9:40 a.m., in 
Room 1300, Longworth House Office Building, Hon. Jim Marshall 
[Member of the Subcommittee] presiding.
    Members present: Representatives Boswell, Marshall, 
Schrader, Herseth Sandlin, Markey, Kissell, Halvorson, Pomeroy, 
Peterson (ex officio), Moran, Johnson, Conaway, Luetkemeyer, 
and Smith.
    Staff present: Aleta Botts, Liz Friedlander, James Ryder, 
Anne Simmons, Rebekah Solem, Pelham Straughn, Jamie Mitchell, 
and Sangina Wright.

  OPENING STATEMENT OF HON. JIM MARSHALL, A REPRESENTATIVE IN 
                     CONGRESS FROM GEORGIA

    Mr. Marshall. This hearing of the Subcommittee on General 
Farm Commodities and Risk Management to review farm safety net 
programs in advance of the 2012 Farm Bill will come to order.
    I am Jim Marshall, and normally I would be the Vice Chair 
of the Subcommittee, but Chairman Boswell is one of the Members 
on the conference committee for the financial regulatory reform 
bill. There are two Agriculture Members, Democratic, three 
Agriculture Members total on that conference committee. The 
conference committee is meeting. That is a big deal for 
agriculture. I think everybody in the room not only understands 
why he is not here but appreciates the fact that he is not 
here; that he is out trying to protect our interests in the 
financial regulatory reform process.
    We have with us today Mr. Smith, the gentleman from 
Nebraska, my neighbor up there on the fifth floor of Cannon, 
who is not a Member of this Subcommittee. I have consulted with 
the Ranking Member, and we are pleased to welcome him to join 
in the questioning of witnesses. Without objection.
    This is an opening statement that would have been given by 
Mr. Boswell, and let me read it.
    ``I would like to thank everyone for joining us here today 
as we review the safety net programs established in the 2008 
Farm Bill.'' The Chairman of the Subcommittee is unable to make 
it to the beginning of this hearing due to the financial 
regulatory reform conference. Obviously, this is not what Mr. 
Boswell would have read; this is intended for me.
    ``I know how many farmers and producers hedge their risk in 
the markets, and we want to ensure those end-users are still 
able to use those markets.''
    He requested that I chair the hearing, and I am very 
pleased to be able to do that today, given the important topics 
we are going to be discussing.
    I would like to thank our witnesses today. This Committee 
looks forward to hearing your valuable insight into this issue 
as you help us move forward in developing the 2012 Farm Bill. 
Without a doubt, it does not seem that long ago we enacted the 
last farm bill. However, this Committee has already held 
numerous field hearings across the nation, including one in 
Georgia which I was pleased to attend. It is refreshing and 
absolutely necessary to hear directly from agricultural 
producers on the challenges they face day to day.
    Last week, this Subcommittee heard from Under Secretary Jim 
Miller about the current farm programs we passed in the 2008 
Farm Bill, such as ACRE and SURE. Both are very complex new 
programs that are becoming important components of the safety 
net for some of our producers. However, in Georgia we find that 
some programs that work well in the Midwest are simply not 
working for our mix of commodities and our producers' needs. 
With this next farm bill, we hope to have the opportunity to 
change that. If we put in place a nationwide program, we need 
to have a successful nationwide safety net.
    Now, more than ever, an adequate safety net is essential to 
ensure that we have the safest, most plentiful, and most 
affordable food supply in the world. With 90 million people 
being added to the world population each year, we need to find 
ways to do more with less.
    Thank you again to the witnesses testifying before the 
Subcommittee. Your testimony will be an essential means for us 
to continue to move forward with the 2012 Farm Bill.
    [The prepared statement of Mr. Boswell follows:]

  Prepared Statement of Hon. Leonard L. Boswell, a Representative in 
                           Congress from Iowa

    I would like to thank everyone for joining us here today as we 
review the safety net programs established in the 2008 Farm Bill. I 
would especially like to thank our witnesses today. This Committee 
looks forward to hearing your valuable insight into this issue as you 
help us move forward in developing the 2012 Farm Bill.
    Last week we heard from Under Secretary Jim Miller about the 
current farm programs that we passed in the 2008 Farm Bill, such as 
ACRE and SURE. Both are very complex new programs but are becoming 
important components of the safety net for many of our producers. I 
look forward to hearing from the producers who are using these risk 
management tools. Particularly, I want to hear what is working and what 
is not.
    Being from Iowa, one of the largest agricultural states in the 
country, I understand the challenges that farmers and those in the 
agriculture business are facing today. With Iowa ranking number one in 
the nation in pork, egg, corn and soybean production, the farm bill 
affects a great deal of the state. Much of Iowa's economy is directly 
or indirectly tied to agriculture in some fashion and we are proud of 
our strong tradition of feeding, and fueling, the world.
    I believe that is why it is so important for us to construct a bill 
that will not only help Iowa move forward but the rest of the country 
as well.
    Now more than ever an adequate safety net is essential to ensure 
that we have the safest, most plentiful and most affordable food supply 
in the world. With 90 million people being added to the world 
population each year we need to find ways to do more with less.
    A discussion about farm safety nets would not be complete without 
reviewing the role of crop insurance as a risk management tool. Last 
week, much of the hearing focused on the new SRA and while many Members 
on the Committee have concerns I look forward to hearing from the 
various commodity groups about how well their producers are able to 
manage their risk for different crops through the crop insurance 
program.
    Thank you again to the witnesses testifying before the 
Subcommittee. Your testimony will be an essential means for us as we 
continue to move forward with the 2012 Farm Bill. I would also like to 
apologize for and explain why I will have to leave early today. As 
Chairman of this Subcommittee which oversees the CFTC, I am 
participating in the conference committee for the Wall Street Reform 
bill that will have important implications for the agricultural 
industry. I know how many farmers and producers hedge their risk in the 
markets and we want to ensure those end-users are still able to use 
those markets as legitimate business practices.

    Mr. Marshall. I would now like to turn to my friend, the 
gentleman from Missouri, Mr. Luetkemeyer.
    Mr. Luetkemeyer. Thank you, Mr. Chairman. We will yield 
back.
    Mr. Marshall. He just agreed with the opening statement 
from the majority.
    Mr. Luetkemeyer. We are a substitute, as is the Chairman. 
So, as a result, we are still working on other things here this 
morning.
    Mr. Marshall. I guess I would now like to call the first 
panel, and the witnesses are at the table.
    We have Mr. Philip Nelson, President of the Illinois Farm 
Bureau, on behalf of the American Farm Bureau Federation; Mr. 
Kent Peppler, President, Rocky Mountain Farmers Union, on 
behalf of the National Farmers Union; Mr. Anthony Bush, 
Chairman of the Public Policy Action Team, National Corn 
Growers Association; Mr. Dave Henderson, President, National 
Barley Growers Association; and Mr. Rob Joslin, President, 
American Soybean Association, in Ohio.
    And I guess, Mr. Nelson, you are up first.

  STATEMENT OF PHILIP NELSON, PRESIDENT, ILLINOIS FARM BUREAU 
  FEDERATION; BOARD MEMBER, AMERICAN FARM BUREAU FEDERATION, 
                           SENECA, IL

    Mr. Nelson. Thank you. My name is Philip Nelson, and I am 
President of the Illinois Farm Bureau and a Member of the Board 
of Directors of the American Farm Bureau. I am a grain, pork, 
and cattle producer from Seneca, Illinois. I would like to 
first of all thank this Committee for holding this hearing, and 
I appreciate the invitation to share our thoughts.
    I would like to start by saying that our farmers can 
generally point to at least one commodity program included in 
the 2008 Farm Bill that they utilize on their farm. As you 
probably heard during the farm bill field hearings, it depends 
on what kind of farmer you talk to, and in what part of the 
country they farm, as to what portions of the farm bill 
producers find most useful. But the vast majority of the 
farmers in most states rely in some way on the safety net 
provided in the 2008 Farm Bill.
    That said, we know we will face many challenges in the 
writing of the 2012 Farm Bill, including the budget environment 
and the need to balance the interests of the multitude of 
players.
    At the Farm Bureau, we have just started the process of 
evaluating the programs in the 2008 Farm Bill, grappling with 
budget constraints and considering future policy 
recommendations. We are here today to present this Subcommittee 
five general principles that will guide future farm bill 
proposals from the Farm Bureau.
    Number one, the options we support will be fiscally 
responsible.
    Number two, the basic funding structure of the 2008 Farm 
Bill will not be altered. In other words, money should not be 
shifted from one title of the farm bill to another.
    Number three, the proposals we support will aim to benefit 
all ag sectors.
    Number four, world trade rulings will be considered.
    And, number five, consideration will be given to a stable 
business environment that is critical to the success in 
agriculture.
    While farmers are generally content with the safety net 
provided in the 2008 Farm Bill, it sometimes feels like you are 
reading the old children's story Goldilocks and the Three Bears 
when you talk to individual farmers. Some farmers think the 
safety net coverage provided in the 2008 Farm Bill is just 
right; but in other cases, for other farmers, the coverage is 
sometimes too little; and, in some cases, in a small number of 
cases, the coverage may even be duplicative and too much.
    Without fail, farmers that farm different crops in 
different parts of the country rely most heavily on different 
pieces of the safety net. For example, a farmer in Illinois 
might have a multitude of layers of protection for both price 
and yield risk exposure, first through the ACRE Program, then 
through the buy-up of crop insurance, and then through the SURE 
Program. In fact, Illinois has some of the highest levels of 
ACRE participation. Buy-up insurance coverage is the norm, and 
farmers in disaster and contiguous counties are expected to 
benefit from the SURE Program.
    But these same programs might not provide a farmer in 
Mississippi with the same depth of safety net coverage. For 
example, ACRE has not proven to be a useful program in 
Mississippi for a variety of reasons. Many farmers in the 
region, particularly cotton farmers, experienced very low 
prices in 2007 and 2008, which were the base years for the 
setting of the support level for ACRE. In Mississippi, the 
direct payment and marketing loan portions of the traditional 
safety net are critical, and the cuts required for this portion 
of the safety net were too steep to attract farmers into the 
ACRE Program.
    The use of buy-up crop insurance is not always as prevalent 
in Mississippi as it is in my home State of Illinois. Again, 
there are a lot of reasons a farmer in Mississippi may not 
purchase buy-up levels of crop insurance. In many cases, the 
availability of programs is not as robust and sometimes 
coverage is prohibitively expensive. In other cases, the 
products offered simply do not align with the types of risk 
faced by Mississippi farmers. Without the purchase of buy-up 
crop insurance, the value of SURE as a disaster program is also 
minimized.
    Again, almost all farmers can find at least one component 
of the commodity title that works on their farm, but it depends 
on who you ask which programs work best and are utilized most.
    Given the great deal of discussion that has already 
occurred regarding whole farm revenue programs, it would be 
remiss for me to at least briefly discuss our thoughts on this 
topic. Both the adjusted gross income insurance product and 
SURE provide us with case studies of the whole farm revenue 
programs, and from those cases we have gleaned several watch-
outs to consider as this farm policy is being discussed.
    Number one, the complexity of these programs makes them 
unpopular. Number two, such programs can be difficult for USDA 
to implement, which turns into delayed payments to farmers. 
Number three, including livestock in such programs adds an 
additional layer of complexity. And, number four, the paperwork 
and confidential information that can be required to sign up 
for a revenue program is daunting to farmers and often 
discourages them.
    In conclusion, we appreciate the hard work of this 
Subcommittee to ensure that America's farmers have a practical 
safety net that allows our farmers to continue to produce the 
safest, most abundant, and least expensive food supply in the 
world.
    I thank you for the opportunity to speak, and I look 
forward to answering any questions you may have.
    [The prepared statement of Mr. Nelson follows:]

 Prepared Statement of Philip Nelson, President, Illinois Farm Bureau 
 Federation; Board Member, American Farm Bureau Federation, Seneca, IL

    My name is Philip Nelson. I am President of the Illinois Farm 
Bureau Federation, a Board Member of the American Farm Bureau, and a 
grain and cattle producer from Seneca, Illinois. Farm Bureau is the 
nation's largest general farm organization, representing producers of 
every commodity, in every state of the nation as well as Puerto Rico, 
with more than six million member families.
    I would like to thank Chairman Leonard Boswell (D-Iowa) and Ranking 
Member Jerry Moran (R-Kan.) for holding this hearing. I appreciate the 
invitation to speak this morning to the House Agriculture Subcommittee 
on General Farm Commodities and Risk Management. The farm bill touches 
the lives of every agricultural producer in this country. It was a 
long, hard road to passage of the 2008 Farm Bill, and thanks to the 
hard work of this Subcommittee and the entire Agriculture Committee, 
the end product was a fiscally responsible compromise of which we can 
all be proud. I would like to start by saying that our farmers can 
generally point to at least one commodity program included in the 2008 
Farm Bill that they use on their farm. As you probably heard during 
your farm bill field hearings, it depends on what kind of farmer you 
talk to and in what part of the country they farm as to what portions 
of the farm bill producers find most useful. But most farmers in most 
states rely in some way on the safety net provided in the 2008 Farm 
Bill.
    That said, we know we will face many challenges in writing the 2012 
Farm Bill. The first will be the budget. We have seen the baseline for 
many farm bill programs decrease since passage of the last farm bill. 
More than 30 programs included in the last bill do not have any 
baseline at all, and the standard reinsurance agreement (SRA) currently 
being negotiated by the Administration threatens to rob even more 
spending baseline without any serious consideration to capturing that 
savings. It is going to be a difficult environment in which to re-write 
farm law, and we look forward to working with this Committee to again 
ensure that the final product is a fiscally-responsible package that 
provides taxpayers and America's farmers with maximum bang for their 
buck.
    Even though the purpose of this hearing is to focus on the 
Commodity Title of the farm bill, we recognize that another challenge 
for the 2012 Farm Bill will once again be to address the priorities of 
a wide variety of interests, from farm and ranch groups to conservation 
groups to nutrition groups. Even within the agricultural community, 
farm bill priorities and agendas will likely vary by commodity and 
region. As an agricultural organization that represents all types of 
farmers and ranchers in every state, we look forward to working with 
you to achieve the balance in interests that will be necessary to craft 
a successful piece of legislation.
    At Farm Bureau, we have just started the process of evaluating the 
programs in the 2008 Farm Bill, grappling with budget constraints, and 
considering future policy recommendations. We have kicked off our 
internal Farm Bureau process by outlining five key principles that will 
guide us in our work on the 2012 Farm Bill and any proposals that we 
ultimately put forward:

   The options we put forward will be fiscally responsible. 
        Proposals that we put forward will work within the budget 
        constraints Congress must use to draft the new bill. Our 
        members are greatly concerned about the deficit and want to be 
        fiscally-responsible in considering farm policy.

   The basic funding structure of the 2008 Farm Bill should not 
        be altered. Farm Bureau's proposals for the next farm bill will 
        not shift funding between interest areas. For example, if we 
        suggest an increase in spending for a particular conservation 
        program, we will offset that increase by reducing spending 
        elsewhere in conservation programs.

   The proposals we put forward will aim to benefit all 
        agricultural sectors. Again, Farm Bureau is a general farm 
        organization, with members who produce everything from pork to 
        peanuts. As such, the overriding goal of Farm Bureau's 
        proposals will be to maintain balance and benefits for all farm 
        sectors. It can be tempting for a single interest organization 
        to say Congress should allocate more funding for programs that 
        benefit only its producers without worrying about the impact of 
        that funding shift on other commodities. Farm Bureau does not 
        have that luxury and will seek balance for all producers.

   World trade rulings will be considered. Farm Bureau's 
        options may include changes to comply with our existing World 
        Trade Organization (WTO) obligations and litigation rulings. 
        However, they will not presuppose the outcome of the Doha round 
        of WTO negotiations, which are far from complete. To do so 
        would reduce our negotiating leverage in the ongoing Doha 
        round.

   Consideration will be given to the stable business 
        environment critical to success in agriculture. Abruptly 
        changing the rules of the game on farmers, particularly in a 
        tight credit environment, can be disastrous to a farmer or 
        rancher's operation. Our options will recognize the need for 
        transition periods for major policy changes so that farmers and 
        ranchers will have an opportunity to adjust their business 
        models accordingly.

Current Farm Policy Inequities
    While our farmers are generally content with the safety net 
provided in the 2008 Farm Bill, it can sometimes feel like you're 
reading the old children's story ``Goldilocks and the Three Bears'' 
when you talk to individual farmers about their experiences with farm 
programs. Some farmers think the safety net coverage provided under the 
2008 Farm Bill is ``just right.'' But in other cases and for other 
farmers the coverage is sometimes too little. In a small number of 
cases, the coverage may even be duplicative and too much.
    To that end, it is instructive to look back over how our two risk 
management tools--commodity programs and crop insurance--have changed. 
Historically commodity programs provided price risk protection and crop 
insurance products covered yield risk. With the advent of a variety of 
revenue based programs under crop insurance in the 1990s and the 
Average Crop Revenue Election (ACRE) and Supplemental Revenue 
Assistance Payments (SURE) programs in the 2008 Farm Bill, those lines 
have become blurred. Both crop insurance and the farm bill Commodity 
Title programs now provide the option of support to producers based on 
revenue losses and not strictly price or yield risk. In some cases, 
this coverage is complementary. In other cases, it may even be 
duplicative. Yet, despite this convergence of farm programs and crop 
insurance, there are still many farmers who fall between the cracks and 
have little protection from the vagaries of the market and weather.
    The complexity of the relationship between crop insurance and 
Commodity Title programs can best be described by using examples. So 
for the sake of illustration, I'll talk about two different farming 
situations: one in my home State of Illinois, and another in 
Mississippi.

Illinois
    About 134,000 U.S. farms are currently signed-up for the ACRE 
program. Almost 26,000 of these ACRE-enrolled farms are in Illinois 
(just under 17 percent of all eligible Illinois farms). The ACRE 
program provides these Illinois farmers with price coverage based on a 
2 year historical price average and yield coverage based on a 5 year 
Olympic average. The same Illinois farmers that signed up for ACRE can 
then purchase crop insurance at a level they feel is appropriate for 
their farm. In Illinois, it is typical to purchase crop insurance that 
will cover both price and yield. For example, I purchase 85% coverage 
for my farm, and this level of buy-up is fairly typical for the state. 
Illinois farmers have generally found that the crop insurance programs 
available work very well to help manage their risk, and this is 
reflected by the fact that 95 percent of crop acres in Illinois that 
have crop insurance are covered by buy-up levels of coverage, not just 
base protection. Nearly 70 percent of all acres in Illinois have some 
form of crop insurance coverage.\1\
---------------------------------------------------------------------------
    \1\&USDA, Federal Crop Insurance Corporation data and National 
Agricultural Statistics Service data. Does not include acres that may 
have Noninsured Crop Disaster Assistance Program (NAP) coverage.
---------------------------------------------------------------------------
    Some of this crop insurance coverage may overlap with the coverage 
provided by ACRE. In other words, the same price decrease or yield 
decrease may be covered by both programs, but the crop insurance 
coverage can be purchased to cover above and beyond what is covered by 
ACRE. Also, crop insurance coverage is customized to a specific farm's 
loss, while the ACRE program has not only a farm-level trigger for a 
payment, but also a state-level trigger for a payment. The result is 
that while some of the same losses may be covered in theory, in 
practice, crop insurance can provide more customized protection for 
farm-specific losses.
    If this particular Illinois farmer also happens to be located in a 
disaster county and meets the variety of eligibility requirements, then 
the SURE disaster program is then layered on top of both crop insurance 
and ACRE. SURE essentially provides a farmer with a ``bump-up'' in 
their crop insurance coverage, and the program again covers both price 
and yield. The SURE program attempts to minimize overlap of programs by 
deducting part of a producer's ACRE payments and crop insurance 
indemnities when calculating payments.
    The bottom line is that while our farmers in Illinois may have 
concerns about some of the details of these programs, the fact is that 
our producers have multiple opportunities to manage their primary risks 
of price and yield.

Mississippi
    Other farmers in other circumstances could face a completely 
different situation. While I'm not as familiar with Mississippi farms 
as I am with Illinois farms, I can tell you what I've heard from my 
counterparts in Mississippi and in other states.
    Most farms in Mississippi are not enrolled in the ACRE program. In 
fact, at last count, only 165 of Mississippi's 22,435 eligible farms 
(less than one percent) chose to take cuts to their direct payments and 
marketing loan benefits in order to have the price and yield coverage 
provided by ACRE. These farms instead chose to continue participation 
in the traditional farm programs.
    There are a variety of logical reasons that my counterparts in 
Mississippi have chosen not to sign-up for the ACRE program:

   Some farmers in Mississippi, particularly those growing 
        cotton, experienced very low commodity prices in 2007 and 
        2008--the base years for calculating ACRE benefits. With such a 
        low price baseline, the traditional program offered as much if 
        not more price coverage than the ACRE program. This is a 
        dramatic contrast to corn, soybean and wheat farmers who saw 
        record high prices in 2007 and 2008 and were going to have a 
        high price baseline on which to calculate payments.

   For commodities such as cotton, the 30 percent marketing 
        loan cut required for ACRE coverage would have had a profound 
        negative impact on farmer's operations. Unlike many other 
        commodities in recent years, cotton has seen prices at 
        marketing loan levels and cotton farmers have continued to 
        utilize the marketing loan program.

   The cuts to direct payments were deemed too steep for many 
        farmers. Both farmers and their bankers were wary of giving up 
        a payment that is a ``sure thing'' for a payment that, 
        according to Food and Agricultural Policy Research Institute 
        (FAPRI) analysis, was highly unlikely to occur on many of the 
        stalwart crops in Mississippi.\2\
---------------------------------------------------------------------------
    \2\&Food and Agricultural Policy Research Institute (FAPRI), 
University of Missouri, ``U.S. Baseline Briefing Book; Projections for 
Agricultural and Biofuels Markets,'' March 2009.

    The ultimate result is that your average Mississippi farmer has 
continued to operate under the traditional farm program, which provides 
only price coverage.
    The use of crop insurance is also not as prevalent in Mississippi 
as it is in my home state of Illinois. Only 41 percent of Mississippi's 
crop acres are covered by buy-up crop insurance.\3\ The vast majority 
of Mississippi farmers only purchase the catastrophic crop insurance 
coverage (CAT) or the Noninsured Crop Disaster Assistance Program (NAP) 
coverage required in order to be eligible for the SURE program. Keep in 
mind that CAT and NAP only cover losses in production greater than 50 
percent and only pay on 55 percent of the average market price for the 
year. Neither program provides meaningful price or yield coverage to 
farmers.
---------------------------------------------------------------------------
    \3\&USDA, Federal Crop Insurance Corporation data and National 
Agricultural Statistics Service data.
---------------------------------------------------------------------------
    Once again, there are a variety of reasons that a Mississippi 
farmer might choose not to purchase buy-up levels of crop insurance. In 
many cases, the availability of programs is not as robust as back home 
in Illinois. Many crops grown in quantity in Mississippi don't even 
have buy-up crop insurance available, and NAP is a farmer's only 
option. In other cases, coverage is viewed as prohibitively expensive 
or farmers may choose to use other risk management tools such as 
diversification. Another challenge to the acceptance of crop insurance 
in the region has been the significant shift in the types of crops 
grown. This shift means that many Mississippi farmers who are 
interested in purchasing buy-up crop insurance don't have their own 
yield history and would be forced to accept outdated, excessively low 
county average yields to calculate their farm's yield coverage. These 
``plug'' yields completely negate the value of purchasing coverage.
    Still other farmers don't purchase coverage because the types of 
coverage available don't align with the types of risk the farmer is 
facing. For example, rice farmers in Mississippi don't typically buy 
crop insurance because they are an irrigated crop and their risk of 
production loss is significantly less than for other crops. The risk 
for rice farmers is the increased input costs that could be required to 
produce a crop in disaster situations--but crop insurance doesn't offer 
reasonable coverage for this type of risk.
    As long as a Mississippi farmer has purchased at least CAT or NAP 
coverage, they are eligible for the SURE program. That said, the value 
of the SURE program is minimized with such low levels of price and 
yield coverage. Since SURE provides a bump-up on crop insurance, 
disaster coverage provided to many Mississippi farmers is still 
minimal.
    The 2009 growing season is a good case in point. Many Mississippi 
farmers faced enormous losses, yet very few farmers expect to receive a 
SURE payment. Instead, many southern states and commodities have been 
forced to ask for ad hoc disaster assistance to bring relief to farmers 
in the region. On the other hand, many regions that faced lesser losses 
in 2009 will likely receive payments because the farmers in those 
regions purchased high levels of crop insurance coverage. Given this 
situation, it is difficult to view SURE as a true disaster program, 
although the program has clearly worked to encourage the use of crop 
insurance as a risk management tool.
    The bottom line is that crop insurance and farm programs have 
morphed significantly over the past 20 years, and these changes have 
left different farmers with different safety nets.
    Again, I would like to stress that our farmers generally find at 
least one component of the commodity title that works for their farm. 
However, given the tight budget constraints that this Committee will 
face in writing the 2012 Farm Bill, Farm Bureau understands that change 
may be necessary. We believe that any change should focus on 
eliminating these gaps and redundancies in the safety net.

Whole-Farm Revenue Programs
    Given the great deal of discussion that has already occurred 
regarding whole-farm revenue programs, we would be remiss if we didn't 
at least briefly discuss our thoughts on this topic.
    There are currently crop insurance products and components of the 
farm safety net that use the whole-farm revenue concept, and challenges 
that have arisen with these programs can be very instructive if the 
concept is further pursued in the context of the 2012 Farm Bill. For 
example, there are whole-farm revenue insurance programs already in 
place through USDA's Risk Management Agency, namely the Adjusted Gross 
Revenue and the Adjusted Gross Revenue Lite plans. While they are both 
only available in limited areas, the acceptance of these programs has 
been modest at best. There are limitations on farm size as well as on 
the proportion of the farm's income that can derive from livestock 
operations. Producers must submit several years of tax records in order 
to establish their revenue benchmark, and in many cases, complicated 
adjustments to the records are required to determine those benchmarks. 
In addition to submitting tax records, a producer also must file farm 
plans. These limitations, as well as the complicated paperwork 
involved, have discouraged sign-up for the programs.
    The SURE program provides us another case study on whole-farm 
revenue programs, although SURE only covers crops and not livestock. 
Yet the complexity of this program still has caused implementation 
delays and has created technological challenges for USDA. Another issue 
with the SURE program is that it does not provide support until months, 
even years, after the disaster event. In true disaster situations, such 
a delay negates the value of the program.
    A whole-farm program that included livestock exponentially 
increases the complexity of a program and the paperwork involved. 
Consider a livestock producer who decides to sell cattle every other 
year. On average, the rancher's income might be constant, but that 
income would gyrate significantly year over year and thus could be seen 
as triggering a payment every other year. Even for crop producers, 
determining appropriate whole-farm revenue guarantees can be 
complicated. For example, farm size may vary from one year to the next 
due to changes in rental agreements or real estate purchases or sales. 
Accounting for these changes over time is essential to having a fair 
and effective program, but it does increase the complexity of the 
program.
    Moving beyond these examples, a whole-farm revenue safety net 
raises a number of both pragmatic and philosophical questions. Does the 
program cover gross or net revenue? Will it require full access to 
Internal Revenue Service filings? Would it be more appropriately 
administered by FSA or RMA? How would the protection offered under such 
a program be viewed by our WTO partners? These represent only a few of 
the questions that need to be answered.
    Understand that Farm Bureau would not necessarily reject a whole-
farm revenue option out-of-hand, and in fact would be very interested 
in continued discussions in this regard. But such a program needs to be 
easily understood, be straightforward to administer and needs to 
actually provide producers with risk management tools before we commit 
to such a path.
    In conclusion, we appreciate the hard work of this Subcommittee to 
ensuring that America's farmers have a practical safety net that 
provides protection against the vagaries of the market and weather and 
allows our farmers to continue to produce the safest, most abundant, 
least expensive food supply in the world. We look forward to working 
with you toward this goal.
    I would like to thank you again for the opportunity to speak this 
morning, and I look forward to answering any questions you have.

    Mr. Marshall. Mr. Peppler.

          STATEMENT OF KENT PEPPLER, PRESIDENT, ROCKY
          MOUNTAIN FARMERS UNION; TREASURER, NATIONAL
                   FARMERS UNION, DENVER, CO

    Mr. Peppler. Chairman Marshall, Ranking Member, and Members 
of the House Subcommittee on General Farm Commodities and Risk 
Management, thank you for inviting me to speak with you. My 
name is Kent Peppler, and I am here on behalf of National 
Farmers Union. NFU is a national organization that has 
represented family farmers and ranchers and rural residents for 
more than 100 years.
    Since the last farm bill, farmers have experienced some of 
the most difficult economic conditions in decades. We must now 
address the new reality of extreme volatility and commodity 
prices, high energy costs, and fewer young people and job 
opportunities from rural areas. The farm bill might not solve 
all these problems, but it can make a lot of progress.
    Some suggestions: According to the Congressional Budget 
Office, from 2010 to 2020, about $49 billion will be spent on 
direct payments, $5.5 million on countercyclical payments, $3.2 
billion on the new Average Crop Revenue Election program, and 
$1.7 billion will go to the marketing loan benefits. Crop 
insurance programs are slated to receive $76.8 billion.
    Compared to other options, direct payment programs are the 
least effective way to smooth the highs and the lows of the 
marketplace, and are hard to explain to the general public. We 
would be better off if spending on direct payments was 
distributed among the other safety net mechanisms such as 
Federal crop insurance.
    The current farm bill provides about nine times more 
support in direct payments than through countercyclical 
payments. This needs to change. By providing farmers a boost 
when commodity prices fall below the cost of production, with 
effective payment limitations, countercyclical payments are 
cost effective while helping farmers in tough times.
    The World Trade Organization has penalized government 
assistance for domestic agriculture production; however, in the 
coming years, changes in the next round of the WTO negotiations 
will be a prime opportunity to adjust the direction of American 
farm policy.
    On the disaster program, the inclusion of the SURE program 
in the 2008 Farm Bill was a hard-won victory for family farmers 
and ranchers. However, SURE is inadequately funded, and 
administrative changes have delayed implementation of rules and 
regulations. Back home in the field, some farmers have had 
claims pending since 2007.
    I urge Congress to fully fund the program and adopt partial 
advance payments so assistance can be quickly provided.
    In the next farm bill, we need to continue the progress 
that was made concerning the SURE program. I welcome more 
suggestions and discussions on the SURE program. A consistent, 
predictable, and stable plan for farmers struck by hard luck is 
the most important aspect of having permanent disaster aid. 
Crop insurance must remain a cornerstone of farm policy. We 
remain deeply concerned that reductions in spending for this 
vital program will cripple crop insurers to the point that some 
companies may choose to no longer carry it in some areas of the 
country. In fact, we should be increasing the availability of 
crop insurance.
    When the future of crop insurance is discussed, I ask the 
Members of this Subcommittee to consider the use of actual 
production history. And for the situations in which it is not 
available, the qualified yield for a farm should not be set at 
a lower level than the county FSA average. We also urge 
establishment of APH yield floors. These common sense 
approaches to crop insurance will help to ensure the productive 
potential of a farm is appropriately represented in risk 
management contracts.
    The Administration's goal to improve child nutrition 
funding is a move which NFU has supported for decades; however, 
funds should not come from Federal Crop Insurance Program or 
other parts of the safety net. Child nutrition is estimated to 
comprise 80 percent of the current farm bill.
    Supply management tools: Counting on trade as the only 
means of releasing excess supply has proven to be ineffective. 
Without even a rudimentary system of supply management, our 
existing farm programs are vulnerable to a very unlikely 
threat--a bumper crop. At a time when government expenditures 
are highly scrutinized, excessive safety net payments could 
spell disaster for the public perception of farm policy.
    On behalf of the members of NFU, I thank you for your 
ongoing attention and diligence. NFU looks forward to this 
dialogue on the new farm bill. Thank you.
    [The prepared statement of Mr. Peppler follows:]

 Prepared Statement of Kent Peppler, President, Rocky Mountain Farmers 
          Union; Treasurer, National Farmers Union, Denver, CO

Introduction
    Chairman Boswell, Ranking Member Moran and Members of the House 
Subcommittee on General Farm Commodities and Risk Management, I am 
honored to have been invited to speak to you today. It is a privilege 
to share with you a few ideas and suggestions that could be helpful in 
the development of the next food and farm policy for our country.
    My name is Kent Peppler and I am here today on behalf of the 
National Farmers Union. NFU is a national organization that has 
represented family farmers and ranchers and rural residents for more 
than 100 years. I serve as Treasurer of the NFU Board of Directors and 
am the President of Rocky Mountain Farmers Union. I farm full-time near 
Mead, Colo., and grow silage, corn, wheat, sunflowers and alfalfa hay. 
Until several years ago, I also produced sugarbeets, malting barley and 
feed livestock. I served on the Colorado Farm Service Agency Board of 
Directors from 1995 to 2001 and spent a few of those years as Acting 
State Executive Director and Assistant State Executive Director. I also 
participate on the U.S. Department of Agriculture (USDA) Agricultural 
Trade Advisory Committee (ATAC) on Sugars and Sweeteners and the 
Highland Ditch Company Board of Directors.
    Our national farm and food policy is of critical importance to all 
Americans, even as the number of farmers continues to shrink while the 
population of our country grows. The public must know that if you eat, 
you are affected by the farm bill. Fortunately, this Subcommittee and 
the Agriculture Committee are dedicated to listening to the opinions of 
family farmers and ranchers. NFU respects your expertise and hard work. 
As you continue to prioritize issues for the 2012 Farm Bill, we hope 
you consider the following observations on the needs of future farm 
programs.
    Since the last farm bill was enacted, farmers have endured some of 
the most difficult economic conditions in decades. The next farm bill 
must address the new realities we face: extreme volatility in market 
prices for commodities; extended periods of extraordinarily high energy 
costs; and the ongoing exodus of young people and job opportunities 
from our rural areas. While the challenges have become greater, our 
goals remain the same. We want to ensure that generations of farmers 
and ranchers can raise their families and live in vibrant rural 
communities. The farm bill might not solve all those problems, but it 
can take great strides toward strengthening America's farmers.

The Farm Safety Net Programs
    There is no question that the farm bill is a wide-ranging piece of 
legislation. It helps to put such large undertakings into perspective. 
According to projections from the Congressional Budget Office for the 
years 2010 to 2020, about $49 billion will be spent on direct payments; 
$5.5 billion on countercyclical payments; $3.2 billion to the new 
Average Crop Revenue Election (ACRE) program; and $1.7 billion to 
marketing loan benefits.\1\ Crop insurance programs were slated to 
receive $82.8 billion, although after the recent issuance of the 2011 
Standard Reinsurance Agreement, this number will be smaller by about $6 
billion.\2\
    Compared to other farm safety net programs, direct payment programs 
are the least effective way to smooth the highs and lows of the 
agricultural marketplace. Farmers and ranchers would be better off if 
Federal spending on direct payments was reduced and the funds 
distributed among the other programs, which would bring improved 
service to these well-designed but under-funded safety net mechanisms. 
Federal crop insurance programs, for example, could be extended to 
specialty crop farmers who are not currently eligible for direct 
payments. With increased funding, target price supports could be 
strengthened to provide more assistance to commodity producers around 
the country. Direct payments are difficult to justify to the general 
public and Federal dollars would be better spent in other farm bill 
programs.

Countercyclical Payments
    As a result of the 1996 Farm Bill's failure to support family 
farmers, countercyclical payments took on a greater role in the 2002 
and 2008 Farm Bills. NFU urges you to place more emphasis on 
countercyclical payments, crop insurance and the SURE program than on 
direct payments. By providing farmers a boost when commodity prices 
fall below the cost of production--and by not providing subsidies when 
prices are better--countercyclical payments help provide a stable food 
supply for consumers. When used in combination with effective payment 
limitations, countercyclical payments are cost-effective while helping 
farmers in tough times.
    Despite the benefits of countercyclical payments, the current farm 
bill provides about nine times more support in direct payments than 
through countercyclical payments.\1\ This needs to change. The next 
farm bill should focus on programs that help to boost prices in tough 
times, not all the time. The World Trade Organization (WTO) has placed 
limitations on government assistance for domestic agricultural 
production and we know that policy makers must consider the 
implications of our own farm policy on trade. However, in the coming 
years, changes in the next round of WTO negotiations will be a prime 
opportunity to adjust the direction of American farm policy toward a 
system of subsidies coupled to price supports.

Disaster Program
    NFU has been long been among the leading proponents of a permanent 
disaster program. The unpredictability and inefficiencies associated 
with ad hoc disaster programs led to the inclusion of the Supplemental 
Revenue Assistance Program (SURE) in the 2008 Farm Bill. SURE should 
make it possible for farmers and ranchers to recover quickly from the 
devastating setbacks that weather can have on crops and livestock 
without waiting for piecemeal disaster assistance. However, the current 
program has been inadequately funded and administrative changes have 
delayed implementation of rules and regulations.
    SURE was a hard-won victory for family farmers and ranchers and it 
ought to be properly utilized. Back home in the fields, farmers with 
claims pending since 2007 are still waiting for relief. We urge 
Congress to fully fund the program and adopt partial advance payments 
so assistance can be quickly provided in times of desperate need. When 
your cattle are dying in snowdrifts or your corn crop is flattened by a 
tornado you need to know the disaster program is there for you, is 
funded, and responds in a timely manner.
    In the next farm bill, we need to make sure that we can continue 
the work that was done with the SURE program in 2008. The distribution 
of disaster aid must remain linked to crop insurance participation. NFU 
members welcome more suggestions and discussions about how to 
streamline and boost the efficiency of the program but, at the same 
time, we challenge decision makers to make sure that any improvements 
in SURE do not come at the expense of program delivery. The county Farm 
Service Agency (FSA) staff that service these programs are pushed to 
the limits of their resources as it is, and making their jobs 
unnecessarily difficult should be avoided. Remember that a consistent, 
predictable and stable back-up plan for farmers struck by hard luck is 
the most important aspect of having a permanent disaster aid program--
any efforts to improve upon it should not interrupt the positive 
results SURE provides.

Crop Insurance
    Crop insurance must remain a cornerstone of farm policy. While we 
understand the reasoning behind the recent budget cuts to crop 
insurance, we remain deeply concerned continued reductions in spending 
for this vital program will cripple crop insurers to the point that 
some companies may choose to no longer carry it in some areas of the 
country. In fact, as other parts of the farm safety net shrink, we 
should be increasing the availability of crop insurance coverage to 
more crops and to more parts of the country.
    When the future of crop insurance is discussed, I ask the Members 
of this Subcommittee to consider the use of the actual production 
history (APH). All risk management programs should be based upon the 
APH, and for situations in which the APH is not available, the 
qualified yield for a farm should not be set at a lower level than that 
of country FSA calculations. In order to protect farmers in the event 
of successive crop disasters, we also urge the establishment of APH 
yield floors. These common sense approaches to crop insurance will help 
to ensure the productive potential of a farm is appropriately 
represented in risk management contracts.
    The Administration's stated goal to make substantial increases in 
child nutrition funding is a move which NFU has long supported. Even in 
1960, NFU called for the expansion of ``workable methods needed to 
close the gap between what persons can afford to pay for food . . . and 
what they need to maintain an adequate standard of nutrition.'' We need 
healthy, well-educated consumers who know more about the origins of 
their food. To make this possible, funds should not come from crop 
insurance programs or other parts of the farm safety net, as some have 
suggested. Child nutrition is estimated to comprise 80 percent of the 
$1.1 trillion spent on farm bill programs between 2011 and 2020, while 
crop insurance makes up less than seven percent of the total 
expenditures.\3\ Investment in a stable food supply does not need come 
at the expense of healthier diets for young people. Both of these 
causes should be advanced in tandem.

Supply Management Tools
    As a result of policy changes in the 1990 and 1996 Farm Bills, 
there are very few, if any, functioning farm programs that address the 
issues of supply management and the agricultural economy has suffered 
as a result. As Americans, we have been very fortunate throughout the 
years to have an agriculture industry that, with few exceptions, 
produces more food than we consume. Agriculture remains one of the few 
industries in which the United States maintains a consistent trade 
surplus but counting on trade as the only means of releasing excess 
supply has proven to be ineffective.\4\
    Without even a rudimentary system of supply management, our 
existing farm programs are vulnerable to a very unlikely threat--a 
bumper crop. Excess supply could result in huge countercyclical 
payments or revenue insurance pay-outs. In a time when government 
expenditures are highly scrutinized, a bumper crop of subsidies could 
spell disaster for the public's perception of farm policy.
    There are many details to be worked out in establishing some sort 
of mechanism to manage supply, but one aspect of such a system could 
also serve the interests of national security. I encourage you to 
explore the possibility of reserves as a strategic and supply 
management tool. Our nation values energy so much we have a strategic 
petroleum reserve, which stores enough oil to fuel our country without 
imports for 75 days.\5\ Food is even more important, and an American 
food or grain reserve would be a powerful tool to provide security as 
well as smooth the peaks and valleys of agricultural prices. When used 
in combination with supply management techniques and target loan rates 
that allow for new farmers to enter the industry without creating price 
volatility, reserves can bring stability to the market and prosperity 
to the countryside.
    In the 2010 NFU policy, our members called for the establishment of 
``a farmer-owned strategic national reserve for all storable 
commodities to ensure consumer food security, livestock feed supplies 
and national renewable energy needs in times of short supply.'' To 
create a functional program, a portion of the national commodity 
production should be held off the market in times of adequate supply. 
The reserve would be opened to the market when ending stocks ratios 
reach a predetermined trigger level and be sold at a value reasonably 
greater than current market price. Storage rates for these reserve 
commodities should be paid to the farmer in advance and set at the 
prevailing commercial storage rate. Proposals for a national reserve, 
to be used as part of a supply management system, deserve serious 
consideration in the 2012 Farm Bill.

Conclusion
    On behalf of the members of NFU, I urge the Subcommittee to keep in 
mind the aforementioned concerns as you continue your work on the 2012 
Farm Bill. You will hear from thousands of farmers and ranchers across 
the country in the next 2 years and I thank you for your ongoing 
attention. NFU looks forward to continuing this dialogue throughout the 
legislative process to write a bill that allows our nation's family 
farmers and ranchers to find prosperity in an ever-changing rural 
economy.

Endnotes
    \1\&Congressional Budget Office (CBO), March 2010 Projections for 
Fiscal Years 2010&2020.
    \2\&USDA Risk Management Agency, 2011 Standard Reinsurance 
Agreement. June 10, 2010.
    \3\&Congressional Budget Office, March 2010 Projections for Fiscal 
Years 2010&2020.
    \4\&USDA Economic Research Service, Total Value of U.S. 
Agricultural Trade and Trade Balance, Monthly. Updated June 10, 2010.
    \5\&U.S. Department of Energy, Office of Strategic Petroleum 
Reserves, ``Quick Facts and Frequently Asked Questions.''

    Mr. Marshall. Thank you, Mr. Peppler.
    I would like to note that the Chairman of the full 
Committee, Collin Peterson from Minnesota, has joined us. 
Apparently there has been a little bit of a break from the 
financial regulatory reform conference committee, and I will 
just observe we all appreciate the job that Collin does for us. 
We wouldn't be where we are today, with the farm bill that we 
have today, but for a number of people, and that was a key 
player sitting here today in this room.
    Mr. Chairman, do you have any remarks?

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

    Mr. Peterson. Well, I don't want to delay things too much. 
I think people have heard what I have had to say. We are going 
to be facing a difficult situation. It is unclear exactly what 
the situation will be, but it clearly will be difficult, given 
the financial condition of the country and the deficit, and all 
that. I think that by getting started early, we are giving 
people a chance to think about this ahead of time, so that we 
are ready whenever we get against whatever ends up happening, 
whether there be a reconciliation attempt next year, or getting 
ready for the next farm bill.
    And as you have all heard me say, whatever the outcome of 
all that, we are not going to have any new money, we will 
probably have less money. We have to figure out how to make it 
work so that we have an adequate safety net.
    I am concerned about--this is a bad thing to be concerned 
about, I guess, but that we might have a bumper crop. We could 
have prices down from what we have experienced the last few 
years, and that will present challenges in addition to the 
fiscal challenges that we have.
    So we appreciate all of you for the work that is being 
done. I think all of the commodity groups have developed some 
kind of a working group within their ranks to look at what is 
currently being done, looking at the amount of money we are 
currently spending, and seeing if there is a better way for us 
to provide the safety net that will be more effective, more 
efficient, less complicated, and I think we are making good 
progress.
    The dairy industry, NMPF, had a 96 percent vote behind a 
new type of safety net for dairy. There are still a lot of 
details to work out through that. But that is the kind of thing 
I think we need to look at: are the current programs effective? 
Are they working? Is there a better way to do it?
    So we appreciate everybody stepping up to the plate. The 
Members have been very much engaged in this. And we will 
probably start next May or June with the actual process of 
markup of the next farm bill so we can get it done on time.
    The last thing is that we haven't had a farm bill that has 
been done on time for quite a while. The current farm bill ends 
in September of 2012, and I for one am determined that we get 
this farm bill done prior to September of 2012; that the winter 
wheat guys know what the program is when they are planting, the 
southerners know what the program is when they are planting. So 
that is the goal, at least of this Member. And I thank all of 
you for being here today and sharing your thoughts with us.
    Thank you, Mr. Chairman.
    Mr. Marshall. Thank you, Mr. Chairman. I appreciate those 
remarks. We all appreciate your leadership.
    Mr. Moran from Kansas has joined us. He is the Ranking 
Member of the Subcommittee, and he may have some remarks as 
well.

  OPENING STATEMENT OF HON. JERRY MORAN, A REPRESENTATIVE IN 
                      CONGRESS FROM KANSAS

    Mr. Moran. Mr. Chairman, I do not have any remarks other 
than to express my appreciation to you and Mr. Boswell for 
hosting this hearing, and I look forward to hearing the 
testimony of the rest of the witnesses. Thank you.
    Mr. Marshall. All other Members of the Committee are 
invited to submit opening statements for the record, and the 
record will remain open for 10 days.
    With that, let's move to our next witness, Mr. Bush.

STATEMENT OF ANTHONY BUSH, CHAIRMAN, PUBLIC POLICY ACTION TEAM, 
       NATIONAL CORN GROWERS ASSOCIATION, MT. GILEAD, OH

    Mr. Bush. Mr. Chairman, Ranking Member Moran, and Members 
of the Subcommittee, on behalf of the National Corn Growers 
Association, I appreciate this opportunity to share with you 
some perspectives on today's farm programs. My name is Anthony 
Bush. I am currently serving as Chairman of the NCGA's Public 
Policy Action Team. I am from Mt. Gilead, Ohio, where my wife 
Teresa and I raise corn, soybeans, and wheat on a fourth-
generation family farm.
    Knowing the difficult fiscal conditions that our nation 
must address, NCGA has begun discussions on improving the farm 
safety net under scenarios that could arise as a result of new 
budget difficulties. We look forward to making a strong case 
for our growers to continue to meet the world's increasing 
demand for food, feed, and renewable fuels, that there will be 
even more effective risk management tools needed.
    The demand for corn has increased demand for farm 
production inputs. Over the past 10 years, nitrogen and 
potassium fertilizers have jumped by an estimated 200 and 416 
percent, respectively. Farming is typically a capital-intense, 
thin-margin enterprise, and these higher production costs mean 
even more is at risk with the planting of each crop. It is no 
surprise that the Federal crop insurance revenue-based policies 
have become critically important to today's farm safety net.
    NCGA remains very concerned with the current policy premium 
levels in light of the fact that corn has experienced 
exceptionally low loss ratios under the existing rating system. 
Today's Federal Crop Insurance Program is required to operate 
with a national loss ratio of 1.0, with indemnities paid not to 
exceed total premiums. From 1990 through 2008, the loss ratio 
of corn only exceeded that for all other crops in 1993. The 
loss ratio experience should converge over time if the rating 
system were performing as intended; however, NCGA sees little 
evidence of convergence. Even though NCGA disagrees with the 
recent outside review's endorsement of this system, we agree 
with the recommendations for more appropriate weighting of 
early crop-year observations.
    In the 2008 Farm Bill, NCGA advocated for a more market-
oriented, revenue-based risk management program. The new ACRE 
Program represents a fundamental reform that provides a more 
responsive risk management tool for rising input costs, yield 
trends, and greater market variability.
    In ACRE's initial year, the share of farms participating 
nationwide was around eight percent, comprising almost 13 
percent of base acres, well below initial projections by the 
CBO.
    While NCGA expressed its concerns last year with the 
preparedness of Farm Service Agency employees to adequately 
explain the ACRE Program, our growers have indicated far fewer 
problems this year. Nevertheless, we believe a more concerted 
effort is necessary to provide the training and support systems 
to help streamline the enrollment process and program 
compliance.
    A recent Iowa State study asked farmers who did not 
participate in ACRE why they decided to decline this option. 
Complexity was listed as a major reason for not participating. 
Producers find the rules requiring landowner approvals and 
documents to prove yields overly burdensome.
    Another important issue for ACRE is the limited collection 
data by NASS to revenue value. This is not only a problem for 
ACRE, but for counties where producers no longer have access to 
area-wide crop insurance plans due to insufficient production 
data.
    Over the next few months, NCGA will be evaluating several 
changes to enhance ACRE. Some of these suggestions include 
elimination of the base acre cap to make all planted acres 
eligible for payments. Our growers are also very interested in 
basing ACRE payments on county yields rather than state yields, 
as they more closely reflect farmers' yield risk.
    The other major addition to the farm safety net was the 
SURE Program, which represents an effort at a comprehensive 
revenue assurance program. A number of economists have noted 
that crop insurance, ACRE, and SURE all have a similar purpose 
to provide an effective safety net to producers, but have 
differing components and requirements that could possibly be 
harmonized to improve overall coverage with minimal overlap.
    Moving forward, NCGA believes enhancements to ACRE and our 
Federal Crop Insurance Program could effectively address the 
gap SURE is designed to cover today. We recognize that some 
potential changes would require additional budget resources. 
Given the fiscal challenges that lie ahead and the increasing 
importance of risk management tools, NCGA appreciates the 
Subcommittee's consideration of our members' concerns, and we 
look forward to working with you and your staff as we prepare 
for the next farm bill. Thank you for your time.
    [The prepared statement of Mr. Bush follows:]

  Prepared Statement of Anthony Bush, Chairman, Public Policy Action 
        Team, National Corn Growers Association, Mt. Gilead, OH

    Mr. Chairman, Ranking Member Moran and Members of the Subcommittee, 
on behalf the National Corn Growers Association (NCGA), I appreciate 
the opportunity to share with you some perspectives on today's farm 
programs and their importance to our members' risk management planning.
    My name is Anthony Bush. I am currently serving as the Chairman of 
NCGA's Public Policy Action Team. I am from Mt. Gilead, Ohio where my 
wife Teresa and I raise corn, soybeans and wheat on a fourth generation 
family farm.
    The National Corn Growers Association represents more than 35,000 
corn farmers from 48 states. NCGA also represents more than 300,000 
corn growers who contribute to check off programs and 27 affiliated 
state corn organizations across the nation for the purpose of creating 
new opportunities and markets for corn growers.
    Although it seems like just a short time ago that the 2008 Farm 
Bill's implementation was launched, NCGA recognizes the need for the 
House Agriculture Committee to begin planning for 2012 along with 
ensuring strong oversight over our current farm policies and programs. 
Knowing the extremely difficult fiscal and economic conditions that our 
nation must address today, NCGA has begun to prepare for policy 
discussions on improving the farm safety net and the various scenarios 
that could arise as a result of new budget realities confronting the 
Congress. In doing so, we look forward to making a strong case that for 
our growers to continue to meet the world's increasing demand for food, 
feed and renewable fuels, there will be need for even more effective 
risk management tools. In our view, the reforms adopted in the 2008 
Farm Bill are serving to move the farm safety net in this direction.
    Over the past decade, U.S. corn growers have made significant 
progress in productivity in an increasingly competitive environment. 
Between 2000 and 2009, the national average yield has increased from 
136.9 to 164.7 bushels per acre, over a twenty percent increase. In my 
home state of Ohio, we recorded a state wide average yield of 174 
bushels per acre, an eighteen percent increase in yield. Although many 
growers in Ohio were hit hard in 2002 by drought conditions when the 
state average corn crop yield was 89 bushels per acre, the lowest 
average yield since then has been 135 bu/acre. Because of advances in 
seed technology along with modern production and conservation 
practices, the U.S. corn industry is well positioned to sustain a very 
positive yield trend. At the same time, though, this success is 
accompanied by a substantial increase in risk exposure, particularly 
market volatility.
    From a low of $1.85 per bushel in 2000, the season average market 
price peaked at $4.20 in 2007, and has since declined to $3.50 last 
year, an increase of 90 percent. Since 2006, swings of more than $0.50 
per bushel are common, causing dramatic fluctuations in gross revenue. 
Nationally, the average revenue per acre for corn increased almost 129 
percent between 2000 and 2009. By expanding corn markets, especially a 
growing ethanol industry, the corn industry has certainly benefited 
from more robust commodity prices.
    The same sources of demand growth for corn--rapid growth in 
developing economies, however, have also increased demand for farm 
production inputs; the result is a sharp rise in farmers' production 
costs. Over the past 10 years, nitrogen and potassium fertilizer have 
jumped by an estimated 200 and 416 percent, respectively. Diesel fuel 
has increased by over 148 percent while biotech corn seed costs have 
risen by over 113 percent. Additionally, the average land rent per acre 
in the Corn Belt has increased 41 percent. Markets have determined that 
this recent increase in corn revenue is being mostly bid into the 
prices of inputs, rather than being mostly reflected in farm land 
values and rents. The effect is that, in spite of the attractive run-up 
in prices and yields, a significant amount of the implied wealth is 
flowing off the farm, leaving producer-landowners without a 
proportionately increased store of wealth in farm land that could be 
drawn upon to cushion revenue shocks in the future.
    Farming is typically a capital-intense, thin-margin enterprise, but 
these higher production costs mean even more is at risk with the 
planting of a crop each year. In short, profit margins are still being 
squeezed requiring sound risk management plans and timely marketing of 
corn in order to adequately protect producers from significant crop 
losses as well as declining commodity prices. This is perspective of 
NCGA's comments on the development of the 2012 Farm Bill.
    It is no surprise, then, that Federal crop insurance's revenue 
based policies have become critically important to today's farm safety 
net. Just last year, the total liability protection for No. 2 yellow 
corn exceeded $31 billion for 503,670 policies, which sold for nearly 
$3.5 billion in total premium. Corn by itself represents around 40 
percent of the aggregate premium.
    Impressive as these numbers may be, NCGA remains very concerned 
with current policy premium levels in light of the fact that corn has 
experienced exceptionally low loss ratios under the existing rating 
system. Today's crop insurance program is required to operate with a 
national loss ratio of 1.0 with indemnities paid not to exceed total 
premiums. It is important to note the Federal Crop Insurance Act (FICA) 
provides for instructions to ``ensure equity for producers'' and to 
consider the relative performance for ``commodities by area''. NCGA 
would argue that the program's ultimate performance should be judged by 
equity for producers and that there should not be systematically 
differential performance by commodity, location, or by insurance 
product. While NCGA recognizes the complexity required to provide an 
actuarially sound rating system for the size and breadth of today's 
crop insurance program, we believe an evaluation of the rating 
methodology's historical performance should begin with a clear and 
complete documentation of actual results in the ``real world''. 
Unfortunately, we were disappointed that the recent outside review of 
the Risk Management Agency's rating system adopted a less comprehensive 
approach in its analysis.
    If the current rating system was performing correctly, we would 
expect corn loss ratios to be randomly distributed around that of other 
crops. From 1990 through 2008, the loss ratio of corn only exceeded 
that for all other programs in 1993, one year out of the nineteen. In 
addition, loss ratio experience across crops and regions should 
converge over time if the rating system is performing as intended. 
However, NCGA sees little evidence of convergence. For example, the 
loss ratio from 1990 through 1999 averaged .91 for corn and 1.15 for 
all other programs, a difference of .24. From 2000 through 2009, the 
loss ratio was .67 for corn and .99 for all other programs, an even 
larger difference of .32. While today's historical loss cost system may 
be designed to be self-correcting, the empirical facts suggest 
otherwise. Even though NCGA disagrees with the reviewers' endorsement 
of the current system, we agree with a key recommendation for more 
appropriate weighting of early crop year observations and additional 
weather information for credible annual observations. Without 
significant changes to better reflect reduced yield variability, yield 
trend increases and appropriate weighting corrections, the rating 
system will continue to set premiums well above corn's actual loss 
experience. Over the long term, more corn growers will not be able to 
adequately protect against significant revenue losses during a period 
of increasing market volatility and risk exposure.
    To address gaps in protection against production shortfalls and 
volatile markets not adequately met by crop insurance, price based 
commodity programs and disaster aid, NCGA has advocated for a more 
market oriented revenue based risk management program. Revenue 
shortfalls are the direct cause of income reductions. Price declines do 
not necessarily result in reduced income since price declines have 
historically been accompanied by above average yields. The new Average 
Crop Revenue Election Program (ACRE) represents a fundamental reform to 
the farm safety net; one that NCGA believes provides a more responsive 
risk management tool for rising input costs, yield trends and greater 
market volatility.
    Unlike other farm programs, ACRE targets the risk that revenue for 
a crop year at the state level with a guarantee based on the previous 2 
season average prices. ACRE is the only program that addresses multiple 
year revenue stability by limiting the movement of the guarantee to ten 
percent. Because crop insurance uses futures prices set during the 
cropping year, crop insurance does not protect against price changes 
across years. Similar to crop insurance, ACRE is limited to delivering 
assistance when an actual loss in crop specific revenue is sustained on 
the farm. Another distinct advantage of ACRE is that state and farm 
level benchmark revenues better reflect yield trends by using the 5 
year Olympic average of proven yields.
    As of June 16, 2010, we were advised by FSA staff that 136,170 
farms will be participating in the ACRE program for the 2010, 2011, and 
2012 crop years. In ACRE's initial year, the share of farms nationwide 
was around eight percent comprising almost thirteen percent of base 
acres, well below initial projections by the Congressional Budget 
Office. While NCGA expressed its concerns last year with the 
preparedness of Farm Service Agency county offices to adequately 
explain the ACRE program, our growers have indicated far fewer problems 
this year. Nevertheless, we believe a more concerted effort is 
necessary to provide FSA employees the training resources and office 
support systems to help streamline the enrollment process and program 
compliance. Some of the concerns regarding ACRE that we hope USDA and 
this Committee will take under consideration include the farm 
eligibility condition and the procedures for growers to document their 
yields. In some cases, reorganization of farms and time itself will 
reduce producers' use of county yield plugs in the absence of a proven 
yield to establish a farm's benchmark revenue.
    A recent Iowa State study asked farmers who did not participate in 
ACRE why they decided to decline this option. Complexity was listed as 
the major reason for not participating. Despite the fact ACRE is 
modeled, in part, after popular revenue insurance policies, it is not 
surprising that many producers find the rules requiring landowner 
approvals and documents to prove yields overly burdensome. Plus, the 
double trigger, requiring state revenue to be below a state guarantee 
and farm revenue to be below a farm guarantee adds to the program's 
complexity. While the farm eligibility condition helps to ensure 
payments are targeted for real losses, the removal of this requirement 
would substantially reduce the FSA's work load and administration 
costs. Moreover, the farm level trigger adds a moral hazard problem. In 
some cases, farmers could have an incentive to assure the farm trigger 
is met given expectations that the state trigger will be met.
    Another important administrative related issue for ACRE is the 
limited and inconsistent data collected by the National Agriculture 
Statistics Service (NASS) used to compute a state's crop revenue 
values. This is not only a problem for ACRE, but for counties where 
producers no longer have access to area wide crop insurance plans due 
to insufficient production data. As an example, a corn grower in 
Arkansas who would have elected ACRE on dryland corn in 2009 will find 
out that for 2010 Arkansas corn ACRE will be a combined practice 
because Arkansas did not meet the 25 percent irrigated acre requirement 
for 2010. There is the possibility that the coverage could be restored 
in 2011, but a farmer in this case has elected ACRE assuming a dryland 
yield. Another example of insufficient NASS data can be found in 
Oklahoma where the state has published state level dryland and 
irrigated yields for about 10 years. In ACRE's initial year, NASS only 
published a combined yield, but ACRE is split between irrigated and 
dryland for Oklahoma corn.
    Over the next few months, NCGA will be evaluating a number of 
design changes to enhance ACRE. They include the use of futures prices 
for determining guarantees and revenues which could more effectively 
combine ACRE with marketing practices. Further, use of the season 
average price causes almost a year's delay in receiving ACRE payments. 
Another alternative is the harvest price now used in crop insurance. 
Absent any change to the price component in the guarantees, a five 
percent cup instead of a ten percent cup provides support for a longer 
period of time when revenue declines over continuous years. Our growers 
are also very interested in basing the ACRE on county yields rather 
than state yields as they more closely reflect farmers' yield risk. 
Notwithstanding the production data issues previously mentioned, we 
recognize this one change, alone, will likely require a significant 
trade-off, assuming no additional funding for the commodity title.
    Other suggestions that have been offered to simplify ACRE include: 
(1) calculating the revenue target as a 5 year moving average rather 
than as a 5 year Olympic average and a 2 year moving average of price. 
(2) Eliminate the base acre cap to make all planted acres eligible for 
payments. (3) Use the same method to determine the farm and state 
benchmark revenues to eliminate the potential disconnect between the 
risk management assistance at the broader market area and individual 
farms. (4) Change to a national program to allow for other enhancements 
that would not be possible due to budget constraints.
    The other major addition to the farm safety net was the disaster 
assistance program, Supplemental Revenue Assistance (SURE). In our 
view, it represents an improvement over ad hoc disaster programs. SURE 
introduces more certainty and takes a much needed step toward 
eliminating duplicate payments for the same revenue losses.
    SURE represents an effort at a comprehensive revenue assurance 
program: it covers whole farm revenue for both covered commodities and 
many other crops; it includes crop insurance indemnities, Noninsured 
Crop Disaster Assistance Program (NAP) payments, Marketing Assistance 
Loan proceeds, Direct and Counter-cyclical Program (DCP) payments and 
ACRE payments. SURE revenue is guaranteed at 115 percent of purchased 
crop insurance coverage levels, raising revenue protection up to a 
maximum of 90 percent and it provides protection for both the growing 
season and the marketing year of a crop, relative to the growing season 
coverage of crop insurance and the marketing year coverage of ACRE.
    Substantial assistance has been received by a number of farms, 
however, there is a concern of a moral hazard over a requirement of ten 
percent yield loss for one crop despite that all other SURE 
requirements are met. When the difference between a substantial payment 
and no payment is dependent upon a ten percent yield loss for one crop, 
an incentive exists for a producer to reach the ten percent yield loss.
    The design of SURE also raises questions of equity for farmers who 
operate multi-crop operations. Aside from other serious issues of 
program complexity and long term funding, concerns remain about 
overlapping coverage with ACRE and crop insurance. According to one 
analysis by Drs. Carl Zulauf, Gary Schnitkey and Michael Langemeir, the 
overlap between these programs is not large due to their different 
parameters. Most of the overlap occurs between SURE and ACRE due to the 
same coverage level of 90 percent. One possible solution for addressing 
most of this overlap is to change SURE's payments to harvest time.
    Other observers have noted that crop insurance, ACRE and SURE all 
have a similar purpose to provide an effective safety net to producers, 
but have many differing program components and requirements that could 
be harmonized so as to provide a combined set of programs that would 
improve overall coverage will minimal overlap. Different entity 
definitions and coverage units could be unified; a similar price 
reference across programs could be used; coverage levels are similar, 
but could be combined to include shallow losses. This would clearly be 
no small undertaking, but elective programs that were better harmonized 
could improve the risk management safety net and leave fewer gaps.
    Moving forward, NCGA believes enhancements to ACRE and our crop 
insurance programs could effectively address the gaps SURE is designed 
to cover today. We understand that achieving a farm safety net that 
would significantly diminish the need for disaster assistance is an 
elusive goal yet is one worth pursuing. Given the fiscal challenges 
that lie ahead and the increasing importance of risk management tools, 
NCGA appreciates this Subcommittee's consideration of our members' 
concerns and looks forward to working with you and your staff as you 
prepare for the next farm bill.

    Mr. Marshall. Thank you, Mr. Bush.
    Mr. Henderson.

  STATEMENT OF DAVID L. HENDERSON, PRESIDENT, NATIONAL BARLEY 
               GROWERS ASSOCIATION, CUT BANK, MT

    Mr. Henderson. Mr. Chairman, Members of the Committee, my 
name is Dave Henderson, and I am a farmer from Cut Bank, 
Montana, where I grow irrigated spring wheat, barley, and 
alfalfa. I currently serve as President of the National Barley 
Growers Association, and I am here representing U.S. barley 
growers today.
    Barley is the third major feed grain crop produced in the 
United States, and from 2005 to 2010 U.S. grain producers 
planted almost 4 million acres of barley each year, 
contributing over $8 million annually to the nation's economy. 
But U.S. barley production has been in a severe downward trend 
over the past 20 years, and the amount of barley grown has 
declined by nearly 50 percent. We predict continued loss of 
acreage and production to competing crops that offer better 
returns on investment.
    Though demand certainly plays a role, NBGA believes that 
the U.S. barley industry has lost significant competitiveness 
due in part to distortion in Federal farm program support 
relative to other crops. The 2001 to 2020 projected support 
level for barley compared to other commodities is relatively 
low, just two percent of the total farm program expenditure.
    Barley growers receive little support from two key 
components of the commodity title: the Counter-Cyclical Program 
and the Marketing Loan Program. The target price for barley in 
the countercyclical, though increased slightly in the 2008 Farm 
Bill, is set considerably lower than market conditions warrant, 
lending little support in the form of these payments.
    Severe weather conditions in consecutive years in many 
barley states have led to significantly lower yields or total 
crop failures. The loan program and the LDP are useless when 
you have no crop and the loan rate is set too low to be an 
effective price floor.
    NBGA remains supportive of the direct payment program, 
which is the best means to get much-needed operating money into 
the hands of producers. It is easy to administer, requires 
conservation practices to be met for eligibility, and is the 
most WTO-compliant program in the farm bill.
    Very few barley producers participated in the initial sign-
up for the new ACRE program; however, ACRE has the potential to 
become an effective support mechanism for barley growers, 
protecting guaranteed revenues when crop prices fall. Growers 
like the ability to choose whether or not to participate in a 
revenue-based program like ACRE or the traditional farm 
program, but are frustrated with how complicated the program is 
and how difficult it is to explain to landowners.
    Implementation of the new SURE permanent disaster program 
has been slow, frustrating growers who have suffered crop 
losses and need financial assistance to meet operating expenses 
in the next crop year. We are confident that SURE will provide 
effective support, protecting barley growers from shallow crop 
losses that cannot be afforded through regular crop insurance.
    The risk of failing to produce malting barley that meets 
higher-price contract specifications is great, and the 
availability of affordable crop insurance that at least meets 
the cost of production is critical to our barley growers. NBGA 
believes improvements can be made to risk management programs 
in order to adequately address multi-year losses, increase the 
level of affordable coverage, and coordinate USDA grading 
standards with those stipulated by the U.S. barley industry.
    We continue to face increasing production costs. USDA ERS 
reports that 2009 barley total cost production per acre for the 
Northern Great Plains at $301; the total gross value is 
estimated at $261 for these same acres, for a net loss of $40. 
These facts, along with potential changes in the WTO rules and 
the dire Federal budget situation, have led us to begin looking 
at options for the 2012 Farm Bill.
    We look forward to ongoing discussions with this Committee, 
and would like to thank you again for this opportunity to 
testify.
    [The prepared statement of Mr. Henderson follows:]

 Prepared Statement of David L. Henderson, President, National Barley 
                   Growers Association, Cut Bank, MT

    Mr. Chairman, Members of the Committee, my name is Dave Henderson 
and I am a farmer from Cut Bank, Montana, where I grow irrigated 
barley, spring wheat and alfalfa. I currently serve as President of the 
National Barley Growers Association and I am here today representing 
U.S. barley producers. Thank you for this opportunity to share our 
thoughts on existing farm commodity programs.
    The United States is the eighth-largest barley producing country in 
the world and, after corn and sorghum, is the third major feed grain 
crop produced in the United States. From 2005 to 2010, U.S. grain 
producers planted almost 4 million acres of barley each year, 
contributing over $800 million annually to the nation's economy.
    Production is concentrated in the Northern Plains and the Pacific 
Northwest in states where the growing season is relatively short and 
climatic conditions cool and dry. Historically, livestock consumed most 
of the barley produced in the United States, but food and industrial 
uses have shown continued growth while feed uses of barley have 
declined. Most U.S. barley today is grown for malting use because of 
the price premium it commands. In 2009, approximately 75 percent was 
grown for food, seed and industrial use; 23 percent for feed and 
residual use; and two percent for export.
    But U.S. barley production has been in a severe downward trend. 
Over the past 20 years, the amount of barley grown has declined by 
nearly 50% and we predict continued loss of acreage and production to 
competing crops that offer better returns on investment.
U.S. All Barley Production



    NBGA also believes that the U.S. barley industry has lost 
significant competitiveness due, in part, to distortions in Federal 
farm program support relative to other crops. As you can see by the 
next chart in my testimony, the 2011&2020 projected support level for 
barley compared to other commodities is relatively low; just 2% of 
total farm program expenditures.
2011&2020 Spending by Crop ($59.4 B Total)
Mar 10 CBO ($ Millions)



Countercyclical and Loan Program
    As shown in the next chart, barley growers receive little support 
from two key components of the commodity title; the countercyclical 
program and the marketing loan program. The target price for barley in 
the countercyclical program, though increased slightly in the 2008 Farm 
Bill, is set considerably lower than market conditions warrant. As a 
result, there is very little support in the form of countercyclical 
payments.
    Severe weather conditions in consecutive years in many barley 
states have led to significantly lower yields or total crop failure. 
And though the loan program provides for often necessary short term, 
low-interest commodity loans, the loan program and the LDP are useless 
when you have no crop and the loan rate is set too low to be an 
effective price floor.
20112020 Barley Payments ($980 Million)
Mar 10 CBO ($ Millions)



ACRE
    Very few barley growers participated in the initial sign-up for the 
new ACRE program but our early analysis leads us to believe that, with 
some modifications, ACRE has the potential to become an effective 
support mechanism for barley growers, protecting guaranteed revenues 
when crop prices fall. Growers like the ability to choose whether or 
not to participate in a revenue-based program like ACRE or the 
traditional farm program but are frustrated with how complicated the 
program is and how difficult it is to explain to landowners.

SURE
    Implementation of the new SURE permanent disaster program has been 
slow, frustrating growers who have suffered crop losses and need 
financial assistance to meet operating expenses in the next crop year. 
Once USDA is comfortable with the program, we are confident that SURE 
will provide effective support, protecting barley growers from shallow 
crop losses that cannot be afforded through regular crop insurance.

Crop Insurance
    The Northern Plains and Pacific Northwest barley growing regions 
are susceptible to extreme variability in growing conditions and the 
risk of failing to produce malting barley that meets higher priced 
contract specifications is great. The availability of affordable crop 
insurance that at least meets the cost of production is critical to our 
barley growers. Crop insurance products currently available to barley 
growers do not provide adequate coverage compared to other crops, 
further decreasing barley's competitiveness.
    The final rule of the new COMBO crop insurance plan recently 
released by USDA estimates using a factor of 82.1% of the CBOT corn 
futures price to determine the 2010 projected and harvest price for 
barley. Our analysis of USDA NASS pricing data over the past 10 years 
indicates a more appropriate price relationship between barley and corn 
should be 92%.
    NBGA believes improvements can be made to risk management programs 
in order to adequately address multi-year losses, increase the level of 
affordable coverage and coordinate USDA grading standards with those 
stipulated by the barley industry. We have worked hand in hand with the 
Risk Management Agency on innovative ways to address these challenges 
and have appreciated their responsiveness and concern for barley's risk 
management issues.
    Mr. Chairman and Members of the Committee, there is no doubt that 
America's farmers would rather depend on the markets than the 
government for their livelihoods, but the current economic and trade 
environments do not offer a level playing field in the global 
marketplace. Many of our trading partners support their farmers at much 
higher levels than in the U.S.
    At the same time, we face continually increasing production costs. 
USDA ERS reports the 2009 Barley Total Cost of Production in the 
Northern Great Plains, including seed, fertilizer, chemicals, fuel, 
machinery, labor and land, is $301.55. The Total Gross Value of 
Production is estimated at $260.59 for a calculated net return of 
-$40.96.
    These facts, along with potential changes in the World Trade 
Organization rules and the increasingly dire Federal budget situation, 
have led us to begin looking at options for the 2012 Farm Bill. We look 
forward to ongoing discussions with this Committee.
    Thank you again to the Committee for this opportunity to testify. 
If you have any questions, I will be happy to address them.

Dave Henderson,
President,
National Barley Growers Association.

    Mr. Marshall. Thank you, Mr. Henderson.
    Mr. Joslin.

 STATEMENT OF ROBINSON W. JOSLIN, PRESIDENT, AMERICAN SOYBEAN 
                    ASSOCIATION, SIDNEY, OH

    Mr. Joslin. Good morning, Chairman Peterson, Mr. Marshall, 
and Members of the Committee, I am Rob Joslin, a soybean farmer 
from Sidney, Ohio. I currently serve as President of the 
American Soybean Association and also a member of ASA's Farm 
Bill Working Group. ASA is pleased to provide our initial 
thoughts of farm program priorities for the 2012 Farm Bill.
    ASA believes that farm programs play an important role in 
the underpinning and strength of the farm economy, which in 
turn supports the overall U.S. economy. We recognize that in 
the current budget environment, farm programs are a target for 
interests that either oppose them in principle or want to fund 
other priorities. Accordingly, ASA is looking for ways to make 
farm programs more efficient, effective, and defensible.
    ASA has long supported adjusting target prices and 
marketing loan rates to make them more equitable among 
commodities. The current $5 per bushel soybean loan rate and $6 
per bushel target price are not equitable; but because market 
prices have been above these levels in recent years, they have 
not disadvantaged soybean production under the 2008 Farm Bill. 
In order to provide meaningful income supports, soybean loan 
rates and target prices would need to be increased 
significantly.
    Direct payments support farm income when prices and yields 
fall sharply, particularly for producers in regions where ACRE 
crop insurance protection participation is low. Direct payments 
are also considered non-trade distorting, or green box, under 
WTO.
    Direct payments have been criticized when commodity prices 
rise and payments are made regardless of the need for income 
support. In addition, direct payments can be factored into land 
grants, so they often pass through to the landlord, rather than 
benefiting producers who do not own the land, but accept the 
production risk.
    With regard to the ACRE Program, projections indicate it 
may be a better choice for producers in the largest soybean 
growing states than the traditional farm program. ASA believes 
ACRE could be modified to make it more attractive in regions of 
the country where participation is low. Modifications could 
include changing the state loss trigger to a trigger closer to 
the producer level. This is particularly important to producers 
in states with high variability of yields, and would 
functionally improve producer risk management.
    A second concern is that sign-up under ACRE requires 
participation for the duration of the 2008 Farm Bill. This 
discourages participation by producers who rent their land and 
cannot make multiple-year commitments.
    A third issue is the 30 percent reduction in marketing loan 
rates required under ACRE. This reduction undercuts the use of 
the loan as a marketing tool by soybean producers in southern 
states who also grow cotton, making ACRE a nonstarter for these 
producers. The ACRE Program needs to be made more 
understandable and accessible to producers, including reducing 
the amount of paperwork required to participate.
    ASA members in some states indicate that the SURE Program 
will provide substantive relief for losses incurred in the 2008 
year; however, SURE does not provide adequate disaster relief 
to producers in regions where participation in crop insurance 
is low or at low levels.
    Crop insurance has become an increasingly important part of 
the farm income safety net for soybean producers in recent 
years. ASA does not support including crop insurance reform and 
reauthorization in the farm bill. In addition, ASA opposes cuts 
in the crop insurance baseline, and any reallocation should be 
used to make it more effective nationally.
    ASA believes crop insurance should be modified to reflect 
the lower return per acre and higher input cost in soybean 
producing regions that do not participate at meaningful levels. 
Low APHs and high rates make buy-up coverage unaffordable for 
many southern farmers. Inadequate coverage translates into 
reduced value for the SURE Program.
    ASA encourages the Committee to determine whether and how 
modifications should be made to the ACRE, SURE, and Federal 
Crop Insurance Programs so that each play an appropriate role 
in supporting farm income.
    That concludes my comments today, Mr. Chairman and Members 
of the Committee. ASA looks forward to working closely with you 
and other Members of the Committee as you prepare to write the 
next farm bill. Thank you.
    [The prepared statement of Mr. Joslin follows:]

 Prepared Statement of Robinson W. Joslin, President, American Soybean 
                        Association, Sidney, OH

    Good morning, Mr. Chairman and Members of the Committee. I am Rob 
Joslin, a soybean farmer from Sidney, Ohio. I serve as President of the 
American Soybean Association Board of Directors and am a member of 
ASA's Farm Bill Working Group. ASA is pleased to provide our initial 
thoughts on farm program priorities for the 2012 Farm Bill.
    There is a widely held view that production agriculture in the 
U.S., and worldwide, has undergone a significant change in recent years 
in which demand has begun to outstrip supply for various commodities, 
including soybeans. The increase in prices for feed and food crops in 
2007 and 2008 is attributed to a rise in world demand for agricultural 
commodities to meet food, feed, fiber, and fuel needs. Supporters of 
this view suggest that farm program supports are no longer important, 
since prices are expected to remain above historical levels in coming 
years.
    A contrasting opinion is that agriculture markets are cyclical, and 
that production will respond to higher prices which, over time, will 
decline. This view is supported by experience in the mid-1990s when, 
with prices above historical levels, Congress approved scaling back 
supports in the 1996 Farm Bill, known as Freedom to Farm. Three years 
later, prices fell to historic lows, requiring emergency payments to 
supplement the decline in farm income and support. Another contributing 
factor is the likelihood that agricultural biotechnology and other 
scientific advances will continue to raise yields and the quality of 
crops worldwide, offsetting the trends in population growth and energy 
use of commodities.
    ASA believes that farm programs play an important role in 
underpinning the strength of the farm economy which, in turn, has 
supported the overall U.S. economy during the current recession. The 
importance of an effective safety net for farm income has grown as the 
rising cost of farm inputs has increasingly pressured farm 
profitability. We recognize that, in the current budget environment, 
farm programs are a target for interests that either oppose them in 
principle or want to fund other priorities. Accordingly, ASA is looking 
for ways to make farm programs more efficient, effective, and 
defensible.

Marketing Loan and Countercyclical Programs
    With regard to current farm programs, ASA has long supported 
adjusting target prices and marketing loan rates to make them equitable 
among commodities. Countercyclical income support should be based on 
the relative value of each commodity. Loan rates must also be 
equitable, or planting decisions will be distorted in years when prices 
are expected to be near or below loan levels. ASA supported equitable 
adjustments in target prices and loan rates in both the 2002 and 2008 
Farm Bills.
    Recently, soybean market prices have been well above loan rates and 
target prices, highlighting the fact that the soybean safety net falls 
well below the value of the crop. The current $5.00 per bushel soybean 
loan rate and $6.00 per bushel soybean target price are not equitable 
with support levels for other major commodities. Because market prices 
have been above these levels in recent years, these disparities have 
not disadvantaged soybean production under the 2008 Farm Bill.
    CBO's March 2010 baseline projects outlays of $19 million in 
soybean countercyclical payments, or CCPs, and $82 million in soybean 
marketing loan gains and loan deficiency payments in FY 2011/20. The 
total for the two programs of $101 million over 10 years--just 1\1/2\ 
percent of total projected soybean outlays--reflects how far below 
expected prices current support levels are. In order to provide 
meaningful income support in current markets, they would need to be 
significantly increased. ASA continues to support equitable adjustments 
in target prices and loan rates. And we would note that the cost of 
doing so would likely be moderate, based on continued higher soybean 
prices projected in the current baseline.

Direct Payments
    CBO projects outlays of $5.6 billion in soybean direct payments in 
FY 2011/20, equal to 84.5 percent of total support for soybeans over 
the 10 year period. With the wide disparity between current soybean 
loan rates and target prices and market prices, direct payments 
represent a basic support for farm income when prices and yields fall 
sharply. This is particularly true for producers in regions where ACRE 
and crop insurance participation is low. Direct payments are also the 
only farm program considered non-trade distorting, or Green Box, under 
the WTO.
    Direct payments drew significant criticism during debate on the 
2008 Farm Bill, as commodity prices rose and payments were made 
regardless of the need for income support. In addition, direct payments 
are fixed at constant levels and can be factored into land rents, so 
they often pass through to the landlord rather than benefiting 
producers who do not own the land they farm, but accept the production 
risk.

ACRE
    CBO projects outlays of $929 million in payments to soybean 
producers under the Average Crop Revenue Election, or ACRE, program in 
FY 2011/20, or 14 percent of total support for soybeans during the 10 
year period. While we have experienced only 1 year since ACRE sign-up 
for 2009 crops, projections indicate it may be a better choice for 
producers in the largest soybean-growing states than the traditional 
farm program.
    ASA supported including ACRE in the 2008 Farm Bill as an option to 
the ``three-legged stool'' of traditional farm program support--
marketing loans, target prices, and direct payments. The revenue 
guarantee provided under ACRE can be strengthened and modified to make 
it more attractive in regions of the country where participation is 
low. We believe ACRE can be made to work in tandem with a modified crop 
insurance program to provide a more effective safety net for all 
soybean producers.
    Among the modifications needed in the current ACRE program, ASA 
recommends that the Committee consider changing the state loss trigger 
to a trigger closer to the producer level. This is particularly 
important to producers in states with higher variability in yields 
between growing areas within the state, and would functionally improve 
producer risk management. A producer who experiences low yields might 
qualify for ACRE payments on his or her farm, but could be excluded 
from eligibility if overall state yields prevent reaching the state 
loss trigger. A related question is whether to maintain the farm loss 
trigger if the decision is made to move the program from a state to a 
more local loss threshold.
    A significant second concern is that sign-up under ACRE requires 
participation for the duration of the 2008 Farm Bill. This requirement 
discourages participation by producers who rent their land on an annual 
basis, and cannot make a multi-year commitment.
    A third issue is the 30 percent reduction in marketing loan rates 
required under the current ACRE program. The loan program is a critical 
marketing tool for soybean producers in southern states who also grow 
cotton. Nearly all cotton is placed under the loan, which serves as a 
floor for price negotiations with cotton merchants. The 30 percent 
reduction in loan rates undercuts this marketing function, making ACRE 
a non-starter for southern soybean producers who also grow cotton.
    ASA also supports simplifying the ACRE program to make it more 
understandable and accessible to producers. The amount of paperwork 
required to participate in ACRE is excessive, and needs to be reduced 
if participation rates are to increase.

SURE
    Preliminary reports from ASA members in some states indicate that 
the Supplemental Agricultural Disaster Assistance program, commonly 
known as SURE, will provide substantive relief for losses incurred 
during the 2008 crop year that were not covered through crop insurance 
indemnities. At the same time, SURE does not provide adequate disaster 
relief to producers in regions where participation in crop insurance is 
low, or at low levels.

Crop Insurance
    I would now like to turn to the Federal Crop Insurance Program. 
Crop insurance has become an increasingly important part of the farm 
income safety net for soybean producers in recent years. ASA does not 
support including crop insurance reform and reauthorization in the next 
farm bill. To do so would risk skewing coverage between commodities, 
similar to the inequitable price and income support levels currently 
provided under the traditional farm programs. In addition, ASA opposes 
cuts in the crop insurance baseline. Any reallocation of spending under 
the program should be used to pay for reforms needed to make it more 
effective on a nationwide basis.
    ASA believes crop insurance should be modified to reflect the lower 
return per acre and higher input costs in soybean-producing regions 
that do not participate at meaningful levels. We continue to see a wide 
disparity in opinions and participation in crop insurance among 
growers, based on region. Low APHs and high rates make buy-up coverage 
unaffordable for many Southern soybean farmers. As a result, their 
inadequate coverage then translates into reduced value from the SURE 
program.
    ASA is concerned by the possibility that income support provided 
under ACRE, SURE, and crop insurance may overlap, which would make 
these programs less defensible as Congress looks for ways to reduce the 
overall cost of farm programs. We encourage the Committee to determine 
whether and how modifications should be made so that each of these 
programs plays an appropriate role in supporting farm income when 
prices and yields decline.

Other Farm Bill Programs
    Soybean farmers strongly support programs in other titles of the 
2008 Farm Bill, including conservation, research, energy, and export 
promotion and food assistance programs. We look forward to discussing 
these important issues in future hearings before the Committee.
Conclusion
    That concludes my comments today, Mr. Chairman. ASA looks forward 
to working closely with you and other Members of the Committee as you 
prepare to write the next farm bill.

    Mr. Marshall. I thank the witnesses for their testimony.
    Now, for the questioning, Mr. Chairman, do you have any 
questions right now. If you have some, maybe I will come back 
to you after Jerry and I.
    Mr. Peterson. No. I have to go over, so I am good. You guys 
will do an outstanding job of grilling these guys, so we will 
leave it to you.
    Mr. Marshall. The pressure is on here.
    Mr. Bush, you talked a little bit about price volatility 
where the market is concerned in corn. Could you describe for 
us your impressions of price volatility, how prices have moved, 
say, over the last 10 years. What suggestions you would have 
for what the Federal Government might do to try and dampen down 
or fix this problem?
    Mr. Bush. In the past 10 years, around 2000, corn was 
hovering somewhere probably around $1.90 to $2 a bushel. We 
have seen peaks and valleys among that time. The 2008 crop 
year, we saw extremely high prices. The market fundamentals did 
not support corn at that high level of a price.
    As far as what the Federal Government can do about price 
fluctuations, tell me what the weather is going to do and I 
will tell you what to do. I don't know how the Federal 
Government can predict the weather, because the weather has so 
much to do with our markets.
    Mr. Marshall. So programs that would protect you where 
price volatility is concerned is not something that you have 
thought about?
    Mr. Bush. We like programs that protect price volatility 
like the ACRE Program with the 2 year averages, they address 
systemic risk, and crop insurance with revenue-based policies. 
At least when a producer plants his crop, he knows where his 
floor is.
    Mr. Marshall. You have seen a lot of volatility in input 
costs as well. Any comment about that; what might be done, if 
anything?
    Mr. Bush. Most of our nitrogen in this country, I forget 
the percentage now; it is a very high percentage of our 
nitrogen is imported in this country. Streamlining the delivery 
process for that up the rivers, the locks and dams, things like 
that could help with the delivery. Most of the nitrogen is 
imported in the form of ammonia and we refine it here. There 
are a very limited number of ships that can haul nitrogen in 
the form of ammonia, and they are aging and it is expensive 
because there is no back-haul for them or anything. So anything 
the government could do to improve the delivery process of our 
inputs would help.
    Mr. Marshall. For all of the panelists, we have had a lot 
of testimony in the full Committee and in this Subcommittee 
over the last 3, 4, 5 years focusing on to what extent 
different forces within the futures markets, the regulated 
exchanges, have caused some problems with prices, and there was 
a wide range of opinion in the agricultural community 
concerning those issues. And I am just wondering whether or not 
that has settled down any at this point.
    Mr. Bush, I asked you about price volatility. You don't 
mention that perhaps some of this price volatility is the fault 
of the futures markets, derivatives, et cetera. Does anybody 
here feel like it is? Mr. Nelson.
    Mr. Nelson. I think he echoed our concerns. We have seen 
that volatility, but we have also seen the lack of convergence 
in the marketplace in which our producers price their 
commodities.
    Speaking for Illinois, we had a significant problem as it 
dealt with wheat. The southern third of our state raises quite 
a few wheat acres, and at one time we were seeing basis levels, 
the difference between the cash price, the futures price in 
excess of $3 a bushel. In a lot of cases farmers don't make 
that. And we have seen that convergence improve with some of 
the changes that have been made in the delivery system. But, 
when you start looking at some of the components of risk, price 
is just one function of some of those components. We deal with, 
as Mr. Bush said, the weather, and you see the run-up and the 
slide in commodity markets. That is what farmers deal with, and 
part of that is the risk management.
    Mr. Marshall. The improvement in convergence, you attribute 
that to changes in the delivery system or changes in the 
contract terms concerning delivery?
    Mr. Nelson. It could actually be both of those. We have had 
several meetings on convergence since we were hearing all those 
concerns from our producers, but we have seen some 
strengthening of the convergence factors, especially in wheat. 
We still have concerns when you see certain types or points 
during the year where you see wide basis swings in both corn 
and soybeans in addition to wheat. So hopefully we have started 
to address some of those challenges.
    Mr. Marshall. My 5 minutes is up. I will turn to the 
Ranking Member, Mr. Moran from Kansas.
    Mr. Moran. Mr. Chairman, thank you. I have heard mixed 
reports, testimony about direct payments from the witnesses 
this morning. Generally, Kansas farmers would tell me that the 
two most important components of the safety net that I ought to 
be fighting to preserve would be direct payments and crop 
insurance. And particularly you, Mr. Peppler, indicated that 
direct payments could be better utilized elsewhere, although 
one of the things you suggested was that the money could be 
spent on crop insurance. So perhaps those two things are not 
inconsistent.
    But my efforts to champion the--I understand somebody 
indicated the difficulty in explaining to the public, the 
public relations issues that surround direct payments. I 
certainly recognize those as an issue. But is there a consensus 
here that efforts on behalf of direct payments by Members of 
Congress, like me, on behalf of Kansas farmers, is something 
that I ought to move on. Is it just time to forego this belief 
that direct payments are an important component, despite the 
fact that they provide a benefit when there is no other 
benefit?
    We have seen numerous circumstances in Kansas in which the 
price is such that there is no other payment, and yet you have 
no production and so the direct payment is of great value. And 
we know that we are under attack for WTO violations, and direct 
payments are the one that is the least likely to be subject to 
those attacks.
    So do they play no role? Should we deemphasize direct 
payments, or should I just move on and champion something else? 
I think I would ask anybody. But, Mr. Peppler.
    Mr. Peppler. Well, certainly a lot of our producers are in 
eastern Colorado, which, if my geography, of course, is 
correct, it is pretty close to Kansas.
    Mr. Moran. It is. We used to be allies, and Colorado has 
abandoned Kansas and other Big 12 schools. But we do know where 
your state is and we do share a common border.
    Mr. Peppler. Yes. Well, you have better water lawyers also, 
sir.
    You know, you mentioned the direct payment being the only 
payment that comes to your producers on low-price years, but 
that is not the issue. The issue is the public part of it that 
you talked about. The issue is, when wheat is up in the $7, $8, 
$10 bracket, and some of the producers are getting huge 
government direct payment checks on top of it, how do we 
explain that? And that is a very difficult load for us.
    And certainly in Rocky Mountain Farmers Union, being so 
close to your area, and we share producers, certainly it has 
been hotly contested in our policy debate. But traditionally, 
Farmers Union has said we want a farm program that helps us out 
when we need help, and doesn't help us when we don't need help. 
And certainly the countercyclical and the loan programs that we 
have seen in the past fit that policy the best.
    Mr. Moran. I appreciate you adding words ``fit that policy 
the best,'' because I only want to point out that direct 
payments do meet that criteria in many circumstances in which 
there is no other help but this, and help is needed. So, does 
anybody else want to join in this conversation?
    Mr. Joslin. Yes. I will comment quickly. I think you struck 
at that, that direct payments are clearly the most WTO-
compliant. And before you discuss or, as you say, move away 
from direct payments, I think there needs to be more complete 
analysis. Specifically, it is very evident. All of us here 
represent national organizations, and it is very evident that 
direct payments have different benefits in different regions in 
the country. I think that needs to be a very important part of 
the analysis.
    Mr. Moran. Mr. Chairman, my time has just about expired. I 
would only add that it would be a terrible shame if we put all 
our eggs in one basket or two baskets that turned out to be 
WTO-noncompliant, and then direct payments are gone as well.
    I thank the witnesses for their testimony, and look forward 
to further conversations as we progress on this issue. Thank 
you.
    Mr. Marshall. Since I have the gavel and I am not going to 
gavel myself down, I will take privilege of the chair, Mr. 
Nelson, just to follow up on my question. Is it that the 
delivery systems have improved or the contract language has 
improved? And to me, anyway, it makes little sense for the 
futures industries' contract terms to somehow force the shape 
of delivery systems in agriculture. Those contracts simply 
should be modified to fit what is on the ground. We ought not 
to be, for example, creating warehouses and new ports, et 
cetera, simply because the futures industry doesn't change the 
terms of its contracts. You know, originally futures were set 
up to assist us. They weren't set up ever, and even ever 
contemplated, to be something that actually drives the industry 
and shapes the industry.
    The gentleman from North Carolina, Mr. Kissell.
    Mr. Kissell. Thank you, Mr. Chairman.
    Mr. Peppler, kind of a follow-up to what we were just 
talking about. You mentioned in your testimony that the 
renegotiations of WTO would be a good opportunity for us to 
perhaps change some basic foreign policy. Would you like to add 
more to that in specifics of what farm policies you might like 
to see changed in new directions?
    Mr. Peppler. Well, as a whole--and we are all pro-trade. We 
want fair trade, and we don't want just any trade deal that 
comes down the pipe. And, to me, the WTO agreement has been 
almost like a Super Bowl trophy through these Administrations, 
where at some point somebody is going to sign that deal and 
have that Super Bowl trophy. And, we have been guilty a little 
bit of eating our own and throwing the baby out in the wash.
    So my view and that of Farmers Union is that we need to 
take care of our domestic producers first and foremost, and 
after that, then we can work on the trade issues.
    Mr. Kissell. Mr. Nelson, you talked about that there were 
different parts of the farm bill that applied better to 
different aspects of farming. And you mentioned kind of a 
Goldilocks theory--some real good, some real bad, some just 
okay. On the overall on the average, thumbs up, thumbs down on 
the overall effectiveness of the farm bill?
    Mr. Nelson. I would say that at the present time I think 
you can--as I said in my testimony, you can find different 
regions of this country that like different components of this 
farm bill, but you can also find people that have concerns.
    As I said in my testimony, the ACRE Program, we have one of 
the largest participation rates coming from our state. The 
dichotomy to that is you look at the State of Mississippi, they 
are at the other end. And I would say farmers are concerned 
with the complexity of this farm bill that they are operating 
under.
    I will use my case as a good example. Just last Friday, 
since all we do is get rain every day in Illinois these days, I 
went in to basically certify my acres and bring in the 
paperwork that was needed for the background dissertation on 
ACRE. Two and a half hours later, we finished going through 
that particular sign-up period and the background 
documentation. I heard it from a number of producers that day: 
How can we simplify this process, going back with the number of 
years' data that is involved and that sort of thing?
    So I would give the grade--if that is what you are asking 
me--of 2008 Farm Bill, mixed results, given the fact of what we 
are hearing and some of the new programs. And, going into the 
next farm bill debate, some simplifications and modifications 
can be made to this farm bill that will go a long way in the 
eyes of producers as it relates to safety net provisions.
    Mr. Kissell. Mr. Nelson, you mentioned, if I understood you 
correctly, that you would not support or advise shifting money 
from one place to another in the bill. But, you mentioned that 
maybe there were some areas that had little to no money that 
were important areas. If I understood that correctly, how would 
you suggest, then, we affect those areas with little or no 
money that should maybe get some more attention?
    Mr. Nelson. We feel strongly as an organization about that, 
because there are a number of titles in this farm bill that are 
important to various groups and various industries. And to 
literally take money from one particular area and shift it to 
another--you could take as an example a program that is 
working--shift some of those resources to another, and really 
make a problem with the program that you just took resources 
away from.
    Having said that, we recognize the budget constraints that 
we are going to be under as we write this farm bill. It is 
going to be a tough one to write from a financial standpoint. 
But we do have great concerns when you start moving and 
shifting resources around from one area to another.
    Mr. Kissell. Thank you, sir. Thank you, Mr. Chairman.
    Mr. Marshall. Thank you Mr. Kissell. Mr. Conaway from 
Texas.
    Mr. Conaway. Thank you, Mr. Chairman.
    Gentlemen, thank you for being here. Mr. Bush, I was in Ms. 
Herseth Sandlin's district, and we went to a terrific ethanol 
plant, corn-based ethanol plant. And the folks there were 
telling us that expected improvements in efficiencies and 
everything else with respect to corn would allow the corn 
producers to meet most of the mandated demand for ethanol over 
the next 10 years without undue pressure on prices to consumers 
of other corn products, and they are betting on the trend that 
has happened in the past. They say in the past, the 
productivity per acre and first kernel of seed, whatever it is, 
that got so much better that we can replicate that in the 
future and that will happen again.
    What is your perspective on future productivity gains for 
corn in the face of this 36 billion gallon mandate for ethanol?
    Mr. Bush. Let me first point out that currently, here in 
virtually the end of June, we have about a 2 billion bushel 
carryout of corn right now, only a couple of months away from a 
new crop. I believe that yield trends that we have seen in the 
past, yield trends will help. That is a big part of it, 
biotechnology in seeds. If you believe the Monsantos and the 
pioneers, DuPonts of the world, 300 bushel corn is just around 
the corner. And, it is going to take everything.
    I heard a guy from Pioneer Seeds talking the other day at a 
state meeting and they were talking about China. And he wasn't 
scared of China a bit because he said, ``We are going to need 
China. We can't produce all this corn ourselves.'' But here, 
domestically, we have already seen in just a matter of a few 
years we went from 2.5 bushel or 2.5 gallons of ethanol per 
bushel up to around 2.9 now, and I expect those efficiencies to 
continue.
    Mr. Conaway. It is interesting you mentioned that somebody 
said we are going to need China.
    Mr. Peppler, the bilateral trade agreement with China has 
languished for 3 years now, due to misplaced opposition from 
other folks. While that has languished, and in opposition from 
perhaps you and other folks, we have lost market share in 
Colombia to Canada and others. We are drowning in wheat in 
Texas. We would love to be able to sell that wheat in Colombia, 
but we can't. We can, but there are tariffs associated with it.
    You said protect the American producer first. How does not 
trading or not putting ourselves in a good trading position 
with, in this instance, one of our only friends in South 
America, how does that help American producers to maintain 
tariffs on American wheat that went into Colombia?
    Mr. Peppler. Sir, I hope my impression wasn't that we 
didn't want to trade. The impression that I wanted to leave 
with you was that when we do a trade deal, we want to make sure 
that it is a good trade deal for agriculture and not just for 
the wheat producers, but for other parts. We have seen some 
issues in some of these bilateral trade agreements where you 
may help out one, but you may hurt another segment of 
agriculture. And it is very difficult to do.
    Mr. Conaway. Yes, I understand that. When you say you want 
a good deal, would selling whatever products to Colombia, with 
no tariffs on American products being sold to Colombia, offset 
by the existing no tariffs on products made in Colombia and 
sold here, wouldn't that by definition be a good deal?
    Let me follow up further. Panama is another trade agreement 
that is languishing out there as a result of misplaced 
opposition. Panama is expanding the Panama Canal, one of the 
largest earth-moving jobs we have seen in a century. And 
Caterpillar is at a 15 percent disadvantage on selling tractors 
and bulldozers and earth-moving equipment to Panama because we 
have refused to sign a bilateral agreement with Panama.
    Anything made in Panama can be sold in the United States 
without tariffs. So a trade deal in which trade tariffs, in the 
country we are trying to sell it in, are eliminated, looks like 
a good deal by most definitions. Any pushback on that?
    Mr. Peppler. I don't have any comment on that specifically.
    Mr. Conaway. Thank you, Mr. Chairman. I yield back.
    Mr. Joslin. Mr. Conaway, may I comment on that?
    Mr. Conaway. Yes, absolutely.
    Mr. Joslin. Less than a month ago I was in Panama, I met 
with the Panamanian Chamber of Commerce and they very clearly 
said that they are moving forward without the United States. 
They would like to trade with the United States, but they are 
writing other trade agreements. And it wasn't a negative, I 
just wanted to convey that. And you are right, it is a huge 
process. They are doubling the size of that canal, and I have 
been in Colombia and it does bother me that these free trade 
agreements are staying on the shelf.
    Mr. Conaway. Thank you, Mr. Chairman. Thank you.
    Mr. Marshall. Thank you, Mr. Conaway. Ms. Markey from 
Colorado.
    Ms. Markey. Yes. Thank you very much, Mr. Chairman. I also 
am going to address my first question to Mr. Peppler, because 
he is my friend and has a beautiful farm in northern Colorado. 
Good to see you here.
    You had mentioned in your testimony about supply management 
and that there are very few, if any, programs in the farm bill 
that address the issue of supply management. And I am intrigued 
by that.
    Can you talk a little bit about what you would see as some 
fundamental mechanisms that could be put in place to address if 
there was, for instance, a bumper crop and there was too much 
supply and what we would do? So if you could talk about those 
issues?
    Mr. Peppler. Certainly we have had these kinds of programs 
in the past, and they are a major part of the NFU policy, and 
basically it is a safety net for not only producers, but it is 
for consumers also, to make sure that we have proper food, 
proper energy supplies.
    We would propose a storage-type program where producers get 
paid to store their commodities, preferably on their farms in 
their own storage. When the price would come down, that more 
would go in storage; when the price would go up tremendously, 
that some would come out of storage. And that would take away 
from some of the extreme price volatility that we have seen 
based some on supply and some on speculation in the commodity 
markets.
    Ms. Markey. Okay. Thank you. This is really for the whole 
panel. We have heard the SURE Program was a hard-won victory in 
the farm bill, but there have been inconsistencies on how it 
has been administered in local offices.
    Can any of you--would any of you like to comment on some of 
the different experiences that you have heard from producers at 
the county offices with regard to the SURE Program?
    Mr. Henderson. Yes, I would. In our section of Montana, 10 
of the last 12 years have been drought years. So the gentleman 
at the end who was talking about rain every day, I think he was 
bragging.
    But anyway, in visiting with our county CED, our local FSA 
director, she made the statement that sign-up takes, on 
average, per producer anywhere from 6 to 20 hours. And with the 
complexities of the program, she is having a second staff 
member in the office run through it again, which takes an 
additional 6 to 8 hours. So there is a tremendous amount of 
time that this takes.
    So there is very beneficial money there. I mean, when we 
are losing the top 30 percent off our crop insurance, losing 
that every year, that 25 to 30 percent, I mean there is that 
protection that is SURE that is very beneficial and we would 
like to see it more----
    Ms. Markey. So what would help, streamlining the 
application process, the rules and regs on how it is 
implemented? What would be helpful to make it more easily 
understandable for producers?
    Mr. Henderson. So the statement that she made was more 
training for staff members would be very beneficial.
    Ms. Markey. Okay.
    Mr. Henderson. So just to get them more in line with the 
program and that would be very beneficial, was her comment.
    Ms. Markey. Okay. Thank you. Does anyone else want to 
comment on that. Yes?
    Mr. Nelson. Just a comment, because the SURE Program from 
our state is probably not as widely used as it is in other 
states because of the levels of crop insurance the producers 
take out. But, you really need to determine what the SURE 
Program is. Is it a disaster program or is it a type of crop 
insurance? And that is really where producers are still trying 
to sift this out.
    Then you layer on top of that, before the ink was dry, and 
I think the frustration the producers felt, the rules were not 
put into place. You had producers in this country that lost a 
crop in 2008. They didn't have the program up and running, and 
were the resources there at USDA to make this be implemented on 
time? And then you started to hear the cries for ad hoc 
disaster to take the place of that.
    And as most of us know, when we talked through the last 
farm bill debate, we were looking at that type of program to 
look at not having to come back for ad hoc disaster. But as all 
of you know, disasters happen across this country. And those 
are some of the philosophical questions that need to be 
addressed.
    Ms. Markey. Right, okay. So should it be used as a disaster 
program and, if so, the funding needs to be there.
    Mr. Peppler.
    Mr. Peppler. Yes. I think it is appropriate this time, I 
was on the Farm Service Agency State Committee during the 
Clinton Administration, and even at that time the Farm Service 
Agency was under attack for workload and number of FTE that 
they are allowed.
    We seem to be asking more and more out of these people in 
our county offices and not putting our money where our mouth is 
in these situations. And in your district and in Well County, 
which is probably the fourth or fifth busiest FSA office in the 
United States, with over 2,800 farms, we were at a point where 
we even had shared management there with Larimer County.
    Ms. Markey. Yes.
    Mr. Peppler. I think we need to look at FSA and their 
ability to deliver some of these programs. Thank you.
    Ms. Markey. Thank you, that is helpful. Thank you very 
much, Mr. Chairman.
    Mr. Marshall. Thank you. I thank the panel. You will have 
10 days to supplement the record. Any of the questions that you 
have been asked or other thoughts that you have, if you could 
go ahead and submit something in writing.
    I have two more questions for all of you, and you might 
respond in writing if you would.
    We have wrestled with how our disaster program should be 
structured. You know, they are just ad hoc. We make them up as 
we go along. I know you have ideas concerning what we ought to 
be doing, what is politically practical and would work where a 
disaster is concerned. If you could share those ideas with us 
in writing, we would appreciate that.
    The other thing is barriers to entry for new farmers, for 
young farmers, and your suggestions concerning how we can help 
new farmers, young farmers, with our existing programs and 
perhaps in the new farm bill as well.
    With that, I thank you for your testimony.
    And let's call the next panel. The next panel consists of 
Mr. Gary Murphy, Chairman of the Board of the U.S. Rice 
Producers Association, and on behalf of USA Rice Federation. 
Mr. Murphy is from Bernie, Missouri.
    Mr. Gerald Simonsen, Chairman of the Board of Directors of 
the National Sorghum Producers, from Ruskin, Nebraska.
    Mr. Eddie Smith, Chairman of the National Cotton Council 
from Floydada, Texas.
    Mr. Jim Thompson, Chairman, USA Dry Pea & Lentil Council, 
Farmington, Washington.
    Mr. Erik Younggren, Second Vice President, National 
Association of Wheat Growers, Hallock, Minnesota.
    I see our witnesses have not had time to get their seats 
and the audience is going to replace as well, so we will just 
take a short break. We will commence in maybe 5 minutes.
    [Recess.]
    Mr. Marshall. If the witnesses are ready, it looks like we 
are not going to have a stream of people coming in, so why 
don't we proceed with Mr. Murphy?

  STATEMENT OF GARY MURPHY, CHAIRMAN OF THE BOARD, U.S. RICE 
             PRODUCERS ASSOCIATION, BERNIE, MO; ON
                 BEHALF OF USA RICE FEDERATION

    Mr. Murphy. Chairman Marshall, Ranking Member Moran and 
Members of the Subcommittee, thank you for holding this 
hearing. My name is Gary Murphy. I am a rice farmer from 
Bernie, Missouri.
    My son and I grow cotton, rice, corn, popcorn and soybeans 
in Stoddard, New Madrid, and Dunklin Counties, where five 
generations of the Murphy family have farmed. I serve as 
Chairman of the Board of the U.S. Rice Producers Association. 
Today is my first opportunity to testify before Congress, and I 
appear on behalf of both the U.S. Rice Producers Association 
and the USA Rice Federation.
    The Food, Conservation, and Energy Act of 2008 contained a 
traditional mix of safety net features. The nonrecourse 
marketing loan, loan deficiency payment program and 
countercyclical payment program have not triggered under the 
farm bill. In fact, if the protections provided were to trigger 
the low prices for rice, the protections would help stem some 
of the economic losses but, frankly, not enough to keep most 
rice farmers in business even through 1 year of severely low 
market prices.
    The direct payment alone has assisted rice producers in 
meeting the ongoing and serious price and production perils of 
farming today. FAPRI estimates that at current projected price, 
only the fixed direct payment program would make a significant 
payment to rice producers. Unfortunately for rice producers, 
the existing safety net protection levels have simply not kept 
pace with the significant increases in production costs.
    The ACRE Program: ACRE has not been favorably received by 
rice farmers. In the first year of the ACRE sign-up, only eight 
rice farms, representing less than 900 acres, were enrolled in 
the program nationwide. Specific problems with ACRE are that it 
is not tailored to the needs of the individual farm. It 
requires farmers to give up the SURE assistance that they can 
bank on for the possibility of a payment. And a 35 percent 
reduction to the marketing loan rates, the bedrock of farm 
policy, is particularly problematic.
    While in recent years we have enjoyed market prices of rice 
well above a $6.50 loan rate, the bankable certainty that the 
marketing loan provides is still a great value.
    We recognize that the traditional price-based 
countercyclical program with the zero acres basis and outdated 
yields is less than perfect. Indeed, the most attractive 
program of the ACRE option was the updating of acres and 
yields, and we would suggest that, being mindful of WTO 
obligations, these improvements be maintained in the future 
programs.
    Although the risk management products offered under the 
Federal Crop Insurance Program are of vital importance to many 
crops, the program had been of minimal value to rice farmers 
due to a number of factors, including artificially depressed 
APH guarantees, high premium cost for a relatively small 
insurance guarantee, and the fact that the risks associated 
with rice production are unique from the risk of producing many 
other crops.
    Rice farmers generally insure their production against 
drought not through insurance, but through reliable access to 
adequate water supply.
    Conversely, rice also has a fairly strong natural defense 
mechanism against most flooding. As a consequence, there are 
fewer instances of production losses relating to drought than 
flooding, and such losses tend to be shallower when they do 
occur. Nevertheless, U.S. rice farmers do face serious 
production perils due to weather.
    When severe losses occur, most U.S. rice farmers find 
themselves either underinsured or uninsured. The coverage level 
purchased is commonly the lowest level of coverage, known as 
CAT coverage. Buy-up or additional coverage, offered protection 
above the CAT coverage, has not been viewed as cost effective 
for most farmers who operate on small margins.
    What rice farmers need from the Federal Crop Insurance 
Program are products that would help protect against price risk 
and increased production and input costs, particularly for 
energy and energy-based inputs; for example, fuel, fertilizer 
and other energy-related inputs represent about 70 percent of 
the total variable cost.
    The USA Rice Federation has been working for over a year 
now to develop a new generation of crop insurance products to 
protect against sharp upward spikes and input costs. There are 
two new products that show some promise. We are optimistic that 
the Risk Management Agency will approve these new products 
which could be available to growers in time for the 2012 crop 
year.
    SURE has provided little, if any, assistance for rice 
producers, including those producers in the Mid-South who last 
year suffered devastating losses. SURE is tailored to 
complement the Federal Crop Insurance Program by providing 
higher levels of assistance to producers electing higher crop 
insurance coverage levels. The higher the crop insurance 
coverage level, the higher the SURE benefit.
    Thus, rice farmers suffered twice under the current 
program. First, they lack effective, affordable insurance; and 
second, they are then penalized under the SURE Program by 
receiving the lowest protection that corresponds with the 
lowest crop insurance coverage. The public perception about 
government largesse and farm policy is quite divorced from 
reality. Spending on a rice safety net in the farm bill has 
declined from $1.2 billion to about $400 million annually.
    We would like to thank you once again for this opportunity 
to share our views.
    [The prepared statement of Mr. Murphy follows:]

  Prepared Statement of Gary Murphy, Chairman of the Board, U.S. Rice 
  Producers Association, Bernie, MO; on Behalf of USA Rice Federation

Introduction
    Chairman Boswell, Ranking Member Moran, and Members of the 
Subcommittee, thank you for holding this hearing to review farm safety 
net programs in advance of the 2012 Farm Bill.
    We appreciate the opportunity to offer testimony before the 
Subcommittee on General Farm Commodities and Risk Management concerning 
the view of the entire rice industry relative to U.S. farm safety net 
programs.
    My name is Gary Murphy. I am a rice farmer from Bernie, Missouri. 
My son and I farm about 7,000 acres of rice, cotton, corn, popcorn, and 
soybeans in Stoddard, New Madrid, and Dunklin Counties where five 
generations of the Murphy family have farmed. I serve as Chairman of 
the Board of the U.S. Rice Producers Association, and today I appear on 
behalf of both the U.S. Rice Producers Association and the USA Rice 
Federation. Our organizations represent rice producers in all of the 
major rice producing states--as well as rice millers, merchants, 
exporters, and allied businesses.

U.S. Rice Industry Overview
    The U.S. rice industry is a multi-billion dollar industry that 
provides jobs and income for not only producers and processors of rice, 
but for all involved in the value chain. Much of this economic activity 
occurs in the rural areas of the Sacramento Valley in California, the 
Gulf Coast region of Louisiana and Texas, and the Mississippi Delta 
region where about 3.2 million acres of rice are produced annually.
    The majority of rice is planted in six states, including Arkansas, 
California, Louisiana, Mississippi, Missouri, and Texas. The U.S. rice 
industry is unique in its ability to produce all types of rice, from 
long grain, medium grain, and short grain, to aromatic and specialty 
varieties. Last year, U.S. farmers produced a rice crop of nearly $3.1 
billion as measured in farm gate value.

2008 Farm Bill Review
    The Food, Conservation, and Energy Act of 2008 (the Farm Bill) 
continued the traditional mix of safety net features consisting of the 
non-recourse marketing loan and loan deficiency payment program and the 
direct and countercyclical payment program.
    The farm bill also includes the addition of Average Crop Revenue 
Election (ACRE) as an alternative to countercyclical payments for 
producers who agree to a reduction in direct payments and marketing 
loan benefits. The bill also added Supplemental Revenue Assistance 
(SURE) as a standing disaster assistance supplement to Federal crop 
insurance.
    The 2008 Farm Bill made very substantial changes to the payment 
eligibility provisions of the safety net, establishing an adjusted 
gross income (AGI) means test and, albeit unintended by Congress, 
resulting in the very significant tightening of ``actively engaged'' 
requirements for eligibility. Unfortunately, these changes 
disproportionately affect rice producers because of the economies of 
scale needed to run a successful rice operation. Operations that are 
unable to reorganize cannot avail themselves of the farm safety net and 
face serious competitive disadvantages.
    USDA is still in the process of implementing many of the provisions 
of the 2008 Farm Bill, and the final payment eligibility rules were 
only announced in January of this year. As a consequence, we are still 
adjusting to the many changes contained in the current farm bill, even 
as we begin the process of developing policy recommendations for the 
2012 Farm Bill.
    Regarding the traditional mix of safety net features, the 
nonrecourse marketing loan and loan deficiency payment program and 
countercyclical payment program have not yet provided payments to rice 
farmers under the current farm bill. In fact, if the protections 
provided were to trigger due to low prices for rice, the protections 
would help stem some of the economic losses but, frankly, not enough to 
keep most rice farms in business even through 1 year of severely low 
market prices.
    As such, whatever its imperfections, the Direct Payment alone has 
assisted rice producers in meeting the ongoing and serious price and 
production perils of farming today. The Food and Agriculture Policy 
Research Institute (FAPRI) estimates that at current projected prices, 
only the fixed direct payment program will make a significant payment 
to rice producers.
    For rice producers, the existing safety net protection levels have 
simply not kept pace with the significant increases in production 
costs. It is for this reason that rice farmers believe strengthening 
the safety net would be helpful in ensuring that producers have the 
ability to adequately manage their risks.
    While some of the problems with the ACRE and SURE programs can be 
traced to their general design, others are more specific to rice and 
other sunbelt crops. Below is a listing of some of the key problems 
with the respective programs.

ACRE
    ACRE has not been favorably received by rice farmers in any of the 
major growing regions. In the first year of ACRE sign-up, only eight 
rice farms representing less than 900 acres were enrolled in the 
program nationwide. ACRE payments occur when state level revenues fall 
below trigger levels and participating producers must give up some 
traditional farm program benefits and enroll all crops on a farm. 
Because ACRE payments depend on prices and state yields, they are 
inherently uncertain. FAPRI analysis shows that for corn and most other 
crops grown in northern states, the average ACRE payments over time are 
likely to exceed the payments that program participants must forego. 
Unfortunately in the southern states the opposite is true. Only in 
Arkansas and Oklahoma in some years but not in others do ACRE payments 
exceed the traditional payments that participating producers must 
forego.
    Specific Problems with ACRE:

   It is not tailored to the needs of the individual farm. This is, in 
        our view, a problem with the general design. While we like the 
        higher price targets that can be provided in a revenue-based 
        program, they are of little value to the individual farmer when 
        they are tied to state production. The lender cannot pencil in 
        a minimum price when setting up an operating loan, and the 
        farmer has to operate in fear that he is not on the bad side of 
        the average (but the fact is half the farmers are always on the 
        bad side of average). In these times of fiscal crisis in our 
        nation, we think the safety net needs to be more tailored to 
        the individual needs of the farm rather than less tailored.

   It asks farmers to give up certain assistance that they can bank on 
        for a possibility of a payment if the state revenue for the 
        crop is down (something they cannot bank on). This is both a 
        problem of design for all crops, and an especially large and 
        unique problem for rice. There is an old saying that a bird in 
        hand is better than two in the bush. This could not be more 
        applicable. Some crops were able to look at the 2009 situation 
        and know that they were going to receive more payments from 
        ACRE in 1 year than they gave up over four in direct payments. 
        These are by and large the producers who signed up for ACRE. 
        This was not the case in rice, where our direct payments are 
        higher relative to other crops due to our higher fixed cost 
        structure.

   The 35% reduction to marketing loan rates--a bedrock of farm 
        policy--is particularly problematic. While in recent years we 
        have enjoyed market prices for rice well above our $6.50 loan 
        rate, the bankable certainty that the marketing loan provides 
        is still of great value. While we hope and want to believe we 
        will never see commodity prices below loan rates again, we are 
        not willing to scrap the program. Two years ago wheat was 
        selling for over $12 per bushel, but last week in Texas the 
        cash price was down in the mid $2's. The same could happen to 
        rice again, and if it does, we want the loan to be there as 
        there is no more effective tool.

    Despite these major problems with the design and functionality of 
ACRE for rice, we do strongly believe that we need a good 
countercyclical program in addition to the marketing loan to protect 
producers from systemic risks, and we would acknowledge that the 
traditional price-based countercyclical program with its old acreage 
bases and outdated yields is also less than perfect. Indeed, the most 
attractive portion of the ACRE option for some rice growers was the 
updating of acreage and yields, and we would suggest that--being 
mindful of WTO obligations--these emphases be kept to the greatest 
extent possible in whatever new countercyclical program might be 
devised.

Crop Insurance
    Although risk management products offered under Federal Crop 
Insurance are of vital importance to many crops, such as corn, wheat, 
soybeans, and cotton, the program has been of minimal value to rice 
farmers due to a number of factors, including artificially depressed 
actual production history (APH) guarantees; high premium costs for a 
relatively small insurance guarantee; and the fact that the risks 
associated with rice production are unique from the risks of producing 
many other major crops.
    Rice is an irrigated crop. Rice farmers generally ``insure'' their 
production against drought, for example, not through insurance but 
through reliable access to adequate water supply. Conversely, rice also 
has a fairly strong natural defense mechanism against most flooding. As 
a consequence, there are fewer instances of production losses relating 
to drought and flooding and such losses tend to be shallower when they 
do occur, meaning lower yield variability and a smaller probability of 
an insurable event under policies generally made available under the 
Federal Crop Insurance Program.
    Nevertheless, U.S. rice farmers do face serious production perils 
due to weather, including, at times, severe quantity and quality losses 
and increased production costs. Hurricanes and associated high winds 
and rain that result in the shattering and lodging of rice, saltwater 
intrusion and excess moisture on rice fields, and crop disease are 
serious production perils.
    Unfortunately, when severe losses occur most U.S. rice farmers find 
themselves either underinsured or uninsured. To the extent that a rice 
producer purchases crop insurance at all, the coverage level purchased 
is commonly the lowest level of coverage, known as catastrophic risk 
protection or CAT coverage. CAT coverage, which can be obtained for an 
administrative fee, requires that a 50 percent loss occur before an 
indemnity will be triggered with respect to any losses above and beyond 
the 50 percent, and then at only 55 percent of the value of the crop, 
or about 27 on the dollar. Buy-up or additional coverage, offering 
protection above the CAT coverage level, has not been viewed as cost 
effective for most rice farmers who operate on small margins.
    Importantly, this is not imprudence on the part of rice producers 
but rather a rational economic decision based on cost effectiveness, 
not unlike a homeowner who opts not to purchase flood insurance since 
his or her home is not in a flood plain. It does not mean that the 
homeowner will never suffer flood damage, nor does it mean that the 
homeowner does not face perils outside the coverage made available 
under the policy. It simply means that the homeowner, in working to 
make ends meet, had to make choices within his or her budget. The same 
is true for a rice producer.
    In short, the coverage available under the current mix of Federal 
Crop Insurance Program policies is not as well suited to rice farmers 
as compared to producers of other crops. The amount of buy-up or 
additional coverage above CAT level coverage purchased by producers is 
strong evidence. For instance, buy-up coverage constitutes 93 percent 
of all insured corn acres, meaning only seven percent is covered at the 
CAT coverage level. Moreover, fully 70 percent of corn acreage is 
covered at levels of 70/100 or higher, meaning a 100% indemnity 
triggers on production losses above 30 percent. Conversely, for rice, 
48 percent of insured acres are protected under minimum level CAT 
coverage.
    The graph, immediately below, offers a comparison between rice and 
other major crops in terms of their reliance upon the lowest level of 
crop insurance coverage, catastrophic risk protection, historically and 
in the 2009 crop year.
Catastrophic Risk Protection (CAT) As a Percentage of Insured Acres
19982009 Crop Year



    The effort culminated in the passage of the Agricultural Risk 
Protection Act, signed into law in January of 2000. The bill 
substantially increased the buy-up coverage incentives to encourage 
greater participation and higher coverage levels.
    Since 2000, virtually all major field crops have seen a dramatic 
increase in the purchase of buy-up coverage at higher coverage levels. 
The percentage of acres covered by CAT coverage for corn and wheat, for 
example, has correspondingly dropped from nearly 30% in 1998 to less 
than 10% since 2005. Cotton CAT coverage has dropped from 45% to under 
15% in 2009.
    Rice, however, is the one very notable exception to this trend as 
CAT coverage in 2009, though improved, was still the dominant policy 
for rice farmers, covering 48% of all insured acres. A more attractive 
CRC/RA price and the enterprise unit discount that was included as part 
of the 2008 Farm Bill were significant drivers that helped influence 
producers to improve their insurance coverage, but more still needs to 
be done.
    The fact remains that current buy-up policies for rice are not 
working as Congress intended. The unfortunate result, as demonstrated 
in the chart, immediately below, is that rice farmers have not 
benefited from the Agricultural Risk Protection Act as have the 
producers of other crops.
    Given so much of rice acreage is insured under CAT coverage and 
with that acreage which is covered under buy-up policies generally 
covered at the lower levels of coverage, only a very small portion of 
the total value of the U.S. rice crop is insured.
Percent Value of Crop Insured
19982009 Crop Year



    Contrast this to rice, where in 2009, we had a crop valued at $3.0 
billion, but less than $1.1 billion--only 35%--was insured.
    What rice farmers need from Federal crop insurance are products 
that will help protect against price risk and increased production and 
input costs, particularly for energy and energy-related inputs. For 
example, fuel, fertilizer, and other energy related inputs represent 
about 70 percent of total variable costs.
    The USA Rice Federation has been working for over a year now to 
develop a new generation of crop insurance products that we hope will 
provide meaningful risk management tools for rice producers in 
protecting against sharp, upward spikes in input costs. There are two 
new products that show great promise and we are optimistic that the 
Risk Management Agency (RMA) will approve at least these new products 
which could be available to growers in time for the 2012 crop year.
    The first product concept under development is a Crop Margin 
Coverage (CMC) policy that would allow rice producers to insure or 
guarantee a percentage of their expected margin on a per unit basis. 
The CMC coverage would focus on the two categories of input costs that 
are most significant in rice--energy and fertilizer. We believe this 
product has tremendous potential in many regions of the rice belt to 
serve as an effective complement to the existing safety net programs. 
It is important to note that we do not envision this, or any crop 
insurance product, as serving as a replacement for the traditional 
safety net programs, but rather to help enhance the protections those 
programs provide.
    The other product concept under development is an endorsement to 
existing rice crop insurance policies to help cover losses associated 
with ``downed'' or ``lodged'' rice in situations where weather events 
are the cause. Hurricanes, flooding, and high winds can all result in 
this peril, which can increase rice harvest costs by two to three fold 
of normal, yet there may be minimal yield and quality losses. Rice 
producers need a product to help offset the higher harvest costs of 
downed rice due to weather events.
    Without these or similar products in place, rice producers enter 
the 2012 Farm Bill debate at a serious disadvantage, having just one 
safety net feature from which they have effective assistance. We 
believe that there is the authority within the current Federal crop 
insurance statute to greatly expand access to higher quality coverage 
and we hope that USDA will aggressively use that authority given the 
constraints Congress faces in pursuing this end.

SURE
    SURE has provided little, if any, assistance to rice producers, 
including those producers in the Mid South who last year suffered 
significant monetary losses due to heavy rains and flooding occurring 
prior to and during harvest.
    SURE is tailored to compliment the Federal Crop Insurance Program 
by providing higher levels of assistance under the SURE program to 
producers electing higher crop insurance coverage levels. The higher 
the crop insurance coverage level, the higher the SURE benefit. Thus, 
rice farmers suffer twice under the system. First, they lack effective, 
affordable crop insurance, thus electing the lowest coverage available, 
if any at all. Second, they are then penalized under the SURE program 
by receiving the lowest protection that corresponds with lowest crop 
insurance coverage.
    Perhaps the best way to illustrate this compounding effect is by 
using the same ``percent of value of the crop covered'' statistic from 
above.
    SURE is a fairly complex program in terms of how it works. But the 
essence of it is that the dollar value of crop insurance coverage on a 
farm is multiplied by 115% to arrive at the SURE guarantee. Because 
crop revenue and insurance benefits are counted against the producer's 
SURE guarantee, the value of the SURE program is essentially the SURE 
guarantee less the crop insurance coverage.
    Accordingly, if a producer has 50% of the value of his or her crop 
covered by insurance (i.e., a 50/100 buy-up policy, a giant leap up for 
many rice farmers), then the SURE guarantee would be 57.5% and the 
potential value of the SURE program would be 7.5% of the value of the 
crop.
    In contrast, if a producer has 75% of the value of the crop covered 
by insurance, then the SURE guarantee increases to 86.25%, meaning the 
potential value of the SURE benefit is 11.25% of the value of the crop.
    On this basis, it is obvious that the primary beneficiaries of the 
new SURE program will be the exact same producers for whom crop 
insurance has proved such an effective risk management tool.
    Problems with SURE:

   The fundamental problem with the SURE program is that it is not 
        true to its acronym. Because of the whole farm aggregation and 
        the moving price factors, there is simply no way that a farmer 
        can sit down with his banker, looking at worst case scenarios, 
        and say, ``well if this happens on this farm, at least I know I 
        will receive some help.'' Again, we want to emphasize that the 
        value of these farm programs, like crop insurance, is not the 
        amount of money that is eventually paid out, but how much 
        baseline certainty is provided to the farmer who is putting his 
        operation on the line each year.

   The whole farm calculation presents real problems for larger, share 
        rent farms that dominate much of the sunbelt.

   Whole farm revenue presents a difficult challenge as many farmers 
        have many economic units that have to service their own debts 
        within an aggregate operation.

   Moving price factors work against the farmer who has a loss--those 
        a ``disaster program'' is supposed to help.

   Building on crop insurance, while probably right in theory, creates 
        a bias for those crops that are best served by crop insurance, 
        and against those that are least served, such as rice.

   The inclusion of direct payments in the calculation again presents 
        biases against rice given its larger direct payments.

SURE Benefit Increases with Coverage



2012 Farm Bill Development
    The rice industry is working internally to analyze all the existing 
safety net policies and to evaluate their effectiveness in providing a 
measure of protection in the most efficient manner.
    We believe that a strengthening of the farm safety net is 
important. But we also believe that any improvements should be 
accomplished in a manner that does not cause disruption and upheaval in 
the U.S. agriculture production system which continues to provide our 
country and millions around the world with a safe, abundant, and 
affordable supply of food, fiber, and fuel.
    At this time, we would like to share with you the key principles 
that are guiding our work in analyzing the current farm bill policies.

    1. The farm safety net should be strengthened for rice producers by 
        the 2012 Farm Bill.

    2. The Direct Payment Program, or subsequent program, should confer 
        a stronger safety net for rice producers.

    3. The Marketing Assistance Loan/Loan Deficiency Payment Program 
        should be extended with at least current loan rate levels as a 
        base level safety net for producers and lenders.

    4. The Countercyclical Payment Program, or subsequent program, 
        should better reflect current market conditions for rice.

    5. ACRE, or any variant, needs to effectively serve all eligible 
        commodities.

    6. SURE, or any variant, needs to effectively serve all eligible 
        commodities and regions.

    7. Crop insurance needs to effectively serve all eligible 
        commodities and regions.

    8. The 2012 Farm Bill should create long-term certainty regarding 
        payment limitations, adjusted gross income requirements, and 
        other eligibility criteria.

    9. There should be no further reduction in pay limits or adjusted 
        gross income requirements or further restrictions on 
        eligibility relative to the current mix of safety net 
        components or the equivalents under any variant.

    10. There should be no further reduction in funding levels for the 
        farm safety net nor any reduction in that safety net funding 
        specific to rice producers.

Conclusion
    In sum, despite what one may read in the newspaper or hear on the 
radio or television about Uncle Sam lavishly spending money on the farm 
safety net, rice farmers are certainly not seeing any windfalls and, I 
would respectfully submit, neither are our brethren who produce other 
crops. The public perception about government largess in farm policy, 
so carefully and diligently created and nurtured by critics, is quite 
divorced from reality on the ground. Spending on the rice safety net in 
the farm bill has declined from $1.2 billion to about $400 million 
annually, which is largely made up of only the direct payments.
    In closing, we would like to thank you once again for this 
opportunity to share our views on the current state of the rice 
industry, the diverse challenges we face, and our initial thoughts on 
the current farm safety net programs in advance of developing the 2012 
Farm Bill.
    Both the U.S. Rice Producers Association and USA Rice Federation 
look forward to working with you in this regard and I would be happy to 
respond to any questions the Subcommittee may have.

    Mr. Marshall. Thank you, Mr. Murphy.
    Mr. Simonsen.

  STATEMENT OF GERALD SIMONSEN, CHAIRMAN, BOARD OF DIRECTORS, 
             NATIONAL SORGHUM PRODUCERS, RUSKIN, NE

    Mr. Simonsen. Good morning. On behalf of the National 
Sorghum Producers, I would like to thank you for this 
opportunity to discuss the impact of the safety net of the next 
farm bill on my operation, and the bottom lines of sorghum 
producers nationwide.
    I farm near Ruskin in Nuckolls County, Nebraska. I raise 
sorghum, soybeans, wheat, corn and cattle. My granddad was one 
of the first producers in Nebraska to plant sorghum, beginning 
in the early 1930s.
    Sorghum was his safety net, providing feed for his 
livestock when other crops failed. To this day, sorghum remains 
a valued necessity on my fourth-generation farm. As a farmer, I 
realized the vast impact this one piece of legislation has on 
my day-to-day operations, and I want to ensure farmers benefit 
from the next farm bill.
    Let me begin by saying that I applaud you for having this 
hearing to discuss the impact of the safety net for producers. 
I have seen my input prices rise dramatically since the last 
farm bill. Because of these increased costs of production, my 
loan rate and target price have been rendered ineffective 
because they are now drastically below my cost of production. 
If prices drop to past levels, financial stress to producers 
will happen much quicker than at any time before in history.
    We realize the problems of paying for raising loan rates 
and target prices, but believe it is important to point out our 
current situation.
    Also, the ethanol industry has dramatically changed the 
sorghum industry. For example, the sweet sorghum industry will 
play an important role in the future of our industry. We 
encourage the Committee to generate discussion on how to 
provide a safety net for producers as we produce new crops for 
feedstocks.
    I know we are having those discussions internally and look 
forward to bringing more detailed ideas to you in the future.
    The 2008 Farm Bill: I would like to thank the Committee for 
its work on sorghum price elections in the 2008 Farm Bill. This 
Committee's work led to an increase in crop insurance price 
elections from 88 percent of the price of corn to 97.8 percent 
of the price of corn for sorghum. On my farm this translates 
into $18 an acre more coverage.
    I would also like to thank the Committee for increasing the 
subsidy on enterprise units. This has allowed sorghum producers 
to increase coverage on their crops while paying a lower 
premium. I would suggest a change, only for enterprise units, 
which would allow separation of irrigated and non-irrigated 
practices into separate enterprises.
    Regarding the 2008 Farm Bill, I would like to mention that 
certain parts of the sorghum industry have suffered significant 
losses 2 years in a row due to drought and flooding.
    The requirement that NAP or some insurance product be 
bought on every crop of every acre of an entire operation to 
maintain eligibility in SURE Program is unpractical for today's 
farming and livestock operations. Sometimes producers will not 
even make decisions on what forage they are going to plant 
until after the crop insurance deadlines of March 15 from my 
area, therefore limiting one of the real freedoms that 
producers appreciate about the current farm bill legislation.
    The SURE Program has proven to be incredibly frustrating 
for producers as they remain unsure where they stand in terms 
of receiving benefits from the program. Less than five percent 
of sorghum producers enrolled in ACRE for 2009. Sorghum 
producers have been hesitant to give up a portion of their 
direct payment to enroll.
    ACRE is essentially a stateside GRP, and grain sorghum 
producers have historically low participation in GRP policies. 
Producers do not see financial advantage in participating in a 
program that is based on national price and state yields. Even 
if a producer did produce and the ACRE payment was triggered 
for the state, the producer may not receive a payment at all if 
he was over his personal guarantee. Consequently, the program 
has risks at the national level in terms of price, and the 
state level for yield, and at the individual level for yield.
    While I understand this Committee's jurisdiction is the 
safety net, I want to encourage the full Committee to continue 
to invest in the energy title programs. Ethanol demand is 
important to our sorghum price because more than \1/4\ of the 
U.S. grain sorghum goes into ethanol.
    Without that demand, the safety net would be stretched like 
never before. We encourage the Committee to continue programs 
like the Bioenergy Program for Advanced Biofuels, section 9005, 
and the BCAP Program. The current safety net is not only 
important for sorghum farmers, but it is important for 
providing stability to rural communities in the Sorghum Belt. 
While not perfect, the current safety net has been effective in 
helping producers minimize risks while providing production 
flexibility.
    Maintaining the funding at the current program level is 
critical to ensure young farmers and old farmers have a viable 
safety net for the future.
    Thank you for your time and attention.
    [The prepared statement of Mr. Simonsen follows:]

 Prepared Statement of Gerald Simonsen, Chairman, Board of Directors, 
                 National Sorghum Producers, Ruskin, NE

Introduction
    On behalf of the National Sorghum Producers, I would like to thank 
the House Committee on Agriculture for the opportunity to discuss the 
next U.S. farm bill and its impact on my operation.
    My name is Gerald Simonsen, and I farm near Ruskin in Nuckolls 
County, Nebraska. I raise sorghum, soybeans, wheat, corn, and cattle. 
My granddad was one of the first producers in Nebraska to plant 
sorghum, beginning in the early 1930s. Sorghum was his safety net, 
providing feed for his livestock when other crops failed. To this day, 
sorghum remains a valued, necessary crop on my fourth-generation family 
farm.
    NSP represents U.S. sorghum producers nationwide, and our mission 
is to increase the profitability of sorghum producers through 
legislative and regulatory representation. I am Chairman of NSP's Board 
of Directors. I also serve on the NSP legislative committee as I 
understand that the actions of this Committee and the actions of the 
U.S. Congress have a significant impact on my farming operation.
    NSP supports the work put forth by this Subcommittee in passing the 
2008 Farm Bill and looks forward to working with the Committee to craft 
the next set of vital farm policy. My testimony will focus on four 
areas of farm policy as they relate to sorghum's safety net, including 
crop insurance, budgets, the importance of the Energy Title to sorghum 
producers, and the sustainability of sorghum.

Industry Overview
    The Great Plains states produce the largest volume of grain 
sorghum, but the crop is also grown from Georgia to California and 
South Texas to South Dakota. According to the National Agricultural 
Statistics Service, last year sorghum was produced in many of the 
states that you represent. This includes Kansas, Georgia, Mississippi, 
Colorado, Nebraska, South Dakota, Missouri, Texas, Iowa, Indiana, 
Oregon, North Carolina, Illinois, Maryland, Pennsylvania, Oklahoma, and 
Ohio.
    Over the past 15 years, grain sorghum acreage has ranged from a 
high of 13.1 million acres in 1996 to a low of 6.5 million acres 
planted in 2005. Annual production from the last 15 years has ranged 
from 795 million bushels to 277 million bushels, with an approximate 
value of $1.2 billion annually.
    The creation of the Conservation Reserve Program in the 1985 Farm 
Bill had a significant impact on the sorghum industry as producers 
enrolled thousands of sorghum acres in the program. For past sorghum 
crops, poor risk management program coverage has also played a role. 
Thus far, crop insurance changes to the 2008 Farm Bill will place 
sorghum on a more level playing field with other crops.
    Today's sorghum acreage is \1/3\ of its level prior to the 1985 
Farm Bill. It is a goal of the industry to increase producers' 
profitability and to bring acres back toward the pre-1985 Farm Bill 
level. NSP expects that returning acreage to that level will help 
ensure necessary infrastructure to supply the needs of the ethanol 
industry, livestock industry and export markets.
    In addition, forage sorghum utilized as silage, hay and direct 
grazing represents an additional 5 million acres of production, 
approximately. The USDA reported that in 2009, 254,000 acres of sorghum 
were harvested for silage, producing approximately 3.7 million tons of 
silage.
    The U.S. is the world's chief exporter of grain sorghum, and the 
crop ranks fifth in size as a U.S. crop behind corn, soybeans, wheat 
and cotton.
    Grain sorghum is typically exported to three main markets: Mexico, 
Japan and the European Union (EU). Sorghum is a non-transgenic crop. 
According to the April 9, 2010 World Agricultural Supply and Demand 
Estimate (WASDE), U.S. exports will account for 38 percent of this 
year's sorghum use.
    The most important new market for grain sorghum is the ethanol 
industry. According to the latest WASDE report, ethanol production will 
account for 26 percent of domestic grain sorghum usage. This is more 
than triple the amount of the 20072008 crop year. This market has even 
more potential with the classification of grain sorghum as an advanced 
biofuels feedstock in the 2008 Farm Bill.
    In addition, the U.S. dominates world sorghum seed production with 
a $200 million seed industry focused on 200,000 acres primarily in the 
Texas Panhandle.
    Sorghum is a unique, drought tolerant crop that is a vital 
component in cropping rotations for many U.S. farmers.

Sweet and Energy Sorghum
    Two other very important sectors of our industry are sweet sorghum 
and energy sorghum. Most Americans perceive sweet sorghum to be used to 
make syrup or molasses. However, it is also used worldwide for the 
production of ethanol. India and China are producing ethanol from sweet 
sorghum and the Department of Energy has supported several sweet 
sorghum pilot studies to explore the potential of sweet sorghums as a 
feedstock for ethanol production.
    While several of the current Energy Title programs cover these two 
segments, there has been little else done to support these crops. These 
crops do not receive benefits as Title I commodities, nor as specialty 
crops. NSP is currently working with these segments of our industry to 
develop requests to help these important energy crops progress as 
viable feedstocks for a future generation less dependent on foreign 
oil.

2008 Farm Bill
Crop Insurance
    In the 2008 Farm Bill, Congress instructed RMA to work with five 
independent reviewers to establish a new methodology for implementing 
price elections for the 2010 crop year. This methodology was required 
to be transparent and replicable. As part of the farm bill language, 
RMA was required to supply the data used to compute price elections.
    After extensive work with RMA, I am pleased to report that crop 
insurance price elections for this crop season increased from 88 
percent the price of corn to 97.8 percent the price of corn. This will 
make a huge difference in the insurability of sorghum because farmers 
will have a competitive insurance product. However, grain sorghum still 
has the lowest participation rate in crop insurance programs among 
major row crops. The two main reasons for this are declining actual 
production history and premium increases. Producers suffering from a 
multiple year drought have seen actual production histories decline 
dramatically while their premium increased. As a result, producers are 
paying more for less coverage. Producers realize the low risk involved 
with sorghum enables a perfect fit with enterprise units, which has 
become widely used by sorghum producers.
    An increased subsidy on enterprise units has allowed sorghum 
producers to increase coverage on their crop while paying a lower 
premium. Many sorghum producers have taken advantage of this 
opportunity to increase their risk management coverage. I would suggest 
a change, only for enterprise units, that would allow the separation of 
irrigated and non-irrigated practices into separate enterprises.
    The action of this Committee and Congress in the 2008 Farm Bill 
will give me more planting options and ability to choose a crop that is 
an agronomic fit for my land. Thank you for working diligently to help 
correct these crop insurance issues in the 2008 Farm Bill.
    NSP also thanks the Subcommittee for the 508h program available 
under the 2008 Farm Bill for introducing crop insurance to underserved 
crops. NSP will be happy to work with insurance companies in developing 
a sweet sorghum insurance product, but we cannot do that until EPA 
approves sweet sorghum as an advanced biofuel feedstock. Until this 
happens, the industry struggles to have commercial production of sweet 
sorghum for ethanol or power generation.

Loan Rate
    Significant improvements were made in the last two farm bills in 
regard to how the loan rate for sorghum works at the producer level. 
However, one challenge remains for producers. The loan level today is 
far below the cost of production. According to most current budgets in 
the Sorghum Belt, the break-even for sorghum is in the $2.62 to $3.36 
range, well above the current loan rate for sorghum at $1.95 per 
bushel. Therefore, when sorghum reaches the loan price, the producer is 
already in significant financial distress.

Direct Payment
    Direct payments, while not necessarily tied to a specific crop 
being planted, have proven to be a very easy and efficient payment for 
producers. It is one of the few parts of the current safety net bankers 
have certainty with and will provide financing for our producers.

SURE
    The SURE program had many positive aspects surrounding it during 
the 2008 Farm Bill debate. It was a quality idea that showed promise to 
help end the challenges of annual ad hoc disaster assistance and become 
a viable answer for producers. Unfortunately, as of today, it is a 
program that is not funded at a high enough level to work well for the 
producer. Additionally, SURE, as written, is without a doubt the most 
complex piece of farm policy farmers and lenders have ever seen. This 
program has proven to be incredibly frustrating for producers, as they 
remain unsure where they stand in terms of receiving benefits from the 
program. The extensive lap in time between the disaster itself and any 
financial assistance is especially challenging for young farmers who 
are the ones who need it the most. Finally, the requirement that NAP or 
some insurance product be bought on every crop of every acre of an 
entire operation to maintain eligibility is unpractical for today's 
farming and livestock operations. Sometimes producers will not even 
make decisions on what forages they will plant until after insurance 
sign-up deadlines, thus limiting one of the real freedoms that 
producers appreciate about current farm bill legislation.

Countercyclical Payments
    Sorghum producers have not yet received payments from the 
countercyclical program under the 2008 Farm Bill. Like the current loan 
rate, the trigger level is set too low to provide adequate protection 
for producers.

ACRE
    Only 4.85 percent of sorghum farms enrolled in ACRE for 2009. This 
remains lower than corn, wheat and soybean participation, but is more 
than the enrollment percentage for cotton. The program is too uncertain 
for producers to give up a portion of their direct payment. Because 
ACRE is essentially a statewide GRIP program, it only makes sense that 
participation by sorghum growers would be low because grain sorghum 
producers have had historically low participation in GRIP insurance 
offers. A program that is based on a national price and statewide yield 
has too much uncertainty for producers. Even if a producer did 
participate and the ACRE payment was triggered for a state, the 
producer may not receive a payment at all if he was over his personal 
guarantee. Consequently, the program has risk at the national level in 
terms of price, state level for yield, and individual level for yield. 
Why would a producer participate in such a risky proposition when a 
direct payment is guaranteed?

Balancing the Budget
    As this Committee prepares to develop farm policy for 2012 and 
beyond, I would like to remind the Committee that the agriculture 
sector has been contributing to positive economic growth of our 
economy. We encourage the Committee to recognize the success of 
investing in rural America. We believe the Committee has done a very 
good job of making sure increases in farm bill spending have been paid 
for and we would like to be recognized for that fiscal responsibility 
by maintaining a strong safety net for sorghum producers.
    Viable farm businesses are essential to the safe and reliable 
production of food, fuel and fiber for the United States and cutting 
commodity programs that farmers rely on will only weaken our national 
infrastructure for these products.
    We remind the Committee that investing in rural development should 
focus on agriculture development. Production agriculture truly brings 
money into the rural economy, supports local businesses, and educates 
our youth. Off-farm jobs do not keep my local school district's tax 
base healthy. The school district is dependent on property taxes, which 
are driven by land values, which are driven by farm economics.
    Finally, trade is vital to our marketplace since 38 percent of U.S. 
grain sorghum is exported. We support a robust trade agenda. This 
includes an immediate passage of pending bilateral free trade 
agreements with Colombia, an eventual Doha deal that provides 
significant new market access for U.S. sorghum producers, normalization 
of the U.S./Cuba trade relationship including lifting the travel ban, 
and full funding for both the Market Access Program (MAP) and Foreign 
Market Development (FMD) program.

Energy Title
    One-quarter to \1/3\ of the sorghum crop is processed through an 
ethanol plant. The ethanol industry is the biggest value-added industry 
to hit the Sorghum Belt. We want to work with the Committee to fully 
employ rural America and help secure our energy independence.
    As previously mentioned, investment in rural America has shown good 
returns for the U.S. Government. We believe the Committee should 
continue to invest in the Energy Title of the farm bill. Currently, 
more than \1/3\ of the U.S. grain sorghum crop is now processed through 
an ethanol plant. The renewable fuels industry is the fastest growing 
value-added industry for the sorghum industry.
    We also believe that sorghum can be involved in many aspects of the 
renewable fuels industry. For example, the versatility of sorghum is 
attracting attention from the seed industry as it looks at sweet 
sorghum for its potential ethanol production. Biotech companies are 
recognizing the diversity of the sorghum crop and companies are looking 
at making biodiesel out of sorghum.
    We encourage the Committee to continue programs of the Energy Title 
of the farm bill. For example, the Bioenergy Program for Advanced 
Biofuels (section 9005) Program has boosted sorghum markets by 
encouraging ethanol plants to use sorghum. The BCAP program, if 
implemented correctly, will help build sweet sorghum as a feedstock for 
companies looking to make ethanol out of its sugars. However, neither 
program has run its course or completed its work. Both programs should 
be maintained in the next farm bill to continue to develop existing and 
emerging markets for farmers that are involved in energy production.
    At the same time, we encourage the Committee to look at new 
proposals for energy programs in the farm bill that will continue to 
involve the agriculture industry in the business of providing America's 
energy and ending U.S. dependence on foreign oil.

Water-Sipping Crop
    Finally, sorghum is a water sipping, highly sustainable cropping 
option for many producers across the U.S. Especially in the semi-arid 
Sorghum Belt, sorghum is an excellent fit for farmers with limited 
irrigation capacity or dryland farmers without predictable rainfall. 
Sorghum demands less water and is able to withstand these dry 
conditions by becoming temporarily dormant during moisture stress. 
Therefore, in areas where water supplies are limited, grain sorghum and 
forage sorghum conserve an important resource while offering more yield 
and sustainability with fewer risks.
    In addition, sorghum tends to use less fertilizer than other crops 
and produces high yields with proper management. As the Committee works 
to reauthorize its conservation programs, we encourage you to consider 
programs that make efficient use of water in the semi-arid Sorghum 
Belt.
    Agriculture accounts for almost 70 percent of world water use. 
University studies have compared water savings through alternative 
cropping patterns and the use of crops that require less water, such as 
grain sorghum. NSP is prepared to support farm bill language that 
recognizes the sustainability and environmental benefits of crops like 
sorghum while maintaining the profitability of sorghum producers.

    Mr. Marshall. Thank you, Mr. Smith. Mr. Smith, is it 
Floydada? How do you pronounce the name of the town?
    Mr. Smith. Floydada. And you are not the only one that has 
that problem.
    Mr. Marshall. Thank you.

 STATEMENT OF EDDIE SMITH, CHAIRMAN, NATIONAL COTTON COUNCIL; 
                 COTTON PRODUCER, FLOYDADA, TX

    Mr. Smith. Mr. Chairman, thank you for holding this 
important hearing to review U.S. farm policy. My name is Eddie 
Smith. I own and operate a family cotton, cattle, and grain 
operation near Floydada, in partnership with my father and son. 
I also serve as Chairman of the National Cotton Council.
    The National Cotton Council believes that effective farm 
policy should adhere to several principles. It should be market 
oriented, it should provide cropping flexibility. It should 
allow full production, should provide a predictable, effective, 
financial safety net when prices are abnormally low. It should 
ensure the availability of competitively priced U.S. cotton to 
domestic and international textile mills, and it should 
encourage maximum program participation without regard to farm 
size or structure.
    The most critical provision of the upland cotton program is 
an effective, marketing loan program with an accurate world 
price discovery formula. The marketing loan gives lenders the 
confidence to provide operating loans, and provides the growers 
the opportunity to make orderly marketing decisions for an 
identity-preserved commodity like cotton.
    The 2008 Farm Bill made significant reforms to the cotton 
provisions, including revising the CCC cotton loan premiums and 
discounts to enhance market orientation; to establish a ceiling 
on payments of storage credits when prices are low; and, third, 
providing an economic adjustment program for the hard-pressed 
U.S. textile industry.
    The bill also slightly reduced the target price for cotton 
to offset any increased costs resulting from other 
modifications, and it is important to remember that in 2006 the 
industry supported termination of the so-called Step 2 
provision to comply with the WTO Brazil case decision. The 2008 
Farm Bill also made historical changes to payment limitations 
and program eligibility.
    Limitations were made more restrictive by first eliminating 
the three-entity rule; second, by applying direct attribution; 
and, third, the adjusted gross income test was substantially 
tightened. For cotton growers, good farm policy is of little 
value if commercial-size farming operations are ineligible for 
benefits. Frankly, the statutory changes combined with 
overreaching regulations have pushed us to the brink, and we 
strongly oppose any further restrictions.
    As evidenced by the data from the recent sign-ups, the 
current ACRE Program is not an attractive alternative for 
cotton farmers. The support mechanisms within ACRE do not 
provide an adequate safety net when compared to the traditional 
DCP programs, because target revenues must be calculated using 
historical data from a period of abnormally low cotton prices.
    Conservation programs such as Conservation Stewardship 
Program, EQIP and other conservation programs are attractive to 
cotton producers and will contribute to continued improvements 
in conservation practices. Crop insurance is an essential risk 
management tool for cotton producers. Revenue coverage, 
enterprise policy rates, and group risk products are examples 
of improved products that can provide a menu of risk options 
for growers.
    We also want to work to address the lack of effective, 
affordable crop insurance coverage for the growers in the West. 
The cotton industry supports a viable biofuel industry, but 
consumption mandates and other policies have changed the 
competitive balance between commodities. This has placed severe 
pressure on cotton's infrastructure in certain parts of the 
Cotton Belt. We believe that the support given to biofuels crop 
must be taken into consideration when comparing, first, a 
relative level of support for commodities; second, when 
evaluating payment limitation; and, third, when developing 
commodity programs in the next farm bill.
    We continue to support the 2008 Farm Bill's cotton bill 
components, the marketing loan program, the direct and 
countercyclical payments. Each component serves a distinct 
purpose that is beneficial to U.S. farmers and the industry as 
a whole.
    The 2012 Farm Bill debate, however, will take place with 
several new and increased points of pressure. Record budget 
deficits will put intense pressure on funding. The WTO Brazil 
case puts cotton marketing loan and countercyclical programs 
under special scrutiny. We believe that the U.S. negotiator has 
constructed an interim agreement that convinced Brazil to 
temporarily suspend retaliation against nearly $1 billion in 
U.S. exports.
    However, we know that there are expectations and 
modifications that were made to the cotton program in the 2008 
Farm Bill. The U.S. cotton industry is prepared to work with 
Congress to address the challenges faced in writing the next 
farm bill.
    Thank you for the opportunity to present these comments, 
and I will be pleased to answer your questions at the 
appropriate time.
    [The prepared statement of Mr. Smith follows:]

 Prepared Statement of Eddie Smith, Chairman, National Cotton Council; 
                     Cotton Producer, Floydada, TX

    Mr. Chairman, thank you for holding this important hearing to 
review U.S. farm policy in preparation for the 2012 Farm Bill. My name 
is Eddie Smith. I own and operate a cotton, cattle and grain operation 
near Floydada, Texas, in a partnership with my father and son. I also 
am currently serving as Chairman of the National Cotton Council.
    The National Cotton Council is the central organization of the 
United States cotton industry. Members include producers, ginners, 
cottonseed handlers, merchants, cooperatives, warehousemen and textile 
manufacturers. Cotton is a cornerstone of the rural economy in the 17 
cotton-producing states stretching from the Carolinas to California. 
The scope and economic impact extends well beyond the approximately 
19,000 farmers that plant between 9 and 12 million acres of cotton each 
year. Taking into account diversified cropping patterns, cotton farmers 
cultivate more than 30 million acres of land each year.
    Processors and distributors of cotton fiber and downstream 
manufacturers of cotton apparel and home-furnishings are located in 
virtually every state. Nationally, farms and businesses directly 
involved in the production, distribution and processing of cotton 
employ almost 200,000 workers and produce direct business revenue of 
more than $27 billion. Accounting for the ripple effect of cotton 
through the broader economy, direct and indirect employment surpasses 
420,000 workers with economic activity well in excess of $100 
billion.\1\
---------------------------------------------------------------------------
    \1\Direct employment and revenue based on 2007 Census of 
Agriculture and 2002 Economic Census. Indirect employment and economic 
activity derived from input-output multipliers reported by University 
of Tennessee's Agri-Industry Modeling and Analysis Group.

                        Cotton's Economic Impact
------------------------------------------------------------------------
                                Cotton Sector         Broader Economy
                          ----------------------------------------------
                                          Direct                Economic
                                         Revenue                Activity
                               Jobs      (Million     Jobs      (Million
                                            $)                     $)
------------------------------------------------------------------------
            Southeast (AL, FL, 77,733     $10,647    173,454     $47,502
              NC, SC, VA)
         Mid-South (AR, LA, MO,31,434      $6,090     70,143     $27,172
                  MS, TN)
  Southwest (KS, OK, TX)       41,569      $5,715     92,758     $25,497
       West (AZ, CA, NM)       24,028      $2,318     53,616     $10,343
                          ----------------------------------------------
  United States..........     191,405     $27,622    427,102    $123,241
------------------------------------------------------------------------

    Sound and stable farm policy is essential for the viability of the 
U.S. cotton industry. The National Cotton Council believes that 
effective farm policy should adhere to several principals:

    (1) It should be market-oriented with a goal of promoting quality, 
        efficiency and domestic competition;

    (2) It should allow for full production to meet market demand;

    (3) It should provide for an effective financial safety net;

    (4) It should ensure the availability of competitively-priced U.S. 
        cotton to domestic and international textile mills; and

    (5) It should encourage maximum participation without regard to 
        farm size or structure.

    We believe the 2008 Farm Bill meets most of these principles and 
has worked well for the cotton industry. We commend this Subcommittee 
and the broader Committee as a whole for the diligent work crafting the 
2008 legislation.
    The centerpiece of the upland cotton program and traditional 
commodity programs has been an effective marketing loan program. It 
provides a safety net for producers but does not harm the 
competitiveness of U.S. commodities. It is a program component that 
makes sense, that works, and that serves many critical purposes. 
Because it is well-understood and a fundamental part of commodity 
policy, the marketing loan gives rural banks the confidence they need 
to make critical operating loans available. This foundational program 
has also been the lever to move other important reforms, such as 
standardized bales and bale packaging for cotton, electronic warehouse 
receipts, and heightened standards for storage and elevator facilities 
for cotton and for other commodities.
    With respect to cotton, while the 2008 Farm Bill maintained the 
marketing loan and several other program components from prior law, the 
bill also made many reforms, such as a revision in the calculation of 
cotton premiums and discounts, placing a ceiling on the payment of 
storage credits for cotton under loan, and an economic adjustment 
program for the U.S. textile industry. The bill also reduced the target 
price for cotton.
    Fundamentally, we continue to support the 2008 Farm Bill's approach 
to the cotton program and all of its components, from the marketing 
loan to direct and countercyclical payments. Each component serves a 
distinct purpose that is beneficial to U.S. farmers and the industry, 
as a whole.
    The 2012 Farm Bill debate, however, will take place with several 
new and increased points of pressure. Record budget deficits will put 
intense pressure on funding. The WTO Brazil Case puts cotton's 
marketing loan and countercyclical programs under special scrutiny even 
though the cotton program, as revised by the 2008 bill, has never been 
evaluated by a WTO Panel. Ongoing negotiations in the Doha Round of 
trade negotiations could result in a dramatically altered landscape for 
domestic commodity support. If circumstances arise that make it 
impossible to maintain a reasonable safety net using existing delivery 
mechanisms, the cotton industry will look at alternatives.
    As evidenced by recent sign-ups, the ACRE program has not been an 
attractive alternative for cotton farmers. The support mechanisms 
within ACRE do not provide an adequate safety net for cotton farmers 
when compared to the traditional DCP program. If a revenue-based 
program is to find support among cotton producers, a more reasonable 
revenue target must be established. Mr. Chairman, we are working as an 
industry to evaluate fully our industry's concerns with ACRE in order 
to develop recommendations for effective modifications.
    Even as our industry commits to an in-depth review of the structure 
of the cotton program, I must emphasize our commitment to the 
principles I outlined earlier in my statement. One of those principles 
is that effective farm policy must maximize participation without 
regard to farm size or income. The 2008 Farm Bill contained significant 
changes with respect to payment limitations and payment eligibility. In 
general, the limitations were made more restrictive, and the adjusted 
gross income test was substantially tightened.
    In addition to the legislative changes, we believe that USDA over-
stepped the intent of Congress in key payment eligibility provisions 
and issued regulations that are overly complicated and restrictive. 
Sound farm policy provisions are of little value if commercial-size 
farming operations are ineligible for benefits. While we oppose any 
artificial payment limitations, we advocate administering the current 
provisions within the intent of Congress and strongly oppose any 
further restrictions.
    Conservation programs were strengthened in the 2008 Farm Bill. The 
Conservation Stewardship Program and similar conservation programs can 
lead to improved environmental and conservation practices but should 
not serve as the primary delivery mechanism for farm program support. 
The Conservation Stewardship Program has also been hampered by overly 
restrictive payment limitations contrived by USDA regulators--
restrictions that we do not believe are supported by the statute. 
USDA's unilateral decision to exclude commercial-size farming 
operations dramatically limits the environmental and conservation 
benefits that are possible with this program.
    We support a permanent natural disaster program as part of the farm 
bill, but our experience with the SURE program indicates that it cannot 
provide an effective level of natural disaster assistance. We recognize 
the challenge facing Congress to make improvements in this program. 
Without increased baseline spending authority, there will be no funds 
to even continue the program in the next farm bill, much less make the 
necessary improvements for it to be an effective disaster relief 
mechanism. However, we do not support reallocating existing spending 
authority from current farm programs to apply to SURE.
    Crop insurance is an essential risk management tool for cotton 
producers. Our industry continues to examine concepts that improve the 
various cotton crop insurance products. Revenue coverage, enterprise 
policy rates and group risk products are examples of improved products 
that can provide a menu of risk options for growers. However, we 
continue to view the current insurance products as complements to 
traditional commodity programs but do not consider those programs as a 
replacement system for delivering farm program support.
    Continuation of an adequately funded export promotion program, 
including the Market Access Program (MAP) and Foreign Market 
Development (FMD) Program, are important in an export-dependent 
agricultural economy. Individual farmers and exporters do not have the 
necessary resources to operate effective promotion programs which 
maintain and expand markets--but the public-private partnerships 
facilitated by the MAP and FMD programs, using a cost-share approach, 
have proven highly effective and have the added advantage of being WTO-
compliant.
    Pima cotton producers support continuation of a loan program with a 
competitiveness provision to ensure U.S. extra-long staple cotton, also 
known as Pima cotton, remains competitive in international markets. The 
balance between the upland and pima programs is important to ensure 
that acreage is planted in response to market signals and not program 
benefits.
    While the cotton industry supports a viable biofuels industry, it 
must be recognized that benefits are not equally shared by all 
commodity producers. Renewable fuels mandates and other policies 
regarding biofuels have changed the competitive balance between 
commodities, placing severe pressure on cotton infrastructure in 
certain parts of the Cotton Belt. Mandated demand can result in 
excessive and harmful market distortions. The support given to biofuel 
crops must be taken into consideration when comparing relative levels 
of support across commodities, when evaluating payment limitations and 
before trying to mandate a one-size-fits-all farm program for biofuel 
and non-biofuel commodities.
    In summary, our industry believes the cotton provisions of the 2008 
Farm Bill are working well. If policy changes are inevitable as part of 
the 2012 Farm Bill, the cotton industry remains ready to work with the 
Agriculture Committees to explore alternative programs that can provide 
the needed safety net to our industry in a manner that is consistent 
with our international trade obligations and within budget constraints.
    Thank you for the opportunity to present these comments. I look 
forward to answering questions at the appropriate time.

                                Appendix

Cotton Economic Update
National Cotton Council
June 2010
    The 2010 economic outlook for the U.S. cotton industry can be 
described as one of recovery. While the lingering effects of the 
economic downturn continue to present challenges for the U.S. cotton 
industry, data suggest that the worst of the storm has been weathered.
    After the downturn in the 2008 marketing year, an improved outlook 
for the general economy is supporting the recovery in mill use. Yarn 
values improved in the latter half of calendar 2009, and the textile 
trade is expanding. For the 2009 marketing year, world mill use is 
estimated at 116.4 million bales, 5.9% higher than 2008. For the 2010 
marketing year, world mill use is projected to grow by 2.6%, reaching 
119.5 million bales.
    In the United States, the slowdown in the general economy 
compounded the pressure the textile industry has been facing due to 
imported textile and apparel products. Mill use in the 2008 marketing 
year fell to 3.6 million bales, down 1.0 million bales from 2007. While 
the climate has improved and current monthly numbers are exceeding 
year-ago values, it is likely that marketing year totals will be 
slightly lower than those observed in 2008. For marketing years 2009 
and 2010, U.S. mill use is estimated at 3.4 and 3.3 million bales, 
respectively.
    China's textile industry was not immune to the global economic 
downturn, falling 7.0 million bales in the 2008 marketing year. 
However, prospects have improved for the 2009 marketing year with mill 
use estimated at 47.5 million bales. Government policies and incentives 
under the textile stimulus plan supported their textile industry during 
the worst of the downturn. Recently, export markets have improved, as 
have the prospects for 2010 mill use. Currently, USDA projects China's 
mill use in the 2010 marketing year to reach 49.0 million bales.
    For the 2009 marketing year, India's mill use is expected to grow 
to 19.5 million bales, as compared to 17.9 million bales the year 
earlier. For the 2010 marketing year, India is projected to process 
20.4 million bales, or 17% of the world total.
    USDA's March Prospective Plantings report puts U.S. cotton acreage 
at 10.5 million acres, an increase of 14.8% from 2009. With cotton 
prices trading 20 to 25 above year-ago levels and corn and soybean 
prices essentially unchanged from last year, all regions are expected 
to increase cotton acres. Based on average abandonment and yields 
adjusted for favorable moisture conditions, USDA forecasts a 2010 crop 
of 16.7 million bales, compared to 12.2 million in 2009.
    In China, seed cotton prices 50% higher than year-ago levels will 
attract more cotton acres in 2010. However, the expansion could be less 
than originally expected as increased government support will keep some 
acres in grains. Cotton area is expected to increase by approximately 
2% above the 2009 level. Assuming trend yields, China's cotton 
production is estimated at 33.0 million bales, 500 thousand bales above 
2009.
    Dramatic improvements in yields, coupled with expanded area, have 
allowed India to more than double cotton production in recent years. In 
2009, India devoted more than 25 million acres to cotton and harvested 
a crop of 23.5 million bales. A stronger market and the certainty of 
the higher support prices contributed to the increased area. For 2010, 
cotton is again expected to compete for available land, but concerns 
about food security will limit further expansion in cotton area. With 
area projected just 0.4% higher, an expected rebound in 2010 cotton 
yields is the primary factor behind the projected production of 25.0 
million bales.
    With reduced area and lower yields, world cotton production for the 
2009 marketing year fell to 102.9 million bales, representing the 
smallest crop since 2003. For the 2010 marketing year, the combined 
results of the regional and country-level projections generate a world 
crop of 114.3 million bales. While an 11 million bale rebound in 
production is substantial, the expected crop falls short of mill use at 
119.5 million bales.
    After falling sharply in the 2008 marketing year, world cotton 
trade for the 2009 season is increasing to 35.3 million bales. The U.S. 
remains the largest exporter with 12.3 million bales for the 2009 
marketing year. Both world trade and U.S. exports are projected to 
increase in the 2010 marketing year. With world trade at 36.1 million 
bales and U.S. exports at 13.5 million bales, the U.S. trade share 
increases to 37%.
    China remains the largest cotton importer with 10.8 million bales 
of imports in the 2009 marketing year. Given the projections for mill 
use and production, China's cotton imports are estimated at 11.5 
million bales for the 2010 marketing year. Imports by Bangladesh, 
Indonesia and Vietnam are projected to increase as mill use expands.
    Approaching the conclusion of the 2009 marketing year, it is 
increasingly clear that global cotton stocks will see their first 
substantial decline since the 2002 marketing year. The estimated 
decline of 10.5 million bales will be the largest single-year draw-down 
since 1986. Mill use of 116.4 million bales and ending stocks of 52.2 
million bales results in a stocks-to-use ratio of 44.8%. Globally, 2010 
stocks are expected to decline by 2.6 million bales, bringing the 
stocks-to-use ratio down to 41.5%.
    In the U.S., ending stocks are projected to fall to 2.9 million 
bales by the end of the 2009 marketing year. This would be the lowest 
stocks since the 1995 marketing year and represents a dramatic change 
from the 10 million bales of stocks of just 2 years earlier. For the 
2010 marketing year, U.S. stocks are projected to decline to 2.8 
million bales as the combination of 3.3 million bales of mill use and 
13.5 million bales of exports slightly exceed the projected crop of 
16.7 million bales.
    Cotton prices gained momentum in the latter half of 2009 as the 
balance sheet tightened due to reduced expectations for 2009 
production. Prices also found support in an improved general economy 
and a weaker U.S. dollar. For 2010, cotton's balance sheet remains 
supportive of prices as world production is projected to fall short of 
consumption. However, the outlook is not without risks and 
uncertainties, particularly given the fragile nature of the 
macroeconomic recovery.

                                      Table 1--Prospective 2010 Cotton Area
----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------
                                       2009 USDA Actual         2010 USDA Intentions         Percent Change
                                 ------------------------------------------------------
                                                    (Thousand Acres)
----------------------------------------------------------------------------------------------------------------
                  Southeast                       1,891                      2,390                      26.4%
  Alabama.......................                    255                        360                      41.2%
  Florida.......................                     82                         90                       9.8%
  Georgia.......................                  1,000                      1,150                      15.0%
  North Carolina................                    375                        540                      44.0%
  South Carolina................                    115                        175                      52.2%
  Virginia......................                     64                         75                      17.2%
                  Mid-South                       1,627                      1,730                       6.3%
  Arkansas......................                    520                        520                       0.0%
  Louisiana.....................                    230                        200                     -13.0%
  Mississippi...................                    305                        340                      11.5%
  Missouri......................                    272                        290                       6.6%
  Tennessee.....................                    300                        380                      26.7%
                  Southwest                       5,243                      5,875                      12.1%
  Kansas........................                     38                         35                      -7.9%
  Oklahoma......................                    205                        240                      17.1%
  Texas.........................                  5,000                      5,600                      12.0%
                       West                         247                        320                      29.5%
  Arizona.......................                    145                        185                      27.6%
  California....................                     71                        100                      40.8%
  New Mexico....................                     31                         35                      12.5%
                                 -------------------------------------------------------------------------------
    Total Upland................                  9,008                     10,315                      14.5%
    Total ELS...................                    141                        190                      34.4%
                                 -------------------------------------------------------------------------------
  Arizona.......................                      2                          3                      87.5%
  California....................                    119                        165                      38.7%
  New Mexico....................                      3                          4                      42.9%
  Texas.........................                     18                         18                       0.0%
                                 ===============================================================================
    All Cotton..................                  9,150                     10,505                      14.8%
----------------------------------------------------------------------------------------------------------------


        Table 2--Balance Sheet for Selected Countries & Regions*
------------------------------------------------------------------------
                   09/10     10/11                      09/10     10/11
                ---------------------                -------------------
                   (Million Bales)    ..............    (Million Bales)
------------------------------------------------------------------------
World                                 China**
  Production       102.89    114.32     Production       32.50     33.00
  Mill Use         116.43    119.49     Mill Use         47.50     49.00
  Trade             35.26     36.14     Net Exports     -10.78    -11.48
  Ending Stocks     52.21     49.59     Ending           20.64     18.62
                                      Stocks
United States                         India
  Production        12.19     16.70     Production       23.50     25.00
  Mill Use           3.40      3.30     Mill Use         19.50     20.40
  Net Exports       12.25     13.50     Net Exports       5.80      5.18
  Ending Stocks      2.90      2.80     Ending            8.12      7.55
                                      Stocks
Mexico                                Pakistan
  Production         0.42      0.64     Production        9.90     10.50
  Mill Use           1.90      1.90     Mill Use         11.50     11.70
  Net Exports       -1.38     -1.30     Net Exports      -0.95     -1.20
  Ending Stocks      0.64      0.65     Ending            4.01      3.99
                                      Stocks
Brazil                                Indonesia
  Production         5.75      6.80     Production        0.03      0.03
  Mill Use           4.40      4.60     Mill Use          2.05      2.10
  Net Exports        1.80      1.90     Net Exports      -2.09     -2.18
  Ending Stocks      4.69      5.14     Ending            0.36      0.42
                                      Stocks
Turkey                                Vietnam
  Production         1.75      2.10     Production        0.02      0.02
  Mill Use           5.60      5.50     Mill Use          1.60      1.80
  Net Exports       -3.73     -2.85     Net Exports      -1.70     -1.78
  Ending Stocks      1.61      1.14     Ending            0.36      0.35
                                      Stocks
West Africa                           Bangladesh
  Production         2.16      2.61     Production        0.05      0.05
  Mill Use           0.18      0.18     Mill Use          4.00      4.25
  Net Exports        2.17      2.42     Net Exports      -4.00     -4.25
  Ending Stocks      0.51      0.51     Ending            0.74      0.78
                                      Stocks
Uzbekistan                            Australia
  Production         4.00      4.60     Production        1.60      2.20
  Mill Use           1.10      1.15     Mill Use          0.04      0.04
  Net Exports        3.80      3.60     Net Exports       1.83      1.85
  Ending Stocks      1.05      0.90     Ending            0.74      1.12
                                      Stocks
------------------------------------------------------------------------
*Source: USDA June 2010 World Agricultural Supply & Demand Estimates.
**Balance sheet assumes Unaccounted of -2.5 million bales in 09/10 and
  10/11.

Figure 1: U.S. Cotton Plantings Reflect Market Signals

(2010 Estimate from USDA March Prospective Plantings)





    Marshall. Well I thank the gentleman from Floydada. Mr. Smith.Mr. 
Thompson, did I pronounce Farmington correctly? Mr. Thompson.
    Mr. Thompson. You certainly did.

  STATEMENT OF JAMES ``JIM'' THOMPSON, CHAIRMAN, USA DRY PEA & LENTIL 
                        COUNCIL, FARMINGTON, WA

    Mr. Thompson. The USA Dry Pea & Lentil Council would like to thank 
Chairman Peterson and Subcommittee Chairman Boswell for holding this 
farm bill hearing about the safety net for the 2012 Farm Bill.
    My name is Jim Thompson. I am Chairman of the USA Dry Pea & Lentil 
Council, a national organization representing producers, processors, 
and exporters of U.S.-grown dry peas, lentils, and chickpeas. I am a 
fourth-generation farmer from Farmington, Washington. The Farmington 
area was the first region in the U.S. to grow lentils commercially in 
North America over 90 years ago.
    Lentils are now grown in over 400,000 acres across the northern 
tier States of Washington, Idaho, Montana and North Dakota. 
Fortunately, our producers have not needed the current safety net for 
pulses over the past 5 years due to strong demand and high prices. This 
year, however, prices on all pulse crops have dropped 25 percent as a 
reminder of the volatile nature of agriculture, and the need for 
adequate farm safety nets.
    Pulse crops are grown across the northern tier states in rotation 
with wheat, barley, miner oilseeds, corn and soybeans. Our industry 
fought hard to have pulse crops added as a farm program crop in 2002 in 
order to compete with acreage for other farm programs. Our goal in 
2012, as it was for the 2002 Farm Bill, has not changed.
    Pulse producers seek to be included and treated equally with other 
farm program commodities in the areas of farm and conservation program 
support. We believe that marketing loan and countercyclical price 
targets should reflect recent market price conditions and the 
significant increase in farm input costs.
    For example, lentil prices from 2004 to 2009 have averaged $23.88 a 
hundred weight. The current marketing loan rate on lentils is $11.28 
per hundred weight and the countercyclical is $12.81 per hundred 
weight. These prices are less than 50 percent of the average crop 
price. All pulse crop marketing loan and countercyclical price levels 
have a similar story and need to be adjusted to provide a realistic 
safety net for producers when market conditions turn against them. Dry 
peas, lentils and chickpeas are available for the ACRE Program, and we 
believe this program should be continued under the 2012 Farm Bill, with 
some adjustments.
    For example, producers should be allowed to use RMA crop insurance 
records to establish their plug yields on the farm. Revenue guarantees 
are unfairly impacted by averages of large counties with wide ranges in 
production levels. Historical crop insurance records give a producer a 
better reflection of his farm average under the ACRE Program, and thus 
a better safety net.
    The majority of pulse producers in this country were excluded from 
establishing a pulse base on their farms in the 2008 Farm Bill. The 
producer could only establish a pulse base on his farm if he grew pulse 
crops from 1998 through 2001. This effectively excluded the majority of 
pulse producers in this country, because pulse production was at very 
low levels in that time-frame. We ask Congress to reconsider pulse base 
establishment in the 2012 Farm Bill, to include the most recent 5 years 
of production.
    In addition, the countercyclical payment yield is currently 
adjusted using yield data from years when no official data exists. The 
Dry Pea & Lentil Council believes the yield factor used by USDA to be 
too low and requests a recalculation of the pulse payment yield 
calculation based on our Council data for those years.
    Crop insurance: The 2012 Farm Bill must improve Federal Crop 
Insurance Program coverage for those crops without a futures market. 
The USADPLC has been working for over 10 years to secure a crop revenue 
policy for dry peas, lentils and chickpeas. The Council has taken two 
pilot program ideas to RMA Board for consideration. Both times our 
ideas have made it through expert review with positive remarks, only to 
be rejected by RMA.
    Our two pilot programs were rejected primarily because our crops do 
not have futures markets.
    Mr. Chairman, there are a lot of crops without futures markets that 
do have solid price discovery mechanisms. The 2012 Farm Bill must 
include reform of the Federal Crop Insurance Program that will make it 
more responsive to the risk management needs of those crops not traded 
on the Chicago Board of Trade.
    I would like to thank you for listening to these comments. The USA 
Dry Pea & Lentil Council looks forward to working with you on the 2012 
Farm Bill, and I would look forward to working with you. I would be 
happy to answer any questions.
    [The prepared statement of Mr. Thompson follows:]

 Prepared Statement of James ``Jim'' Thompson, Chairman, USA Dry Pea & 
                     Lentil Council, Farmington, WA

1. Introduction
    The USA Dry Pea & Lentil Council (USADPLC) would like to thank 
Chairman Peterson and Subcommittee Chairman Boswell for holding this 
farm bill hearing about the Farm Safety Net of the 2012 Farm Bill.
    My name is Jim Thompson, Chairman of the USA Dry Pea & Lentil 
Council, a national organization representing producers, processors and 
exporters of U.S. grown dry peas, lentils and chickpeas. I am a fourth 
generation farmer from Seltice, Washington, a little settlement outside 
of Farmington, Washington. The Farmington area was the first region in 
the U.S. to grow lentils commercially in North America over 90 years 
ago. Lentils are now grown on over 400,000 acres across the northern 
tier states of Washington, Idaho, Montana and North Dakota.

2. Statistics
    Acreage of U.S. pulse crops (dry peas, lentils and chickpeas) has 
increased from under 500,000 acres in the year 2000 to over 1.5 million 
acres in 2010. Last year, the U.S. produced a record 1.0 million metric 
tons of dry peas, lentils and chickpeas. Strong demand for these 
legumes around the world has kept prices for these crops above the 10 
year average for the past 4 years despite record production. 
Fortunately, our producers have not needed the current safety net for 
pulses over the past 5 years due to strong demand and high prices. This 
year, however, prices on all pulse crops have dropped 25% as a reminder 
of the volatile nature of agriculture and the need for an adequate farm 
safety net.

3. Farm Programs
    Three legs to the stool. Pulse crops are grown across the northern 
tier states in rotation with wheat, barley, minor oilseeds, corn and 
soybeans. Our industry fought hard to have pulse crops added as a 
program crop in 2002 in order to compete for acreage with other program 
crops. Our goal in 2002, as it is for the 2012 Farm Bill, has not 
changed. Pulse producers seek to be included and treated equally with 
other farm program commodities in the area of farm and conservation 
program support. Our industry would like to thank this Committee and 
Congress for approving a marketing assistance loan program for pulse 
crops in 2002 and adding pulse crops to the countercyclical and ACRE 
farm safety net programs in 2008. However, pulse crops are the only 
program crop without a direct payment. Pulse producers continue to 
support becoming a full farm program partner with other commodities 
including a direct payment.
    Price levels for Marketing Loan and Countercyclical Programs. We 
believe the marketing loan and countercyclical price targets should 
reflect recent market price conditions and the significant increase in 
farm input costs. The marketing loan and countercyclical price levels 
are well below market price levels for pulse crops in the past 5 years, 
and they do not reflect the significant increase in costs facing our 
producers. For example, the 5 year average price for large chickpeas 
from 20052009 was $29.46/cwt. The current loan rate for large 
chickpeas is $11.28/cwt, and the countercyclical target price set in 
the 2008 Farm Bill is $12.81/cwt. The large chickpea loan and target 
price are clearly set too low and need to be adjusted to reflect market 
conditions in the past 5 years. Lentils and dry peas are also set too 
low. Lentil prices from 20042009 have averaged $23.88/cwt. The current 
marketing loan rate on lentils is $11.28/cwt, and the countercyclical 
target is $12.81/cwt. In the case of dry peas, the 5 year average price 
from 20042009 is $9.37/cwt. Current dry pea loan rate and 
countercyclical price levels are $5.40/cwt and $8.32/cwt, respectively. 
Pulse crop marketing loan and countercyclical price levels are clearly 
set too low and need to be adjusted to provide a safety net for 
producers when market conditions turn against them. We ask that the 
price levels established in these two programs be brought up to date to 
reflect current market conditions and significantly increased input 
costs.
    ACRE Program Plug Yields. Dry peas, lentils and chickpeas are 
eligible for the ACRE program, and we believe this program should be 
continued under the 2012 Farm Bill with some adjustments. For example, 
producers should be allowed to use RMA crop insurance records to 
establish their ``plug yields'' on their farm. In those counties with a 
wide variation in environmental conditions, for example, in my county 
in the state of Washington, average rainfall ranges from 10 to 20 
inches. County ``plug yields'' include the significant differences in 
yields across my county. This same story is played out all across the 
northern tier states where counties are big compared to other parts of 
the country. Revenue guarantees are unfairly impacted by large regional 
averages. Historical crop insurance records give a producer a better 
reflection of his farm average under the ACRE program.
    Pulse Base and Payment Yield Calculations. The majority of the 
pulse producers in this country were excluded from establishing a 
``pulse base'' on their farms in the 2008 Farm Bill. A producer could 
only establish a pulse base on his farm if he grew pulse crops from 
19982001. This effectively excluded the majority of pulse producers in 
this country because pulse production was at very low levels in 
19982001. We ask Congress to reconsider pulse base establishment in 
the 2012 Farm Bill to include the most recent 5 years of production.
    Countercyclical Payment Yield. The countercyclical payment yield is 
calculated based on the average yield of each commodity during the 3 
year period of 19982001. The payment yield is then adjusted by 
dividing the national average yields from 19811985 by the national 
average yields from 19982001. For pulse crops, USDA dropped the annual 
production and yield report for dry peas and lentils during the period 
of 19811985. There are no USDA/NASS national average yields to 
establish the adjustment factor. The law gives the Secretary of 
Agriculture the authority to establish those national average yields if 
none exist in a ``fair and equitable'' manner. The only yield data 
available during that period is the data published by the USADPLC. 
USADPLC believes the yield factor used by USDA to be too low and 
requests a recalculation of the pulse payment yield calculation based 
on USADPLC data for those years.

4. Federal Crop Insurance Reform
    Revenue Insurance without a Futures Market. The 2012 Farm Bill must 
improve Federal crop insurance for those crops without a futures 
market. The USADPLC has been working for over 10 years to secure a crop 
revenue policy for dry peas, lentils and chickpeas. The USADPLC has 
taken two pilot program ideas to the RMA board for consideration. Both 
times our ideas have made it through expert review with positive marks 
only to be rejected by RMA. Our two pilot programs were rejected 
primarily because our crops do not have a futures market. Mr. Chairman, 
there are a lot of crops without futures markets that do have solid 
price discovery mechanisms. The 2012 Farm Bill must include reform of 
the Federal Crop Insurance program that will be more responsive to the 
risk management needs of those crops not traded on the Chicago Board of 
Trade.

5. Research
    Research is also a critical part of the producer's farm safety net. 
Without a significant investment in research, producers will not be 
able to meet the challenges of the future.
    Pulse Health Initiative provides solutions. The 2012 Farm Bill 
needs to revitalize agricultural research to be a leader in providing 
solutions to the critical health, global food security and 
sustainability challenges facing this country and the global community. 
The United Nations projects that the world's population will grow from 
six billion to nine billion people by the year 2050. We need to double 
the food supply in less than 40 years. To do this we need to increase 
funding to agricultural research programming that will provide short- 
and long-term solutions to these challenges. The USADPLC, in 
cooperation with the U.S. Dry Bean Council, has launched the Pulse 
Health Initiative (PHI) to meet these challenges head on. The mission 
of the PHI is to provide solutions to the critical health and 
sustainability challenges facing the citizens of the United States and 
the global community through research on pulse crops. In March of this 
year we gathered together 50 of the best scientific minds in this 
country to map out a strategic plan to achieve the following three 
goals:

    1. To Reduce Obesity and associated diseases (CVD, Diabetes, 
        Cancer) by 50%.

    2. To Reduce Global Hunger and Enhance Food Security by increasing 
        pulse crop productivity.

    3. To Reduce Ag's Carbon & Water Foot Print by optimizing pulse 
        crop nitrogen fixation and sustainability attributes.

    Because of their unique nutrition and environmental attributes, 
pulse crops can achieve these goals, but it will take a significant 
investment in research. We ask the House Agriculture Committee to 
include the Pulse Health Initiative in the 2012 Farm Bill. If we are to 
feed this world in a sustainable way, we have to increase our research 
investment in pulse crops and all agricultural research.
    Thank you for listening to these comments. The USA Dry Pea & Lentil 
Council looks forward to working with your Committee on the 2012 Farm 
Bill. I would be happy to answer any questions.

    Mr. Marshall. Thank you, Mr. Thompson.
    Mr. Younggren.

 STATEMENT OF ERIK YOUNGGREN, SECOND VICE PRESIDENT, NATIONAL 
           ASSOCIATION OF WHEAT GROWERS, HALLOCK, MN

    Mr. Younggren. Chairman Marshall, Ranking Member Moran, and 
Members of the Subcommittee, my name is Erik Younggren. I am a 
fourth-generation farmer from Hallock, Minnesota, where I 
produce wheat, sugarbeets, and soybeans in cooperation with two 
of my cousins. I am honored to be here today to testify on this 
important issue.
    NAWG has taken seriously the charge to start our 
discussions early regarding the future of the farm safety net. 
While we know safety net spending is a very small part of the 
overall Federal budget, we also acknowledge our responsibility 
to carefully consider the value of current programs, and to 
explore opportunities to improve the efficiency and 
effectiveness of Federal spending in future legislation.
    Wheat growers find different degrees of utility in the 
commodity programs included in the 2008 Farm Bill. We are 
gaining experience with some of the new programs, and continue 
to find areas for improvement in programs with which we have 
more experience.
    First, crop insurance is vital to wheat growers; 82 percent 
of wheat acres were covered by insurance in 2009, and more and 
more growers are investing in higher value revenue policies. 
Though arguably the most heavily relied-upon risk management 
component of the current farm bill before us, it does have 
limitations.
    Growers would like Congress and RMA to continue to build on 
the program's current successes by enabling growers to purchase 
higher coverage levels with affordable premiums; by addressing 
issues relating to eroding APH; and by developing stronger 
revenue policies that address variable cost risks.
    The direct payment also continues to be popular among wheat 
producers for the same reasons we advocated for it in the 2008 
Farm Bill. It is simple, predictable, reliable and trade 
friendly. Growers can use it to help with the expensive crop 
insurance, or to help offset volatility and input costs, and it 
is a vital cash-flow stream that helps producers obtain 
operating loans.
    Wheat grower participation in the ACRE Program has 
surprised many. In 2009, nearly 13 percent of total wheat-based 
acres were entered into the program. USDA predicts wheat pay-
outs in the $300 million range, constituting roughly 75 percent 
of the total ACRE payments expected to be issued. We expect 
participation in the program to continue to rise as growers 
gain familiarity with it.
    However, with only 1 year under our belt and payments yet 
to be issued, we have continued to withhold judgment on the 
reliability of the program to provide protection over time.
    Wheat growers have also found great value in SURE. However, 
a few concerns have arisen which may require attention prior to 
the next rewrite of farm policy. Complexity of the sign-up 
process, timeliness of payments, and the fact that it is set to 
sunset in 2011 are a few of the key concerns.
    Despite the utility of each of these programs independent 
of one another, taken together they make for an incredibly 
complex web. If we get back to the basics of evaluating why we 
need a safety net in the first place, which is to help us 
manage risk, not eliminate it, then we can look critically at 
this system and figure out how best to revise or reform it to 
achieve that goal more efficiently.
    As we look ahead to 2012, the policy development process is 
not unlike decisions facing farmers about what to do with aging 
equipment.
    Compare our current farm policy with the 14 year old 
combine that has accumulated about 2,800 hours of use. We are 
familiar with and appreciate its general predictability, 
despite the glitches that come with age and known limitations 
compared to what might be available with new models. It was 
given some new additions in 2008, but the core hasn't been 
replaced for a long time.
    The question facing growers now is this: Should our 
energies be directed toward further tweaking and improving the 
current structure of farm policy, considering the age and known 
challenges associated with it; or is there a newer model, a 
next-generation safety net available, that could better achieve 
our risk management goals in a simpler, more cost-effective 
manner?
    I don't have an answer for you yet today, but I did include 
in my written testimony some results of an initial survey we 
undertook with our members to explore the farm policy 
landscape. In that survey, growers expressed a variety of 
opinions related to the effectiveness of the current farm bill. 
Input was also gathered with respect to improvements to the 
current structure of farm programs, as well as new out-of-the-
box ideas.
    We are currently exploring these responses and look forward 
to sharing the results of that process in the future.
    As an agricultural producer and a grower-leader of a 
national farm organization, I feel a responsibility to help 
your Subcommittee gather the best possible information as it 
relates to current and future farm programs. Holding this 
hearing demonstrates your commitment to the responsibilities 
you have taken on as a Member of this legislative body, and I 
very much appreciate the opportunity to testify here today. I 
stand ready to answer questions you may have.
    [The prepared statement of Mr. Younggren follows:]

 Prepared Statement of Erik Younggren, Second Vice President, National 
               Association of Wheat Growers, Hallock, MN

    Chairman Boswell, Ranking Member Moran and Members of the 
Subcommittee, my name is Erik Younggren. I am a fourth-generation 
farmer from Hallock, Minn., where I produce wheat, sugarbeets and 
soybeans in partnership with two of my cousins. I currently serve as 
the Second Vice President of the National Association of Wheat Growers 
(NAWG) and am honored to be here today to share the views of the wheat 
industry with respect to the future of Federal farm policy.
    Wheat is a vital crop for the food supply and economy of our 
nation--and, indeed, our world. The United Nations has estimated that 
20 percent of calories consumed by humans come from wheat, and the 
United States is its world largest exporter. While we lead the world in 
technology and development related to wheat production, our crop and 
our industry do face challenges. We know the Federal Government plays 
an important role in partnering with our producers to ensure 
functioning research and development systems for wheat varieties and 
inputs; a functioning safety net to mitigate risk inherent in wheat 
production; and a functioning world market to which our producers can 
sell their crops.
    NAWG has taken seriously the charge from your Committee's Chairman 
and others to start now with our analysis and discussions with respect 
to the next generation of farm policy and the future of the farm safety 
net. A startling Federal deficit and struggling economy are as much a 
concern for our membership as for each of you on the Subcommittee and 
for your constituents.
    While we know spending on a Federal farm safety net is a minute 
part of the overall Federal budget, we also know it is our 
responsibility to carefully consider the value of those programs 
currently in place and to explore potential opportunities to improve 
both the efficiency and effectiveness of Federal spending in future 
legislation.

Farm Policy Goals in General
    Our policy goals with respect to the farm safety net are driven by 
concern for the financial and environmental sustainability of American 
agriculture, particularly in light of challenges on the horizon ranging 
from global competition to environmental restrictions and sourcing of 
petroleum based products, to land use and population growth. It is our 
intent to borrow the most significant and successful fundamental 
elements from past policies while casting a vision for the ongoing 
sustainability of production agriculture in the U.S.
    In general, wheat growers seek a risk management system that 
reflects the realities of today's production environment; protects them 
from unrecoverable losses due to volatile weather and market 
conditions; and supports their stewardship efforts on our nation's 
working lands. Components of that safety net should be reliable, 
provide meaningful coverage for producers throughout the country and be 
mindful of the world-wide marketplace in which our commodities operate.
    I'd like to leave you today with some thoughts related to the 
perceived utility of current commodity and risk management programs; 
ideas on how they interact with one another to create a safety net for 
growers; and some specific areas we have identified as having room for 
improvement. I also want to leave you with a preview of our survey 
efforts and a commitment to continue in an open-minded policy 
development process to explore new ways of accomplishing our overall 
policy goals in a responsible and forward-thinking manner.

Experience with 2008 Farm Bill
    The continued health of the farm sector through our recent economic 
downturn and the less-than-extraordinary experiences in recent years 
with volatile weather and market conditions is a testament to the 
commitment of Congress to maintain Federal support for production 
agriculture.
    NAWG supported passage of the 2008 Farm Bill due to the inclusion 
of a number of programs of significance to wheat growers including crop 
insurance, the direct payment, conservation programs, renewable fuels 
programs, market development programs and research funding.
    Those programs of interest to this Committee--crop insurance, the 
direct and countercyclical (DCP) and marketing loan programs, the 
Average Crop Revenue Election (ACRE) program and the Supplemental 
Revenue Assistance (SURE) program--were each designed to serve a 
specific function in contributing to the farm safety net and risk 
management system available to producers.
    In general:

   Crop insurance is a vital risk management cost-sharing program to 
        address a combination of production and price risks up to a 
        specified coverage level. It is largely predictable and can be 
        purchased by an individual farmer based on his or her operating 
        conditions. Though arguably the most heavily relied-upon risk 
        management component of the current farm bill by wheat growers, 
        it does have limitations in meeting the totality of producers' 
        risk management needs. These limitations include the fact that 
        it does little to help growers protect against volatility in 
        local market conditions such as basis risk. Revenue coverage 
        can deteriorate after multiple years of disaster, and it 
        currently does not take into consideration risks associated 
        with volatility in input costs.

   The direct payment works as a reliable cash flow tool that enables 
        growers to secure operating loans. It can be used to provide 
        assistance with the expense of crop insurance, allowing 
        producers to purchase more than they might be able to 
        otherwise, or to help offset uncertainties related to input 
        costs. It is also a relatively trade-friendly safety net 
        program, which is of utmost importance to many agricultural 
        producers in trade-dependent sectors, including wheat.

   The countercyclical program is designed to protect growers from the 
        most extreme dips in market prices by creating a floor price. 
        However, this tool has been rendered largely ineffective due to 
        a target price for wheat that is far below the cost of 
        production, and that has not been triggered for 10 to 15 years.

   The marketing loan program is designed to address price risk by 
        creating a floor price for marketing purposes and helps provide 
        liquidity for growers in times of difficult marketing 
        conditions. Because it is more tied to local prices, it can 
        help compensate for some basis risk in a way that other safety 
        net programs aren't able. However, its utility is limited by 
        the comparatively low loan rate.

   The ACRE program is an optional, whole-farm revenue protection 
        program that creates an alternative to receiving CCPs at the 
        cost of reducing direct payments by 20 percent and taking a 30 
        percent reduction in the loan rate. It gives producers a public 
        option for revenue protection outside of the Federal crop 
        insurance program. In general, the past wheat price history has 
        made the ACRE guarantees more attractive, but it is a moving 
        target offering varying degrees of utility to wheat growers 
        depending on their location, production mix and a variety of 
        other factors.

   The SURE program is designed to supplement crop insurance in 
        providing risk protection for growers in times of natural 
        disaster. Wheat growers value this program in helping to fill 
        the income gap between insurance coverage levels and cost 
        recovery or income needs.

    Wheat growers find varying degrees of utility in each of these 
programs, but some frustration has been expressed with the web of 
Federal farm programs that is growing in complexity. Producers are 
growing in experience with some of the new programs and continue to 
find areas for improvement in programs with which we have more 
experience.
    For the purposes of today's hearing, I'd like to give the 
Subcommittee some more detailed feedback on our experience with a few 
of these programs and then return to a more general discussion on our 
thoughts on future farm policy.

Crop Insurance
    Wheat growers farm in some of the riskiest areas of the country, so 
the management of risk to be of utmost importance to our growers. Crop 
insurance is a vital tool that offers a variety of options for growers 
to manage this inherent risk.
    Wheat growers have a long history of high adoption rates in crop 
insurance. In the past 10 years, between 73 and 82 percent of total 
wheat acres have been enrolled in some form of Federal crop insurance. 
Nearly 49 million wheat acres were insured under some form of Federal 
crop insurance in 2009, or more than 82 percent of the total 59 million 
wheat acres planted nationally.

Wheat Acres Insured




    Since they became available to wheat growers in the late 1990s, 
more and more growers have invested in revenue policies as opposed to 
basic Actual Production History (APH) policies as depicted in the 
figure on the following page. In 2009, 30 percent of insured acres were 
covered by an APH policy, compared to 48 and 22 percent of insured 
acres being enrolled in Crop Revenue Coverage (CRC) and Revenue 
Assurance (RA), respectively. Group Risk Income Protection (GRIP), 
Group Risk Plan (GRP) and Income Protection (IP) policies are minimally 
utilized by producers, with combined enrollment of less than one 
percent.

Percent Wheat Acres Insured by Policy Type




    Despite the clear popularity of the program demonstrated by 
consistently high adoption rates over the years, wheat growers still 
recognize room for improvement in the crop insurance program.
    As with any type of insurance, your coverage is only as good as 
what you can afford to buy. In 2009, only 8.3 million acres (or 17 
percent of insured acres) were insured under a revenue policy (either 
RA or CRC) with coverage of 75 percent or greater. The ability to 
purchase higher coverage levels at affordable premiums is the most-
cited desire related to improving crop insurance by wheat growers in 
informal conversations, at our Board table and in our surveys of NAWG 
members. We believe a re-evaluation of the subsidy levels that 
correspond to higher buy-up coverage may be warranted to create ways to 
further incentivize buy-up.
    The ability of crop insurance, even at high levels, to cover actual 
on-farm losses is also hindered significantly by continued challenges 
related to the calculation of APH. We've known for years that a few bad 
crops can diminish a producer's APH such that he or she can buy a high 
level of insurance, but still not have, overall, a good level of 
protection in the case of a severe disaster. This is a priority wheat 
growers feel must be addressed.
    As input prices and world markets become more volatile, we also 
urge an emphasis on incentivizing stronger revenue policies. Different 
from ``traditional'' crop insurance that covers bushels produced, these 
policies provide producers some assurance that a portion of their 
expenses will be recovered during times of adverse market or weather 
conditions. In particular, our industry is supportive of the 
development of new, next generation crop insurance products that will 
provide added protection for variable cost risk associated with wheat 
production.

Direct Payment
    During the last round of policy debates, NAWG fought to maintain 
the direct payment as it was the most reliable, World Trade 
Organization-compliant safety net mechanism for wheat growers beyond 
crop insurance. March Congressional Budget Office (CBO) projections for 
20112020 show that 94 percent of wheat payments issued under farm 
programs will be delivered in the form of the direct payment, followed 
by six percent from ACRE and zero percent from countercyclical and 
marketing loan programs.
    The direct payment continues to be popular among wheat producers 
for the same reasons we advocated it in the 2008 Farm Bill discussions. 
It is simple, predictable, reliable and trade-friendly. Bankers have 
also come to rely on the predictability of this cash flow stream when 
giving operating loans to producers. NAWG is evaluating the 
effectiveness of current programs and new ideas in achieving a 
consistent safety net on which producers can rely.

Average Crop Revenue Election (ACRE) Program
    In the ACRE program's first year of active enrollment in 2009, more 
than nine million of the 72 million total wheat base acres (or nearly 
13 percent) were entered into the program on approximately 61,000 
operations in the U.S. USDA predicts pay-outs in the $300 million range 
for wheat producers, constituting roughly 75 percent of the total ACRE 
payments expected to be issued.
    The State of Washington led the way in farm participation in the 
new program with 26.8 percent of the state's wheat farms enrolling in 
ACRE (constituting over 43 percent of eligible wheat acres in the 
state), though it was closely followed by eight other wheat states that 
showed participation rates exceeding 10 percent.
    Oklahoma, North Dakota, Washington and South Dakota led the charts 
with total base acres enrolled in the program, each with more than 1 
million acres enrolled in 2009. Oklahoma farmers topped the list by 
entering more than 2.5 million acres in the program.

                      2009 Wheat Enrollment in ACRE
------------------------------------------------------------------------
                                        Percentage of
      States        Acres in Program     Wheat Acres     Number of Farms
                                          Enrolled          Enrolled
------------------------------------------------------------------------
      Oklahoma           2,514,648            36.71%            12,107
  North Dakota           1,590,078            12.64%             5,320
    Washington           1,067,418            43.18%             2,467
  South Dakota           1,035,823            27.81%             5,420
       Montana             612,181             9.43%               895
      Nebraska             365,858            15.25%             6,758
         Idaho             322,077            20.20%               878
        Oregon             290,646            28.46%               488
        Kansas             215,442             1.80%             1,405
     Minnesota             177,979             6.86%             1,681
                   -----------------------------------------------------
  United States...       9,143,849            12.68%            61,875
------------------------------------------------------------------------
Source: Farm Service Agency.

    The high pay-out levels projected in 2009 are largely attributable 
to the fact that the guarantee price was calculated on years of high 
prices for wheat due to worldwide wheat shortages. The price discovery 
period and timing of the sign-up deadline allowed producers to make 
well-informed decisions regarding potential for program benefits. Sign-
up levels may have been even greater had more growers had a greater 
understanding of the detailed workings of the program and the potential 
pay-out for the year.
    We expect participation in the program to continue to rise as 
growers gain familiarity with it. This is evidenced in recent analyses 
from USDA, Kansas State University and the Food and Agriculture Policy 
Research Institute (FAPRI), all of which indicate that wheat farmers 
may have even more incentive to participate in ACRE in the future. 
Recent price depressions and price projections for the 2010/2011 
growing season indicate that wheat farmers in 23 states could expect 
substantial ACRE payments should they decide to enroll this year. FAPRI 
predicts a rise from the current 12.68 percent enrollment rate to rates 
of roughly 19 percent, 20 percent and nearly 22 percent in 2010, 2011 
and 2012, respectively.
    However, with only 1 year under their belt and payments yet to be 
issued, wheat growers have largely continued to withhold judgment on 
the value and effectiveness of the ACRE program to provide reliable 
risk management protection on their operations over the life of the 
farm bill.
    Despite the considerable efforts of USDA, academics and others 
offering information, webinars and analysis of the program, it remains 
poorly understood by a large number of growers and Farm Service Agency 
(FSA) county office employees alike. Therefore, absent comfort with the 
program, growers will often simply opt to remain with what they know.
Recommended Improvements

   One of the biggest pitfalls to the program is the state-level 
        trigger. Though producers recognize the budgetary constraints 
        associated with the change, there is a strong preference to 
        move the trigger down as close to the farm level as possible 
        due to significant fluctuations in prices and revenue 
        guarantees particularly in larger, diverse states.

   A common problem heard among producers is ACRE's use of an Olympic 
        average yield, particularly in those states that experience 
        more than 1 year of losses in a 5 year period. Colorado wheat 
        is proving to be an extreme example of this, showing 3 years of 
        low yields, meaning the 5 year Olympic yield won't reach a 
        realistic yield level until 2011 at the earliest.

   The lack of NASS data is also a significant problem for the ACRE 
        program. FSA lists 21 crops as eligible for the ACRE program, 
        but NASS lacks data on a number of these crops in many states, 
        particularly for minor crops often used in wheat rotations such 
        as lentils. This lack of NASS data also poses a significant 
        problem with respect to considering a county-based ACRE 
        program.

Supplemental Revenue Assistance (SURE) Program
    NAWG supported the development of the Supplemental Revenue 
Assistance (SURE) program to help cover some of the shallow losses 
experienced by wheat growers in disaster years. Growers are continuing 
to gather experience with this program, though initial feedback shows 
it to be relatively popular and effective in helping to fill the income 
gap beyond coverage available through crop insurance in times of 
disaster.
    The program seems to be operating as intended, as growers are being 
rewarded for higher buy-up coverage levels. However, there are a number 
of significant hurdles to this program meeting its maximum potential in 
providing needed assistance to producers.
    As is no surprise to the Subcommittee, the program involves a 
complex sign-up process under the best of circumstances. Because of the 
late and continuously changing rules in the program, FSA offices have 
been left unable to give clear or consistent answers to growers on 
eligibility, leaving growers less able to make sound management 
decisions. Add to that grossly inadequate IT infrastructure in the 
local FSA offices--which are already short-staffed and underfunded--and 
growers find themselves frustrated and wasting a great deal of time 
working through program details and sign-up when they would much prefer 
to be farming.
    A few concerns have arisen with respect to the program that may 
require attention prior to the next re-write of farm policy. 
Programmatically, one potential pitfall of the program is that it seems 
to work best for single enterprise farms in high risk growing regions 
as the whole farm requirement provides the least amount of protection 
for diversified farms. Although it shows a marked improvement in terms 
of predictability over ad hoc disaster programs, concerns remain 
regarding the timeliness of payments being issued. In addition to these 
delivery hurdles, there is widespread concern about the program's 
funding over time as it is set to sunset in 2011, leaving SURE spending 
out of the 2012 Farm Bill baseline.

Consideration for Trade
    While the core farm bill safety net programs are our focus today, I 
would be remiss not to also discuss with you an aspect of our business 
that is less traditionally thought of as part of our safety net, but 
which is vital to the continued profitability of wheat producers--
trade.
    We are all aware of the challenges that have faced the trade agenda 
over the past few years. The reality is that the wheat industry is 
trade dependent--fully half of our crop goes overseas in a typical 
year. We see this as a strength, as we are feeding the world while 
boosting our bottom lines here at home. But in order for trade to work, 
we have to have a robust trade agenda focused on opening markets and 
reducing trade barriers.
    The delay in passage of pending free trade agreements with 
Colombia, Panama and South Korea, and further delay in making common 
sense changes with respect to trade with Cuba, has real-world 
implications. Those implications are being acutely felt by producers in 
hard red winter wheat states that have been facing extremely high basis 
levels this harvest season. Many of these growers are left with no 
option but to accept a price for their wheat that is far below the cost 
of production, with little assistance available as basis risk is one of 
those risks not easily covered by traditional farm programs.
    This year's extraordinary basis situation has been caused by a 
perfect storm of high supplies, low protein and little storage 
available. However, we know for certain that one of the only remedies 
to this situation is moving wheat to some of these export markets that 
are being kept from their full potential due to the political situation 
in Washington, D.C.
    As you begin to consider the 2012 Farm Bill, we encourage you to 
keep in mind that a robust trade agenda and properly-funded market 
development programs are key components of farm policy.

Farm Bill Budget Baseline
    We are very well aware that the most significant challenge facing 
the next rewrite of Federal farm policy will be the budget baseline 
with which Committee Members have to work. We appreciate the commitment 
of the Subcommittee Members to preserving as much of the farm bill 
baseline as possible throughout the last farm bill debates and in 
legislative activity since.
    The CBO projected commodity program spending for the current farm 
bill will be less than \1/4\ of 1 percent of the Federal budget. For 
each American, that's about 25 out of every $100 paid in taxes. U.S. 
farm policy as a whole costs Americans just 3 per meal or 9 per day--
minimal costs compared to the enormous social benefit provided by a 
stable rural economy and a stable and affordable food supply.
    We are committed to working with you as policymakers, others in our 
government and with our fellow producers to demonstrate this value and 
present the case over the next few years for a strong Federal farm 
policy.

Looking Ahead to 2012
    The farm bill policy development process is not unlike decisions 
facing farmers about what to do with aging equipment. You might go so 
far as to compare our current farm policy--for which we have 
accumulated up to 14 years of experience with some components--with a 
trusty combine that has accumulated a whopping 2,800 hours of use. 
We're familiar with and appreciate the general predictability of the 
overall system, despite the glitches that come with age and known 
limitations compared to what we know might be available with newer 
models. It was given some ``new additions'' in 2008, but the core 
hasn't been replaced for a long time.
    The question facing growers now with respect to farm policy is 
this: should our energies be directed toward further tweaking and 
improving the current structure of farm policy considering the ``age'' 
and known challenges associated with it? Or is there a newer model--a 
next generation safety net--available that we might explore to better 
achieve our risk management goals?
    That question, Mr. Chairman, is precisely the one we are committed 
to wrestle with through our policy development process.
    I don't have an answer for you today. But what I can share are some 
results of an initial survey we undertook with our members to explore 
some of the basic elements that make our current farm policy effective, 
some of those elements that leave room for improvement and some new 
ideas that maybe have not yet been fully explored.

Farm Bill Survey Results Preview
    The National Association of Wheat Growers provided an online survey 
to our states for their members' input over a period of about a month 
this spring. Overall, 558 survey responses were collected, with 90 
percent of respondents identifying themselves primarily as growers and 
65 percent identifying wheat as their primary crop. Other ``primary 
crops'' represented were corn (eight percent of respondents), soybeans 
(six percent) and cotton (four percent). Twenty-one states were 
represented in the survey responses, with highest participation from 
Minnesota (15 percent) followed by Montana, North Dakota and Colorado--
each just under 13 percent. Fifty-one percent of survey respondents 
were between 51 and 65 years of age, with 28 percent between 35 and 50 
years of age.
    When asked to rate the effectiveness of the current farm bill in 
providing a safety net for their farms, survey respondents responded in 
a near-bell-curve, with a slight bias toward less effective than more 
effective. Forty percent (161 individuals) of those that answered the 
question gave rankings between one and three (less effective) and 34 
percent (140 individuals) gave rankings between five and seven (more 
effective). Thirty-four percent (105 individuals) were neutral on the 
rating of effectiveness.
    Some of the comments received with respect to the effectiveness of 
the current safety net included:

   Crop insurance is viewed as contributing greatly to the overall 
        effectiveness of the safety net structure;

   Direct payments make for a dependable, predictable safety net;

   Target prices and loan rates are set too low and are therefore 
        largely outdated for current production systems;

   The programs have become too complicated in nature;

   The current safety net does not directly address risk associated 
        with volatility in farm costs; and

   The safety net is largely effective in helping farmers manage 
        enough risk to keep farming despite volatile weather and/or 
        market conditions.

    Input was also gathered with respect to recommended improvements to 
the current structure of farm programs as well as ``out-of-the-box'' 
ideas not already addressed in the farm bill. Crop insurance was by far 
the most-cited program with opportunities for improvement, with several 
of those recommended improvements cited previously in this testimony.
    These responses and others are being explored by NAWG's leaders 
through our committee system. Based on the results of this survey, NAWG 
grower-leaders will be exploring the best possible ways to ``fill in 
the gaps'' in current programs--whether that is to continue 
improvements to the current structure or to recommend new concepts that 
can even better meet the needs of the next generation of American 
agriculture. We look forward to sharing the results of that 
consultative process with Members of this Subcommittee and others in 
the future.

Conclusion
    As an agricultural producer and a grower-leader of a national farm 
organization, I feel a responsibility to help your Subcommittee gather 
the best possible information as it relates to current and future farm 
programs. Holding this hearing demonstrates your commitment to the 
responsibilities you have taken on as a Member of this legislative 
body, and I very much appreciate the opportunity to testify here today. 
I stand ready to answer the questions you may have.

    Thank you, Mr. Younggren.
    Mr. Marshall. Mr. Murphy, you talked about maybe having 
some new RMA products but still needing the traditional safety 
net products.
    Mr. Thompson, you observed that there is a lack of futures 
market, and that makes things a little bit difficult to predict 
what prices are going to look like and consequently manage 
risk.
    Mr. Smith, you specifically said that marketing loans were 
critical.
    Mr. Younggren, you noted that we want programs that help us 
manage risk, but not eliminate it; and you mention that in the 
context of the current safety net programs.
    On the Committee, and I think elsewhere in agriculture, we 
are wondering to what extent, if we restructured our insurance 
programs, revenue insurance, crop insurance, those sorts of 
things that I am sure others have talked about as well, whether 
those sorts of changes might address some of the concerns that 
cause people to want to maintain the existing safety net 
programs that just, for some, don't work at all.
    I think, Mr. Murphy, you might have been mentioning that it 
just wasn't working for rice. I know it has been a real 
challenge for peanuts where we set rates.
    Could all of you gentlemen just comment on whether or not 
crop insurance or revenue insurance, or some modifications of 
the products that are put out by RMA can't sort of substitute 
for the traditional programs and for the role that the futures 
industry provides you in trying to manage risk, predicting 
price, and hedging?
    So, nobody is going to tackle that one.
    Mr. Thompson. I will. I am a little bit different here. I 
mean, we do have multi-peril crop insurance with our crops. 
What we have been trying to get is a revenue-based insurance to 
protect from the price fluctuation during the year, which we 
have with CRC. I am also a wheat grower.
    And, like I said, it has been a little bit frustrating over 
the last 10 years.
    Mr. Marshall. If you had that kind of stuff, say we were 
able to put programs like that together and you had that stuff 
available to you, does that diminish or eliminate altogether 
the need for the more traditional programs?
    Mr. Thompson. I am not prepared to----
    Mr. Marshall. You don't know.
    Mr. Thompson. I am not prepared to eliminate those programs 
at this time.
    I think it is an important tool, and in our situation where 
we don't have a revenue protection, it kind of puts us behind 
the eight ball with the other crops.
    Mr. Marshall. We have been joined by Chairman Boswell. He 
is going to let me keep asking the questions, though. Anybody 
else?
    Mr. Smith. I will make reference to the Marketing Loan 
Program in the current program has been very vital to us in 
cotton. As we go about trying to finance and secure financing 
from our bankers, that gives them a baseline to base their 
financing off of, given your production levels there.
    On the crop insurance issue that you talked about, crop 
insurance is vital to us--and especially in our part of Texas 
as we go through--because we are susceptible to weather 
extremes that can create issues there.
    The problem we have with crop insurance is the 
affordability of a good crop insurance program that would allow 
us to cover what it will cost, shallow losses--whenever you 
have shallow losses of 30 percent or less--which can actually 
make a crop that you grow on your other acres, really just 
trying to maintain where you are. Instead of trying to make 
money, you are just trying to cut your losses in that respect.
    So some kind of affordable crop insurance program, as we 
work through this farm bill would be, certainly, in cotton's 
best interest.
    Mr. Marshall. When people bring up this revenue insurance 
notion, and I don't know all the ins and out about it. Mr. 
Younggren, I kind of think about what you just said. I wouldn't 
necessarily put it in those words, ``We are looking to manage 
risk but not eliminate it.'' How do you have a revenue 
insurance program without just effectively eliminating risk? 
Anybody know?
    Mr. Smith. Mr. Chairman, could I make a comment?
    Mr. Marshall. Sure.
    Mr. Smith. With sorghum we have the same issues of not 
being traded on the CBOT, so there was a lot of problems. And I 
mentioned in my talking points, getting our loan rate, our 
price election rate, which we would like to thank Mr. Moran for 
his help with that. But one of the issues that we run into when 
we start looking at different crops and different products and 
developing new products, a few years ago CRC was not available 
for sorghum, where it was for other crops. It put sorghum at a 
disadvantage.
    Then along comes--finally, we get CRC where we have some 
revenue coverage in sorghum; along comes RA for corn. When the 
prices spiked up a few years ago in corn, CRC was capped where 
RA was not. We have to be very careful when we develop new 
products for crop protection that they are available to all 
crops and don't put certain crops at a disadvantage, which may 
in turn legitimize putting the wrong crop in the wrong ground.
    Mr. Marshall. Mr. Murphy.
    Mr. Murphy. Mr. Chairman, could I make a comment on 
insurance?
    Mr. Marshall. Sure.
    Mr. Murphy. In rice, the crop insurance doesn't really work 
very well, but there are some new products being looked at. We 
would like for crop insurance to work for rice. I think if the 
premiums were cheaper and there are the new products we talked 
about earlier, maybe had the cost of inputs been involved in it 
a little bit, we would look at crop insurance more seriously.
    But our bankers like the old farm program, they like to be 
able to look at direct payments and know that you have this 
money coming, money in the hand.
    Mr. Marshall. If I caught the gist of your testimony, not 
too much is working for rice right now.
    Mr. Chairman, why don't I switch seats with you and you 
switch over? Chairman Boswell is back. Okay, I don't get to go 
either.

OPENING STATEMENT OF HON. LEONARD L. BOSWELL, A REPRESENTATIVE 
                     IN CONGRESS FROM IOWA

    The Chairman. [presiding.] Well, thank you very much.
    I think that Mr. Marshall probably explained that we have 
the conference committee going on in Financial Services, 
banking. I call it the Wall Street bill. But anyway, that is 
going on. We started this at 8:30 this morning, and we are on a 
recess right now. So I would guess that every one of you has 
some interest in what is going on there, and we are doing our 
best to try to represent that.
    Chairman Peterson is on the panel, as well as Ranking 
Member Lucas, so that three of us from Agriculture are there. 
And we take it very seriously and we hope that we can carry the 
mail.
    With that, I know that Mr. Moran is waiting. I heard some 
of that last discussion.
    I will just say this. You know, there is a lot of angst out 
there, concern about what is happening with the RMA, SRA, and 
so on, and that information has been bouncing back and forth 
through, what, Jerry, the third draft which is alleged to be 
the final draft. I assume it may be. I am not sure at this 
point, totally, but that is the idea.
    They have had their regional meeting out in Kansas City a 
weekend ago, and so we have some feedback from that. But we are 
going to continue the best that I am able to control it, the 
pace that we have been on; that we are going to walk before we 
run and make sure that we have feedback, which I was just 
hearing from some of you.
    It appears that we are headed on a pretty sure course after 
our safety net, but it has got to be available and affordable. 
And those things that I know, having been a producer for a 
number of years, you have to know where you are at.
    But I continue to say this. If you are going to be in 
production of agriculture, whatever area you are in, you have 
to have about three things or you just can't operate. You have 
to have a good bank, you have to have the farmer store--you can 
call it whatever you want--your co-op, whatever it might be to 
buy and sell and so on. And you have to have a good insurance 
agent that knows what they are doing.
    I have added those a few years back, too. I think it is 
very, very important. Of course, to keep the insurance 
companies out there going, they have to have profitability. 
That is what they are in business for. So we understand all of 
that, and I certainly do from having been a practitioner of 
users, so I understand it very well.
    With that, I want to recognize my Ranking Member.
    I want to call your attention--I want to thank Mr. Marshall 
for taking over. He was supposed to fill in for me after we 
started this morning, and then we got over there for an early 
meeting and I didn't feel comfortable to leave. We had to get 
word to Jim that he had to speed up and get here.
    But I just want to say something, I really appreciate this 
guy. Not only is he our workmate here, but 2 or 3 years ago I 
was very proud, we were both veterans, I was very proud that he 
got inducted and put into the Ranger Hall of Fame, Jim 
Marshall, right here, setting beside me. And I am very proud of 
his service in many ways to all of us.
    Having said that, Mr. Moran, you are recognized.
    Mr. Moran. Mr. Chairman, thank you, I certainly appreciate 
the consideration that you always extend me, and Mr. Marshall 
was a fine and kind Chairman in your absence.
    While you recognize his military service, I mentioned yours 
several weeks ago in which you were honored at the General 
Staff and Command College at Fort Leavenworth, Kansas, and 
thank you both for your service to your country.
    Let me follow up with the direction, at least the comments 
of Chairman Boswell.
    In regard to the recent SRA agreement, are any of your 
organizations or associations following these discussions? Have 
you examined the third draft and had input or thoughts in that 
regard? And do any of you believe that the attempt by RMA to 
utilize savings, so-called savings in this renegotiated, or 
this negotiated agreement, results in better opportunities for 
the crops that your members grow, or has a better result for 
the geographic area of the country you represent?
    That is one of the arguments that RMA is making, is that we 
are going to save some money and we are going to put it back 
into crop insurance and develop new products and try to take 
care of those who are underinsured.
    On the other hand, I would think there would be some 
concern, particularly if you farm in a high-risk state, that 
the crop insurance companies and their agents may soon decide 
that the risks are too high for the rewards.
    And so I wondered, on balance, if there is a consensus or 
an agreement that we are either headed in the right direction 
or wrong direction, or perhaps this is not far enough out there 
that you all had the opportunity to examine it?
    Anybody have any thoughts? I always hate to ask a question 
for which no one has an answer. It suggests that it is a poor 
question.
    Mr. Smith. Well, one of the things in cotton, we have 
really, in Texas in particular, because I guess we would be 
considered a high-risk state in many respects. But, the group 
risk policies that have been available in the past are no 
longer available, were tools that some operators could use to 
protect their investment that they had in the crops.
    And we certainly would like to encourage, continue to look 
at those, what we call the GRP, Group Revenue Protection, 
policies that have been in place. Of course, I understand the 
effectiveness in trying to get the ratios right on the things, 
but they definitely have places in our areas of cotton 
production.
    Mr. Simonsen. Well, we are certainly watching it very 
closely as this unfolds. But to be very honest, we are still 
fighting insurance battles from the last go-around. We have a 
couple of other issues to work on, very tied up with that and 
kind of waiting for the fourth and final draft to come out, and 
so we actually know what we are dealing with.
    Mr. Moran. I am optimistic to hear you say there will be a 
fourth draft. That will be encouraging to me.
    Mr. Simonsen. No. I said there would be four final drafts.
    Mr. Moran. Okay. I appreciate, I guess, those comments. I 
would take this, I guess, as an opportunity to express my 
concern that anytime that we are taking $6 billion out of crop 
insurance, reducing the base as we prepare for the next farm 
bill, we are creating problems, certainly perhaps for crop 
insurance, but also making it much more difficult to develop a 
farm bill that is going to meet the needs of our country's 
farmers and the consumers that they serve.
    So this is a very troublesome issue to me and particularly 
the way that USDA has developed this concept in taking some of 
the savings for paying for a mandatory program, CRP, makes 
little sense to me from a baseline protection perspective, 
despite the fact, as I recall, that USDA promised that they 
would do everything possible to protect the baseline.
    So while we are sitting here, and we have had conversation 
about we are going to develop a farm bill in very difficult 
economic times, clearly the step taken by USDA RMA, in regard 
to this issue is making it even more difficult. I guess it 
would be different if we were saving that $6 billion instead of 
shifting it to crop insurance--I am sorry, instead of shifting 
it to CRP, and putting it back into trying to find ways to 
provide higher levels of coverage, as most farmers tell me they 
need at an affordable price, or trying to take care of rice, 
for example, who finds crop insurance less advantageous.
    I think it is not a direction that I am very comfortable 
with, and at the same time I am worried, particularly as a 
Kansan, where the weather is not always our friend, that we are 
going to have less companies and ultimately less agents writing 
the policies. And as they reduce A&O and put a cap on crop 
insurance agents' commission, the competition for service, that 
the service will be damaged in the process.
    So I would be glad to have any comments from the rest of 
you.
    My time is at 13 seconds, and I do have a couple of other 
questions. While Mr. Marshall always intimidates me, my friend 
Mr. Boswell always allows me extra time. But I would ask if we 
could perhaps have a second round of questions at the end, and 
I would be glad to yield back the 1 second that I have left.
    The Chairman. Okay. You are welcome. I will just comment on 
that before I recognize Mr. Kissell here. But we have shared 
our concern, we have, and it is a big concern.
    I think leading into that is--because we went out in the 
field, as our Chairman and Ranking Member shared with us--is 
looking down the road at the deficit and all of that. If we are 
going to anticipate the possibility, and nobody is saying it is 
happening, but it doesn't take a rocket scientist to figure out 
there has to be something done about this deficit.
    And I thank our leadership for saying to us, starting early 
with agriculture is what we are primarily concerned about. If 
there is going to be some reduction, then it has to be with 
everybody, not just agriculture. I feel very strongly about 
that, I know Chairman Peterson does and Ranking Member Lucas 
and both Mr. Moran and myself; in fact, all of us.
    So that was one of the reasons we started out on these 
early field hearings, and having this hearing here today, we 
want your best thoughts on how we do this.
    I don't want you to think that we are going to sit idly and 
be happy with a reduction just happening in the agricultural 
sector. But if it happens to everyone, well then we will 
probably have to live with it. So how do we do it best? I think 
that ties in with what Mr. Moran is concerned about, and I 
appreciate that comment he made.
    So we have already taken this reduction in our baseline, 
okay. The rest of the folks, what do you have to look forward 
to, is kind of the way I look at it at this point. So we will 
see what happens from there.
    Four billion dollars of it went to deficit production, 
pretty hard to argue against that, but I am not too sure what 
is going to end up with the other $2 billion and also what is 
going to happen to the rest of the overall budget, as I have 
just mentioned.
    With that, I will recognize Mr. Kissell. Thank you for your 
patience waiting there, Mr. Kissell.
    Mr. Kissell. Thank you, Mr. Chairman.
    Mr. Smith, with the Brazil case, any thoughts from the 
cotton industry as to changes in policy that you all would like 
to see take place that would help that situation be rectified?
    Mr. Smith. Well, we are concerned about that case, of 
course. And I will also remind the Members of the Committee 
that that finding, that panel decision, was made based on the 
crop conditions that happened in 1999 to 2005. And we are 
certainly in a different world today than we were in that time 
period.
    The National Cotton Council in the mid-year board meeting, 
we have already put together what we call our Farm Policy Task 
Force. We will be looking at different options, all options on 
the table of how to address exactly what has happened with the 
farm on this WTO-Brazil case, and we have no comments at this 
point in time of what policies we might want to look at.
    Mr. Kissell. Thank you, sir. Mr. Chairman, I yield back.
    The Chairman. Thank you. Mr. Smith.
    Mr. Smith of Nebraska. Thank you, Mr. Chairman, and 
greetings to my constituent from Nebraska, Mr. Simonsen. Thank 
you for sharing your expertise and your time.
    Obviously you talked about grain sorghum as an excellent 
crop for ethanol. And using \1/3\ of the water, yet the same 
energy output as corn-based, and I think that is a great option 
to have. Also, there is concern that USDA's recently proposed 
rule, section 9005 of the energy title of the farm bill, 
contains a provision requiring all feedstocks purchased under 
the program to conform to the EPA's RFS2 definition of advanced 
biofuel, thereby excluding biofuels which previously qualified, 
such as the sorghum.
    Could you elaborate on the steps your industry is taking to 
ensure grain, sweet and high biomass sorghum, qualify under 
this rule and ultimately as an advanced biofuels in the RFS2?
    Mr. Simonsen. Well, we have been working closely for quite 
some time with the USDA as well as EPA. Obviously, indirect 
land use is a huge factor in how this works out and how it 
shakes out. Some of the models and formulas that they have been 
using, we have been trying to work with them to make sure that 
they are using the best possible data and that it actually 
reflects the reality of the world that we live in. So that at 
the end of the day, we don't constrain these plants.
    Throughout the Sorghum Belt, there were ethanol plants that 
were struggling, suffering; some of them shut down, some of 
them running at low levels of production, which, because of the 
payments and incentives of the 9005 program have been able to 
go back online, put jobs back in these rural communities and 
pay these people's bills. It is very important for ethanol to 
have--we talk about risk management, a safety net for 
producers. Well ethanol is huge for not only sorghum but corn 
and other crops.
    There is no safety net for ethanol producers. We need an 
available ethanol industry. You know this catastrophe, tragedy 
in the Gulf, brings us every day just a glaring reminder of how 
important ethanol is to our future.
    Mr. Smith of Nebraska. Okay. Thank you, sir. Thank you, Mr. 
Chairman. I yield back.
    The Chairman. Thank you. Mr. Schrader of Oregon.
    Mr. Schrader. Thank you, Mr. Chairman. I have a few 
questions, and I would prefer to get the responses in writing, 
actually, from all the commodity groups if possible. I don't 
need an answer right now.
    I have a little bit of concern on a lot of the comments on 
direct payments. They are tougher and tougher to explain to a 
lot of Americans, and I believe, eventually, that there is 
going to be difficulty in keeping that in place and phasing 
that out. It is probably inevitable at some point in time here.
    Making sure Americans enjoy food security is real important 
and I would be interested in several things. One is, frankly, 
from the different commodity groups, what level of food 
security should be guaranteed by production here in this United 
States of America for your various crops? I mean, that is a 
tough question to answer, but given the fact we trade all over 
the world, I assume some level of foreign competition, even in 
America, is good. But I want to make sure that we have food 
security, given disasters that occur in this country and, 
frankly, overseas.
    The other thing is I would be interested in what changes in 
trade policy we should be advocating for. I would like to know 
from the various commodities, cotton is a good example, but 
there are many others, what changes. The developing nations of 
a few years ago are now pretty developed. We are competing 
mano-a-mano with a lot of nations that before needed an extra 
hand to compete with us.
    The levels of subsidies from various countries have 
changed. So I would be interested in what we should be 
advocating for what Members of this Committee, as we look at 
the farm bill and interacting with our trade partners and 
committees to deal with trade, what we should be looking for.
    Then there has been a lot of discussion over guaranteeing 
various levels of yield and revenue and the problem with 
historical data. It seems like to me that a lot of the 
discussion this Committee has had over the course of the last 
year and a half is looking at more of an insurance on 
production costs. So I would be very interested in your 
comments about different levels of production costs, the 
fluctuation and changes over time, and how maybe an insurance 
bill should be designed around covering production costs, not 
necessarily artificial ups and downs and yields and revenues, 
and some crops are sold every other year. You know, if you are 
a cattleman, you don't sell every year, necessarily.
    And last, I would like information about discussion on 
energy bills. I know a lot of my farming friends are worried 
about increased costs as a result of these energy changes in 
legislation. We had testimony early last year about the wild 
fluctuations in futures costs for oil, and cotton got hammered 
real hard under the crisis.
    I would be very interested in knowing what the different 
commodities feel; any energy legislation, it may be modeled on 
some of the work the House did or the Senate is currently 
discussing; what those costs are, because perhaps we should be 
building those into any sort of 2012 Farm Bill.
    If that is indeed going to happen at some point in time, 
what are the costs that you are seeing that are going to arise 
out of that? I know USDA is doing some studies indicating that 
for some types of crops, farmers are going to benefit from 
energy legislation; there are those that might not be the case 
for.
    So if you could answer those four or five questions, I 
would surely appreciate it. And I yield back my time. Thank 
you.
    The Chairman. Thank you very much. I would like to yield to 
Mr. Moran some more time.
    Mr. Moran. Mr. Chairman, thank you very much. I understand 
we have votes any moment now, so I will try to keep my remarks 
brief. But I do have a couple things I want to say. And if you 
have an answer to my question, and we don't have time for the 
answer, I would be glad to have you submit that in writing to 
the Committee.
    I want to talk particularly to Mr. Younggren about basis. 
We heard the Illinois Farm Bureau President speak about the 
wheat basis, the difference between cash and futures prices. 
Does the National Association of Wheat Growers have any 
particular solution to this widening gap? I assume this is not 
just a unique Kansas occurrence, particularly after hearing 
from the Illinois Farm Bureau. But what do you think we could 
do at the moment? Is this related to high carryover stocks, low 
protein wheat, lack of export markets? Or is there something 
more fundamentally wrong with the market itself?
    Mr. Younggren. I would say the big problem right now is 
that we are awash in wheat. We have about half a crop carryover 
from last year, and we have the free trade agreements lined up 
that we could really use those to get done, so that we can 
trade this wheat to Colombia, Panama, South Korea.
    We have also worked a lot on the Cuba trade and travel 
bill. That would help us tremendously to get rid of some of 
this wheat and bring the market more in line with--bring the 
cash market in line with the futures market.
    Mr. Moran. In regard to the Cuba issue, it is conceivable 
to me that if this issue arises in this Committee or others, 
that the question will be, I suppose particularly in this 
Committee: Well, we like the agricultural aspect, kind of the 
fixing of the issues that we have at the Department of the 
Treasury, in which they have created unnecessary impediments to 
our sale of agricultural commodities to Cuba.
    But let me ask the importance of including the increased 
travel availability or opportunity for U.S. citizens to travel 
to Cuba. Is that an important component that we keep in the 
bill from the perspective of any of you who care about trade 
with Cuba? Rice would have an interest in this topic. Will you 
be satisfied if we just fix the Treasury Department problems 
created in the last Administration's regulations? Or is it 
important to keep the increased travel included in the bill?
    Mr. Younggren. We need the bill to stand intact. We need it 
all together.
    Mr. Moran. Anybody else?
    Mr. Murphy. Yes. Mr. Moran, rice is definitely for trade 
with Cuba, and we would like to sell Cuba a lot of rice. And we 
see no problem with people being able to travel to Cuba also.
    Mr. Moran. Any others? Does anybody else have any thoughts 
about the basis? Is this just a wheat issue?
    Okay. I think, Mr. Chairman, that is my final question. I 
did want to respond, because we talked a lot about the direct 
payment today, and even I did this. We talk about how difficult 
it is to explain. I think what we need to decide is whether it 
is important to keep.
    If we start with the premise that it is so difficult to 
explain to the public, therefore we are giving up on it, we 
know it is going to go away. I think it is important for 
agricultural organizations and commodity groups to let Members 
of Congress, let Members of this Committee know, are we just 
supposed to acquiesce in the sense that we are never going to 
be able to explain this, so let's just give up on the direct 
payment? Or is it so important, or important enough as a 
component, what I have always described as the third leg of a 
three-legged stool, that we ought to be fighting to keep it?
    So I would just hate for us to take the defeatist approach 
that we can't keep it so let's move on, if it really is 
something that we ought to be fighting to preserve.
    So I thank the Chairman for allowing me extra time and 
appreciate that consideration. Thank you to the witnesses for 
having this conversation today.
    The Chairman. Thank you. And I am glad to do it.
    Mr. Schrader indicates no more questions. I think we will 
bring this to a close.
    Do you have anything in closing, Mr. Ranking Member, you 
would like to say?
    Mr. Moran. I believe I have more than utilized the time 
that you have graciously allowed me.
    The Chairman. Well, you are very welcome. And I appreciate 
what you said, and I think we are on the right track. We are on 
the same track. That is good. So I will bring this to closure.
    Before I do, I want to thank all of you for your presence. 
And we are relying on you to keep in touch with us. We need to 
keep the communication line going. And our staff is available, 
both here the professional staff on the Committee and on our 
member staffs, and so let's keep that going.
    So with that, under the rules of the Committee, the record 
of today's hearing will remain open for 10 calendar days to 
receive additional material and supplements, the written 
responses from the witnesses to any question posed by Members, 
and I am going to say at this time, and/or staff.
    This hearing of the Subcommittee on General Farm 
Commodities and Risk Management is now adjourned. Thank you.
    [Whereupon, at 10:42 a.m., the Subcommittee was adjourned.]
    [Material submitted for inclusion in the record follows:]

                          Submitted Questions

Response from Anthony Bush, Chairman, Public Policy Action Team, 
        National Corn Growers Association
    Question 1. Comment on an insurance program based on insuring 
coverage of your production costs versus yield and revenue type 
programs. How would we design such a program for your commodity/
farmers?
    Answer. Margin insurance--the difference between the crop's market 
value and production costs would be one approach to addressing this 
problem. RMA currently offers a Livestock Gross Margin for cattle.
    The Livestock Gross Margin for Cattle (LGM for Cattle) Insurance 
Policy provides protection against the loss of gross margin (market 
value of livestock minus feeder cattle and feed costs) on cattle. The 
indemnity at the end of the 11 month insurance period is the 
difference, if positive, between the gross margin guarantee and the 
actual gross margin. The LGM for Cattle Insurance Policy uses futures 
prices to determine the expected gross margin and the actual gross 
margin. Adjustments to futures prices are state- and month-specific 
basis levels. The price the producer receives at the local market is 
not used in these calculations.

    Question 2. Comment on what changes your commodity group/farmers 
would like to see in the WTO trade guidelines given that some of the 
previous ``developing nations'' are now more than equal international 
partners (i.e., India, China, and others so we have a more level 
playing field). How have covert subsidies altered the balance of free 
trade?
    Answer. The greater benefit from world trade liberalization in 
agriculture, about half results from the elimination of tariff 
barriers; less than \1/3\ of benefits results from the elimination of 
producer subsidies. The current Doha Round largely excuses developing 
countries from making significant, effective reductions in tariff 
barriers, yet nearly 40% of the tariff reduction benefits comes from 
their elimination in developing countries. Moreover, since most of 
developing country agricultural trade occurs with other developing 
countries, the absence of significant tariff barrier reduction deprives 
these countries of most of the benefits of trade liberalization. In the 
case of the U.S., agricultural tariff barriers, with a few exceptions, 
are already very low. Focusing the Doha Round on reducing Developed 
country producer subsidies will provide little benefit to the 
developing countries, relative to effective tariff barrier reduction.

    Question 3. Many agriculture groups, including many testifying 
today, have publicly stated the House-passed ACES (climate change bill) 
would be detrimental to their operations. Can you comment specifically 
on the exact financial effects that a ``climate change bill'' will have 
on your commodity/farmers' cost of production?
    Answer. The results of NCGA's economic analysis of the House 
climate bill indicate that every corn grower in the country will 
experience increased costs of production resulting from H.R. 2454 
largely due to increased fertilizer and energy prices, as well as other 
inputs. In the early years of this legislation, these higher production 
costs will be relatively minor. However, over time these prices will 
significantly increase, placing an unnecessary burden on growers. 
Second, while this legislation offers opportunities to produce carbon 
offsets, this study demonstrates that not all growers will be able to 
participate. The single greatest offset opportunity is using continuous 
no-till. However, not every corn grower is able to adopt no-till 
practices. The ability to adopt continuous no-till production is driven 
by both economic and agronomic factors. There is also a high degree of 
uncertainty about which exact carbon offset activities will qualify, 
the quantity of offsets that will be provided for a given activity, 
what producers will be eligible to receive these offsets, and the 
length of time that farmers can continue to receive these offsets. 
Those growers unable to adopt no-till production will experience 
serious economic hardship resulting from H.R. 2454.

    Question 4. From your commodity/farm perspective, what level of 
food production is critical to our national security?
    Answer. In our view, food production is more of a distribution 
issue rather than a national security concern. The sensitivity of the 
level of food production is dependent upon what prices the public is 
willing to pay. The United States has a broad, diversified agricultural 
sector and consumers adjust fairly well to production shortfalls, 
paying somewhat higher prices that are part of the production cycle, 
and substituting other, less costly foods. Even the price impact of 
sharp yield reductions in corn and other feed grains have been 
cushioned by the adjustment of the livestock sector, which has spread 
the impact over several years as the shorter biological cycle livestock 
respond first. The longer cycle cattle enterprise lowers prices first 
as margins are squeezed and cattle are sent to slaughter. After herds 
have contracted, prices rise as cattle are held back from market to 
rebuild breeding herds and feeder cattle are fattened longer in 
response to higher prices.
    In an example of a true national security situation, rationing was 
used during World War II to address the distributional issues.

    Question 5. How do we defend direct payments to a farm for a crop 
they no longer grow? And haven't grown for some time? Please comment 
from your commodity/farm perspective.
    Answer. Direct payments currently bear almost no relationship to 
production cost for their associated crops. The direct payment's origin 
lies in the CBO 1995 projection of 1996 through 2006 crop deficiency 
payments. These payments were based on target prices that had been 
reduced since they were increased in the 1981 Farm Bill to protect 
producers from the inflationary trends of the late 1970s.
    The CBO projection was the basis for the ``decoupled transition 
payments'' in the 1996 Farm Bill. These payments were subsequently 
doubled in annual emergency legislation to protect producers from low 
farm prices, not rising production costs. Consequently, it does not 
matter what crop is produced, given the negligible relationship to 
production costs.
    The rational for providing direct payments to a producer who grows 
no crop is that the alternative, producing an unprofitable crop simply 
to receive the subsidy, is a more difficult position to defend and a 
common criticism of farm programs.

    Question 6. How should the Federal Government handle disasters? No 
program that has been constructed thus far has successfully plugged all 
the possible holes to ensure that we do not have to consider ad hoc 
disaster programs annually. How do we establish predictable protection 
against disasters?
    Answer. Consider a standing Group Risk Plan (GRP), based on the 
insurance policy, provided at no cost to producers. The type of 
disaster that typically gives rise to calls for disaster assistance 
would likely be that triggers a sufficient drop in the county yield to 
result in a payment. The greater the breadth of the disaster, the more 
likely GRP is to meet the needs.
    However, because a producer cannot count on GRP meeting his entire 
need for every loss, that producer would need to purchase crop 
insurance. The interaction between the two programs could be designed 
to give the producer the greater of the two benefits, but not both. The 
result would be that policy premium would decline, dependent upon the 
county-farm yield correlation, and a producer could afford to buy 
higher levels of coverage.

    Question 7. How large of a barrier to entry is there in your area 
for beginning farmers? How can that barrier be reduced?
    Answer. The main barrier for beginning grain farmers in my area is 
ability to compete with established farmers at the going rates to cash 
rent farm ground. As important as the availability of affordable credit 
is to a beginning farmer, one of the most difficult hurdles is 
accessing land.
    Farm land cash rents reflect the current earning capacity of that 
land's yield history, current and expected crop prices and input costs. 
Established farmers, who may own as well as rent some of the land they 
operate, may have little out-of-pocket costs on land and equipment that 
they already possess, placing them in a stronger position to bid rental 
land away from others.
    One way of improving the position of beginning farmers to gain 
access to land is to facilitate partnerships with older farmers, with 
the younger supplying more labor where they may not have an equal cash 
contribution to the operation. It would also be possible to encourage 
the transfer of farm assets to the younger generation who would accept 
increased ownership and managerial roles as well as increased cash 
receipts with which to make a monetary compensation for the assets.
    One way that could address this issue is a favorable treatment of 
the capital gains tax rate for separating the development rights to 
farm land, which raise the speculative element of the land price, from 
the agricultural use of farm land. Deeding away the development rights 
will keep the land in agricultural or conserving use, lower real estate 
taxes to the current and future owner and, perhaps, result in a cash 
compensation for development rights sold to a conservation institution 
that preserves land in such a way.

    Question 8. You highlight concerns with regard to crop insurance 
rating methodology. How has RMA worked with producers on this process? 
What should Congress do to ensure they are working with producers?
    Answer. This is not an issue of RMA working with producers; RMA has 
been considerate of NCGA concerns and provided ample opportunity for 
comments to be submitted on the recent review of the agency's rating 
methodology. It is a dispute on how insurance rates are determined and 
a divergence of views on data that demonstrates that corn, with its 
improving yields, has less variance and, therefore, less risk. As 
evidenced by the recent average .61 loss ratio, rates are not being set 
to reflect that lower risk.

    Question 9. You mention that you prefer SURE over ad hoc disaster 
programs. Could you explain the pros and cons of each, and why SURE is 
a better choice for corn producers?
    Answer. Long before the SURE program, NCGA advocated for reforms to 
disaster assistance that would not only treat crop insurance 
participants more equitably, but avoid duplication of benefits. Ad hoc 
disaster assistance legislation has usually adhered to a familiar 
design of targeting payments for large yield losses without factoring 
in the degree of loss. Growers could still lose up to 35% of their crop 
and still sustain substantial financial losses.
    Producers who do have an eligible loss may receive no more in 
disaster assistance, including crop insurance indemnities or NAP 
payments, than 95% of the value of the crop had there been no loss. It 
is reasonable to limit government assistance, but this limit does not 
include other payments made by the government. A loss in one crop maybe 
compensated, but receipts and payment for that crop and others are 
ignored.
    In contrast, SURE covers whole farm revenue for both covered 
commodities and many other crops; it includes crop insurance 
indemnities, Noninsured Crop Disaster Assistance Program (NAP) 
payments, Marketing Assistance Loan proceeds, Direct and Counter-
cyclical Program (DCP) payments and ACRE payments. SURE revenue is 
guaranteed at 115% of purchased crop insurance coverage levels, raising 
revenue protection up to a maximum of 90%, which is a more reasonable 
limit to producer protection than the disaster program's 95% limit.
    Moreover, the inherent difficulties of securing funds to pay for ad 
hoc disaster aid has usually resulted in protracted delays in 
delivering assistance in a timely manner. Despite the complexity of 
SURE, there is at least a standing program in place structured to 
direct payments to producers who can demonstrate whole farm revenue 
losses.
    SURE is not without issues. There is a concern of a moral hazard 
over a requirement of ten percent yield loss for one crop despite that 
all other SURE requirements are met. When the difference between a 
substantial payment and no payment is dependent upon a ten percent 
yield loss for one crop, an incentive exists for a producer to reach 
the ten percent yield loss.
    The design of SURE also raises questions of equity for farmers who 
operate multi-crop operations. Aside from other serious issues of 
program complexity and long term funding, concerns remain about 
overlapping coverage with ACRE and crop insurance.

Response from Dave Henderson, President, National Barley Growers 
        Association
    Question 1. Comment on an insurance program based on insuring 
coverage of your production costs versus yield and revenue type 
programs. How would we design such a program for your commodity/
farmers?
    Answer. Using the 508(h) process of the Federal Crop Insurance Act, 
North Dakota growers have been working on a new product that seeks to 
insure growers' production costs. This `crop margin coverage' product 
would use USDA regional cost of production values to determine a 
reasonable guarantee to cover input expenses.
    Another solution could include what we have previously described as 
a crop insurance `plus,' or risk management account, a type of co-
insurance structured as an accumulating individual fund that provides a 
mechanism for producers to insure themselves against losses not covered 
by current crop insurance policies. Producer contributions, along with 
Federal matching funds, would create a tax-deferred, self-insurance 
plan that would allow a producer to build equity for uninsurable, 
targeted losses above currently affordable levels.

    Question 2. Comment on what changes your commodity group/farmers 
would like to see in the WTO trade guidelines given that some of the 
previous ``developing nations'' are now more than equal international 
partners (i.e., India, China, and others) so we have a more level 
playing field. How have covert subsidies altered the balance of free 
trade?
    Answer. A concerning aspect of the current WTO negotiations is the 
ability of a country to self-designate themselves as a developing 
nation, resulting in lower tariff disciplines. But that being said, WTO 
staff has indicated we should not be so concerned with trying to lower 
tariffs in developing nations, as most current applied tariffs are far 
lower than the bound rate. We should be far more concerned about 
developing nations who have no limits on agricultural subsidies. China, 
with their accession into the WTO, is limited but India, Brazil and 
others are not. India is a prime example of huge increases in subsidies 
for their farmers and it has probably affected trade. China could 
illegally be providing subsidies to their farmers, but our agricultural 
trade with them is so large there is currently no traction to bring a 
case against them. U.S. barley and wheat producers have been mostly 
left out of ag trade with China, ``but a rising tide lifts all boats.''
    We have been told the SPS (Phyto agreement) is complete in the 
current text and will not be reopened. If that is the case, we need to 
make sure that an easier mechanism is in place to challenge, in a more 
timely manner, illegal trade-blocking Phyto standards. India is a prime 
example of a country's use of Phyto's to block U.S. imports.

    Question 3. Many agriculture groups, including many testifying 
today, have publicly stated the House-passed ACES (climate change bill) 
would be detrimental to their operations. Can you comment specifically 
on the exact financial effects that a ``climate change bill'' will have 
on your commodity/farmers' cost of production?
    Answer. It is not possible to know the exact financial effects that 
climate change legislation will have on our cost of production as there 
are too many unknowns in the equation. We do know from a recent Informa 
Economics study that fertilizer prices are projected to rise 
dramatically and, on most farms in the Northern Great Plains region, 
fertilizer represents over \1/3\ of our production costs. Every crop 
input we purchase is made from or produced with energy that will be 
regulated by this legislation; from the chemicals we spray, the 
fertilizer we apply, the fuel and oil we burn, and the tires we run, to 
the steel in the equipment we use to produce our crop. The difference 
between agriculture and other industries affected by this legislation 
is that other industries are able to pass their increased costs on to 
the consumer, while those in agriculture have no way of passing on 
higher costs. We are also concerned that, since ag producers today 
operate in a global market, if one of our competitors is not required 
to follow similar regulations, then they will have a competitive 
advantage in the world market and we will not only have higher input 
costs, but lower prices as well.

    Question 4. From your commodity/farm perspective, what level of 
food production is critical to our national security?
    Answer. The U.S. grain industry produces more bushels than can be 
consumed domestically, but those additional bushels represent a bright 
spot in the nation, providing a surplus that has contributed positively 
to the overall U.S. trade balance and, consequently, to our national 
security. The argument could be made that there will still be 
sufficient food to feed the world since any acres that come out of U.S. 
production will most likely be picked up by other grain producing 
countries. Yet we need only look back a couple of years to weather-
related crop failures in many parts of the world, including the United 
States, when crop prices rose to unprecedented levels from the fear 
that supplies would be insufficient. If we push too much U.S. grain 
production overseas, then we are at the mercy of other countries for 
our food supply and must rely on their often inadequate food safety 
standards.

    Question 5. How do we defend direct payments to a farm for a crop 
they no longer grow? And haven't grown for some time? Please comment 
from your commodity/farm perspective.
    Answer. Allow periodic updating of base acres to reflect the 
previous 5 years of planted acreage. This may be more palatable to the 
public, but would be less WTO compliant since it would most certainly 
influence production.

    Question 6. How should the Federal Government handle disaster? No 
program that has been constructed thus far has successfully plugged all 
the possible holes to ensure that we do not have to consider ad hoc 
disaster programs annually. How do we establish predictable protection 
against disasters?
    Answer. We believe the new SURE program, established by the 2008 
Farm Bill, is a good first step at handling disaster assistance, 
protecting growers from shallow crop losses above those levels that are 
affordable through regular crop insurance. SURE requires growers to 
participate in crop insurance and encourages buy-up coverage by 
establishing a guarantee at 115% of the producers' individual coverage 
level up to 90% of their expected revenue. The SURE program should be 
included and funded in the next farm bill, and could be improved by 
lowering the individual producer loss level for eligibility from 50% to 
30%. We believe strongly that growers who do not adequately protect 
themselves using available crop insurance tools should not be made 
whole through ad hoc disaster assistance.

    Question 7. How large of a barrier to entry is there in your area 
for beginning farmers? How can that barrier be reduced?
    Answer. Most beginning farmers in our area are young people who are 
working with their parents while, at the same time, trying to establish 
their own operation. They need low interest loans to purchase the 
inputs necessary to get started, but they also need a strong safety net 
in order to survive in times of volatile weather and prices. A low 
interest loan could be offered to beginning farmers that requires 
purchase of Federal crop insurance at an 80% or 85% coverage level at a 
reduced (more highly subsidized) premium cost.
    But the best way to help a beginning producer is to make sure they 
have a steady, consistent stream of income, namely through the direct 
payment and crop insurance. Not only do these programs provide stable 
income and risk protection, but they can also be used as collateral for 
an operating loan. Low interest loans in and of themselves are no good, 
no matter the rate, without enough income to make the loan repayment. 
In fact, a short term low-interest loan may be more detrimental than 
helpful if a beginning farmer suffers several years of crop loss in a 
row.
    Another barrier for a beginning farmer is the estate tax. A young 
farmer who has worked on the farm all his life in partnership with his 
parents may be saddled with taxes that can only be paid by selling the 
farm when the parents pass away. Unless Congress acts soon, the estate 
tax will snap back in 2011 to the onerous rates under previous law. To 
prevent this from happening, NBGA urges Congress to pass estate tax 
reform that exempts the first $5 million at a 35% rate of estate tax 
for family farms.

    Question 8. You have indicated that one of the reasons that barley 
acres have declined is the relative lack of program support, citing 
just 2% of the spending going to barley. However, given that much of 
the spending is derived by the amount of production and the amount of 
base acres in a particular crop, you would expect crops with less 
acreage to have less total spending. How would support levels for 
barley stack up when compared to other measures such as the cost of 
production and average revenues?
    Answer.

                               20112020 Farm Program Spending, Production and Planted Acres Barley, Wheat, Corn, Soybeans*
--------------------------------------------------------------------------------------------------------------------------------------------------------
    20112020 Farm Program            980            2%         11,145           28%        21,175          53%         6,662          17%        39,962
    Spending by Crop (Mar
        10 CBO in mill $)
 2009 Production (mill $)           $917            1%        $10,626           12%       $48,589          53%       $31,760          35%       $91,892
2009 Planted acres (thous          3,567            2%         59,133           26%        86,482          38%        77,451          34%       226,633
                   acres)
--------------------------------------------------------------------------------------------------------------------------------------------------------
*USDA NASS data.


             Net Return 2009 Barley, Wheat, Corn, Soybeans*
------------------------------------------------------------------------
                        Barley        Wheat         Corn         Soy
------------------------------------------------------------------------
    Gross Value of        $260.59      $242.60      $480.68      $325.15
    Production/Acre
     2009 Northern
       Great Plains
Cost of Production/       $301.55      $267.25      $452.89      $287.80
               Acre
     2009 Northern
       Great Plains
                    ----------------------------------------------------
        Net Return     8$40.960   8$24.650       $27.79       $37.35
------------------------------------------------------------------------
*USDA ERS data.

Response from Roger Johnson, President, National Farmers Union; on 
        Behalf of Kent Peppler, Treasurer; President, Rocky Mountain 
        Farmers Union
Hon. Leonard L. Boswell,
Chairman,
Subcommittee on General Farm Commodities and Risk Management,
House Committee on Agriculture,
Washington, D.C.;

Hon. Jerry Moran,
Ranking Minority Member,

Subcommittee on General Farm Commodities and Risk Management,
House Committee on Agriculture,
Washington, D.C.

    Dear Chairman Boswell and Ranking Member Moran,

    Thank you for inviting Mr. Kent Peppler, Rocky Mountain Farmers 
Union president, to testify on behalf of National Farmers Union (NFU) 
at your June 24, 2010, Subcommittee hearing. NFU members are always 
happy to discuss the policies adopted by our grassroots organization. 
We look forward to working with you during the preparations for and 
writing of the next farm bill.
    NFU received several additional questions from Members of the House 
Subcommittee on General Farm Commodities and Risk Management. The 
questions and the answers are listed below to be entered into the 
record.

    Question 1. Comment on an insurance program based on insuring 
coverage of your production costs versus yield and revenue type 
programs. How would we design such a program for your commodity/
farmers?
    Answer. There has been a great deal of discussion in 2010 about the 
potential for revenue-based insurance programs to play a more prominent 
role in the next farm bill. Since the farm bill process is in its very 
early stages, all options must be kept on the table and production cost 
insurance options are certainly worth consideration.
    The priority for any new crop insurance programs should be to craft 
them in such a way that they will work for all commodities and 
specialty crops. NFU members produce a wide variety of commodity crops 
and they all should be able to affordably mitigate their risk. Ensuring 
that high-value crops have access to effective insurance will also help 
to reduce the need for ad hoc disaster programs. The crop insurance 
programs of the future must be able to cost-effectively protect farmers 
from losses in times of low prices, poor yields or high costs. no 
matter the mechanism.

    Question 2. Comment on what changes your commodity group/farmers 
would like to see in the WTO trade guidelines given that some of the 
previous ``developing nations'' are now more than equal international 
partners (i.e., India, China, and others so we have a more level 
playing field). How have covert subsidies altered the balance of free 
trade?
    Answer. World Trade Organization (WTO) guidelines should better 
reflect the unique qualities of agriculture policy in future trade 
agreements. Governments arouud the world place a high value on domestic 
farm policies because having a safe, local, reliable food supply is 
vital to their national security. This is the same in the United States 
as it is in the other G20 countries or throughout the developing world. 
Expectations for our own or any other country to voluntarily relinquish 
control of their food production is misguided. Countries will continue 
to assist their farmers through price supports, direct payments, 
insurance or other government investments.
    However, the WTO should also ensure that countries do not dump 
artificially cheap agricultural commodities into the global market. In 
an era when more ``developing nations'' are attaining ``developed'' 
status, WTO's role as a regulator for agricultural trade is becoming 
even more important.

    Question 3. Many agriculture groups, including many testifying 
today, have publicly stated the House-passed ACES (climate change bill) 
would be detrimental to their operations. Can you comment specifically 
on the exact financial effects that a ``climate change bill'' will have 
on your commodity/farmers' cost of production?
    Answer. There is a broad consensus among academics and experts that 
a properly constructed climate bill would yield positive net returns to 
agriculture. While it is acknowledged that increases to input costs are 
expected, there is also the expectation that producers would realize 
additional sources of revenue from practices generating carbon credits.
    USDA research found aggregate economic benefits for the agriculture 
sector from the American Climate and Energy Security Act (ACES) as 
passed by the House of Representatives in June 2009. Other institutions 
have also concluded the potential benefits outweigh the potential costs 
for agriculture in the House bill. The University of Tennessee found 
net returns to agriculture are positive and exceed baseline projections 
for eight of the nine crops analyzed. A Duke University study shows net 
gains for farmers of about $1.2 to $18.8 billion, depending on the 
price of carbon. According to Texas A&M University research, there 
would be a higher average anuual net worth for farms that produce feed 
grains, oilseeds, and wheat along with dairies and ranches. Informa 
Economics saw that ACES would bring long-term benefits to corn, wheat 
and soybeans around $35, $45 and $85 per acre, respectively.

    Question 4. From your commodity/farm perspective, what level of 
food production is critical to our national security?
    Answer. The written testimony mentioned that Americans are very 
fortunate to have an agricultural industry that almost always produces 
more food than can be consumed. Agriculture is one of the few 
industries in which the United States has a consistent trade surplus 
and Americans pay the smallest percentage of their income on food in 
the world. If the United States were to become a net food importer, 
food prices would become more volatile and our national economic 
security would be threatened.
    NFU's written testimony also notes that the Federal Government 
places such a value on petroleum that a strategic reserve is 
maintained. It is estimated that if all the trading partners of the 
United States were to withhold their oil, the strategic reserve, along 
with domestic production, would allow for another 75 days of normal 
American petroleum consumption. Maintaining a supply of commodities in 
reserve would protect Americans from disasters or attacks against 
agriculture. Some Federal programs already keep a reserve of certain 
agricultural commodities, like cheese, on hand as a precaution and to 
help stabilize supply swings in the dairy marketplace. Instituting a 
reserve for a variety of other commodity food stocks, especially for 
grain, would offer another layer of security in case of emergencies.

    Question 5. How do we defend direct payments to a farm for a crop 
they no longer grow? And haven't grown for some time? Please comment 
from your commodity/farm perspective.
    Answer. NFU acknowledges that direct payments are very difficult to 
justify to the general public. It should also be noted that most of the 
programs in the farm safety net are complicated and require a good deal 
of explanation. However, direct payments usually attract a great deal 
of negative attention during public discussions of the farm bill which 
does not help efforts to strengthen other portions of the farm safety 
net. NFU would much rather make the defense of direct payments a moot 
point by directing those funds into other farm safety net programs.

    Question 6. How should the Federal Government handle disaster? No 
program that has been constructed thus far has successfully plugged all 
the possible holes to ensure that we do not have to consider ad hoc 
disaster programs annually. How do we establish predictable protection 
against disasters?
    Answer. The Supplemental Revenue Assistance Program (SURE) has the 
potential to be a consistent and reliable mechanism to provide farmers 
and ranchers with disaster relief. As mentioned in the written 
testimony, the framework provided by SURE should make it possible for 
quick and efficient recoveries from disasters.
    NFU's 2010 policy calls for Congress to ``improve and fully fund a 
permanent disaster program.'' However, since its inclusion in the 2008 
Farm Bill, SURE has been severely underfunded. The low levels of 
funding have made implementation of this new program difficult. In 
order to establish predictable protection against disasters, 
policymakers should commit to SURE and provide it with the resources it 
needs to function as designed while eliminating the need for annual ad 
hoc disaster legislation.
    Additionally, it will be important to continue to link 
participation in crop insurance programs with eligibility in SURE. The 
distribution of disaster aid must remain linked to crop insurance 
participation, which will encourage farmers who have not traditionally 
taken out crop insurance policies to do so. With more farmers enrolled 
in programs that qualify for SURE assistance, the need for ad hoc 
disaster programs would greatly decrease.

    Question 7. How large of a barrier to entry is there in your area 
for beginning farmers? How can that barrier be reduced?
    Answer. Because NFU is a national organization, our members are 
spread throughout the country. There are some geographic and commodity-
specific variations between beginning farmers; however, it is safe to 
say that significant barriers exist for all beginning farmers and 
ranchers, regardless of these variations.
    Technical assistance/education, both on farming techniques and on 
business management, is one barrier beginning farmers and ranchers must 
overcome. Agricultural extension serves as an important resource for 
beginning farmers and ranchers and it is crucial that extension offices 
remain robustly funded. In addition, many younger farmers are more 
dependent on electronic sources of information than previous 
generations. For this reason, outreach using social media and eXtension 
can be targeted in particular to these beginning farmers.
    The most significant obstacles beginning farmers must overcome 
include access to land and access to capital and credit. Programs that 
link retiring and beginning farmers, both for land access and for 
technical support, can help alleviate some of these problems. Many 
states have implemented successful FarmLink programs that have yet to 
be recreated on a national level. We commend USDA for writing the rules 
for the Transition Incentives Program authorized by the 2008 Farm Bill; 
however, the program is limited only to land enrolled in CRP and to 
certain production methods.
    The troubled economy of the last 2 years has resulted in financial 
institutions becoming hesitant to provide credit to all farmers and 
especially beginning farmers. In general, providing greater access to 
affordable credit is the biggest obstacle facing new farmers across the 
country. Farm Service Agency programs to assist with loan guarantees 
and to provide direct lending must be provided with the resources they 
need to meet demand. Farm safety net programs have been part of solving 
the credit crisis for farmers and ranchers in the past and it may be 
worth considering dedicating more resources to this important need in 
the next farm bill.

    Question 8. You state that farmers and ranchers would be better off 
if Federal spending on direct payments was reduced and the funds 
distributed among the other programs. Do you have a percentage or 
figure in mind as to the ideal level of direct payments? Where do you 
think the bulk of our energy/money should be spent?
    Answer. Funding for direct payments would be better used if it were 
redirected, in its entirety, elsewhere in the farm safety net for more 
effective assistance programs. Direct payments provide operating income 
for some farmers, but they do not address the root causes of the 
volatile agricultural marketplace. The challenges the farm safety net 
is intended to overcome are the long periods of very low commodity 
prices followed by brief periods of higher prices. Farm bill baseline 
spending should be used to smooth the harmful spikes and crashes that 
have plagued agriculture for years. Direct payment funding should 
remain within the farm safety net but should be used to prevent, rather 
than treat, the persistently low and often volatile prices farmers and 
ranchers encounter every year.
    Direct payment spending could be used to enhance existing programs 
or to create more effective new safety net tools. The funding could be 
put toward countercyclical payment programs by raising target prices 
and expanding eligible crops. Countercyclical payments offer increased 
assistance when commodity prices fall well-below the cost of 
production, not when prices are higher--this helps to smooth the peaks 
and valleys of commodity prices. Crop insurance could be a possible 
destination for direct payment funds, as well as newer revenue-based 
insurance options such as the ACRE program or even disaster aid 
programs like SURE. Direct payment funds could be redirected to 
establish a national grain reserve or to enable supply management tools 
that have been eroded during previous farm bills. Whatever form it 
takes, the energy and resources of the Federal Government should be 
channeled toward programs that help farmers and ranchers when help is 
needed and build a stronger base for agricultural commodity prices.
    Thank you again for your early and diligent attention to the next 
farm bill. If you have any questions regarding Mr. Peppler's testimony 
or NFU's policy, please do not hesitate to contact our staff.
            Sincerely,

            
            

Cc: Members of the House Subcommittee on General Farm Commodities and 
Risk Management.

Response from Robinson W. Joslin, President, American Soybean 
        Association
    Question 1. Comment on an insurance program based on insuring 
coverage of your production costs versus yield and revenue type 
programs. How would we design such a program for your commodity/
farmers?
    Answer. Many soybean farmers support the idea of being able to 
insure production costs rather than just revenue, especially since 
existing revenue programs decline in efficacy when APHs decline over 
multiple years of drought or disaster. However, we recognize the 
challenges in trying to establish cost of production on an individual 
basis and think farmers would not be attracted to a cost of production 
policy based on some kind of county or state average. ASA instead 
supports making improvements to existing policies that are generally 
accepted by farmers, particularly revenue insurance.

    Question 2. Comment on what changes your commodity group/farmers 
would like to see in the WTO trade guidelines given that some of the 
previous ``developing nations'' are now more than equal international 
partners (i.e., India, China, and others so we have a more level 
playing field). How have covert subsidies altered the balance of free 
trade?
    Answer. ASA has long advocated establishing standards for 
designating developing countries eligible for lower tariff reductions 
and other concessions under the WTO rather than allowing countries to 
simply designate themselves as ``developing.'' A per capita income 
threshold is used by the World Bank to designate ``least developed 
countries,'' and a similar measure could be developed and applied under 
the WTO.
    In addition, there are a number of ``developing'' countries with 
well-developed agriculture research, production, and exporting sectors 
that are major U.S. competitors. These include Brazil, Argentina, and 
Malaysia. ASA has repeatedly asked USTR and USDA to insist on language 
in the Doha negotiations that would require these sectors, if not their 
countries, to ``graduate'' to developed status for purposes of 
complying with greater domestic support, market access, and export 
subsidy disciplines.
    Moreover, the governments of each of these world-class agriculture 
producing and exporting countries provide various subsidies to their 
agriculture sectors. Brazil offers subsidized production credits to its 
farmers and imposes higher taxes on land that is not brought into 
production than on farmland. Argentina and Malaysia tax exports of raw 
commodities, including soybeans and soybean and palm oil, at much 
higher rates than exports of biodiesel. This Differential Export Tax 
effectively subsidizes biodiesel into the world market, including the 
U.S., where it undercuts the price of U.S. biodiesel.
    India is the most prominent ``developing'' country that uses high 
tariffs to protect its market and agriculture from imports. Even with 
significant reductions, India's tariffs will continue to significantly 
restrict access for U.S. soybean and livestock products. As a result, 
U.S. negotiators have been working to establish Tariff Rate Quotas for 
sensitive product imports by India and other developing countries. At 
the same time, these countries are insisting on being able to exclude 
specific imports as ``Special Products,'' or to raise tariffs to 
prohibitive levels using a Special Safeguard Mechanism (SSM) when the 
amount of imports exceeds recent average levels.
    The language in the Falconer text on SSMs is of concern because 
imports would have to exceed only 110 percent of recent average levels 
in order for higher tariffs to be imposed. A paper submitted to the WTO 
by Canada and Australia based on import data from developing countries 
in the last 610 years concluded that, even with a trigger of 140 
percent, higher SSM tariffs could have been imposed on 30.3 percent of 
all tariff lines in each year, and on 85.6 percent of all tariff lines 
in at least 1 year. ASA is particularly concerned how the SSM provision 
could affect U.S. soybean and soybean and livestock product exports to 
countries which have been consistently exceeding prior year's levels, 
including China.
    These highly protectionist loopholes in the WTO's tariff-based 
market access framework could negate any gains for U.S. agricultural 
exports to emerging developing country markets. The lack of specific or 
identifiable improvement in market access to developing countries is 
one of ASA's principal objections to the Falconer text. As previously 
noted, ASA is also concerned that the text does not impose greater 
disciplines on trade-distorting domestic support, market access, and 
export subsidies of major agriculture exporting countries that have 
designated themselves as ``developing,'' including the elimination of 
Differential Export Taxes.

    Question 3. Many agriculture groups, including many testifying 
today, have publicly stated the House-passed ACES (climate change bill) 
would be detrimental to their operations. Can you comment specifically 
on the exact financial effects that a ``climate change bill'' will have 
on your commodity/farmers cost of production?
    Answer. Analysis that we have seen shows varying projections of the 
impact on production costs for soybean farmers. Given the many 
variables and assumptions involved, we believe there is a great deal of 
uncertainty in all of these projections. The vast majority of our 
members believe any potential financial gain would be less then 
additional production costs and a likely loss of soybean acres.
    Agriculture in the United States in many ways is an energy 
intensive operation. Our farmers use fuel to plant, harvest and dry a 
crop. Since over half of our crop is exported, fuel is required to 
accomplish the logistics of massive soybean movement. In a world market 
place, any additional costs, not shared with overseas competitors would 
put U.S. soybean farmers at a disadvantage, thereby driving production 
offshore.
    ASA is concerned with the impacts that could result from enactment 
of climate change legislation that unilaterally subjects U.S. farmers, 
manufacturers, and other businesses to emissions caps and increased 
energy costs without appropriate measures to ensure that the U.S. 
maintains global economic competitiveness. Climate change legislation 
passed by the House of Representatives and various versions drafted in 
the Senate do not provide sufficient measures to protect American 
economic competitiveness, and ASA does not support those measures in 
their current form. As a crop that relies heavily on exports and 
competes with soybeans produced in developing countries, such as Brazil 
and Argentina, U.S. soybeans will be at a competitive disadvantage if 
subjected to increased production costs that are not incurred by our 
competitors. Further, the climate change bills provide no safeguards to 
prevent productive U.S. farmland from being idled or afforested in 
response to carbon sequestration incentives. Conversion of land from 
crop or livestock production to carbon based opportunities will 
decrease available land, and likely increase production and associated 
costs, resulting in even more pressure on crop insurance and other 
revenue protection programs.

    Question 4. From your commodity/farm perspective, what level of 
food production is critical to our national security?
    Answer. ASA believes agriculture is a cornerstone of national 
security. It provides our consumers with an abundant supply of high-
quality, safe, and low-cost food, feed, and fiber, and contributes to 
efforts to reduce U.S. dependence on imported petroleum through the 
increasing production of biofuels, including soy-based biodiesel. It 
also provides exportable supplies of agricultural commodities to a 
growing world market, including through foreign food assistance, which 
is an important factor in maintaining economic and social stability 
abroad. As the principal source of protein feed and a major vegetable 
oil in the U.S. and global markets, maintaining a viable soybean 
industry, with unimpeded opportunities for growth, is critical to 
national security.
    It is clear that the ever increasing demand for soy protein and 
vegetable oil, as well as other agricultural commodities, will require 
an increasing level of food production. The level of food production 
required to maintain national and international security is determined 
by the market, which will price the amount of land and inputs needed to 
fulfill domestic and world demand. It is also dependent on advances in 
agricultural research in order to increase food, feed, and fiber 
production on existing farmland. ASA opposes policies which interfere 
with the ability of the market to encourage increased production, 
including diversion of productive farmland into the Conservation 
Reserve Program. ASA also strongly supports increasing funding for 
agricultural research under AFRI, as authorized in the 2008 Farm Bill 
and proposed in the Administration's budget for FY 2011.

    Question 5. How do we defend direct payments to a farm for a crop 
they no longer grow? And haven't grown for some time? Please comment 
from your commodity/farm perspective.
    Answer. Farmers need an income safety net when low prices and/or 
yields force revenue below their production costs and living expenses. 
Soybean producers in various growing regions, who also grow other 
commodities, depend on different programs established under the 2008 
Farm Bill, as well as on crop insurance, to provide an effective safety 
net. Some producers find direct payments to be the most reliable safety 
net for their operations.
    Direct payments were decoupled from production decisions in order 
to eliminate the distorting impact that price and revenue-based support 
programs can have on current-year production, prices, and exports. This 
was done, in part, to eliminate the trade-distorting impact of U.S. 
farm supports and to improve compliance with the WTO.
    While it has been over 10 years since crop acreage bases were used 
to establish direct payments, it is doubtful that crop rotations on 
soybean and corn farms have changed significantly. In addition, the 
acreage planted to both commodities has increased during this period. 
So receiving direct payments for crops no longer produced is not a 
major issue for soybeans.
    The argument for maintaining direct payments is based on whether, 
in their absence, producers might not receive sufficient revenue from 
farm sales and other farm programs to cover their operating costs and 
living expenses. The fact that producers are not required to grow the 
specific crop originally tied to a direct payment reflects the intent 
of the program. The problem with direct payments is that they are made 
regardless of whether they are needed to provide an adequate safety 
net.

    Question 6. How should the Federal Government handle disaster? No 
program that has been constructed thus far has successfully plugged all 
the possible holes to ensure that we do not have to consider ad hoc 
disaster programs annually. How do we establish predictable protection 
against disasters?
    Answer. While ad hoc disaster programs do not fully meet farmers' 
needs, demand for assistance from Congress is a continuing refrain from 
growers in times of extraordinary weather. Deficiencies in the 
authorized disaster program, SURE, became apparent after flooding in 
southern states in 2009: too much time lag between loss and payment, 
too complicated a program, and linkage to crop insurance that doesn't 
make sense for growers who are underserved by existing crop insurance 
policies. ASA believes that farmers would support the reliability and 
consistency that could come from a standing disaster program. Congress 
needs to determine if SURE has the support of the Committee to become 
that program; if so, improvements to SURE should be made so that it can 
truly replace ad hoc assistance.

    Question 7. How large of a barrier to entry is there in your area 
for beginning farmers? How can that barrier be reduced?
    Answer. Farming is a capital extensive business, making it 
extremely difficult for beginning farmers. There are differences of 
opinion among soybean farmers about whether or not direct payments help 
or hinder beginning farmers. Some think that direct payments aid 
beginning farmers with assured capital outlays, at predictable times, 
for input purchases such as seed and fertilizer. Others believe that 
direct payments are capitalized into land rents, making it even more 
difficult for beginning farmers to get started. While some programs are 
directed at beginning farmers, it may be that barriers in others create 
the biggest hindrances. For example, it is very difficult for a new 
operator of any age to get an adequate APH under crop insurance to 
provide acceptable risk protection.

    Question 8. You mention that direct payments are the only farm 
program considered non trade distorting under the WTO. However, this is 
because they are completely decoupled from price or production signals, 
a feature that strikes a lot of the public as not being a good safety 
net. Would you recommend keeping direct payments even if it meant 
losing other programs that are more price or revenue based?
    Answer. The decision on whether to keep direct payments versus 
other farm programs that are price or revenue based will depend on the 
amount of baseline spending permitted on commodities in the 2012 Farm 
Bill, not on the outcome of the current WTO negotiations. ASA's 
priority is to establish an efficient, effective, and defensible safety 
net. If a reduction in direct payments is considered, it must be made 
in conjunction with needed adjustments in price and revenue based 
programs, and be reflected by an equivalent increase in their projected 
costs. It is unlikely that any agreement reached in the WTO will force 
a choice between direct payments and other farm programs.

Response from Gary Murphy, Chairman of the Board, U.S. Rice Producers 
        Association; on Behalf of USA Rice Federation
    Question 1. Comment on an insurance program based on insuring 
coverage of your production costs versus yield and revenue type 
programs. How would we design such a program for your commodity/
farmers?
    Answer. I understand that the USA Rice Federation is engaged on two 
fronts in this regard but because the 508(h) submission and approval 
process established by the Risk Management Agency involves proprietary 
information, I am not able to comment in detail on these efforts. I can 
say that there are unique perils to rice, for example, which do not 
necessarily result in lost production or price but do result in 
increased production costs. Drought requiring the pumping of additional 
water and downed rice requiring more costly harvest are two examples. 
Covering such perils as a policy or as an endorsement to an existing 
policy may be an effective means of assisting rice and other producers. 
These are just a couple of examples I am familiar with but are by no 
means exhaustive.

    Question 2. Comment on what changes your commodity group/farmers 
would like to see in the WTO trade guidelines given that some of the 
previous ``developing nations'' are now more than equal international 
partners (i.e., India, China, and others so we have a more level 
playing field). How have covert subsidies altered the balance of free 
trade?
    Answer. Texas Tech University conducted a study during the 2008 
Farm Bill debate listing the substantial subsidies and tariffs 
benefitting our key global competitors which far outstrip support to 
U.S. producers as a recent OECD report indicates. The study was updated 
recently. The study reveals that many nations use subsidies that are 
not reportable to Geneva for WTO purposes but furnish their producers a 
competitive leg up, nevertheless. These means of support should be 
reportable and subject to discipline in the same way as support 
employed by developed nations. Moreover, while a case might be made for 
the poorest of nations to be excused from some disciplines on 
agricultural support, India, Brazil, and China certainly cannot be said 
to fall into this category under any objective standard. These and 
other self-designated developing countries should be required to abide 
by the same disciplines as the U.S. and other countries traditionally 
recognized as developed.

    Question 3. Many agriculture groups, including many testifying 
today, have publicly stated the House-passed ACES (climate change bill) 
would be detrimental to their operations. Can you comment specifically 
on the exact financial effects that a ``climate change bill'' will have 
on your commodity/farmers' cost of production?
    Answer. The only indication that any of us really have in terms of 
the effects of climate change legislation on the farm are the studies 
we have read, including one conducted by the Agricultural and Food 
Policy Center in relation to representative U.S. farms, ranches, and 
dairies. Reasons for the uncertainty about the exact impact include: 
(1) the various and sundry bills in contention; (2) questions 
surrounding how ``uncapped'' sectors may still be affected under such 
bills; (3) the indirect impact on production costs resulting from 
higher inputs under the various bills, which in turn is difficult to 
estimate due to any number of factors, including but certainly not 
limited to allowances provided to capped sectors; (4) the impact on 
producers who participate in farmer-owned cooperatives (which may not 
qualify as an uncapped sector), meaning producers are impacted not only 
by higher input costs but also by lower patronage refunds (assuming the 
cooperative is still viable under a climate change bill); (5) the 
degree to which climate change legislation preempts state and local 
regulation, regulation under the Clean Air Act, or even common law 
nuisance suits, which seems to vary from bill to bill with the one 
common theme that none provide the kind of clear preemption agriculture 
needs. In addition, we are deeply concerned about where this 
legislation would position us in the global economy, particularly since 
it is highly unlikely that our key global competitors will impose an 
equally rigorous regulatory regime on their own industries. Increased 
input costs will make us less competitive vis-a2-vis our major global 
competitors, such as Vietnam, Thailand, Pakistan, and India, who 
already benefit from heavy government involvement in their rice 
production. In sum, based on what we have heard and read, producers 
have reason to be concerned about the impact of climate change 
legislation especially when our competitors will not be held to the 
same standard, if any standard at all. Although in the net aggregate, 
U.S. agriculture sequesters more greenhouse gases than it emits, there 
are currently few, if any, opportunities for rice production to further 
sequester or reduce greenhouse gases. The rice industry is confronted 
with no economic upside under pending climate change legislation and 
plenty of economic downside. The study referenced above showed that all 
the representative rice farms in the U.S. would have lower net income 
and lower net worth under the House-passed climate change bill. The 
study estimates that due to the increase in input costs for rice and 
the likelihood of no opportunity to participate in an offset credit 
program at this time, all 14 representative rice farms analyzed would 
experience lower average annual net cash farm income ranging from 
$30,000 to $170,000 in reductions per operation. Annual costs for these 
farms increase from $20,000 to $120,000 during the 2010 to 2016 period. 
And while the commodity price is expected to increase slightly it is 
not enough to make up for the significant cost increases. In addition, 
a study by American Farm Bureau Federation noted that input costs for 
rice production would increase between $70 and $150 per acre. This is 
why the climate change legislation pending before Congress is not 
supported by the U.S. rice industry.

    Question 4. From your commodity/farm perspective, what level of 
food production is critical to our national security?
    Answer. USDA defines food security for a household as access by all 
members at all times to enough food for an active, healthy life 
including at a minimum the ready availability of nutritionally adequate 
and safe foods; and, the assured ability to acquire acceptable foods in 
socially acceptable ways (that is, without resorting to emergency food 
supplies, scavenging, stealing, or other coping strategies). It is 
critical to our national security that U.S. farm policy ensures that 
our level of domestic food production can always provide this level of 
food security to all Americans. We are fortunate that because of the 
natural blessings we have in land, climate, and the productivity of the 
American farmer, we have been able to feed not only ourselves but also 
many others across the globe. Indeed, approximately half of the rice 
produced in the U.S. is exported to other countries. The United States 
should always be in a position to feed and clothe its people. Given a 
level playing field under international trade rules, a tax and 
regulatory environment that is conducive to economic growth and jobs 
creation, and a quite modest safety net and set of risk management 
tools and the American farmer and rancher can continue to make that 
happen.

    Question 5. How do we defend direct payments to a farm for a crop 
they no longer grow? And haven't grown for some time? Please comment 
from your commodity/farm perspective.
    Answer. First, one must remember that the law requires that land on 
which Direct Payments are received be dedicated to agricultural use. If 
the land is not dedicated to an agricultural use, for instance, it is 
lost to development, then Direct Payments cease. Second, the philosophy 
behind Direct Payments was and continues to be to provide farmers and 
ranchers with maximum planting flexibility in order to farm for the 
market, rather than the farm bill. This was the intent in 1996 and 
farming is a long-term proposition, therefore lawmakers in 2002 and 
2008 declined to change the rules on producers who relied on what the 
government told them in 1996. Third, beyond this rationale behind 
Direct Payments is a more practical consideration: the Direct Payment 
is the only payment that is currently providing a certain benefit to 
producers. This is the only benefit that lenders can predictably rely. 
Protection levels offered by countercyclical payments and marketing 
assistance loans have not been very relevant due to commodity price 
levels. In addition, ACRE and SURE have been unpredictable and 
disappointing in their performance and because of their design will 
likely never provide risk protection to rice producers. As a 
consequence, we are very concerned about pulling out from underneath 
farmers the one sturdy leg of the three-legged safety net even if it is 
not ideal and difficult to explain to those outside of production 
agriculture. We would certainly welcome a stronger safety net and one 
that is more narrowly tailored to our production costs and our price, 
production, and revenue risks. But, to date, we have not seen a 
workable alternative to the current mix of policies.

    Question 6. How should the Federal Government handle disaster? No 
program that has been constructed thus far has successfully plugged all 
the possible holes to ensure that we do not have to consider ad hoc 
disaster programs annually. How do we establish predictable protection 
against disasters?
    Answer. Unfortunately, given the wide scope of production 
agriculture in the U.S. today both in regards to regions and commodity 
types it is hard to imagine a policy that can address every conceivable 
economic or natural disaster. I would expect that any policy that 
``plugged all the possible holes'' to cost more than the U.S. public is 
willing to spend. A certain level of ad hoc disaster assistance 
provided by Congress is to be expected. However, we should enact 
policies that greatly lessen the need for such ad hoc assistance. In 
this regard, USDA should be strongly encouraged to use its existing 
authorities under the Federal Crop Insurance Act to vigorously develop 
and offer expanded or new policies to help all producers in all regions 
reach 85% revenue coverage in a way that is affordable to the producer. 
In addition, we need to continue to explore ways to improve the 
existing safety net and to find new and different ways of providing a 
more effective safety net under the farm bill. If these were done, 
there should be far less need for ad hoc disaster.

    Question 7. How large of a barrier to entry is there in your area 
for beginning farmers? How can that barrier be reduced?
    Answer. Uncertainty may be the biggest factor discouraging 
beginning farmers. Price, production, and revenue risks in farming are 
all inherent. But, the uncertainty in trade, farm, tax, environmental, 
and other policies emanating out of Washington is a significant 
problem. Farming is incredibly labor and capitol intensive which 
requires a long-term commitment. Too much uncertainty discourages long-
term planning, investment, and jobs creation.

    Question 8. You point out the problems with the whole farm nature 
of SURE. Do you believe these problems will be present with any ``whole 
farm approach?''
    Answer. We would certainly take a close look at any whole farm 
approach to farm policy but those we have examined to date are not 
effective as a safety net. The defects to such an approach may be 
inherent.

Response from Philip Nelson, Board Member, American Farm Bureau; 
        President, Illinois Farm Bureau Federation
    Question 1. Comment on an insurance program based on insuring 
coverage of your production costs versus yield and revenue type 
programs. How would we design such a program for your commodity/
farmers?
    Answer. A true ``cost of production program'' would be difficult to 
develop and administer as costs of producing a commodity varies 
significantly among growers, due primarily to differences in production 
practices and yields. Production costs vary widely across the country 
because of regional differences in cropping practices, yields, and 
costs of land, labor, and capital. If the Committee is referencing a 
margin cost of production similar to what is being discussed by the 
rice and dairy industry, we believe those to be extremely worthy of 
further study and discussion. For the rice industry specifically, crop 
insurance has not worked in the past as rice farmers irrigate their 
fields and thus remove the main reason for crop insurance payments. 
However, a program designed to cover energy costs in that industry is a 
very interesting concept.

    Question 2. Comment on what changes your commodity group/farmers 
would like to see in the WTO trade guidelines given that some of the 
previous ``developing nations'' are now more than equal international 
partners (i.e., India, China, and others so we have a more level 
playing field). How have covert subsidies altered the balance of free 
trade?
    Answer. Farm Bureau supports the expansion of market access 
opportunities for U.S. agriculture from the Doha Round of trade 
negotiations. These negotiations will only result in commercially 
meaningful trade expansion when all the nations that wish to trade 
participate fully in the process of reducing government barriers to 
trade. The existing flexibilities for all ``developing'' nations, no 
matter their level of economic activity, and also for recently acceded 
members (RAM's), contained in the existing negotiating text serves to 
lower the level of ambition for the entire round. The demonstrable lack 
of trade gains from the Doha negotiations to date leads directly to the 
lack of support by governments and sectors for the Doha Round.
    Farm Bureau believes that nations should move from developing 
country status as their economies grow. Advanced developing countries 
participate in the world trading economy differently than other 
developing countries. They play influential roles in the Doha talks and 
are partners, with the U.S. and other developed countries, in the G20 
group of international leaders. For the Doha negotiation, the ``special 
and differential treatment'' concept is written throughout the 
agriculture text. This is a real obstacle to removing barriers to 
trade. The trade benefits for U.S. agriculture are automatically 
reduced for those countries where U.S. agriculture has the most 
opportunity for future trade growth. The formula tariff cuts of the 
developing countries will be \2/3\ of the developing country cuts. The 
operation of the ``special safeguard mechanism'' for developing 
countries would allow an importing country to restrict increases in 
imports. While a safeguard mechanism should operate to protect against 
import ``surges'' it must be market based and must not exceed current 
permitted tariffs. The ``special products'' category for developing 
countries also reduces the number of items eligible for the formula 
tariff reductions.
    The unchanging status of certain ``developing countries'' limits 
the legitimate expectations of trade growth that should result from the 
Doha Round. The Doha Round must act to support trade expansion as a 
path to economic growth for all countries and not produce a text that 
rewards increased protection. In the domestic support pillar of the 
agricultural negotiations, developing countries will make \2/3\ of the 
cut that is required from developed countries and those cuts will be 
phased in over a longer period of time. No reduction in trade 
distorting domestic support programs will be required for a developing 
country if the programs are for subsistence farmers. This treatment 
applies even for those developing countries with an export-oriented 
agriculture. For China, domestic support spending levels are governed 
by its WTO accession agreement. China is allowed to use support up to 
8.5 percent of the value of its agricultural production. In 2007, China 
reported to the WTO that its value of domestic agricultural production 
was over $700 billion annually.

    Question 3. Many agriculture groups, including many testifying 
today, have publicly stated the House-passed ACES (climate change bill) 
would be detrimental to their operations. Can you comment specifically 
on the exact financial effects that a ``climate change bill'' will have 
on your commodity/farmers' cost of production?
    Answer. No one is capable of stipulating the ``exact financial 
effects'' of ACES or any other specific bill on agriculture or any 
other sector. The economic impact of the Waxman-Markey bill is based 
almost entirely on models, which are driven by the assumptions on which 
they are based. The figures that have been cited are best estimates 
based on these economic models and their assumptions. They provide us 
the ability to assess broad impacts, not exact costs. Moreover, because 
the legislation is designed to be implemented over roughly forty years, 
it is virtually impossible to predict the ultimate outcome. How U.S. 
agriculture--or the U.S. economy, for that matter--will look in forty 
years were ACES to be enacted into law would depend on whether the 
technological assumptions pan out, in what time frame they become 
available, whether we can build future nuclear generating capacity, and 
what other countries do to limit their own carbon emissions. In short, 
there are so many moving parts in such an analysis that it is virtually 
impossible to predict what the ``exact financial effects'' would be.
    The legislation that passed the House was structured specifically 
to front-load subsidies to consumers and to cushion the impact of 
higher carbon costs. Thus, the early-term costs are not indicative of 
what would happen to our economy. The models do, however, provide a 
rough idea of what will happen as costs are attached to carbon. For 
agriculture, which is an energy intensive sector, the costs would be 
significant. The costs incurred by ``capped'' sectors--such as 
utilities, manufacturing and transportation--will be passed through to 
consumers of those products, like farmers and ranchers, resulting in 
higher fuel and energy costs. If, instead of coal, electric utilities 
migrate to the use of natural gas, we will potentially see higher 
energy costs where coal continues to be used, as well as cost pressures 
on natural gas. This latter development will translate almost certainly 
into higher fertilizer costs because natural gas is the principal 
feedstock used to manufacture fertilizer. A corollary development would 
almost certainly be the continued reduction, if not elimination, of 
American fertilizer production.
    For lower carbon costs, those in the $15$30 range, the impacts on 
agriculture would most likely not be critical. But it must be 
remembered that at these relatively low numbers, it is highly unlikely 
you would see shifts in consumer behavior that would effectively reduce 
carbon emissions. Thus, we would not expect that such costs would last 
for long. As the cost of carbon rises, we would expect to see U.S. 
agriculture be reduced in size, both in crops and livestock.
    When an offsets market is part of the policy choices, it seems 
apparent that agriculture will respond to the economic incentive to 
store carbon, either through planting trees or through other means. A 
number of studies have been conducted to evaluate this impact--by USDA, 
Duke University, University of Tennessee, University of Iowa and 
others. While these studies vary in their particulars, a general trend 
is apparent in all of them. Land in agriculture will shift from 
producing crops and livestock to growing trees. In some of the most 
extreme examples, the amount of acreage could be as much as 60 million, 
a sizeable portion of existing agriculture.
    In addition, studies have shown that any expected revenues to 
farmers and ranchers generated through the production of offsets will 
not be enough to fully recapture the increased fuel, fertilizer and 
energy costs that will result from ACES.
    There are also several commodities--cotton, rice, fruits and 
vegetables, to name a few--that cannot generate offsets, but would 
still incur increased fuel, fertilizer and energy costs associated with 
ACES. We believe it is quite clear, from all the studies that have been 
done, that once a price is placed on carbon, U.S. agriculture--an 
energy intensive sector that has relatively little ability to pass 
along its cuts--will be faced with a number of very unappealing 
choices. Whether the shift is to planting trees, downsizing production, 
shifting into other, less cost-intensive crops or some other 
alternative, we are convinced that the ACES legislation, or similar 
measures that are now being discussed in the Senate, would have a 
significant, negative impact on agriculture.

    Question 4. From your commodity/farm perspective, what level of 
food production is critical to our national security?
    Answer. Agriculture is strategically important to the survival of 
the U.S. Our nation's economy, energy, environment and national 
security are dependent on the viability of the agricultural industry.
    Agriculture must be treated as a strategic resource by our nation 
and reflected as such in local, state and national government policies.

    Question 5. How do we defend direct payments to a farm for a crop 
they no longer grow? And haven't grown for some time? Please comment 
from your commodity/farm perspective.
    Answer. Direct payments are an important part of the ``three-legged 
stool'' (direct, countercyclical and loan deficiency) safety net 
structure of the commodity title for farmers. From 20052009, U.S. 
producers received $4.85 billion in direct payments compared to $2.64 
billion in marketing loan benefits and $2.27 billion in countercyclical 
payments per year on average. (CBO Actual Outlays).
    Direct payments helped many producers endure drought years because 
they did not have to ``grow'' a crop in order to get the payments. If 
it were not for direct payments during the drought years over the past 
few years in several parts of the country, many family-owned and 
operated farms would be out of business.
    Direct payments are more WTO-friendly and redirecting them to 
another commodity payment could make our farm program system subject to 
more potential WTO challenges. As a major agricultural exporting 
nation, we are increasingly concerned that a new farm bill could be 
designed in a way that would increase the odds of additional successful 
WTO challenges of U.S. farm policy. Therefore, they are defensible in 
terms of a global marketplace because they are categorized as green box 
non-trade distorting due to the de-coupled nature.
    Those who believe direct payments are no longer needed because 
current high commodity prices are here to stay need to remember that we 
are dealing with a commodity market that responds to high prices. We 
have seen bull markets in agricultural commodities before. Unless 
history does not repeat itself, bull markets are usually followed by 
bear markets because farmers around the world will respond to higher 
prices and grow more commodities. Direct payments are a basic part of a 
safety net that may be needed if prices and/or revenues cycle lower.
    Removal of direct payments would not have an impact on slowing the 
growth of the average size farm. Existing farm programs, which include 
direct payments, have little impact on the size of farms.
    Because the current structure of payments is based on per acre or 
per bushel system, the current program is largely scale neutral. The 
only way existing programs influence farm size is through cash rents 
and land process.
    Current increases in land values and rent are due to the increased 
demand for corn and soybeans rather than the current farm policy. In 
fact, current direct payment prices do not represent current achievable 
yields. Base yields for farm program crops are based on proven yields 
from the early 1980's, with few exceptions, despite the passage of more 
than 25 years and five different farm bills.
    Direct payments give farmers the ability to maintain flexibility in 
their planting decisions. Flexibility is important to the growth of 
both the ethanol and biodiesel industries.

    Question 6. How should the Federal Government handle disaster? No 
program that has been constructed thus far has successfully plugged all 
the possible holes to ensure that we do not have to consider ad hoc 
disaster programs annually. How do we establish predictable protection 
against disasters?
    Answer. Currently, crop insurance participation--defined as insured 
acres as a percent of planted acres--is about 80 percent. Coverage 
levels at which producers are insuring are generally high. But coverage 
levels continue to be low in some regions and for some crops. Thus, 
while most U.S. crop production is insured, pockets of inadequate 
protection raise the prospect of ad hoc disaster assistance. Because 
the SURE disaster program is essentially a bump-up in crop insurance, 
it also provides inadequate protection to some parts of the country 
where adequate crop insurance coverage is not a viable economic option.
    Drought has been the source of the largest share of crop insurance 
indemnities. From 1989 to 2004, drought was listed as the primary cause 
of loss for about 40 percent of indemnities. Excessive moisture, rain, 
or flood accounted for about 30 percent, followed by frost, freeze or 
cold weather, and hail, each of which accounted for about ten percent 
of indemnities.
    Crop insurance may need to be strengthened for it to be the primary 
form of disaster aid to farmers and ranchers. The use of premium 
subsidies to encourage insurance participation and to raise coverage 
levels is costly. Additional subsidies are not likely to boost 
participation in large areas of the U.S. where it is already high.
    While we supported an ad hoc disaster assistance bill this year, we 
spent significant efforts to ensure the farm bill was not reopened to 
pay for that assistance. We oppose funding for a disaster program 
coming from reopening the farm bill or from other agricultural funding 
offsets.

    Question 7. How large of a barrier to entry is there in your area 
for beginning farmers? How can that barrier be reduced?
    Answer. The average age of farmers continues to climb while the 
number replacing them shrinks. Much thought has been given on how to 
help young and beginning farmers get started in the business. Some have 
suggested higher fixed payments for crops that the government 
subsidizes. While we applaud the idea, it is difficult to see how much 
money would have to be added to those payments to really encourage 
young farmers to enter the business.
    Most young farmers say that land availability at reasonable prices 
is their biggest impediment to entering farming. In the Midwest, with 
corn prices significantly higher due to ethanol demand, some farmers 
are paying $100 to $120 per acre more for rent than they did in 2006.
    Another problem that arises with trying to help beginning farmers 
is to come up with the correct definition of ``a beginning farmer.'' 
For example, do ``start-up'' farmers who have worked in agriculture 
with their parents for years but are now taking over the farm as part 
of an intergenerational transfer qualify as beginning farmers? This is 
a huge problem fraught with loopholes that could indeed hurt those 
producers we are all trying to help.
    FSA has made great strides in increasing the amount of loan funds 
for beginning farmers and ranchers and socially disadvantaged farmers. 
We would support initiatives to continue this trend. We would also 
support the enhancement of FSA's program for beginning farmer 
downpayment program to make it easier for beginning farmers to buy 
property by lowering the interest rate charged and by eliminating or 
increasing the monetary cap on the value of the property that may be 
acquired.
    In addition, we hope the program recently announced by USDA titled 
the ``Transition Incentives Program'' will be helpful. Under that 
program, a retiring farmer or rancher must have land enrolled in the 
Conservation Reserve Program (CRP) that is in the last year of the 
contract. If all program requirements are met, it provides annual 
rental payments to the retiring farmer for up to 2 additional years 
after the date of the expiration of the CRP contract, provided that the 
transition is not to a family member.

    Question 8. You note in your testimony that ``more than 30 programs 
included in the last bill do not have any baseline at all.'' You also 
note that one of your organization's five key principles is that ``the 
basic funding structure of 2008 Farm Bill should not be altered''--
i.e., that your proposal ``will not shift funding between interest 
areas.'' What would you advise the Committee to do for programs in 
areas, such as the energy title, where there is very little funding for 
any program?
    Answer. Current Farm Bureau policy supports extending the concepts 
of the 2008 Farm Bill into the next farm bill. Obviously, we are having 
a considerable amount of policy development discussion in the country 
regarding the next farm bill so it is possible that our policy will 
change on this issue next January. However, we caution the Committee 
regarding funding of some of these unfunded programs. As you well know, 
in the past the Appropriations Committees have been known to reduce 
discretionary funding for areas such as research if the authorizing 
committees indeed try to fund it. That is not to say there are no good 
programs in the 30+ that do not have a baseline, but funding them will 
be problematic. In addition, we strongly suspect that the Congress 
authorized some of those programs in the last farm bill knowing that is 
was unlikely the programs would ever receive appropriations funding.

Response from Gerald Simonsen, Chairman, Board of Directors, National 
        Sorghum Producers
    Question 1. Comment on an insurance program based on insuring 
coverage of your production costs versus yield and revenue type 
programs. How would we design such a program for your commodity/
farmers?
    Answer. NSP believes it is significantly easier to structure 
insurance coverage based on yield and revenue than cost of production. 
If the coverage is too low, there is no value in the program. If the 
coverage is too high, it drives farmers to the crop with the best cost 
of production in disproportionate numbers. Cost of production coverage 
has a higher moral hazard than yield and revenue based programs. To be 
effective with a cost of production scenario, a program would have to 
split regions and even key growing states as cost of production varies 
so greatly nationwide.

    Question 2. Comment on what changes your commodity group/farmers 
would like to see in the WTO trade guidelines given that some of the 
previous ``developing nations'' are now more than equal international 
partners (i.e., India, China, and others so we have a more level 
playing field). How have covert subsidies altered the balance of free 
trade?
    Answer. NSP supports a level playing field for the export of U.S. 
agricultural commodities as 30 to 40% of our annual production is 
exported to Japan, Mexico, and Europe among others. Opening new markets 
is just as important to our industry as the impact of covert subsidies. 
Countries use tariffs and quotas on sorghum to keep our commodity out 
of their market, lowering tariffs and eliminating these practices would 
go a long way toward increasing our exports. Just as important, we 
encourage Congress and the Administration to continue to secure new 
markets for ag commodities.
    At this time, NSP does not know of specific covert subsidies 
placing sorghum exports at a disadvantage in a traditional sorghum 
market; however, we expect that developing countries will continue to 
look for ways to change the balance of free trade to their advantage. 
We believe it is only a matter of time before our trading partners look 
to such tactics to the advantage of their industries.

    Question 3. Many agriculture groups, including many testifying 
today, have publicly stated the House-passed ACES (climate change bill) 
would be detrimental to their operations. Can you comment specifically 
on the exact financial effects that a ``climate change bill'' will have 
on your commodity/farmers' cost of production?
    Answer. According to independent analysis conducted when ACES 
passed the House during the summer of 2009, ACES would raise cost of 
production for sorghum by $30 to $40 per acre. We know that ACES was 
projected to significantly raise the prices of fuel/energy and 
fertilizer, the most intensive inputs for sorghum. That said, our costs 
of production would unavoidably go up while providing minimal returns 
in the form of carbon payments, lowering our already small margins and 
eliminating any profitability. Increasing revenue to overcome the 
increased cost of production is difficult in the Sorghum Belt as the 
Sorgum Belt does not have the soil or environmental conditions needed 
to qualify for programs set forth by ACES last year.

    Question 4. From your commodity/farm perspective, what level of 
food production is critical to our national security?
    Answer. We encourage the Committee to expand the scope of this 
question to include a broader discussion of the role of agricultural 
production in rural economies and energy security.
    Food production should be, and will always be, the top priority for 
U.S. agriculture. We believe that the strength of this nation is based 
on being self sufficient in food production. In addition, we take 
seriously our responsibility to feed this country and the world with an 
affordable and healthy food supply while protecting our natural 
resources.
    However, we know our current productivity significantly exceeds 
domestic demand and it is important to our rural economy that we have 
demand for our production. We need an industry that has a steady growth 
pattern, not a growth pattern of peaks and valleys. In the Sorghum 
Belt, the aftermath of the 1970s boom resulted in CRP taking more land 
out of sorghum production than any other commodity. Another similar 
contraction could eliminate our industry. We encourage the Committee to 
continue the flexibility introduced by past farm bills as they craft 
future farm policy.
    We have worked hard to make sure value-added industries like the 
ethanol industry work with sorghum and expand into the Sorghum Belt. We 
hope that new demands for sorghum continue to expand markets and keep 
large surpluses of our commodity from hanging over the market and 
driving down prices. However, we all understand the cyclical nature of 
the agricultural industry and encourage the Committee to provide ways 
for our producers to manage the risk of price and production 
volatility.

    Question 5. How do we defend direct payments to a farm for a crop 
they no longer grow? And haven't grown for some time? Please comment 
from your commodity/farm perspective.
    Answer. NSP does not currently have board policy on this issue but 
would like to see sorghum direct payment money used to help current 
sorghum farmers.
    We urge the Committee to carefully study how a change in direct 
payment structure would impact the industry to avoid unintended 
consequences.

    Question 6. How should the Federal Government handle disaster? No 
program that has been constructed thus far has successfully plugged all 
the possible holes to ensure that we do not have to consider ad hoc 
disaster programs annually. How do we establish predictable protection 
against disasters?
    Answer. Again, NSP has no board policy on this subject. However, in 
order to establish predictable protection against disasters, the 
Committee should put more money and infrastructure support into a 
program like SURE, making it more time-sensitive and drawing from 
lessons learned while implementing the SURE program from the 2008 Farm 
Bill. Speed and predictability are key to making a disaster program 
that works for producers.

    Question 7. How large of a barrier to entry is there in your area 
for beginning farmers? How can that barrier be reduced?
    Answer. Our organization represents sorghum farmers nationwide. 
From California to Maryland, the barriers for entry into farming are 
the same. Startup costs including land, equipment and infrastructure 
reach into the millions of dollars even before accounting for annual 
costs of production such as seed, fertilizer and fuel. This makes it 
very difficult for a beginning farmer to enter the industry without 
significant outside help from inheriting land and equipment. Even with 
a co-guarantor for a farm loan, only a small number of beginning 
farmers can secure the credit necessary to begin a farming operation.
    One concern our members have is that the current tax structure does 
not allow older farmers to retire or exit the industry. As it stands, 
farmers face such high taxes if they choose to sell out, it becomes 
cost prohibitive to leave the industry and does not make room for 
beginning farmers who wish to invest their futures in farming.
    Additionally, Congress should examine Federal crop yield 
restrictions to create a friendlier environment for new farmers to 
operate. The current transitional yields system can be prohibitive to 
beginning farmers, as well.

    Question 8. You mention both that the loan rate is too low and that 
the direct payment program works well for your producers. Would you 
prefer a program that is more price-sensitive or has the reliability of 
the direct payment program?
    Answer. We prefer the synergistic effects of both loan rates and 
direct payments that we benefited from under the 2002 Farm Bill. We 
believe that successful farm policy is all about the program as a 
whole. Ultimately, the needs of sorghum farmers and budget decisions 
will drive our policy position and we will strive to evaluate the 
overall support package rather than pitting parts of the program 
against one another.

Response from Eddie Smith, Chairman, National Cotton Council; Cotton 
        Producer, Floydada, TX
    Question 1. Comment on an insurance program based on insuring 
coverage of your production costs versus yield and revenue type 
programs. How would we design such a program for your commodity/
farmers?
    Answer. Measured on the basis of per-acre costs, cotton is a 
relatively expensive crop to produce when compared to other U.S. row 
crops. With increased volatility in oil and fertilizer prices in recent 
years, cotton farmers are all too familiar with the risk posed by 
dramatic changes in production costs.
    Developing an actuarially-sound insurance product that can mitigate 
the risk associated with changes in input costs remains an interest of 
the U.S. cotton industry. Currently, the National Cotton Council has 
policy resolutions supporting the development of an insurance product 
based on costs of production. While the specific details of such a 
program remain open to further study, we believe that any program must 
recognize the regional differences in cotton production costs and be 
based on those regional costs. With the potential for moral hazard and 
to protect the integrity of the program, an insurance product based on 
an individual's specific costs of production may not be feasible.

    Question 2. Comment on what changes your commodity group/farmers 
would like to see in the WTO trade guidelines given that some of the 
previous ``developing nations'' are now more than equal international 
partners (i.e., India, China, and others so we have a more level 
playing field). How have covert subsidies altered the balance of free 
trade?
    Answer. Currently, the WTO only officially recognizes least-
developed countries (LDCs) that have been so designated by the United 
Nations. Of the 49 LDCs on the UN list, 32 are members of the WTO. The 
remaining 121 members of the WTO are able to self-declare as either 
developing or developed. Currently, countries such as China, India and 
Brazil all claim developing country status.
    The National Cotton Council has long been concerned about the 
special and differential treatment afforded in the WTO to countries 
that are able to self-declare themselves as a developing nation. With 
respect to developing countries that are competitive in world markets, 
provisions providing special and differential treatment should not 
relieve those countries of their commitments to limit export subsidies 
and domestic subsidies or improve market access.
    In cotton and textile production and trade, both covert and overt 
subsidies and trade restrictions in developing countries continue to 
cause significant distortions to world fiber markets. China maintains 
government-owned strategic reserves and administers import quotas in a 
manner that limits market access and supports internal prices at levels 
well above market prices.
    In 2008, India increased support levels above world market prices. 
A 2009 USDA attache1 report indicates that Indian Government agencies 
procured almost 10 million bales, which would subsequently be released 
onto world markets. In some cases, the cotton exports were facilitated 
by an export subsidy, which is inconsistent with India's WTO 
commitments. In a complete reversal of their policy direction, India 
responded to higher prices by instituting a cotton export ban in April 
2010.
    Since 2005, Brazil has also expanded the use of government 
subsidies for cotton and other agricultural products. For 2010/11, 
Brazil has announced $54 billion in support to agriculture, largely 
through rural credit being made available at rates which are 
significantly lower than market-based interest rates. Three quarters of 
the money will be lent to farmers through their banks to cover up-front 
expenditures until they receive their income at harvest time.

    Question 3. Many agriculture groups, including many testifying 
today, have publicly stated the House-passed ACES (climate change bill) 
would be detrimental to their operations. Can you comment specifically 
on the exact financial effects that a ``climate change bill'' will have 
on your commodity/farmers' cost of production?
    Answer. A broad consensus of analysis finds that the implementation 
of certain Cap-and-Trade (CAT) systems increases end-user prices for 
energy inputs. The degree and timing of the increases will depend on 
several variables related to the structure of the CAT system. For 
example, a June 2009 EPA analysis of an early Waxman-Markey proposal 
found energy price increases ranging between 4% and 13% in the early 
years and 15 and 35% in the later years.
    Preliminary analysis of direct energy costs related to cotton 
production, ginning, marketing, and yarn spinning indicates that every 
10% increase in input prices will increase U.S. cotton industry costs 
by at least $175 million. The estimate represents a minimum impact 
since it does not fully account for the ripple effects that higher 
energy costs will have on all industries that supply inputs to U.S. 
cotton and textile industry. Longer term price increases under a Cap-
and-Trade program could add $400 million in higher energy costs for 
U.S. cotton.
    In addition, no credible studies have identified methods or 
practices by which cotton production could generate carbon credits that 
would offset the higher energy costs.

    Question 4. From your commodity/farm perspective, what level of 
food production is critical to our national security?
    Answer. From the perspective of the National Cotton Council, the 
question should focus on the totality of agriculture and cover both 
food and fiber production. The contribution of food and fiber 
production to our overall national security extends beyond the initial 
concept of simply producing enough food and fiber to feed and clothe 
our population. Fortunately, U.S. agricultural productivity has 
exceeded the basic demand of our own population. However, national 
security encompasses not only food security, but also economic security 
and security in our trade relations.
    From this broader perspective, the United States should strive for 
the full use of agricultural resources and productivity. By maintaining 
fully-utilized agricultural resources will promote a healthy rural 
economy and ultimately support the broader economy. Stable and secure 
food and fiber production systems also insure our trading partners that 
the U.S. will remain a consistent supplier of agricultural products, 
both in times of high prices as well as low prices.

    Question 5. How do we defend direct payments to a farm for a crop 
they no longer grow? And haven't grown for some time? Please comment 
from your commodity/farm perspective.
    Answer. Many opponents of agriculture look at high commodity prices 
and question the need for direct payments. However, farm bills should 
be written for the longer-term, not the short term, and we all know 
that high commodity prices are unlikely to last. To weaken the 
certainty of direct payments during times of high commodity prices 
could prove disastrous on the countryside when prices fall.
    Direct payments are the only component of the safety net currently 
helping every farmer with base acres to deal with steep increases in 
input costs, dramatic commodity market swings, and increasing 
uncertainty in the credit markets that they rely on to keep their farms 
running.
    It is also important to note that the fixed direct payment was 
created in the 1996 Farm Bill to give farmers some flexibility in their 
planting decisions. This flexibility enables farmers to make planting 
decisions based on expected market prices and variable productions 
costs, which makes this portion of the farm safety net the most trade 
compliant and least problematic in WTO negotiations.

    Question 6. How should the Federal Government handle disaster? No 
program that has been constructed thus far has successfully plugged all 
the possible holes to ensure that we do not have to consider ad hoc 
disaster programs annually. How do we establish predictable protection 
against disasters?
    Answer. Disasters affecting agricultural production can take many 
forms and can happen at any time before or during the growing and 
harvest season. As such, it seems that it is virtually impossible to 
completely rule out the future need for ad hoc disaster assistance. 
However, Congress should strive to minimize the need for ad hoc 
assistance when reviewing changes to existing programs.
    The NCC supports a permanent natural disaster program as part of 
the farm bill, but our experience with the SURE program indicates that 
it cannot provide an effective level of natural disaster assistance. We 
recognize the challenge facing Congress to make improvements in this 
program. Without increased baseline spending authority, there will be 
no funds to even continue the program in the next farm bill, much less 
make the necessary improvements for it to be an effective disaster 
relief mechanism. However, we do not support reallocating existing 
spending authority from current farm programs to apply to SURE.
    Enhancements to current crop insurance products can provide more 
effective risk protection for U.S. cotton farmers and hopefully 
mitigate the need for ad hoc assistance.
    The NCC believes that there are several enhancements that can 
further improve crop insurance programs.
    RMA should continually look for ways to move towards rate setting 
procedures that recognize investments a grower makes that reduce their 
individual risk. Producers who practice risk-reducing cultural 
practices, such as planting improved varieties and employing good soil 
and water conservation practices, are actively working to reduce their 
risk and increase the productivity.
    The Group Risk Income Protection (GRIP) and Group Risk Plan (GRP) 
programs should be reinstated. Those programs were effective products 
in some parts of the Cotton Belt.
    A major concern is the lack of affordability of higher levels of 
insurance coverage and the exposure to significant ``shallow losses'' 
that prevents effective risk management. The National Cotton Council 
supported proposals introduced during the 2008 farm bill debate 
regarding the use of GRIP and other group coverage alongside buy-up 
coverage to help shield growers from shallow losses. We would encourage 
RMA to put additional focus on the refinement of policy options that 
allow regional differences in insurance to be recognized
    Accurately rating coverage is also critical to providing an 
affordable insurance product. RMA should continually look for ways to 
move towards rate setting procedures that recognize those investments a 
grower makes that reduce their individual risk. Producers who practice 
risk-reducing cultural practices, such as planting improved varieties 
and employing good soil and water conservation practices, are actively 
working to reduce their risk and increase the productivity. These 
activities benefit the cotton insurance program immediately by reducing 
production risks. The Council has consistently supported a move toward 
individualized experience based rating that would not disadvantage good 
producers in bad county experience situations. The lack of experience 
rating has reduced participation at higher levels of coverage for many 
cotton producers.
    Unfortunately the current rating structure looks backward and lags 
well behind the risk reduction curve created by new technology. 
Practices that reduce risk and improve productivity should be rewarded 
with lower rates that can be translated into improved insurance 
coverage.
    Another improvement that the cotton industry has asked RMA to 
consider is allowing a producer to purchase different levels of 
coverage for irrigated and non-irrigated production. Under the current 
system, which limits a grower to a single coverage level for both 
practices, a diverse cotton operation is stuck with balancing the 
coverage level between two entirely different risk management 
situations. The end result is a bad compromise that forces growers to 
under-insure their high input, high yielding irrigated production and 
over-insure their lower input, lower yielding non-irrigated acres. RMA 
has the tools and procedures necessary to monitor this situation to 
prevent the possibility of fraud and abuse. We would also suggest that 
when allowing different levels of coverage to be selected an effective 
way to prevent potential abuse would be to prohibit a grower from 
purchasing a higher level of coverage on non-irrigated acreage than 
they select for irrigated land.
    Maximizing quality is a primary consideration of producers 
throughout the production process. Cotton is unique in the fact that 
our product is sold on an identity-preserve basis and that cotton end-
users purchase based on the quality characteristics of each individual 
bale. We believe cotton quality loss provisions should be structured in 
recognition of the unique bale identity. We are pleased to report to 
the Committee that a new quality adjustment provision for cotton, based 
on the CCC Loan Premium and Discount schedule, has been developed by 
RMA with recommendations from the Council. We have made some progress 
with RMA on implementing this provision and encourage the Agency to 
complete this process as quickly as possible. We also believe that this 
revised quality adjustment procedure should continue to be considered 
part of the basic premium and be implemented at no additional cost.

    Question 7. How large of a barrier to entry is there in your area 
for beginning farmers? How can that barrier be reduced?
    Answer. One significant barrier to entry for beginning farmers is 
the difficulty to obtain financing necessary to launch a new farming 
operation. Programs that will make that capital acquisition more 
affordable with be a great benefit to beginning farmers.
    Relaxing current payment limits will also lower a barrier to entry. 
In today's agriculture, a successful farming operation must be able to 
take advantage of the economies of scale that exist. Often times, the 
number of acres necessary to support the purchase of specialized cotton 
equipment will exceed the acres necessary to reach existing payment 
limits of direct and countercyclical payments. Relaxing those limits 
will remove existing penalties on growers who are simply trying to 
realize their economies of scale.

    Question 8. What is the level of support within the cotton industry 
for direct payments?
    Answer. The support for direct payments within the U.S. cotton 
industry is strong. The certainty and stability of direct payments are 
extremely important in times of volatile prices and costs.

Response from James ``Jim'' Thompson, Chairman, USA Dry Pea & Lentil 
        Council
    Question 1. Comment on an insurance program based on insuring 
coverage of your production costs versus yield and revenue type 
programs. How would we design such a program for your commodity/
farmers?
    Answer. The North Dakota Grain Growers have been working on an 
insurance policy through the 508(h) process called ``crop margin 
coverage'' that would insure a growers' production costs using USDA 
regional cost of production values to determine input expense 
guarantees. Such a policy, if successful, should be able to be expanded 
to other crops. That said, USADPLC continues to support developing a 
workable crop revenue policy for dry peas, lentils and chickpeas.

    Question 2. Comment on what changes your commodity group/farmers 
would like to see in the WTO trade guidelines given that some of the 
previous ``developing nations'' are now more than equal international 
partners (i.e., India, China, and others so we have a more level 
playing field). How have covert subsidies altered the balance of free 
trade?
    Answer. Over 60% of the peas and lentils produced in the U.S. are 
exported overseas, and so reducing trade barriers is vital to the 
continuing growth of our industry. However, free trade agreements 
negotiated in the past 10 years have failed to adequately address 
important phytosanitary issues, environmental concerns, harmonized 
tariff rate quotas, unfair production and/or export subsidies and 
currency manipulation. Top priorities of the USADPLC are: (a) 
Eliminating the phytosanitary impediments in China and India, and (b) 
the elimination of all trade barriers with Cuba. The USADPLC also 
strongly supports ratification of the FTA's with Colombia, Korea and 
Panama. Finally, the USADPLC does support the current WTO negotiation 
if the result is an agreement that puts U.S. agriculture on an equal 
playing field with other countries.

    Question 3. Many agriculture groups, including many testifying 
today, have publicly stated the House-passed ACES (climate change bill) 
would be detrimental to their operations. Can you comment specifically 
on the exact financial effects that a ``climate change bill'' will have 
on your commodity/farmers' cost of production?
    Answer. No one can predict the total affect that implementation of 
the ACES bill would have on production agriculture. However, it is 
logical to expect a dramatic rise in petroleum based input costs. Pulse 
crops do have some advantage in that they are a legume and do not 
require nitrogen application. Further, pulse crops actually fix 
nitrogen in the soil for the following crop's use. That said, USADPLC 
is concerned that unless other countries adopted similar climate change 
legislation, U.S. agriculture would be become uncompetitive in the 
global marketplace because of higher overall energy costs when compared 
to other exporting countries.

    Question 4. From your commodity/farm perspective, what level of 
food production is critical to our national security?
    Answer. The U.S. has been known for years as the breadbasket of the 
world, a bounty that has helped mitigate the growing trade deficit our 
nation faces for many other commodities, most notably crude oil. The 
USADPLC believes that it is essential for national security to continue 
to produce sufficient food to supply our domestic needs.

    Question 5. How do we defend direct payments to a farm for a crop 
they no longer grow? And haven't grown for some time? Please comment 
from your commodity/farm perspective.
    Answer. Dry peas, lentils, and chickpeas do not receive direct 
payments. As stated in our testimony, the USADPLC continues to seek 
equal status amongst other program crops and supports extending direct 
payments, should they continue, to pulse crops.

    Question 6. How should the Federal Government handle disaster? No 
program that has been constructed thus far has successfully plugged all 
the possible holes to ensure that we do not have to consider ad hoc 
disaster programs annually. How do we establish predictable protection 
against disasters?
    Answer. The USADPLC supports building and improving on the SURE 
program established in the 2008 Farm Bill in order to cover shallow 
losses that are not adequately covered by the Federal Crop Insurance 
Program.

    Question 7. How large of a barrier to entry is there in your area 
for beginning farmers? How can that barrier be reduced?
    Answer. A major obstacle for beginning farmers has been the 
inability to raise the large amounts of capital needed to establish a 
viable farming operation. Beginning farmer loan programs that offer low 
interest loans are important tools that can help mitigate this problem.
    Family farms are also one of many small, family-owned businesses 
that would benefit from reforms in the inheritance tax laws. Current 
law reverts to previous estate tax rates beginning in 2011, and will 
place a financial burden on those trying to pass their small businesses 
on to their children. The USADPLC supports the reform of the 
inheritance tax system so that family farms can remain in the family.

    Question 8. You note that pulse crops are the only program crop 
without a direct payment. Would you regard this as more important than 
increasing loan rate and target prices?
    Answer. While the USADPLC continues to seek equal status with other 
program crops with regards to farm programs, including direct payments, 
the Council would not consider gaining direct payment status more 
important than adequate loan and target prices.

Response from Erik Younggren, Second Vice President, National 
        Association of Wheat Growers
    Question 1. Comment on an insurance program based on insuring 
coverage of your production costs versus yield and revenue type 
programs. How would we design such a program for your commodity/
farmers?
    Answer. Farmers use all income stabilizing programs whether farm 
program or insurance program, to cover production costs. Since 
generally farmers are price takers, they manage production costs with 
the goal of farm profitability.
    Current insurance programs provide a percentage of income coverage 
to protect the farm operations. This coverage can be up to 85% of 
historical yield or 90% of anticipated revenue but because of Federal 
subsidy levels, the most affordable coverage is only up to 70%. 
Insurance alone leaves any profitability or return to management 
unprotected. In times where production costs are highly variable, this 
can also leave some of those costs uncovered.
    From the wheat perspective, some of our major input costs are 
energy and nutrients. In recent years both of these markets have become 
increasingly volatile, and the risk associated with these costs have 
significantly affected most farmers, including putting some out of 
business. Energy costs range from diesel to natural gas to electricity. 
Of the nutrient category, nitrogen is derived from natural gas. Energy 
prices, both petroleum and natural gas, have some regional or local 
price variability. Energy prices are monitored by the Energy 
Information Administration of the Department of Energy. Additionally 
there are many industries that rely on energy derivatives to provide 
some risk management of this key driver in our economy.
    With this national level information, a national level energy index 
could be incorporated into current insurance models that reflect risk 
in production (yield) and commodity price. Some models being discussed 
include a margin coverage or add-on component to revenue insurance to 
cover a volatile component of crop production cost. Our association has 
monitored crop insurance products introduced before RMA to cover these 
production costs. RMA has yet to approve the development of such a 
product. It may be time to incorporate such a product in the commodity 
programs instead. However, we haven't completely vetted any proposals 
at this time.

    Question 2. Comment on what changes your commodity group/farmers 
would like to see in the WTO trade guidelines given that some of the 
previous ``developing nations'' are now more than equal international 
partners (i.e., India, China, and others so we have a more level 
playing field). How have covert subsidies altered the balance of free 
trade?
    Answer. First and foremost, NAWG would advocate for a very 
important change to the ``Developing Nation Status.'' Currently, 
nations are able to determine for themselves if they are a developing 
nation. We see that many of these nations have components of their 
economy or regions that may fit this status, but across the country do 
not fit this category. We would recommend that we advocate for a WTO 
panel to determine this status based on factors from across their 
economy.
    Additionally, subsides to the agricultural industry in the United 
States are very transparent. International media attention becomes 
focused on our support system. However, very little attention is given 
to the support to agriculture in other countries. In our research, 
we've determined that countries like China and India support domestic 
wheat production to the tune of a price support system that guarantees 
$8 to $9 per bushel. Canada allows the Canadian wheat buyers and 
growers the authority to borrow capital at government rates. 
Furthermore, many countries still allow export subsidies that depress 
world price and give their government funds to purchasers of their 
agricultural products. One specific example are the export subsidies 
that Turkey provides for wheat flour. Such practices serve to support 
production in countries around the world but severely hinder free 
trade.
    We would encourage the U.S. Government to seek increased 
transparency in WTO member countries of their support for their 
domestic agricultural production. This increased transparency is needed 
as agricultural production around the world follows the U.S. in 
adopting technology and growing food to feed our growing world 
population.

    Question 3. Many agriculture groups, including many testifying 
today, have publicly stated the House-passed ACES (climate change bill) 
would be detrimental to their operations. Can you comment specifically 
on the exact financial effects that a ``climate change bill'' will have 
on your commodity/farmers' cost of production?
    Answer. By some accounts, climate change legislation is one the 
most complex issues with which Congress has ever dealt. Many studies 
have been done on the House-passed legislation with varying results, as 
many of the effects of this legislation will be determined only after 
implementation. Some reports suggest there will be some forestation 
across the country, other studies show that our costs will increase to 
varying degrees. They also show varying prices, anywhere from $15 to 
$154 per ton of carbon sequestered. We also have been told that, on 
average, climate change legislation will be a net benefit to farmers. 
Unfortunately, I don't know that I or any other individual farmer you 
could find in the country is average.
    So while proposed climate change legislation gives farmers a chance 
to add income per acre by selling a service in sequestering carbon, it 
most definitely adds costs as well. This equation is the determining 
factor when it comes to farmers who ask, ``What is the cost/benefit to 
my operation?''
    We know that this legislation will increase energy costs. 
Agriculture is an energy-intensive industry and any greenhouse gas caps 
or other increased regulation on energy will drive up our costs. We 
expect higher prices for inputs such as fertilizer and chemicals, 
energy costs for drying grain, transport costs our taking our crops to 
market and equipment costs that will adjust for engine regulations. 
Studies may show that they will go up a small amount, but as a farmer I 
must consider worst case scenario. We are already working on thin 
margins, so any cost increase will be devastating to some who operate 
on the thinnest margins.
    Agricultural sequestration credits will hopefully be an important 
part of any legislation. Farmland can sequester a large amount of 
carbon efficiently and cheaply. I hear a lot about no-till farming and 
the benefits for sequestration. However, I live along the Canadian 
border and have heavy black gumbo soils with annual threats of spring 
floods. I can't no-till as I need the soil to be black so it dries out 
quick in the spring. I generally don't worry about wind erosion in the 
winter as I usually have a nice blanket of white snow to hold the dirt 
in place. So, for my operation, my question is: ``What can I do to 
benefit from the incentives being discussed in the carbon sequestration 
arena?''
    I have heard that practices that reduce carbon intensive inputs or 
my farm's carbon output may qualify for credits. Will these 
technologies such as site-specific farming, autosteer, narrow band 
fertilizer placement, or future introduction of nitrogen-efficient 
wheat allow me to benefit? If I reduce the amount of nitrogen I apply 
on my crop and reduce the amount of NOX, will I qualify for 
carbon credits? These are all questions for which I have yet to hear a 
definite answer.
    And how do I go about proving the amount of carbon sequestered? 
Will requirements be region-specific, farm-specific or crop-specific? 
What if I do a better job than my neighbor? Will there be somebody 
running around in my fields with a probe checking out how good a job I 
am doing? What happens in a disaster year when nothing is normal?
    I wonder how the market will develop and how any legislation will 
provide a structure for this market. Will there be an aggregator, or 
middle man, that verifies the amount of carbon I have sequestered? If 
carbon is worth, say $40 per ton, will I receive $40 per ton or, like 
everything else in farming, will I pay all the transaction costs?
    How are early adapters handled? If they are not recognized as 
sequestering carbon, it is possible they will tear up the no-tilled 
ground thereby releasing all the carbon they have sequestered only to 
put that land back into no-till to qualify for the program. Early 
adopters will be an important group for any legislation. They pioneer 
technology and practices. If legislation treats them fairly, their 
experiences will show others in the region the benefits. So drawing on 
the experiences of the early adapters, the pioneers, will be important 
and it is essential they are treated fairly.
    My questions related to biofuels and next generation biofuels that 
use crop residues or dedicated energy crops are just as numerous. How 
are these products going to be sold, grown and processed? How will we 
really address the classic chicken-and-egg problem: a farmer won't grow 
something without a reliable customer to buy it or a market in which to 
sell. And the market may not develop if the product isn't grown. I am 
encouraged that the Navy would like to buy oilseeds from the Pacific 
Northwest but there currently is no market or infrastructure to develop 
the industry. Somehow all of these challenges must be developed for a 
supply chain to come to fruition.
    Such questions are why our association is in the climate change 
debate. We realize it is a very complex issue with far reaching 
consequences for our members. As a producer, the theory sounds good and 
it's certainly an exciting time with lots of opportunity for 
agriculture. But to me, I'm very interested in seeing how the 
legislation will be administered and determining the bottom line 
between increased costs for my operation and any possible benefit in a 
credit program or through increased demand for biofuels.

    Question 4. From your commodity/farm perspective, what level of 
food production is critical to our national security?
    Answer. Domestic production of the major food commodities is a 
matter of national security. U.S. food production is at a level where 
American expenditures for food are only 12.8%, where only 10.1% of an 
American's income is spent on food (U.S. Bureau of Labor Statistics, 
Consumer Expenditures in 2008). Compare this to food expenditures in 
other developed nations of 20% or 40%. Also, American expenditures for 
petroleum and transportation fuel is 5.4% but a significant portion of 
these dollars are shipped overseas to regimes that are unstable and 
sometimes threatening to our nation`s defense. It's not hard for me to 
see the downfall of moving to a system that doesn't maintain a minimum 
level of food production and relies on a substantial amount of food 
being imported. By producing our food on domestic soils, we maintain 
control of food safety, environmental and humanitarian standards that 
ensure America's ability to maintain a safe and secure society.
    Furthermore, our food production system results in agricultural 
products to sell overseas as a solid foundation for our export balance. 
American farmers and ranchers incorporate technological advances that 
encourage development to keep up with population increases. This 
technology allows world populations to advance and live more securely. 
This in turn allows the U.S. to assist in furthering humanitarian 
efforts not only in food aid but also in agricultural development. This 
circle of interdependency provided by our nation's agricultural 
production provides security throughout the world.

    Question 5. How do we defend direct payments to a farm for a crop 
they no longer grow? And haven't grown for some time? Please comment 
from your commodity/farm perspective.
    Answer. The 2002 Farm Bill replaced production flexibility contract 
(PFC) payments (which were established by the Federal Agriculture 
Improvement and Reform Act of 1996) with direct payments. Direct 
payments are not based on producers' current production choices but are 
tied to historical acreage bases and yields. Because direct payments 
provide no incentive to increase production of any certain crop, the 
payments support farm income without distorting producers' current 
production decisions. We defend direct payments by emphasizing their 
important role in allowing producers the flexibility to grow what the 
market signals tell them to grow as opposed to what the government 
tells them to grow. This environmental, agronomic and economic 
flexibility is clearly seen in the move away from wheat to other crops.
    Now, that's not to say there is not room for improvement in the 
program. NAWG is currently discussing farmer-suggested improvements in 
our policy committee. Maybe it is time to equalize the direct payment 
rates across crops, or, update base as we did in 2002, or allow for new 
crops to set a base. But this reliable support that is decoupled from 
current production provides for rural stability and base farm support 
to cover the increasing risks farmers experience.
    We defend the direct payment as the most efficient system of 
getting money to farmers in a timely manner. It is simple and 
straightforward and farmers and FSA offices understand it. There is not 
a complicated formula to build or software to develop to administer the 
program. With other programs such as CSP, SURE and ACRE, much time and 
money is spent trying to write rules, build software, train personnel, 
educate farmers, and finally implementing the program. In this time of 
Federal Government budget woe, I think that is an important selling 
point.

    Question 6. How should the Federal Government handle disaster? No 
program that has been constructed thus far has successfully plugged all 
the possible holes to ensure that we do not have to consider ad hoc 
disaster programs annually. How do we establish predictable protection 
against disasters?
    Answer. The last farm bill provided a disaster program on which we 
can improve. Yes, it does have gaps and as they come forward, we can 
address them. Some of the gaps we`ve identified are in three areas.
    First, we have to have the SURE disaster legislation permanently 
written into the law. SURE encourages farmers to buy higher levels of 
insurance coverage which results in the farmer sharing more of the risk 
during bad years. This program expires in 2011 and leaves no protection 
for disaster in 2012 or beyond.
    Second, we look at the triggers. One suggestion is to lower the 
trigger level to 30% rather than 50%. A 30% loss would complete the 
safety net offered by 70% coverage from crop insurance. Because crop 
insurance indemnities are taken into account with the SURE program, 
there is not risk for double payment on the loss. Another trigger gap 
is requiring a county disaster declaration. In some areas, farmers may 
have localized losses but not be wide enough spread to trigger a 
declaration on a county basis. Counties across the country are 
different sizes. County size shouldn`t limit producers' ability to 
utilize the SURE program.
    And finally, we need to get the payment into producers hands as 
soon as possible. Input providers and banks in areas that have disaster 
get spread extremely thin when their customers have to wait for the 
payment. Having a 75% advance payment would support the entire rural 
community in these difficult times.

    Question 7. How large of a barrier to entry is there in your area 
for beginning farmers? How can that barrier be reduced?
    Answer. The barriers to entry for new farmers are quite large and 
daunting. Many people who become interested in farming are kids of 
farmers who recognize the lifestyle benefits and inherit the 
entrepreneurial blood required to take the risks associated with 
farming. However, beginning farmers have limited access to capital and 
this is a very capital-intensive business.
    There are some farm credit and loan programs for beginning farmers 
that do allow access to capital. Acquiring additional land and 
increasingly expensive equipment is often required. With the high cost 
of purchasing or renting farmland, any expansion severely stretches 
balance sheets and adds risk. Farms with healthier margins are more 
able to absorb this risk.
    Some will tell you that one barrier to entry for beginning farmers 
is the Conservation Reserve Program. This program guarantees a 
competitive rental rate for 10 year contracts. Changes in the last farm 
bill have allowed programs to address CRP land transition to beginning 
farmers and we are monitoring the results. However there is a 
constraint in the definition of a beginning farmer or rancher that 
limits the addition of young farmers to family operations that have 
been farming for more than 10 years. This definition also constrains 
those who may have developed financial ties while living away from the 
farm but choose to come back to the farm for full-time management.
    Some other beneficial changes that will affect benefit those with 
limited capitol include:

   Lowering capital gains tax on land transfers to beginning, 
        qualified farmers;

   Allowing new landowners to use the APH of the previous operator 
        regardless of acreage in that county; and

   Protecting higher leveraged, beginning farmers through higher level 
        of crop insurance subsidies.

    Question 8. You mention both the inadequacy of the target price for 
wheat along with the stability provided by the direct payment. For your 
operation, would you rather have a higher price floor or a stable, but 
lower, payment in times of high and low prices?
    Answer. NAWG members continue to debate the benefits of target 
price or direct payment as we determine our 2012 policy goals. This 
debate is somewhat regional and is affected by the other crops farmers 
in those regions grow.
    In my perspective my crop rotations are fairly stable due to 
factors other than price. We primarily grow wheat, sugarbeets and 
soybeans and I have a crop rotation that maximizes output on those 
crops. So in my case, a higher target price wouldn't influence my 
planting decisions and I would like a higher target price for the price 
supporting role. However, my counterparts in Kansas or Montana are in 
favor of the direct payment. Some of the factors in our debate across 
the country include the regional differences in base acres, yields and 
production volatility.
    NAWG policy supports the direct payment as reliable financial 
support that farmers can deposit in their checking accounts and use 
however we wish; we can add it into the bid to rent new land, we can 
use it to buy fertilizer, we can use it to buy up to the next level of 
insurance. We use it wherever we feel it is most needed and our bankers 
appreciate this reliable support. I must say the direct payment has 
provided more direct support in the last 10 to 15 years than payments 
that are tied to the target price (countercyclical and LDP) since the 
price mechanism has not been triggered. The direct payment is reliable 
support that does allow better ability to pay our expenses in the good 
and bad years.


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