[Senate Hearing 112-275]
[From the U.S. Government Publishing Office]





                                                        S. Hrg. 112-275

                 AGRICULTURE: GROWING AMERICA'S ECONOMY

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

                                HEARING

                               before the

                       COMMITTEE ON AGRICULTURE,
                         NUTRITION AND FORESTRY

                          UNITED STATES SENATE


                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION


                               __________

                           FEBRUARY 17, 2011

                               __________

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            Committee on Agriculture, Nutrition and Forestry









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            COMMITTEE ON AGRICULTURE, NUTRITION AND FORESTRY



                 DEBBIE STABENOW, Michigan, Chairwoman

PATRICK J. LEAHY, Vermont            PAT ROBERTS, Kansas
TOM HARKIN, Iowa                     RICHARD G. LUGAR, Indiana
KENT CONRAD, North Dakota            THAD COCHRAN, Mississippi
MAX BAUCUS, Montana                  MITCH McCONNELL, Kentucky
E. BENJAMIN NELSON, Nebraska         SAXBY CHAMBLISS, Georgia
SHERROD BROWN, Ohio                  MIKE JOHANNS, Nebraska
ROBERT P. CASEY, Jr., Pennsylvania   JOHN BOOZMAN, Arkansas
AMY KLOBUCHAR, Minnesota             CHARLES E. GRASSLEY, Iowa
MICHAEL BENNET, Colorado             JOHN THUNE, South Dakota
KIRSTEN GILLIBRAND, New York         JOHN HOEVEN, North Dakota

             Christopher J. Adamo, Majority Staff Director

                    Jessica L. Williams, Chief Clerk

              Michael J. Seyfert, Minority Staff Director

                Anne C. Hazlett, Minority Chief Counsel

                                  (ii)











                            C O N T E N T S

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                                                                   Page

Hearing(s):

Agriculture: Growing America's Economy...........................     1

                              ----------                              

                      Thursday, February 17, 2011
                    STATEMENTS PRESENTED BY SENATORS

Stabenow, Hon. Debbie, U.S. Senator from the State of Michigan, 
  Chairwoman, Committee on Agriculture, Nutrition and Forestry...     1
Roberts, Hon. Pat, U.S. Senator from the State of Kansas.........     2

                                Panel I

Vilsack, Hon. Tom, Secretary, U.S. Department of Agriculture, 
  Washington, DC.................................................     6

                                Panel II

Creagh, Keith, Director, Michigan Department of Agriculture and 
  Rural Development, Lansing, Michigan...........................    33
Hoenig, Thomas M., President, Federal Reserve Bank of Kansas 
  City, Kansas City, Missouri....................................    36
Outlaw, Joe, Ph.D., Economist, Texas A&M, College Station, Texas.    39
Yoder, Fred, Farmer, former President, National Corn Growers 
  Association, Plain City, Ohio..................................    37
                              ----------                              

                                APPENDIX

Prepared Statements:
    Baucus, Hon. Max.............................................    46
    Chambliss, Hon. Saxby........................................    51
    Casey, Hon. Robert...........................................    53
    Creagh, Keith................................................    55
    Hoenig, Thomas M.............................................    60
    Outlaw, Joe..................................................    75
    Vilsack, Hon. Tom............................................    79
    Yoder, Fred..................................................    94
Document(s) Submitted for the Record:
Hon. Pat Roberts:
    ``The Man Who Said No To Easy Money'', article, Time Magazine    98
American Farm Bureau Federation, prepared statement..............   102
Press release from Hon. Saxby Chambliss..........................   114
Question and Answer:
Chambliss, Hon. Saxby
    Written question to Hon. Tom Vilsack.........................   132
Gillibrand, Hon. Kirsten
    Written question to Hon. Tom Vilsack.........................   130
Leahy, Hon. Patrick J.
    Written question to Hon. Tom Vilsack.........................   126
Nelson, Hon. E. Benjamin
    Written question to Hon. Tom Vilsack.........................   126
Roberts, Hon. Pat
    Written question to Keith Creagh.............................   120
    Written question to Joe Outlaw...............................   123
    Written question to Hon. Tom Vilsack.........................   125
    Written question to Fred Yoder...............................   136
Creagh, Keith:
    Written response to questions from Hon. Pat Roberts..........   120
Outlaw, Joe:
    Written response to questions from Hon. Pat Roberts..........   123
Vilsack, Hon. Tom:
    Written response to questions from Hon. Pat Roberts..........   125
    Written response to questions from Hon. Patrick Leahy........   126
    Written response to questions from Hon. E. Ben Nelson........   126
    Written response to questions from Hon. Kirsten E. Gillibrand   130
    Written response to questions from Hon. Saxby Chambliss......   132
Yoder, Fred:
    Written response to questions from Hon. Pat Roberts..........   136


 
                 AGRICULTURE: GROWING AMERICA'S ECONOMY

                              ----------                              


                      Thursday, February 17, 2011

                              United States Senate,
          Committee on Agriculture, Nutrition and Forestry,
                                                     Washington, DC
    The Committee met, pursuant to notice, at 2:36 p.m., Room 
SR-328A, Russell Senate Office Building, Hon. Debbie Stabenow, 
Chairwoman of the Committee, presiding.
    Present or submitting a statement: Senators Stabenow, 
Leahy, Harkin, Conrad, Baucus, Nelson, Brown, Casey, Klobuchar, 
Bennet, Gillibrand, Roberts, Johanns, Boozman, Grassley, Thune, 
and Hoeven.

STATEMENT OF HON. DEBBIE STABENOW, U.S. SENATOR FROM THE STATE 
 OF MICHIGAN, CHAIRWOMAN, COMMITTEE ON AGRICULTURE, NUTRITION 
                          AND FORESTRY

    Chairwoman Stabenow. Well, good afternoon. I am going to 
call the meeting to order for the Senate Agricultural, 
Nutrition and Forestry Committee. We do need to conduct some 
business. At the point at which we have a quorum, we will stop 
and do that.
    But I do want to indicate that it is a great honor and 
privilege for me to be here today as the new chair of this 
Committee and beginning this first hearing in the 112th 
Congress; and I am very proud to welcome our colleagues, new 
colleagues as well, to the Committee.
    We are, I think, starting in a very important place which 
is talking about jobs and the economy. Sixteen million jobs, 
that is the estimate of the total number of Americans who have 
a jobs because of American agriculture and that is why we are 
here today. That is a big deal for American families.
    I am very proud, as you know, to represent the State of 
Michigan where we know how to grow things and we know how to 
build things. We do that and we are very proud of it.
    Agriculture presents more than 70 billion dollars for our 
economy each year and represents one out of four jobs in 
Michigan.
    That is why I am very pleased and both Senator Roberts and 
I agreed that our first hearing should look at the impact of 
American agriculture on our economy, how important it is in 
terms of jobs because it is really a story that is not told 
enough and it is a story that we are going to repeat throughout 
this Congress.
    And as I mentioned, Senator Roberts and I agreed to this 
because certainly he understands the importance of agriculture 
in creating jobs and I am very pleased to be working with our 
new ranking member, my friend, Senator Roberts.
    I want to thank him for being here today and representing 
the great State of Kansas where I know there are at least 
300,000 jobs that come from agriculture.
    Senator Roberts and I both served in the House. He was a 
great champion and chairman in the House and now serving with 
him in the Senate is a real honor for me as well as serving 
with all of you.
    The Senate Agriculture Committee has always been a 
bipartisan Committee. That is one of the things, I think, that 
we all enjoy about it. We put the interests of producers and 
rural America in our Nation above politics that occurs around 
here and I look forward to continuing that tradition as we move 
forward in this Congress.
    As I mentioned, today's hearing focuses on jobs in 
agriculture and rural communities. I would like to extend a 
warm welcome to Secretary Tom Vilsack, who will be our first 
witness.
    I also welcome our second panel and I want to indicate I am 
very pleased that Keith Creagh, who is our new director of the 
Michigan Department of Agriculture and Rural Development, will 
be testifying on the second panel.
    I suspect that many of you have read the same reports that 
I have been reading. Rarely have we seen a more positive 
outlook for the agricultural economy as a whole. This should 
come as no surprise to any of us. American farmers and ranchers 
produce the safest, most nutritious, and most sustainable 
agricultural products in the world.
    We know this and the rest of the world does as well. In 
fact, one of the biggest success stories in our Nation's 
economy is the strength of our farm exports. For the second 
year in a row, agricultural exports have been projected to be 
over $100 billion.
    This year we expect to see a record high of $126 billion in 
exports and, in fact, agriculture is among very few industries 
where we enjoy a trade surplus. This is really welcome news for 
our economy.
    Here is some more good news. Our agricultural exports will 
support over one million jobs this year alone and these jobs 
are not just on the farm but towns and cities all across the 
country.
    I know that each of our members of the Committee here today 
have a similar story to tell about the importance of 
agriculture in each of your States in terms of the economy and 
jobs.
    As we listen to our witnesses today, let us keep those 16 
million Americans in mind who are counting on us to continue to 
give them the opportunity to be successful.
    It is now my great pleasure to yield to the distinguished 
ranking member, Senator Roberts, for his opening remarks.

 STATEMENT OF HON. PAT ROBERTS, U.S. SENATOR FROM THE STATE OF 
                             KANSAS

    Senator Roberts. It is a true privilege and an honor to 
serve as ranking member of this Committee. Basically Senator 
Chambliss served as the top gun on our side for the last six 
years; and as I quickly note, I am on page 3 instead of page 1. 
I better pay homage where homage is due.
    Thank you, Madam Chairwoman.
    [Laughter.]
    Chairwoman Stabenow. All right. It is about time.
    [Laughter.]
    Senator Roberts. This knelling business I do not know about 
that, but I will do my very best.
    As I said before, the high road of humility is not often 
bothered by heavy traffic in Washington but it is a very humbly 
experience and an honor and a privilege. My congratulations on 
taking the gavel of the Agriculture Committee. I am honored to 
be riding shotgun with you as this Committee conducts oversight 
of the 2008 Farm Bill and the Dodd-Frank Act and investigates 
over burdensome regulations and the long-delayed trade 
agreements and prepares for the next Farm Bill which will 
happen to be my seventh. That is a lot of Farm Bills.
    Kansas and Michigan have much in common in regards to the 
crops we grow. We both have wheat, corn, and soybeans 
producers; and you do have something called specialty crops, 
big time.
    Additionally, I look forward to learning about the 
diversity you all have in production, crops like asparagus and 
berries. I even like asparagus. I understand you all have tasty 
wine in Michigan too. So when the hour is late and we have any 
difficulty, why, maybe you could break that out.
    Michigan has over 19 million acres of forest land. That is 
a lot of forest land. Kansas, I am talking about western 
Kansas, west of Highway 81, we have 19 trees.
    [Laughter.]
    Senator Roberts. And we call them invasive species.
    [Laughter.]
    Senator Roberts. Now, back to my original page.
    It is a true privilege and honor to serve as Ranking 
Member. Senator Chambliss served as the top gun on our side for 
the last six years. He is taking on yeoman work as the Ranking 
Member of the Intelligence Committee. I want to thank Saxby for 
his tireless leadership, especially during the 2008 Farm Bill.
    I could go down the line of former chairmen and ranking 
members who continue to serve this committee, Senators Lugar, 
Cochran, Leahy, and Harkin, and our former Secretary of 
Agriculture, Senator Johanns.
    I feel compelled also to pay homage to Mr. Conrad, who has 
played a very key role in every Farm Bill that I have been 
involved with.
    The unprecedented depth of knowledge and experience on this 
Committee this time around, I think it will serve all of 
agriculture and rural America well.
    I also welcome two new members to the committee, Senator 
Hoeven from North Dakota and Senator Boozman from Arkansas. The 
Agriculture Committee is not often the first choice for new 
members but we are fortunate to have your enthusiasm and 
expertise on board, and you made a wise choice.
    You will find that this Committee is a bit different than 
others in that you will work just as much with members from the 
other side of the table as this side. In my
    experience with agriculture, I found that this Committee on 
more occasions than not is a fine example of bipartisanship and 
comity.
    Those are not just words. That is what we have to do. We 
must work together because too often agriculture programs 
become the target of criticism and attacks. We have already 
seen that.
    Our farmers and ranchers do produce the safest, most 
abundant, and affordable food and fiber supply in the world, 
all while facing increased input costs and tightening 
regulations. That quote has been said virtually by everybody on 
the Committee and by Tom Harkin at least 17 times, 18 times.
    As if these challenges were not enough, our producers face 
a challenge of worldwide significance. Let me remind all 
members that as the global population of the world tops nine 
billion, probably 9.3 billion in the next several decades, 
agriculture production most then double to meet the expected 
demand for food and nutrition.
    That to me is the key issue that we must face and it is a 
moral issue and it is an issue of national security and it is 
an issue of world stability and all you have to do is look at 
the conflagration going around the world today with many people 
suffering from malnutrition and starvation and I think you can 
get the message.
    So as Ranking Member, I am going to work to ensure that our 
producers have the tools and the necessary protection to meet 
this challenge. Why would we do anything given that imperative 
that would be harmful to the men and women whose job it is to 
feed this country in a troubled and hungry world.
    So I really think we have to bear down and really do our 
oversight and do our homework to make sure that does not 
happen.
    Today's hearing focuses on agriculture's contribution to 
our national economy. I appreciate our witnesses that are 
providing their perspective.
    Mr. Secretary, welcome back to the Committee. I understand 
this is round two for you today. I think you were over on the 
House side. I hope our friends on the other side of the Hill 
treated you well. You do not look any worse for wear. You look 
fine, sir.
    I also thank Mr. Hoenig from the Kansas City Federal 
Reserve for testifying on our second panel. I will have more to 
say about him later. If those of you can stay to hear Tom, I 
would encourage you to do that. If there is a story written 
about somebody on the Fed who has a profile in courage it would 
be Tom Hoenig.
    This afternoon we will hear many positives about the 
current state of agriculture. As everybody knows, our prices 
are up to historical levels. The sun is shining, well, maybe 
not Kansas but the sun is shining, usually a good thing.
    But any farmer in Kansas or Michigan or Iowa or even 
Vermont who has spent more than two weeks in the field can tell 
you that prices can change just as quickly as the weather. We 
on the authorizing committee must be mindful of that fact, 
especially as we move into future debates on the safety net.
    Madam Chairwoman, I thank you for calling this hearing. I 
look forward not only to hearing what our panels have to say 
today but also to working with you to drive agriculture policy 
in the 112th Congress.
    I thank you, ma'am.
    Chairwoman Stabenow. Thank you very much, Senator Roberts.
    And just to follow up on one thing that you said, I think 
this really is an extraordinary Committee when I look around at 
the expertise on this Committee. The chairman on other 
Committees, former chairman, this really is an opportunity I 
think in this Congress for us to really lead and provide 
expertise as it relates to developing a Farm Bill that really 
works for all of agriculture and for the country.
    Senator Leahy, you wanted 30 seconds for a moment here.
    Senator Leahy. Very briefly. Just to congratulate you, 
Madam Chairwoman, in being here. This Committee was my first 
choice when I came here 37 years ago. I have served on it 
during that time. I have been chair. I had been ranking.
    I am delighted you are here because I know how hard you 
worked to put together bipartisan coalitions. It is what is 
needed.
    Senator Roberts is absolutely correct when he said he is 
also I think probably the only person who served both as House 
chairman and now as Senate ranking member. He and I have worked 
very close together.
    You are absolutely right, Pat, in what you say that we work 
across party lines for the good of agriculture. So I am just 
delighted to see both of you in this leadership role. I think 
the Senate is fortunate.
    Senator Harkin. Would the Senator yield just for 30 
seconds?
    Chairwoman Stabenow. Senator Harkin.
    Senator Harkin. Thank you, Madam Chair.
    I also want to congratulate you and commend you for taking 
his position but I just wanted to add one other thing and, of 
course, I always congratulate, Pat, my good friend----
    Senator Leahy. That Pat.
    Senator Harkin. That Pat over there and this one here too.
    But I would not let this moment go by without pointing out 
that our new chair is the only person who has served on both 
her State House Agriculture Committee, her State Senate 
Agriculture Committee, the House Agriculture Committee, and
    the United States Senate Agriculture Committee, the only 
one who has ever done that.
    Congratulations.
    Chairwoman Stabenow. Thank you, Tom, very much.
    We do have a quorum now. We do have some business to 
conduct before proceeding with our witnesses. So thank you very 
much for those kind comments.
    [Whereupon, at 2:49 p.m., the Committee proceeded to 
Executive Session, and resumed at 2:50 p.m.]
    Chairwoman Stabenow. So let us move on to our two excellent 
panels today. In the interest of time, I am going to ask that 
members' opening statements be submitted for the record as 
would be normal practice for the Committee and, of course, we 
recognize members in order of their appearance alternating 
sides.
    So welcome, Mr. Secretary, to the Committee. We want to 
thank you very much for your testimony and for your leadership.
    Your written testimony will be submitted for the record, 
and we would ask that you provided us with, five minutes with 
your comments before opening for questions.

 STATEMENT OF THE HON. TOM VILSACK, SECRETARY, U.S. DEPARTMENT 
                 OF AGRICULTURE, WASHINGTON, DC

    Secretary Vilsack. Thank you, Madam Chair, and to the 
members of the Committee, I want to thank you for the 
opportunity and the invitation to discuss recent developments 
and prospects for the farm economy.
    As we enter 2011, the farm economy continues to remain 
strong with U.S. agricultural exports, farm cash receipts and 
net farm income projected at or above previous record levels. 
Farm household debt levels appear to have stabilized despite 
increasing land values. While prospects generally look bright, 
recent sharp increases in prices for major crops are generating 
a range of concerns. My written statement describes the 
prospects and recent developments in output and input markets 
and the challenges and opportunities they present for U.S. 
agriculture.
    So I am going to take the short time I have this afternoon 
to touch on a few broad trends.
    As you may know, recent data tells us that U.S. farm 
exports reached an all-time high in calendar year 2010. We saw 
a rise both in the value and volume of U.S. agricultural 
exports worldwide supported by foreign economic growth. 
Particularly in developing countries U.S. agricultural exports 
are again expected to be at a record high this fiscal year, up 
to $18 billion from fiscal year 2010, with an agricultural 
trade balance that is forecast to be a record of $41 billion.
    While we are pleased with these record numbers, we remain 
focused on continuing to open and to improve markets for our 
producers. We know that every one billion dollars in 
agricultural exports helps to support 8000 jobs, and we want 
agriculture to continue to play a leading role in the 
President's national export initiative in helping to reach the 
goal of doubling exports over the next five years.
    The other big trend in exports is the increased importance 
of China and the Chinese market. The trade numbers just 
published showed that for the calendar year 2010 China was our 
number one export market, edging out Canada and accounting for 
15.1 percent of exports.
    Cash receipts and cash production expenses for producers 
are forecast to reach record levels in 2011, $341 billion in 
cash receipts, $274 billion in production expenses.
    Importantly, receipts are rising faster than expenses so 
net cash farm income is forecast at a nominal record of $99 
billion this year, up $7 billion from last year and nearly $30 
billion from 2009.
    After adjusting for inflation, this year and last year 
should be two of the highest income years producers have had 
since 1976. These are good times for American agriculture. But 
while all of agriculture experienced a robust recovery in 2010 
and 2011, as forecast, expenses are increasing especially 
prices of farm inputs like livestock and feed, the price of 
energy, and operating costs.
    The livestock and dairy industries could face some 
financial pressure in 2011 and bear watching. At the same time, 
many small and mid-sized operations have continued to struggle 
to earn substantial on-farm income. We need to be aware of this 
reality and ensure that our work to expand domestic markets in 
particular helps them succeed.
    As we discuss the safety net, we should also make sure that 
maintaining a strong safety net for producers who need it most. 
On the whole, we are optimistic. The balance sheet of U.S. 
agriculture should continue to strengthen again in 2011; and 
consistent with recent trends, increases in debt are forecast 
to be offset by the larger increases in farm asset values.
    What is astonishing is that in two years the farm economy 
has rebuilt the equity lost in 2009, and in 2011 the farm 
sector's debt to asset ratio should drop even further below 
last year's 11.3 percent.
    Our Nation's farmers and ranchers should be celebrated for 
this achievement. Their careful management of debt has played 
an important role in helping make them a key component of a 
strong and quick rebound from financial crisis.
    Commercial banks across the country say loans are available 
although standards are tight, and farmers are increasingly 
paying them back on time. Exceptions include regions dominated 
by livestock, milk, and poultry production.
    Last year, despite low interest rates, there was lower 
demand for farm loans than in previous years. At the same time, 
capital spending was up, probably financed with cash or non-
bank credit. We hope to see this trend continue especially as 
result of the bipartisan tax deal reached in December which 
provides for 100 percent expensing of business investments like 
tractors and combines.
    Farm real estate value rose by an estimated 3 percent in 
2010 to a record $1.8 trillion. We expect this trend to 
continue. While this benefits existing land owners, high farm 
real estate values make it difficult for individuals who may 
wish to enter farming and increases operating expenses for 
individuals who rent farmland.
    I hope that moving forward we can work to confront this 
issue and others as we look to grow the next generations of 
farmers, ranchers, and producers. This may mean a solution 
based on sweat equity or another way to provide credit to those 
who wish to farm in this country.
    But for the good of our environment, the quality of life we 
all enjoy, the relatively low cost of food and for the American 
economy as a whole, we must keep farmland as farmland and 
farmers on the farms.
    To conclude, as we enter 2011, the U.S. farm economy is 
coming off unprecedented increases in U.S. ag exports, farm 
cash receipts, farm income, and asset values the past few 
years.
    We are helping to lead the recovery from the worst economic 
collapse since the Great Depression. Prospects for the coming 
year generally look bright. More normal weather and production 
increases worldwide should lead to improved supply demand 
balance in key markets such as wheat, corn, and soybean.
    With biofuel demand expected to continue growing, although 
at a slower pace in the future, a big challenge will be 
responding to that demand by developing new feed stocks, 
producing on more acres, and producing more per acre while 
protecting the environment.
    I have the utmost confidence, as I know this Committee does 
as well, that our farmers and ranchers along with the 
assistance of USDA will be able to meet those challenges.
    With that, I will be happy to answer questions.
    [The prepared statement of Secretary Vilsack can be found 
on page 79 in the appendix.]
    Chairwoman Stabenow. Well, thank you very much, Mr. 
Secretary. I know we all have questions. I mentioned in my 
opening statement that one out of four people in Michigan are 
working because of agriculture, and I am sure everybody on the 
Committee has a similar story. Even though the number of 
farmers are in decline, agriculture has had a tremendous impact 
on the overall economy. As we look down the road, can you tell 
the Committee where you expect to see continued growth?
    Secretary Vilsack. I would expect to continue to see 
growth, as I indicated, in exports. There is a strong demand. 
The world economy is improving. Expanding middle classes in 
China and India and other developing countries, I think suggest 
a good opportunity for us.
    I think we are also focusing on increasing our commitment 
to trade missions, to displays, to exhibits of our products, 
and also to reducing barriers. A major emphasis has got to be 
on reducing the barriers that exist to many of our products, 
specifically beef in China, Japan, Taiwan.
    One of the problems and one of the challenges will be to 
make sure that we understand and appreciate the differences 
between small, medium-size, and large-scale farming operations.
    While there was a decline in the medium- and large 
commercial-sized operations over the last five years, there was 
a significant increase in the small-sized operations.
    And in order to repopulate rural America and create 
economic opportunity, it is my judgment that our Department 
needs to be focused on all aspects of agriculture and as 
diverse an agriculture as we possibly can have to provide as 
many options and opportunities as we can if we are to stabilize 
the rural economy generally.
    Chairwoman Stabenow. We have a lot of good news to talk 
about in agriculture but I do not want to just look through 
rose-colored glasses when we look at the future for 
agriculture.
    And I know that, I hear a lot from my growers about input 
costs, largely feed, fuel, fertilizer. When we are looking at 
their future, do you expect trends to continue when we are 
looking at potential implications of rising input costs for our 
growers and what does that mean in your judgment in the near-
term as well as the long-term?
    Secretary Vilsack. Well, obviously there are concerns on 
the energy side. When oil prices go up, there is obviously an 
impact in farm country. So it is something we are concerned 
about, and we are concerned about it in terms of sector 
specific.
    Obviously it impacts and affects livestock operations. It 
can also impact and affect dairy. We are concerned about the 
strength of our industry. It has rebounded from a very 
difficult 2009, and we are cautiously optimistic for 2011. But 
we know that the next downturn is right around the corner.
    That is one of the reasons why we are focused on addressing 
perhaps a more comprehensive approach to the dairy industry. 
They discussed this at length in the House hearing. We have a 
report due from our Dairy Council in the first part of March. 
Our hope is that there is a consensus being developed within 
the dairy industry that we can address this very quickly 
because otherwise I think we are going to be confronted with 
the circumstances we saw in 2009 with peaks and valleys that 
occur far too often.
    Chairwoman Stabenow. If you could speak a little bit more 
in terms of the peaks and valleys or the boom and bust. I mean, 
some would argue that the current success in the farm economy 
is due slowly to strong markets and favorable exchange rates 
which certainly have played a role. But we do have a boom and 
bust. And do you not think we need to invest in emerging 
technologies and markets like bioenergy and bioproducts in 
order to make the farm economy more resilient?
    Could you speak about that?
    Secretary Vilsack. There is no question in my view that you 
need to diversify options and you need to maximize 
opportunities on the farm. To the extent that you can convert 
waste product to fuel and energy, that is something we should 
encourage.
    We have roughly 50 anaerobic digester projects ongoing with 
the Dairy Council and dairymen across the country in an effort 
to convert manure into power, into energy.
    We just recently announced 68 feasibility studies through 
the REAP program to take a look at alternative ways in which we 
could use new feed stocks to produce renewable energy and 
biofuels. All of that adds value, creates new economic 
opportunity, and also will help to create jobs.
    If we could reach the 36 billion gallon threshold that 
Congress has set for us in terms of renewable fuel, it would 
mean up to a million jobs in rural America and $100 billion of 
capital investment.
    You know, that is the type of opportunity that we need to 
look at. We need to expand broadband. We need to look at 
regional local food systems. We need to do a better job of 
linking economic opportunity from conservation in terms of 
outdoor recreation as the President announced yesterday. All of 
that has to be part of an overall strategy to try to rebuild 
the rural economy and to try to provide opportunities for 
farmers and ranchers.
    Chairwoman Stabenow. Thank you very much.
    Senator Roberts.
    Senator Roberts. Mr. Secretary, thank you again for coming 
and I am going to go where wise men never go.
    As I have said before, over the next several decades the 
world population is going to go somewhere between 9 to 9.3 
billion people. Estimates are that we are going to need about 
twice as much food as we are currently producing. All of us 
have been concerned on this Committee regarding our ability to 
produce a stable feed and fiber supply.
    Now, here comes a curve ball. As you know, about 10 percent 
of the farms with revenues above $250,000 a year are 
responsible for about 80 percent of the agriculture output. So 
as we reach the limits in terms of planted acres, it seems 
certain to me we are going to need these folks more than ever.
    The relatively small number of farmers who produce the vast 
majority of our crops, they are either going to have to grow 
more with what they have or even less. Consequently, I have 
always thought our farm policy should be agnostic in terms of 
size.
    I can remember the great Tim Penny/Pat Roberts debates, and 
I think you were present on the Committee at that time, Tom. 
Tim always was the champion of the small family farmer.
    I indicated one time that a small family farmer was 
somebody five foot two in Minnesota, as opposed to the large 
family farmer which I thought was somebody six foot two who 
played linebacker previously for the University of Nebraska on 
the western plains.
    An acre of wheat, soybeans, or corn does not produce more 
or less depending on the size of the farm, and lots of folks 
today like to pick on or at least think that would be a good 
target for budget savings. It is a paradox of enormous irony it 
seems to me.
    So when a natural disaster hits and impacts production 
either through low prices or yields, my question is what should 
our approach be farm policy-wise to these 10 percent of 
producers who are deemed too large for one reason or another? 
What kind of economic conditions do we need to ensure for them 
to be successful in meeting the future demand?
    Secretary Vilsack. I think we have several responsibilities 
to the large scale commercial operations, Senator. I think, 
first and foremost, we need to figure out ways in which we can 
help them be as productive as possible.
    That is one of reasons why our research component focuses 
on livestock production as well as protection and why we are 
also engaged in crop production and protection. I am not 
convinced that we have maximized the capacity of our land to 
produce.
    I think we need to take a look at whether or not there are 
places in the United States that could potentially be more 
productive than they have been. I do not know that necessarily 
there are many places but there are some that can double-crop 
effectively. That may not be. That is something we should look 
at. So research and development is one aspect.
    Secondly, I think we have got to be very aggressive in our 
efforts to export our supply. That is one of the reasons why 
our commercial operations are doing well financially. We need 
to continue to do that, and there needs to be a concerted 
effort to reduce barriers, to have free trade agreements 
approved, to look at multi-lateral trade arrangements, and I 
think we are focused on that.
    I think we do need a safety net. I think the question which 
was posed to me or was posed by Bob Stallman to the Farm Bureau 
convention in Atlanta was well put when he asked, do we need a 
safety net system that provides a small amount of money every 
year regardless of the quality of the year or do we need a 
safety net that provides the assistance and help when it is 
needed the most in an amount that actually will make a 
difference.
    I think that is a really good question, and I think it is 
one that we should be asking. I do not know that I have the 
answer today, but I think it is an appropriate question, and I 
think our capacity to expand risk management options which we 
are doing I think is one way of addressing that issue.
    So I think there are a multitude of things that we have to 
do and I think we have to recognize that science is going to 
play a significant role in all of this, and we have to 
facilitate that science.
    And that gets us into when you say where no wise man wants 
to go, from a person who has tried to make the right set of 
decisions, and I think former Secretary Johanns knows about 
this as well. It is interesting that when you make one decision 
on one crop you get sued by one group and you make a similar 
set of decisions on another crop and you get sued by the other 
group.
    So we must be doing something right if we are getting sued 
by everybody. But this is a conversation I think we have to 
have as well.
    Senator Roberts. We have about 30 seconds left in my time. 
I know you mentioned several challenges that we face. What 
keeps you up at night? What is the biggest thing that you worry 
about? You know, we talk about the safety net. We talk about 
exports. We talk about trade agreements. We talk about price 
volatility, et cetera, et cetera.
    In your current role as Secretary of Agriculture, what 
keeps you up at night?
    Secretary Vilsack. Two things that concern me most are 
access to credit and capital in rural America and whether or 
not we are actually going to have a generation of farmers to 
replace those who are now averaging 57 years of age. Thirty 
percent of our farmers are over 65. The fastest growing segment 
of our farmers over 75. That is a problem we also need to 
address.
    Hopefully, the 2012 Farm Bill will build on the steps that 
you have taken before.
    Senator Roberts. Mr. Secretary, that is a very good answer.
    Chairwoman Stabenow. Thank you.
    Senator Nelson and then Senator Johanns.
    Senator Nelson. Thank you, Madam Chairwoman.
    Secretary Vilsack, it is good to see you again. We 
appreciate your being here.
    In both your written testimony and the economic research 
services recent series of reports provide a very in-depth look 
at the current state of U.S. and global agriculture along with 
what is obviously an interesting overview of the future 
potential and challenges that farmers and ranchers will face in 
the coming years, and you have been very forthright with us in 
your expectations.
    As we are looking at agriculture today and looking at the 
world, we are beginning to see some of the challenges as global 
food prices continue to rise.
    We have both spoken at length on the importance of research 
in meeting these challenges to agriculture. The need to feed 
this growing world population that my colleague from Kansas has 
so eloquently pointed out with more limited inputs, the health 
aspects of food production, environmental considerations, and 
the need to produce biofuels.
    Now, it seems unfortunate that the ARS and the NIFA budgets 
are basically flat, if not decreasing slightly, while we are 
increasing research budgets in other agencies by as much as 16 
percent for NSF and 18 percent for DOE.
    In view of these challenges and the steps that you have 
pointed out, what can the Department do to ensure that we 
continue to get the level of research necessary to answer the 
questions that are there as well as the questions that will 
continue to develop along the way.
    Secretary Vilsack. Senator, I think we are challenged to 
make sure that our research is focused on issues that matters. 
We have identified, I think, four or five key areas where there 
needs to be additional research. I mentioned two of them 
earlier.
    You have mentioned the issue of energy. That is certainly 
one of them. The issue of global food security is also another 
area that we are focusing on.
    So, number one, focusing the research dollars that we have, 
and then secondly, doing a better job of leveraging those 
resources. Our view is that if we are engaged in a competitive 
grant process which we are under the National Institute of Food 
and Agriculture that we can leverage our resources more 
effectively and get more bang for the limited dollars.
    We recognize, and I think you all do as well, we have got 
to get our fiscal house in order and you have got to make tough 
choices. While it may seem that we have made a choice that you 
may not necessarily totally agree with, the fact that we are 
flatlined in this environment does reflect, I think, to a 
certain extent that it is a priority and we will continue to 
search for ways to stretch those dollars.
    Senator Nelson. What about water resources in particular? A 
State like Nebraska is constantly challenged on having enough 
water resources spread across the State.
    Is there anything being done to try to figure out the most 
effective way of dealing with our limited water resources? And 
it is not limited to Nebraska. This could be true of the 
southeast when they encounter drought as well.
    Secretary Vilsack. I would say there are a couple of 
things. I mean, first of all, we are working on improved 
irrigation systems and processes by which we use scarce water 
resources more effectively.
    That has implications not only domestically but also 
internationally. We are actually doing some interesting work in 
Afghanistan in that area as well.
    Secondly, we continue to focus on how we can better manage 
our forests in both private, state, and national forests 
because they act as a natural reservoir. If we do a better job 
of maintaining our forests, then we may have a better 
opportunity to use that natural reservoir more effectively to 
control water flow.
    Then obviously we are working with farmers to develop the 
science that will actually result in us being able to grow 
crops in more adverse weather conditions and circumstances. In 
other words, using less water, less pesticides and chemicals. 
That is part of the scientific opportunities that we are 
engaged in terms of crop production and productivity.
    Senator Nelson. Do you think that the research dollars that 
are in the budget are sufficient for that kind of research to 
continue aggressively?
    Secretary Vilsack. Senator, that is a difficult question to 
answer because every person's definition of reasonable and 
necessary is different. I would say that we have done a good 
job of trying to balance all of these important competing 
interests.
    Senator Nelson. Finally, my time is about to run out. I 
want to commend you and your staff for the hard work of dealing 
with the Roundup ready sugar beets which you responded to that 
challenge. It would certainly embrace western Nebraska as well 
as eastern Wyoming and Colorado, and I believe North Dakota as 
well, and the Minnesota as long as I am naming a few states.
    So thank you very much for that work and please pass the 
message along to your staff.
    Secretary Vilsack. Thank you, sir.
    Chairwoman Stabenow. Thank you.
    Senator Johanns.
    Senator Johanns. Mr. Secretary, good to see you again. One 
observation and then a couple of questions.
    One of the frustrations for me, and I know for you and I 
think for every person who has served as ag secretary in recent 
years has been market conditions relative to U.S. beef. I just 
wanted to put on the record again today that the situation 
specifically with Japan is not yet solved.
    These folks are impossible from my vantage point. This has 
been going on now for years and years. We are still dealing 
with the standard of 20 months, and I am not blaming you 
because I worked on this too. We just do not seem to be making 
progress with them. I hope you can convince me otherwise but it 
just seems like we are just not getting anywhere.
    Offer your thoughts on that.
    Secretary Vilsack. Senator, I would certainly agree with 
you that it is a very frustrating process. When you are dealing 
with issues involving BSE and the host country Japan has a 
greater number of BSE from their own domestic livestock than we 
have ever had, it is an interesting conversation.
    Having said that, part of the challenge for us recently has 
been about the lack of consistency in people we are dealing 
with in Japan. We have had three ag administers since I have 
been the Secretary of Agriculture which has made it a little 
bit difficult.
    But we have been engaged in serious conversations. Jim 
Miller is here and I think he can attest to, when he was 
working at USDA, he spent a good deal of time just recently in 
Japan.
    You know, we are moving towards a place where I think we 
can get to yes. It is slow. It is difficult. It is somewhat 
complicated by the relationship that Japan and Korea and China 
and that area of the world have relative to beef.
    No one wants to create a situation where someone who has 
treated us well believe that they are getting worse of a deal 
or less of a deal that we are giving someone else.
    So it is a matter of trying to balance all of this, but I 
am confident that we can get there. You know, I think it is 
important for us to get the free trade agreement in Korea, get 
that through the process, put that behind us, if you will. And 
then I think perhaps that offers a new momentum for beef.
    But I share with you your frustration.
    Senator Johanns. I mentioned it as much today to send a 
message to the Japanese yet again that we have not forgotten, 
that it really, really is time to step up to the plate and 
solve this problem.
    I would have said exactly what you said six years ago and I 
am guessing Ann Venneman would have said the same thing before 
me. It just goes on and on, I mean it is just year after year 
after year. But I appreciate your efforts, whatever we can do 
to support that, and we will keep pressing.
    Let me, if I might, focus now on another issue. I look at 
the USDA numbers and one thing, of course, that has caught 
everybody's attention is the carryover numbers for corn which 
are historically low, virtually no carryover, barely enough, 
probably not even enough to keep the pipeline going.
    I look at drought in China and that creates a further 
upward pressure and I guess if you are on the selling end of 
this, this is a remarkable time.
    At the elevator, you are seeing corn prices around $7. But 
on the other hand, as you know, there are people on the buying 
end of that, whether it is the ethanol industry, whether it is 
the meat industry or whatever.
    Then the other piece that is going on this time of year, 
actually a little before this, is the competition between corn 
and soybeans.
    I would like to hear your thoughts about this. Where do you 
think we are headed here and, you know, what would happen if we 
have a tough weather cycle here as we go into this crop season?
    Secretary Vilsack. Well, that obviously would put, just to 
answer the last question first, it would obviously put more 
stress on a situation that we are keeping an eye on.
    We are projecting increased plantings of 3 to 5 percent in 
corn which may alleviate some of the concerns you have on the 
supply side.
    In the longer term, in talking with officials with seed 
companies, they are convinced, and I believe that they are 
accurate about this, that we have not yet maxed out in terms of 
the capacity to use science to increase productivity.
    I think in our lifetime, you know, a hundred bushels to the 
acre, 200 bushels to the acre, we are sort of at the goal posts 
and now it is 300 bushels to the acre that is happening more 
routinely.
    They honestly believe that they can get to 400 bushels an 
acre in the not-too-distant future. So that is one issue.
    On the international issue, I think what we in the United 
States need to do is to continue to work with other countries 
to get them to have a greater willingness to accept the 
science, to understand there are advanced ways of producing 
agricultural products so that we take some of the pressure off 
globally.
    I mean, you and I together, when we were governors started 
the biotech coalition, I think we recognized that there was not 
the acceptance of that overseas, and we are still faced with 
that today. We need to continue to work in that area.
    Senator Johanns. I will just wrap up by comments, Madam 
Chair, by saying I agree with your thoughts about technology; 
but one of the points that needs to be recognized is it used to 
take about 140 days, 120 days to get through the process. Now 
it is taking upwards of 1200 days to get through the process. 
So it is a solution but.
    Secretary Vilsack. If I might, Madam Chair.
    Chairwoman Stabenow. Yes, you may take a moment.
    Secretary Vilsack. A very good point, and I would say two 
things. One, we have instructed APHIS to go through a process 
improvement program to try to see if there is a way in which we 
could reduce the amount of time.
    Two, there are greater numbers and greater complexity of 
applications and petitions that are being submitted so that 
makes it a little bit more difficult.
    Three, oftentimes there are lawsuits in-between, as you 
well know, that slow the process down which is why I think it 
is important for us to at least engage folks in a conversation 
in this country about science to see if we can energize the 
middle, the rational middle on these issues in the way of 
perhaps limiting or at least giving courts multiple options so 
that they do not basically enjoin activity for an extended 
periods of time.
    Chairwoman Stabenow. Certainly, that is something that is a 
challenge for us in the Committee, and we want to work with you 
on as well as look at bringing people together.
    Senator Klobuchar and then Senator Hoeven.
    Senator Klobuchar. Thank you very much, Madam Chair. 
Congratulations on your chairmanship as well as Senator 
Roberts, and welcome, Secretary Vilsack.
    I was teasing my friend, Senator Nelson over here, that, in 
fact, Minnesota is first in sugar beats as well as turkey 
production. And as you know, being from Iowa, we are also in 
the top five for corn, canola, soybeans, and in my personal 
favorite, honey.
    Secretary Vilsack. You say corn?
    Senator Klobuchar. Yes, in the top five.
    Secretary Vilsack. Top five, okay.
    Senator Klobuchar. I was not going to get into a fight with 
Iowa over corn.
    Secretary Vilsack. You are not going to win that one.
    Senator Klobuchar. No. I know.
    So anyway, we care a lot about all the issues you have 
raised and I would say that you have identified the challenges 
that I heard around our State with the input cost, with what 
call the red tape issues, and I want to thank you.
    Senator Johanns and I co-chair by the Biotech Caucus in the 
Senate, and thank you for the work you did, not just with what 
Senator Nelson mentioned but also with the Roundup ready 
alfalfa issue, and some of the other things in moving some of 
these things along.
    But we continue to hear concerns about the EPA treating it 
as if it were considered an oil product or the discussions 
about regulating dust from farm driveways, and I think that we 
need a little common sense not only with the court process but 
with the EPA rules.
    The third thing which you mentioned which I think is really 
important not just in the ag world but to our country is the 
export issue, and two things.
    One, could you talk a little bit about Cuba? I have worked 
with Colin Peterson in trying to open up some of those pockets, 
and secondly, of the funding for the market access program at 
USDA and why you think that is so important.
    Secretary Vilsack. First of all, on the EPA, if I might, we 
are working very hard with Administrator Jackson to develop an 
ongoing conversation relationship so that we have a good idea 
of what is being discussed and thought about and allow us to 
weigh in on the impact it may have on agriculture.
    Senator Klobuchar. I think that would be helpful. Senator 
Lugar and I have a bill trying to get people that look at those 
rules to have an ag background. But that would be very helpful.
    Secretary Vilsack. We have ongoing conversations with her 
ag liaison, Larry Elsworth. So that is number one.
    Number two, on Cuba, interestingly, we are seeing actually 
a slight decline in ag trade with Cuba. Having said that, this 
obviously is an opportunity for us if we can do it 
consistently. With the value system that is important in this 
country and given the complexity of our relationship with Cuba, 
we look forward to that activity.
    On MAP, every dollar that we invest in export assistance 
has generated about $35 in export activity. You know, I 
suspected that if we got a 35 to 1 ratio return on investment 
for every dollar we invested in this place, it would be much 
easier to do your jobs than it is today.
    MAP is an important component. It by no means is the only 
component. The relationship we have with our cooperators is 
important. The work of the foreign ag service in terms of their 
relationships, all of this is important, and we have to focus 
on continually reducing barriers.
    Senator Johanns' question is a prime example of the ongoing 
challenges we have as countries create barriers and make it 
very difficult to remove them.
    Senator Klobuchar. Two questions with regard to ethanol. I 
was pleased with the EPA decision on E-15 but I wondering if 
there is anything USDA can do to help encourage state 
governments to ensure that gets through the regulatory process.
    Then, secondly, Senator Johnson and I are working on a bill 
that would include a new more cost-effective producer credit 
for biodiesel and ethanol to replace existing tax credits and I 
do not know if you are familiar with that. But I wondered if 
you thought that would be more helpful to look at it as more 
cost-effective than have the tax credits go more to the 
producers than just the blenders.
    Secretary Vilsack. I think it is a good discussion to have 
about how best to incent a maturing industry. We saw what 
happened when the biodiesel credit was prematurely ended and 
allowed to lapse. We lost 50 percent of our production capacity 
and 12,000 jobs.
    I think that there needs to be some attention to the 
infrastructure on the supply side, making it easier and more 
convenient for consumers to get ethanol, and I think we need to 
look at ways in which we might be able to incent our auto 
manufacturing companies to spend under 150 bucks to make every 
car a flexible fuel vehicle or to work with them to figure out 
what we could help them make that happen.
    I understand they are under a lot of challenges but that is 
a discussion we ought to have. If we can produce greater demand 
and we produce more convenient supply, then I think this 
industry will take off.
    At the same time, we also have to identify additional feed 
stocks, and we need to do what we are doing at USDA to 
accelerate research to try to figure out what works besides 
corn so that this is an industry that has its presence in all 
parts of the country, because if we get to 36 billion gallons 
it is a million jobs in rural America. It is a hundred billion 
dollars of capital investment and both of those are sorely 
needed in rural areas.
    Senator Klobuchar. Thank you. I can ask a question in 
writing about the milk program. I have appreciated your help 
with a really difficult subject there. That is probably the 
number one concern that we have heard in our State, and we look 
forward to working with you on the next Farm Bill about what 
changes we can make to make that a better program.
    Secretary Vilsack. May I?
    Chairwoman Stabenow. Yes.
    Secretary Vilsack. You are talking milk?
    Senator Klobuchar. Yes.
    Secretary Vilsack. We are actually going to suggest, the 
Daily Council is going to come out with its report next month, 
and we honestly think that is something you might want to 
consider taking up even before you get into the 2012 Farm Bill 
because there is energy and passion and somewhat of a consensus 
being developed around the entire dairy industry to sort of see 
if we can get better price stability and less volatility.
    Senator Klobuchar. Thank you.
    Chairwoman Stabenow. Thank you very much.
    Senator Hoeven, before your questioning, let me just 
welcome you again to the Committee along with Senator Boozman.
    As you may have just heard with the exchange between 
Senator Klobuchar and the Secretary our competition here is not 
between Democrats and Republicans. It is what crops you 
produce. This is a significant competition on the Committee. So 
we are very pleased to have you and welcome.
    Senator Hoeven. Thank you, Madam Chairman. I look forward 
to working with you, also to our ranking member, Senator 
Roberts.
    It is good to be part of this Committee and, of course, 
have people I have worked with for many years as a governor on 
two previous ag bills and certainly looked forward now to 
working on all the things that come before the Agricultural 
Committee and certainly the next Farm Bill.
    And you are right. It does come down to who produces what 
and how much. Along those lines, I do need to mention that 
North Dakota is the number one producer of 14 different major 
commodities among all 50 states, things like oats. I just 
jotted down a few. Oats, barley, spring wheat, durum, 
sunflowers, pulse crops which is peas, beans, and lentils. You 
mentioned honey. So I will mention we are number one in honey.
    Senator Klobuchar. But not turkey.
    Senator Hoeven. Not turkey.
    [Laughter.]
    Senator Hoeven. And we share a wonderful border with 
Minnesota where we grow many sugar beets and share many common 
interests, not to mention corn, soybeans, and many other crops.
    It is good to see you, Mr. Secretary. Thank you for your 
many visits to our State. We appreciate it. I also want to 
mention the last time you were there I think it was either that 
day or the next day that we loaded Angus and Hereford cattle on 
a 747 and exported them to Kazakhstan which just goes to some 
of the exciting things that happen in agriculture that people 
do not think about food, fuel, and fiber technologies playing a 
tremendous role. Our producers are obviously the best in the 
world.
    And, you know, good farm policy is important for rural 
America. It is important for farmers and ranchers but it 
benefits every single American and people throughout the world 
because we have the lowest cost, highest quality food supply in 
the history of the world thanks to our producers.
    So when we talk about good ag policy, it affects everyone, 
and I just want to start by getting some of your thoughts on, 
you know, as we enter writing a new Farm Bill your priority, 
and specifically if you would talk a little bit about the 
safety net.
    We have a counter cyclical safety net composed of three 
parts, the counter cyclical payment, direct payment, and crop 
insurance. I think it is very important for our producers. And 
if you would just touch on that little bit and your priorities 
as you go forward.
    Secretary Vilsack. Well, the Farm Bill is an 
extraordinarily complex document that involves really all of 
rural America and, you know, at the end of the day my goal is 
to try to revitalize the rural economy, and obviously you start 
with a strong agricultural economy, and that means continued 
investment in research as we talked about before.
    It involves the continued export assistance. It involves 
ways in which we can promote American products. You point out 
that we are blessed. A recent study shows that roughly 6 to 7 
percent of our paycheck goes for food. That is substantially 
less than it is in other parts of the world which means that 
Americans have greater flexibility with their paycheck than the 
rest of the world, and they should thank a farmer and a rancher 
for the privilege.
    As far as the safety net is concerned, there is no 
disagreement that we need a safety net. I think what we have to 
understand is how different farming is and different groups of 
farmers. We described it in a recent ERS study of basically 
three groups.
    We have got residential farming which are really small 
operations that frankly these folks are not really farmers, you 
know, in the traditional sense. They are people who work off 
the farm and live in rural areas that have a small acreage and 
sell a very small amount, maybe less than $10,000. There are 
1.3 million people in that category. They are important to 
encourage because they help populate rural communities. They 
help support rural communities.
    Then there are roughly 5- to 600,000 that are in what is 
referred to as intermediate-sized operations, less than 
$250,000 in sales. These folks make up a good hardy group of 
folks, hard working folks. They do not make much, if anything, 
from their farming operation.
    In a state and in a time when we saw farm income go up 34 
percent last year, these folks will be lucky if they average 
$10,000.
    So when we talk about safety nets and we talk about direct 
payments and we talk about programs like that, that group 
really does, in fact, seriously need assistance and help, and 
they need off-farm income.
    So rural development becomes extremely important for them 
to be able to keep the farm. That is really part of the safety 
net, an off-farm job for them.
    Then you have got commercial-sized operations, more than 
$250,000 in sales. They are doing pretty well in this better 
economy. They are the ones that export. They are the ones who 
generate most of the food and they obviously are important.
    I think the question is at what level do we, in fiscally 
constrained times, at what level do we provide assistance and 
when do we provided it. Do we provide small amounts over a 
period of each and every year regardless of how well the year 
is or do we help those folks out at a time when they are 
desperately in need.
    There is a fourth component to the safety net that we have 
put in place in the 2008 Farm Bill that needs to be worked on, 
and that is the disaster assistance.
    You have got crop insurance. You have got the payments. You 
know, you have got the counter cyclical stuff but you also have 
a disaster assistance.
    And in the past it has been ad hoc. We made an effort to 
try to systematize it with the SURE program and some of the 
livestock programs. They work well for some crops but they do 
not work so well for other crops.
    And I think one of the challenges is can we figure out how 
to do those systematic disaster programs in a way that is 
beneficial to all the crops otherwise you are going to continue 
to have ad hoc disaster which I think we are trying to move 
away from.
    The last thing I would say is I think that there really 
needs to be a conversation about risk management. You know, as 
you know, we have made a suggestion which is not necessarily 
agreed upon by everybody on this Committee to take a look at 
those direct payments and figure out if there is a way in which 
someone who is making a half a million dollars in farm income 
or $250,000 in non-farm income, do they really need a payment. 
If so, what should that payment be, and is there a way in which 
we can use risk management more effectively and in a more cost-
efficient way to provide the kind of support folks need when 
they really need it.
    I think these are all questions that we are going to have 
to work on together.
    Chairwoman Stabenow. Thank you very much.
    Senator Bennet.
    Senator Bennet. Madam Chair, congratulations to you and the 
ranking member. I enjoy serving on this Committee so much 
because of the bipartisan work that gets done here. Every time 
I am here it feels like a refuge from a lot of the partisan 
work that goes on in the Senate. So I look forward to 
supporting both you and the work in front of us.
    Mr. Secretary, I want to say thank you to you for coming by 
my office earlier this week to meet with me and Senator Udall 
on the continuing problem of the bark beatle in Colorado. I 
will not take time here except to say thank you for your 
efforts, to remind you again of how important it is for us to 
address this issue for the health of our forests, the health of 
our watershed, not just ours in Colorado but in the Rocky 
Mountain region.
    I wanted to raise one other issue that is important to 
Colorado before I get into some other line of questioning and 
that is the inability of our potato producers to sell into 
Mexico. I wonder if you might give us an update about where 
those discussions stand. I know you have been trying.
    Secretary Vilsack. I traveled down into Mexico in December 
of last year and met with Secretary Mayorga to talk about a 
variety of issues, and potatoes was one of them.
    What we agreed to do was to have our teams essentially meet 
to see if there was a way in which we could, in a sense, 
mediate this 26 kilometer barrier that were trying to tear 
down. He expressed a willingness to do this and there have been 
meetings, two meetings have taken place since our meeting, and 
our hope is that this process results in a more favorable 
treatment of our potato growers.
    Senator Bennet. I hope you can keep us posted on that and 
let us know here what we could do to help your efforts there. 
Sometimes we forget the discussion on Asia of how important 
Mexico is to us.
    Secretary Vilsack. Our number three trading partner.
    Senator Bennet. Right, exactly.
    The second area I wanted to ask you about, in many ways 
really good things are happening. As you were saying, the 
prices are high, the de-levering that is going on among our 
producers is really substantial and a great, I think, model for 
the rest of us.
    And to some degree, things are better but the underlying 
issues that our rural economy faces are still what they were 
when we went into this recession in many ways. The agricultural 
prices do not necessary translate into economic growth.
    And I wonder if you could share with the Committee what you 
think the four or five most important things that USDA, the 
federal government can do generally to support an economy that 
really will mean that there is a rural economy going forward 
for the sons and daughters of people on eastern plains in 
Colorado, for example, who wonder very much whether there is 
going to be the same opportunity or a new opportunity for the 
next generation of farmers, the next generation of people that 
want to live in the small towns on the eastern plains.
    Secretary Vilsack. Over the course of my lifetime, 
populations in rural America as a percentage of our overall 
population have declined. The populations have aged. The 
poverty rates are higher. Unemployment rates historically have 
been higher now.
    In this most recent recovery, actually rural America is 
recovering a little more quickly than our urban and suburban 
friends. But nevertheless there are still trend lines that we 
need to try to reverse.
    I would suggest that there are a couple of things. First of 
all, within USDA I think the things that we can do to 
fundamentally change that dynamic are to continue to expand 
access to broadband so that farmers and ranchers have access to 
real-time information and make real-time decisions.
    Small business owners can expand their markets from local 
and regional markets to global markets. Schools can do a better 
job of offering a multitude of course selections that they 
might not otherwise be able to afford to provide. And health 
care centers can link up with specialist that would be 
impossible for them to afford on a day-to-day basis.
    I think, secondly, we absolutely need to embrace this new 
energy future. Whether it is fuel or renewable energy, there 
are tremendous opportunities for economic growth in rural 
communities.
    Most of the renewable energy is going to be produced in 
rural America and we need to figure out how to maximize the 
economic return of that for rural residents.
    Third, I do believe it is important for us to continue to 
look for ways in which we can create domestic markets. Apart 
from renewable energy and fuel, I think the local regional food 
systems being connected to producers and consumers is important 
because you can develop local supply chains that are job 
creators.
    Entrepreneurs who can create small warehousing or cold 
storage facilities or mobile slaughter make it a little bit 
easier for schools, universities, whatever that might be 
located in rural areas to actually create jobs and provide 
alternative opportunities for producers.
    I think it is very, very important that we do a better job 
of maximizing outdoor recreation and using our conservation 
dollars in a way that produces more habitat, more opportunities 
for hunting and fishing and hiking.
    It is a multi-hundred billion dollar operation we are 
talking about. Those resources can go into rural America.
    Then, finally, I think we need to look at ways in which we 
can create verifiable and credible ecosystem markets in which 
we are basically paying farmers, ranchers, and landowner for 
certain conservation practices that are of a societal benefit, 
whether it is water issues. Senator Nelson's comments earlier 
bring that to mind, things of that nature. We are working at 
USDA to try to develop those kinds of models that might work.
    Then finally, I think you have got to be concerned about 
credit and the ability to attract venture capital into rural 
communities so that you have got a sense of entrepreneurship. 
That is a real challenge.
    I know as a governor, we have got several former governors 
here. I suspect they dealt with these issues when they were 
governors. I certainly did, and I think we need to be very 
creative about how we get venture capital into those rural 
areas.
    Senator Bennet. Thank you. Thank you, Madam Chair.
    Chairwoman Stabenow. Thank you very much.
    Senator Boozman, welcome.
    Senator Boozman. Thank you very much, Madam Chair, and it 
really is an honor to be with you. I was just telling my 
colleague that we have an advantage in being junior members. We 
really get to know the witnesses. We can just lean over and 
shake their hands and visit with them.
    It is an honor also to have you here and to listen to your 
testimony. We appreciate your service.
    As you know, the ag business is tremendously important in 
Arkansas, and I had the opportunity to visit with many of my 
producers. You mentioned the different layers of producers and 
things.
    But I will tell you it seems to me like, regardless of who 
I am visiting with, right at the top of the list is the EPA and 
the potential for the regulations that are coming down.
    You mentioned the waste products, you know, trying to get 
rid of those, that offers great potential. I think with the 
initial Boiler MACT rules and things like that, much of that 
could not be done.
    So I guess my question, as you mentioned, I am so pleased 
to hear that you are working, you know, with your counterpart 
on the EPA to try and figure out, you know, these things as 
they go forward.
    But I would really like, you know, besides that what we are 
doing specifically. Are we outlining things like the farm dust 
rule, the MPDS permitting, expanding the Clean Water Act, and 
then again regulation of greenhouse gases through our boiler 
regulations? I guess what I would like to know is what would be 
the economic impact to our farmers and our producers if that 
kind of stuff was to go forward.
    I really do think that is the question of the day right 
now.
    Secretary Vilsack. Well, Senator, that is one of the 
reasons why, I think one of the reasons why the boiler rule was 
changed was because of the relationship and the input that USDA 
provided as that rule was being put together. I think there was 
a recognition of the impact.
    We are doing several things. First of all, we are 
absolutely encouraging the EPA administrator to spend sometime 
in rural America and she has actually gone on farms and 
actually seen what is taking place on the farm so that she has 
a clear understanding and a clear picture of precisely what 
rules or regulations might, in fact, how that might, in fact, 
involve an operation or why it may not be necessary given what 
farmers and ranchers are doing.
    Secondly, we are beginning to quantify in very real terms 
the conservation benefits and the environmental benefits of 
stewardship practices on ag land.
    We did this in the upper Mississippi River recently. We 
just recently completed a study in the Chesapeake Bay area in 
an effort to try to re-assure people that farmers are, in fact, 
adopting conservation practices and, in fact, are going to do 
so.
    We are also engaged in negotiations and discussions with 
the EPA about how we might create regulatory certainty. We did 
this with the sage grouse in the western part of the United 
States with the Department of the Interior and the Endangered 
Species Act.
    If producers are willing to do ``A'' ``B'' and ``C'' then 
in exchange for that there would be some regulatory certainty 
that the rules of the game would not be changed on them which 
would make their investments inappropriate.
    There is a liaison between the Ag Department and EPA. So we 
are constantly providing input, analysis, information on what 
is being proposed or suggested in an effort to try to make sure 
that there is a clear understanding on the part of the EPA in 
terms of how this might impact farms, ranches and producers.
    So, you know, and I think the last thing I would say is 
that we have facilitated conversations between commodity groups 
and livestock groups and the EPA Administrator so that there is 
a clear understanding of precisely what is being proposed.
    A lot of times things kind of circulate through the process 
and they get bigger and bigger and bigger as they circulate and 
they get scarier and scarier as they circulate.
    That kind of conversation, I think, can at least make 
people understand what the facts are. And, you know, I think 
EPA is listening at least from the vantage point of the things 
we have been focusing on. I get the impression that they are at 
least open to a dialogue and conversation with us which is 
important.
    Senator Boozman. I appreciate that and appreciate those 
efforts. Again I think some really number values as far as 
economic impact are helpful. Your opinions as being Secretary, 
your Department's opinion as to the cost benefit, what you are 
actually doing, and then again I was the ranking member on 
water resources so I understand that there is a lot of stuff 
that is blown out of proportion but there is a lot of stuff 
that is not and so that is really--and as you mentioned also, 
the idea that you do the best management practices, five years 
later somebody comes by and says, no, you are doing it all 
wrong. Those things are not a good situation.
    Thank you, Madam Chair.
    Chairwoman Stabenow. You are welcome. Thank you very much.
    Senator Brown and then senator Thune.
    Senator Brown. Thank you, Madam Chair. You look good in 
that chair. It is nice to see you.
    Chairwoman Stabenow. Thank you very much.
    Senator Brown. Congratulations on your first hearing and I 
appreciate having someone who represents a State that looks a 
lot like mine in the chair, except for the corn and soybeans 
part but thank you for all that.
    Secretary Vilsack, thank you for your visionary leadership. 
We have made such a difference in these two years.
    No questions. I know that many people have asked questions 
pretty wide-ranging. I just wanted to bring to your attention 
which you know about but in a public way what happened in 
Wooster, Ohio at the agricultural research station.
    It is affiliated with Ohio State, involved doing all kinds 
of innovative research on animals and plants and crops. The 
tornado that hit the Wooster agricultural research and 
development center last year caused a lot of devastation as you 
know.
    And Deputy Secretary Merrigan was there. I appreciate her 
coming out and visiting and we will work with you on repairing 
that and getting it up to the standards that it was before. I 
have been there numerous times. I know that Deputy Secretary 
Merrigan enjoyed her visit there and contributed a lot just by 
her advice and her presence so I thank you for that.
    Thank you, Madam Chairman.
    Chairwoman Stabenow. Thank you very much.
    Senator Grassley came into the room and left. He was 
technically the next person on the list but, Senator Thune, we 
will turn to you in his absence. Welcome.
    Senator Thune. I better get in here before he walks back 
in.
    Chairwoman Stabenow. That is right.
    Senator Thune. Thank you, Madam Chair, and Secretary 
Vilsack, thank you for your service and appreciate you being 
before the Committee today. And there are lots of challenges as 
we look at the next Farm Bill, and all of us are interested as 
we begin to hear testimony and anticipate what that bill might 
look like.
    I wanted to ask you a question about, you know in the 
Midwest we have been somewhat insulated, not entirely, but 
somewhat insulated from the housing boom that impacted the 
country but I am a little concerned about the potential for a 
land boom, a farmland boom, or I should say a bust in a place 
like our State.
    We have a lot of land that is going for prices that we have 
not seen before, probably driven somewhat by higher commodity 
prices, who knows what all else. Agriculture has been pretty 
profitable of late.
    But my question has to do with if you had land values reset 
either due to a drop in commodity prices or an increase in 
interest rates, how survivable is that going to be this time 
around?
    We saw that happen many, many years ago. My impression is 
at that time there was a lot more debt on the balance sheets of 
a lot of our producers than there is today. But what is your 
sense of the potential for that kind of a problem, a bubble, so 
to speak, like what we have seen in the housing market around 
the country?
    Secretary Vilsack. Senator, I appreciate that question. I 
think it is an important question because there is a lot of 
human toll that can take if it does not get handled properly.
    I think the difference between then and the eighties when 
we were in a situation where land prices were inflated and all 
of a sudden the bubble burst is, in fact, the debt load that 
was being and is being carried by producers.
    The one advantage I think we have in the circumstances is 
the debt to asset ratio is very strong right now. I mentioned 
that it is about 11.3 percent. So it is a relatively good 
strong solid ratio and we anticipate that ratio may very well 
decline again this year.
    So I think we are in a little better shape than we were to 
weather the storm. You know, the other thing I would say it is 
that USDA, I think, it is probably more engaged in terms of 
farm credit than it has been in a while across the board.
    We have seen rather significant increases in many of our 
lending programs. We are proposing some adjustments to those 
programs but again we are doing a pretty good job in terms of 
making sure our loan decisions are good decisions.
    And so I think we are in a slightly better position than we 
were; but as you well know with agriculture, things can change 
very, very rapidly which is why we have to constantly look at 
ways to improve demand, improve productivity, try to ratchet 
down as best we can about costs.
    Senator Thune. With regard to improving demand, when do you 
anticipate that the trade agreements with South Korea and 
Colombia and Panama will be submitted to the Congress?
    Secretary Vilsack. Well, my hope is that the Korean free 
trade agreement is submitted as soon as possible. I would 
anticipate that will be done shortly. You know, there are still 
a few details that have to be worked out, as I understand it, 
on Colombia and Panama.
    But my view is that once the Korean free trade agreement 
goes through the process, and hopefully it goes through rather 
quickly, that creates real momentum.
    At the same time that is occurring, the focus cannot just 
be on those trade agreements. It has to be on multi- lateral 
arrangements as well which is why the transpacific partnership 
is important.
    And it has to be, as Senator Johanns and I had a 
conversation earlier, has to be about breaking down barriers 
that have existed far too long in some countries in terms of 
beef trade and some of the other challenges we have.
    So it is a combination of all of those.
    Senator Thune. From Tunisia to Egypt, a lot of what is 
impacting global unrest has been food prices. I am a believer 
that the answer to feeding a growing global population sort of 
involves expanding biotechnology and modern farming practices 
beyond our borders.
    And I guess my question would be what can the United States 
and our trading partners do to help address that?
    Secretary Vilsack. We have developed a different approach 
on biotechnology from an international perspective. What we 
have done is suggested that there needs to be a much more 
aggressive public diplomacy effort in terms of matching farmer 
to farmer, scientist to scientist, political leader to 
political leader, discussing this because, as you know, there 
is a lot of objections and concerns that are raised in some 
areas without a great deal of justification in my view.
    So that kind of dialogue has to take place. We also think 
that it is important for United States to partner with 
countries in regions, Africa and Asia, that have embraced 
biotechnology so that they can act as sort of the spokesperson 
on that continent or in that area, perhaps more effectively and 
persuasively with their friends and neighbors.
    We can provide support and assist, and so we are trying to 
identify who those might be, whether it is a Kenyan or a 
Phillippine or someone along those lines.
    And then finally we need to do a better job of focusing on 
the benefits of this science, the ability to use less water or 
less chemicals, less pesticide as well as the extraordinary 
increases in productivity.
    When you combine that with just basic improvements in 
agriculture that can be incorporated by many of these 
developing countries, their productivity can certainly be 
improved.
    Senator Thune. A quick question, Madam Chair.
    I am hearing from both sides as I am sure you are on these 
GIPSA's proposed livestock marketing rules. What is the latest 
with regard to that? Is there going to be a comment period?
    I understand you are doing some additional economic 
analysis. When do you anticipate that we might be looking at 
that analysis and is that going to be forwarded on and 
available for inspection?
    Secretary Vilsack. Senator, we did not do the analysis 
prior to the comment period because they wanted the benefit of 
the comments. We wanted the benefit of information from folks.
    We received, I think, somewhere in the neighborhood of 
60,000 comments, about 30,000 of them are unique, not 
necessarily form comments. We are in the process of 
categorizing each of those comments in areas of the rule.
    That information will then be taken by Joe Glauber and his 
team and put together an economic analysis. I have told Joe I 
am not going to box him into a specific, arbitrary time frame.
    I want him to do the job. I want him to do it right. I want 
him to do it thoroughly, and I have the confidence he will be 
able to do that. We obviously want to get it done but we want 
to get it done without forcing it to be done in a way that is 
not correct.
    Chairwoman Stabenow. Thank you. I think in the interest of 
time, we will move on.
    Senator Baucus and then Senator Grassley.
    Senator Baucus. Thank you, Madam Chairman. Of course, my 
congratulations to you and my congratulations to the good 
Senator from Kansas in your esteemed positions. I look forward 
to working with you.
    And thank you, Mr. Secretary, for taking your time to visit 
with us today. We know how busy you are. We thank you very 
much.
    I would like to just say in a sidebar here which I 
personally appreciate working with you in lots of different 
measures and lots of different ways. You are a good public 
servant, good Iowan, good Ag Secretary. You are a good man.
    Secretary Vilsack. Thank you.
    Senator Baucus. I deeply appreciate working with you.
    As is the case for all members of this Committee, 
agriculture is really important to my State, as you know. It is 
our number one industry ever since I have been in public 
service, has been and will continue to be for a long time. 
About 50 percent of the Montana economy is tied to agriculture. 
It is very, very important.
    We have done well in Montana as have other States with our 
products and especially exporting overseas. A point I want to 
focus in on is getting more markets, opening up more markets 
for U.S. products. I am especially thinking of Asia right now. 
China. I think China is our number one export, I think. Is that 
true just this past year?
    Secretary Vilsack. Yes, that is correct, last calendar 
year.
    Senator Baucus. China is growing so quickly which is all 
the more important for us to expand even more in China. I would 
be interested in your thoughts and how we might do that, 
especially with respect to beef.
    I am a bit put out that China does not take American beef. 
We are trying to put together, trying to ratify a Korean trade 
agreement on autos, and frankly I will not support that 
agreement unless we get some access on beef.
    I talked to the President about that today. I think he 
understands. But I just ask that we get something that passes 
the smell test that is credible so that we are also expanding 
American beef access into Korea as well as agreeing to the auto 
provisions.
    Otherwise, I support the Korean free trade agreement as I 
do so long as we get a meaningful increase in beef exports to 
Korea as well as supporting the Panama and Colombia free trade 
agreement. I think we have to get this done very quickly.
    Next with respect to the FTA, as I know you know, we are 
losing our market share in Colombia because we failed to pass 
an FTA. You know these figures better than we, but between 2008 
and 2010, American market share in Colombia declined from 46 
percent to 21 percent.
    For wheat in particular, American market share fell in 
Colombia from 73 percent to 43 percent. As you well know, 
Canada is about to enter in force a free-trade agreement with 
Colombia. We are very concerned that Canada is, as a 
consequence, going to reap a terrific advantage over Montana as 
well as the country in Colombia.
    We have got to get that Colombia free trade agreement to 
pass so we can sell our products into Colombia.
    I understand that USDA has released a report on the 
benefits a Peru FTA has had in agriculture. My understanding is 
our exports to Peru are up 258 percent since fiscal year 2006. 
Again these trade agreements make a big difference.
    I might add in Colombia it is not just the direct 
commercial value but also the geopolitical. It is very 
important the United States is strongly present in South 
America. If we are not there, there will be big vacuums.
    We have all noticed the degree to which China is trying to 
develop market share and also its position in Colombia. They 
want to build a competing canal, a railroad that competes with 
the Panama Canal. That is Chinese capital into Colombia. It is 
real. I have talked with the Colombian ambassador about this 
just a few days ago.
    One, what can we do about China, how can we get more ag 
exports to China, what leverage do we have? Second, with 
respect to the FTAs, I would like to hear from you the degree 
to which the administration is going to push these FTAs and get 
more beef into Korea at the same time.
    Secretary Vilsack. Well, Senator, thank you for those 
questions and obviously thank you for your continued advocacy 
on behalf of beef producers in this country. You have been one 
of their strongest advocates, and I know you will continue to 
be.
    In terms of China, we are essentially five to ten offals 
apart from being able to reach some kind of agreement that 
would result in a broader access in the Chinese market.
    We had conversations in the JCCT in December in which the 
Chinese indicated a willingness to accept beef under 30 months, 
bone in and bone out.
    We had conversations about offals, that they would be 
willing to agree to. We sent a technical team, Jim Miller, who 
was then Under Secretary, spent two weeks in China with 
technical teams.
    And essentially what happened was that we wanted 10 to 15 
offals included on the list and they were only willing to 
commit to five. The challenge for us is making sure that, as we 
reach these agreements, that we do not jeopardize relationships 
or arrangements with other countries where the market has, in 
fact, been opened so that they perceive that they have received 
less of a deal or are not as sweet a deal as the Chinese have.
    So we are going to continue to press this, continue to work 
on it, continue to pursue it. My belief is that if the Korean 
free trade agreement, when the Korean free trade agreement gets 
approved, that will create momentum in a variety of areas.
    It will create momentum for us to go back and re-double our 
efforts in China and Japan in particular as it relates to beef, 
and it will allow us I think then to move to Colombia and 
Panama get those trade agreements finalized and get them to you 
hopefully for quick action.
    So I think the lynchpin of this is the Korean free trade 
agreement, and I think once that gets through the process, I 
honestly believe that puts us in a much better position.
    Senator Baucus. I did not hear much about beef.
    Secretary Vilsack. The Koreans have indicated a willingness 
to go to 30 months. They have indicated a willingness to pursue 
further discussions about how they might get to OIE compliance 
based on consumer demand and consumer acceptance; and that, at 
least from our perspective, gives us the capacity to make a 
significant step forward in opening the market; and then the 
process of full and complete opening of the market OIE 
compliant sometime in the future.
    Honestly, when we take a restricted position, it is all or 
nothing, it makes it extremely difficult for us to make 
progress. So our view is if we can get to 30 months, bone in/
bone out, appropriate offals that are significant to their 
culture and our market and a process by which we can have 
further discussions and negotiations that they will result in 
significant increases in trade.
    Chairwoman Stabenow. Thank you.
    Senator Baucus. I am not asking for the question of all or 
nothing. I have it as open to all of American beef irrespective 
of age, irrespective of cut, bone in or boneless or whatnot.
    It does not have to be all. I am not asking for that, 
although Korea was at that point a few years ago. I am just 
asking for something more than currently exists, and which is 
not all, which is more than currently exists, and I cannot 
support the Korean trade agreement unless we get some progress. 
I am not asking for all. I am asking just for some progress 
compared to the status quo.
    Thank you, Madam Chairman.
    Chairwoman Stabenow. You are welcome.
    Senator Grassley.
    Senator Grassley. Welcome, and I also want to echo what 
Senator Baucus said of the job you are doing.
    Secretary Vilsack. Thank you. Senator, they just told me 
that new members of this Committee get to sit closest to me. 
You cannot be a new member of this Committee.
    Senator Grassley. You know what the deal is. This is my 
third committee so I get appointed and I fill the last slot, 
not the first one.
    Senator Roberts. Would the Senator yield? Your glass of 
ethanol is up here.
    [Laughter.]
    Senator Grassley. Would you start my clock over again 
please?
    Chairwoman Stabenow. We will give you back 30 seconds, 
Senator Grassley.
    Senator Grassley. I was going to ask about trade and I 
think that most of the trade issues have been touched on but 
part of my question was the extent to which you may not be the 
lead on trade issues for the Administration but you obviously 
play a very important role as it relates to agriculture.
    Could you tell me just a little bit about how you see your 
role in trade issues like Korea and Colombia or any trade 
issue?
    Secretary Vilsack. Sure. Well, first of all, it is to make 
sure that everybody in this town and everybody in the country 
understands how successful agricultural trade is relative to 
other aspects of the economy.
    When we talk about a $41 billion trade surplus projected 
for this year, to put this in proper perspective, just five 
years ago that trade surplus number in ag was $4 billion. So we 
have seen an eight- to ninefold increase in the surplus.
    And every billion dollars of ag trade, as I said earlier, 
is 8000 jobs. So it is extremely important. It represents 10 
percent of our total export.
    We have a very close relationship with the U.S. Trade 
Representative's office. We have people right now discussing 
over in Geneva the Doha round.
    Obviously on Doha, we are anxious to try to consummate a 
deal but we have to have a deal that is fair. And in order for 
their deal to be fair, it is important for the Indias and the 
Chinas and the Brazils of the world to have far better market 
access to our products if they are expecting us to take a look 
at our support structures and systems so that we can quantify 
precisely what we are getting.
    So we have an ongoing relationship with the trade 
representative's office. We are in all the meetings. We are 
engaged in all the discussions relative to ag trade.
    We have a very significant presence internationally. We 
have 99 offices, and most of what is done in those 99 offices 
is trade related.
    They have developed relationships. We have seen a 
significant increase in the number of foreign visitors to our 
trade shows here in America. We have seen a significant 
increase in the number of exhibits that we now are promoting 
American branded products.
    We are proposing a continued support for market access 
programs and all of the other financial programs that provide 
assistance. So we are very aggressive in this space. We see 
this is as one of our principal responsibilities.
    Senator Grassley. Let me express a frustration I have about 
Colombia, and you do not even have to respond to this but I 
would at least like to respond.
    And that would be going back to the 2007. Republicans are 
thrown out of the majority. Democrats come into the majority. 
They are not satisfied with the way it was negotiated so they 
said we have to sit down and renegotiate.
    And then on May 10, 2007, there is a bipartisan 
announcement between Bush and the Democrat leaders of the 
Congress that we have got things worked out on Colombia and 
then things still are not done.
    That is a frustration I have. It seems like there is a 
little bit of moving of the goal posts, and I just express my 
view. I do not ask you to respond to it but at least you know 
how I feel about it.
    If I could go to India and I know that you and Under 
Secretary Miller and your FSA team has been working hard on 
resolving agricultural issues with India.
    And I know you worked hard and I am as disappointed as you 
probably are that we have not had reciprocity in return from 
India, and it is such a large and expanding economy and they 
are building up a middle-class very fast.
    Unfortunately, U.S. exports to India are limited both in 
value and in range of products. In 2008, India receive less 
than one half of 1 percent of the total U.S. agricultural 
exports and ranked 39th among overseas markets for us.
    And as you may know, Senator Baucus and I requested that 
the International Trade Commission conduct a 332 investigation 
on India's barriers to exports.
    The findings suggest that India's high tariffs are a 
significant impediment to U.S. agricultural exports and that 
certain Indian non-tariff measures including sanitary and 
phytosanitary measures substantially limit or effectively 
prohibit it.
    So my question is even considering everything you have 
done, what is your Department doing in coordinating with other 
involved agencies to bring about resolution of this frustrating 
challenge?
    Secretary Vilsack. I traveled over there with the President 
and had extensive conversations with the ag minister and 
frustration, I do not know if that is a strong enough word, 
Senator. I am not quite sure in this context I could use the 
kind of language I would like to use about it. It is very 
frustrating.
    And, you know, it is complicated by the fact that there are 
a multitude of other areas and issues in which we are dealing 
with India that are very, very important and significant.
    I have sent a strongly worded letter to the ag minister in 
India about dairy and access to the dairy market. Obviously, 
they have certain religious concerns which we tried to address.
    We are going to continue to focus on trying to open up 
those markets. Doha maybe creates an opportunity for us to do 
that. We are trying to get our international partners and 
international friends who want a Doha round to be concluded to 
press India with the fact that they have got to open up their 
markets.
    And the reality is if they open up their markets, their 
consumers will have more choice, their consumers will have 
better price, their producers will be encouraged to be more 
productive and to focus on what they do best, and they will 
also will benefit.
    But it is a hard sell right now. It is a very hard sell.
    Senator Grassley. The last thing I would say is kind of a, 
I hope you get plenty of opportunity to present to the EPA a 
lot of things that they are doing that is detrimental to 
agriculture, harmful to agriculture.
    And there are a lot of them I could bring up but there is 
enough of them that you can almost come to the conclusion that 
EPA stands for end of production agriculture.
    Anyway, one of them is fugitive dust. I am sure you know 
what fugitive dust is, being from Mount Pleasant, Iowa, or 
anyplace in the Midwest, and they have got this rule coming up 
that somehow the farmer is supposed to keep dust within his 
property lines.
    And I tried to tell them only God determines when the wind 
blows and only God determines when soybeans are 13 percent 
moist and you have to combine them; and when you combine, dust 
happens.
    We just got to get through to them the common sense that 
you cannot combine beans just when the wind is not blowing, and 
it is just frustrating to me. So you do not have to comment. I 
just hope you can make it clear to them because you are from 
the same part of the country I am, and they just do not seem to 
get it.
    Secretary Vilsack. Can I share in the proceeds from the new 
bumper sticker that you have just created? Dust happens.
    [Laughter.]
    Chairwoman Stabenow. And I think on that note, Mr. 
Secretary, we want to thank you for coming. These are certainly 
issues that we all want to continue to tackle with you and we 
thank you for your leadership, and I would say as I began 
today, that 16 million jobs come from American agriculture and 
we look forward to working with you to make sure that our 
farmers have every opportunity to succeed.
    So thank you very much.
    We have a second panel. We would like to have them come up. 
I know that Senator Brown has to leave in a moment and wants to 
make an introduction first as we are bringing our second panel 
forward, and then we will proceed in introducing the other 
panelists.
    So we will wait until folks are seated and then get 
started.
    [Pause.]
    Chairwoman Stabenow. We are going to go ahead and get 
started. We appreciate your patience and your joining us today. 
I know coming from around the country, and I am going to let 
Senator Brown proceed first with an introduction.
    Senator Brown. Thank you, Madam Chair, and again 
congratulations to you and Senator Roberts for your leadership 
on this Committee.
    I would like to introduce Fred Yoder, who is a farmer, and 
dust does not happen on Mr. Yoder's farm when he is combining 
soybeans.
    But Fred is a farmer and agricultural leader and a real 
visionary thinker in my home State of Ohio on agriculture 
issues. He has worked closely Joe Schultz on my staff that 
staffs this Committee and staffs us on other issues.
    During the 2008 Farm Bill debate I so appreciate the 
counsel that you have given to Joe and to me and helped us 
understand these issues from your perspective as a real trusted 
advisor.
    Fred is fourth generation corn and soybean and wheat farmer 
in Plain City, Ohio. Some of you may not know it is the home of 
the famous Dear Dutchman restaurant and their homemade pies.
    Mr. Hoenig, you should try them sometime. You would like 
them, in Kansas or wherever. So I appreciate that.
    But Fred has been a leader not only in Ohio but across the 
Nation. He served as president of the National Corn Growers and 
has volunteered thousands of hours representing farmers' 
interests throughout the world.
    He was, I believe, the only American farmer to attend the 
world climate discussions in Copenhagen where he was a strong 
advocate in protecting and advancing the interests of U.S. 
agriculture. He reported to me personally and to Joe some of 
his observations from that.
    He continue to promote policies that support farmers that 
help address our Nation's need for energy independence, and he 
is also a proud grandfather I would add.
    And Fred, I am so glad he is here today. I very much 
apologize. I was hoping the last one would not go this long but 
I have to leave.
    Joe will be here during his testimony and I am proud to 
call him a fellow buckeye. So, Fred, thank you for joining us.
    Chairwoman Stabenow. Thank you, Senator Brown. Those pies 
you were talking about, I hope they have Michigan cherries and 
blueberries and apples in them. Okay. Good. Good. Absolutely.
    Let me take a moment now before trying to Senator Roberts 
who I know also has an introduction but let me invite and 
welcome Keith Creagh, who was appointed by Governor Rick Snyder 
on January 1st to be the director of the Michigan Department of 
Agriculture and Rural Development, and prior to serving as 
director, Mr. Creagh was the director of industry affairs for 
in Neogen Corporation, a company that develops and provides 
food and animal safety solutions to the agri-food industry. And 
prior to Neogen, Mr. Creagh has held numerous positions I 
believe for 33 years with the Michigan Department of 
Agriculture.
    So he comes with a wealth of experience and expertise to 
his position, and we welcome you.
    Mr. Creagh. Thank you, Senator.
    Chairwoman Stabenow. Senator Roberts, you have an 
introduction.
    Senator Roberts. Thank you, Madam Chairwoman. I think we 
have an excellent second panel with a lot of expertise.
    I am pleased to introduce one of our witnesses for the 
second panel, Mr. Tom Hoenig, who is the president and chief 
executive officer of the Federal Reserve Bank of Kansas City 
and the senior member of the Federal Reserve System's Federal 
Open Market Committee.
    The Kansas City reserve bank covers the 10th Federal 
Reserve District which is comprised or includes Colorado, 
Kansas, Nebraska, Oklahoma, Wyoming, the northern half of New 
Mexico, and the western third of that state just to the east of 
Kansas.
    So I think it is fair to say that his district does 
encompass a whole lot of agriculture, including livestock, grow 
crops, specialty crops, as well as biofuels, and processing.
    Mr. Hoenig, it is an honor to have you here today. It is 
very good to see you again, sir. I have had the privilege of 
meeting with Mr. Hoenig about every six months or every year at 
least and just a couple of weeks ago on his turf. He is a 
native of Fort Madison, Iowa. He currently resides in the non-
Kansas side of Kansas City.
    He received his doctorate in economics from Iowa State 
University and joined the Federal Reserve Bank in 1973 as an 
economist. He assumed the role of president in October 1991 and 
also currently serves as Chairman of the Federal Reserve's 
Presidents Committee of regulation and bank supervision and 
legislation, indeed a tough job.
    He is the longest-serving of the 12 current regional 
Federal Reserve Bank presidents and is the longest tenured 
member of the system's Federal Open Market Committee which has 
authority over just U.S. monetary policy.
    Now, if you all have not read it, I would encourage you to 
thumb through this week's Time magazine. It is an article 
entitled, The Man Who Said No To Easy Money, described a bit 
further down, it describes him as the heretic in the 
priesthood. A little strong but I do not know if that is quite 
true or not.
    Madam Chairwoman, I ask that a copy of that article be 
included in the record. We might preclude it by saying that I 
consider Tom as a profile in courage.
    Chairwoman Stabenow. Without objection.
    [The article can be found on page 98 in the appendix.]
    Senator Roberts. Mr. Hoenig brings a valuable perspective 
to today's hearing, especially the questions posed by Senator 
Thune, and I look forward to his testimony.
    Thank you, Madam Chairwoman.
    Chairwoman Stabenow. Thank you very much.
    And last but certainly not least is Dr. Joe Outlaw. Thank 
you very much for joining us. Dr. Outlawed is a professor and 
an extension economist in the Department of Agriculture 
Economics at Texas A&M University. He also serves as the co-
director of the agricultural and food policy center at Texas 
A&M.
    His extension education and applied research activities are 
focused on assessing the impact of farm programs, renewable 
energy, and climate change legislation on U.S. agricultural 
operations.
    We very much appreciate all of your being here and your 
testimony is a very important part of the record for our 
Committee. So I am going to ask Mr. Creagh to begin.
    Thank you very much for being here.

 STATEMENT OF KEITH CREAGH, MICHIGAN DEPARTMENT OF AGRICULTURE 
            AND RURAL DEVELOPMENT, LANSING, MICHIGAN

    Mr. Creagh. Thank you, Chairwoman Stabenow and Senator. I 
am certainly thankful to be here and to have the opportunity to 
present today.
    On behalf of the State of Michigan, Governor Rick Snyder, 
and all of us at the Michigan Department of Agriculture and 
Rural Development, I want to express our appreciation for your 
commitment and leadership on food and agriculture issues.
    We also recognize the remarkable new opportunities for 
rural America, and we look forward to a continued partnership 
with you to assure Michigan's food and agricultural industry is 
strategically aligned to enhance our growth opportunities as we 
reinvent Michigan. Michigan's agri-food industry contributes 
$71.3 billion annually to the state's economy.
    Production agriculture, food processing, and related 
businesses employ more than one million Michigan residents; 
approximately 1 in 4 jobs. This is a robust and high tech 
industry that will undoubtedly serve as one of Michigan's, and 
the Nation's, foundation to our long term, sustainable economic 
recovery.
    At a time when Michigan lost 850,000 jobs, our agricultural 
economy experienced a decade of growth. It expanded at a rate 
of more than five times faster than the general economy, 11.9 
percent versus 2 percent, between 2006 and 2007.
    Further, since 2007, we have seen a 27 percent increase, 
making agriculture a cornerstone in diversifying Michigan's 
economic future. As a result of our diverse soils, crops, fresh 
water, and climate, we are well- positioned to continue this 
growth and expansion at all levels of production. Currently, we 
produce over 200 commodities on a commercial basis; and lead 
the Nation in 18 of these.
    Under Governor Snyder's leadership, Michigan is developing 
a comprehensive food and agriculture strategy that prioritizes 
food safety, food security, nutrition and health, energy, 
trade, environmental stewardship, and rural development. It is 
fundamental, and part of our core mission, to provide a safe 
and wholesome food product for the citizens of Michigan
    We will continue to work with our federal partners to seek 
appropriate funding and implementation of the Food Safety 
Modernization Act which will allow for a more vigorous and 
collaborative approach between federal, state and local 
partners.
    The risk of contaminated food products to our consumers 
reinforces the need for a rigorous inspection system to 
mitigate those risks. Collaborating with our federal partners 
will assist in identifying respective roles in the food safety 
continuum.
    The Michigan Department of Agriculture and Rural 
Development applauds your support and leadership of the 
Specialty Crop Block Grants. Having these resources available 
for cost-sharing opportunities provides much needed research, 
training and education that otherwise may not be available for 
food and agriculture entrepreneurs. The health and nutrition of 
Michigan citizens are directly tied to an available and 
wholesome food supply.
    Michigan has a dynamic food processing industry currently 
generating $24.9 billion annually and employing 134,000 people. 
However, merely sighting a food processing facility in a 
community does not necessarily address the long term economic 
variables.
    To ensure growth and sustainability are at the forefront of 
the equation, we must conduct a thorough and extensive review 
of the proposed facility. All of the following components are 
integral to the process and must be addressed: infrastructure, 
trained workforce, capability and capacity to deliver goods on 
a predictable basis, food safety checks and balances, access to 
available markets and appropriate inspections and 
certifications.
    Adequate infrastructure including roads, rail, waste water 
treatment and high speed communication must be part of any 
comprehensive strategy. We appreciate the opportunity to work 
with USDA Rural Development to identify broadband interface 
opportunities in our rural areas to ensure our citizens can 
compete in the global marketplace.
    Just as rural electrification was crucial to the 
advancement of food production in the 20th Century, access to 
high speed internet is vital to the productive capacity of 
today's rural communities.
    Michigan is fortunate to export almost one-third of its 
agricultural production, generating more than $1.55 billion 
annually, and employing more than 12,000 workers. We have 
nearly doubled our exports since 1997.
    In 2009, we directed over $753 million in exports to Canada 
alone. Michigan has worked strategically with the Food Export 
Association of the Midwest USA through the Market Access 
Program to provide export assistance to our small and medium-
sized companies. Because of this partnership, in 2009 we 
jointly assisted over 60 companies participating in nearly 150 
programs or services, which resulted in an increase of $13.6 
million in export sales. We look forward to continuing this 
partnership as we build upon our international successes.
    Agri-tourism is another area in Michigan where we are 
experiencing growth. Farm and farmers markets, coupled with our 
$287 million wine industry, generate well over a million 
tourists each year. Michigan ranks in the top four in the 
nation for the number of farmers markets, as well as the rate 
of growth.
    By spending $10 per household each week on locally grown 
foods, $40 million would be kept circulating in Michigan's 
economy. The continued growth of the food and agriculture 
industry will require the integration of new science and 
technology, as well as the implementation of appropriate risk 
management tools in order to minimize the impact from food 
recalls, exotic and invasive species, and natural disasters.
    Assuring the food and agriculture industry has the 
necessary tools available from the United States Department of 
Agriculture, the Environmental Protection Agency, and the Food 
and Drug Administration to provide relief from these 
occurrences is critical. Continuation of programs that support 
these collaborative efforts will enhance the future economic 
growth of Michigan agriculture.
    Michigan farmers appreciate the technical assistance that 
has been made available to them. An example of this 
collaboration is the Conservation Technical Assistance 
Initiative whereby leveraging a 100 percent match from USDA we 
were able to put engineers and technicians on the ground to 
help farmers design and install conservation practices. These 
individuals will leverage $16 million in federal cost share 
dollars paid to the impacted producers for the installation of 
practices. The expenditure of these dollars not only resulted 
in a 40 to 1 return on investment, but also provided 
substantial protection of the Great Lakes and our Michigan 
environment.
    As national policy is fashioned, we must provide 
flexibility at the state and local level to support innovation 
and entrepreneurs who strive to make a difference in the 
economic recovery process. As we look to reinvent Michigan and 
compete on a global scale, the food and ag industry stands 
ready to assist in our long term economic recovery.
    We look forward to working with you and the U.S. Senate
    Committee on Agriculture, Nutrition and Forestry to make 
rural America a great place to live, work and play.
    [The prepared statement of Mr. Creagh can be found on page 
55 in the appendix.]
    Chairwoman Stabenow. Thank you very much.
    Next is Thomas M. Hoenig, President, Federal Reserve Bank 
of Kansas City.

STATEMENT OF THOMAS M. HOENIG, PRESIDENT, FEDERAL RESERVE BANK 
             OF KANSAS CITY, KANSAS CITY, MISSOURI

    Mr. Hoenig. Thank you, Madam Chair.
    Agriculture remains a vital industry in the expansive 
region of the Federal Reserve Bank of Kansas City and, 
accordingly, our Bank has a long tradition of focusing 
significant attention on industry developments. Our 
observations on agriculture, in turn, have given us useful 
insight into the U.S. and global economies more broadly. In my 
remarks today, I will describe recent developments in the 
Nation's farm economy and discuss some risks that have my 
attention at least and I heard discussed here earlier.
    First, agriculture, broadly defined as farm production and 
output from related industries, accounts for almost one- sixth 
of U.S. jobs and economic activity. While the farm share of 
economic output has declined as other parts of our economy have 
grown, increased activity in broader agricultural industries 
manufacturing, transportation, distribution and food retailing, 
for example has opened new job opportunities in both rural and 
metro communities.
    A robust agricultural sector cushioned the rural economy in 
our and other regions across the nation during the recent 
recession, and the industry's strength in supporting further 
improvement in the rural economy remains today.
    In 2010, strong demand and tight supplies for most farm 
commodities contributed to a sharp rebound in farm profits, 
which then supported sales in farm equipment and other farm- 
based industries. Strong profits from agriculture also girded 
important elements of our rural financial system. Commercial 
banks with large agricultural loan portfolios posted stronger 
returns than their peers over the past three years. While more 
than 300 commercial banks failed during this period, only 22 
agricultural banks throughout the country failed.
    Agriculture is also benefiting directly from the rebounding 
economic strength of China, referred to here, and other 
emerging market economies, where rapid income growth is driving 
up food demand.
    The United States remains a net exporter of agricultural 
products, shipping more than 40 percent of its wheat, cotton, 
soybeans and rice crops to foreign countries in 2010. United 
States crop and meat exports are expected to rise to record 
highs in 2011. Looking out a little further, economists expect 
global growth to exceed 4 percent well into 2012, with the 
developing and emerging market economies remaining in the lead. 
Rapid income gains in the developing world promise then further 
increases in demand for higher-protein diets.
    Despite these prospects and the prospects of sustained farm 
income growth, U.S. producers must remain alert as they face 
challenges related to their very success and tied to recent 
developments in financial markets. Surging commodity prices and 
low interest rates have translated into increasing farmland 
values, which have eclipsed their 1980s peaks. In our Bank's 
fourth quarter 2010 Survey of Agricultural Credit Conditions, 
for example, cropland values in Nebraska and Kansas were up 
nearly 20 percent above year- ago levels and more than 75 
percent higher than five years ago.
    This run-up in farmland values has occurred, however, amid 
financial markets characterized by high levels of liquidity and 
unusually low interest rates. History has taught us that it is 
nearly impossible to determine how much of the farmland boom 
may be an unsustainable bubble driven by financial markets and 
how much results from fundamental changes in demand and supply 
conditions. Therefore, it will surprise no one when I say we 
are watching the market closely, just as we are watching for 
imbalances emerging elsewhere in the economy.
    Of particular interest to me is how agriculture might 
adjust when financial markets return to more normal interest 
rate conditions. Rising interest rates often coincide with 
falling farm revenues and higher capitalization rates, a 
depressing combination for farmland values. Moreover, even if 
crop prices remain high but capitalization rates return to 
their historic average, farmland values could fall by as much 
as a third, which most certainly would erode the financial 
health of the farm sector.
    Fortunately, as others have mentioned, the industry entered 
this period with relatively strong balance sheets. Farm 
leverage ratios are at historic lows, and agricultural banks 
are well capitalized. In addition, farm operators and banks 
have strengthened their risk-management practices, using basic 
hedging strategies and derivative markets to manage price and 
balance sheet risk, which contributed to smaller increases in 
problem assets at agricultural banks than at their peers. 
Nevertheless, I follow the basic lesson that bad loans are made 
in good times, and I remain watchful.
    In closing, I will briefly highlight a symposium our Bank 
sponsored last summer, and I think the consensus was important, 
and that is a marked view, and a very healthy consensus I 
should say, that the industry's success will lie not in its 
ability to follow a single path but in its ability to adapt 
quickly to shifting economic landscapes and conditions. Still, 
my nagging concern remains that current distortions in 
financial markets are increasing the risk that imbalances in 
asset markets will catch agriculture, and the U.S. economy more 
generally, by surprise once again.
    Thank you, Madam Chair.
    [The prepared statement of Mr. Hoenig can be found on page 
60 in the appendix.]
    Chairwoman Stabenow. Thank you very much.
    Mr. Yoder.

STATEMENT OF FRED YODER, FARMER, FORMER PRESIDENT NATIONAL CORN 
             GROWERS ASSOCIATION, PLAIN CITY, OHIO

    Mr. Yoder. Thank you, Chairman Stabenow and Ranking Member 
Roberts. It is a great pleasure for me to be here and an honor 
to be here especially to testify at your first full Committee 
hearing. I appreciate the kind introduction that Senator Brown 
gave me.
    I have been farming a long time and I am a fourth- 
generation farmer. I have had the privilege to testify before 
this Committee several times in previous years. But today, I 
would like to testify before you just as Fred Yoder, a farmer 
from Ohio, rather than represent a national association and 
their policy positions.
    As I reflect over the years as to what agriculture has 
meant to me, I am reminded of that old commercial that used the 
phrase, ``you have come a long way, baby.'' Today's agriculture 
is not my father's agriculture. We have come through the years 
of excess production, using programs to curtail carry overs by 
limiting acres planted, all the way to Freedom to Farm in 1996, 
which gave us full potential of our lands that they offered.
    However, we did not develop the demand for all of that 
volume, and soon we once again had to rely on government to 
help us dispose and we had to dispose of that production 
through deficiency payments and market clearing measures. But 
today, we have new technologies, and new markets, especially 
for corn.
    While traditionally we have always used corn for livestock 
feed, today we use roughly a third of our production for 
biofuels, without reducing the bushels for the feed and export 
markets. Biofuels, which now represent roughly 10 percent of 
the Nation's transportation fuel today, has literally 
transformed rural America.
    In Ohio alone, it has generated over $1 billion towards 
Ohio's economy while adding jobs and keeping small towns alive. 
The demand for corn, wheat, and soybeans has never been 
stronger and farmers will continue to respond by producing for 
all markets. Today's agriculture is one of the few bright spots 
in the American economy.
    Demand for commodities is at an all-time high throughout 
the world. Instead of a supply-driven market, we are in a 
robust demand-driven one, where farmers' primary source of 
income is the marketplace. The current Farm Bill offered a 
change from previous ones with an option called ACRE, a new 
tool to help manage our risk in conjunction with crop 
insurance.
    Many of you worked hard to make this new tool a reality, 
and I thank you for that, especially you, Chairwoman Stabenow 
and your great staff, and also to my own Ohio Senator Brown and 
his great staff too. All his kitchen cabinet meetings he had 
around the State of Ohio, it really showed us how the system is 
supposed to work.
    Unfortunately, when the option of ACRE was offered 
initially by the local Farm Service Agency offices, it became 
more complicated than it probably needed to be. However, as we 
look at how we are going to play out the future Farm Bill, I 
sure would hope and encourage us all to look to build this new 
roadmap including those risk management tools that we started 
with the last one. As a citizen and taxpayer, I think it is 
important for us to re- address some of our core principles 
before we delve into specific policy decisions for a future 
farm bill.
    First and foremost, I would suspect the vast majority of 
people in the United States, including those in agriculture, 
would agree that the U.S. Government should balance the federal 
budget by reducing federal spending, resulting in a reduction 
of the federal debt, and eliminating inefficient spending in 
all sectors of the U.S. economy.
    If one accepts this initial principle, there is a much 
different perspective that emerges as we think about how we 
need to shape and form our discussion. I also think most would 
agree that the new Farm Bill should include a policy that 
allows the market to provide for a safe, reliable source of 
food, feed, fuel and fiber, but at the same time provide a 
strong safety net for those times when unforeseen revenue 
losses happen from events beyond our control. This can be done 
through improving such programs like ACRE in combination with 
improved and equitable Federal Crop Insurance for all regions 
of the country.
    Again, it would be easy for farmers to have the attitude to 
cut everyone's budget but ours, and push for business as usual. 
But what if we could enhance the tools available in managing 
our risk in growing our crops, while continuing to grow new 
opportunities in the marketplace, and do it with savings to the 
overall budget?
    The opportunities I have today as a farmer are the best I 
have seen in my lifetime. Yes, a lots more volatility but a lot 
of reward. We have got to deal with these volatility issues. I 
hope that whatever we do we can continue to grow these 
opportunities for today's farmers, and for my son in the future 
as he takes my place on the farm.
    Thank you for your time, and I look forward to your 
questions.
    [The prepared statement of Mr. Yoder can be found on page 
94 in the appendix.]
    Chairwoman Stabenow. I am sorry. We are discussing the fact 
that they just called a vote and so we definitely want to hear 
from Dr. Outlaw and ask questions. So it is a question of how 
we rotate this. Senator Roberts, if you would like to go just 
vote and then come back and then I will leave you and go do the 
same thing. We will tag team it.
    Welcome, Dr. Outlaw. We very much appreciate you being here 
today.

 STATEMENT OF JOE OUTLAW, PH.D., ECONOMIST, TEXAS A&M, COLLEGE 
                         STATION, TEXAS

    Mr. Outlaw. Chairwoman Stabenow and Ranking Member Roberts, 
thank you for the opportunity to testify on behalf of the 
Agricultural and Food Policy Center at Texas A&M University on 
the outlook for U.S. agriculture based on our long history of 
representative farm research.
    We specialize in working at the farm level with a one- of-
a-kind data set of information that we collect from real 
farmers and ranchers. Our Center was formed by our Dean of 
Agriculture at the request of Congressman Charlie Stenholm to 
provide Congress with objective research regarding the 
financial health of agriculture operations across the U.S. with 
a focus on unbiased analyses of the impacts of proposed 
agricultural policy changes.
    For more than 25 years we have been provided funding via 
Congressionally directed spending to work with the
    Agricultural Committees in the U.S. Senate and House of 
Representatives providing members and Committee staff objective 
research regarding the potential farm level affects of 
agricultural policy changes.
    In 1983, we began collecting information from panels of 
four to six farmers or ranchers that make up what we call 
representative farms located in the primary production regions 
of the United States for most of the major agricultural 
commodities.
    Currently we maintain the information to describe and 
simulate 98 representative crop and livestock operations in 28 
states as seen in Figure 1. We have several panels that 
continue to have the original farmer members or their children 
that we started with back in 1983.
    We update the data to describe each representative farm 
relying on a face-to-face meeting with the panels every two to 
three years. We partner with FAPRI at the University of 
Missouri who provides projected prices, policy variables, and 
input inflation rates.
    The results I am going to discuss today were developed with 
FAPRI's January 2011 ten-year baseline projections. Under the 
baseline, 36 of the 64 representative crop farms are considered 
in good overall financial condition by 2016 with 15 in moderate 
condition and 13 in poor condition. Eighteen of 34 livestock 
operations are considered in good financial condition by 2016 
with 11 in marginal condition and 5 in poor condition.
    While there are a number of farms in moderate or poor 
condition, this is the best overall representative farm outlook 
since 1995 when it appeared that higher commodity prices were 
in place for the foreseeable future. We all know that those 
higher prices were short-lived.
    One of the most important and useful features of our work 
is the knowledge and insights we gain from the interaction we 
have with the panels of farmers and ranchers. In addition to 
our update visits, we maintain communication throughout the 
year and periodically ask them direct questions of how they are 
likely to respond to policy changes. Some of their most 
revealing responses were to questions regarding climate change, 
biofuels, and farm debt levels.
    In preparation for this testimony we asked them to let us 
know how they were doing and what their concerns were for the 
future. In general, most crop farmer respondents said their 
outlook was favorable due to the recent price improvements for 
most commodities.
    While there is cautious optimism regarding higher commodity 
prices the sudden downturn experienced in 1995/96 and more 
recently in 2008 has most of the representative farm members 
nervous about the future. Most responded that input prices are 
sticky meaning that they rise along with commodity prices but 
tend to fall much slower as experienced recently after the 2008 
price increases.
    There is also a concern that Congress will use these 
current high prices as justification for severely reducing the 
safety net provided by the different commodity programs. Most 
respondents felt that the current price volatility created a 
much more difficult business environment than they experienced 
in the past.
    The dairy operators reflected the dire circumstances many 
dairy farmers find themselves in resulting from several years 
of accumulated losses, particularly in 2009, which may have 
been the worst year ever for milk producers.
    This same sentiment was reflected by several rice farmers 
but to a lesser degree. It is interesting to note that most 
cotton farmers have not benefitted from the recent record 
cotton prices as their 2010 crop was generally already priced, 
or sold, prior to the record price run-up. All livestock 
sectors continue to transition to a higher and more volatile 
feed cost environment.
    While our cow calf operations cite higher market prices, 
they also responded that they are having difficulties securing 
forage supplies due to drought, difficulties outbidding stocker 
operators for grazing land, and face lower expected prices due 
to the reality that feedlot profitability is being strained by 
high corn prices and high calf prices.
    Their final two areas of concern were their feeling that 
government regulation and specifically EPA regulation of their 
operations was driving up their costs of doing business and 
that there needed to be something done about the shortage of 
agricultural labor and specifically a more workable guest 
worker program.
    Madam Chairwoman, this completes my statement.
    [The prepared statement of Mr. Outlaw can be found on page 
75 in the appendix.]
    Chairwoman Stabenow. Thank you very much and thank you to 
all of you.
    Let me take a moment to ask some questions and, first, to 
Mr. Creagh, in your testimony you talk about the importance of 
infrastructure to economic growth and sustainability. USDA 
rural development administers and manages, as you know, a 
number of different programs, housing, business, community 
infrastructure, utility programs.
    From your perspective at the state level, can you share 
with us which programs are particularly important for continued 
growth in our rural communities?
    Mr. Creagh. Well, Madam Chairwoman, as you know, it is 
always tough to pick a favorite child. I would say from the 
get-go for Michigan the increase in the support of the 
infrastructure is critical to our long-term success.
    The President was in the up in the Upper Peninsula, as you 
are well aware of, talking about broadband and some the 
advantages of bringing that to rural Michigan. If are going to 
compete in a global network and a global society, then we are 
going to have to have access to those markets through the 
appropriate use of broadband and Internet and high speed 
communication needs.
    But I would also have to say roads, rails, water will get 
your goods to market. That would be the first one.
    The second one is USDA rural development has been integral 
to keeping people in their houses in Michigan. We appreciate 
the support that USDA rural development did for Michigan.
    Chairwoman Stabenow. Thank you. I think it is interesting 
as I talk to people in Michigan about how much there is not an 
awareness of how rural development really does touch all of our 
lives, the quality of life in rural communities as you 
mentioned, I mean, housing as well as what we would consider 
traditional infrastructure or the ability to have a fire engine 
or a police vehicle or the other things that are so important 
to quality of life.
    Mr. Creagh. Right.
    Chairwoman Stabenow. I am wondering also, you mentioned, 
Mr. Creagh, several areas of growth and entrepreneurship among 
our Michigan producers specifically agri-tourism, farmers 
markets, wine production. As you look down the road, are there 
other opportunities or areas where you would see for the 
potential growth of new areas in terms of agriculture?
    Mr. Creagh. Absolutely. This again still is a processing 
state. We harvest our crops within a short period window and 
winter comes. So there will be a significant processing 
capability and capacities that Michigan can take advantage of 
overtime.
    As I mentioned, we are number one in 18 different 
commodities. We still send cucumbers out of State to pickle. 
There are opportunities for increasing our dairy sector which 
is our number one sector.
    And of course, my favorite is cherries. As they move from 
cherries, it is from a baking industry to a highly nutritional 
fruit. We lead the Nation in the production of dried cherries. 
So there are a number of opportunities to tie health and 
nutrition and ag production together to help also alleviate 
some health concerns, put healthy food on the table and solve 
some long-term problems.
    Chairwoman Stabenow. Thank you.
    I would like to ask all of our witnesses. When you look at 
the importance of the rural economy to each of our States and 
to our country, I wonder if each of you or whoever would like 
to respond could talk a little bit more about the larger impact 
that we see in rural communities from increased incomes. What 
are producers using increased cash flows to invest in? How do 
we see that impacting the health of rural communities and the 
economy as a whole? Where do you see this adding impact for our 
communities?
    Mr. Hoenig.
    Mr. Hoenig. Madam Chair, in our area, of course, when we 
have seen rising incomes, we have seen very significant 
increases also in investment on equipment, for example.
    And also, as you build momentum, you also get increases in 
some of the production as was mentioned earlier and even small 
manufacturing moves forward.
    It has multiple effects for rural America more generally, 
and I think that is critical. Now, you see it become more 
regionally oriented within States where you have major kind of 
hubs around that, and that is part of the process. But you do 
have follow-on from increasing incomes generally.
    Chairwoman Stabenow. Yes. Mr. Yoder, did you wish to 
respond?
    Mr. Yoder. Yes. I just want to add to what he said. Farmers 
have a tendency, if they have money, they are going to reinvest 
in their operation.
    In our area, there has been a tremendous reinvestment in 
new machinery as well as new technology. There are lots of GPS 
and auto-steer and all that kind of stuff that whenever there 
is money, there is going to be a time to reinvest in that.
    The other thing, too, as far as talking about biofuels, 
while in Ohio we have five ethanol plants running. That is 
around 300 real jobs but that translates into--that is direct 
jobs. But it probably translates into 30,000 indirect jobs 
because of the community that produces more of those dollars 
that filter through the community. So it is a big deal.
    Chairwoman Stabenow. We are done with our testimony.
    Dr. Outlaw, if you wanted to respond to the question that I 
have asked, you are welcome to.
    Mr. Outlaw. Okay. I would echo the same responses that the 
previous panelist said. Basically, when the farmers are doing 
better, they tend to reinvest and purchase machinery.
    Unfortunately, one of the secondary effects of that is that 
they probably get a little bit more leverage than they would 
have liked to have been, and because of some of the interesting 
things about tax laws and being able to write off losses, there 
is not a real big incentive to save which is unfortunate.
    But much like they said, the ag economies in areas that are 
important to ag see that the spillover effects into the rest of 
the economy are quite large.
    Senator Roberts. [Presiding.] The distinguished Senator 
from Michigan has gone to vote, and you have noticed that there 
has been a coup.
    [Laughter.]
    Senator Roberts. We will now proceed to write the wheat 
section of the Farm Bill.
    [Laughter.]
    Senator Roberts. With a little more questions about the 
ACRE program, Mr. Yoder, than perhaps we would like but it will 
be all right.
    Tom, let me ask you a question, if I might. In your 
testimony, you said something you have probably said a lot in 
the past few years, including last year, during April 7, 2010 
speech in Santa Fe which everybody ought to have a copy of, you 
say that one of the effects of near zero short-term interest 
rates, coupled with surging commodity prices, is that operators 
and investors in the Midwest are buying up farmland, and they 
are, bidding up the price, and they are.
    And you appropriately note that we also saw this phenomenon 
in the banking run up to the banking crisis of the eighties, 
and we did, and we came through it, finally.
    Although there are several differences between now and 
then, your point about the basic lesson of bad loans being made 
in good times should be repeated time and time and time again.
    The old-timers at the coffee shop repeat it all the time. 
You are not an old-timer but at least they could repeat it.
    And then you also said something about farm debt when I 
visited with you, something like going up in the past five 
years 7 percent or have I got seven years and 5 percent. I 
cannot remember.
    Mr. Hoenig. I think it is the latter.
    Senator Roberts. Okay. But at any rate, that is a 35 
percent increase.
    Mr. Hoenig. Right.
    Senator Roberts. Then we got talking about cash grants and 
we got talking about other things, and some of those figures 
really startled me in terms of what would happen when the 
bubble breaks, and you know the bubble will break.
    I do not know if it is a bubble or what but we are going to 
go back to semi-normalcy in regards to crop prices, it seems to 
me, or maybe we will not. I do not know. Who can tell?
    What can or should we be doing policy-wise to help guard 
against a significant drop in farmland values and farm debt?
    Mr. Hoenig. Well, the farmland values are going to proceed 
because of the very easy borrowing conditions and the very high 
prices that are encouraging people to invest in, as I think you 
mentioned earlier, you know, scale becomes important to 
operators.
    And so your opportunity to buy additional land for scale 
has never been better in that sense, and so you have that 
momentum going forward.
    And I think one of the things that we would try and do as 
we talk to operators and also to bankers who are involved in 
making more land loans than operating loans right now is that 
do not be fooled by loan to value ratios that are moving up.
    In other words, the land value is going up because the 
discount rate is very low and, therefore, you could lend 70 
percent against it and you are safe.
    But if those land values are going up very rapidly and the 
implied discount rate is very low, 3 percent, and normally it 
is 7 percent, that means you can have a 50 percent decline in 
that land value.
    So we are cautioning the lenders, the bankers who may be 
helping to facilitate the expanded acquisition of land with 
debt to be very careful about how they interpret the loan to 
value ratios and how they interpret the cash flows. For a 
considerable period these high prices will remain and then we 
find they do not.
    So the only thing they can do is say be prudent. Make sure 
your loan to value ratios are actually stronger than they 
normally would be because you are going to need that margin. 
That is really what you do right now.
    When interest rates rise, you will get some adjustments 
down because interest rates will bring those land values down, 
and hopefully because we watch the leverage a little more 
carefully, we will be in a better position to handle the 
adjustment this time through.
    Senator Roberts. I know you are stepping down. I know you 
are retiring. Thank you for your service. Thank you for your 
common sense.
    Gentlemen, thank you all for your testimony. We have yet 
another vote right after this one which necessitates that I 
depart as well and also necessitates the chairwoman from coming 
back for which she apologizes.
    So I think we have had a very good first session. I thank 
you very much for coming, for taking time out of your valuable 
time to come here and to testify. As always, everything that 
you say will be recorded for posterity and will not collect 
dust on some shelf.
    So with that, this meeting is adjourned.
    [Whereupon, at 4:53 p.m., the Committee was adjourned.]
      
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