[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]



 
         HEARING TO REVIEW THE STATE OF THE LIVESTOCK INDUSTRY

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


                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON

                LIVESTOCK, RURAL DEVELOPMENT, AND CREDIT

                                 OF THE

                        COMMITTEE ON AGRICULTURE

                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED THIRTEENTH CONGRESS

                             SECOND SESSION

                               __________

                             APRIL 30, 2014

                               __________

                           Serial No. 113-13


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




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                        COMMITTEE ON AGRICULTURE

                   FRANK D. LUCAS, Oklahoma, Chairman

BOB GOODLATTE, Virginia,             COLLIN C. PETERSON, Minnesota, 
    Vice Chairman                    Ranking Minority Member
STEVE KING, Iowa                     MIKE McINTYRE, North Carolina
RANDY NEUGEBAUER, Texas              DAVID SCOTT, Georgia
MIKE ROGERS, Alabama                 JIM COSTA, California
K. MICHAEL CONAWAY, Texas            TIMOTHY J. WALZ, Minnesota
GLENN THOMPSON, Pennsylvania         KURT SCHRADER, Oregon
BOB GIBBS, Ohio                      MARCIA L. FUDGE, Ohio
AUSTIN SCOTT, Georgia                JAMES P. McGOVERN, Massachusetts
SCOTT R. TIPTON, Colorado            SUZAN K. DelBENE, Washington
ERIC A. ``RICK'' CRAWFORD, Arkansas  GLORIA NEGRETE McLEOD, California
SCOTT DesJARLAIS, Tennessee          FILEMON VELA, Texas
CHRISTOPHER P. GIBSON, New York      MICHELLE LUJAN GRISHAM, New Mexico
VICKY HARTZLER, Missouri             ANN M. KUSTER, New Hampshire
REID J. RIBBLE, Wisconsin            RICHARD M. NOLAN, Minnesota
KRISTI L. NOEM, South Dakota         PETE P. GALLEGO, Texas
DAN BENISHEK, Michigan               WILLIAM L. ENYART, Illinois
JEFF DENHAM, California              JUAN VARGAS, California
STEPHEN LEE FINCHER, Tennessee       CHERI BUSTOS, Illinois
DOUG LaMALFA, California             SEAN PATRICK MALONEY, New York
RICHARD HUDSON, North Carolina       JOE COURTNEY, Connecticut
RODNEY DAVIS, Illinois               JOHN GARAMENDI, California
CHRIS COLLINS, New York
TED S. YOHO, Florida
VANCE M. McALLISTER, Louisiana

                                 ______

                      Nicole Scott, Staff Director

                     Kevin J. Kramp, Chief Counsel

                 Tamara Hinton, Communications Director

                Robert L. Larew, Minority Staff Director

                                 ______

        Subcommittee on Livestock, Rural Development, and Credit

             ERIC A. ``RICK'' CRAWFORD, Arkansas, Chairman

BOB GOODLATTE, Virginia              JIM COSTA, California,  Ranking 
STEVE KING, Iowa                     Minority Member
RANDY NEUGEBAUER, Texas              MIKE McINTYRE, North Carolina
MIKE ROGERS, Alabama                 DAVID SCOTT, Georgia
K. MICHAEL CONAWAY, Texas            FILEMON VELA, Texas
GLENN THOMPSON, Pennsylvania         MICHELLE LUJAN GRISHAM, New Mexico
SCOTT DesJARLAIS, Tennessee          PETE P. GALLEGO, Texas
CHRISTOPHER P. GIBSON, New York      WILLIAM L. ENYART, Illinois
REID J. RIBBLE, Wisconsin            CHERI BUSTOS, Illinois
JEFF DENHAM, California              KURT SCHRADER, Oregon
RICHARD HUDSON, North Carolina       RICHARD M. NOLAN, Minnesota
TED S. YOHO, Florida                 JOE COURTNEY, Connecticut

                                  (ii)



                             C O N T E N T S

                              ----------                              
                                                                   Page
Costa, Hon. Jim, a Representative in Congress from California, 
  opening statement..............................................     3
Crawford, Hon. Eric A. ``Rick'', a Representative in Congress 
  from Arkansas, opening statement...............................     1
    Prepared statement...........................................     2
Ribble, Hon. Reid J., a Representative in Congress from 
  Wisconsin, submitted fact sheet................................   105

                               Witnesses

Glauber, Ph.D., Joseph, Chief Economist, U.S. Department of 
  Agriculture, Washington, D.C...................................     5
    Prepared statement...........................................     7
    Supplementary material.......................................   106
    Submitted questions..........................................   110
Johnson, Roger, President, National Farmers Union, Washington, 
  D.C............................................................    45
    Prepared statement...........................................    47
Miller, Shane, Senior Vice President, Pork Margin Management, 
  Tyson Fresh Meats, Dakota Dunes, SD............................    60
    Prepared statement...........................................    61
Hill, D.V.M., Howard, President, National Pork Producers Council, 
  Cambridge, IA..................................................    64
    Prepared statement...........................................    66
Smith, Michael T., Special Projects Manager, Harris Ranch, Selma, 
  CA; on behalf of National Cattlemen's Beef Association.........    72
    Prepared statement...........................................    73
    Supplementary material.......................................   107
Roenigk, William ``Bill'' P., Senior Vice President and 
  Economist, National Chicken Council, Washington, D.C...........    76
    Prepared statement...........................................    78
Krebs, Clint, President, American Sheep Industry Association, 
  Ione, OR.......................................................    84
    Prepared statement...........................................    86
    Submitted letter.............................................   108
Cook, Matthew T., President and Chief Executive Officer, Norbest, 
  Inc., Moroni, UT; on behalf of National Turkey Federation......    89
    Prepared statement...........................................    90


         HEARING TO REVIEW THE STATE OF THE LIVESTOCK INDUSTRY

                              ----------                              


                       WEDNESDAY, APRIL 30, 2014

                  House of Representatives,
  Subcommittee on Livestock, Rural Development, and Credit,
                                  Committee on Agriculture,
                                                   Washington, D.C.
    The Subcommittee met, pursuant to call, at 10 a.m., in Room 
1300, Longworth House Office Building, Hon. Eric A. ``Rick'' 
Crawford [Chairman of the Subcommittee] presiding.
    Members present: Representatives Crawford, King, 
Neugebauer, Conaway, Yoho, Costa, Scott, Lujan Grisham, and 
Gallego.
    Staff present: Caleb Crosswhite, Debbie Smith, John 
Goldberg, Josh Mathis, Nicole Scott, Patricia Straughn, Pete 
Thomson, Tamara Hinton, John Konya, Liz Friedlander, Mary 
Knigge, and Riley Pagett.

    OPENING STATEMENT OF HON. ERIC A. ``RICK'' CRAWFORD, A 
            REPRESENTATIVE IN CONGRESS FROM ARKANSAS

    The Chairman. This hearing of the Subcommittee on 
Livestock, Rural Development, and Credit to review the state of 
the livestock industry, will come to order. I would like to 
thank the Ranking Member of the Livestock, Rural Development, 
and Credit Subcommittee, Mr. Costa, for working with me to put 
together this hearing to examine the state of the livestock 
sector.
    Now that the farm bill is behind us, it is an important and 
worthwhile task to take an inventory of the many and varied 
challenges currently faced by the livestock community. This 
will provide a framework for assessing priorities, going 
forward. For this purpose, we have an excellent set of 
witnesses, from the esteemed Chief Economist of the U.S. 
Department of Agriculture serving as our first panel, to an 
array of experts representing the elements of animal 
agriculture testifying on our second panel.
    A hearing with as broad a topic as this one means there 
will be a considerable amount of ground to cover. I am looking 
forward to our witnesses' testimony and their responses to the 
questions from Members of the Subcommittee on topics both old 
and new. While I anticipate we will hear about ongoing issues 
such as the GIPSA rule and the mandatory Country-of-Origin 
Labeling, I am also expecting to learn more about emerging 
concerns, such as PEDv and the Administration's development of 
new dietary guidelines.
    As we begin, I want to take a moment to echo the prepared 
remarks of Chairman Lucas at the beginning of our recent full 
Committee hearing where we hosted the Secretary of Agriculture. 
He said the farm bill was quite an achievement, and it contains 
a good deal of fine public policy that will be welcomed by our 
constituents, but there were disappointments as well in terms 
of delivering much-needed regulatory relief to the agriculture 
community.
    The Ranking Member and I both remain especially concerned 
with the ongoing burdens associated with the mandatory Country-
of-Origin Labeling law. This ill-conceived law has created 
economic disruption in the livestock industry and set the stage 
for a potential $2 billion in trade retaliation as a result of 
the WTO dispute with two of our most important trading 
partners, Canada and Mexico.
    I expect we will be hearing from a number of our witnesses 
about this topic today and in the near future, especially as 
the case in the U.S. Court of Appeals proceeds next month and 
when the WTO compliance panel issues its ruling as early as the 
following month.
    Again, I want to thank Ranking Member Costa for his 
assistance in putting this hearing together, and we welcome our 
witnesses.
    [The prepared statement of Mr. Crawford follows:]

Prepared Statement of Hon. Eric A. ``Rick'' Crawford, a Representative 
                       in Congress from Arkansas
    I would like to thank the Ranking Member of the Livestock, Rural 
Development, and Credit Subcommittee, Mr. Costa, for working with me to 
put together this hearing to examine the state of the livestock sector.
    Now that the farm bill is behind us, it is an important and 
worthwhile task to take an inventory of the many and varied challenges 
currently faced by the livestock community. This will provide a 
framework for assessing priorities, going forward.
    For this purpose, we have an excellent set of witnesses, from the 
esteemed Chief Economist of the U.S. Department of Agriculture serving 
as our first panel, to an array of experts representing the elements of 
animal agriculture testifying on our second panel.
    A hearing with as broad a topic as this one means there will be a 
considerable amount of ground to cover. I am looking forward to our 
witnesses' testimony and their responses to the questions from Members 
of the Subcommittee on topics both old and new. While I anticipate we 
will hear about ongoing issues, such as the GIPSA rule and mandatory 
Country-of-Origin Labeling, I am also expecting to learn more about 
emerging concerns such as PEDv and the Administration's development of 
new dietary guidelines.
    As we begin, I would like to take a moment to echo the prepared 
remarks of Chairman Lucas at the beginning of our recent full Committee 
hearing, where we hosted the Secretary of Agriculture.
    The farm bill was quite an achievement; it contains a good deal of 
fine public policy that will be welcomed by our constituents. But there 
were disappointments as well, in terms of delivering much-needed 
regulatory relief for the agriculture community. The Ranking Member and 
I both remain especially concerned with the ongoing burdens associated 
with the mandatory Country-of-Origin Labeling law. This ill-conceived 
law has created economic disruption in the livestock industry and set 
the stage for a potential $2 billion in retaliation as a result of a 
WTO dispute with two of our most important trading partners, Canada and 
Mexico.
    I expect we will be hearing from a number of our witnesses about 
this topic today, and in the near future, especially as the case in the 
U.S. Court of Appeals proceeds next month and when the WTO compliance 
panel issues its ruling as early as the following month.
    Again, I would like to thank Ranking Member Costa for his 
assistance in putting this hearing together and to welcome our 
witnesses.

    The Chairman. I would like to recognize Mr. Costa for his 
opening statement.

   OPENING STATEMENT OF HON. JIM COSTA, A REPRESENTATIVE IN 
                    CONGRESS FROM CALIFORNIA

    Mr. Costa. Thank you very much, Mr. Chairman, for holding 
this timely hearing. Our Subcommittee obviously has an 
important responsibility as it relates to providing oversight 
for livestock, rural development, and credit for agriculture 
throughout the country. Obviously the issues facing America's 
livestock industry, the feedstock that provides the cleanest, 
safest food anywhere in the world for America's consumers, is a 
critical element of America's agricultural productivity. We are 
here to address a number of those issues facing the livestock 
industry.
    America's ranchers and meat processors are facing 
challenges with their ability to continue to provide this 
incredible product that they produce. Of particular concern, of 
course, is loosening, as you indicated, Mr. Chairman, the 
burdens and regulatory policies and proposals which are, 
notwithstanding well intended, a hindrance to America's 
ranchers and processors to comply with.
    In California, as many of you know, we have one of the most 
aggravated drought conditions that our state has faced, and our 
processors and our producers are staggering under the impacts 
of this drought, and while they are always happening and will 
be a number of competing demands to our state's water system, 
clearly, like in the course of the subject we are going to be 
hearing this morning, regulatory actions have been taken that 
make a bad situation worse, in my opinion.
    During the 2009 drought, we had 30 to 40 percent 
unemployment in many of the areas that I represent in the San 
Joaquin Valley, but our businesses that help support our 
agriculture economy were devastated then, and they are being 
impacted today. However, this drought is not just about 
California's economy and the families that work in the fields, 
it is about a crisis that will touch every Californian, and it 
will touch the American consumer at their dinner table because 
of increased cost to the consumer.
    We can't change the weather, of course, and I wish we could 
take some of this rain here today and move it to California, 
but we can change course and make a more friendly regulatory 
environment. As you noted, there are a number of areas that I 
would like to touch upon beyond MCOOL and beyond GIPSA. Our RFS 
standards have increased the cost of feedstock in every area. 
It has had an impact, notwithstanding good intentions, for 
Renewable Fuel Standard. It has increased the cost of feed not 
only to the beef industry, to the poultry industry, and to the 
pork industry. And while ethanol is not the only factor in 
increasing feedstock costs, it should be noted.
    Before the RFS standards, Renewable Fuel Standard, were 
implemented, 12\1/2\ percent of the corn in America was used to 
produce ethanol. Today over 40 percent of the corn produced in 
America is used to produce ethanol. In my opinion, this is 
price distorting as it relates to the impacts and the cost of 
that.
    The Grain Inspection, Packers and Stockyards 
Administration, otherwise known as GIPSA--that is a mouthful--
is an issue that you and I share a lot in common. We have been 
fighting the proposed GIPSA rule since it was originally in the 
2008 Farm Bill, and I find it, frankly, very frustrating that 
notwithstanding Congress' will, we continue to have the agency 
attempting to proceed with a rulemaking that clearly the 
Congress has indicated a different opinion on. Congressman 
Conaway and I and others have been working on this, as you 
have, Mr. Chairman Crawford. The rulemaking process resulted in 
proposals that would have fundamentally and negatively changed 
the way livestock and poultry is marketed in this country by 
taking a very valuable tool, and that is value-added marketing. 
When you talk about value-added, it is what producers in 
America do to make products more productive, products more 
easily to prepare for the family dinner table. Its value-added 
makes them more nutritious, and to take away from that ability 
to provide value-added is inappropriate.
    Congressman Conaway and I have offered amendments that 
mirror the language of action taken by the Congress in 
appropriations bill, and it was signed by the President, I 
would indicate, four times. So this GIPSA-fix language was 
intended to put this issue to rest and allow the livestock and 
poultry industry to market their animals however they want, 
when they want to, and where they want to without GIPSA 
dictating the transactions. We need to ensure that the 
livestock and poultry producers can take advantage of value-
added marketing opportunities in order to satisfy customers and 
remain profitable.
    Finally, the MCOOL, mandatory government-run Country-of-
Origin Labeling, has failed, period, in my opinion. Consumers 
are not factoring it into their meat purchasing decisions, and 
producers are not getting any return for their premium as a 
result of it. What we have seen is increased cost to ranchers 
and processors in order to comply with these regulations, and 
it is impacting the industry. This program has added nothing, 
in my view, but cost to the industry, and to be totally honest, 
we don't know what the actual costs of the industry are because 
a formal economic impact study has never been done.
    Furthermore--and this is where I am very concerned because 
I spent a great deal of my time focusing on increasing trade 
opportunities between the United States and Asia, the United 
States and Europe, and this is threatening our trade 
relationship between two of our biggest markets in North 
America, and that is Canada and Mexico. Currently our exports 
of beef, pork, and chicken are immensely huge to those two 
markets.
    I think many of us assume that the World Trade Organization 
will rule against the United States, and we will face harsh 
retaliation efforts. No one wants to see retaliation efforts 
taken by Canada or Mexico. We have the data, the studies, and 
the WTO experience to show that it is time that we fix MCOOL, 
this mandatory labeling.
    This hearing could not come at a better opportunity, Mr. 
Chairman, to show how we can fix the devastating impacts that 
mandatory labeling will have on the markets and our businesses 
to ranchers and processors throughout the country. We want to 
see this problem solved, and we need to work together to make 
that happen.
    I drafted legislation that I will be introducing, would be 
interested in having all the Members of the Subcommittee as 
cosponsors of the bill. And, again, in closing, I want to thank 
you for the countless efforts that you are making, the stories 
that our livestock industry, our poultry producers, and 
dairymen across the nation and in California are dealing with 
to struggle to make a profit at the bottom line.
    Again, this hearing could not have taken place at a better 
time, and I look forward to hearing the witnesses' testimony, 
and I yield back the balance of my time.
    I thank the Ranking Member and echo his sentiments, and I 
just want to say the chair will request that other Members 
submit their statements for the record so the witnesses may 
begin their testimony to ensure that there is ample time for 
questions. Without objection, so ordered.
    Right now I would like to introduce our first panel. We are 
honored to have Dr. Joseph Glauber, Chief Economist at the 
United States Department of Agriculture here in Washington, 
D.C., join us today, and with that, Dr. Glauber, you are 
recognized. Begin when you are ready.

   STATEMENT OF JOSEPH GLAUBER, Ph.D., CHIEF ECONOMIST, U.S. 
          DEPARTMENT OF AGRICULTURE, WASHINGTON, D.C.

    Dr. Glauber. Chairman Crawford, Ranking Member Costa, and 
Members of the Subcommittee, thank you for the opportunity to 
testify today on the state of the livestock and poultry 
sectors. While the state of the broad U.S. agricultural economy 
has been strong these past several years, the livestock sector 
has not shared in the boom experienced by many crop producers.
    On April 15th, the U.S. Bureau of Labor Statistics reported 
that the Consumer Price Index for beef and veal prices in March 
was 7.4 percent higher than year-ago levels. The CPI for pork 
was also up 5.3 above year-ago levels, while chicken prices 
were up almost four percent.
    While hog and cattle prices have been at or near record 
levels so far in 2014, these prices reflect tight supply due in 
part to tight margins the last several years, but also to 
drought--due to drought in the Southern Plains, in California, 
and the outbreak of PEDv among swine herds, which will continue 
to influence the ability of producers to benefit from and 
respond to these higher prices.
    Record prices for grains and oilseeds have kept feed costs 
high and operating margins tight for most animal producers for 
much of the past 5 years. Tight margins in turn have 
constrained expansion, which has led to record high prices for 
cattle and hogs and near-record prices for broilers. With 
falling grain and oilseed prices following record global crops 
of grain and oilseeds, the livestock sector would normally be 
poised to take advantage of strong livestock prices and 
moderating feed costs in 2014; however, the ability of the beef 
and pork sectors to expand production will be limited by non-
feed cost factors.
    We expect that red meat production will remain constrained 
in the near term and is forecast in 2014 to be the lowest since 
2010 and 1.8 percent below the 2008 record level. Prospects for 
the beef sector in the near term are limited by the decline in 
the cattle inventory, the biological lags inherent in the 
production system, and persistent dryness in the Southern 
Plains now in its 4th consecutive year of drought.
    Likewise, in the hog sector, positive producer returns and 
lower feed costs have set the stage for strong expansion; 
however, the spread of Porcine Epidemic Diarrhea virus, PEDv, 
through the U.S. herd is expected to sharply limit the supply 
of hogs compared to earlier expectations.
    In comparison to the beef and pork sectors, the poultry 
industry is able to respond more quickly to market signals. 
Broiler production is forecast to be at record levels in 2014, 
up 1.8 percent over the previous record set last year. Egg 
production will likely see record levels as well in 2014.
    In my written testimony I discuss general trends in the 
livestock and poultry sector before turning to a more extensive 
review of the current situation and outlook for red meat, 
poultry, and egg sectors, including recent movements in retail 
prices, but in the time left this morning, let me address one 
of the less contentious issues of the 2014 Farm Bill, the 
livestock disaster provisions.
    On April 14th, USDA published its final rule for 
implementing the supplemental disaster programs from the new 
farm bill. On April 15th, the Department began to sign up 
producers for those four permanent disaster programs, three of 
which cover livestock losses. Since that date over 13,000 
producers have already visited FSA offices and started 
applications for disaster programs.
    Over $8.5 million in payments have already been approved 
with about $4.5 million in payments already being transferred 
to producers' banks. The programs are ultimately expected to 
provide more than $2 billion in payments to producers for 
eligible losses that have occurred since the expiration of the 
livestock disaster assistance programs in 2011 for years 2012 
and 2013, and continue to provide support--and will continue to 
provide support to livestock producers in times of disaster 
over the life of this farm bill.
    In conclusion, following years of high feed costs and tight 
margins, the outlook for livestock and poultry appears to be 
improving, but significant challenges in the beef and pork 
sector remain. Record high output prices and reduced prices for 
grain and oilseeds are tempered by lingering drought and the 
spread of PEDv. Production of red meat and turkey production is 
forecast lower for 2014. Although broiler production is 
forecast to increase, the gain will be insufficient to offset 
the decline in other meats.
    Livestock and poultry prices will be higher in 2014, 
reflecting tight overall meat supplies and improving demand. 
Eventually production of red meat, poultry, and eggs is 
expected to increase when producers are able to take advantage 
of more favorable margins to expand herds and flocks, and each 
increased production will then moderate retail prices for red 
meats, and poultry and eggs. How soon steer and hog prices 
respond will depend on whether we see improvement in pasture 
and forage conditions in the Southern Plains in the West and 
the extent to which PEDv can be controlled through biosecurity 
practices.
    Despite global production records for most grains and 
oilseeds in 2013, global grain and oilseed stocks remain tight 
and--going into the 2014-2015 crop year. As such, feed costs 
and livestock margins will remain vulnerable to potential 
supply shocks throughout the year.
    Mr. Chairman, that concludes my statement. I am certainly 
happy to take--answer any questions.
    [The prepared statement of Dr. Glauber follows:]

  Prepared Statement of Joseph Glauber, Ph.D., Chief Economist, U.S. 
              Department of Agriculture, Washington, D.C.
    Chairman Crawford, Ranking Member Costa, and Members of the 
Subcommittee, thank you for the opportunity to testify today on the 
state of the livestock and poultry sectors. While the state of the 
broad U.S. agricultural economy has been strong these past several 
years, the livestock sector has not shared in the boom experienced by 
many crop producers. On April 15, the U.S. Bureau of Labor Statistics 
(BLS) reported that the Consumer Price Index (CPI) for beef and veal 
prices in March was 7.4 percent higher than year ago levels. The CPI 
for pork was also up 5.3 percent above year ago levels while chicken 
prices were up 3.6 percent. While hog and cattle prices have been at or 
near record levels so far in 2014, these prices reflect tight supply 
due in part to tight margins the last several years, but also drought 
in the Southern Plains and California and the outbreak of PEDv among 
swine herds, which will continue to influence the ability of producers 
to benefit from and respond to these high prices.
    Record prices for grains and oilseeds have kept feed costs high and 
operating margins tight for most animal producers for much of the past 
5 years. Tight margins, in turn, have constrained expansion which has 
led to record high prices for cattle and hogs and near-record prices 
for broilers. With falling grain and oilseed prices following record 
global crops of grains and soybeans, the livestock sector would 
normally be poised to take advantage of strong livestock prices and 
moderating feed costs in 2014. However, the ability of the beef and 
pork sectors to expand production will be limited by non-feed cost 
factors. We expect that red meat production will remain constrained in 
the near term and is forecast in 2014 to be the lowest since 2010 and 
1.8 percent below the 2008 record (Figure 1). Prospects for the beef 
sector, in the near term, are limited by the decline in cattle 
inventory, the biological lags inherent in the production system and 
persistent dryness in the Southern Plains, now in its fourth 
consecutive year of drought. Likewise, in the hog sector, positive 
producer returns and lower feed costs have set the stage for strong 
expansion. However, the spread of Porcine Epidemic Diarrhea virus 
(PEDv) through the U.S. herd is expected to sharply limit the supply of 
hogs compared to earlier expectations. In comparison to the beef and 
pork sectors, the poultry industry is able to respond more quickly to 
market signals. Broiler production is forecast to be at record levels 
in 2014, up 1.8 percent over the previous record set last year. Egg 
production will likely see record levels as well in 2014.
    In my testimony today I will first discuss general trends in the 
livestock and poultry sector before turning to a more extensive review 
of the current situation and outlook for the red meat, poultry and egg 
sectors including recent movements in retail prices. Last, I will 
discuss government safety net programs available for livestock 
producers, including recently implemented disaster programs from the 
Agricultural Act of 2014.
Trends in the Livestock and Poultry Sectors
    While there are unique characteristics of the markets for red 
meats, poultry and eggs, there are many common trends that have shaped 
those markets in recent years.

    1. For the past several years, feed costs have been high relative 
        to cash receipts for livestock, poultry and egg producers. 
        Since 2007, grain and oilseed prices spiked to record (nominal) 
        highs in 2007/08, 2010/11 and again in 2012/13, raising feed 
        costs and reducing operating margins. Feed costs as a percent 
        of total cash receipts average over 33 percent over 2007-13, 
        compared to less than 25 percent over 2000-06 (Figure 2).

    2. High feed costs and poor pasture conditions reduced 
        profitability for livestock and poultry producers. Feed ratios 
        for hogs, cattle, broiler and layer operations declined sharply 
        in 2007 and remained at low levels up through mid-2013 (Figure 
        3). For cattle, low feed ratios have been exacerbated by poor 
        pasture conditions as a result of lingering drought in the 
        Southern Plains over the past 3 years. Poor margins over that 
        period limited expansion for hogs and broilers and contributed 
        to further contraction in the cattle sector. While feed costs 
        have moderated, other factors have hampered expansion plans in 
        the beef and pork sector.

    3. Since 2007, lower meat production and increased net exports have 
        resulted in higher consumer prices and lower per capita 
        consumption in the United States. Annual average consumption of 
        red meats and poultry has declined from a peak of almost 222 
        pounds per capita in 2004 to less than 204 pounds in 2013 
        (Figure 4). The slowdown in the broader economy which began in 
        late 2007 also had a negative impact on per-capita consumption 
        and likely curtailed the ability to fully pass along higher 
        feed costs to consumers. With production forecast to increase 
        over 2014-23, per capita consumption of red meats and poultry 
        is forecast to increase but only reach 215 pounds by 2023. Most 
        of the gain in per capita meat consumption is expected to come 
        from growth in per capita poultry consumption, continuing the 
        rapid rise in poultry consumption that began in the mid-1970s. 
        Per-capita beef consumption is expected to continue to decline 
        in the near term through 2016 before showing modest growth with 
        the expected rebound in beef production once herds have 
        recovered. Per capita pork consumption is expected to rise 
        slightly as production recovers over the next 4 years before 
        flattening as production growth is projected to slow.

    4. Consumption patterns for red meats poultry and eggs have changed 
        significantly over the past 40 years. Consumption of food 
        prepared away from home plays an increasingly large role in the 
        American diet. In 1970, 25.9 percent of all food spending was 
        on food away from home; by 2012, that share rose to its highest 
        level of 43.1 percent. A number of factors contributed to the 
        trend of increased dining out since the 1970s, including a 
        larger share of women employed outside the home, more two-
        earner households, higher incomes, more affordable and 
        convenient fast food outlets, increased advertising and 
        promotion by large food-service chains, and the smaller size of 
        U.S. households.

      Consumer surveys suggest that almost 40 percent of beef and 42 
        percent of chicken is consumed as food prepared away from home. 
        Ground beef eaten at restaurants, including the fast food 
        sector, accounted for 60 percent of the beef eaten away from 
        home.

    5. Exports account for an increasing share of total demand for red 
        meats, poultry and eggs. Twenty-five years ago, exports of red 
        meats, poultry and eggs were negligible, accounting for less 
        than five percent of total production. Over the past 5 years, 
        exports have averaged almost ten percent of beef and veal 
        production, 20 percent of pork and chicken production, and 
        about \1/8\ of turkey production (Table 1). Exports have 
        brought additional value to U.S. producers and consumers, 
        particularly exports of cuts of meat that are less popular with 
        U.S. consumers such as chicken leg quarters and beef offal.

      Trade in live animals is also important, particularly for cattle 
        and hogs. The United States imports both feeder and slaughter 
        cattle from Canada and Mexico and imports hogs, primarily 
        feeder pigs, mainly from Canada. Canadian feeder pigs have 
        represented upwards of 5-6 percent of finishing hogs in the 
        U.S., but have recently seen their share shrink considerably.

                    Table 1.--Share of Red Meat, Poultry and Egg Production That Is Exported
----------------------------------------------------------------------------------------------------------------
                                                   1970-79      1980-89      1990-99      2000-09      2010-14
----------------------------------------------------------------------------------------------------------------
                                                                            (percent)
----------------------------------------------------------------------------------------------------------------
Beef and veal                                            0.4          1.9          6.8          6.6          9.7
Pork                                                     1.4          1.3          4.2         12.4         21.5
Chicken                                                  2.2          4.3         12.7         16.4         19.4
Turkey                                                   2.3          1.4          6.2          9.2         12.5
Eggs *                                                   0.8          2.1          2.9          2.6          3.9
----------------------------------------------------------------------------------------------------------------
Source: PSD database and ERS, includes farm production.
* Includes shell eggs and egg products.


    6. Contracting is a major feature of livestock and poultry 
        production. Contracting is a major feature of U.S. agriculture 
        (MacDonald and Korb 2011) but can vary considerably by 
        livestock type. In 2008, agricultural contracts covered almost 
        90 percent of poultry and egg production, over \2/3\ of hog 
        production and almost 30 percent of cattle production (Table 
        2).

      Contracts are evolving to cover new and often unforeseen 
        developments or changes in market conditions. Standard poultry 
        production contracts are designed so that the integrator 
        provides feed and chicks and technical advice, while the farm 
        operator provides the on-farm equipment, structures, labor, and 
        utilities. Hog production contracts largely follow suit. Today 
        more production contracts are specifying animal welfare and 
        health standards, while some provide for joint financing of 
        utility expenses. Production contracts are also evolving to 
        handle more complex organizational structures, including third 
        party (nongrower) ownership of housing. Cattle feedlots 
        typically charged clients a fee for providing custom feeding 
        and marketing services for the client's cattle, but some 
        feedlots now offer contracts that share equity ownership (of 
        the cattle) between the feedlot and the client.

                      Table 2.--Share of Commodity Production Under Contract, by Commodity
----------------------------------------------------------------------------------------------------------------
                   Commodity                       1991-93      1996-97      2001-02        2005         2008
----------------------------------------------------------------------------------------------------------------
                                                           Share of production under contract (percent)
----------------------------------------------------------------------------------------------------------------
Livestock \1\                                           32.8         44.9         48.2         50.1         52.8
Cattle                                                   N/A         17.2         21.0         17.6         29.4
Hogs                                                     N/A         34.2         62.5         76.2         68.1
Poultry and eggs                                        88.7         83.8         92.3         94.2         89.9
----------------------------------------------------------------------------------------------------------------
\1\ Includes dairy and all other livestock.
N/A = data not available for commodity detail.
Source: MacDonald and Korb 2011.

The Outlook for Cattle and Beef
    USDA's January Cattle report estimated that the number of cattle 
and calves on January 1, 2014 fell about two percent to 87.7 million 
head, the lowest cattle and calf inventory since 1951 (Figure 5). The 
cow herd was estimated at 38.3 million head, about one percent smaller 
than a year earlier. Producers indicated that they intended to retain 
two percent more heifers for addition to the beef herd and expected to 
have one percent more heifers calve during 2014. Dairy cow numbers were 
about equal with last year but producers indicated that while retaining 
slightly fewer heifers for addition to the cow herd, they expected more 
to calve this year than last. The 2013 calf crop was estimated at 33.9 
million head, the smallest calf crop since 1949.
    Both the U.S. cattle inventory and the beef cow herd are expected 
to continue to shrink in 2014. Although returns to cow/calf operators 
have improved, many producers appear to be taking a cautious view, and 
are rebuilding their capital after a year or more of buying expensive 
forage and ensuring sufficient supplies of forage and water will be 
available before expanding in earnest. Moreover, persistent drought in 
California and the Southern Plains will likely continue to put pressure 
on cow/calf producers in those regions. Since the start of 2011, the 
cattle and calves inventory has declined by almost five million head, 
with almost 65 percent of those losses occurring in the drought-
affected States of Texas and Oklahoma.
    USDA estimates that as of April 15, 2014, approximately 44 percent 
of the domestic cattle inventory was within an area experiencing 
drought (Figure 6). While the portion of the inventory currently in 
drought is down significantly from September 2012 when over 75 percent 
of the inventory was in areas experiencing drought, the amount of 
inventory in drought has increased ten percentage points since last 
fall and remains high relative to historical levels (Figure 7).
    Commercial cow slaughter for first-quarter 2014 is forecast to be 
the lowest since 2008 and is indicative of both low cow inventories and 
intentions to retain or increase cow inventories as soon as pasture 
conditions permit. If pasture conditions fail to develop normally, the 
rate of cow slaughter could again increase and delay expansion. First-
quarter commercial steer and heifer slaughter is forecast at the lowest 
level since 1965. First-quarter beef production will likely be the 
lowest only since 1995 because dressed weights have increased over time 
and have largely offset general declines in inventories and slaughter 
since their peaks in the mid-1970s (Figure 8).
    Weekly average processing beef prices continue to increase as 
weekly federally inspected cow slaughter declines, year over year 
(Figure 9). Cow/calf producers should continue to see attractive cow 
prices for the near term because of low cow inventories and continued 
demand for ground beef products made from culled cows. Choices for cow/
calf operators who are not entirely certain they want to deal with 
another year of drought will be made more difficult by high cow prices. 
Feeder cattle prices could decline slightly in the near future as 
demand for pasture cattle subsides with stocking of available pasture.
    However, the anticipated smallest calf crop since 1949 will provide 
significant price support for the limited supplies of feeder cattle. At 
the same time, fed cattle and beef prices may have reached their peak 
for the season. For 2014, beef production is forecast at 24.6 billion 
pounds, 4.5 percent below 2013. Steer and heifer slaughter will be 
below 2013 as feedlot numbers dwindle. Strong prices and lower feed 
prices have supported heavier slaughter weights as a short-run means to 
increase beef output and carcass weights are forecast to increase to 
almost 795 pounds.
    Beef and cattle trade. Year to date U.S. cattle imports for 2014 
totaled 364,804 head through February, about even with a year earlier. 
Imports from Canada were up seven percent, while imports from Mexico 
have fallen six percent. Imports of slaughter cattle from Canada were 
unchanged from 2013, but feeder cattle imports have increased 19 
percent this year. Demand from U.S. buyers has been strong as feeder 
cattle prices in Canada have lagged strong growth in U.S. prices. 
Agricultural Marketing Service weekly data through March 22, 2014 show 
cattle imports are 17 percent above year earlier levels. Cattle imports 
are forecast at 1.97 million head for 2014. This is a one percent 
decline in cattle imports from 2013 as inventories have fallen in both 
Canada and Mexico.
    U.S. beef exports were up four percent through February 2014 
compared to a year earlier. Strong demand from Japan, Mexico, and Hong 
Kong more than offset declining shipments to Canada, South Korea, and 
Taiwan. Higher prices for U.S. beef may have limited demand from some 
markets, including Canada which has also experienced a depreciating 
exchange rate with the U.S. dollar. Higher prices have not discouraged 
strong sales in product to Japan and Hong Kong as the United States 
continued to take market share from Australia. Exports to Mexico have 
also been strong in 2014. After declining in 2012 due to a drought-
induced rise in Mexican beef production, U.S. exports to Mexico rose 15 
percent in 2013 and were up 32 percent through February. Demand is 
likely to remain strong as beef production is expected to fall this 
year in Mexico due to diminished cattle inventories. The forecast for 
2014 U.S. beef exports is 2.515 billion pounds, implying a nearly three 
percent decline from 2013 as lower production will limit trade volumes. 
Tight supplies of processing meat and continued strong demand for 
hamburger will likely support increased imports of beef during 2014. 
Imports are forecast at 2.3 billion pounds, about three percent above 
2013. However, growth in imports, especially in the first half of the 
year will be constrained by tight supplies in those countries 
traditionally supplying the United States and strong demand in a number 
of markets world-wide.
Hogs and Pork
    While pork producers have also faced high feed prices over the last 
several marketing years and hog prices have risen significantly in 
recent weeks, tight supplies are less a result of cautious expansion 
seen among cattle feeders and, more concretely, the impact of Porcine 
Epidemic Diarrhea (PEDv). Much of the recent volatility in hog prices 
can be attributed to changing market expectations about the impact of 
the virus. From the earliest reported incidents in 2013, the virus has 
spread to 30 U.S. states, four Canadian provinces and several areas in 
Mexico (Figure 10).
    The March 1 inventory of market hogs of just over 57 million head 
was 3.7 percent lower than a year ago, the latest in a string of year-
over-year quarterly inventory contractions which began March-May 2013, 
and the lowest March 1 inventory level since 2007. That lower inventory 
number is largely a reflection of a smaller pig crop in the previous 
two quarters. The September-November pig crop was fractionally lower 
than a year earlier while the December-February pig crop came in at 
27.3 million head, almost three percent lower than a year ago. The 
December-February pig crop declined despite a 2.8 percent increase in 
farrowings from year ago levels and reflected the negative impact of 
PEDv on litter rates. The PEDv virus has proven particularly lethal to 
young piglets, increasing pre-wean mortality which is captured in 
reported reductions in litter rates, a measure of the number of pigs 
weaned per farrowing. The litter size for the December-February pig 
crop was 9.53 pigs per litter, down 5.5 percent compared to the same 
period a year earlier (Figure 11). That represents the first year on 
year decline in the litter rate since the June-August quarter of 2003 
and the largest percent year-on-year decline since the December-
February period in 1977 (37 years ago) at a time when the litter rate 
was much lower.
    The lower litter rate indicates that the spread of PEDv may be 
affecting hog numbers and future pork production. To compensate for 
piglet losses, the industry has indicated plans to increase farrowings 
and feeding animals to heavier weights. While feeder pig imports, 
primarily from Canada, were up in the first quarter of 2014 compared to 
the previous quarter, they were down year over year for the December-
February period and part of a broader decline in feeder pig trade which 
saw feeder pig import numbers fall by over 13 percent in 2013. To date, 
the spread of PEDv in Canada has not been as severe as in the United 
States, with approximately 50 cases reported in four Canadian provinces 
as of mid-April. Nonetheless, hog imports are forecast lower than last 
year as supplies in Canada remain tight.
    The reduced litter rates reflect average industry wide impacts but 
ability to capitalize on higher hog prices and lower feed prices will 
depend on the operations exposure to PEDv. Producers who have avoided 
significant animal losses will be able to sell feeder pigs or finished 
hogs into a tight market at high prices, however, those hardest hit by 
PEDv will be left with little to sell. Given the tighter supply of 
feeder pigs, finishing operations may bid away margins in order to 
maintain finishing facilities at capacity. The last several weeks have 
seen hog slaughter dip 5% compared to the same period last year and 
moving forward, lower pig crops and gilt retention are likely to lead 
to reduced hog slaughter numbers.
    The slight increase in the March 1 inventory of breeding animals, 
combined with aggressive year over year increases in farrowing 
intentions for the spring and summer pig crops, suggest that producers 
are responding to high hog prices and mitigating some of the PEDv 
losses. Producers have indicated intentions to expand farrowings over 
the next two quarters by two percent (Figure 12). In addition to 
expanded farrowings, carcass weights are expected to average over 211 
pounds dressed weight, two percent above last year. In the short run 
this will offset some of the loss in pork production from lower market 
hog numbers. As a result of the combination of lower litter rates, 
reduced hog imports, increased farrowings and heavier carcass weights, 
commercial pork production for 2014 is forecast to be 22.76 billion 
pounds, down 1.8 percent from last year.
    Live hog prices have risen dramatically since the first of the year 
(Figure 13). U.S. hog prices, on a national base, 51-52% lean, live 
equivalent, are forecast to average $72 to $75 per cwt for 2014, up 
significantly from last year's $64.05. Prices are expected to peak in 
the first or second quarter as the reduced December-February pig crop 
comes to market and supplies are tightest.
    If farrowings follow intentions, supplies in the second half of the 
year should expand and moderate prices, but they are still likely to 
average above year ago levels. The continuing impacts of PEDv remain a 
significant uncertainty and will influence the price path in the coming 
months.
    Pork exports were lower in 2013 as Russia was closed due to 
restrictions on the use of Ractopamine and exports to Japan were lower 
as higher beef sales cut into pork exports, but they are expected to 
slip further as high U.S. pork prices and limited supplies will 
dissuade some foreign buyers. Pork exports are expected to fall three 
percent to 4.85 million pounds. Pork imports are expected to show gains 
as higher U.S. prices encourage imports.
    In the coming decade, domestic pork production is expected to 
overtake domestic beef production on a weight basis but a greater 
proportion of the pork is destined for the export market as efficiency 
gains in the sector are expected to enhance competitiveness overseas. 
Asia and Mexico are likely to remain key markets for U.S. product while 
the importance of Russian markets, in pork and other meats, may decline 
as the country pursues a policy of greater meat self-sufficiency. With 
expanding pork exports, per-capita pork consumption while growing, is 
expected to remain third behind beef and poultry consumption in the 
coming decade. The on-going impact of PEDv will continue to shape 
market expectations in the near term and beyond and will continue to 
shape market expectations.
Sheep and Lamb
    While world sheep numbers have remained relatively stable over the 
last several decades, the size of the U.S. flock has seen steady 
declines. The U.S. sheep and lamb inventory is expected to decline for 
a ninth straight year in 2014 (Figure 14) with a January 1, 2014 
inventory of sheep and lambs of 5.21 million head, down two percent 
from the previous year. While Colorado, California and Wyoming showed a 
decline of 110,000 head, or an eight percent decline, Texas, the top 
sheep producing state has been building inventory after drought related 
losses in 2011. Texas inventory numbers were up 30,000 head in 2012 and 
another 40,000 head in 2013.
    The breeding flock likewise declined two percent and the number of 
replacements lambs was almost four percent lower. The lamb crop 
declined over two percent in 2013 as the lambing rate fell to 1.07 
lambs per ewe per year. In 2013, commercial lamb and mutton production 
was virtually unchanged from 2012 despite a smaller 2012 lamb crop, as 
poor forge conditions and high feed costs encouraged producers to 
advance marketings in mid-2013. Commercial lamb and mutton production 
in 2014 is forecast at 150 million pounds, almost four percent lower, 
as market lambs on January 1 were down over two percent and producers 
may choose to hold back lambs to rebuild flocks. Continued or worsening 
drought conditions could, however, negatively impact plans for ewe 
retention.
    Lamb imports, primarily from Australia and New Zealand, represent 
about \1/2\ of available supplies and tend to move in concert with 
domestic production. In 2014, the fall in imports may outpace the fall 
in domestic production. Lamb and mutton imports for 2014 are forecast 
at 160 million pounds, seven percent lower than 2013. Despite the lower 
forecast for U.S. production, supplies in Australia and New Zealand 
will be relatively tight. Competition for those supplies has also 
increased with the expansion of sales in Asia and exports to the U.S. 
are expected to be limited, supporting domestic lamb prices.
    Per-capita lamb consumption is expected to continue its long-run 
decline, with per-capita consumption expected to be 0.9 pounds in 2014, 
less than \1/3\ the level in 1970. The decline is expected to continue, 
although at a much slower pace, in the next decade. Population growth 
will offset some of the decline in per-capita consumption with total 
disappearance likely to be relatively flat in the coming years.
    The San Angelo Choice slaughter lamb price is forecast to average 
$157 to $165 per cwt for 2014, a sharp increase from $111.12 in 2013 
and very close to 2011's record of $161. Prices began to increase in 
the second half of 2013 and are expected to average above year-earlier 
through 2014 as supplies of marketable lambs and lamb and mutton 
imports remain tight, other meat prices remain elevated and demand 
improves.
Broilers
    The broiler industry has faced some of the same challenges the pork 
and beef industry has faced since 2006. The sector has faced high feed 
costs and a sluggish economy which weakened demand, but broiler meat 
has benefited from a quicker response time, price increases in other 
meats and continued strong export demand. Producers responded to higher 
broiler prices in 2012 by beginning to increase production in late 
2012. However, high feed prices in late 2012 and early 2013 kept the 
expansion in check and producers appear to be taking a very measured 
view toward expansion. In anticipation of moderating corn and soybean 
meal prices for the 2013/14 marketing year and strong broiler prices 
supported by record prices for competing meat products, the number of 
broiler chicks placed in the second half of 2013 increased compared to 
a year earlier. However, growth has slowed since the beginning of 2014. 
Current projections show modest growth in bird numbers and increased 
bird weights encouraged by low feed costs. As a consequence broiler 
production is expected to be up almost two percent to 38.5 billion 
pounds in 2014. Expectations are for longer run return to steady growth 
in subsequent years.
    Trade has been a major factor in the growth of the broiler industry 
over the last 2 decades and the United States is expected to export 7.5 
billion pounds of broiler meat in 2014, up from 7.4 billion pounds in 
2013. The United States is the world's second largest broiler exporter 
and U.S. exports have generally grown at or exceeded the rate of 
production growth. Exports represented just under 20 percent of broiler 
production in 2013, up from less than five percent prior to 1990. 
Mexico is the largest destination for U.S. exports accounting for 19 
percent in 2013 of U.S. exports, but Russia and Canada are also 
significant destinations as well as Georgia, Angola and Cuba in recent 
months.
    The U.S. broiler industry has benefited from income and population 
growth overseas as consumers in developing economies look for 
increasing quantities of meat imports. Broiler meat has also benefited 
from the complimentary nature of consumer demand in those countries. 
Little of what is exported is whole chicken. While breast meat is in 
high demand in the United States, for many of our export destinations, 
leg meat is preferred and leg quarters have become the dominant broiler 
product exported (Figure 15). The availability of a segmented market 
has helped boost the overall value of the bird to producers.
    Despite higher production, tight supplies of beef and pork and 
improving economic conditions are likely to support stronger demand for 
broiler meat putting upward pressure on retail prices. For 2014, the 
National Composite Weighted Average Broiler price is forecast to 
average a record $1.00-$1.04 per pound, compared with just under $1.00 
in 2013.
Turkeys
    Turkey production for 2014 is forecast to remain flat at just under 
5.7 billion pounds, about two percent lower as the number of poults 
placed remains below year-earlier. Since the second quarter of last 
year, turkey production has been consistently below year-earlier levels 
despite declining feed prices as weak turkey prices in the first half 
of 2013 have likely delayed expansion plans. Eggs set in incubators 
were below year-earlier through the fourth-quarter 2012 and into early 
2014. With stronger whole turkey prices forecast for 2014 and moderate 
feed costs, producers are expected to expand in the second half of 
2014. A portion of the growth in production is likely to be the result 
of heavier weight birds as producers take advantage of lower prices 
feed. Turkey stocks at the end of February were 17 percent lower than a 
year earlier with the largest decline in legs which fell 59 percent 
boosting prices for legs but with more limited upward pressure on whole 
bird prices. Year on year growth in inventories is expected in the 
second half of 2014 as production lags.
    The National turkey hen price is forecast to average $1.03-$1.08 
per pound, compared to an average of $1.00 in 2013.
    In 2013, turkey exports were five percent lower, largely on weaker 
sales to most major markets. Turkey exports for 2014 are forecast to 
decline about six percent to 710 million pounds as demand remains soft 
and other poultry products are competitive as turkey prices rise.
Eggs
    Egg production slipped in 2007 and 2008 as producers responded to 
increasing feed costs and relatively weak egg prices. However, with 
only modest increases in production, egg prices have steadily increased 
in the past several years, supporting continued expansions despite high 
feed prices. Total U.S. egg production in 2014 is expected to be 8.06 
billion dozen, almost two percent higher than 2013
    Table egg production is expected to increase about two percent to 
6.97 billion dozen as producers respond to lower feed prices and higher 
egg prices in the first half of 2014. On January 1, 2014 the number of 
table egg layers was about two percent higher than year-ago. Table egg 
layers have been above year-earlier since October 2011. Hatching egg 
layers were also up over two percent compared to a year ago with 
strength in both broiler-type and egg-type layers indicating expansion 
breeding stock for both uses. Hatching egg production is expected to 
increase about 2.5 percent in 2014 as broiler and table egg producers 
look to expand bird numbers and increase production.
    Annual per-capita consumption of eggs for is currently estimated at 
255.1 eggs. Between 1945 and 1995, per-capita egg consumption decreased 
about 44 percent, from over 400 eggs per person per year to 232 eggs. 
Since then per capita egg consumption has risen by about ten percent. 
Most of the growth in consumption has been in the form of eggs 
processed in food products (Figure 16).
    For 2014, New York wholesale egg prices are forecast to average 
$1.26 to $1.32 per dozen, up from the $1.25 average for 2013. Prices 
are expected to decline in the second half of the year as output 
expands on hatching egg decisions made in the past several months.
    In 2013, egg and egg product exports increased 23 percent to 372 
million dozen, shell egg equivalent. The main driver of the increase 
was exports to Mexico as an outbreak of highly pathogenic Avian 
Influenza in Jalisco in mid-2012 reduced Mexican egg production and has 
since limited Mexican egg availability as local production attempts to 
rebuild. Higher sales to Japan and Canada also supported increased egg 
exports. Looking forward to 2014, egg exports are forecast at 312 
million dozen, down 16 percent as Mexico's production recovers and egg 
prices strengthen.
Retail Prices
    Consumer expenditures for meats, poultry and eggs account for 
almost \1/5\ of total at-home food expenditures. While recent changes 
in the Consumer Price Index (CPI) for food consumed at home have been 
low relative to historical levels, high product prices for animal 
products have resulted in larger increases in retail prices for meats, 
poultry and eggs prices relative to other food items. Beef and veal 
prices, which are already at or near record levels across the country, 
rose 1.9 percent in March and are up 7.4 percent over March 2012 
levels. Pork prices rose 1.9 percent in March and are up 5.3 percent 
over year ago levels. Chicken prices in March were up 4.9 percent over 
March 2013 levels while egg prices were up almost ten percent from a 
year ago.
    Table 3 shows annual inflation rates for various food categories 
since 2010 as well as forecasts for 2014. Aggregate food at home prices 
have, on average, risen by 2.1 percent annually since 2009. Over the 
same period, meat prices rose by four percent annually with retail 
prices for beef and veal increasing, on average, by 5.3 percent 
annually. Between 2009 and 2013, pork, poultry and egg prices rose 
annually by 3.6 percent, 3.2 percent and 4.2 percent, respectively. 
With the exception of fish and seafood (3.2 percent annual increase), 
dairy products (2.5 percent annual increase) and fats and oils (3.3 
percent annual increase), most other food categories had annual 
inflation rates less than two percent.
    The Economic Research Service forecasts changes in the CPI for food 
at home for 2014 to be in line with historical rates of inflation at 
2.5 to 3.5 percent.

          Table 3.--Annual Change in Consumer Price Index, Selected Categories, With Forecasts for 2014
----------------------------------------------------------------------------------------------------------------
                                                                                             Avg.      Forecast
                                          Weight     2010      2011      2012      2013     2010-13      2014
----------------------------------------------------------------------------------------------------------------
Food at home                                100.0       0.3       4.8       2.5       0.9       2.1   2.5 to 3.5
  Meats, poultry, and fish                   21.4       1.9       7.4       3.6       2.1       3.7   2.5 to 3.5
    Meats                                    13.8       2.8       8.8       3.4       1.2       4.0   2.5 to 3.5
      Beef and Veal                           6.6       2.9      10.2       6.4       2.0       5.3   3.0 to 4.0
      Pork                                    4.2       4.7       8.5       0.3       0.9       3.6   2.0 to 3.0
      Other meats                             3.1      ^0.1       6.4       1.7      ^0.1       2.0   2.0 to 3.0
    Poultry                                   4.1      ^0.1       2.9       5.5       4.7       3.2   3.0 to 4.0
    Fish and seafood                          3.5       1.1       7.1       2.4       2.5       3.2   2.5 to 3.5
  Eggs                                        1.3       1.5       9.2       3.2       3.3       4.2   3.0 to 4.0
  Dairy products                             10.5       1.1       6.8       2.1       0.1       2.5   2.5 to 3.5
  Fats and oils                               3.1      ^0.3       9.3       6.1      ^1.4       3.3   1.5 to 2.5
  Fruits and vegetables                      15.0       0.2       4.1      ^0.6       2.5       1.5   2.5 to 3.5
    Fresh fruits & veg                       11.5       0.7       4.5      ^2.0       3.3       1.6   2.5 to 3.5
      Fresh fruits                            6.1      ^0.6       3.3       1.0       2.0       1.4   3.5 to 4.5
      Fresh vegetables                        5.4       2.0       5.6      ^5.1       4.7       1.7   2.0 to 3.0
    Processed fruits & veg                    3.5      ^1.3       2.9       3.8       0.3       1.4   2.5 to 3.5
  Sugar and sweets                            3.5       2.2       3.3       3.3      ^1.7       1.7   2.0 to 3.0
  Cereals and bakery products                14.3      ^0.8       3.9       2.8       1.0       1.7   1.5 to 2.5
  Nonalcoholic beverages                     11.0      ^0.9       3.2       1.1      ^1.0       0.6   2.5 to 3.5
  Other foods                                19.9      ^0.5       2.3       3.5       0.5       1.5   2.0 to 3.0
----------------------------------------------------------------------------------------------------------------
Source: BLS and ERS.

Safety Net for Livestock Producers
    USDA offers several types of programs to assist livestock producers 
manage and recover from events that adversely affect their production. 
Many livestock producers are also crop producers and so the discussion 
here is limited to programs that are specific to livestock production. 
The two main types of programs that are directly targeted to livestock 
production are insurance products and supplemental disaster assistance.
    Insurance programs. USDA's Risk Management Agency offers several 
products that are tailored to livestock production: livestock gross 
margin policies (LGM), livestock risk protection policies (LRP), and 
several policies to guard against adverse weather affecting on-farm 
forage production. LGM and LRP are livestock pilot programs and are 
limited by the Federal Crop Insurance Act to total annual outlays for 
all livestock programs of $20 million per fiscal year. The bulk of the 
monies available to those pilots are used in the LGM-Dairy program.
    Pastureland, rangeland, and forage losses can be insured under 
individual or area-based forage policies or under the index-based 
Pasture Rangeland and Forage (PRF) policy based on a rainfall or 
vegetative index. The PRF-Rainfall Index (PRF-RI) is based on weather 
data collected and maintained by NOAA's Climate Prediction Center. The 
index reflects how much precipitation is received relative to the long-
term average for a specified area and timeframe. The PRF-Vegetative 
Index (PRF-VI) is based on the U.S. Geological Survey's Earth Resources 
Observation and Science (EROS) normalized difference vegetation index 
(NDVI) data derived from satellites observing long-term changes in 
greenness of vegetation of the Earth since 1989.
    In 2013, forage and forage seeding policies covered almost 3.5 
million acres with crop value of $631 million; and rainfall and 
vegetative PRF programs covered 54 million acres with an insured crop 
value of nearly $1 billion. In total producers paid about $110 million 
in premiums for those policies in 2013, which covered approximately 
$200 million in losses.
    In addition, mechanically harvested or grazed forage production can 
be covered under the noninsured crop disaster assistance program (NAP), 
which covers the up to 50 percent of losses. NAP payments were $225 
million in 2013.
    Livestock disaster assistance. On April 14, 2014, USDA published 
its final rule implementing the supplemental disaster programs from the 
new farm bill. On April 15, the department began to sign-up producers 
for those four permanent disaster programs. Three--the Livestock Forage 
Disaster Program (LFP), the Livestock Indemnity Program (LIP), and the 
Emergency Assistance for Livestock, Honey Bees, and Farm-Raised Fish 
Program (ELAP), cover certain livestock losses.
    Those programs were previously authorized through September 30, 
2011 under the 2008 Farm Bill (the Food, Conservation, and Energy Act 
of 2008, Pub. L. 110-246). With the authorization provided in the 2014 
Farm Bill, those disaster assistance programs are permanent, continuing 
programs that are not subject to annual appropriations. They are 
expected to provide more than $2 billion in payments to producers for 
eligible losses that have occurred since the expiration of the 
livestock disaster assistance programs in 2011 for years 2012 and 2013 
(Table 4). Within the first week of signup, $9.4 million in LFP 
payments had been requested or were awaiting certification, and more 
than $4 million had been disbursed. Overall payments from 2012 to 2023 
are forecast to be about $6 billion (of which about 85 percent is for 
Livestock Forage Disaster Program payments).
    LFP provides payments to eligible livestock producers that have 
suffered livestock grazing losses due to qualifying drought or fire. An 
eligible livestock producer must own, cash lease, or be a contract 
grower of eligible livestock during the 60 calendar days before the 
beginning date of the qualifying drought or fire in a county that is 
rated by the U.S. Drought Monitor as D2, D3, or D4. LFP payments are 
forecast to be approximately $5 billion from 2012-2023.
    LIP provides disaster assistance to livestock owners and contract 
growers that have incurred livestock death losses in excess of normal 
mortality due to adverse weather (including hurricanes, floods, 
blizzards, disease, wildfires, extreme heat, and extreme cold) during 
the calendar year. LIP also provides assistance to livestock owners and 
contract growers that had losses due to livestock deaths in excess of 
normal mortality due to attacks by animals reintroduced into the wild 
by the Federal Government or protected by Federal law, including wolves 
and avian predators. Eligible livestock includes beef cattle, dairy 
cattle, bison, poultry, sheep, swine, horses, and other livestock as 
determined by the Secretary. LIP payments are forecast to be $700 
million from 2012-2023.
    ELAP provides emergency assistance to eligible producers of 
livestock, honeybees, and farm-raised fish that have losses due to 
adverse weather, or other conditions, that are not covered under LFP or 
LIP. ELAP payments are forecast to be about $150 million from 2012-
2023. ELAP payments are capped by the 2014 Farm Bill at $20 million 
annually.
    To expedite applications, information on the types of records 
necessary can be provided by local FSA county offices. Note that the 
final rule provides producers with greater flexibility as to their 
documentation. For example, for ELAP, if verifiable or reliable records 
are not available, FSA may now accept producers' certification of 
eligible losses if similar producers have comparable eligible losses, 
as determined by FSA. The final rule does not, however, change the 
requirement that participants receiving ELAP, LFP, and LIP payments 
must keep documentation supporting the request for payment for 3 years 
following the end of the year in which the application for payment was 
filed. That record-keeping requirement is consistent with other FSA 
rules and programs, as well as with previous similar disaster 
assistance programs. County offices can schedule appointment times for 
sign-up.

     Table 4.--Estimated Outlays for FSA Livestock Disaster Programs
                               (Millions)
------------------------------------------------------------------------
                                         Retroactive
      Program       Average FY  2008- Payments FY 2012-    Forecast FY
                           11            13 estimate         2012-23
------------------------------------------------------------------------
             ELAP            $11.3             $20.9              $154
              LIP            $42.9             $98.4              $728
              LFP           $443.0            $2,218            $5,061
                   -----------------------------------------------------
  Total...........          $497.2            $2,337           $5,943
------------------------------------------------------------------------
Source: Regulatory Impact Assessment associated with the Farm Service
  Agency Final Rule. http://www.regulations.gov/
  #!documentDetail;D=CCC_FRDOC_0001-0253.

Conclusions
    Following years of high feed costs and tight margins, the outlook 
for livestock and poultry appears to be improving but significant 
challenges in the beef and pork sector remain. Record high output 
prices and reduced prices for grains and oilseeds are tempered by 
lingering drought and the spread of PEDv. Production of red meat and 
turkey production is forecast lower for 2014. Although broiler 
production is forecast to increase, the gain will be insufficient to 
offset declined in the other meats. Livestock and poultry prices will 
be higher in 2014, reflecting tight overall meat supplies and improving 
demand. Eventually production of red meat, poultry and eggs is expected 
to increase when producers are able to take advantage of more favorable 
margins to expand herds and flocks, and increased production will then 
moderate retail prices for red meats, poultry and eggs. How soon steer 
and hog prices respond will depend on whether we see improvement in 
pasture and forage conditions in the Southern Plains and the west and 
the extent to which PEDv can be controlled through biosecurity 
practices. Despite global production records for most grains and 
oilseeds in 2013, global grain and oilseed stocks remain tight going 
into 2014/15 crop year. As such, feed costs and livestock margins will 
remain vulnerable to potential supply shocks throughout the year.
References
    MacDonald, J. and P. Korb (2011). Agricultural contracting update: 
Contracts in 2008.
                                 Charts
Figure 1
U.S. Red Meat and Poultry Production


        Source: USDA-NASS.
Figure 2
Feed Costs as Percent of Total Livestock Receipts


        Source: USDA-ERS.
Figure 3
Feed Price Ratios Improve in 2013


        Source: USDA-NASS.
Figure 4
Per Capita Meat Consumption
Carcass Equivalent


        Source: USDA-ERS.
Figure 5
Cattle Inventory as of January 1


        Source: USDA-NASS.
Figure 6
U.S. Cattle Areas Experiencing Drought


Figure 7
U.S. Cattle Areas Located in Drought


Figure 8
Cattle Slaughter


        Source: USDA-NASS.
Figure 9
Weekly Steer Price
5 Area Steer Price, All Grades, Live Weight


        Source: USDA-AMS.
Figure 10
PEDv Positive Biological Accessions
        * Virginia has reported positive environmental accessions but 
        have not reported positive biological accessions.
        
        
        Source: AASV.
Figure 11
U.S. Quarterly Pigs per Litter
December-February


        Source: USDA-NASS Hogs and Pigs Report, March 28, 2014.
Figure 12
U.S. Quarterly Sows Farrowed
December-February


        Source: USDA-NASS Hogs and Pigs Report, March 28, 2014.
Figure 13
Weekly Hog Price
National Base Lean, Live Equivalent


        Source: USDA-AMS.
Figure 14
U.S. Sheep and Lamb Inventory, January 1st


        Source: USDA-NASS.
Figure 15
Broiler Trade by Product Type Export Volumes


        Source: USDA-ERS Assessing the Growth of U.S. Broiler and 
        Poultry Meat Exports, November 2013.
Figure 16
Per Capita Egg Consumption


        Source: USDA-ERS.

    The Chairman. Thank you, Dr. Glauber.
    We will go ahead and begin our first round of questions. 
The chair would like to remind Members that they will be 
recognized for questioning in order of seniority for Members 
who were present at the start of the hearing. After that 
Members will be recognized in order of their arrival. I 
appreciate Members' understanding and cooperation.
    Thanks again, Dr. Glauber. Let me ask you this. I will 
start with the subject that the Ranking Member spent a lot of 
time on. It is in the 2014 Farm Bill, includes section 12104 
requiring USDA to conduct an economic analysis of the May 2013 
Country-of-Origin Labeling rule with respect to its impact on 
consumers, producers, and packers in the United States. This 
analysis is not due for a couple of months, but I was wondering 
if you could offer some insights, comments regarding your 
progress and preliminary findings.
    Dr. Glauber. Well, thanks very much. We are--you are right. 
We certainly were aware of the language. We began looking at 
preparing some of the materials and getting together some of 
the literature on this. There is actually fairly extensive 
literature on what the impacts of mandatory Country-of-Origin 
Labeling has on potential markets. Unfortunately, few of them 
are directed specifically at the rule, and I think that is the 
challenge for us is to kind of look at both the 2009 and 2013 
rule. But we have been looking at the economic literature. We 
have been also looking at the comments filed for both rules 
just to see how proponents and others are bringing other 
information to the table.
    It is clear that mandatory Country-of-Origin Labeling 
imposes costs on the industry. I think there is no question 
about that. Even our--the analyses that accompanied the 
rulemaking both in 2009 and 2013 talked about that. It is also 
clear that the mandatory COOL has adversely affected trade in 
live animals. If you look at Canadian--Canada slaughtered 
cattle is down about 25 percent from 2008. Canada feeder cattle 
are down about 44 percent. Canada feeder pig imports are down 
about 41 percent, and slaughtered hogs are down to almost \2/
3\.
    Now, not all of that is due to COOL. Canada, their hog and 
cattle industries have been under the same pressures ours have 
been in terms of high feed costs and things. But the issue that 
we will be trying to sort through here is what--what are the 
impacts of this, how these costs are impacting things, and we 
want to do a good job and we want to do an objective job on it, 
and so we will be spending some time on that over the next few 
months.
    The Chairman. Okay. If the WTO case goes against the United 
States this summer, many observers say that we are potentially 
looking at $2 billion in retaliatory tariffs, a large portion 
of which is aimed at our agriculture community. In your view, 
is this additional economic burden on our farmers and ranchers 
worth the value of MCOOL?
    Dr. Glauber. Well, I am not going to comment on the case 
just because of the fact that it is in the WTO, and I don't 
want to prejudice anything there. The timeline, as I understand 
it, is we will likely get a preliminary report in June and then 
an official report published later in the summer. At that point 
there could be a potential appeal by either parties, and then 
after that there will be an arbitration panel, and that will 
decide on the damages. If awarded damages, Canada and Mexico 
would have the right to impose duties on U.S. products.
    I think it was mentioned by Congressman Costa that we do a 
lot of business with both Canada and Mexico. We export about $2 
billion worth of pork and $2 billion worth of beef to both 
those countries, so that--obviously, if some duties were 
imposed against those products, that would--that would hit our 
hog and cattle industries as well.
    The Chairman. Thanks. Over the last couple of decades, we 
have seen an upward trend in the portion of livestock 
production that occurs under contract. What are the economic 
forces that drive that trend, and what does it mean for 
livestock producers?
    Dr. Glauber. Well, of course, most livestock and poultry 
farms are family owned and operated, but they are becoming more 
closely linked to input providers, processors through formal 
contracts, joint ownership of animals and vertical integration. 
Some studies that the Economic Research Service has done 
suggests that--and these actually are a little dated, so the 
numbers are probably a bit higher--that more than \1/2\ of all 
livestock production is now under some sort of formal and long-
term contractual relationships. Some of these contracts commit 
processors and farmers to specific volumes of production to be 
delivered at a specific point in time with pricing formula 
based on product quality, volumes, and market conditions. Other 
arrangements will pay farmers a fee for growing livestock 
provided by the contractor, and we have seen that certainly in 
the poultry model and in--with some hog production now.
    These marketing arrangements, and I think it was mentioned 
again by Congressman Costa, have been shown to have a lot of 
benefit, but we--GIPSA contracted a study back in 2007 that 
looked at alternative marketing arrangements that showed that 
those--a lot of those contracts provided billions of dollars 
to--and benefits in terms of--for both producers and then also 
consumers who were looking for production to be tied to 
specific consumer preferences.
    The Chairman. Thank you, Dr. Glauber.
    I now recognize Mr. Costa for 5 minutes, our Ranking 
Member.
    Mr. Costa. Thank you again, Mr. Chairman.
    Dr. Glauber, as the Chief Economist for the United States 
Department of Agriculture, we welcome your testimony, and 
clearly, by some of your initial answers to the questions by 
the Chairman, I think you are in part helping me make the case 
that I was making earlier as it relates to my concerns for 
mandatory labeling, MCOOL, as well as for the impacts of GIPSA.
    Let me ask you, with regards to MCOOL, has your office 
estimated a cost of implementation based either on the 2008 
Farm Bill or on now the 2014 Farm Bill? I know we just 
implemented it a couple of months ago, but are you dealing with 
that?
    Dr. Glauber. We are dealing with it. As the Chairman 
mentioned, we have a specific----
    Mr. Costa. Right.
    Dr. Glauber.--provision in the farm bill to look at that. 
We are looking at it. I don't have answers for you right now, 
but we are looking at that, certainly.
    Mr. Costa. Okay. Both for 2008 as well as for----
    Dr. Glauber. Well, I think it is hard to look at the 2013 
rule without considering the 2009 rule. The 2013 rule, as you 
know, deals specifically with the commingling issue.
    Mr. Costa. Right.
    Dr. Glauber. But the labeling issue itself--and there was 
some analysis done at the time.
    Mr. Costa. Would it be----
    Dr. Glauber. I am sorry.
    Mr. Costa. Would it be safe to say that the rules or the 
propagation of the rules have not been subject to an economic 
impact analysis?
    Dr. Glauber. Well, that is not entirely true. Both rules--I 
mean, they were significant rules, and as such, they were 
required to have a cost-benefit analysis associated with them.
    Mr. Costa. What does the Department believe, and I know it 
may be a bit out of your area, of the perceived consumer 
benefit as a result of mandatory----
    Dr. Glauber. Well, impact, I think the economic analysis 
that was done at the time of the 2009 rule and the 2013 pointed 
out that there is no direct evidence of consumer benefits, 
quantifiable benefits.
    Mr. Costa. Well, and that--I mean, if it is not benefiting 
the consumer, and if it is not benefiting the industry, my 
question is what are we doing?
    Assuming--let me move on here because that--I mean, I 
wouldn't go out on a limb to predict what the World Trade 
Organization may or may not do, but based upon previous 
decisions, it seems to me that it is likely that we may not 
have a favorable ruling under the current structure. What--at 
what point, if, in fact--and you talked about the timelines--
how will we respond if, in fact, trade retaliation takes place?
    Dr. Glauber. Well, a couple of things. One is the case 
certainly isn't settled, and certainly the USTR attorneys feel 
they have a good case that they put forward here.
    Mr. Costa. I have gone through amber box and the other with 
Brazil and other stuff where we thought we may have a good 
case.
    Dr. Glauber. Yes. I understand your point. Again, with the 
timetable, you are really talking about, again, if you go 
through an appeal process and, presuming a loss on the appeal 
process, into arbitration, you are really talking about 2015 or 
so.
    Mr. Costa. How about enough--different idea, plan B. Why 
don't we maybe at that point cut our losses?
    Dr. Glauber. Well, that is certainly--one always has--at 
any one of these junctures has the ability to make a decision 
whether or not to move forward.
    Mr. Costa. All right. Well, I think for those of us in the 
Subcommittee and those in the full Committee that think that 
this, in fact, may occur later this summer, it is appropriate 
that we revisit this and maybe apply a little common sense and 
look at an alternative if, in fact, we get an unfavorable 
ruling, it seems to me. I know that is at a--up on the higher 
end on the food chain level in terms of decision-making.
    But let me move onto RFS standard quickly before my time 
runs out. Feed costs are a critical concern of every element of 
the livestock industry. I made the comment that I think these 
impacts of RFS standard has been price distorting. Would you 
comment, please?
    Dr. Glauber. Well, I think there is no question that the 
ramp-up in ethanol production over the period 2005 to 2009 had 
a big impact on feed grain costs.
    Mr. Costa. When you go from 12\1/2\ percent of the 
production to ethanol to 40 percent, it seems to me it would 
have a significant impact.
    Dr. Glauber. Well, over that period, corn use for ethanol 
grew annually by about 750 million bushels. Now, not all the 
price impacts over that period can be tied to ethanol. There 
were a lot of things going on in the--in world markets, but 
understand, too, that about \1/3\ of that corn use for ethanol 
comes back in the form of feed, in the form of distilled or 
dried grains.
    However, I think it did take the industry a little bit of 
time to work that into feed rations, and also it worked better 
for some species rather than others. I think what you are 
seeing since about 2009 is ethanol production has been flat, 
and, again, due mainly to the so-called blend wall, that we 
have--the corn use for ethanol number has been flat at around 
roughly 5 billion bushels going into ethanol, and, again, \1/3\ 
of that coming back.
    I think as we have seen a rebuilding of stock, certainly we 
are seeing those corn prices come down and feed costs, but 
there is no question in my mind that certainly this has been 
a--was a big driver from--particularly over the period 2005 to 
2010.
    Mr. Costa. Thank you. My time has expired, and if there is 
a second round, I would like to get into the GIPSA question, 
but clearly we appreciate your testimony.
    And thank you, Mr. Chairman.
    The Chairman. I thank the Ranking Member.
    I now recognize the gentleman from Texas Mr. Conaway for 5 
minutes.
    Mr. Conaway. Thank you, Mr. Chairman.
    Dr. Glauber, thanks for being here.
    On the GIPSA rule and the effect it might have on the 
livestock alternative marketing arrangements, can you talk to 
us about what the effect of the GIPSA proposed rule would have 
on those arrangements and what economic impact that would then 
have on consumers as well as producers?
    Dr. Glauber. Well, frankly--sorry. The final rule that was 
published was a lot, lot different than the proposed rule that 
was published back in what, 2009 or 2010. The one in 2010 would 
have--there were a lot of concerns that that would have 
impacted AMAs, or these alternative marketing arrangements. The 
rule that was put out in what, I guess, 2012 or 2013, I am 
sorry I don't have the dates in front of me, was--stuck mainly 
to the provisions in the farm--the statutory provisions in 2008 
Farm Bill. With one exemption, that being the tournament 
system, I think there were some things that would have affected 
the tournament system for poultry producers, but because of 
appropriations language, et cetera, GIPSA is not implementing 
those provisions.
    Mr. Conaway. Well, that is--we understand, but what would 
be the economic impact if, in fact, the interpretation on these 
last round of GIPSA rules did, in fact, eliminate AMAs? What 
would be that----
    Dr. Glauber. Well, yes. I think that the proposed rules at 
the time, a lot of the concern that were expressed would be 
that the costs would be quite high; that is, mainly in the loss 
of AMAs. If there----
    Mr. Conaway. Cost to who?
    Dr. Glauber. If there is potential for--the one thing that 
a lot of processors and others pointed out is the potential 
impact of litigative risk, and because of that, that it would 
be a lot easier just to drop the marketing arrangements and go 
to more standard pricing.
    Mr. Conaway. Earlier you mentioned in your testimony there 
were billions of dollars involved. Would those billions of 
dollars be to the benefit of consumers as well as this system, 
would those have been lost in that regard?
    Dr. Glauber. To the----
    Mr. Conaway. Trying to not put words in your mouth. I was--
--
    Dr. Glauber. Again, and this is just doing the reverse of 
the studies that say that there--if indeed these market 
arrangements went away. There is no question, and I think that 
was certainly considered when they went--when the Department 
went through with the final rule.
    Mr. Conaway. Okay. The APHIS is considering beef imports 
from Brazil. I am getting a lot of concern and angst, anxiety 
expressed by an awful lot of beef producers and others. Can 
you--and again, they are going to go through all kinds of 
science and everything else, but can you talk to us about what 
you think the economic impact would have in an outbreak of 
foot-and-mouth disease, particularly if it migrated into the 
feral hog population in Texas, and how hard it would be to 
eradicate? And then what would be the overall economic impact 
in your view?
    Dr. Glauber. Yes.
    Mr. Conaway. If we got it wrong, and, in fact, it was 
transmitted.
    Dr. Glauber. I know there is a lot of concern in the 
industry with the proposed rules to allow imports of fresh 
frozen beef in from Brazil and Argentina. In regards to Brazil, 
APHIS conducted a risk analysis of the region and concluded 
that beef could be safely imported. In regards to Argentina, 
they conducted a risk assessment and concluded FMD was not 
present in Patagonia.
    Now, they allowed comment on these rules. They extended the 
comment period. I believe the comment period just closed within 
the last week or so, and so we have received a lot of comments 
from concerned parties. People will--APHIS will be certainly 
looking at these comments and will determine----
    Mr. Conaway. You are the Chief Economist. Can you give us 
some sort of a scientific wild guess as to what the economic 
impact would be----
    Dr. Glauber. Well, the economic impact----
    Mr. Conaway.--if we had an outbreak----
    Dr. Glauber. If you had an outbreak----
    Mr. Conaway.--if you got it wrong?
    Dr. Glauber.--of FMD would be pretty--pretty severe. I 
mean, we know----
    Mr. Conaway. It is pretty severe if you look at the 
scientific proof.
    Dr. Glauber. Oh, yes, you want me to round that?
    Mr. Conaway. If you would, put some zeroes on that one.
    Dr. Glauber. Well, I haven't--I don't have a ready answer 
for you, but I can tell you that what the UK went through.
    Mr. Conaway. Okay.
    Dr. Glauber. They went through a fairly large destruction 
of their herd, and that was pretty substantial.
    However, I think it is real important to recognize that we 
keep stressing to other countries to base import decisions and 
any sort of things based on sound scientific principles, and I 
think that when we have an outbreak of AI, or when we have a 
problem like the instance of BSE----
    Mr. Conaway. Right.
    Dr. Glauber.--we spend a lot of time going to countries 
explaining why they should be using scientific methods, and I 
think that is what APHIS is trying to do here.
    Now, I understand there is a lot--there is a lot of concern 
about this, and presumably we are going to see a lot of that 
concern, and people, whatever evidence they can bring to that, 
hopefully, this will all be considered when APHIS is doing 
these rules and taken into account.
    Mr. Conaway. Right. I agree with the sound science. It is 
hard to defend it to export American stuff and not defend it on 
the imports, but I appreciate that, all those zeroes in that 
pretty statement.
    Dr. Glauber. Yes, sorry.
    Mr. Conaway. I yield back. Thank you, sir.
    The Chairman. The gentleman yields back.
    I recognize the gentleman from Georgia, Mr. Scott, for 5 
minutes.
    Mr. Scott. Thank you, Mr. Chairman.
    I would like to go back and visit what I think is probably 
one of the top most crucial issues facing the future of 
agriculture, and that is our fuel and our energy. And I want to 
ask you what you think our future direction has to be, because 
we are getting mixed reports on ethanol versus fossil fuels, 
but the one thing we all know is that fossil fuels one day are 
going to run out. It is finite. And so we have the alternative 
here of ethanol.
    I want to ask you two questions here. How can we really 
answer and respond to the vast, growing needs of fuel demands 
for agriculture given corn, which is arguably our most 
versatile product for feed, now for energy and for feed at the 
dinner table? The price of this corn has gone up in the last 7 
or 8 years from about $2.50 a bushel to close to $4 a bushel. 
And then now we have the debate that in some sectors the corn--
ethanol corn produces even a greater threat to the environment 
than petroleum.
    Now, I want to get your opinion on this because it could be 
the petroleum industry wanting to set the stage for the way 
they want to go versus the corn industry. But seriously, Dr. 
Glauber, can you really tell us just how serious this situation 
is in this corn versus ethanol, because right now we in the 
United States, we import and we use--well, we use 18.8 million 
gallons of oil every day, and of that, we import 12 million 
gallons. So, this is the dilemma. What is the truth in this?
    Dr. Glauber. Well, Congressman, you allow me to--as every 
good economist, I have several arguments, and this--this allows 
me to expound on it a bit more. I think that one way or the 
other, I think what we have seen is ethanol is here. I mean, 
corn-based ethanol is a vibrant industry, and I would argue 
that you may focus on looking at the Renewable Fuel Standard. 
The fact is ethanol is priced competitively to gasoline, that 
blenders use it for octane reasons and other things. There are 
constraints, certainly, with--blending constraints, and whether 
or not that goes beyond that is anyone's guess over the next 
several years. But when you see that ethanol is priced 
competitively to gasoline not just here, but in foreign 
markets, it goes a little bit towards explaining why ethanol 
exports have actually been strong as well.
    And I think that ultimately you--what you did see under the 
Renewable Fuel Standard and this big growth is the capacity was 
built, and right now we have a capacity for production of 
around 14\1/2\, 15 billion gallons of ethanol annually, and 
producers--I think those producers are going to continue to 
produce ethanol from corn as long as profit margins are there, 
and profit margins have been there, and I think that one way or 
the other it is a part.
    Now, hope--I am sorry. Go ahead.
    Mr. Scott. What about the impact of land? I mean, it is the 
land that we have to increase to produce more corn. The price 
of land has jumped up now to about $9,000 an acre, putting a 
fantastic limit on trying to get beginning farmers in. I mean, 
the more corn that we grow, the more we rely on that; corn 
requires land, and the more land you use for corn, the less you 
use for others, and the price escalates.
    Dr. Glauber. Well, two things about that, and I get back to 
the fact that since about 2010 or so, we have been pretty flat 
in terms of additional corn use for ethanol. We have been at 
around 5 billion, so that has been fairly flat, and we are 
expect--with yield growth, that means less land actually will 
be going into----
    Mr. Scott. I have 1--just 1 second.
    Dr. Glauber. Sure.
    Mr. Scott. But I wanted to get your opinion on this latest 
news about corn--ethanol from corn having a greater negative 
impact on the environment and climate and all of that than 
petroleum, which, in my own opinion, I just can't see that. But 
I am sure you have heard of these competing reports coming out. 
What say you about that?
    Dr. Glauber. Well, there is--yes. There are a lot of 
studies that are out there, and I--it would depend on which one 
you are talking about. I think it is clear that at least of the 
analyses that have been done, it suggests that the so-called 
indirect land use that have--of bringing--by virtue of the fact 
that we are growing more corn here, that we are creating 
demands for other commodities like soybeans in other countries 
that are creating, for example, Brazil tearing down forests 
which emit greenhouse gas emissions or whatever, the studies 
have tended to show that those impacts are likely less than 
what people thought maybe 5 years ago.
    Now, granted, a lot--there is a lot of uncertainty in these 
estimates anyway, and in small changes in terms of what you 
think about yield growth, or what you think about yield growth 
in U.S., or what you think about yield growth in Brazil or some 
other part of the country--world can impact these analyses. And 
I know in this body we had a big hearing on this about 3 or 4 
years ago, and so I think that these studies show that the 
impacts--for the most part, the studies are concluding now that 
the impacts are less than otherwise thought, but there are 
other issues like water quality, other things that people bring 
up, and I would be happy to chat further on this with you.
    Mr. Scott. Thank you, sir.
    Thanks for the extra time, Mr. Chairman.
    The Chairman. Absolutely.
    The gentleman yields back.
    I recognize the gentleman from Iowa, Mr. King, for 5 
minutes.
    Mr. King. Thank you, Mr. Chairman, and I appreciate your 
testimony, Dr. Glauber.
    The subject that was brought up here by a couple of my 
colleagues generally from the other side of the aisle on the 
ethanol issue essentially directs my discussion as well. And I 
just punched the calculator here. I actually went on the 
Internet, and I thought what kind of corn increases have we 
seen in the memory of my lifetime? And when I heard the 
gentleman from California say that corn has--we were using 
12\1/2\ percent of our crop at one time for ethanol, now it is 
40 percent, that number, I guess, actually 38 percent of our 
crop, but I heard you say that \1/3\ of that is coming back. 
Could you explain that to the panel, please?
    Dr. Glauber. Well, in the ethanol production process, you 
convert a bushel of corn, you get ethanol out of it at around 
2.7, 2.8 or so gallons, but what--excuse me. With that comes--
about \1/3\ of that volume comes back in the form of a 
byproduct, and it is something called distilled or dried 
grains, which----
    Mr. King. Let me define that----
    Dr. Glauber. Yes.
    Mr. King.--just a little more precisely.
    Dr. Glauber. Sure.
    Mr. King. And that is this: A bushel of corn breaks down at 
about three different parts, starch and protein and 
CO2. And CO2 is a byproduct of ethanol 
production, but it is also a byproduct of feed consumption. So 
I would submit that it is more accurate to say about \1/2\ of 
it comes back, because \1/3\ of the product goes off into the 
air and CO2 whether you feed it or whether you 
convert it into ethanol. And I wanted to--I wanted to submit 
that into the record for discussion and actually ask your 
response to that.
    Dr. Glauber. I would have to look at the--typically, just 
on a matter basis, been focusing--we focus--tend to focus on 
about \1/3\ in terms of the volume of that comes back.
    Mr. King. I would ask you, if you could, come back to me 
and perhaps the panel with a response to that.
    Dr. Glauber. Sure.
    [The information referred to is located on p. 106.]
    Mr. King. Because I think it makes a difference. And we 
have quadrupled the corn production, in my memory, in my 
lifetime, and we are watching as yields have gone from 80 to 
100 bushel starting back in that time in my memory up now to 
where there is a strong prediction of 300 bushel, and I have 
neighbors that are disappointed if they don't do 200 anyway. I 
think that is a--the market distortion of this that was 
addressed by the gentleman from California, do you agree with 
that statement that corn going into ethanol is market 
distorting?
    Dr. Glauber. Well, I think corn going--certainly the ramp-
up that we saw from 2005 to 2010 had a big impact on the 
increase in corn prices and soybean prices. Now, not all. We 
saw a big impact--we saw a lot of growth in world demand, we 
saw high energy prices, a whole range of factors, but you 
can't--people ask me about that, and if we were--if I were to 
tell you that corn exports increased from 1 billion bushels to 
5 billion bushels and then say there was no impact on corn 
prices, you would look at me like I was crazy, and you have a 
similar thing going on with ethanol, but it is not the only 
thing going on with corn prices.
    Mr. King. I agree. And don't I recall the petroleum prices 
shot up a lot more than grain prices did during that period of 
time?
    Dr. Glauber. Petroleum prices hit record levels over that--
particularly the run-up to 2008.
    Mr. King. Corn prices did, but also petroleum prices shot 
up to record levels. And if we are going to accept the premise 
of the gentleman from California that it was market distorting 
on grain prices because of ethanol consumption from corn, 
wouldn't we apply also the same formula that it was market 
distorting to gas prices, and that they would have gone up a 
lot more had we not had those billions of gallons of ethanol 
into the marketplace?
    Dr. Glauber. Well, and just to build on a point I made 
earlier; that is, ethanol has been priced very competitively to 
gasoline. The fact is for the long-term--what happens in the 
ethanol market will largely be determined by energy prices, and 
if oil prices continue to go up, then there is going to be 
demand for alternative fuels like ethanol.
    Mr. King. And it is true that a little over a year ago when 
I did a look at this, 24 percent of the domestically produced 
liquid fuel that is burning in gas-burning vehicles was corn-
based ethanol. And can we--can you speculate as to whether we 
took--if we took 24 percent of a supply of any of the 
commodities, whether it be the gentleman's rice, or whether it 
be the corn or the beans, if we took 24 percent out of that 
marketplace, what would happen to the market prices?
    Dr. Glauber. Well, you would see an increase.
    Mr. King. Dramatically.
    Dr. Glauber. Yes.
    Mr. King. It would be dramatically.
    And so I just quickly ask this question as I watch this 
clock tick down. As I understood in your comments on COOL, I 
would just make the comment that if the Administration would 
strongly come out and support voluntary COOL or repeal of 
mandatory COOL, we could get this done in the House and the 
Senate, and would bypass a lot of this discussion, and would 
save billions of dollars, and it would be a lot better deal to 
do with our trade partners.
    But I wanted to ask you the economic question, and that is, 
on the egg issue, if California is successful in doubling the 
size of cage sizes and infrastructure for the egg producers in 
this country by regulating all of America from California by 
state statute, what happens to that requirement for 
infrastructure investment on the part of all egg producers in 
America?
    Dr. Glauber. Well, certainly the concern--I know at the 
time the state regulations were being debated and going into 
force, there was a lot of concern among the California egg 
producers about what those costs would mean for them and the 
additional costs on egg production. And so I frankly haven't 
looked at the individual studies as closely, I would be happy 
to get back with you on that, but any time you put in specific 
standards like that, there are costs.
    Now, weighing that against what the benefits are for 
consumer is the other side of that, and, again, I don't have 
any good numbers for you.
    Mr. King. I would appreciate it if you would get back to me 
on that, and I would just point out that doubling the 
infrastructure size doubles the cost, and that is the report I 
get back from them.
    [The information referred to is located on p. 106.]
    Thank you, Mr. Chairman. I yield back.
    The Chairman. The gentleman yields.
    I recognize the Member from Oregon, Mr. Schrader, DVM, for 
5 minutes.
    Mr. Schrader. I will actually pass, Mr. Chairman, since I 
was unable to hear the testimony, and defer to my colleague 
from Connecticut.
    The Chairman. Outstanding.
    I will recognize Mr. Courtney from Connecticut for 5 
minutes.
    Mr. Courtney. Thank you, Mr. Chairman. Thank you, Mr. 
Schrader.
    I am going to give you a break, Dr. Glauber, from corn for 
a few minutes. And I wanted to talk to you a little bit about 
USDA which has done some research about consumer demand for 
local meat and poultry which has shown that it is a pretty hot 
item for consumers, and even in Connecticut, we are 
experiencing that and hearing all about it, and it is a pretty 
exciting development, particularly for farmers all across--
small farms all across the country.
    The biggest sort of challenge that I hear a lot about, and 
I am sure I am not alone, the challenge of trying to process 
livestock in places that aren't part of the big supply chain of 
large meat producers. And again, given the fact that USDA has 
sort of confirmed this trend in terms of consumers, I was 
wondering if you could talk about whether or not USDA has some 
ideas and prescriptions about trying to really take advantage 
of this really exciting opportunity.
    Dr. Glauber. Right, Congressman, and you are absolutely 
right. If you look at meat processing, it is a low-margin 
business, and the successful ones, you need a lot of 
throughput. But you weigh that against what has been going on 
generally across the country in terms of increased demand for 
local foods, those sorts of things, you clearly have a lot of 
people interested in that.
    Now, the problem with a local processor is that they have 
to deal with all the same issues everyone else does. They have 
to deal with the same regulations, food safety regulations. 
FSIS has--they have now a website, or a special place on their 
website oriented towards small and very small processors to go 
through all the regulations to make sure that everyone is aware 
of that. That alone is actually a fairly big cost just knowing 
what you have to do.
    They have some local food outreach efforts under way, and I 
would say that is true for producers as well. I mean, you look 
at getting certification for grass fed, with your small herd, 
under 50 head, those are--those are costly processes, and AMS 
has been putting forward a lot of effort to try to make those 
more accessible. They are on the verge of announcement of a 
Small and Very Small Producer Program that would certify for 
those sorts of things. So, how to address these niche markets 
and make it so that they can do a better job in a less costly 
way, particularly for kind of getting through the morass of 
regulations and all of that, to understand that better and to 
know kind of how to do it, at least FSIS, it seems like they 
are--they have a pretty strong outreach effort that--under way 
right now.
    Mr. Courtney. The Cooperative Interstate Shipment Program 
also seems to be a way of trying to aggregate resources so 
that----
    Dr. Glauber. Yes.
    Mr. Courtney. You know, in a place like New England, for 
example----
    Dr. Glauber. Right.
    Mr. Courtney.--that a collection of small livestock 
producers could have a proximate facility to go to. Again, it 
seems like that is a program that USDA can also help to 
promote.
    Dr. Glauber. No, absolutely. And you mentioned Economic 
Research Service just last year, last summer put out an 
excellent report on local foods and local processors of that. I 
will get you a copy. It is very good. They have a lot of case 
studies about how a lot of these businesses face all these 
additional costs, but then found ways through it and are 
seemingly thriving right now.
    Mr. Courtney. I yield back, Mr. Chairman.
    The Chairman. The gentleman yields back.
    I now recognize Mr. Yoho, DVM, for 5 minutes, the gentleman 
from Florida.
    Mr. Yoho. Thank you, Mr. Chairman.
    Dr. Glauber, I appreciate you being here and your 
testimony.
    Going back to the RFS, I hope for a complete repeal of 
that, but if not, in times of uncontrolled climate and growing 
conditions, what we saw, I think it was what, 2011, 2012----
    Dr. Glauber. Right.
    Mr. Yoho.--when the prices of corn shot up in our area, 
people were selling it for close to $9, $9.50 a bushel, which 
is unheard of in Florida, it was contracted, and we saw 
obviously the price of feed go way up. And in those kind of 
conditions, can we get the EPA--and I know it may be out of 
your jurisdiction, but would you recommend that they relax the 
mandate for X amount of gallons, 14 billion gallons it was at 
the time, to suspend that for a period of time until we can 
take care of the need of the food source for America?
    Dr. Glauber. Congressman, I remember the waiver request 
quite well, and EPA does consult with--is required by law to 
consult with USDA during those waiver requests. Part of the 
problem--problems--well, no. Part of the problem is the fact 
that these are short-term waiver requests, and in looking at a 
waiver like that, I don't think you would have seen a gallon 
less ethanol produced largely because the gasoline blenders, 
others were using ethanol to enhance octane in gasoline 
supplies, so they needed--they needed ethanol, and they were 
bidding up the price of ethanol. They were creating high 
margins. That is something that, again, don't forget, even 
outside the regulatory structuring, and some are--obviously 
regulatory structure influences a lot of behavior, but outside 
the regulatory structure, there are a lot of economics.
    Mr. Yoho. Right.
    Dr. Glauber. And the fact is--with trying to get a--with 
the RFS, these gasoline blenders, over time, have utilized 
ethanol as a cheaper source of octane, and so to get rid of 
ethanol overnight, they would need octane, and so I think 
that--that is one of the reasons EPA concluded at the end that 
the waiver would have very little impact.
    Mr. Yoho. Okay. You are saying also, too, that----
    Mr. Costa. Would the gentleman yield?
    Mr. Yoho. Yes.
    Mr. Costa. Just point of information. Congressman Goodlatte 
and I had the opportunity here a few weeks ago to meet with the 
Environmental Protection Agency Administrator, and when we 
talked about the RFS, she said that this is the most difficult 
rule she has ever had to try to implement. Just to put that in 
the context of your conversation.
    Mr. Yoho. Okay.
    Mr. Costa. The most difficult rule she has ever tried to 
implement.
    Mr. Yoho. Well, that brings me up, you were saying that the 
price of ethanol is competitive. Would it be competitive if it 
wasn't for the 45 per gallon tax credit?
    Dr. Glauber. That is gone.
    Mr. Yoho. That is gone?
    Dr. Glauber. Yes, that has been gone a few years now.
    Mr. Yoho. My mistake then.
    Let me switch over to the foot-and-mouth disease, the 
economic impact. You don't have a figure for that other than it 
has a lot of zeroes behind it?
    Dr. Glauber. Well, I don't have a--no, I don't have a 
number on that. I mean, it is a legitimate issue, and then 
certainly again you can look at countries likes Taiwan or 
look----
    Mr. Yoho. I did, and I looked at the economic impact on 
those countries. It ran into billions of dollars. And we looked 
at a study that had just five of the larger feedlots in 
America, but if it came here, it would be in the billions of 
dollars. And if you look back at BSE when we had the threat of 
the outbreak from the cow from Canada that went to Washington, 
that cost billions of dollars for a nondisease. But just the 
perception of American livestock or the quality of our beef, 
and I would urge, if you have any control, to work with us to 
make sure this beef doesn't come in until they have the 
safeguards in place that we know 100 percent, as much as we 
can, that it will not infect our livestock in this country. I 
mean, the livestock industry, especially the beef industry, is 
such a vital component of our economic sector.
    And then I wanted to ask you real quickly on the porcine, 
the PEDv, are those hogs covered under the Liability Livestock 
Indemnity Program?
    Dr. Glauber. They are not, and largely the Act is pretty 
specific about tying it to adverse weather, unfortunately.
    Mr. Yoho. Okay.
    Dr. Glauber. And for that reason we haven't considered 
indemnification under the Act.
    Mr. Yoho. All right. I yield back, Mr. Chairman. Thank you.
    The Chairman. The gentleman yields back, and I recognize 
the gentleman--do you want to go ahead and--okay. The 
gentlelady from New Mexico for 5 minutes, Ms. Lujan Grisham.
    Ms. Lujan Grisham. Thank you, Mr. Chairman, and I want to 
thank Dr. Glauber for being here today. And I am going to do--
take a shift from corn, but continue to talk about how 
difficult it is to both project out the economics of the 
industries that we are talking about today in light of things 
that we cannot control.
    So, in New Mexico, we are, as I am sure most people are 
aware, like most of the Southwest, in a significant drought. In 
fact, while the drought has been occurring for decades, we are 
in the 4th consecutive year of the most severe drought we have 
ever experienced, and I don't think that the scientific 
predictions about where we are headed is positive, so that 
extreme drought--not just drought, extreme drought conditions 
are the new norm.
    Now, given that the livestock industry is a critical part 
of our state's economic aspect, and given that we have seen in 
the--in decades an increase in that--more than a 50 percent 
decrease, decline, in the livestock industry, specifically 
cattle, I am really interested in what USDA and what your sort 
of economic predictions--what can states in this situation 
begin to do that both recognizes that USDA--although if you 
can, I am all in--and, Mr. Chairman, I will launch a bill 
immediately; if you can stop the drought, that would be great. 
I am completely in. Or if maybe this rain from D.C. can be 
moved over, I am in. But short of that, what strategies, both 
conservation investments and looking at cost issues, supportive 
investments in controlling the cost of feed, what else can we 
be doing that enhances our opportunity to continue to grow 
cattle in New Mexico? And, in fact, we have lost families who 
were growing cattle for generations, who not only can't afford 
to do it, but have left the state, and bringing them back into 
this industry I don't see as an opportunity for us.
    Dr. Glauber. Yes, I think this is a huge challenge. You 
look at since 2011. I mean, with the national herd, it is down 
more than five million head. If you go to states like New 
Mexico, Texas, Oklahoma, Kansas, I mean, you are talking almost 
\2/3\ of the losses are in those states alone, I mean, and it 
has--I mean, you--I can remember about--well, I can tell you it 
was 2010, a friend of mine from out near Lubbock, I was talking 
to him. He says, it looks like Ireland out here.
    Now, I don't know if he had ever been to Ireland, but the 
fact was that was the last time it was actually they had good 
rainfall, and they just haven't. You look at these--some of the 
countries there. We have 45 percent of the cattle herd right 
now is in areas that are in drought, and while that is down 
significantly from where they were in 2012, it is still quite 
high.
    And what happens is, of course, as you contract, you have 
problems with the processing industry, et cetera. I mean, we 
lost Plainview, the plant in Plainview. We lost--we are likely 
to lose, or we are scheduling now, the Brawley plant is going 
to go offline, and that means that you have to ship--if you are 
a cow/calf guy or whatever, and you need to ship cattle out of 
the state.
    And there was an article in the press just about southern 
California cattle producers in Imperial and elsewhere, having 
to move things out to the Panhandle to get processed. That is 
the longer-term issue that I think you have, and that is, how 
do you turn that around? Part of the problem with a cow/calf 
guy is what you need for expansion is you need someone to say, 
okay, well, I am going to retain these animals and----
    Ms. Lujan Grisham. And the impact--and I don't mean to 
interrupt you----
    Dr. Glauber. No, no.
    Ms. Lujan Grisham. The reality is that, then we continue to 
see an escalation in beef prices, we have talked about consumer 
demand, so we have a problem in managing an industry that we 
want and need, any strategies more than--and I appreciate 
identifying the problems, and again, if I had the magic 
bullet--but are there things that we could start doing as a 
region that can enhance our opportunity given this climate to 
rebuild some of these herds and to manage some of the beef 
prices in a way that provides recoverable profit, recoverable 
building in herds, for livestock producers and also manages 
this economic issue for consumers?
    Dr. Glauber. Yes, well, one is, I am happy to give that a 
little thought and get back to you on that. I mean, obviously, 
the easy answer is let it rain, but to get pastures back and 
then even then to get people willing to expand----
    Ms. Lujan Grisham. Correct.
    Dr. Glauber.--that is going to take time. And when we are 
looking at a national herd, a national herd not really 
expanding until looking at 2016, 2017, you can imagine in areas 
that have been hard, hard hit by drought that that is even 
tougher.
    Ms. Lujan Grisham. Well, and Mr. Chairman, I know that my 
time is up, but I would really appreciate if you would think 
about that, respond to me and the Committee, because given the 
nature of this issue in that we don't control the weather and 
drought is probably the new norm, much like some of the 
commodities investments to manage that effort more productively 
and economically, there may be some strategies that the 
Committee ought to consider certainly.
    The Chairman. I thank the gentlelady.
    Ms. Lujan Grisham. Thank you.
    The Chairman. I now recognize the gentleman from Wisconsin, 
Mr. Ribble, for 5 minutes.
    Mr. Ribble. Thank you, Mr. Chairman.
    Good morning, Dr. Glauber. I know you have been here a long 
time, but I appreciate the thoughtfulness of the conversation 
today. I am from Wisconsin, and Wisconsin, our number one 
export market for agriculture and agri-food is Canada. So my 
question is going to kind of go right full circle from where we 
started today and see if I can maybe try to get some clarity 
for Wisconsin's agribusiness who are very concerned about the 
labeling regulations.
    This is a significant concern for me, as their 
representative and for my constituents given that Canada is 
Wisconsin's largest export market. Is your economic analysis 
going to consider a state-by-state impact of the COOL 
regulations, and by the way, for Wisconsin's $1.2 billion?
    Dr. Glauber. Congressman, certainly we can look at state-
by-state impacts. I mean, what is hard is to get the individual 
movements out of those states. But in looking at aggregate 
effects, one can then back off certainly proportionate impacts. 
I understand, having lived in Wisconsin, I understand the 
proximity----
    Mr. Ribble. It is a big deal.
    Dr. Glauber.--and other things. The importance of Canada as 
a market.
    Mr. Ribble. Yes, it is really important. And any type of 
retaliatory move by the Canadians would be devastating to 
Wisconsin's agribusiness. It is hard to make up $1.2 billion of 
export volume. I think it would be helpful.
    And, Mr. Chairman, if it would be okay with you, I would 
like to submit the data into the record.
    The Chairman. Without objection, so ordered.
    [The information referred to is located on p. 105.]
    Mr. Ribble. And I don't think it is just Wisconsin, but 
obviously, because I am from Wisconsin, I am so much aware of 
what has been going on there and the amount of effort to try to 
get some type of parity with the Canadian Government, and the 
work that has been done by Wisconsin farmers to really enhance 
their products to the Canadian consumer.
    And so, to the degree that you could drill into the data 
further and provide it for us, and I realize it is difficult 
for you to comment on some of this because of what is going on 
at WTO, because we do have an obligation in many respects to 
follow our trade rules and so, but I really do appreciate you 
being here and doing that.
    So, and with that, Mr. Chairman, I will yield back.
    The Chairman. Gentleman yields back.
    I now recognize Mr. Schrader, the gentleman from Oregon for 
5 minutes.
    Mr. Schrader. Thanks, Mr. Chairman, I appreciate it.
    Following up on my colleague from Wisconsin's remarks, COOL 
has had a huge impact already in the Pacific Northwest that I 
come from, and I was talking to a firm the other day, and they 
have already seen $2 million hit to their operational line and 
$2 million hit to their marginal line, and it is kind of 
devastating if you are from one of the border states or border 
regions of this country.
    I would hope that there would be some flexibility within 
the Administration to look at some simple changes that might 
enhance North American beef operations that are just 
intermingled by the very nature of the global market that we 
see right now. We are not talking about Australia, New Zealand, 
China or Japan; we are talking about Mexico and Canada, our 
historically long-term trading partners. So anything you could 
do in that regard, Mr. Glauber, shed a light on some of those 
problems would be helpful.
    Dr. Glauber. Sure. Well, and as you mentioned, particularly 
those countries that are bordering, or those states that are 
bordering, Mexico and are close to Mexico and Canada, that is 
where a lot of that sourced live animal trade has been going, 
and we know that processors are having to make adjustments 
there and just the sheer decline in volume has to be made up 
somewhere or you are looking at reduced processing, and at a 
time when overall processing numbers have been going down just 
because of the decline in the herd, et cetera.
    In all fairness, at least the position has been because of 
the first WTO ruling that the decision to put forward the 2013 
rule, it was felt that that is what was needed to come into 
compliance with the WTO ruling. Now, that is what obviously is 
being decided in a compliance panel and will be ruled upon in 
June or later this summer.
    Mr. Schrader. Well, and the retaliation would be 
devastating. We know from the Mexican trucking issue, much 
likely what is going to happen both in Mexico and probably 
similar things in Canada.
    Switching gears a little bit to the trade issues, that is 
real important, hopefully great opportunity for American 
agriculture, but I am concerned about some of the opportunities 
that do not seem to be forthcoming so far. I wondered if you 
could shed a light or had any insight or using USDA's influence 
to deal with Canada on the dairy issues for instance, Japan on 
the beef issues and making sure Australia and New Zealand don't 
devastate the sheep industry and lamb industry here in our 
country.
    Dr. Glauber. Well, I have to tell you, if we were having 
this hearing 25 years ago, the only thing we could be talking 
about is imports or disposal of surplus production. I mean, it 
is amazing the turnaround, and you look at how important pork 
exports are to the hog producers, how important beef exports 
are, how important dairy exports are. I mean, dairy. We are 
looking at record--I know it is not a hearing about dairy, but 
record dairy exports.
    So you look at countries like Canada that we view as 
potentially very attractive markets for U.S. product, and dairy 
is one of the few commodities that are outside of the CUSTA 
(Canada-U.S. Free Trade Agreement), and particularly for TPP, 
you look at Japan, and then, looking beyond that, the idea is, 
hopefully you would see other countries come in and you would 
look at countries like China and others that have been growing 
markets for products like dairy products. I think this is very 
important for the overall health, long-term health.
    Mr. Schrader. My question basically is, is USDA weighing in 
heavily so that, we don't want a lot of people in a TPP that 
aren't willing to play on a level field. Japan historically has 
been very, very restrictive and very closed to American 
agriculture. I am worried about flip side of that whole 
discussion in New Zealand and Australia and the lamb industry.
    Dr. Glauber. I think the key to TPP is have an ambitious 
round. I think there is no question about that. You want to get 
the most access you can, and that is where the pressure has 
been. And the fact that we haven't been able to quite reach a 
deal with Japan is we are pushing for a much measure aggressive 
outcome.
    Mr. Schrader. I guess, it wouldn't be right to not comment 
on the RFS like everyone else has at the end of the day. Your 
testimony states pretty clearly that the increase in feed 
prices can be associated, obviously, with the RFS standard. 
Would you say that is an accurate statement?
    Dr. Glauber. Well, as I have said----
    Mr. Schrader. At least a significant point----
    Dr. Glauber. You know, what I say is, I think that 
increased----
    Mr. Schrader. Deep down.
    Dr. Glauber.--increased feed prices has certainly been in 
part due to the increased ethanol production. Now, how much of 
that is due to RFS? How much of that is due to high energy 
prices is a matter for discussion, because certainly over that 
period energy prices have propelled a lot of this.
    Mr. Schrader. I think, with all due respect, I have to 
finish up here, that the next panel will tell every single 
livestock out there is going to suggest the that there is some 
slight significant----
    Dr. Glauber. Yes. I have read their testimonies.
    Mr. Schrader.--and very direct correlation between the 
increase in feed and the RFS standard.
    And with that, I yield back, Mr. Chairman.
    The Chairman. Thank you, Mr. Schrader.
    I now recognize the gentleman from Texas for 5 minutes, Mr. 
Neugebauer.
    Mr. Neugebauer. Thank you, Mr. Chairman.
    Dr. Glauber, thank you for being here today. I want to go 
back and make sure, the question was asked to you a while ago 
and I want to make sure, just for the record that I understood. 
When you were asked if there was any benefit, if COOL had any 
benefit to the consumer, I believe your answer was no; is that 
correct?
    Dr. Glauber. Yes. Let me clarify that a little bit, because 
I think----
    Mr. Neugebauer. Well----
    Dr. Glauber. No, no, no. Please, let me, if you don't mind 
me I will just take a second.
    Mr. Neugebauer. Be short.
    Dr. Glauber. And all I was going to say is that a lot of 
consumers will say in surveys where they ask about that, they 
will say, yes, they would like to have information, they would 
like to have more information about product including origin. 
The difficulty in what USDA concluded in looking at a lot of 
the studies is the willingness to pay. Are you willing to pay 
for that? And there the answer is no, they are very negligible.
    Mr. Neugebauer. So the answer is no benefit to the 
consumer. So then, the other part of it, the ethanol you said 
was a vibrant industry. Is that right?
    Dr. Glauber. I am sorry, vibrant?
    Mr. Neugebauer. Yes.
    Dr. Glauber. Yes.
    Mr. Neugebauer. You said that. But you know, in my 
district, and I don't know what it is about in my district, but 
every ethanol plant in my district----
    Dr. Glauber. Is shut.
    Mr. Neugebauer.--has gone bankrupt.
    Dr. Glauber. Yes. Well, you have to have access to cheap 
feedstocks, and I think you have seen fluctuations in that 
market.
    Mr. Neugebauer. Yes. So I want to go back to the COOL 
issue. You know, you don't see the benefit. We have our trading 
partners, our largest trading partners now threatening to 
impose tariffs on our country. I think one of the things the 
livestock producers in my area are going through was, you 
mentioned a while ago when you were talking about Lubbock, 
Texas; I am from Lubbock, Texas. And, I remember going through 
a horrible drought. The herds are way down, and the feedlot 
numbers are shrinking and it is going to take a long time to be 
able to build these numbers back up when it rains again.
    I think that the producers in my area are feeling very 
vulnerable in the sense that they have this COOL issue cloud 
hanging over them; they have the drought; and now they are 
concerned about this Brazilian beef and the potential to bring 
hoof-and-mouth disease to this country.
    The question I have is, when you did the analysis for 
Brazil, now, I understand you used the qualitative method, but 
when the analysis was done, for example, in 2002 for Uruguay, 
they used the quantitative analysis. Some people speculate that 
the qualitative analysis is fairly subjective and that the 
quantitative analysis is a more thorough. As an important issue 
as this is, why would we have used a different analysis than we 
have used previously?
    Dr. Glauber. Congressman, you raise a good question. I 
can't answer it. The FSIS did that analysis. I would be happy 
to get back to you with a more complete answer on that.
    [The information referred to is located on p. 107.]
    Mr. Neugebauer. Well, I just think that we are at a very 
sensitive time here with particularly that industry and that 
these decisions should not be made lightly, and because I think 
that in many cases a lot of our cow/calf operations are 
struggling to stay viable.
    And obviously that, as you mentioned, moves up the food 
chain, so to speak, has impact on the processors and the 
feedlots; and that the economic consequences of these sanctions 
or if we were to have an outbreak in this country, that would 
be astronomical and very detrimental to the industry and, quite 
honestly, to my district.
    Dr. Glauber. Well, first, sorry, I misspoke. I said FSIS, 
of course, I meant APHIS. But, again, APHIS feels strong about 
the fact that they have done a good, scientific job that will 
hold up to scrutiny. Now, again, I think that we have seen a 
lot of comments. They will be looking at that, and again, I get 
back to the fact that we are concerned about bringing in a 
disease that could potentially be devastating. We also want to 
make sure that we are not just using a precautionary principal 
to keep things out because we want to be held by the same 
standard elsewhere and, again, I don't say that to minimize one 
or the other, but to get back to the fact that this has to be 
based on sound science.
    Mr. Neugebauer. Well, I do agree and I am pro-trade, but 
the stakes are very high that if we don't get this right that 
there would be consequences here. And I just----
    Dr. Glauber. Yes, I would agree with that.
    Mr. Neugebauer. If we are using different methods, I think 
an explanation of why we use different methods is probably in 
order.
    The Chairman. The gentleman from Texas yields back.
    I now recognize the gentleman from Pennsylvania, Mr. 
Thompson, for 5 minutes.
    Mr. Thompson. Mr. Chairman, thank you. Thank you for 
hosting this hearing.
    Dr. Glauber, thanks for attending and sharing your 
information. I would just go with one question because I have 
to get down the hallway to Resources for a vote, and it is 
going to be the opposite of drought; it is where we do have 
water. You know, with the release of the new waters of the U.S. 
rule, there clearly is enormous amount of confusion on how the 
rule might impact agriculture and private land ownership. Is 
the USDA considering any analysis of this new rule in how it 
might impact the agriculture community?
    Dr. Glauber. We are looking at the rule. We are consulting 
with EPA, and so we will be looking at it in more detail, yes.
    Mr. Thompson. Okay. Any early indications? The EPA seems to 
be talking about, at least the early releases, although I have 
not found the substance to back it up, that this was not going 
to change any agriculture practices, it should improve things, 
but there doesn't seem to be any substance to that at least so 
far that has really any evidence to really substantiate so far.
    Dr. Glauber. Well, and certainly, USDA has been working 
with EPA on that to try to clarify those rules. To try to, I 
mean, that is what certainly our officials have been saying, as 
well, and I think that the more clarity that can be laid out 
there, the better for producers, so there is some certainty, so 
they aren't operating under some cloud.
    Mr. Thompson. Okay. Thank you, Dr. Glauber.
    Mr. Chairman, I yield back.
    The Chairman. The gentleman yields back.
    And we are almost complete. Dr. Glauber, I have just two 
quick follow-up questions. One of them is on behalf of the 
Ranking Member and he asked me to ask this question in his 
absence, since he is over, like many of the Members doing in 
dual duty today, he is in Financial Services right now.
    But his question was, what exactly do you propose that 
would allow GIPSA to promote fair business practices and 
protect competitive markets but not cause undue harm to the 
industry?
    Dr. Glauber. Well, I think that GIPSA has put forward what 
was in the final rule. They, again, in the main, stuck to most 
of the provisions that were called out for and put in place 
that were explicitly mentioned in the 2008 Farm Bill in terms 
of statute.
    It is a delicate balance, because what you want to do is 
you want to ensure that there is fairness in the marketplace. 
Certainly the Packers and Stockyards Act charges GIPSA for 
overseeing that. So you want to do it in a way that ensures 
that everyone is treated in a way that isn't discriminatory. 
But at the same time what you want to do, obviously, is do it 
in a way that you aren't causing, prohibiting new practices to 
emerge or whatever.
    And I think that that is the balance that--that when the 
Secretary looked at moving forward from the proposed rule to 
the final rule he said a lot of these things look like, just 
given the comments that we were receiving and other things and 
analyses that we had done internally at that point, suggested 
that the costs were greater than he had first believed or had 
understood. And that was one of the reasons why we went forward 
in the final rule with a much shorter list of provisions.
    The Chairman. Thank you.
    And final question: Proponents of mandatory Country-of-
Origin Labeling will say that consumers actually want to know 
where their food comes from, but they will argue that in fact 
consumers are willing to pay a premium for that. If in fact 
that is the case, from your economic perspective, you are an 
economist, and I will ask the same question to the producer 
groups, as well, but from your perspective, if in fact that was 
a natural-occurring market dynamic, wouldn't that have been in 
the interest of those producers years ago, recognizing that 
there was a premium that consumers were willing to pay and they 
would have voluntarily implemented that and we would have had 
this going on forward from then?
    Dr. Glauber. The short answer is yes. The voluntary 
Country-of-Origin Labeling you presume would happen if you 
thought there was a premium to be gained there, and if you were 
to go into a Whole Foods you see an example of what people are 
putting on labels that are obviously appealing to consumer 
interests. Yes, I think that, that is certainly the argument.
    The analyses that have been done, and there was a fairly 
rigorous analysis done and published this last year that looked 
at this issue, I believe out of Kansas State, that looked at 
the willingness to pay for--that consumers were willing to pay 
for mandatory Country-of-Origin Labeling and the numbers were, 
again, negligible.
    The Chairman. Thank you, Dr. Glauber.
    And this concludes our first panel. I appreciate you being 
here. I appreciate your time, your patience and your 
cooperation, Dr. Glauber. Thank you very much.
    The clerk will now prepare the table as I introduce the 
witnesses for the next panel.
    We have a number of groups being represented, seven in 
total. This will be a big panel. And I will start with a list 
of those witnesses and who they represent before we recognize 
them to speak. Mr. Roger Johnson, President of National Farmers 
Union.
    Mr. Shane Miller, Vice President, Pork Margin Management, 
Tyson Fresh Meats of Dakota Dunes, South Dakota. Let me say to 
Mr. Miller before we go any further, as you know, most people 
know that in our neck of the woods we had some severe weather 
earlier this week devastating, some 15 fatalities, loss of 
property and more importantly loss of life, but displaced 
families, 3,000 homes at the very least that were destroyed.
    But I just want to thank Tyson for stepping up and being 
the good neighbors that they have been in the relief efforts, 
providing product to families who literally have no idea where 
their next meal is going to come from as a result of that. So 
thank you to Tyson for your good neighbor attitude and good 
stewardship.
    Dr. Howard Hill, President National Pork Producers Council, 
Cambridge, Iowa.
    Mr. Michael T. Smith, Special Projects Manager, Harris 
Ranch, Selma, California, on behalf of National Cattlemen's 
Beef Association.
    Our next witness, I apologize if I butcher your name, Mr. 
William P. Roenigk.
    Mr. Roenigk. Correct.
    The Chairman. Excellent.
    Senior Vice President and Economist, National Chicken 
Council, Washington, D.C.
    Mr. Clint Krebs, President, American Sheep Industry 
Association, Ione, Oregon. I hope I didn't mess up your 
hometown, my apologies if I did.
    And Mr. Matthew T. Cook, President and CEO, Norbest, Inc., 
Washington, D.C., on behalf of the National Turkey Federation.
    And, if our panelists are seated and ready to go, we will 
begin. I will start with Mr. Johnson, President of National 
Farmers Union. And I just remind you that because we have such 
a big panel, we will ask you to really watch that clock so that 
we can give an opportunity for everyone to make their comments 
in a timely fashion. Any extraneous comments, obviously, are 
part of your written testimony.
    So with that, Mr. Johnson, you are recognized to begin your 
testimony.

STATEMENT OF ROGER JOHNSON, PRESIDENT, NATIONAL FARMERS UNION, 
                        WASHINGTON, D.C.

    Mr. Johnson. Thank you, Chairman Crawford, and Members of 
the House Agriculture Subcommittee on Livestock, Rural 
Development, and Credit.
    My name is Roger Johnson, the President of National Farmers 
Union. Thanks for the opportunity to testify at this hearing. 
National Farmers Union is a grassroots organization of about 
200,000 family farm members. It is organized in 33 states. Our 
policy positions are developed by our members.
    As a general farm organization, we represent producers who 
raise livestock of all kinds. Even though there are significant 
differences among them, there are common challenges. Decreasing 
market competition poses a threat to livestock producers. 
Consumers are demanding significantly more and more accurate 
information about the food that they purchase and consume.
    Arguments that pit the biofuels industry against the 
livestock growers are counterproductive and possible trade 
policy changes that will be talked about here are likely to be 
harmful. Congress and this Subcommittee must carefully consider 
all of these issues and others.
    Rural America has lost 1.1 million livestock farms in the 
last 30 years. You can see this in Figure 2 of my testimony. 
Since 1980, we have lost 34 percent of beef operations, 91 
percent of hog farms. There are also fewer meat packers and 
processors. Economists say an industry is not competitive when 
the four largest firms control 40 percent or greater of a 
market. Very little competition remains if that figure exceeds 
60 percent. Today the top four beef packers control 81 percent 
of the cattle slaughter in the U.S., and the top four swine 
producers control 65 percent of hog sales.
    Fewer buyers result in less competition, greater 
opportunity for antitrust violations and a difficult market for 
the remaining farmers and ranchers. USDA has the authority to 
prohibit deceptive or fraudulent buying methods by processors 
and may protect farmers and ranchers if they have been harmed 
by unfair trade practices.
    Appropriations riders over the last 3 years have kept the 
department from implementing these basic fairness rules. Future 
riders that impede enforcement of the Packers and Stockyards 
Act must be opposed. I commend Congress for maintaining the 
current Country-of-Origin Labeling standards in the 2014 Farm 
Bill. Consumers want to know more about the food they purchase. 
Farmers and ranchers are proud of what they produce. Studies 
have shown 95 percent of consumers want COOL. We should support 
efforts to provide consumers with accurate information that 
will help them make informed buying decisions and remain 
confident in the integrity of our food supply.
    USDA completed over 2,000 COOL retail reviews last year, 
and at least 3,300 are planned for this year. Overall retail 
compliance is about 96 percent. COOL is implemented and is 
working as intended. Proceedings at the WTO and in U.S. 
District Court have not found the COOL lot to be out of 
compliance. Even in the event of a decision against COOL, the 
appeals process and compliance periods would allow for 
adjustments which likely can be made via regulatory changes.
    NFU supports biofuel production as a Renewable Fuel 
Standard. Ranchers understand that biofuels don't just help 
corn farmers. The success of the ethanol industry helps the 
rural economy as a whole. In 2006, when the RFS was enacted, 
net farm income was $57 billion. In 2012, net farm income stood 
at over $112 billion. Meat production has not declined 
significantly since the enactment of the RFS, although there 
have been downturns due to drought and livestock prices have 
increased significantly.
    Biofuels do not significantly drive up the price of food. 
According to USDA, only 16 percent of grocery costs go back to 
farmers and ranchers. And you can look at the attached Farmer's 
Share Report that is in the testimony that we produce monthly 
at our office using USDA statistics talking about the share of 
the food dollar that goes back to the farmers. In fact, the 
World Bank found that crude oil is the number one determinant 
in global food prices, as you can see in Figure 4 of my 
testimony. We should reduce our dependence on oil consumption 
in order to become more food secure, and biofuel production is 
an excellent way to do that.
    On behalf of the National Farmers Union, thanks for the 
opportunity to speak to you today. My full testimony including 
our position on trade, foot-and-mouth disease, et cetera, is 
included in the document before you. And I will be happy to 
respond to questions.
    [The prepared statement of Mr. Johnson follows:]

Prepared Statement of Roger Johnson, President, National Farmers Union, 
                            Washington, D.C.
Introduction
    On behalf of the family farmers, ranchers, fishermen and rural 
members of National Farmers Union (NFU), thank you for the opportunity 
to testify regarding the state of the livestock industry. NFU was 
organized in 1902. We work to improve the well-being and quality of 
life of family farmers, ranchers and rural communities by advocating 
for grassroots-driven policy adopted annually by our membership. As a 
general farm organization, we represent producers in all segments of 
the livestock industry. This hearing is very important to our members 
and the U.S. economy, as cash receipts to farmers and ranchers from the 
sale of meat animals totaled $90.1 billion in 2012. Thus, it is 
certainly wise for this Committee to regularly consider livestock 
issues.
    Decreasing market competition poses a threat to livestock 
producers. Consumers are demanding significantly more accurate 
information about the food they purchase and consume. Trade policy 
changes present challenges and opportunities. Congress must carefully 
consider all of these developments. It is important that this 
Subcommittee provides oversight and sound policy that will foster 
strong family farmers and ranchers and vibrant rural communities.
An Overview of the Livestock Industry
    Although cattle prices have been high and feed prices have been low 
in recent months, the profits from those market conditions are just now 
beginning to have an effect on the expansion of the beef cattle 
industry. This comes after a 7 year long slide, which has resulted in a 
U.S. cattle herd that at the start of 2014 was the smallest since 1951: 
87.7 million head, a two percent decline from the beginning of 2013 
(Figure 1).
    At the depth of the drought in September 2012, 58 percent of the 
pastures and ranges in the U.S. were rated poor to very poor. By mid-
June 2013, the situation had improved so that less than \1/4\ of 
pasture and rangeland were in drought conditions. As a result, cattle 
feed supplies were limited, costs increased and total beef production 
fell. As the beef supply declines, prices will likely remain strong and 
feed prices are projected to remain low. The U.S. Department of 
Agriculture (USDA) projects commercial cow slaughter in 2014 to be the 
lowest since 2008.
Figure 1
Annual U.S. Livestock Herd Size, 1980-2014


        Source: USDA.

    Lower feed costs are also expected to result in increased pork 
production over the next 10 years, although in the short term, USDA 
projects porcine epidemic diarrhea virus (PEDv) will push pork 
production down by about two percent in 2014 and has already reduced 
the nation's pig population by ten percent. This issue is further 
discussed later in the testimony. In contrast to beef, hog numbers have 
remained stable to slightly increasing in recent years (Figure 1).
    For lamb, prices remained at record-high levels throughout the 
first few months of 2014. This price has weakened and USDA predicts a 
decline as demand for lambs is expected to fall off. Despite this, a 
tight supply will likely keep prices well above 2013 levels.
Concentration in the Livestock Industry
    The livestock marketplace experienced a marked decline in the 
number of family farms and ranches over the last 30 years. According to 
the USDA National Agricultural Statistics Service, in 1980, there were 
approximately 1,285,570 beef cattle operations across the country but 
as of 2012, only 729,000 remained (Figure 2). This is a decline of 
approximately 34 percent. In swine, the reduction has been even more 
dramatic. In 1980, there were 666,550 hog farms but in 2012 there were 
only about 60,200--a decline of 91 percent (Figure 2). Between the 
losses of pork and beef operations, rural America has witnessed the 
closure of about 1.1 million livestock farms in thirty years. As more 
and more livestock operations have closed, concentration among 
livestock sellers has become an increasingly important issue, not only 
for producers, but also for rural communities and consumers.
Figure 2
Shrinking Number of Livestock Operations


        Source: USDA.

    As the number of livestock producers has shrunk, there are fewer 
large buyers of livestock today than any other time in recent history. 
Economists say an industry loses competitive character when the 
concentration ratio of the top four firms (CR4) is 40 percent or 
greater, and often very little competition remains if the CR4 exceeds 
60 percent. According to studies by the University of Missouri, the top 
four beef packers have control over 81 percent of the sales of cattle 
for slaughter in the United States, and the top four swine processors 
control about 65 percent of hog sales. Fewer buyers result in less 
competition and greater opportunity for antitrust violations. These 
trends underscore the need for USDA to even more carefully monitor 
conditions in these highly concentrated industries to guard against 
discriminatory or anti-competitive business practices.
    Not coincidentally, the farmers' and ranchers' share of the 
consumer retail dollar for purchases of meat is shrinking. In 1980 beef 
producers received 62 percent of the retail dollar, according to USDA's 
meat price spread calculations. That portion has fallen to about 42 
percent today. Over the same time frame, hog producers saw their share 
shrink from 50 percent of the retail dollar to about 24 percent. For 
many years NFU has published ``the farmer's share of the food dollar'' 
for selected consumer products (Attachment 1), which underscores the 
small percentage that farmers and ranchers receive across all segments 
of agriculture.
    The chart on the preceding page that illustrates the relatively 
slight decline in the beef herd and consistency in the number of pigs 
and hogs over the last 30 years shows that smaller producers have been 
forced out of business. These statistics are a clear indication of the 
scant market power of family farmers and ranchers in today's livestock 
sector as consolidation is on the rise and competition is declining.
Enforcement of the Packers and Stockyards Act
    Family farmers and ranchers routinely feel the negative effects of 
a consolidated agricultural marketplace that too often fails to provide 
a fair price. NFU has sought solutions to this problem since the 
formation of our organization in 1902. For example, in 1956 NFU adopted 
policy that asked Federal regulators to start ``a continuous 
Congressional investigation into the widening spread between prices 
received by farmers and those paid by consumers. If necessary, 
regulatory measures should be instituted.'' In 1982 NFU policy urged 
Congress to ``amend the Packers and Stockyards Act (PSA) to strengthen 
its enforcement provisions, with effective penalties for violations.'' 
And in 1997 NFU's policy called for regulatory agencies with 
``jurisdiction over the PSA'' to ``vigorously prosecute and break up 
existing monopolistic entities, fully investigate all proposed mergers 
in the livestock industry, and prevent further monopolistic 
concentration with the use of effective penalties.'' Farmers and 
ranchers need strong and continuous oversight of the livestock 
marketplace.
    Budget constraints and appropriations riders have made enforcement 
of the PSA more difficult in recent years. In 2000 the Packers and 
Stockyards Program of the USDA Grain Inspection, Packers and Stockyards 
Administration (GIPSA) had 188 full-time employees who conducted and 
completed a total of 579 investigations, which resulted in a total of 
13 formal complaints decided by an administrative law judge. Last year 
the program closed more than four times as many cases (2,335) as in 
2000 and with only 147 full-time employees. An additional 133 cases 
were closed and referred to the USDA's Office of the General Counsel, 
and 12 more were closed after being referred to the U.S. Department of 
Justice. What is not known, however, is if these cases were 
satisfactorily resolved for farmers and ranchers or if the livestock 
market is any more competitive as a result of these actions. NFU calls 
on this Subcommittee to commission a study to determine the qualitative 
results of the PSA and if current enforcement levels are ensuring a 
competitive marketplace.
    Given the greater consolidation in the marketplace outlined in the 
previous section, it is clear that the work of GIPSA is more important 
than ever before. The information collected during the joint hearings 
held around the country in 2010 by USDA and the Department of Justice 
demonstrated the need for antitrust investigations across all sectors 
of agriculture. Further long-term cuts and prohibitions on GIPSA's 
activities will impede the agency's ability to enforce the PSA and to 
protect farmers and ranchers against abusive market practices. Instead, 
Congress must allow GIPSA to do its job.
    The 2014 Farm Bill allows GIPSA the authority to enforce certain 
competition provisions. NFU appreciates the work of the Agriculture 
Committees in reaching this decision. GIPSA will now be able to 
prohibit deceptive or fraudulent buying practices by processors and may 
protect farmers and ranchers if they have been harmed by unfair trade 
practices. Appropriations riders over the last 3 years had kept GIPSA 
from implementing these basic fairness rules. NFU recently sent a 
letter (Attachment 2) to appropriators in both the House and Senate 
demanding that any future riders that limit GIPSA's authority be 
rejected.
Country-of-Origin Labeling
    I commend Congress for maintaining current Country-of-Origin 
Labeling (COOL) standards in the 2014 Farm Bill. Consumers want to know 
more about the food they purchase, while U.S. farmers and ranchers are 
proud of what they produce. A 2008 Consumer Reports poll found that 95 
percent of consumers believe that processed or packaged food should be 
labeled with the country of origin and that that information should 
always be available at point of purchase. Now is not the time to deny 
consumers vital information that will allow them to make informed 
buying decisions and to remain confident in the integrity of our food 
supply.
    The 2002 Farm Bill required retailers to notify customers through 
labeling of the source of nearly all muscle cuts and ground meat, along 
with fish, fruits, vegetables, nuts and a variety of other generally 
unprocessed products. For 5 years, appropriations riders prohibited the 
implementation of COOL, which was again included in the 2008 Farm Bill. 
After that show of Congressional support, COOL went into full effect in 
2009. Canada and Mexico then brought forward a challenge in the World 
Trade Organization (WTO) alleging that COOL did not comply with trade 
agreements, despite the fact that Canada and at least 70 other WTO 
countries have COOL requirements of their own. A WTO appellate body 
found that, while the COOL statute itself complies with our trade 
obligations and informing consumers about the origin of their food is a 
legitimate objective, the way in which the COOL rule was originally 
implemented did not achieve that goal.
    In May 2013, in order to resolve the implementation issues that 
arose in the WTO dispute, USDA enacted rules that require the labeling 
of production steps--for example, ``Born, Raised, and Harvested in the 
U.S.'' This modification addresses concerns brought forward by the 
WTO's appellate body while providing consumers with enhanced 
information that reduces confusion about the food they buy. The 
inclusion of production steps does not require additional record-
keeping to transfer information from one marketing step to the next. A 
lawsuit is now pending in U.S. court regarding implementation of the 
new labels. Initial attempts to enjoin the new COOL requirements were 
defeated, but the litigation continues.
    The COOL rules, as enacted in 2013, are being enforced by USDA 
through the Agriculture Marketing Service (AMS) Country of Origin 
Labeling Division. The USDA has established cooperative agreements with 
agencies, generally state departments of agriculture, in all 50 states. 
These state-Federal partnerships are cost-effective and avoid 
duplication by working with agencies that already conduct assessments 
in retail store establishments, so that COOL surveillance activities 
are a suitable addition to other retail responsibilities of the state 
agency. According to USDA and state cooperators, 2,061 initial retail 
reviews were completed last year, and at least 3,300 reviews are 
planned for 2014. Retail stores have approximately 300 COOL-covered 
commodity types available for sale on a given day and the overall 
retail compliance is about 96 percent. Compliance in the supply chain 
is also consistently favorable, averaging 97 percent since the 
inception of the COOL final rule. COOL has been fully implemented and 
is working as intended.
    Meatpackers have complained that COOL would be expensive and cost 
many workers their jobs: two claims that have not come true. COOL 
opponents called the 2013 rules ``onerous, disruptive and expensive.'' 
These same groups commissioned studies in the last decade that claimed 
COOL would cost upwards of $1.6 billion for the beef and pork 
industries alone. These cost estimates proved to be vastly over-
inflated. A 2013 analysis by USDA found that changing COOL labels and 
eliminating flexibility for meatpackers to commingle animals would cost 
between $53.1 million to $137.8 million--far short of the unrealistic 
predictions made by those fighting against COOL.
    Ongoing proceedings at the World Trade Organization and in the U.S. 
District Court for the District of Columbia have not found the COOL 
statute and current implementation to be out of compliance. Even in the 
event of a decision against COOL, the appeals process and compliance 
period would allow for further consideration of regulatory adjustments 
to COOL. NFU strongly opposes the use of an appropriations rider or 
other legislative vehicle to deny consumers access to information about 
their food. NFU expressed this view to House and Senate appropriators 
in a letter (Attachment 2) last month.
Figure 3
A Compliant COOL Label, 2013


Renewable Fuel Standard
    NFU is a general farm organization with a significant livestock 
presence in many of our states. Despite the fact that many of our 
members raise livestock, our organization is a strong supporter of 
biofuel production and the Renewable Fuel Standard (RFS). Ranchers 
understand that biofuels don't just help corn farmers--the success of 
the ethanol industry helps the rural economy as a whole. According to 
USDA, net farm income in the United States has risen significantly 
since the passage of the RFS. Net farm income was $57.4 billion in 2006 
and $112.8 billion in 2012. Within the livestock sector, meat 
production has not declined significantly since the enactment of the 
RFS. There was a slight downturn in beef production due to drought, but 
the price received for livestock has increased since RFS enactment. The 
ethanol industry also supports jobs in the rural economy. According to 
a study by ABF Economics, the industry employs 386,781 Americans, 
mostly in rural areas.
    Some interest groups contend that biofuels drive up the price of 
food. Our farmer and rancher members know that these groups would do 
well to look elsewhere. As earlier stated, each month NFU releases its 
``farmer's share of the food dollar'' report (Attachment 1), which 
shows how much farmers and ranchers receive for each dollar of food 
sold at the grocery store. Overall, farmers and ranchers receive only 
15.8 of every food dollar. According to USDA, off-farm costs, 
including marketing, processing, wholesaling, distribution and 
retailing, account for more than 80 of every dollar spent on food in 
the United States. Furthermore, only 16 percent of grocery costs can be 
traced back to the price of farm inputs, like corn. Indeed, the World 
Bank found that crude oil is the number one determinant of global food 
prices (Figure 4). It seems logical, then, that the United States 
should be working to reduce our nation's dependence on oil consumption 
if it wants to become more food secure. Biofuel production is an 
excellent way to offset oil consumption.
Figure 4
Price Indices: Food vs. Crude Oil


        Source: The World Bank.
Animal Health Threats
    NFU policy is clear regarding importation of livestock products 
from countries that have a history of unresolved foot and mouth disease 
(FMD). The following is an excerpt from the recently adopted grassroots 
policy statement from NFU members:

          ``Livestock health is critical to production agriculture and 
        our nation's ability to provide a safe food supply. Achieving 
        the necessary means to ensure livestock health is a priority 
        for NFU. We support good animal husbandry practices as the 
        primary means of livestock health maintenance, as well as the 
        following initiatives to ensure livestock health:
          Ban livestock, animal protein products and meat imports that 
        would jeopardize U.S. efforts to eradicate livestock diseases 
        including BSE and Foot and Mouth Disease (FMD);''

    NFU strongly opposes the recent proposal from APHIS to resume 
importation of fresh beef from 14 Brazilian states. FMD from that 
region of Brazil still poses a significant threat to U.S. livestock 
herds. Any changes to the current ban could pose substantial threats to 
family farmers, ranchers and the general public due to the very real 
possibility of transmission of FMD to U.S. livestock, resulting in 
reduced consumer confidence in our food supply.
    Inconsistencies between animal health disclosures reported by APHIS 
and the World Organization for Animal Health (OIE) further erode NFU's 
confidence in the safety of beef imports from countries with a history 
of FMD presence and a poor food safety record. Vaccinations against FMD 
are still occurring in the Brazilian states in question. In addition, 
the U.S. Food and Drug Administration (FDA) recalled Brazilian cooked 
and canned meat on three occasions in 2010 due to drug contamination.
    The last case of FMD in the 14 state region in Brazil occurred in 
2001. Even though the 14 Brazilian states in question are considered to 
be ``FMD-free'' by the OIE, Brazil has not been able to prevent the 
spread of FMD into its borders from neighboring countries, and as 
recently as 2011, Paraguay reported two outbreaks of FMD within 250 
miles of the Brazilian border.
    In contrast, the United States has not had a confirmed case of FMD 
since 1929 due to its effective disease prevention system and high food 
safety standards. This reputation must not be put at risk. In the rare 
instances when disease has impacted a portion of the livestock herd, 
economic devastation has followed. When bovine spongiform 
encephalopathy (BSE) was first identified in the United States in 
December 2003, 65 of our trading partners eventually imposed partial or 
full bans on U.S. beef. According to a Kansas State University study, 
the U.S. beef industry lost between $2.9 billion and $4.2 billion in 
2004 alone because of BSE. Rural America should not again be subjected 
to severe losses simply because of lax standards for animal imports.
    The economic costs of an FMD outbreak in the United States would be 
enormous. A 2002 study conducted by Purdue University and the Centers 
for Epidemiology and Animal Health at APHIS found that if an epidemic 
similar to the outbreak that occurred in the UK in 2001 were to strike 
the United States, a loss of $14 billion in U.S. farm income (in 2002 
dollars) would result. This includes costs of quarantine and 
eradication of animals, a ban on exports, and reduced consumer 
confidence. In addition, the disease could spread to any cloven-hoofed 
animals, endangering other domestic livestock like sheep or pigs, as 
well as wild deer and antelope that form the basis of the U.S. hunting 
industry.
    There are very few positives associated with allowing livestock 
products from regions of Brazil that are known to have a history of FMD 
to be brought into our country, but many possible undesirable outcomes 
from such an arrangement. Importing Brazilian beef and other livestock 
products is a risk not worth taking.
Figure 5
PEDv Positive Biological Accessions
Cases per State


        As of April 16, 2014.
        Source: USDA APHIS Veterinary Services

    The consequences of a wide-spread animal health outbreak are 
beginning to be felt with a recent outbreak in the pork sector. The OIE 
issued an alert on April 21, 2014, regarding the novel swine enteric 
coronavirus (SECoV) that has emerged in the United States over the last 
year. SECoV, which is thought to have originated in China, causes PEDV. 
Recent reports from APHIS say there are now 5,978 cases of PEDV in 29 
states (Figure 5). This underscores the importance of close monitoring 
of animal disease outbreaks in order to safeguard the reputation and 
integrity of U.S. animal agriculture.
Structure of the Beef Checkoff
Figure 6
USDA Commodity Checkoff Programs, as of 2014


    Checkoff programs have served as an effective tool to promote the 
consumption and research of commodity products. Twenty different 
commodity checkoff programs collect funds, including beef, lamb and 
pork. The checkoff assessment, paid by a farmer, rancher, grower or 
processor at the point of sale, is a worthwhile investment if the 
program is properly administered. The beef checkoff operates unlike 
most of the other programs, in that it was specifically authorized by 
an act of Congress with a complicated structure that allows for 
significant involvement from policy organizations. Additionally, funds 
for the beef checkoff have dwindled in recent years and there has been 
talk of increasing the assessment on cattle sales.
    Family farmers and ranchers need meaningful reform of the beef 
checkoff that offers a governance structure that is more representative 
of all livestock producers. The beef checkoff ought to function 
separately from policy organizations in the way that other checkoff 
programs operate. Producers must have confidence in the integrity of 
the way in which their contributions to research and promotion 
initiatives are spent. NFU will not support an increase in the beef 
checkoff assessment until improvements are made to the structure and 
oversight of the program.
The Impact of Trade on the Livestock Sector
    NFU supports fair, mutually beneficial trade that seeks to increase 
human welfare and respects sovereign nations' need for food and 
national security. NFU has historically opposed free trade agreements 
on the basis that the agreements were more likely to increase imports 
rather than open new markets to U.S. goods, even for livestock and 
agricultural products.
    Free trade agreements are typically justified by claims that the 
agreements will grant American producers access to previously closed 
markets and thus create jobs. U.S. agriculture, including the livestock 
sector, does have a history of generating a trade surplus (Figure 7). 
Long-term agricultural surpluses have occurred because of our efficient 
system and effective farm safety net.
Figure 7
Net U.S. Agricultural Trade with the World


        Source: USDA Economic Research Service.

    On the other hand, the U.S. economy as a whole has a history of 
generating trade deficits (Figure 8). Free trade agreements have 
worsened the situation by making American businesses compete with 
countries that have lower environmental, health and food safety 
standards. Furthermore, vague promises of market access are made to 
U.S. trade stakeholders in order to encourage domestic support for a 
trade deal. These promises are meaningless, however, when there are no 
mechanisms to prevent countries from devaluing their currency, which 
hurts U.S. exports and total trade balance.
Figure 8
Total U.S. Trade Deficit


        Source: USDA Economic Research Service.

    U.S. free trade agreements have a poor track record. During the 
North American Free Trade Agreement (NAFTA) negotiations, for instance, 
American farmers were promised increased market access in the form of 
reduced tariffs on crops in Mexico. In reality, those tariff cut 
benefits were eliminated when Mexico devalued the peso by 50 percent 
shortly after NAFTA went into effect. Similarly, USDA analysts 
predicted an increase in U.S. exports of beef products to Mexico. The 
reality is that beef and pork, two projected NAFTA winners, saw their 
exports to Mexico fall 13 percent and 20 percent, respectively, in the 
3 years after NAFTA was implemented compared to the 3 years prior to 
NAFTA. In the 20 years since the agreement, agricultural exports have 
indeed increased to Canada and Mexico. But, agricultural imports from 
these countries have increased even more, leading to an agricultural 
trade deficit.
    South Korea provides the most recent example of a country with 
which the United States has a trade agreement. Proponents of the U.S.-
Korea FTA again promised increased market access for U.S. agricultural 
products and increased exports. In reality, exports in agricultural 
products dropped from around $6 billion in 2012, the year the agreement 
went into effect, to around $5 billion in 2013, according to the 
National Agricultural Statistics Service.
    The International Trade Commission estimated that the U.S. goods 
trade balance with South Korea would improve by $3.3 billion to $4 
billion. Since the FTA went into force, however, U.S. goods trade 
balance has decreased by around $4 billion. U.S. total trade deficit 
with South Korea also increased from $8.7 billion in 2012 to $10.6 
billion in 2013. Unfortunately, the promised increases in agricultural 
exports did not take into consideration the effect of a Korean 
devaluation of its currency, which wipes out any gains made by reduced 
tariffs. In a recent report, the Peterson Institute for International 
Economics lists South Korea as one of the eight worst currency 
manipulators. It goes on to say that foreign currency manipulation is 
responsible for a $200 billion to $500 billion per year increase in 
account deficits, and attributes between one million and five million 
job losses to foreign currency manipulation. It is therefore vital that 
there be safeguards in place in any trade agreement that counteract 
currency manipulation by foreign governments.
    On the whole, U.S. agriculture has actually done worse after 
entering into FTAs. The chart below (Figure 9) shows the net 
agriculture trade surplus (deficit) with countries that have entered 
into trade agreements with the United States. Each year only includes 
trade data from countries with which the United States had an FTA in 
that year. This subpar performance contrasts with U.S. agriculture's 
performance as a whole.
Figure 9
Net Ag Trade among Countries with U.S. FTA


        Source: International Trade Commission Figures, Global Trade 
        Watch Calculations.
Livestock Marketing Improvement Efforts
    With the growth in local and regional food markets in recent years, 
greater information and communication is needed for farmers and 
ranchers to better understand the economic conditions in which they are 
operating. Over the last year, USDA's Market News released 30 new 
reports to better serve the agriculture industry, including livestock. 
Market News will add ``local'' as an element to current retail reports, 
which is similar to the way in which organic commodities were recently 
added. Additionally, AMS began publishing a Market News report covering 
the grass fed beef industry. These reports provide timely information 
to assist in marketing decisions and help small and local livestock 
producers to plan for the future.
    The Grass Fed Verification program for Small and Very Small 
Producers (SVS) is another noteworthy new marketing initiative. This 
program provides verification assistance to those farmers and ranchers 
who market fewer than 50 cattle each year. This segment of producers 
accounts for 11.5 percent of the total number of cattle and calf 
operations but has been previously under-served by AMS certification 
processes. This is a welcome improvement that will help an emerging 
segment of tomorrow's diversified livestock industry.
Conclusion
    NFU's policy statement, which is revised and adopted each year 
through a grassroots process among Farmers Union members at all levels, 
includes a section on ``national food and fiber policy.'' The following 
excerpt from the 2014 NFU policy statement provides a clear goal for 
what this Subcommittee and Congress as a whole ought to do in order to 
provide for a strong livestock and family farm economy:

          ``The decline in the number of family-sized commercial farms 
        must be reversed. Programs that encourage sustainable 
        agriculture through diversified production, improved marketing 
        strategies, and enhanced value-added opportunities can be keys 
        to reversing this trend . . . Farmers and consumers need 
        stability and fairness in a farm program. Farmers, rural 
        communities and consumers are at the mercy of a marketplace 
        that is increasingly dominated by vertically integrated, 
        multinational grain and food conglomerates.''

    Reliable access to accurate information is essential to providing 
farmers, ranchers and consumers a level playing field. Consumers ought 
to know where their food comes from and individual producers need to 
know the prevailing market trends and prices. Furthermore, regulators 
must oversee and prohibit anti-competitive behavior by the most 
powerful companies and interests. Budding sectors of the agriculture 
economy, including small livestock production and biofuels, should be 
strongly supported in their development. Trade negotiators must keep 
the well-being of farmers, ranchers and consumers in mind, and animal 
health import restrictions should not be relaxed simply to please 
foreign trading partners.
    I look forward to working with the House Agriculture Subcommittee 
on Livestock, Rural Development and Credit to achieve these goals. 
Thank you for your consideration and the opportunity to testify today.
                              Attachment 1


                              Attachment 2
March 20, 2014
Testimony of Roger Johnson, President, National Farmers Union To the 
        House Agriculture Appropriations Subcommittee Regarding Fiscal 
        Year 2015 Funding for Agricultural Programs
Contact: Mike Stranz, Senior Government Relations Representative 
([email protected])

    On behalf of the family farmer and rancher members of National 
Farmers Union (NFU), thank you for the opportunity to present funding 
requests for Fiscal Year 2015. As a general farm organization, NFU has 
a broad array of interests in the agricultural appropriations process. 
This letter enumerates a few of the highest priorities for our members.
    Additionally, the recent passage of the 2014 Farm Bill deserves the 
attention of the Subcommittee. We ask that programs that were granted 
discretionary funding through the farm bill receive their full 
appropriations, and that the Subcommittee not reduce other program 
funding through changes in mandatory programs.

    Agency: USDA Agricultural Marketing Service (AMS)

    Request: No legislative riders or targeted funding reductions to 
limit or restrict the enforcement, legal defense or study of Country-
of-Origin Labeling (COOL).

    The 2008 Farm Bill requires retailers to notify customers through 
labeling of the source of nearly all muscle cuts and ground meat, along 
with fish, fruits, vegetables, nuts and a variety of other generally 
unprocessed products. As of 2013, the U.S. Department of Agriculture 
(USDA) enacted rules that require the labeling of production steps--for 
example, ``Born, Raised, and Harvested in the U.S.''--as directed by a 
World Trade Organization (WTO) dispute. Another WTO proceeding is 
currently under way to review the new COOL regulations' compliance with 
trade laws, and a lawsuit is pending in U.S. court regarding 
implementation of the new labels. Additionally, the 2014 Farm Bill 
requires a study on the economic impact of COOL.
    NFU opposes any funding cuts or legislative riders that would 
circumvent enforcement, implementation, legal defense or study of COOL. 
Studies have found that more than 90 percent of consumers support COOL. 
Any threats of retaliation from Canada and Mexico are extremely 
premature, as WTO appeals are slow moving and typically last for years.

    Agency: USDA Grain Inspection, Packers and Stockyards 
Administration (GIPSA)

    Request: No legislative riders to limit or restrict the USDA's 
rulemaking and enforcement authority under the Packers and Stockyards 
Act of 1921.

    Because of appropriations riders in the last 3 years, USDA has not 
been allowed to write rules that would provide greater fairness for 
livestock sellers and poultry growers in the agriculture marketplace, 
as directed by the 2008 Farm Bill. This includes prohibiting deceptive 
or fraudulent buying practices and permitting farmers and ranchers to 
seek protection under the Packers and Stockyards Act if they have been 
harmed by unfair trade practices.
    While the last three legislative riders on GIPSA have varied, they 
each have significantly undermined important protections for livestock 
and poultry ranchers and growers. These provisions must not be 
prevented; thus, NFU strongly urges the Subcommittee to reject any 
legislative riders that would undermine GIPSA's authority and ignore 
Congressional intent.

    Agency: Agriculture and Food Research Initiative (AFRI)

    Request: Report language on public cultivar development.

    The 2008 Farm Bill created the Agriculture and Food Research 
Initiative (AFRI), which called for AFRI to make ``conventional'' plant 
and animal breeding a priority for research grants. Implementation of 
these directives has been slow. NFU asks that the FY 2015 
appropriations bill include report language that reiterates the need to 
prioritize funding for classical plant and animal breeding within the 
AFRI process.

    Agency: Agriculture Research Service (ARS)--Genetic Improvement and 
Translational Breeding Initiative

    Request: $25.9 million with report language directing funds to the 
development and release of regionally adapted, public cultivars.

    The Administration's FY 2015 budget requests $25.9 million for a 
new Genetic Improvement and Translational Breeding Initiative to be 
administered by ARS. Given the huge private and public investment in 
genomics and the lack of funding for classical breeding for public 
cultivar development, clear language ought to be included to direct ARS 
to focus all of the funding provided for this initiative on the 
development and release of regionally adapted, publicly held, cultivars 
to benefit farmers and ranchers across the country.

    Agency: USDA Rural Development

    Request: Fully fund farm bill energy title programs at 
discretionary funding levels and do not reduce program funding through 
changes in mandatory programs. Also, allow 2014 Biomass Crop Assistance 
Program (BCAP) funds to carry over into 2015 if they are not expended.

    The 2014 Farm Bill makes substantial investments in existing energy 
programs such as the Rural Energy for America Program (REAP), Biomass 
Crop Assistance Program (BCAP), and Biorefinery Assistance Program 
(BAP). NFU asks that the Subcommittee not reduce any of the funds 
allocated to these programs. In addition, because USDA may not expend 
all funds for BCAP in 2014, NFU asks that language be inserted allowing 
for unexpended 2014 BCAP funds to be carried over into 2015.
    Thank you for your consideration of these requests.

    The Chairman. Thank you, Mr. Johnson.
    I will now move to Mr. Miller with Tyson Foods. Mr. Miller, 
you are recognized for 5 minutes.

 STATEMENT OF SHANE MILLER, SENIOR VICE PRESIDENT, PORK MARGIN 
                 MANAGEMENT, TYSON FRESH MEATS,
                        DAKOTA DUNES, SD

    Mr. Miller. Mr. Chairman, Members of the Committee, it is 
truly an honor to be here to represent Tyson Foods. We are 
proud to be an American-owned company from the heartland, 
employing over 115,000 people worldwide: 100,000 of those 
individuals are working right here in the United States. We 
process chicken, beef and pork, and a wide variety of prepared 
foods like pizza toppings, soups and tortillas.
    We have grown to be one of the largest meat companies in 
the world, and every day we work closely with American farmers 
to help feed the world. In fact, in Fiscal Year 2013, we paid 
more than $15 billion to over 11,000 farmers and ranchers. 
While we are certainly focused on the domestic market as you 
all well know, international trade is extremely important to 
our industry and to our business at Tyson Foods. In fact, it is 
worth noting, USDA concluded that 1.2 million American jobs are 
produced by exporting animal protein.
    Protein consumption is rapidly increasing worldwide as 
living standards rise in many countries. The U.S. livestock and 
poultry industry is positioned extremely well to serve these 
new markets. Just underlining this point, last year 16 percent 
of Tyson's beef sales were international, 22 percent were pork 
sales from exports, and about \1/5\ of our chicken sales went 
to overseas markets. We expect those percentages to continue 
growing.
    With that introduction, I will take a few moments to talk 
about the state of the meat and poultry industry from our 
perspective. These are challenging, exciting times for our 
industry, headlined by near-record prices. Let me first start 
with beef. We have seen some consumer shift from beef to 
chicken because of rising beef prices in the last year. This is 
largely due to a lack of supply.
    As we all know, the beef herd in the U.S. is at one of its 
lowest points in decades and it will likely take years to 
recover. The drought in major cattle-growing areas has been a 
major factor in this shrinking supply. Federal biofuels 
policies have also encouraged the diversion of corn away from 
feed into ethanol which has led to periods of tighter supply 
and price of volatility.
    These pressures on the beef industry, along with others 
outlined in my written testimony, have been made even more 
difficult by the recent mandatory Country-of-Origin Labeling 
program. This new regulation is just simply bad for our 
consumers, bad for our business and bad for family farmers in 
general.
    The new rule imposes serious costs and takes away the 
flexibility to commingle cattle sourced from either Canada or 
Mexico; yet, it doesn't resolve the challenge by Mexico and 
Canada at the WTO. This could result in retaliatory tariffs on 
a wide range of U.S. products, including beef, pork and 
poultry. We urge this Committee and we urge Congress to address 
the MCOOL issue and implement a policy that both supports an 
efficient and expanding U.S. beef industry and heads off 
potentially damaging tariffs on the livestock and poultry 
industries.
    Moving to pork: The sector has been affected by the Porcine 
Epidemic Diarrhea virus, PEDv, and quite frankly has devastated 
progress for many family farmers across the country. We have 
estimated that the virus will impact domestic hog supplies by 
two to four percent this fiscal year, with the biggest and 
largest impact coming in the summer months where it could be 
quite a bit more extreme due to the timing of the year.
    As I have said before, we work closely with family farmers 
who supply us, and while the industry will get through this 
tough period, there will no doubt be an impact on supply as we 
go forward. The good news is that we are seeing higher demand 
for pork products; in fact, domestic and international sales 
have increased, and we expect that trend to continue in the 
coming years.
    Last, chicken is in high demand and we believe that will 
continue during the remainder of the year. As we look ahead, we 
expect chicken supply to respond to rising demand over the next 
year. That means chicken is positioned to do very well both 
domestically and internationally.
    To conclude, while there are many things outside of our 
control, there are a number of policy considerations that 
impact the livestock and poultry industries. Most important 
among these today are international trade and damaging 
provisions like the new MCOOL regulations.
    The U.S. meat and poultry industry is truly world class, 
and I urge this Committee to help us grow our businesses by 
promoting expanded trade as well as reforming policies that 
restrict our ability to operate fairly and efficiently so that 
we can continue to provide jobs for thousands of Americans 
across this great country.
    Thank you again to the Committee for giving me the chance 
to be here today, I will take any questions that you may have.
    [The prepared statement of Mr. Miller follows:]

Prepared Statement of Shane Miller, Senior Vice President, Pork Margin 
            Management, Tyson Fresh Meats, Dakota Dunes, SD
    Mr. Chairman and Members of the Committee, I am pleased to have 
this opportunity to discuss the state of the livestock and poultry 
industries on behalf of Tyson Foods, Inc. Like so many of the companies 
and producers represented here on this panel today, Tyson is proud to 
provide safe, affordable and nutritious food to millions of families 
across this country and around the globe. My testimony today will 
provide my company's general view of the pork, beef and chicken 
sectors, as well as highlight a few issues we believe are worthy of 
this Committee's attention. Since I am joined today by many of the 
major livestock and poultry associations, I will leave it to my 
colleagues to provide a more in-depth analysis of their particular 
sectors.
Background on Tyson Foods, Inc.
    Tyson Foods, Inc. is one of the world's largest processors and 
marketers of chicken, beef and pork with FY13 sales of $34.4 billion 
and operations in 27 U.S. states. Utilizing a multi-protein business 
model, our over 100,000 Team Members produce about one of every 5 
pounds of chicken, beef and pork in the United States along with a wide 
variety of prepared foods, such as pizza toppings, tortillas and soups.
    Tyson is a proud partner with America's farm families; in FY13 we 
paid more than $15 billion in revenue to thousands of independent 
farmers across 39 states who supply us with livestock and production 
services. Like others in the industry, Tyson is vertically integrated 
in its chicken business, but acquires its pork and beef through 
negotiated purchases using a variety of methods. We value and rely upon 
these relationships, many of which span multiple generations.
    While the vast majority of our operations are U.S. based, Tyson 
also maintains in-country poultry operations in China, India, Mexico 
and Brazil. These international locations service that particular 
country's domestic population, and in some cases, also serve as 
platforms for export to key international markets. As this Committee 
understands well, international trade is critically important to the 
livestock and poultry industries. Tyson currently exports frozen, 
chilled and prepared products to approximately 130 countries.
    Finally, in keeping with Tyson's Core Values, we strive to be a 
responsible member of our communities through charitable donations, 
public service and volunteer work. Tyson Team Members routinely support 
a variety of worthy causes with their time and financial support. Our 
company's signature philanthropic effort is hunger relief. At Tyson, we 
believe that hunger and food insecurity are issues that no family 
should experience. Over the past 15 years, Tyson has donated nearly 100 
million pounds of food to national hunger relief organizations in the 
United States.
    I will now provide Tyson's perspective on the state of the pork, 
beef and chicken sectors, with attention to some key issues that could 
impact future success.
State of Our Industry
Overview
    At Tyson, we believe this both a challenging and exciting time to 
be in the protein business. Based upon low supplies of live cattle and 
hogs, along with relatively high grain costs, we are seeing near record 
retail prices for beef, pork and chicken; with chicken poised to 
benefit in the near term as the least-cost option. However, in spite of 
historically high prices, we have also seen resilient consumer demand 
for protein. According to Nielsen data for 2013, total fresh meat 
volume at retail was up 1.3%. Based on the data we have available so 
far in 2014, we see demand for meat remaining high as consumer 
confidence continues to rebound.
    As consumers become less defensive in their spending habits, we are 
also seeing changes in their expectations. In addition to price, 
consumers are increasingly focused on ingredients, freshness and 
transparency in our processes. They are also asking--Is this product 
good for me? In our view, these factors are all a part of the 
consumers' new value equation. This is certainly a challenge for all of 
us in the food business, but also an opportunity if we can meet these 
evolving customer demands.
    While we are keenly focused on the U.S. market, export markets are 
of growing importance. Each year, our international sales increase in 
value to our company, reflecting the reality that the future growth in 
protein demand lays outside the U.S. This is why International Trade is 
the first issue I want to underscore for this Committee. Although we 
have seen impressive export gains in recent years, we are also facing 
new trade barriers on a seemingly daily basis in key export markets 
like China and Russia. Many of these barriers are counter to sound 
science and contrary to accepted international standards.
    In addition to these challenges, we are also at a key juncture with 
regard to major trade agreements including the Trans-Pacific 
Partnership (TPP). The TPP holds great promise for livestock and 
poultry, but only if Japan and other participants agree to significant 
tariff reductions as part of the agreement. The U.S. must also avoid 
taking actions of its own that invite trade retaliation. One example is 
the ongoing challenge of our Country-of-Origin Labeling rules at the 
World Trade Organization (WTO), which could result in a damaging 
disruption to trade. I will discuss this issue later in my testimony.
    Taken as a whole, we believe the picture for the protein sector is 
a positive one. Although customer expectations are evolving, the demand 
for our products remains strong and there is also room for growth, 
particularly in the areas of value-added and convenience. Demand is 
also strong among international consumers, but we have significant 
challenges to overcome in order to maximize our export potential. I 
will now share our perspectives on the pork, beef and chicken sectors 
in a little more depth.
Pork
    It is appropriate to start any discussion about the pork sector by 
addressing the Porcine Epidemic Diarrhea (PED) virus, which has been a 
devastating development for so many farm families. At Tyson, we 
purchase about 97 percent of our hogs from independent producers. We 
value our partnership with these producers and believe they are the 
best in the world at what they do. We will get through this difficult 
period but there is no doubt that it will have an impact on supply.
    We have estimated that the PED virus will impact domestic hog 
supplies by 2-4 percent this fiscal year, with the biggest impact 
coming in the summer months. We are working closely with our producers 
to make sure that we can maximize our supply in the months ahead in 
order to operate our plants efficiently. We anticipate that heavier 
weights on hogs can offset some of the headcount reductions, but 
clearly we could see some supply issues. We are also working with our 
customers to set expectations on which items could be most affected by 
a reduced supply in the months ahead.
    Looking at the big picture for pork, we have continued to see 
increased consumer demand for pork products, and in fact, Tyson's FY 
2014 First Quarter (Tyson operates on a September 30 fiscal year) pork 
sales were our second highest First Quarter sales in that category 
ever. We were also above our normalized range for return on sales for 
pork during the First Quarter. Although exports were down a little last 
year compared with 2012, U.S. pork exports have grown significantly 
over the last few decades and there are still tremendous opportunities 
to increase our international sales in the coming years.
Beef
    The record high wholesale beef prices we have seen so far in 2014 
are largely a function of supply. As this Committee is aware, the U.S. 
beef herd is at one of its lowest points in decades and it will take 
years for the herd to fully recover. The sustained drought in many key 
cattlegrowing areas like Oklahoma and Texas has been a major factor in 
herd decline. The drought's impact has also been exacerbated by Federal 
biofuels policies that encourage the diversion of corn away from feed 
and into ethanol, leading to periods of tight supply and price 
volatility.
    Although market conditions suggest that this should be a period of 
heifer retention and herd rebuilding, we are not yet seeing that play 
out in cattle growing areas, particularly where drought is still a 
factor. Until we see the beef herd increase, beef processors with 
plants in close proximity to areas where cattle are the most plentiful 
will be in a position to operate most efficiently. Facilities with less 
access will be more negatively impacted. We have observed this within 
our own beef business. Prices will also continue to remain high until 
demand starts to decline. We are already starting to see some demand 
shift this year as consumers move from beef to chicken.
    Given the market pressures already impacting the beef sector, I 
want to highlight a second issue that I know many on this Committee 
have an interest in--the recent changes to the Mandatory Country-of-
Origin Labeling (MCOOL) program. I will not restate the history on this 
issue, but it is very unfortunate that the United States Department of 
Agriculture decided to impose significant costs and inefficiencies on 
the livestock and poultry industries in response to the previous COOL 
regulation's defeat at the World Trade Organization (WTO) in 2012.
    While the 2009 COOL regulation imposed costs on our industry, it 
did allow beef processors, particularly those operating on the northern 
and southern borders, the flexibility to commingle cattle sourced from 
Canada or Mexico. This new regulation not only imposes new labeling and 
administrative costs, but also takes away the ability to commingle 
cattle, forcing segregation at the plant. As previously discussed, we 
are working very hard to operate as efficiently as possible in the face 
of a reduced U.S. cattle herd.
    To make matters worse, the new MCOOL regulation did not resolve the 
challenge by Canada and Mexico at the WTO. Both countries are very 
opposed to these changes and a WTO panel is now reviewing whether or 
not the U.S. has come into compliance as directed by the 2012 WTO 
ruling. If the U.S. loses, the ultimate outcome will be retaliatory 
tariffs from Canada and Mexico on a wide range of U.S. products, 
including livestock and poultry products.
    We would urge this Committee and the Congress to address the MCOOL 
issue and implement a policy that both supports an efficient and 
expanding U.S. beef industry and heads off potentially damaging 
retaliatory tariffs on the livestock and poultry industries.
Chicken
    Given the market conditions that I have outlined already in my 
testimony, it is no surprise that chicken is currently in a strong 
position. While chicken prices have gone up, it is in a beneficial 
position as the less-expensive protein, a factor that is fueling demand 
among consumers. At Tyson, our chicken business performed well during 
the First Quarter of FY 2014 and overall we anticipate a very strong 
year for chicken.
    Looking ahead, we do expect chicken supply to respond to rising 
demand and increase somewhat during the remainder of the year. However, 
in our view this increase will in part be offset by rising demand, as 
consumers continue to shift away from beef and pork in favor of 
chicken. Our President and Chief Executive Officer, Donnie Smith, has 
publicly predicted that we will not see a ``meaningful change'' in bird 
production until the second half of 2015.
    While this is a positive time for the chicken industry, a number of 
policy issues could have an impact. We need to stay focused on opening 
new international markets for chicken products through both bilateral 
discussions and major trade agreements like the TPP. Our potential in 
China, a key market, continues to be limited by unjustified dumping and 
countervailing duties on U.S. chicken products, as well as other non-
tariff trade barriers. As previously stated, we also remain concerned 
with Federal biofuels policies that can lead to tight supplies and 
price spikes on corns and other feed grains. This has imposed 
significant costs on the poultry industry since 2008.
    A final issue, which extends to all of livestock and poultry, 
concerns the 2010 proposed regulations to the Grain Inspection and 
Packers Stockyards Administration (GIPSA). As this Committee is aware, 
while these proposed regulations were supposed to be a response to 
Congress' specific direction in the 2008 Farm Bill, the actual 
regulations went far beyond the scope authorized by the farm bill. If 
implemented, these regulations would force unnecessary and costly 
changes to the way processors and growers do business. We are grateful 
that Congress has consistently chosen to block implementation of these 
unnecessary regulations through the appropriations process. We urge 
this Committee to take the lead in advancing a permanent resolution to 
this issue as soon as practical.
Conclusion
    In Tyson's view, this is an exciting time to be in the business and 
although there are certainly challenges, we believe many opportunities 
lay ahead. We are seeing continued demand for our products among U.S. 
consumers and growing demand abroad, in our view that is a very 
positive thing for the livestock and poultry industries.
    While many market developments are outside of all our control, 
there are a number of policy considerations within this Committee's 
area of concern that can impact livestock and poultry. As I have 
discussed in my testimony, chief among these are international trade 
and damaging provisions like the new MCOOL regulations and pending 
GIPSA regulations. I urge the Committee to focus on initiatives that 
will increase market opportunities for livestock and poultry, as well 
as reforming policies that restrict our ability to operate fairly and 
efficiently.
    I want to again thank this Committee for the chance to appear 
before you today and discuss the state of the livestock and poultry 
industries.

    The Chairman. Thank you, Mr. Miller.
    We will now move to Dr. Hill, National Pork Producers 
Council. You are recognized for 5 minutes.

  STATEMENT OF HOWARD HILL, D.V.M., PRESIDENT, NATIONAL PORK 
                PRODUCERS COUNCIL, CAMBRIDGE, IA

    Dr. Hill. Thank you, Chairman Crawford and Ranking Member 
Costa for inviting me to testify at this very important 
hearing.
    I am Dr. Howard Hill, veterinarian and a hog farmer from 
Iowa, and I currently serve as the President of the National 
Pork Producers Council. I apologize for Dr. Steve Meyer not 
being here today as originally planned. I think you would 
agree, though, that a veterinarian beats an economist any day 
of the week.
    NPPC has an association of 44 state organizations that 
serves as a voice in Washington for America's 69,000 pork 
producers. Last year those producers marketed more than 111 
million hogs which provided 23 billion pounds of safe, 
nutritious pork to the world, generated gross receipts of $15 
billion and personal income of $21 billion and added $35 
billion to our Gross National Product.
    The United States exported more than $6 billion of pork in 
2013 which added about $54 to the price producers receive for 
each hog marketed. The U.S. pork industry is responsible for 
more than 550,000 mostly rural jobs in the United States. But 
all of those positive numbers could change because of a couple 
issues now facing the pork producers.
    First, U.S. market hog production declined because of a 
sharp reduction in the number of weaners and feeder pigs 
imported from Canada, mostly because of implementation of the 
Federal MCOOL law. Although the MCOOL officially began in 
September 2009, it caused adjustments in Canadian hog outputs 
well before that date because U.S. farmers finishing hogs 
sought domestic animals to avoid the cost and complications of 
the new law such as the prohibition on commingling U.S. born 
and Canadian-born hogs.
    The U.S. slaughter of Canadian hogs fell by nearly 50 
percent because of MCOOL driven decline and Canadian hogs 
shipped directly to the U.S. for slaughter. One result of the 
decline in Canadian hogs was the April 10 closure of the John 
Morrell plant in Sioux City, Iowa. There simply weren't enough 
hogs available nor sent to the United States to maintain the 
pre-2010 level of packing capacity. The closure cost 1,500 
jobs.
    In addition to the direct economic impact of MCOOL, the 
U.S. pork industry may have retaliatory tariffs imposed on its 
products and on a host of other goods if Canada and Mexico win 
their case against the law which now is pending in the WTO. 
While tariffs may not trigger another recession, they would 
damage the economy and hurt the many hardworking families that 
depend on trade with Canada and Mexico for their livelihood.
    The most pressing threat we face, however, is Porcine 
Epidemic Diarrhea virus or PEDv which now has spread to 30 
states. While USDA estimates the disease has killed about two 
million pigs, the economist Dr. Steve Meyer estimates a loss 
closer to seven million pigs. That suggests slaughter 
reductions this summer could be greater then ten percent. Such 
reduction would push U.S. hog prices up by 15 to 25 percent and 
force consumer-level pork prices up 10 to 12 percent. Retail 
pork prices already have hit new record highs in March and most 
likely will rise even higher this summer and fall.
    Even though a reduced supply may increase pork prices for 
farmers, I know firsthand that pork producers are not happy 
about this disease. Producers talk about their PEDv experience 
using terms such as devastating, heartbreaking, gut wrenching, 
when describing its impact on their herds, themselves, their 
families and their employees.
    Additionally, reduced hog numbers mean less feed, less 
medicine, fewer veterinary services and shorter hours at 
packing and processing plants. All these dynamics reduce wages 
and profits generated by allied businesses. Since many of these 
businesses are located in small and mid-sized rural 
communities, this would have a significant negative impact on 
the nation's rural economy.
    So what needs to be done about PEDv? First, it is still not 
known how PEDv entered the United States. The pork industry has 
evidence that two distinct strains of PEDv were introduced 
along with another virus called Porcine Deltacoronavirus. The 
pork industry needs USDA to conduct a thorough investigation on 
the pathway these viruses used to gain entry into the United 
States, swine herd. The agency should cooperate with FDA, DHS 
and other appropriate agencies in this investigation.
    While the U.S. pork industry has committed nearly $2 
million of research for PEDv, it would like USDA's ARS to bring 
significant resources to bear on the disease. This research 
needs to focus on basic viral propagation, pathogenesis and 
control. Development of a vaccine is only one of several 
important tools to get PEDv under control.
    The pork industry also needs the National Animal Health 
Laboratory Network to have the ability to efficiently and 
electronically communicate and generate the data needed to 
understand and respond to PEDv and Deltacoronavirus. The 
information also should be available for real-time appropriate 
analysis.
    Additionally, USDA's ability to implement or coordinate its 
surveillance program should be enhanced. Recently, Secretary 
Vilsack announced an order to require reporting of PEDv. While 
knowledge of the disease prevalence and movement are important 
in understanding the epidemiology disease, USDA needs to take a 
thoughtful and measured approach to development of a strategic 
strategy that is practical, workable and can be successful. The 
pork industry is willing to work with USDA.
    Thank you again for the opportunity to discuss the 
challenges facing today's pork industry, and I would be glad to 
answer any questions posed by the Committee.
    [The prepared statement of Dr. Hill follows:]

  Prepared Statement of Howard Hill, D.V.M., President, National Pork 
                    Producers Council, Cambridge, IA
State of the U.S. Pork Industry
Introduction
    The National Pork Producers Council (NPPC) is an association of 44 
state pork producer organizations that serves as the voice in 
Washington for the nation's pork producers. The U.S. pork industry 
represents a significant value-added activity in the agriculture 
economy and the overall U.S. economy. Nationwide, more than 69,000 pork 
producers marketed more than 111 million hogs in 2013, and those 
animals provided total gross receipts of $15 billion. Overall, an 
estimated $21 billion of personal income and $35 billion of Gross 
National Product are supported by the U.S. hog industry. Economists Dan 
Otto and John Lawrence at Iowa State University estimate that the U.S. 
pork industry is directly responsible for the creation of nearly 35,000 
full-time equivalent pork producing jobs and generates about 128,000 
jobs in the rest of agriculture. It is responsible for approximately 
111,000 jobs in the manufacturing sector, mostly in the packing 
industry, and 65,000 jobs in professional services such as 
veterinarians, real estate agents and bankers. All told, the U.S. pork 
industry is responsible for more than 550,000 mostly rural jobs in the 
United States.
    Exports of pork continue to grow. New technologies have been 
adopted and productivity has been increased to maintain the U.S. pork 
industry's international competitiveness. As a result, pork exports 
have hit new records for 20 of the past 22 years. In 2013, the United 
States exported more than $6 billion of pork, which added about $54 to 
the price that producers received for each hog marketed. Net exports 
last year represented almost 26 percent of pork production. The U.S. 
pork industry today provides 23 billion pounds of safe, wholesome and 
nutritious meat protein to consumers worldwide.
A Permanent Shift for Costs, Lower Numbers of Canadian Pigs
    At beginning of 2014, the U.S. pork industry had lost money in four 
of the past years, including 2 of the 3 worst years on record in 2008 
and 2009. After some recovery in 2010 and 2011, record-high feed costs 
in 2012 and early 2013 pushed producers' cumulative profits to their 
lowest point since late 2004. Now porcine epidemic diarrhea virus 
(PEDv) and potential trade actions by two of our largest export markets 
have cast a cloud over the industry.
    The losses incurred since 2007 began with the initial run-up of 
feed ingredient prices that resulted from rapidly rising ethanol 
production capacity. That capacity development was hastened by Federal 
biofuels policy that included rising levels of mandated ethanol usage. 
Break-even hog production costs rose to a then-record $57 per hundred 
pounds (cwt.) of carcass weight--live $76/cwt.--in 2008 as corn prices 
hit then-record highs. Those high costs of production were complicated 
for producers by record-high hog supplies in 2008, the result of slight 
breeding herd growth and the 2007 introduction of circovirus vaccines 
that allowed many more pigs to survive to market age and weight. Doing 
what was clearly the right thing for animals' well-being had 
significant negative economic consequences for producers.
    The losses of 2008 and 2009 led to a significant reduction in U.S. 
hog slaughter in subsequent years. Part of that decline in numbers was 
because of a liquidation of part of the U.S. breeding herd because of 
financial losses. The U.S. breeding herd fell by 455,000 head (7.3 
percent) from December 2007 through December 2010, and, despite rapidly 
rising productivity, the U.S. pig crop declined from a record-high 115 
million head in 2008 to just 113.7 million in 2010.
    At the same time, U.S. market hog production declined because of a 
sharp reduction in the number of weaner and feeder pigs imported from 
Canada, which fell from just over seven million head in 2008 to just 
4.7 million head in 2010. That decline was driven by two factors whose 
relative importance is very difficult to determine.
    First, the value of the Canadian dollar relative to the U.S. dollar 
increased sharply, making Canadian producers less competitive with 
their U.S. counterparts. That factor plus the same higher feed costs 
faced by U.S. producers caused Canadian hog numbers to decline. Fewer 
hogs in Canada left fewer pigs to be exported to the United States.
    The second factor was mandatory Country-of-Origin Labeling, or 
MCOOL. Though the program began officially in September 2009, it caused 
adjustments in Canadian output well before that date as U.S. hog 
finishers sought domestic sources of feeder pigs to avoid the costs and 
complications of feeding and marketing Canadian pigs, which most 
expected and eventually realized.
    Finally, U.S. hog slaughter also was reduced because of an MCOOL-
driven decline in Canadian hogs shipped directly to the United States 
for slaughter. Those numbers fell from 3.28 million in 2008 to just 
1.14 million in 2010, and those hogs, in particular, were affected by 
MCOOL since the product from them was required to be completely 
segregated from product derived from pigs fed in the United States.
    Total U.S. commercial hog slaughter fell by 6.193 million head (5.3 
percent) from 2008 to 2010 because of these various reductions in the 
number of hogs available to U.S. packers. A primary and completely 
foreseen consequence of these lower hog numbers was a reduction in 
total U.S. pork packing capacity. That consequence was realized in 
April 2010 with the closure of the John Morrell plant in Sioux City, 
Iowa. The plant had long been considered vulnerable because of its lack 
of further-processing facilities and downtown location near the former 
site of the Sioux City Stockyards, which closed in 2002. It was 
particularly vulnerable to MCOOL-related reductions in Canadian imports 
because of it being one of the northernmost and westernmost plants in 
the United States. Its sister plant in Sioux Falls, SD, processed a 
significant number of imported Canadian market hogs and U.S. market 
hogs produced from Canadian-born pigs. When the number of those pigs 
declined, there simply were not enough hogs available in the North-
Central United States to maintain the pre-2010 level of packing 
capacity. The closure cost 1,500 jobs.
    That reduction of capacity remains a potential limiting factor for 
the U.S. pork industry today. The high feed prices of 2012-2013 and, 
now, PEDv have reduced U.S. hog numbers enough that the current total 
capacity of 444,320 head per day will not be challenged either this 
year or next. But the United States is the world's low-cost producer of 
finished pork products, meaning that there is ample potential for long-
run growth. A return of market hog numbers to the level of 2008 would 
result in weekly slaughter numbers that exceed the nation's MCOOL-
reduced packing capacity. Should that happen, very low hog prices would 
result.
Clock Runs Out On U.S. Crop Weather in 2012
    Two years of marginal profitability in 2010 and 2011 were followed 
by another period of losses, this time driven by the first significant 
drought to hit the Cornbelt since 1988. The combination of sharply 
lower corn and soybean yields and very low corn and soybean reserves 
pushed prices and hog feed costs to new record highs. The average 
break-even cost for Iowa farrow-to-finish operations modeled by Iowa 
State University hit $90.89/cwt carcass in 2012 and $93.95/cwt. carcass 
in 2013. Those compare with $52.76/cwt. from 1999-2006 before the 
advent of biofuels policy and roughly $70/cwt. in 2009 and 2010 after 
the original grain price adjustments to biofuels production growth 
mandated by the Federal energy acts of 2005 and 2007.
    U.S. producers had begun a herd expansion in early 2012 following 
marginally profitable years in 2010 and 2011. That expansion was slowed 
by the losses of 2012 and 2013 but not completely stopped as producers 
correctly judged the drought-induced high grain prices and hog 
production costs to be temporary. A record-large U.S. 2013 corn crop 
has now pushed production costs back near $80/cwt--still high by long-
term historical standards but much more reasonable than the record 
levels of 2012 and 2013.
New Threats
    The latest threats to the U.S. pork industry are serious indeed, 
especially since solutions to both are still not certain. The most 
pressing threat we face today is PEDv, a devastating disease that has 
now spread to 30 states. PEDv's biggest impact is among pigs up to 3 
weeks of age, where death losses are almost always near 100 percent. 
USDA's March 28 quarterly Hogs and Pigs Report estimated that PEDv has 
thus far killed roughly two million head. A far more accurate estimate 
from U.S. pork industry economist Steve Meyer is seven million head, 
which is based on anecdotal but dependable estimates that roughly 2.6 
million sows have been infected and that each has lost, on average, 2.7 
piglets.
    Those death losses began in the spring of 2013 in scattered sow 
farms in the Cornbelt but became significant in May and June 2013 in 
the Oklahoma Panhandle. Subsequent breaks in large numbers of sow farms 
in North Carolina began in August and September. Large numbers of 
Cornbelt sow farms began to break with PEDv in November and December, 
and the number of positive case accessions, which veterinarians 
consider an accurate gauge of disease activity, to animal health 
diagnostic labs exploded after the beginning of 2014. (See Figure 1.)
    Using the number of positive case accessions for suckling pigs to 
distribute the estimated loss of seven million pigs from June 2013 
through March 2014 suggests that slaughter reductions this summer could 
be greater than ten percent, relative to last year's levels. Higher 
market weights--because of lower feed costs and the industry's efforts 
to offset some degree of PEDv pig losses--would offset three to four 
percent of that reduction, but U.S. pork production would likely be 
down six to eight percent in the third quarter. Such a reduction would 
push U.S. hog prices up by 15 to 25 percent and force consumer-level 
pork prices upward by 10 to 12 percent.
Figure 1
Weekly Positive PEDv Accessions


        Source: National Animal Health Laboratory Network, posted at 
        www.assv.com.

    The irony of this situation is that pork producers could benefit 
economically from PEDv losses because of the inelastic nature of pork 
and hog demand. That inelastic demand structure should cause prices to 
rise by a greater percentage than production declines, meaning total 
revenue for the pork industry would grow this year. When combined with 
lower costs of production, the pork industry could enjoy perhaps its 
best year ever financially, and producers--even those who lose pigs to 
PEDv--likely would see their best individual years ever, as well. The 
only exceptions to this success would be producers who farrow less 
frequently than once every 2 months and lose one or more farrowing 
groups of pigs to PEDv. Those operations may see output fall by a 
greater percentage than prices increase, thus reducing total revenue.
    But let no one be deceived that pork producers are happy about this 
situation even if it results in economic benefits. The U.S. pork 
industry's deep concern over PEDv is two-fold.
    First, U.S. pork producers are in the business of creating and 
maintaining living, healthy animals. That is, in essence, their calling 
as producers. Losing millions of pigs to this disease hurts them to the 
very core and actually signifies that they have profoundly failed to 
live up to that calling. Producers and their dedicated employees take 
these losses personally, and they hurt deeply. Producers talk about 
their PEDv experiences using terms such as ``devastating,'' 
``heartbreaking'' and ``gut-wrenching'' when describing the disease's 
impact on themselves, their family and their employees.
    Second, U.S. pork producers are very concerned about the impact of 
PEDv on their customers and others who depend on the pork industry. 
Retail pork prices already hit a new record high in March and most 
likely will rise even higher this summer and fall. That means that some 
customers, both at home and abroad, will be unable to afford delicious, 
wholesome pork products. In addition, reduced hog numbers mean less 
feed, less medicine, fewer veterinary services and shortened hours at 
packing and processing plants. All of these dynamics reduce wages and 
profits generated by allied businesses. And since many of these 
businesses are located in small- to mid-sized rural communities, this 
will have a significant negative impact on the nation's rural economy.
    So what needs to be done about PEDv?
    First and foremost, it still is not known how PEDv entered the 
United States. The pork industry has good evidence that two distinct 
strains of PEDv were introduced along with another virus called Porcine 
Deltacoronavirus. The pork industry needs USDA to conduct a thorough 
investigation on the pathway these viruses used to gain entry into the 
U.S. swine herd. The agency should cooperate with the U.S. Food and 
Drug Administration, the Department of Homeland Security and other 
appropriate agencies in that investigation.
    While the U.S. pork industry has committed nearly $2 million to 
research PEDv, it needs the USDA Agricultural Research Service to bring 
significant resources to bear on this disease. This research needs to 
focus on the basics of viral propagation, pathogenesis and control. 
Development of a vaccine is only one of several important needs for 
getting PEDv under control.
    The pork industry also needs the National Animal Health Laboratory 
Network (NAHLN) to have the ability to efficiently and electronically 
communicate and generate the data needed to understand and respond to 
PEDv and Deltacoronavirus. The information also needs to be available 
for real-time, appropriate analysis. NAHLN's information technology and 
intellectual property issues should not be a barrier to enhanced inter-
laboratory communication and data sharing.
    USDA's ability to implement a coordinated surveillance program 
should be enhanced. Recently, Secretary Vilsack announced an order to 
require reporting of PEDv. While knowledge of disease prevalence and 
movement are important in understanding the epidemiology of this 
disease, USDA needs to take a thoughtful and measured approach to 
development of a strategy that is practical, workable and has the 
potential to be successful. The pork industry is willing to work with 
USDA to move forward on these issues.
    The second pressing threat for the U.S. pork industry is looming 
trade sanctions from Canada and Mexico over the U.S. mandatory Country-
of-Origin Labeling law. While the Obama Administration's most recent 
effort to satisfy the World Trade Organization (WTO) is still under 
challenge by the two countries and awaiting a decision from a WTO 
dispute resolution panel, the U.S. pork industry believes it is very 
likely that decision will be unfavorable for the United States. This 
means both Canada and Mexico would be free to impose tariffs on a large 
array of U.S. products as soon as this year. While NPPC's foremost 
concern is for U.S. pork products, this Subcommittee, along with the 
entire House Agriculture Committee and the House of Representatives 
must heed the fact that the sanctions would hit many more U.S. sectors 
than pork, or even agriculture. Items targeted by Canada and Mexico for 
retaliation include, for example, maple syrup, wine and manufactured 
goods.
    Can the U.S. economy's fragile recovery withstand a broad-based hit 
on exports to two of the country's largest trading partners? While such 
action may not trigger another recession, it very likely will damage 
the economy and hurt the many hard-working families that depend on 
trade with Canada and Mexico for their livelihoods. The impact of any 
tariffs will go far beyond the boardrooms of the affected companies.
    NPPC is, of course, most concerned about pork producers, who could 
see prices fall by roughly $2 per hundred pounds of carcass weight 
should tariffs actually be imposed. That reduction would reduce 
producer revenues by $400 million per year.
    NPPC encourages Congress to consider a legislative solution to the 
WTO case that satisfies America's trade obligations under the WTO and 
avoids retaliation.
Other Issues of Concern
    In addition to the challenges posed by MCOOL and PEDv, U.S. pork 
producers are watching several other matters that could be problematic.
DOT Hours of Service Rule
    July 1, the U.S. Department of Transportation's Federal Motor 
Carrier Safety Administration (FMCSA) issued a final rule that requires 
truck drivers to take a 30 minute rest break for every 8 consecutive 
hours of service. For drivers hauling livestock, the hours of service 
would include time loading and unloading animals.
    NPPC, along with 13 other livestock, poultry and food 
organizations, petitioned the FMCSA for a 90 day waiver, which was 
granted, then a 2 year exemption from complying with the rule. The 
groups argued that the rule would place the health and welfare of 
livestock at risk, particularly during times of the year with warm 
temperatures, and would provide no increased benefit to public safety--
and likely would decrease public safety--while forcing the livestock 
industry and its drivers to choose between the humane handling of 
animals and complying with the FMCSA regulation.
    Additionally, the livestock industry already has programs--
developed and offered under the oversight of the U.S. Department of 
Agriculture--that educate drivers on transportation safety and animal 
welfare.
    Because FMCSA has not decided whether to grant the industry an 
exemption from the rule, NPPC and other organizations are filing a 
petition to the agency for an emergency 90 day waiver to begin June 1 
when summer temperatures start to rise. If FMCSA fails to eventually 
grant a waiver, NPPC intends to begin filing similar petitions every 90 
days in order to protect the welfare of the animals in our control.
U.S. Dietary Guidelines
    Every 5 years, USDA is required to update the U.S. Dietary 
Guidelines for Americans, which encourage people to focus on eating a 
healthful diet, providing evidence-based nutrition information and 
advice for those age 2 and older. They serve as the basis for Federal 
food and nutrition education programs, including the School Breakfast 
and Lunch programs.
    NPPC in March submitted written comments to the 2015 Dietary 
Guidelines Advisory Committee (DGAC) and to USDA and the Department of 
Health and Human Services, which requested input on steps the food 
industry must take to maintain food safety, to ensure sustainability 
and to reduce sodium, added sugars and fats in the food supply. NPPC 
supports DGAC's work to develop ``nutritional and dietary information 
and guidelines for the general public . . . based on the preponderance 
of scientific and medical knowledge . . .''.
    But NPPC is concerned that the DGAC is addressing issues outside 
its purview and scope of expertise and that politics and public opinion 
rather than sound science and medical knowledge could be used to set 
recommendations and, in the case of Federal feeding programs, to set 
policy that limit or restrict certain foods.
    Additionally, there already exist groups working to better 
understand, for example, sustainability in food production, one of the 
areas into which the Committee has delved.

          [America's pork producers are among the most environmentally 
        and socially conscious food producers in the world, and they 
        have worked to improve diets and enhance breeding practices to 
        raise leaner, healthier pigs to meet the demand for quality 
        pork with less fat.]

    The committee should remain committed to its mission of providing 
``independent, science-based advice and recommendations for development 
of the Dietary Guidelines for Americans, 2015'' and not use its limited 
funding and nutritionally focused expertise on non-nutritional criteria 
to determine winners and losers among the country's food producers.
Conclusion
    The U.S. pork industry is the lowest-cost producer and No. 1 
exporter of pork in the world, and U.S. pork producers continue to 
produce the most abundant, safest, most nutritious pork in the world. 
They have proved very resilient, weathering financial crises and 
diseases as well as the vagaries of a supposedly-free market economy 
pushed and pulled in various directions by government intervention and 
regulation, while investing in and adopting new technologies that have 
promoted animal health, protected the environment and added thousands 
of jobs and billions in national income to the American economy.
    To enable pork producers to continue as leaders in the global and 
domestic economies, the U.S. pork industry urges Congress and the 
Administration to pursue Federal policies and regulations that support 
U.S. pork production rather than hinder its ability to continue to 
produce safe, lean and nutritious pork and pork products for the global 
marketplace.

    The Chairman. Thank you, Dr. Hill.
    The chair will exercise a point of privilege, recognize 
Ranking Member Costa to introduce our next witness.
    Mr. Costa. Thank you very much, Mr. Chairman, and I 
appreciate that courtesy.
    Our next witness is Mr. Smith, Mr. Mike Smith, who was born 
and raised in Southwestern Oregon but now calls California his 
home. He was born on a commercial cow/calf operation, graduated 
from Cal Poly in California but then got his master's degree at 
the Oklahoma State University, for my friends from Oklahoma.
    He is a manager who focuses on the partnership for quality 
and marketing program for Harris Ranch. Harris Ranch in 
California is one of America's leading producers of quality 
beef, and Mike does a great job and he is joined here by his 
wife, Sarah, and his two children, Clayton and Jesse. They are 
getting a chance to watch Dad in action. So we welcome Mr. 
Smith here today.

        STATEMENT OF MICHAEL T. SMITH, SPECIAL PROJECTS
         MANAGER, HARRIS RANCH, SELMA, CA; ON BEHALF OF
             NATIONAL CATTLEMEN'S BEEF ASSOCIATION

    Mr. Smith. Thank you, and good morning, Chairman Crawford, 
Ranking Member Costa, and Members of the Committee.
    I am here today representing the National Cattlemen's Beef 
Association, the North American Meat Association and the 
company I work for, Harris Ranch, and I know that Congressman 
Costa is very familiar with the company, but for those who are 
not, let me give you a brief background.
    Harris Ranch is one of the largest family-owned 
agribusinesses in the western United States. We operate five 
primary business entities under the Harris Farms of banner. For 
example, our hospitality division is located equidistance 
between San Francisco and Los Angeles. We operate a 150 room 
inn and a restaurant complex that will serve in excess of 1,500 
meals each and every day.
    Additionally, we operate a thoroughbred race horse 
division, and the fact is, the odds on favorite this Saturday 
at the Kentucky Derby is a horse by the name of California 
Chrome. That horse's dam was bred by a stallion that stands in 
our breeding barn. He was born and foaled in our foaling barn, 
and for the first 2 years of his life remained at Harris Farm. 
So suffice to say, we are pretty proud of that horse. Now, I 
hope I just didn't jinx him for Saturday.
    Our cattle feeding division operates one of the largest 
beef feedlots in the United States with a one-time capacity of 
120,000 head. In total, we will feed in excess of a \1/4\ 
million head of cattle each year. These cattle will then be 
slaughtered, fabricated and further processed in our state-of-
the-art beef processing facility that is located roughly 50 
miles away from the beef feedlot.
    Finally, our farming operation encompasses roughly 17,000 
acres of ground. In addition to the permanent crops of almonds, 
pistachios and citrus, in a normal year, and I will highlight 
that term normal year, we will grow tomatoes, onions, garlic, 
broccoli, lettuce, asparagus, melons, just to name a few. And 
the reason I highlighted that key word normal, we haven't had 
one of those in quite some time.
    So that will kind of segue into the start of this 
testimony. I want to start with water, or more correctly, state 
of the lack thereof. In my home State of California we are 
suffering through one of the worst droughts in recorded 
history. Make no mistake, however, this drought is made even 
worse by actions taken by Federal and state governments to 
restrict the rightful allocation of water to farmers and cattle 
producers throughout California, especially those in the 
Central Valley, a region of the state that grows well over \1/
2\ of the fruits and vegetables in this country.
    Our concern at Harris Ranch is the with Delta smelt. That 
is a 3 inch bait fish that because of its listing as an 
endangered species has profoundly impacted water delivery in 
the State of California. As a net result, this year's zero to 
possibly five percent allocation of water will result in Harris 
Farms fallowing over 11,000 acres of some of the most highly-
productive crop ground in the United States. That is \2/3\ of 
all the ground we farm will sit idle this year.
    But cattle in other states face similar threats with the 
very real impacts of the Endangered Species Act. The potential 
listing of the Sage Grouse and Lesser Prairie Chicken will 
severely impede the ability of cattlemen in the Western and 
High Plains regions of the United States to operate their 
ranches. The undeniable fact is that Congress must immediately 
reopen the Endangered Species Act and provide relief to the 
true stewards of the land, this nation's farmers and ranchers.
    One final issue impacting the beef industry I would like to 
discuss with you today is mandatory Country-of-Origin Labeling. 
As a company, we are extremely upset and quite frankly 
disappointed that Congress did not provide a legislative fix to 
COOL in the recent farm bill. COOL has been a particular burden 
to the beef industry for far too long now. Proponents of COOL 
have argued that mandatory labeling would cause the consumer to 
pay more for U.S. beef.
    Five years of implementation have proved just the opposite. 
In fact, a recent Kansas State study found that the vast 
majority of consumers don't even look for Country-of-Origin 
Labeling when buying beef; in fact, most don't even know a COOL 
label exists nor did they care.
    As one of the first-branded beef companies in the United 
States, you would think that Harris Ranch would strongly 
support Country-of-Origin Labeling, but the fact is, it is just 
the opposite. Our experience is that our customers are not 
interested in nor do they wish to pay a premium for country-of-
origin information.
    The question then becomes, why continue to implement a law 
that harms the U.S. cattle industry when the consumer is not 
demanding it? That question is especially relevant with the 
pending WTO ruling. Canada and Mexico have consistently ranked 
as two of the top export markets for U.S. beef. Last year, 
Canada and Mexico collectively imported just under $2 billion 
worth of U.S. beef. If we lose access to those markets, they 
are restricted by the enactment of tariffs, that action will 
have a profoundly negative impact.
    In closing, we are perplexed why the government wants to 
hurt our industry for a simple marketing program that has 
proven to be ineffective, and let me be clear, COOL is all 
about marketing; it has absolutely nothing to do with food 
safety.
    And finally, COOL is not a consumer-right-to-know issue; if 
it were, COOL would be applied to all beef and not just that, 
that is marketed through the retail level.
    Mr. Chairman, thank you for the opportunity to be here 
today.
    [The prepared statement of Mr. Smith follows:]

   Prepared Statement of Michael T. Smith, Special Projects Manager, 
    Harris Ranch, Selma, CA; on Behalf of National Cattlemen's Beef 
                              Association
    Mr. Chairman, Ranking Member Costa, thank you for the opportunity 
to be here today to discuss the state of the beef industry.
    I am here this morning representing the National Cattlemen's Beef 
Association, the North American Meat Association, and the company I 
work for . . . Harris Ranch.
    For those unfamiliar with Harris Ranch, the company is one of the 
largest, family-owned agribusinesses in the western United States. 
There are five primary business entities operated under the Harris 
Ranch banner. Our hospitality division, located midway between San 
Francisco and Los Angeles, operates a 150 room inn and a restaurant 
complex which serves an average of 1,500 meals each day. Our cattle 
feeding division operates one of the largest feedlots in the U.S., with 
a one-time capacity of 120,000 head of cattle. In total, we will feed 
roughly 250,000 head of cattle each year. These cattle are then 
slaughtered, fabricated and further processed in our state-of-the-art 
beef processing facility. In addition, we operate one of the largest 
Thoroughbred horse ranches in the western United States, and will breed 
roughly 300 brood mares at our facility each year. Finally, our farming 
operation encompasses over 17,000 acres growing over 35 different crops 
on the west side of the fertile San Joaquin Valley. In addition to the 
permanent crops of almonds, pistachios, grapes and citrus; in a normal 
year we will grow crops like tomatoes, onions, garlic, broccoli, 
lettuce, asparagus and melons. But the key word here is ``normal'', and 
we have not had a ``normal'' year in quite some time.
    This is a very difficult time for the beef industry. The United 
States currently has the lowest cow herd in 60 years. There are a 
number of issues negatively impacting the cattle industry. I would like 
to highlight five that are having a direct and immediate impact: 
drought, Federal regulations, taxes, trade and Country-of-Origin 
Labeling.
    Top of mind of course is water, or more precisely, the lack 
thereof. Most of the country west of the Mississippi finds itself in 
years 4, 5, or 6 of drought. In my home State of California, we are 
currently suffering the worst drought in recorded history. The drought 
is made worse by the actions taken by the Federal and state government 
to restrict the rightful allocation of water to farmers and cattle 
producers throughout California, but especially in the Central Valley. 
These actions threaten the viability of agriculture in California--a 
state that provides over \1/2\ of the fruits and vegetables to the 
United States, as well as highly quality beef. We must have immediate 
relief from Federal laws that are severely restricting our access to 
water such as the Endangered Species Act. Congress must reopen the ESA 
and provide relief--and a little common sense--to reign in a law that 
has caused untold hardship for many hardworking people.
    It's not just the ongoing drought that is hurting our industry. The 
onslaught of Federal rules and regulations continue to put pressure on 
the growth of America's cattle herd. In California, we are already 
subject to more rules and regulations than any other cattle producing 
state. These state rules are compounded by rules coming from agencies 
such as the Environmental Protection Agency (EPA). The EPA's recently 
published a proposed rule to redefine the waters of the United States 
under the Clean Water Act. We have been anticipating this rule for 
quite some time, and we have made it clear that we have serious 
concerns about expanding the jurisdiction of EPA and the U.S. Army 
Corps of Engineers. While the proposed rule does include some 
exemptions for agricultural practices, it does not cover every body of 
water that will be encountered on cattle farms and ranches across the 
country. Under this proposal, it is likely that some cattle producers 
will have to file for a permit to conduct activities on their private 
property. Effectively, this amounts to a huge land grab by EPA and 
directly threatens long established private property rights. To that 
end, it cannot be allowed to move forward. We need Congress to step in 
and either shut down this effort by EPA permanently, or restrict their 
funding to move such a proposal forward.
    Transportation is another area where we could use some relief from 
obsolete or ridiculous rules. The U.S. Department of Transportation is 
currently enforcing their ``30 minute'' rule which requires drivers to 
stop for a mandatory 30 minute rest during each 8 hour shift. Stopping 
for fuel or meals does not satisfy this requirement. While we support 
rules to ensure that drivers operate in a safe manner, we must also 
look out for the welfare of our cattle. Shipping cattle is a stressful 
time in their lives. One way to keep the animals comfortable is to have 
air constantly moving through the trailer while the truck and trailer 
are moving down the road. If the vehicle is required to stop, airflow 
stops. The safety and welfare of our cattle is our utmost priority and 
we must be allowed the option to continue to travel without this DOT 
restriction. This is especially true during the summer months. I urge 
the Committee to engage with DOT to ensure that livestock haulers are 
exempt from this rule.
    We also need to allow more weight to be shipped on these trailers. 
As I mentioned, shipping is stressful on cattle, and as a result, they 
lose weight or ``shrink'' in value. We know that with an additional 
axle, we can load these trailers to over 80,000 pounds and have less 
wear and tear on roads and bridges than we do now with only two axles. 
As Congress looks at the transportation reauthorization, we need to 
look at how we maximize our cattle shipping capabilities.
    Taxes are another issue which has a huge impact on the viability of 
cattle operations in the United States. It is extremely important that 
Congress take urgent action to make permanent the tax extenders package 
made up of the tax provisions which expired at the end of 2013. In 
particular, we would like to see the Section 179 expensing be made 
permanent at a level of $500,000, like it was prior to expiration. 
Section 179 expensing has been very beneficial to producers who 
purchase new equipment by allowing them to depreciate the value quicker 
and at a larger amount. We can't talk about taxes without mentioning 
the Death Tax. Even though Congress made improvements to the Death Tax 
provisions at the end of 2012, we still need full repeal. If even one 
producer has to sell off a part of their operation to pay the Death 
Tax, it is one too many. In order to make sure that a future Congress 
does not revert back to the $1 million exemption, it is imperative that 
we finally repeal the Death Tax once and for all.
    For the cattle industry, trade is one of our top priorities. We 
have a mature and fully developed market here in the United States. As 
such, it is essential we look to the international markets to grow the 
U.S. cattle industry. That is where international trade becomes very 
important to us. When you look at countries like China, we see that 
they have an increasing middle class with more disposable income. When 
you have more income, you want to eat better. When you want to eat 
better, you want protein. Obviously, we want the protein of choice to 
be U.S. beef. The trade agreements we have now are worth roughly $300 
per head in the value of fed cattle. That is almost 20% of their 
overall value.
    As we speak, our negotiators are working to conclude the Trans-
Pacific Partnership (TPP). Of particular interest to us is how this 
agreement will define beef trade between the United States and Japan. 
We, and many of you as Members of Congress, made it very clear to Japan 
that in order for us to support their entrance into TPP, they had to 
commit to eliminating tariffs on beef. As of now, they have been 
pushing back on that point and want to reduce, but not eliminate 
tariffs. In order for this to be a true free trade agreement, and one 
that is based on what to expect of 21st century trade pacts, they need 
to eliminate the tariff on U.S. beef. The current 38.5% tariff is 
unacceptable, and your support for TPP should be based on the 
elimination of this tariff.
    While we believe in trade, we also want to make sure we are basing 
our trade deals on sound science. USDA's Animal and Plant Health 
Inspection Service (APHIS) has proposed a rule that would allow certain 
states and regions within Brazil to ship fresh and frozen beef into the 
United States. The issue here is Brazil still has a problem with foot-
and-mouth disease (FMD). We know that the FMD virus can travel on fresh 
and frozen product, so that immediately puts our industry at risk. In 
preparing our comments to APHIS on this issue, we looked at the 
economic impact of a FMD outbreak in the United States. Economic models 
show that a case of FMD could cost our industry up to $50 billion. That 
includes the loss of foreign markets much like we saw with the case of 
BSE in 2003. The World Organization for Animal Health (OIE) has 
guidelines that define how trade can be accomplished with countries 
that have disease issues. However, we don't believe that Brazil has the 
resources or commitment to implement and fulfill those protocols.
    Even more concerning is that we don't believe that APHIS adequately 
prepared for this proposed rule. In preparing our comments, we 
requested the documents that APHIS used in formulating this rulemaking. 
Of the documents they gave us, 60% were in Portuguese with no 
translation. We wonder how these documents could have been effectively 
used by APHIS. We were then forced to FOIA the remaining documents we 
had requested, and we still have not received those documents even 
though the comment period closed last Tuesday. Of particular interest 
is the result of a site visit conducted in 2013. We believe any site 
visit would have huge implications on how Brazil intended to implement 
the safeguards and protocols. To date, we have not received this 
document of even an acknowledgement from APHIS that it exists. These 
games do not give us faith that APHIS has done their due diligence. We 
are asking that you engage with APHIS on this rule and help us shut it 
down.
    Trade leads me to my final point. We are still very upset and 
discouraged that Congress did not fix mandatory Country-of-Origin 
Labeling (COOL) in the farm bill. COOL has been a particular burden for 
our business.
    COOL has plagued our industry for almost 2 decades. Proponents of 
COOL have long said that mandatory labeling would cause the U.S. 
consumer to pay more for U.S. beef. Five years of implementation has 
proved just the opposite. Kansas State University conducted a study on 
COOL which showed that the vast majority of consumers don't even look 
at the COOL label when buying beef. In fact, most didn't even know 
there was a COOL label. While the COOL proponents say they have surveys 
that show Americans want to know where there beef comes from, the K-
State study actually measured how Americans vote. Americans vote with 
their pocketbook by purchasing beef, and the vast majority don't 
consider COOL in their purchasing decision. Why then would we continue 
a law that has incurred costs on the U.S. cattle industry when the 
consumer is not demanding it? That question is especially relevant when 
you look at the World Trade Organization (WTO) case filed by Canada and 
Mexico against the COOL program. If they continue to win their case, 
which we believe they will, they will be allowed to retaliate against 
our industry. Canada and Mexico have consistently been two of our top 
five markets for the export of U.S. beef. In 2013, Canada imported over 
a billion dollars in U.S. beef and Mexico imported just under a billion 
dollars. That is big money for our industry. If we lose access to those 
markets, or they are restricted by the enactment of tariffs, that will 
have a negative impact on all U.S. producers. We remain perplexed why 
our government wants to hurt our industry for a simple marketing 
program that has proven to be ineffective? COOL is all about marketing 
and has absolutely nothing to do with food safety. Those who use that 
argument know nothing about the food safety protocols in this country.
    It is also not a ``consumer right to know'' issue. If it were, then 
COOL would apply to all beef sold and not just the beef sold at the 
retail level. This claim is a red herring used by COOL proponents in a 
desperate attempt to hold on to their position. Clearly COOL is a farce 
and its proponents obviously have no idea how modern beef production in 
the United States actually works. We have to fix COOL now, and I would 
urge Members of this Committee to take up this challenge.
    Mr. Chairman, thank you for the opportunity to be here today.

    The Chairman. Thank you, Mr. Smith.
    I will now recognize Mr. William P. Roenigk. Mr. Roenigk, 
you are recognized for 5 minutes.

     STATEMENT OF WILLIAM ``BILL'' P. ROENIGK, SENIOR VICE
           PRESIDENT AND ECONOMIST, NATIONAL CHICKEN
                   COUNCIL, WASHINGTON, D.C.

    Mr. Roenigk. Thank you, Chairman Crawford, Congressman 
Costa, and Members of the Committee.
    We very much appreciate the opportunity to participate in 
this important and timely hearing on the status of the U.S. 
chicken industry and the issues that are impacting the poultry 
industry. On behalf of National Chicken Council, I appreciate 
your invitation to provide comments and recommendations 
regarding a number of vital issues and difficult challenges 
confronting our industry.
    U.S. chicken producers and processors will certainly need 
the Subcommittee's support if the chicken industry is to 
successfully overcome the increasingly broad array of difficult 
issues and challenges, some of which I will outline in my 
statement. I am Bill Roenigk and presenting this statement on 
behalf of the National Chicken Council, the organization that 
represents companies that produce and process over 95 percent 
of the chicken in the United States.
    The 30+ vertically-integrated firms are comprised of 
federally-inspected chicken industry, I can assure the 
Committee are a very dynamic, forward looking and most 
essential part of America's agribusiness. Most importantly, 
these companies can be characterized as survivors. They work 
hard every day to continue to earn that status.
    As Dr. Glauber said earlier this morning, chicken 
production this year will reach a record high of 38.1 billion 
pounds on a ready-to-cook weight basis, 1.8 percent above 2013, 
a percentage very similar to what we increased last year. 
Normally, current market conditions would stimulate production 
to be somewhat higher, that is a percentage more aligned with a 
long-run average of about four percent per year. So why are 
chicken producers not stepping up production to better match 
the long-term average of four percent?
    In short, we would if we could, but we can't. Yes, we would 
like to produce more pounds of chicken if we could, but 
unfortunately at this time, we cannot. The basic primary reason 
for the industry's inability to step up production can be 
attributed to the problems caused by a failed policy that has 
been with us since 2006.
    The devastating impact of an inflexible Renewable Fuel 
Standard for conventional biofuels especially following this 
somewhat unprecedented drought of 2012 that severely reduced 
corn harvest continues to have broad and deep ramifications. 
Very high and very volatile corn prices even prior to 2012, 
most notably in 2009 when chicken production decreased almost 
four percent for only the third time since 1950 helps set the 
stage for the restrained production.
    Not only did chicken producers have to significantly adjust 
production downward to survive but also the negative economic 
ripple affected the primary breeders. This is the life blood of 
our industry. The primary breeders had to adjust their 
production also as companies reduced their orders for day-old 
pullet chicks and in some cases even had to cancel their 
orders, and that inflicted financial pain on the primary 
chicken producers.
    The chicken companies will rebuild their hatch, resupply 
flocks to better meet market needs, but until then, the chicken 
industry will continue to grow production but it will be at a 
more measured pace. We are especially aware that increased 
chicken production at this time and for the foreseeable future 
would be appreciated by consumers.
    As we have heard, cattle and hog producers are confronting 
their own challenges to produce more beef and pork, and at this 
time, we think many consumers, if not most consumers, are 
increasingly finding chicken a favorable alternative when the 
competition provides such an opportunity to better compete.
    It is frustrating to our industry that we are not able to 
increase our production, especially when we hear people say it 
only takes 7 weeks to grow a chicken. In the end, consumers are 
once again paying the price for a biofuels policy, and program 
that is broken beyond repair. In short, the state of the 
industry at least for those surviving companies is good in 
terms of net margins, but the industry continues to be 
frustrated by the results of an inflexible, renewable fuel 
policy.
    In the interest of time, let me just mention a couple other 
issues I have listed here. The GIPSA rule that was finalized, 
has gone against the instructions of Congress. Efforts to 
defund that Congress has done several times. We think it is 
important that the rule be permanently defunded.
    Also, regarding international trade, we very much support 
the prompt passage of trade promotion authority, continue 
Congressional support for a successful conclusion to the Trans-
Pacific Partnership and to Transatlantic Trade and Investment 
Partnership and continue Congressional support for the WTO 
actions involving U.S. poultry trade with China, India and 
Indonesia and South Africa.
    The National Chicken Council looks forward to working more 
closely with the Committee so that poultry producers will have 
a better opportunity to successfully manage the increasing 
difficult challenges and issues.
    Thank you, Mr. Chairman, and Members of the Committee.
    [The prepared statement of Mr. Roenigk follows:]

    Prepared Statement of William ``Bill'' P. Roenigk, Senior Vice 
  President and Economist, National Chicken Council, Washington, D.C.
State of the Chicken Industry: 2014
    Good morning, Chairman Crawford, Congressman Costa, and Members of 
the Subcommittee. Thank you, Chairman Crawford, for the opportunity to 
participate in this important and timely hearing on the status of the 
U.S. chicken industry and issues impacting the state of the poultry 
industry. On behalf of the National Chicken Council, I appreciate your 
invitation to provide comments and recommendations regarding a number 
of vital issues and difficult challenges confronting our industry. U.S. 
chicken producer/processors will certainly need the Subcommittee's 
support if the chicken industry is to overcome the increasingly broad 
array of difficult issues and challenges some of which I will outline 
in my statement.
    I am Bill Roenigk and am presenting this statement on behalf of the 
National Chicken Council, the organization that represents companies 
that produce and process over 95 percent of the chicken in the United 
States. The 30+ vertically-integrated firms that comprise the 
federally-inspected chicken industry, I can assure the Committee, are a 
very dynamic, forward-looking and essential part of American 
agribusiness. Most importantly, these companies can be characterized as 
being ``survivors.'' They work hard every day to continue to earn that 
status.
Snapshot of 2014 Chicken Production
    USDA estimates that chicken production this year will reach a 
record high of 38.1 billion pounds on a ready-to-cook weight basis, 1.8 
percent above 2013, a percentage increase very comparable to last 
year's rate. Current favorable market conditions would normally 
stimulate production to be somewhat higher, that is, a percentage 
increase more aligned with the long-run annual average of four percent. 
So, why are chicken producers not stepping-up production to better 
match the long-term average of four percent? We would if we could, but 
we can't. Yes, we would like to produce more pounds of chicken if we 
could, but unfortunately we, at this time, cannot.
    The basic, primary reason for the industry's inability to step-up 
production can be attributed to problems caused by a failed policy that 
has been with us since 2006. The devastating impact of an inflexible 
Renewable Fuel Standard for conventional biofuels, especially following 
the somewhat unprecedented drought of 2012 that severely reduced the 
corn harvest continues to have broad and deep ramifications. Very high 
and very volatile corn prices even prior to 2012, most notably in 2009 
when chicken production decreased almost four percent for only the 
third year since 1950 helped set the stage for the restrained 
production. Not only did chicken producers have to significantly adjust 
production downward to survive, but also the negative economic ripple 
effect of an inflexible RFS caused the primary broiler breeders to also 
significantly adjust their production downward. Further, broiler 
breeders had to curtail their production plans for the future. Primary 
breeders are the companies that are the lifeblood of our business 
because they generate the grandparents, great grandparent, and pedigree 
flocks. The primary breeders suffered significant financial strain 
during this time as orders for day-old pullet chicks were reduced or 
even cancelled by chicken producers who were also confronting severe 
financial pain because of an inflexible RFS. It is obviously taking the 
primary breeder companies time to rebuild their grandparent flocks that 
produce the day-old pullet chicks that mature in 7 months into the 
mother hens for our chickens. In time the primary breeders will 
generate larger, more sufficiently-sized flocks. At that time they will 
again be able to provide pullet chicks at a more normally-expected 
rate. In turn, chicken companies will enlarge their hatchery supply 
flocks to better meet market needs. Until then, the chicken industry 
will continue to grow but it will be at a more measured pace.
    We are especially aware that increased chicken production at this 
time and for the foreseeable future would be appreciated by consumers. 
As cattle and hog producers confront their own challenges to produce 
more beef and pork, many consumers, if not most consumers, increasingly 
find chicken a favorable alternative. When the competition provides an 
opportunity to better compete, it is a bit frustrating to find 
yourself, as the chicken industry does, in the position of ``we would 
if we could but we can't,'' especially when we hear ``It only takes 7 
weeks to grow a chicken.''
    In short, the state of the industry, at least for those surviving 
firms, is good in terms of net margins but the industry continues to be 
frustrated by the results of an inflexible renewable fuels policy and 
program. The often-dismissed fact, especially today as grain prices 
moderate, is that the RFS has inflicted deep and sustained damage to 
chicken production. In the end, consumers are once again paying the 
price for a biofuels policy and program that are broken beyond repair.
High and Volatile Corn Prices Force ``Survivor'' Chicken Companies to 
        Cope
    With the many difficult challenges chicken companies have faced and 
are facing in production, processing, and marketing, firms operating 
today have certainly earned the title of ``survivor.'' Over the past 5 
decades broiler production has decreased on an annual basis only three 
times: 2 years in the mid-1970s and then again in 2009. With the very 
steady track-record of increasing production, the industry's growth has 
offered increased opportunities for growers to expand their operations 
and build their net worth. Since the Renewable Fuel Standard (RFS) was 
implemented in 2006, that strong track record of growth has been in 
very serious jeopardy because an overabundance of corn is being 
diverted to fuel production and thus squeezing-out corn that should be 
available for feed, even when there is not an adequate supply of corn 
for all users.
    In October 2008 when corn prices escalated to record high levels, 
it became more and more evident that the national policy regarding 
corn-based ethanol has been heavily tilted toward using corn for fuel 
rather than for food/feed. The need to re-balance the policy is long 
overdue. Picking one market for corn to be the winner at the expense of 
the loser should not be the function of government. Mandating the use 
of ethanol and protecting ethanol's feedstock from competition is 
double over-kill. Greater energy independence is a worthy goal for the 
United States, but the negative and unintended consequences of moving 
too far too fast with corn-based ethanol have become overly apparent. 
For the chicken industry, like other animal agriculture producers, 
fewer pounds of product have been produced and will also not be 
produced in the foreseeable years. Consumers who have sufficient income 
to devote to cover the higher costs of food will reach deeper into 
their pocketbooks and pay the higher food prices. Consumers in this 
country and around the world who cannot continue to afford animal 
protein in their diets will have to shift to other foods. However, with 
land being a limiting factor in the production of food, it is most 
likely all foods will be higher in price, whether of animal origin or 
not.
    It can reasonably be argued that U.S. animal agriculture when 
compared with ethanol producers and overseas buyers is the most 
vulnerable corn buyer whenever there is a shortfall in corn.
Renewable Fuel Standard for Conventional Biofuel: Time to Repeal
    Recent market developments and government actions again re-confirm 
that the Renewable Fuel Standard for conventional biofuels is broken 
beyond repair and, therefore, must be repealed. The RFS imposes biofuel 
blending requirements that greatly and negatively impact the chicken 
industry. When the original RFS was implemented during the 2005/06 crop 
year, ethanol consumed about 15 percent of the corn crop. By the 2012/
13 crop year, ethanol's consumption reached more than 43 percent of the 
crop.
    EPA has proposed a reduction in the RFS this year, but nonetheless, 
ethanol will consume about 40 percent of the 2013/14 U.S. corn crop. 
Despite EPA's proposed adjustment this year, under the statute 
providing for the RFS (the Energy Independence and Security Act of 
2007) corn ethanol is still mandated to grow further.
    The RFS has created a very uneven playing field for chicken 
companies to compete for necessary feedstuffs. Since the RFS was 
enacted, chicken companies have incurred over $44 billion in higher 
actual feed costs due to the RFS. Adding together the higher cumulative 
feed costs for chicken, turkey, table eggs, and hogs, the total is 
almost $100 billion in additional feed costs. Also higher feed costs 
for other agricultural animal producers, such as dairy and beef cattle, 
would add measurably to the $100 million cost. To put this $100 million 
of added feed cost in perspective, it can be noted that ethanol 
production has totaled a cumulative 85.4 billion gallons since the RFS 
was expanded in 2007. Spreading the $100 million over the 85.4 billion 
gallons of ethanol means poultry and swine producers have been forced 
to incur an additional $1.35 per gallon by paying these higher feed 
costs. This perspective, I suggest, helps illustrate the food versus 
fuel situation.
    Most importantly, from 2007 through 2013, due in large part to high 
and volatile feed costs brought on by the RFS, at least a dozen chicken 
companies have ceased operations, filed for bankruptcy, or have been 
acquired by another company. And, the beat goes on, with two more 
chicken companies so far this year being acquired by other companies. 
While corn prices have moderated somewhat this year from their recent 
record highs, the chicken industry is only one drought away from 
another economic crisis.
    The National Chicken Council believed at one time that the original 
RFS included a workable provision that provided for an ``off ramp'' in 
times of economic crisis. On at least two major occasions, that belief 
has proven to be very naive. In 2012, the worst drought in more than 50 
years coupled with record high and very volatile corn prices was deemed 
insufficient to trigger a temporary waiver of the RFS. Similarly, in 
2008, historically high corn prices did not trigger the waiver under 
EPA's authority. At the same time with ethanol producers faced with 
domestic blend wall limits, the RFS gives ethanol producers such 
leverage that they are able to produce and export surplus ethanol, 
which further constrained the corn market in the United States. One has 
to ask if such exports and the import of Brazilian sugar cane based 
ethanol under the ``advanced'' category of the RFS further the law's 
intent to have the United States gain greater energy independence.
    EPA's proposal for the 2014 RFS reflects again clear evidence that 
our nation's biofuels policy is broken, and broken well beyond repair. 
The issues of the blend wall, food versus fuel, mandates for non-
existing cellulosic ethanol and other issues will not go away until 
Congress deals with the reality of the unworkable, unsustainable, 
imbalanced, and misnomered RFS.
    The National Chicken Council strongly supports efforts to create a 
more reasonable and sustainable approach to the nation's energy policy. 
We recognize EPA's recently proposed action to adjust the RFS may prove 
to be a small first step. Nonetheless, Congress must provide a longer 
term, more certain solution by repealing the mandate for corn-based 
ethanol.
Over-Reaching GIPSA Regulations Need Addressing
    In the 2008 Farm Act Congress directed the U.S. Department of 
Agriculture/ Grain Inspection, Packers and Stockyards Administration 
(GIPSA) to develop criteria in five areas of poultry and swine 
contracts. The five areas were:

   Undue or unreasonable contractual preferences/advantages to/
        for particular contracting parties;

   Whether a live poultry dealer or swine contractor has 
        provided reasonable notice to a poultry grower or hog farmer of 
        any suspension of delivery of birds or hogs;

   Reasonable requirements for additional capital investments 
        over the life of a contract;

   Provide reasonable period of time for a poultry/swine grower 
        to remedy a breach of contract; and

   Reasonable terms for arbitration in poultry and swine 
        contracts.

    When USDA published its proposed rule in the Federal Register on 
June 22, 2010, interested parties were given 60 days to comment on the 
rule. The very short comment period provided an insufficient time for a 
serious and thorough analysis of the rule. Further, there was no 
credible, adequate economic impact analysis accompanying the proposed 
rule. Most egregious, the proposed rule went far beyond what Congress 
had instructed USDA to consider. After significant debate, USDA 
extended the comment period an additional 90 days.
    Six areas in the proposed rule where GIPSA went beyond what 
Congress instructed are as follows:

   Onerous record-keeping requirements;

   Redefines ``competitive injury'' requirements;

   Redefines the term ``fairness'';

   Additional capital investment requirement for grower to 
        recoup 80% of costs;

   Modification in the payment system to growers; and

   Disclosure and online publication of contracts.

    The rule would have burdened the broiler industry with a cost 
impact of over $1 billion during the first 5 years, and further, would 
change the way companies and growers do business that has been 
successfully conducted for more than 5 decades. The vertically-
integrated industry structure with growout contracts with family 
farmers is a system that has been successful and has made the U.S. 
chicken industry the most efficient and economically-viable in the 
world. The rule would have put the U.S. chicken industry at a global 
disadvantage, as other countries would not have to face these onerous 
requirements. The rule would have created greater uncertainty and cause 
unnecessary and costly regulatory and legal burdens in the marketplace 
by making it much more difficult for companies and contract growers to 
get competitive financing. In addition, companies would not have the 
incentive to use capital to improve and expand operations; rather there 
would be more of a financial incentive to restructure their businesses 
to include their own company growout operations. In short the rule has 
the government dictating private contract terms between businesses.
    Since June 2010, when the rule was proposed, poultry and livestock 
producers have been working to have the GIPSA rule be compatible with 
Congressional intent. After the rule was proposed, Congress asked for 
an economic impact analysis of the rulemaking.
    Despite objections raised by bipartisan opposition in Congress, 
GIPSA issued a final rule in December 2011 that still exceeded the 
agency's authority under the Packers and Stockyards Act and also failed 
to comply with the 2008 Farm Bill. Congress defunded the rulemaking 
effort in the FY 2012 Agriculture Appropriations bill.
    Defunding language was also included in both of the FY13 continuing 
resolutions and the FY 2014 continuing resolution. Similar language 
needs to be included in the FY 2015 Agriculture Appropriations bill. 
Such language or amendment mirrors the action taken by Congress in the 
appropriations bills and signed by the President four times. The 
defunding amendment was also offered during the July 2012 markup of the 
House version of the farm bill and passed with an overwhelming majority 
voice vote.
    Defunding language has been passed by Committee action and by the 
entire Congress five times over the past 3 years (FY12 appropriations 
bill, 1st FY13 CR, 2nd FY13 CR, House Agriculture Committee farm bill 
markup in July 2012, and House Agriculture Committee farm bill markup 
in May 2013). Clearly, the track record of passage by Congress reflects 
strong Congressional support to correct the GIPSA rule. The National 
Chicken Council urges the Subcommittee to support language to correct 
the GIPSA Rule in the FY 2015 Appropriations bill.
Prompt Passage of Trade Promotion Authority Necessary/TPP and T-TIP 
        Success Imperative
    Congressional approval of Trade Promotion Authority (TPA) which was 
previously called ``fast track authority'' is necessary to ensure a 
more successful outcome for the on-going negotiations for the Trans-
Pacific Partnership (TPP) and the Transatlantic Trade and Investment 
Partnership (T-TIP). It is necessary to have TPA enacted because it 
will be essentially impossible to gain Congressional trade pact 
approval otherwise.
    TPA legislation provides for an up or down vote in the House and 
Senate without the opportunity to provide amendments or make changes in 
the agreements. The previous authority expired in 2007 and this vacuum 
has given negotiators on the other side of the table an unnecessary 
excuse to drag their feet toward reaching a final, beneficial deal. The 
``heavy lifting'' in negotiations is now taking place, as we have seen 
in recent reports.
    Trade Promotion Authority legislation must receive prompt passage 
so that the position of the U.S. international trade negotiators is 
strengthened as they continue to move forward to successfully conclude 
these two critically important agreements. Both pacts are expected to 
include provisions of great importance and benefit to U.S. poultry 
interests.
    At the T-TIP Stakeholders Forum held by USTR late last year 
accompanying the National Chicken Council statement were two letters 
that had been previously delivered to the U.S. Trade Representative in 
2013. Both letters were signed by over 45 agricultural organizations. 
Both letters stated ``(w)e strongly believe that a comprehensive and 
ambitious U.S./EU FTA will generate economic growth, reduce market 
volatility, and create thousands of new jobs on both sides of the 
Atlantic. But such a momentous free trade agreement must be built on 
the foundation established by the United States in the TPP and other 
U.S. free trade agreements, which build, as you have said, `the best 
trade policy for the future' ''. As the negotiators for both TTP and T-
TIP move toward a conclusion, that statement is even more important.
    At one time, Russia and China were the United States two largest 
poultry export markets, but these two markets have been severely 
disrupted with trade curtailed from previous levels. It is now more 
important than ever to expand poultry sales to other world markets. 
Passage of these trade agreements would cost U.S. taxpayers essentially 
nothing but would create thousands of jobs in the United States. It is 
difficult to think of a more appropriate time than now, to have TPA 
approved and for TTP and T-TIP to be successfully concluded. This is 
especially true if more jobs and an improved economy are indeed top 
national priorities.
    Although international trade rules in the post-Uruguay Round world 
are certainly not perfect, they have been improved significantly and 
are generally accepted and observed by the majority of WTO member 
nations. Rules for enforcement of trade obligations have also been 
strengthened through an improved system of dispute settlement, and can 
be very effective if our government is willing to use those enforcement 
mechanisms and to insist on adherence by our trading partners to the 
rule of law.
    NCC supports the move toward improved free and fair international 
trade. That position has been demonstrated and shared with Congress 
countless times. With more than 20 percent of our production being 
exported to over 100 other countries out outside-the-border customers 
are becoming more and more important, especially for our dark meat 
parts.
    TTP, if successfully concluded for U.S. poultry, will expand U.S. 
chicken exports by at least $500 million annually and possibly more, if 
restrictive market access measures and sanitary/veterinary issues and 
other non-tariff trade barriers can be addressed.
    T-TIP could benefit U.S. poultry exports by over $600 million 
yearly. Such increases would help generate more farm income, jobs in 
rural, districts, and improve the U.S. trade balance.
Resolution of Poultry Trade Issues Would Expand Exports
    Timely resolution of certain pending trade issues more specific to 
U.S. poultry would also greatly enhance the opportunity to increase 
U.S. chicken exports. It is recognized that the Office of the U.S. 
Trade Representative has an abundance of priorities on its agenda, but 
there are a number of international poultry trade disputes that require 
a greater sense of urgency.
    Among the special concerns of the U.S. chicken industry are the 
following:

   The effectiveness of international rules in challenging 
        unfair practices was demonstrated when the U.S. Government 
        challenged the unfair imposition of antidumping duties on U.S. 
        poultry by the Republic of China. Prior to 2009, the United 
        States was exporting approximately $700 million of chicken 
        products to China. But in 2009, after the U.S. imposed 
        safeguard duties on Chinese tires, and Congress discriminated 
        against the Chinese by passing the so-called DeLauro Amendment 
        that denied China the right to apply for USDA Food Safety and 
        Inspection Service approval of some of its products (the only 
        country Congress singled out for this treatment), China 
        retaliated and imposed dumping duties on our poultry products. 
        Unfortunately, because of the size and success of our exports, 
        our industry became the target for retaliation and a pawn in 
        this trade dispute between China and the United States.

      WTO ruled in August 2013 that China had violated numerous 
        obligations when China imposed antidumping duties and 
        countervailing duties on U.S. chicken. China did not accept the 
        WTO finding and a WTO panel was established in March this year 
        to determine if China's claim of consistence is valid.
      Also, quite irksome is China's statewide bans on poultry from 
        Virginia, Arkansas, Wisconsin, New York, and Pennsylvania due 
        to China's avian influenza concerns. China's bans are without 
        merit and approval of the states to again export poultry to 
        China must be accomplished as soon as possible.
      Regarding a related matter, I am sure Members of this Committee, 
        like the NCC, have received a volume of correspondence 
        regarding the issue of ``Chinese Chicken'' coming into the 
        United States. Our industry's ability to meet and exceed both 
        domestic and international standards for wholesomeness, food 
        safety, and quality has granted us unparalleled access to 
        foreign markets and solidified our ability to compete 
        effectively and efficiently on a global scale. We believe any 
        country that is able to meet the stringent safety standards set 
        by USDA especially those involving HACCP and pathogen reduction 
        programs, should be able to compete in the U.S. marketplace.
      In order to be effective, free trade must operate as a two-way 
        street. If we expect fair treatment from trading partners based 
        on sound science and analysis, it is right that we afford our 
        trading partners the same fairness.

   India was taken to the WTO in February 2013 as a way to have 
        India begin to open its market for U.S. poultry. A WTO Dispute 
        Settlement Panel was established at that time to hear the case 
        and determine a decision. India uses a variety of measures that 
        prevent U.S. poultry the opportunity to have market access. 
        Chief among the non-tariff trade barriers used by India is its 
        position regarding avian influenza. India's stance is clearly 
        inconsistent with the World Health Organization for Animal 
        Health (OIE) guidelines and the WTO Agreement on Sanitary/
        Phytosanitary Measures (SPS). No country in the world exceeds 
        the United States in being more aggressive, more comprehensive, 
        and more rigorous in preventing, controlling, and eradicating 
        avian influenza. A conservative estimate is that if India 
        provided for fair market access for U.S. poultry annual sales 
        would exceed $300 million.

   Indonesia's lack of providing market access for U.S. poultry 
        is another WTO case that is pending. In September 2013 the 
        United States joined New Zealand and other countries in the 
        effort to have the WTO determine if Indonesia's restriction on 
        importing poultry are consistent with its WTO obligations. 
        Indonesia uses a number of hurdles to prohibit poultry imports, 
        including a non-automatic import licensing scheme, quotas, and 
        other very difficult, costly paperwork. Having Indonesia open 
        its market to poultry imports would greatly benefit U.S. 
        exports.

   Mexico has a pending antidumping NAFTA Chapter 19 dispute 
        against U.S. chicken leg quarters. Only three of the five NAFTA 
        dispute-settlement process panelists have been appointed. This 
        protracted procedure continues to create unnecessary 
        uncertainty with poultry trade with Mexico. At the same time, 
        Mexico has other commodity trade issues with the United States. 
        U.S. chicken exporters are concerned that Mexico will take 
        action against U.S. chicken as leverage to have other 
        agricultural trade issues satisfactorily addressed by the 
        United States. Mexico is using the dumping theory of the so-
        called ``weighted average cost of production'' which the WTO 
        has determined to be both inconsistent with international trade 
        rules and economically irrational. In similar WTO cases (China 
        and South Africa) this theory was ruled to be in violation of 
        WTO rules and the obligations of WTO member states.

   African Growth and Opportunity Act (AGOA) provides special 
        duty preferences to the countries of sub-Saharan Africa, 
        including the Republic of South Africa and a number of other 
        important and potentially-important export markets for U.S. 
        poultry. In 2000, the United States extended the benefits of 
        AGOA to South Africa and in the same year (2000) South Africa 
        imposed prohibitively high and illegal antidumping duties on 
        U.S. poultry. Since 2000, U.S. poultry exports to South Africa 
        have been essentially zero. Congress is now considering another 
        extension of AGOA for South Africa and other countries.

      Earlier this year the National Chicken Council presented a 
        statement to the U.S. International Trade Commission hearing 
        regarding AGOA. NCC at the ITC hearing stated that unless South 
        Africa changes its policies, lifts its imposition of dumping 
        duties against our poultry products, and allows trade to resume 
        fairly and without restraint, NCC and other members of the U.S. 
        poultry industry will strongly oppose any further extension of 
        AGOA preferences to the Republic of South Africa. Fourteen 
        years to be illegally shut-out of a market is far too long. 
        Perhaps, being shut-out of the EU for 17 years is the only more 
        egregious situation. The time has passed for the U.S. 
        Government to initiate a WTO Dispute Settlement case against 
        South Africa. It is now time, actually well-passed time, for 
        South Africa to remove its restrictions against U.S. poultry. 
        U.S. poultry is entitled to have the opportunity to again have 
        market access and give South Africa consumers an option to 
        purchase U.S. poultry that is \1/3\ the cost of South African 
        chicken.
Congressional Attention Regarding Other Challenges Would Improve the 
        State of the U.S. Chicken
    In brief, there are a number of other challenges confronting 
chicken producers/processors. Chief among these issues are the need for 
immigration reform, especially a strengthened and more reliable E-
verify system that allows employers to better secure a legal workforce; 
the need for a much better rail transportation system that has a 
greater capacity to more adequately and efficiently move grain, 
oilseeds, and other feedstuffs with rail rates that are fair to both 
the transporter and the rail transportation user; and the need for 
greater oversight and foresight regarding the supply of propane and 
related gases, especially during times of unusual cold weather 
conditions.
Conclusion
    While there are many issues impacting the state of the chicken 
industry, I have limited my statement to what the National Chicken 
Council considers to be some of the top priorities. To summarize those 
priorities, I note the following:

   The rules of the game must be balanced and the playing field 
        should be leveled to permit chicken producers and other animal 
        agriculture producers to more fairly compete for the supplies 
        of corn, especially in years of short grain supplies. Since 
        there is apparently no workable mechanism to adjust the RFS 
        when necessary, Congress must repeal the RFS for conventional 
        biofuels.

   With respect to the USDA/Grain Inspection, Packers and 
        Stockyards Administration's rule addressing competition and 
        contracting the poultry and livestock industries, Congress 
        should approve defunding language, preferably permanently, 
        regarding the provisions where USDA went beyond the 
        instructions of Congress and the basic statute.

   Regarding the trade promotion agreements being negotiated, 
        the National Chicken Council suggests, as have other groups, 
        that these agreements be called U.S. job-creation agreements. 
        Increased poultry exports as the result of implementing these 
        agreements would definitely result in more jobs in the poultry 
        industry and more family farmers growing poultry. Also, the 
        more specific international trade actions being taken by the 
        United States through the World Trade Organization must be 
        pursued with more intense effort, and with a heightened sense 
        of reaching a successful outcome in a timely manner.

    The National Chicken Council, its members, and the many allied 
industry companies that support poultry production, processing and 
marketing look forward to working more closely with the Subcommittee 
and others in Congress so that poultry producers have a better 
opportunity to successfully manage the increasingly difficult 
challenges and issues. Improving the state of the poultry industry not 
only helps poultry companies and poultry farmers but, perhaps, more 
importantly will allow consumers of poultry products to continue to 
enjoy an ongoing, adequate supply of wholesome, quality chicken at 
reasonable prices.
    Thank you, Chairman Crawford, Congressman Costa, and Members of the 
Subcommittee, for the opportunity to share the thoughts, comments, and 
recommendations of the National Chicken Council. I request that the 
National Chicken Council complete statement be entered into the record 
of the hearing. I look forward to your questions and comments.

    The Chairman. Thank you, sir.
    We will now move onto our next witness, Mr. Clint Krebs, 
President of American Sheep Industry Association. Mr. Krebs, 
you are recognized for 5 minutes.

 STATEMENT OF CLINT KREBS, PRESIDENT, AMERICAN SHEEP INDUSTRY 
                     ASSOCIATION, IONE, OR

    Mr. Krebs. Thank you, Mr. Chairman and thanks for calling 
this hearing on livestock issues. Thank you. I will start over 
again. Thank you, Mr. Chairman, and thanks for calling this 
hearing on livestock issues.
    I am pleased to visit with you and your colleagues about 
the status and the priorities of the American sheep industries, 
ranchers, farmers, and I might add also lamb feeders, lamb 
processors, wool warehouses and wool manufacturing, and to some 
degree, wool textile industries.
    My wife and I ranch with our son and daughter-in-law in 
eastern Oregon near the Town of Pendleton which is the home 
over 100 years ago of Pendleton Woolen Mills, and I am happy to 
say they have purchased our family's wool for almost 100 years. 
But more proudly than that, it gives me an opportunity to be 
involved in their operation where they hire in their small 
operation in Oregon over 2,000 employees to process my product.
    My family deals firsthand with the issues detailed in the 
American Sheep Industry Association's statement that I would 
like to be included in the written record. We have four sheep 
herders from Peru that are highly trained and in various key 
parts of our operation. We graze part of the year on Federal 
lands, both BLM and Forest Service. We work daily to minimize 
the stress on our livestock. We are always concerned about the 
rain, grass, drought, floods, snow storms. We are constantly in 
a battle to secure good prices for our lamb and wool clip, and 
yes, Congressman, we struggle to pay our feed bills.
    Issues such as these were important enough to the sheep 
industry that 150 years ago sheep farmers and ranchers joined 
together and formed the earliest national livestock association 
called the National Wool Growers at that time. Decisions of our 
government and increasingly decisions of foreign governments 
can and do have serious impacts on my ranch and my neighbors 
who raise sheep.
    That is why I believe your role in representing agriculture 
and livestock and Federal regulation is so critical. I am 
pleased to help today and pledge the sheep industry support in 
the continued fight for American families' farms and ranches. 
After all, all we do is feed, fuel and clothe the world.
    We need the USDA and the USTR to aggressively seek access 
to export markets for American lamb. The fact that the Japanese 
market has been closed to American lamb for over 10 years is 
just wrong. Japan was a top market for us then and it should be 
now. It must be a priority for trade negotiations to get 
American lamb back in play. The same is true for several other 
global markets that we are not allowed to ship to: Taiwan, 
China and the European Union, for example.
    The U.S. lamb market is among the most open and highly 
valued markets in the world, yet it seems to me that this so-
called free trade era is a one-way street. We ask for an 
aggressive stance by our government to provide opportunities 
overseas for American lamb.
    Wildlife Services performs another important role and we 
ask for your continued support. The House voted overwhelmingly 
in 2011 to support the Wildlife Services Predator Program, and 
we need to be prepared for votes in the future. The witnesses 
in this hearing are a great example of the program's 
importance: Starling control for dairies and feedlots, feral 
hog control for the pork industry, the cattlemen are dealing 
with wolves and a host of other predators, and I am sure there 
are many people in this room that spend a lot of time on jet 
airplanes, and I know none of us wants to be on the jet that 
sucks up a goose.
    I again commit the support of ASI's membership to you and 
as you address the needs of farmers and ranchers and 
immigration reform. My wife and I spend a large amount of money 
and time filling out paperwork and working to keep our herders 
legal, all to make the H-2A Program work. In fact, ASI members 
probably have the most legal workforce in agriculture and have 
had for over 60 years.
    I hope this is recognized and respected in any new 
legislation. I fear that without direction from Congress our 
sheep herder provisions will be lost in the rush of regulations 
resulting in \1/3\ of our sheep ranchers and farmers being 
forced out of business.
    Volatility of price has been a key issue for sheep 
producers, lamb feeders and meat companies over the past 3 
years. I think it is remarkable that the USDA reported not one 
complaint from the sheep industry regarding last summer's 
announcement to the increase of our checkoff rate by 40 
percent. Second, USDA continues to be a great partner in 
marketing our lamb and wool, the National Sheep Industry 
Improvement Center financial support has proven valuable in 
raising money.
    Mr. Chairman, thank you again for the opportunity to visit 
with you and your colleagues, and I will be pleased to answer 
any questions.
    [The prepared statement of Mr. Krebs follows:]

 Prepared Statement of Clint Krebs, President, American Sheep Industry 
                         Association, Ione, OR
    On behalf of the 80,000 family farms and ranches that produce 
American lamb and wool, I greatly appreciate this opportunity to 
discuss the sheep industry with the agricultural leadership of the U.S. 
House of Representatives.
    I am Clint Krebs, a fourth generation sheep rancher from Ione, 
Oregon and I currently serve as President of the American Sheep 
Industry Association (ASI), the national trade organization of the 
nation's sheep industry. Mr. Chairman and Members, I also relay that 
our association celebrates its 150th anniversary during our national 
convention in January of 2015. ASI and our predecessor, the National 
Wool Growers Association, have continuously advocated for sheep 
ranchers since 1865, meaning we are among the oldest national livestock 
and agriculture organizations in the United States.
    The sheep industry of the United States produces lamb and wool in 
every part of the country. The industry provides nearly a billion 
dollars in farm and ranch gate sales to the American economy, and is a 
mainstay of the many rural communities in which sheep ranchers and 
farmers are foundational members.
    We provide snapshots of our lamb and wool markets over the past 5 
to 10 years showing revenue to sheep farms and ranches. Over the 5 
years to 2013, U.S. lamb market experienced significant volatility, 
gaining 80 percent to record-highs in 2011, only to slump by 35 percent 
the following 2 years. By mid-2013, lamb prices began a rebound and 
gained through the first quarter of 2014, back to 70 to 80 percent of 
their 2011 highs.
    The lamb industry has hopefully entered a lasting higher-demand 
era, largely supported by continued tight supplies and steady lamb 
prices. In early 2014 it is evident that the slow recovery in U.S. 
incomes, high-priced protein substitutes, and recovering lamb demand 
are supporting current slaughter rates and excellent quality.
    The Livestock Market Information Center sees ``cautious optimism'' 
for sheep producers in 2014. While we can obviously do better, we are 
headed in the right direction.
    U.S. wool market prices saw a trend similar to the lamb market. 
Prices hit record-highs in 2011 only to decline steadily through the 
following 18 months. In the 3 years prior to 2011, average U.S. clean 
wool prices gained over 200 percent from $1.50 per lb. to $4.50 per lb. 
In 2011, wool prices began a steady downturn with prices falling 22 
percent by the end of 2013.
    Volatility of prices has been the key issue for sheep producers, 
lamb feeders and meat companies. I would add that the dramatic run up 
in feed and input costs, particularly in 2012, has led to an intense 
struggle for producers to cover expenses.
    This hearing provides a key opportunity to relay what our industry 
is doing to strengthen production and steady markets, as well as 
several topics in which Congressional support is critical.
    Our association petitioned the U.S. Department of Agriculture with 
a proposed checkoff order which was successfully implemented in 2002 as 
the American Lamb Board (ALB), a lamb industry-wide research, 
information and promotion program. In 2013, the Department fulfilled 
our industry's request for an increase in the assessment rate of 40 
percent! We believe this critical funding, provided by lamb producers, 
feeders, processors, and export companies, will lead to improvements in 
the lamb business.
    The immediate use of the additional funds is centered on a Lamb 
Industry Roadmap plan as announced by the Lamb Board this January in 
coordination with sheep industry associations and lamb feeding and 
processing sectors. This 3 year initiative is focused on improving lamb 
quality and demand, sheep production and efficiency, and industry 
communication.
    We wish to recognize USDA's Agricultural Marketing Service (AMS) 
for several areas of cooperation focused on addressing lamb market 
volatility and production. In addition to oversight of the lamb 
checkoff, AMS also oversees the National Sheep Industry Improvement 
Center. Amongst other collaborative initiatives, the Center provided 
grant funds matched by industry contributions for development of the 
Lamb Industry Roadmap. AMS is also in the process of addressing a 
requested update to the Mandatory Price Reporting system for lamb, 
which includes consideration of reporting requirements and thresholds 
for domestic lamb companies and lamb importers.
    ASI supports several changes that have been incorporated in the 
past year and regulatory changes yet to be published in 2014. AMS will 
be able to finalize a standard for instrument grading of lamb carcasses 
and we anticipate a tenderness standard in the near future.
    We were concerned with the lack of AMS market reports for live 
animal and meat during the shutdown last October, it served as a 
reminder of how much our industry relies on AMS Market News. AMS Market 
Reports should be classified as an essential service in case of a 
repeat of last October, and we fully encourage funding the voluntary 
and mandatory reports that our industry depends on. Finally, we offer 
our full support for reauthorization of the Mandatory Reporting for 
Livestock due in the fall of 2015.
    Mr. Chairman and Members, the following market access issues would 
be critical to accomplish for the future viability of sheep farmers and 
ranchers:
    Access to foreign markets for American lamb. Japan was a 
significant export market for American lamb until the BSE issue closed 
that market for our lamb at the same time it was closed for American 
beef. Unfortunately, we are still locked out of the Japanese market. In 
fact, access to Japan for American lamb is the lone benefit of the 
entire proposed Trans-Pacific Partnership (TPP). Mexico and Canada are 
already our largest lamb export destinations and we have no intentions 
of trying to sell lamb into Australia and New Zealand.
    We point out that the United States is one of the most open and 
highly sought after lamb markets in the world. There are no 
economically important barriers to these four proposed TPP countries 
trading their lamb in America. In fact, \1/2\ of our lamb consumption 
is now imported compared to just 11% in 1991.
    Unlike the European market, which is highly restricted with tariff 
rate quotas up to 100% ad valorem, the American market is essentially 
wide open for lamb. Additionally, this winter Uruguay was approved for 
export of lamb to our market. We have asked for lamb market access to 
Taiwan, Korea, China, the European Union, and Japan. As an American 
sheep producer facing unrestricted global competition in my home 
market, I would ask that every effort be made by the United States 
Government to fight for American lamb access to the markets of our 
trading ``partners'', and I encourage Congress to support that request. 
To borrow a phrase from my ``fowl'' friends, what is good for the goose 
is good for the gander.
    ASI works with the wool industry to export 50 percent or more of 
our wool clip every year to China, India and the European Union, 
further proof that we can compete if given a chance. However, one wool 
trade issue of concern is the position of the Vietnamese and Australian 
Governments in the Trans-Pacific Partnership regarding a single 
transformation rule on wool textiles. The bottom line for sheep 
producers and our American wool mills is that allowing such a position 
would essentially allow Chinese wool yarns and fabrics to flow into 
Vietnam for assembly and receive TPP trade benefits as if of Vietnamese 
origin. We sell \1/2\ of the American wool clip to domestic mills, 
including the companies that produce the uniforms and socks for all 
American service men and women, therefore the textile trade is 
important to our industry and to America.
    We commend the Agriculture Committee for the leadership and 
commitment to secure the farm bill this year. We welcome the 
authorization of the Livestock Indemnity and Livestock Forage programs. 
California drought and the killer blizzard in South Dakota last fall 
has sheep producers in those two states, and others, already meeting 
with county Farm Service Agency officials. Our organization has met 
with the Department staff sharing our commitment to the proper 
implementation of new provisions, particularly livestock indemnity 
including Federal reintroduced or regulated predators, including avian 
predators. A sheep producer in Idaho last year had over 150 animals 
killed in one night by wolves despite two herders and several livestock 
protection dogs present. This is just one example of why we supported 
the new provision in the indemnity program. I can also relay that 
producers have no resource whatsoever when eagles, vultures and ravens 
start killing young lambs. All too often federally protected birds 
stalk the sheep when producers move the flock to avoid the kills.
    The Livestock Risk Protection program for lamb (an industry owned 
product) is the sole price-risk management option for the nation's lamb 
producers and feeders. The pilot program was launched in 2007 to 
provide price-risk protection in the event of an unexpected price 
decline in the lamb market. Hundreds of thousands of lambs were insured 
during the pilot period. The Federal Crop Insurance Corporation (FCIC) 
board plans to receive a presentation from the sheep industry next week 
on a recommended revision of the product, we hope the board will be 
able to approve the recommendations and that sales can begin again 
soon.
    Sheep and lamb losses to predators and predator management costs 
are the second largest expense to sheep operations; second only to cost 
of feed. We thank the Committee for its longstanding support of USDA 
Wildlife Services. Wildlife Services provides an invaluable tool to 
livestock producers attempting to deal with wildlife damage. Our 
industries provide many millions of privately owned acres of habitat 
for public wildlife, and a professional resource to assist or advise 
farmers and ranchers is absolutely critical. I am pleased to share that 
national livestock organizations are once again united in defending 
Wildlife Services from misguided attacks and are joined by a coalition 
of pilots, county and state governments, agriculture organizations, and 
sportsmen, just to name a few. A joint letter signed by 169 
organizations was delivered to Congress this March representing perhaps 
the broadest coalition of support for any USDA program.
    Another challenge in the wildlife arena poses perhaps the largest 
threat to American sheep production, and that is the U.S. Forest 
Service and Bureau of Land Management's consideration of further 
constraints on Federal grazing allotments for sheep.
    In 2010, the U.S. Forest Service prohibited 13,000 sheep from 
grazing on their historic grazing allotments within the Payette 
National Forest in Idaho. This action drove one ranch out of business 
entirely and drastically reduced the operations of three others. The 
reason for this reduction was an obscure regulation of the National 
Forest Management Act requiring each National Forest to maintain 
``minimum viable'' populations of all vertebrate species found there. 
Environmental activists argued that by allowing domestic grazing to 
continue, the Forest Service violated this regulation and bighorn sheep 
might contract a pneumonia-like disease from domestic sheep, 
threatening their ``viability''.
    Region 4 of the U.S. Forest Service announced this month that by 
February 2015, analysis and management decisions regarding sheep 
grazing allotments would be made in the states of Utah, Wyoming, 
Nevada, and Idaho. Over forty percent of the sheep industry is reliant 
on Federal grazing for a portion of the grazing season, meaning the 
impact of west wide decisions to eliminate grazing would be 
catastrophic to ranches, not to mention the loss of lamb and wool 
handling operations. USDA's Agriculture Research Service is heavily 
involved in research to identify the causes of bighorn diseases and 
their transmission factors. Sheep producers strongly support this 
research and have provided additional funding of nearly $100,000 over 
the past 18 months.
    This wildlife issue joins the concerning trend of managing Federal 
lands by single species rather than multiple use (Sage Grouse, wild 
horses and bighorns as examples). Much like the Wildlife Services 
funding debate in the U.S. House of Representatives, we share this 
grazing and habitat controversy in anticipation of seeking the support 
of agriculture leaders in Congress on behalf of American ranch 
families.
    I would be remiss not to mention that fully \1/3\ of our animals 
are shepherded by immigrant sheep herders. Our industry has benefited 
from the H-2A guest-worker program since the 1950's and utilized 
several procedures to make the program work. The sheep industry likely 
has the most documented and truly legal workforce of any in 
agriculture, achieved annually at great expense and with much 
paperwork. We ask that any legislation on immigration reform codify the 
procedures we have long used.
    Again, thank you for securing approval of a farm bill containing 
key provisions for America's sheep ranchers and farmers, disaster 
assistance, the sheep production and marketing grant program, and 
Country-of-Origin Labeling for lamb.
    We appreciate the opportunity to share the current status of the 
nation's sheep producers, the market outlook, and the numerous 
challenges these families face in providing food and fiber to the 
world.

    The Chairman. Thank you, Mr. Krebs.
    Moving on now, Mr. Matthew T. Cook, President and CEO, 
Norbest, Incorporated, on behalf of the National Turkey 
Federation. Mr. Cook, you are recognized for 5 minutes.

  STATEMENT OF MATTHEW T. COOK, PRESIDENT AND CHIEF EXECUTIVE 
             OFFICER, NORBEST, INC., MORONI, UT; ON
              BEHALF OF NATIONAL TURKEY FEDERATION

    Mr. Cook. Good morning, Chairman Crawford, Congressman 
Costa, and Members of the Subcommittee.
    My name is Matt Cook, and I am the President and CEO of 
Norbest, an 84 year old turkey cooperative based in Moroni, 
Utah, and a current member of the National Turkey Federation's 
Executive Committee. Thank you for inviting me.
    I have spent my professional career in and around the 
turkey industry, and I am proud of the industry's 
accomplishments and growth. Today, I am here on behalf of the 
National Turkey Federation. NTF represents all segments of the 
$29 billion industry which includes 95 percent of U.S. 
processors, growers, distributors and suppliers.
    From 2006 to 2013, U.S. turkey producers watched their 
average feed price cost increase over 125 percent. To 
compensate for higher costs of feed wholesale prices had to 
increase and they did. But while feed costs more than doubled, 
average turkey prices increased by only 26 per pound. The cost 
increases from feeding turkeys with rising cost of corn and soy 
milk increased the cost to consumers by $1.3 billion last year 
alone.
    The total cost increase for all foods was much higher, but 
that is just on average. Twice in periods lasting about a year 
each an unexpected oversupply of turkey brought prices down, 
yet our feed costs remained uncommonly high. In those years, 
all throughout the turkey business, hundreds of millions of 
dollars are lost. Most companies responded to this crisis by 
reducing production. At Norbest, we had to cease all production 
for 3 months.
    To this day, on average, feed and food prices remain 
higher. What Congress does impacts my bottom line, so I ask 
this Committee to remain vigilant about how Federal energy and 
agricultural policy play a key role in shaping supply and 
demand forces that influence food costs. We in the turkey 
industry are on an eventual losing end when our product prices 
go up because of higher costs, and thus consumers pay more and 
eventually buy less. Please insist that your colleagues in 
Congress consider the full consequences of the policies put in 
place in both the renewable energy and agricultural arenas.
    We continue to be challenged with a multitude of issues 
that impact those of us in the turkey business. As previously 
mentioned, the Renewable Fuel Standard in its current form has 
and will continue to negatively distort feed costs for turkey 
producers until the policy changes. We commend EPA for its 
proposal to lower the 2014 RVO levels, but the responsibility 
still falls back on Congress to find a lasting solution to this 
rigid policy.
    The proposed modernization of poultry slaughter inspection 
rule has been scrutinized from every perspective. We feel 
strongly that science and data compiled over the last decade of 
the 25 poultry plants currently operating under this system 
clearly demonstrate that the food produced at these plants is 
at least as safe as that being produced in traditional poultry 
plants while maintaining high worker safety standards.
    NTF is working to improve a proposed FDA safety rule for 
feed mills. There is no need for a detailed expensive 
regulatory burden, when the owner of the animals and 
manufacturer of the feed are one and the same, as is the case 
with our vertically integrated industry. In cases like ours, 
the economic incentive to produce high quality safe feed is 
greater than any possible regulatory incentive or disincentive. 
FDA has written a rule in a way that exempts one portion of 
animal agriculture, primarily cattle feedlots, while requiring 
most other segments, especially poultry and swine, to prepare 
the costly plans.
    Tomorrow, NTF will testify in the Senate, regarding the 
propane shortage that caused over 20 states to declare a state 
of emergency over skyrocketing prices and fear that there was 
not enough propane to last the winter. We appreciate the 
leadership of Ranking Member Collin Peterson in evaluating this 
year's dangerous propane shortage. We survived this year, but 
the fundamental problems still exist. Once winter conditions 
kick in, it is too late to fix the shortage without dramatic 
government intervention.
    In the interest of time, I would just briefly like to 
mention some additional issues facing our industry. Immigration 
reform. There is currently no one bill that is a silver bullet, 
but it is time to resolve the immigration debate for the good 
of the country. In order for companies like Norbest to ensure 
the legal hiring of enough qualified workers using a trusted E-
Verify program is essential and critical to long-term success.
    We were disappointed that GIPSA provisions were not fixed 
in the farm bill and look forward to working with Congress to 
correct this. We are very troubled by the news that EPA and the 
Corps of Engineers recently proposed a rule to revise the 
definition of waters of the United States under the Clean Water 
Act.
    Though I know I have emphasized areas of concern, I want to 
acknowledge that certain government programs have and continue 
to play a positive role in the poultry and livestock industry. 
We anticipate the measures taken in the 2014 Farm Bill to 
expand the disaster assistance program. The Livestock Indemnity 
Program is a critical program for our industry, and with 
program expansion, turkey growers will be able to utilize the 
program in the event of a disaster. We also continue to support 
the EQIP and REAP programs. As implementation begins, we look 
forward to working with the Committee in the area of oversight.
    Thank you again, and I will be happy to answer any 
questions.
    [The prepared statement of Mr. Cook follows:]

  Prepared Statement of Matthew T. Cook, President and Chief Executive
    Officer, Norbest, Inc., Moroni, UT; on Behalf of National Turkey
                               Federation
    Good morning, Chairman Crawford, Congressman Costa, and Members of 
the Subcommittee. My name is Matt Cook, and I am the President/CEO of 
Norbest, a grower owned cooperative based in Moroni, UT, and current 
member of the National Turkey Federation's Executive Committee. Thank 
you for inviting me.
    I have spent my professional career in and around the turkey 
industry and am proud of the industry's accomplishments and growth. For 
the last 3 years, I have been the President/CEO of Norbest, a turkey 
processing co-op founded in 1930. Membership in the Norbest cooperative 
has changed a few times over the last 80 plus years of its existence, 
as local farmer co-ops have merged, dissolved, or changed focus. Today, 
I am here on behalf of the National Turkey Federation. NTF is the 
national advocate for all segments of the $29 billion turkey industry 
that provides services and conducts activities that increase product 
demand enhancing members' ability to profitably provide wholesome, 
high-quality, nutritious products. The NTF represents integrators, 
processors, growers, and allied members. There is no one-size-fits-all 
model in the turkey industry. We rely on the important grower 
relationships along with the rest of our allied members to remain 
successful. We have family owned companies, grower owned cooperatives, 
and large, agriculturally-diversified international companies that all 
play a critical role in determining NTF policy at each level, all the 
way up to our Executive Committee.
Feed Costs and Industry Profitability
    From 2006 to 2013, U.S. turkey producers watched their average feed 
costs increase from 22.7 to almost 51 per pound of turkey raised, a 
125 percent increase. To compensate for the higher cost of feed, 
wholesale prices had to increase--and they did. But while feed costs 
more than doubled, average turkey prices increased by only 26 per 
pound. The cost increases from feeding turkeys with rising costs of 
corn and soy meal increased the costs to consumers of $1.3 billion last 
year. The total cost increase for all foods was much higher.
    But that's just on average. Twice in periods lasting about a year 
each, an unexpected oversupply of turkey brought prices down--yet our 
purchase of corn and soy meal to feed turkeys remained uncommonly 
costly. In those years, all throughout the turkey business, hundreds of 
millions of dollars were lost. Most companies responded to this crisis 
by reducing production, but at Norbest we had to cease all production 
for 3 months. As feed supplies were reduced, the short-term lower 
consumer prices evaporated. And to this day, food costs, on average, 
remain higher as costs to feed turkeys remains high.
    What Congress does impacts my bottom line, so I ask this Committee 
to remain vigilant about how Federal energy and agricultural policy 
play a key role in shaping supply and demand forces that influence food 
costs. We in the turkey industry are on the eventual losing end when 
our product prices go up because of higher costs, and thus consumers 
pay more and eventually buy less. Please insist that your colleagues in 
Congress consider the full consequences of the policies put into place 
in both the renewable energy and agricultural arenas. The policies of 
the last 8 years have been strongly biased in the direction of higher-
cost consequences with an unfair burden on turkey producers and our 
customers, the American food consumer.
    We also continue to be challenged with a multitude of issues that 
impact those of us in the turkey business and look forward to working 
with each of you to address these issues. I have outlined below a list 
of priority issues that we remain focused on fixing.
Future Challenges
RFS
    As previously mentioned, the Renewable Fuel Standard in its current 
form has, and will continue to negatively distort feed costs for turkey 
producers--as well as the rest of livestock producers--if the policy 
does not change. We commend EPA for its proposal to lower the 2014 RVO 
levels, by acknowledging that a problem exists with the current policy. 
The inflexible RFS mandate continues to have a detrimental impact on 
the economy and makes feeding animals a risky business because our 
industries are simply not competing on a level playing field. So while 
EPA's actions are a step in the right direction, the responsibility 
still falls back on Congress to find a lasting solution to this rigid 
policy. Turkey producers feed corn and soybean the season after 
harvest, and especially this past season, we are still paying high 
prices for corn while the corn producers saw their market drop from the 
artificial oversupply of the ethanol mandate of the RFS. The flawed 
policy from RFS will cause continued volatility that distorts feed 
prices unnecessarily. Let's be clear, we are not advocating a policy 
that would keep feed costs artificially low; we are just seeking a 
policy that allows true market forces to act on feed pricing.
GIPSA
    NTF was disappointed that the provisions that clarify Grain 
Inspection, Packers and Stockyards Administration (GIPSA) authority 
were not corrected in the farm bill. While we applaud the 
Administration for reducing the scope of its final rules that came out 
of the 2008 Farm Bill on production and marketing, we remain concerned 
that new regulations will result in negative impacts on farmer and 
processor relationships. We hope this Committee will remain committed 
to finding a vehicle to put this topic to rest soon.
Modernization of Poultry Slaughter
    The proposed Modernization of Poultry Slaughter Inspection rule has 
been scrutinized from every perspective, and we want to commend USDA 
for its efforts to enhance food safety, maintain the safety of poultry 
plant workers and FSIS inspectors while creating more jobs in rural 
communities. Starting with implementation of the HACCP rule in the late 
1990s, continuing efforts to further improve the U.S. meat and poultry 
inspection system has been one of this nation's finest examples of 
nonpartisan, public-interest policymaking. The U.S. turkey industry 
understands and recognizes the complexity of this rule, but we feel 
strongly that science and data complied over the last decade at the 25 
poultry plants currently operating under this system clearly 
demonstrate that the food produced at these plants is at least as safe 
as that being produced in traditional poultry plants, while maintaining 
high worker safety standards. We appreciate the Chairman and Ranking 
Member of this Subcommittee and the full Committee for their support 
for this proposed rule.
Feed Mill
    NTF is working to address concerns with a rule that FDA recently 
proposed as part of Food Safety Modernization Act (FSMA). The proposed 
rule requires mills producing animal food to prepare detailed and 
expensive preventive control (food safety) plans that incorporate 
current good manufacturing practices. We understand the intent is to 
protect buyers from low-quality, unsafe feed, but are concerned it 
places an additional burden that is not justified in the case of the 
turkey industry. Because our industry is vertically integrated, where 
the owner of the mill and the turkeys are one in the same, the economic 
incentive to prepare high quality, safe feed effectively negates the 
need for this regulation. However, FDA's proposal limited the exemption 
to cases where there was common ownership of the mill, the animals and 
the land on which the animals are raised. This exempts one portion of 
the animal producing industry (primarily cattle feedlots) while 
requiring most other segments (especially poultry and swine) to prepare 
the costly plans. We agree the exemption currently proposed by FDA is 
appropriate; it just needs to be expanded. In recent industry comments, 
NTF requested that FDA amend the definition of farm in the proposed 
rule or otherwise expand the types of mills eligible for an exemption 
to address production issues as they pertain to the turkey industry.
Propane
    What started as a Midwest propane supply shortage developed into a 
larger, national discussion with over 20 governors declaring a state of 
emergency, scrambling to secure adequate supplies to meet the need 
during the critical winter months. Why did this occur? A large, late 
and wet corn harvest along with an early start to the cold season 
started the drawdown in propane storage, but fuel stocks were never 
able to rebound when early sub-zero winter weather set-in across much 
of the Midwest and Northeast, hindering propane gas movement by 
pipeline and rail. Additionally the increase in exports of propane has 
made it more difficult to get the needed supply to many areas around 
the country. This ultimately hit the people in rural communities that 
heat their homes with propane along with those in the turkey business 
that need propane to keep turkey barns warm in the winter directly in 
the pocket book. The turkey industry is appreciative for the leadership 
of Ranking Member Collin Peterson and his staff this past winter to 
elevate and step in to avert this year's dangerous propane shortage. 
While there are many things that can be done, at the very least, the 
government should establish an early warning system to allow time to 
adjust before our hands are tied and next winter's danger presents 
itself again.
Immigration
    The turkey industry supports comprehensive immigration reform that 
includes the following policies and provisions that will maximize 
benefits to the turkey industry and ensure a strong and durable 
immigration system that meets the needs of the U.S. economy. Most 
turkey plants are located in rural, low-unemployment areas. To fully 
staff these plants, the industry must recruit from outside their local 
area and, in many instances, must rely on first-generation Americans. 
Practical immigration reform is important to the industry's future. 
There is currently no one bill that is a ``silver bullet,'' but it is 
time to resolve the immigration debate for the good of the country. In 
order for companies to ensure the legal hiring of enough qualified 
workers, using a trusted E-Verify program is essential, and critical to 
long term success.
EPA-CWA
    Before closing, I must mention that EPA and the U.S. Army Corps of 
Engineers recently released proposed rule to revise the definition of 
``waters of the United States'' under the Clean Water Act. Despite the 
agencies' stated aim that the proposed changes will clear up confusion 
and have little impact on agriculture, we remain concerned that the 
measure may greatly expand the universe of farms facing new permitting 
and regulatory requirements.
How Government Can Help
    Though I know I have emphasized areas of concern here, I want to 
acknowledge that certain government programs have, and can continue, to 
play a positive role in the poultry and livestock industry. We 
appreciate the measures taken in the 2014 Farm Bill to expand the 
disaster assistance program. The Livestock Indemnity Program (LIP) is a 
critical program for our industry and with the program expansion turkey 
growers will be able to better utilize the program in the event of a 
disaster. We also continue to be supportive of the Environmental 
Quality Incentive Program (EQIP) and the Rural Energy for America 
Program (REAP) as these programs continue to provide additional 
assistance to turkey growers as they work to meet the needs of state 
and Federal regulations. As implementation begins, we look forward to 
working with the Committee in the area of oversight.
    Thank you again for the opportunity to discuss the state of the 
turkey industry. I will be happy to answer any questions you may have.

    The Chairman. Thank you, Mr. Cook.
    I appreciate all the witnesses that have taken time to be 
with us today.
    We will now begin our round of questioning. I am going to 
recognize myself for 5 minutes to begin.
    Mr. Miller, I know you were present when I asked this 
question to Dr. Glauber, but as I said, I wanted to ask it 
again to the member groups. I know there are those advocates of 
mandatory Country-of-Origin Labeling that argue that there is a 
premium to be paid for that. Could I get your input, your 
thoughts on if that were the case, why were producers not 
engaged in that marketing practice years before this was 
mandated?
    Mr. Miller. Again, Mr. Chairman, it is a good question. I 
would say that is a fair assumption. You know, we are obviously 
sensitive to whatever our customers want, what our customers' 
needs are. They are the closest to the consumer, so they are 
getting the feedback from the consumers through whether it is 
retail or food service channels. So, we are obviously getting 
that feedback in a pretty normalized basis.
    There has been no evidence that the consumer is demanding 
Country-of-Origin Labeling of meat and poultry, so therefore, 
to your point, originally, we hadn't gotten any feedback that 
is necessary.
    The Chairman. Okay. Let me follow up on that, since we are 
on this subject. I know it is difficult to implement, 
commingling being one of the most, probably the most onerous 
areas with regard to implementation of mandatory COOL. Could 
you comment on that--and maybe just enlighten us from your 
perspective for those less familiar with beef packing, just 
sort of expand on that a little bit and explain some of the 
difficulties that you run into?
    Mr. Miller. Yes, it really affects operations in three 
different phases. If you think of the front end of the plant. 
In the front end of the facilities, you end up having to 
increase your amount of sortation and space that is necessary 
to hold the livestock because you are bringing in various--
whether it is product to U.S., product to U.S. Canada, product 
to U.S. Mexico, so you have the various different animals that 
are coming in the front end of the facility.
    Once you actually get into the plant, you end up having to 
deal with a lot more grade changes and cost to process, cattle 
or hogs, whatever that may be. The down time to stop through 
the segregation ends up costing us a lot of money as we have 
several team members that are standing around through the grade 
changes.
    On the back end of the plant, the third phase, there is 
additional space that is needed to segregate, whether that is 
the various stock keeping units, the SKUs, whether it is 
additional capital that is needed to expand material handling 
out the back of the plant, too. So there are truly three 
different phases that are affected by MCOOL.
    The Chairman. Thank you.
    Mr. Smith, I find that your operation that you are 
representing is really pretty fascinating. You call it vertical 
integration, closed loop, whatever you want to call it, it is 
very diverse obviously, and you described it in some detail, 
but I find it ironic that while your beef operation is made 
less efficient through the implementation of mandatory Country-
of-Origin Labeling, I would think that your farming operation 
then becomes vulnerable to those retaliations from our 
neighbors to the north and south.
    Talk about that a little bit and give me your perspective 
on that.
    Mr. Smith. And Congressman, that is a very real concern of 
the companies as well. If the WTO sides with Canada and Mexico, 
and if they do in fact have an opportunity to impose tariffs, I 
mean, I believe they will follow a similar concept that we in 
the U.S. use, a carousel type system where they are going to go 
after and preferentially target other commodities, commodities 
other than beef, pork, poultry, and so there is a very real 
potential it will have a negative impact on those other 
commodities, those fruits, nuts, vegetables that we would 
potentially try to market into those countries as well.
    The Chairman. Excellent. I am not going to ask anymore 
questions of you because Mr. Costa will direct some questions 
your way, so yes, some really hard ones.
    So, I want to shift gears just a little bit and talk about 
transportation, and Dr. Hill, you touched on this. Regarding 
transportation regulations that you mentioned, does the waiver 
requirement to take a 30 minute break all together waive that 
requirement to take a 30 minute break all together, or does it 
simply prevent drivers from having to include loading and 
unloading times in their calculations to the 8 hour period?
    Dr. Hill. Thank you. Right now we don't have a waiver. We 
had a waiver last year during the 3 months of hot weather, and 
we thought we were going to have a 2 year waiver. That hasn't--
my understanding, that hasn't been approved, so we may ask for 
a 90 day waiver for the next hot months. The question you 
asked, it does include the time it takes to load and unload 
livestock.
    The Chairman. I understand. All right. Thank you, Dr. Hill.
    I now recognize Ranking Member Costa for 5 minutes.
    Mr. Costa. Thank you very much, Mr. Chairman.
    Our colleague, Congressman McIntyre, has another committee 
that he needs to be at, so I am going to pass at this point 
after the next Republican gets a chance to ask his questions 
and change the order, so as to allow Mr. McIntyre to ask his 
questions and then get to that committee.
    Mr. McIntyre. Thank you, Mr. Chairman.
    I have a--we are going into a markup in a Armed Services 
subcommittee, so I appreciate the consideration.
    For the record, I have asked that the subcommittee staff 
submit a question I had for Panel I, for Dr. Glauber, 
requesting a response in writing in the next 7 to 10 days, and 
I want to appreciate the subcommittee staff on that, and that 
question will be submitted to him.
    Second, for this panel, I just have one question. Mr. 
Miller, as you know, the USDA recently announced a proposed 
plan to require mandatory reporting of PED virus cases by pork 
producers and potentially tracking of animals. Given that Tyson 
Foods is the largest purchaser of independent hogs in the 
country and knowing the impact that PED virus has had on the 
pork industry, do you agree that USDA should go to great 
lengths to include the pork industry in the formation and 
implementation of the regulation and that the regulation should 
not be subject to any sort of unreasonable time constraints in 
order to get the program correct?
    Mr. Miller. Yes, Congressman, you are right we do procure 
about 97 percent of our livestock that are fabricated through 
our facilities on the outside, so we are the largest purchaser 
of independent livestock in the open market. I would say on 
that, in our view, we don't need producers forced to deal with 
anything that would potentially create artificial disruptions, 
so therefore, reporting programs, they need to be practical at 
the farm level. So the key here is to ensure that they are 
practical. Obviously, the reporting is good that we are going 
to get into the reporting process, but it needs to be practical 
at the farm level so it doesn't disrupt commerce either.
    And I would leave it to Dr. Hill to maybe get into a little 
bit more detail because he is obviously representing the NPPC, 
but from a packer point of view, it is key that the reporting 
program needs to be practical at the farm level.
    Mr. McIntyre. Thank you. Did you want to add any subsequent 
comment to that in the remaining time, Dr. Hill?
    Dr. Hill. We have been working with the USDA on this rule, 
trying to cooperate with them. Our point is we have had this 
disease for a year, and it seems now that USDA wants to get a 
rule in place and implement very, very quickly in a matter of 
just weeks, 2 or 3 weeks here, and we feel as though to get the 
buy in of the industry, we need to progress a little bit slower 
and make sure that we have a program that is when we implement 
it, it really does what we want it to do, and that is to help 
identify where the disease is and to control the spread of the 
disease. We don't think that it would be beneficial in any way 
to limit producers ability to move livestock.
    Mr. McIntyre. All right. Thank you.
    Thank you to my colleague Mr. Costa, and thank you, Mr. 
Chairman.
    The Chairman. The gentleman yields, and I recognize the 
gentleman from Iowa, Mr. King, for 5 minutes.
    Mr. King. Thank you, Mr. Chairman, and I appreciate the 
witness' testimony, and I turn first to Mr. Miller, and I am 
going to reminisce a little bit. I am going to ask whether you 
will agree with my recollection of the sequence of events, and 
that is that we passed a farm bill that was--actually we 
thought it was 2007 but it actually is the 2008 Farm Bill. The 
COOL regulations that were testified about here were 
implemented in September of 2009, and my recollection of that 
language in the 2008 Farm Bill, was that it was written vaguely 
in its requirements so that there would be an option for the 
packers to label, say born, raised, and harvested in a location 
as opposed to the specificity of those distinctions, and we 
left the passage of that Farm Bill in 2008 with the idea that 
it was not going to put a constraint on our packers.
    Do you recall those events? I am just going to ask if you 
would relate the balance of that or maybe ask me to finish it, 
whichever you prefer.
    Mr. Miller. Congressman, I think I am going to have you 
finish that one.
    Mr. King. Okay. I will. Thanks for the question.
    Mr. Miller. Yes. I send the question back to you.
    Mr. King. And my recollection is that we left this 
Committee and the floor passage of the 2008 Farm Bill with 
confidence that COOL was resolved in such a way that it was not 
going to put a bind on the packers, and I recall a letter that 
was signed by the chairs of the respective committees, House 
and Senate Agriculture Committees to the packers that said you 
are not complying with our intent, not the language, but with 
the intent, and my recollection is that the packers generally 
agreed that they would comply with the stated intent of the 
letter, which is why we are talking about September 2009. Any 
of that inconsistent with your recollection, Mr. Miller?
    Mr. Miller. Mr. Congressman, I would agree. We never 
believed that the mandatory Country-of-Origin Labeling program 
was necessary because there was never a food safety issue, nor 
for our retailers and consumers who never demanded it, and with 
the initial program, the flexibility that allowed us to 
commingle, we could still run our operations to a point that we 
didn't have to incur additional breaks or sortations. With the 
current law, the current process, that is not practical 
anymore, so that those additional costs are ultimately borne on 
the consumers because those costs are pushed back upstream.
    Mr. King. And I would say that, as I have watched this, it 
was relatively simple in 2008, and it has gotten more and more 
complex since then, and to this point that I made to the 
earlier witness, that if this Administration would come out 
strongly in favor of the repeal of COOL, we could get this done 
and get it to the President's desk, and a lot of money is being 
spent otherwise. I just appreciate your attention to this.
    But I would like to turn then to Dr. Hill, and your 
testimony on PEDv and where we need to better understanding of 
the depth of that now, but what is the progress that is being 
made on vaccine?
    Dr. Hill. We do have an experimental vaccine there from 
Harris Labs, but that vaccine is nothing effective if you 
vaccinate a sow and then hope to protect the pigs. It does seem 
to have some value in these chronic herds, helping those 
chronic herds recover, but this is a Corona virus. Corona 
viruses are very difficult to develop a good immune response 
to, so it is going to take a lot of effort and a lot of time.
    We know that there are at least four major biologic 
manufacturers working diligently at trying to come up with a 
vaccine. I know one company, for example, just told me they had 
26 scientists working on this. Of course, it is a big plumb if 
they get one, they will have a huge market.
    Mr. King. And if we are not able to develop a vaccine that 
is effective, what is the next best method?
    Dr. Hill. Well, then things that producers are doing now, 
biosecurity, ensuring that feed stuffs are not involved in the 
transmission of this disease, which now we know they are. The 
Canadians proved that for us, so there is a lot of effort in 
looking at feed stuffs and making sure that that is not a 
source of transmitting the disease over long distances.
    We know that when the virus gets into a herd and we have 
adjacent herds close by that there is so much virus produced 
that it is very difficult to keep it just moving laterally, but 
we have had this virus jump miles and miles in unrelated herds 
early, and we think that could have been from feed.
    Mr. King. Thank you, Dr. Hill.
    I just want to ask a quick question of Mr. Roenigk, and I 
didn't hear real fans of the RFS in this particular panel, 
which I know it was just an odd anomaly. However, your 
testimony, you testified to the inflexibility of the Renewable 
Fuel Standard, and when I heard that, I want to give you an 
opportunity to express that a little bit because even though 
the Renewable Fuel Standard by statute is relatively 
inflexible, the EPA has added their own flexibility to it and 
rationed it down dramatically.
    So, do you have any comments you would make as to the 
creation of flexibility by the EPA on the Renewable Fuel 
Standard?
    Mr. Roenigk. As we are all aware, there were two 
opportunities, or two requests for waivers, neither of which 
were successful from our viewpoint. EPA, as your question 
suggests, is now proposing an adjustment to the Renewable Fuel 
Standard. As Congressman Costa said, the Administrator feels 
this is one of her most difficult decisions. I would be glad to 
help her make that decision if she would allow me. I think it 
is a rather easy decision, but we hope the decision is correct 
and that there will be some recognition not just of the blend 
wall but the damage that it has done. Not just high prices but 
the volatility of corn.
    Mr. King. Maybe we could join together in agreeing that it 
was the largest corn crop ever, however.
    Thank you, Mr. Chairman. I yield back.
    The Chairman. The gentleman yields back.
    I now recognize the Ranking Member for 5 minutes.
    Mr. Costa. Thank you very much, Mr. Chairman. I want to go 
to Mr. Smith.
    Mr. Smith, you, I thought, did a good job of highlighting 
the impacts of the drought, especially the regulatory impacts 
of the drought to California and the production of agriculture 
products that the fruits and vegetables that we do so good, not 
only to Harris Ranch but to agricultural producers throughout 
California.
    I want to go back to MCOOL. At Harris Ranch, what do you 
believe you are going to have to do in order to comply with the 
MCOOL rule based upon obviously what happens with the WTO 
ruling here later this year?
    Mr. Smith. Well, Congressman Costa, we are currently in 
compliance with the rule and even the revised rule. It has 
actually added some additional negative impacts on our company 
in terms of the additional----
    Mr. Costa. How much on costs? Have you done an estimate on 
the cost?
    Mr. Smith. No, sir, not direct estimate on the cost of the 
company, but it is--and you know what, Congressman, I will--we 
will actually run those numbers and get them back to you, but--
I can have that number.
    Mr. Costa. If you could provide them for the Subcommittee, 
I think it would be helpful.
    Mr. Smith. Yes, sir.
    [The information referred to is located on p. 106.]
    Mr. Costa. It would certainly give us a snapshot as to what 
a premium-sized packing operation that you folks run in 
California is costing you.
    You heard my statement earlier on, if in fact the ruling is 
adverse, maybe the point there then is an opportunity to say 
stop and let's take another look at this. Would you agree?
    Mr. Smith. Oh, wholeheartedly, sir. I mean, I think some 
common sense needs to prevail somewhere in this whole process, 
and if the ruling does come down negatively or in favor of 
Mexico and Canada, I would encourage somebody to put the breaks 
on.
    Mr. Costa. No, I would concur, and your comments about the 
potential retaliatory impacts in using the example of the 
Mexican truck situation a few years back is clearly one that we 
could see both Canada and Mexico acting on.
    I know you deal with a number of different issues within 
your purview, but we just passed the farm bill. Did you get a 
chance to look at any of the livestock disaster relief elements 
within the bill?
    Mr. Smith. No, I know it is very helpful, and I know a lot 
of producers in the State of California, or I would have to 
assume that a lot of those producers would take advantage of 
that financial opportunity extended by Congress, but once 
again, I don't have a number for you, Congressman.
    Mr. Costa. I would like to move on to GIPSA.
    Mr. Smith. Yes, sir.
    Mr. Costa.--and impacts from your perspective on GIPSA. I 
wasn't here to ask the last question from Dr. Glauber, but the 
Chairman was. It has been troubling I know for you and others, 
not only the beef packing industry but the poultry processing 
facility. Would you care to comment?
    Mr. Smith. Yes, Congressman. I think that the two issues 
that were really highlighted by the proposed rule that came out 
of Mr. Butler's office were related to alternative marketing 
agreements. As you mentioned in your introduction, I manage our 
producer alliance. We call it our Partnership for Quality. We 
are currently working with 70 of the most progressive ranching 
families in the western United States. The majority of those 
are in California. We offer them incentives in the form of 
premiums that we pay for using certain genetics, vaccination 
protocols, delivery points, we provide them with opportunities 
to----
    Mr. Costa. It is value-added, value-added that ultimately--
--
    Mr. Smith. Correct.
    Mr. Costa.--passes to the consumer.
    Mr. Smith. Correct. But if that rule would have gone into 
place, we would had to have shut that program down because I 
would have had to have justified to every person that I 
purchased cattle from why we were providing premiums that we 
were, and so that and the other provision that within that 
proposed GIPSA rule related to packer ownership of cattle. As 
you are aware, Congressman, our feedlot and beef processing 
facility, they are integrated. They are functionality 
integrated. Without one, the other cannot operate, and for a 
rule to be written which says that a packer cannot own 
livestock would basically destroy our business model.
    Mr. Costa. Well, and not only yours but other, throughout 
the country.
    Mr. Smith. Correct.
    Mr. Costa. Which is one of the reasons that I have had--and 
I would go further to say that the Congress is, in three 
successive budget appropriations opined its view on this and to 
still have the United States Department of Agriculture pursuing 
rulemaking in spite of that fact, is really a violation of 
separation of powers, but I mean, I am not a constitutional 
lawyer.
    My time has expired, but I would like to ask Mr. Roenigk, 
if we have a second round, about his view on the GIPSA impact 
as well. 
    Mr. Roenigk. Yes. Thank you. The two issues, one, USDA is 
not following the instructions, directions of Congress, so I 
think that is a broader issue that we all need to be aware of, 
and then second, the overreaching into business relationships. 
We have had family farmers under contract growing for 40 or 
more years, and that relationship is very stable, and it has 
been dealt with under the previous rules, so it is a case of 
regulating a problem that doesn't exist.
    Mr. Costa. Thank you.
    The Chairman. The gentleman yields.
    The chair recognizes the gentleman from Pennsylvania, Mr. 
Thompson, for 5 minutes.
    Mr. Thompson. Thank you, Chairman.
    I want to pick up where the Ranking Member left off and 
check in with Mr. Miller and see, specifically as the Ranking 
Member kind of laid out, the intent of Congress has been 
repetitive and clear, yet despite that, this issue persists.
    Mr. Miller, could you take a moment to explain why much of 
the livestock sector still believes this final rule is bad for 
your business and bad for producers?
    Mr. Miller. Congressman, I am sorry, are you referring to 
GIPSA or----
    Mr. Thompson. Yes, sir.
    Mr. Miller. GIPSA. Okay. Yes. The GIPSA rule really leads 
to increased litigation costs, but the biggest thing I think it 
does, it decreases innovation that is out there. I mean, 
ultimately, in today's beef and pork business, we spent 25 to 
30 years trying to get out of this commodity bucket and trying 
to tailor different products, to different programs, to 
different consumers, and ultimately every pound of beef or 
every pound of pork isn't necessarily equivalent to every pound 
of beef and every pound of pork, if that makes sense. So, 
ultimately the offerings are becoming larger and larger, and 
the GIPSA rule, as originally proposed, would greatly increase 
litigation cost without adding any additional benefit to the 
farmers, ultimately to our customers and consumers either.
    Mr. Thompson. Thank you.
    Now, Mr. Smith, we heard a lot from my cattlemen most 
recently about potential impact with opening up trade from 
Brazil with beef and the potential, which as a country has 
dealt with, had some issues in certain areas, I think it was 
with foot and mouth, and what that potentially would do perhaps 
to negatively impact our beef industry, so I was just curious 
to get your perspectives.
    Are there safeguards that would make fresh and frozen beef 
imports from Brazil viable and safe for U.S. cattle sector, and 
is the problem with this rulemaking primarily one of flawed 
process or simply insufficient scientific data that offered 
judgment in the matter?
    Mr. Smith. Congressman, to the first part of your question, 
I am not a trained microbiologist, so I don't know if I could 
effectively and correctly answer the question relative to is 
there something we could do to negate if--to minimize any 
potential impact to product coming in on fresh product. I would 
have to get back to you and visit with some of the scientists I 
am familiar with.
    Regarding the second portion of your question, our biggest 
concern as an industry is one of making certain that due 
diligence has in fact occurred. I think we would take the 
position that we have to be overly cautious. Using a term that 
USDA likes to use quite often, in the abundance of caution, we 
might suggest that we either slow down this process or just 
make certain that what we are proposing to do, i.e., allowing 
fresh product from Brazil to come into the country, that we 
have in fact dotted `I's and crossed `T's.
    Mr. Thompson. Thank you.
    Mr. Roenigk, in your testimony, you outlined a number of 
challenges to our producers facing the global market, and in 
two regions, and specifically with the Trans-Pacific 
Partnership and the Transatlantic Trade and Investment 
Partnership, we have opportunities to address several of these 
issues. Do you believe that the current path of these 
negotiations will yield satisfactory outcomes, and on which key 
issues do you believe the U.S. should be pressing harder?
    Mr. Roenigk. You have asked an excellent question. In the 
case of Trans-Pacific Partnership, Canada has a supply 
management program for poultry and dairy. Our position is that 
Canada can maintain that supply management system if they 
prefer. We would just ask that the border be open to--for free 
and fair trade for U.S. poultry, and we hope that negotiation 
does that.
    In the case of the agreement being discussed with the 
European Union, we have been shut out of that market since 
1997, originally because the issue was we used chlorinated 
water in our processing. We have indicated that we would be 
glad to use something other than chlorinated water, which we do 
in the case of Russia. That has not been sufficient for the EU 
to revisit that issue. We think that is a $600 million market. 
They import over $2 billion of poultry a year. We think we 
could get at least \1/3\ of that market. And to be shut out of 
the European market because of really a non-tariff trade 
barrier is really unfortunate, and if the negotiations do not 
resolve that, I am not sure when the next good opportunity will 
be to address that, so we are hopeful.
    I would like to predict that we will be successful, but as 
they say, nothing is agreed to until everything is agreed to, 
so we are staying in close contact with our negotiators.
    Mr. Thompson. Okay. Thank you, sir.
    And thank you to all the panel.
    Mr. Chairman.
    The Chairman. The gentleman yields.
    The chair now recognizes the gentleman from Georgia, Mr. 
Scott, for 5 minutes.
    Mr. Scott. Yes. I would like to sort of continue the line 
of questioning on trade and zero in on the Trans-Pacific 
Partnership, and especially as it affects market access and 
particularly with Japan. I am very much concerned about what 
impact this would have particularly on beef and pork, I guess 
most of you, but especially there.
    So, Mr. Michael Smith and Mr. Shane Miller, would you share 
with the Committee exactly what the impact would be on your 
industry if an agreement is made and Japan is exempted and does 
not remove their tariff and non-tariff trade barriers in this 
agreement?
    Mr. Smith. I will ask my counterpart here to comment as 
well, but I will tell you my personal opinion is, if Japan says 
that they will not negotiate in terms of relaxing the tariffs 
that are currently being applied to beef, that we would 
encourage you not to vote for TPP.
    Mr. Scott. What would happen if we did? I am not saying we 
will, but it would help us not to do that if you would tell us 
the grave impact it would have on your industry if that 
agreement was approved and giving, without Japan committing to 
access, what impact would it have on the other 12 or 11 
nations?
    Would it be a bad precedent? What would be the cost to you 
and your industry? What would be the impact to the people of 
America, the cost? Can you give us something that we can hold 
our hat on to go to bat for you that would tell us how bad an 
impact this would be on American beef and pork especially?
    Mr. Smith. Mr. Miller, because he included pork in the 
question, Congressman, I would ask my counterpart here to----
    Mr. Scott. All right.
    Mr. Smith. So I can come back and address it for my company 
as well.
    Mr. Scott. Okay.
    Mr. Miller. Congressman, from a Tyson perspective, 
ultimately we do share the goal of getting to zero on tariffs 
and appreciate the support of the Administration and Congress 
on the issue. However, we do need to achieve significant market 
access for our products as part of the TPP negotiations, but we 
also need to ensure that we stay on a level playing field with 
our global competitors.
    Having some access, meaning from a Japanese perspective, is 
the largest pork revenue destination for U.S. exports in the 
world. Mexico is number one from a volume perspective, but 
Japan is number one from a total dollars standpoint, so 
accessibility is definitely key from a pork perspective and 
also from a beef perspective from Tyson's point of view.
    Mr. Scott. All right.
    Mr. Smith. And Congressman, I don't want to sound like a 
parrot, but I would echo a lot of those comments. The Japanese 
market is very important to the U.S. beef industry. Harris 
Ranch is fortunate to be one of the first companies or the 
first company to get back in their country once they allowed us 
with their 20 month rule. There is tremendous upside potential 
to be able to increase the volume of product being moved into 
Japan, and especially if those tariffs were removed.
    Mr. Scott. Okay. Very good.
    And I certainly agree with you and certainly will help you, 
and, because I believe it will have a devastating impact. It 
will set a bad precedent, and I hope that we in Congress will 
not approve that trade agreement unless Japan acquiesces and 
give us that market access, but let me go to one other point I 
raised earlier about the renewable fuels because Congressman 
King and I working together will have a solution for this.
    If you were here earlier, I told him in a--he asked and I 
said if I were a farmer in Iowa, indeed, I would be planting 
corn, corn, corn, with the way it is going, but at that 
Renewable Fuel Standard is having a devastating impact on you 
and on your feed cost. My issue here is that why not put a 
great more emphasis on other areas of carbohydrates? I mean, 
why--corn is there, you are not going to change that. I think 
the die is set, the economics are set there, but as I said 
earlier, there is just so much corn we can do, and now 40 
percent of all the corn we produce is used for ethanol, and if 
you get the renewable standard going with more and more 
automobiles, more and more, then you just would get more. I 
think that we should be putting--there are other ways to make 
the ethanol.
    There is switchgrass to make it. There are ways in which, 
now, of course, with sugarcane. Perhaps a part of your plea may 
be in adjusting this because the issue with you is bringing 
down the impact of feed costs, that the FNL is putting the 
downward pressure on, and so I think that there is other areas.
    I know in the south at the University of Georgia, for 
instance, great progress is being made in other areas of 
carbohydrates, and perhaps we might do well to take a look at 
Brazil and maybe suggest to Congress that we lift those tariffs 
on the import of sugarcane, at least to a way that the sugar 
industry here can accept and begin to look to other means of 
being able to add to the supply of ethanol because ethanol is 
in the future. It is going to be more.
    Renewable fuels is where we are going. The Earth is going 
to run out of petroleum and fossil fuels, so I just wanted to 
make that comment and look at it more holistically. There are 
wood chips that can make ethanol, pine straw now. All we need 
to do is put our efforts to that, and I would encourage you--we 
will work with you on the renewable fuels, but I would also 
encourage you to work with helping us in Congress to lift the 
downward pressure off of all of this ethanol that is being made 
on corn and shift to other areas.
    Yes. The gentleman, did you want to respond, Dr. Hill?
    The Chairman. Do you want a quick response?
    Mr. Scott. Yes, sir, please.
    Dr. Hill. I live near Ames, Iowa. The town just to the east 
is Nevada, Iowa, and right now there is a major construction 
project to build a cellulosic ethanol plant. It is being 
financed entirely by DuPont. My son, who farms, has been 
working with DuPont for the last 3 years in working on the 
proper collection of corn stover. This is going to be--that is 
what is going to feed this plant, so there is activity other 
than corn based ethanol, going forward.
    Logistics of the amount of corn stover versus a grain, corn 
is phenomenal, but at least we do have private industry putting 
money into this, and you are right, there are other sources.
    Mr. Costa. Thank you, sir.
    Thank you, Mr. Chairman. I appreciate the time.
    Mr. Johnson. Mr. Chairman.
    Dr. Hill. Thank you, Mr. Scott. Sorry.
    Mr. Johnson. Could I make a comment on the RFS as well? I 
think what tends to get lost in this conversation is the RFS, 
when it was originally conceived, contemplated using corn for 
the first half of the development of the renewable fuel 
industry, and really the next big chunk was going to come from 
these advanced biofuels like stover, like wood chips, like 
manure, like all those kinds of things.
    We have largely gotten the first half done. Corn got us 
there, and what we learned in this industry by producing 
renewable fuel from corn is enormously important to developing 
that next step. If we back up from this thing now, we will 
destroy the opportunity to do the next step, and that will be a 
terrible shame.
    Mr. Costa. Well stated. I agree with you 100 percent.
    Mr. Cook. Mr. Chairman, may I also make a comment about 
RFS.
    The Chairman. Yes.
    Mr. Cook. I would like to briefly illustrate what it has 
done to our company individually. I was at a farmer cooperative 
meeting in Minneapolis, and a gentleman who was a ethanol plant 
developer stood up and he was asked a question, what the impact 
was on the livestock industry because of the ethanol. And he 
made the comment there was no impact on the livestock industry, 
and that is absolutely not true.
    I report in my testimony that our feed cost had gone up 125 
percent from 2006 to 2013. Individually, our company, we are on 
the lower end of that at 80 percent, and you can argue, well, 
why is that? Your cost gone up or do you use your feed 
inefficiently, did you buy it wrong, you can argue all of those 
things.
    We have reduced the--or improved the efficiency of our feed 
by millions of dollars since then, and we are--we average 
better that our industry peers in the use and the feed 
conversion of our turkeys. And the other side of that is, we 
are compared to 339 feed mills in the United States. We buy, we 
are ranked number 37. So, I would argue that we buy and use the 
corn we have to purchase as competitively as anyone, but our 
costs have gone up 80 percent, and we don't have the 
opportunity, in the turkey business, it is a zero sum game.
    There are other things we can feed our turkeys like wheat, 
but there are only so many acres, and so I would urge you 
strongly a complete repeal of the only--if the market is 
established for ethanol, just let it work. Let the free market 
work, and if they want to buy corn to put in ethanol, then they 
should have to pay and not be mandated that that portion of the 
market go to corn. Just those that want, need corn, we become 
more efficient through competitiveness but not a mandate saying 
you get this much.
    Mr. Costa. Thank you.
    The Chairman. Thank you.
    Ranking Member Costa, any closing remarks?
    Mr. Costa. No. I thought it was a good hearing, Mr. 
Chairman.
    The Chairman. Thank you.
    I want to thank the witnesses. Great insight. We feel like 
this will help us address those issues that you have laid out 
in front of us, and we will keep your comments, and--do we keep 
the record open, do we keep this open for a period of 10 days 
for additional remarks, extension of your remarks.
    So thank each one of you for being here, and with that, we 
adjourn.
    [Whereupon, at 12:48 p.m., the Subcommittee was adjourned.]
    [Material submitted for inclusion in the record follows:]
   Submitted Fact Sheet by Hon. Reid J. Ribble, a Representative in 
                        Congress from Wisconsin


   Supplementary Material Submitted by Joseph Glauber, Ph.D., Chief 
               Economist, U.S. Department of Agriculture
Insert 1
          Mr. King. And that is this: A bushel of corn breaks down at 
        about three different parts, starch and protein and 
        CO2. And CO2 is a byproduct of ethanol 
        production, but it is also a byproduct of feed consumption. So 
        I would submit that it is more accurate to say about \1/2\ of 
        it comes back, because \1/3\ of the product goes off into the 
        air and CO2 whether you feed it or whether you 
        convert it into ethanol. And I wanted to--I wanted to submit 
        that into the record for discussion and actually ask your 
        response to that.
          Dr. Glauber. I would have to look at the--typically, just on 
        a matter basis, been focusing--we focus--tend to focus on about 
        \1/3\ in terms of the volume of that comes back.
          Mr. King. I would ask you, if you could, come back to me and 
        perhaps the panel with a response to that.
          Dr. Glauber. Sure.

    While there are several ways to look at the ethanol production 
process and outputs, I think we can agree that a simple weight 
breakdown of output of dry-mill ethanol production can obscure the 
value of the stream of products being produced. The simple rule of 
thumb that \1/3\ of the weight of the corn being processed ends up as 
ethanol, another \1/3\ as DDGS and another \1/3\ as CO2 is 
roughly accurate from a weight standpoint, but as you point out, issue 
of CO2 and other gasses released in livestock feeding as 
well as CO2 produced in ethanol processing complicates such 
a simple analysis.
    Further, that \1/3\, or approximately 17 pounds per 56 pound bushel 
of corn, which comes back as dried distillers grains, or DDGS, returns 
to livestock rations not just to displace corn, but also to displace 
higher valued products such as soybean meal in many non-ruminant 
rations for swine and poultry. Some facilities also capture the 
CO2 produced for sale into markets such as consumer beverage 
production. Dry mill ethanol facilities continue to refine their 
processes to capture value and corn oil is now commonly extracted from 
the DDGS after ethanol production with many facilities extracting up to 
1 pound of corn oil per bushel to be used in biodiesel production or 
returned into reformulated livestock feeds in `fine-tuned' rations.
    Other potential advancements might see the large scale conversion 
of corn fiber in the pericarp converted to cellulosic ethanol, further 
expanding the volume of ethanol produced per bushel. So while the 
statement that \1/3\ of the weight of a bushel of corn returns as 
livestock feed, there are other comparisons that can be made depending 
on the focus of the discussion. In light of the livestock feed 
discussion at the hearing and the direct weight displacement often made 
in livestock rations, this was the comparison put forth.
Insert 2
          Mr. King. . . .
          And so I just quickly ask this question as I watch this clock 
        tick down. As I understood in your comments on COOL, I would 
        just make the comment that if the Administration would strongly 
        come out and support voluntary COOL or repeal of mandatory 
        COOL, we could get this done in the House and the Senate, and 
        would bypass a lot of this discussion, and would save billions 
        of dollars, and it would be a lot better deal to do with our 
        trade partners.
          But I wanted to ask you the economic question, and that is, 
        on the egg issue, if California is successful in doubling the 
        size of cage sizes and infrastructure for the egg producers in 
        this country by regulating all of America from California by 
        state statute, what happens to that requirement for 
        infrastructure investment on the part of all egg producers in 
        America?
          Dr. Glauber. Well, certainly the concern--I know at the time 
        the state regulations were being debated and going into force, 
        there was a lot of concern among the California egg producers 
        about what those costs would mean for them and the additional 
        costs on egg production. And so I frankly haven't looked at the 
        individual studies as closely, I would be happy to get back 
        with you on that, but any time you put in specific standards 
        like that, there are costs.
          Now, weighing that against what the benefits are for consumer 
        is the other side of that, and, again, I don't have any good 
        numbers for you.
          Mr. King. I would appreciate it if you would get back to me 
        on that, and I would just point out that doubling the 
        infrastructure size doubles the cost, and that is the report I 
        get back from them.

    Under Proposition 2, California egg producers who employ the 
conventional ``battery cage'' system must adopt a new production system 
before January 1, 2015. Proposition 2 would prohibit confining egg-
laying hens on farm, for all or the majority of any day, in a manner 
that prevents the hen from (a) lying down, standing up and fully 
spreading both wings without touching the sides of the enclosure or 
other egg-laying hens, and (b) turning around freely. Significantly, 
the new housing requirements will apply to all eggs sold in California 
including those produced in other states. Currently, California imports 
about 12 million cases of eggs annually, about 25 percent of which in 
liquid or dry form (Bell, 2013). Four states (Iowa, Minnesota, Missouri 
and Ohio) account for 70 percent of the eggs imported by California.
    Carman (2012) estimates that increasing the size of battery cages 
to 116 square inches per hen would increase the costs of egg production 
systems by 12.5 percent. That cost increase would likely result in a 
2.5 percent decline in California egg production and a 12 percent 
increase in retail prices for California consumers.
    Bell, Don. ``California's Egg Requirements--2015.'' Egg Industry 
Center. Iowa State University. Available at http://www.ans.iastate.edu/
EIC/newsletters/CA_Effect_Oct_Special_Report.pdf.
    Carman, Hoy. ``Economic Aspects of Alternative California Egg 
Production Systems''. August 30, 2012. Available at http://
www.cdfa.ca.gov/ahfss/pdfs/regulations/Dr_Hoy_Carman.pdf.
Insert 3
          Mr. Neugebauer. Yes. So I want to go back to the COOL issue. 
        You know, you don't see the benefit. We have our trading 
        partners, our largest trading partners now threatening to 
        impose tariffs on our country. I think one of the things the 
        livestock producers in my area are going through was, you 
        mentioned a while ago when you were talking about Lubbock, 
        Texas; I am from Lubbock, Texas. And, I remember going through 
        a horrible drought. The herds are way down, and the feedlot 
        numbers are shrinking and it is going to take a long time to be 
        able to build these numbers back up when it rains again.
          I think that the producers in my area are feeling very 
        vulnerable in the sense that they have this COOL issue cloud 
        hanging over them; they have the drought; and now they are 
        concerned about this Brazilian beef and the potential to bring 
        hoof-and-mouth disease to this country.
          The question I have is, when you did the analysis for Brazil, 
        now, I understand you used the qualitative method, but when the 
        analysis was done, for example, in 2002 for Uruguay, they used 
        the quantitative analysis. Some people speculate that the 
        qualitative analysis is fairly subjective and that the 
        quantitative analysis is a more thorough. As an important issue 
        as this is, why would we have used a different analysis than we 
        have used previously?
          Dr. Glauber. Congressman, you raise a good question. I can't 
        answer it. The FSIS [clarified later to say APHIS] did that 
        analysis. I would be happy to get back to you with a more 
        complete answer on that.

    APHIS bases its import decisions on sound scientific risk 
assessments and allows imports only when sufficient protective 
safeguards are in place. Most of APHIS' risk assessments have been, and 
continue to be, qualitative in nature. APHIS believes that quantitative 
risk assessment models are useful in cases, such as the 2002 risk 
analysis for fresh beef from Uruguay, where risk management questions 
cannot be addressed with a qualitative assessment. APHIS believes that, 
when coupled with site visit evaluations, qualitative risk assessments 
provide the necessary information to assess the risk of introducing 
animal diseases like Foot and Mouth Disease (FMD) through importation 
of commodities such as fresh beef. Furthermore, the OIE (World 
Organization for Animal Health) states that, particularly for diseases 
listed in the Terrestrial Animal Health Code (such as FMD), where there 
are international standards and broad agreement concerning likely 
risks, a qualitative assessment may be all that is required (OIE. 2014. 
Chapter 2.1. Terrestrial Animal Health Code).
                                 ______
                                 
Supplementary Material Submitted by Michael T. Smith, Special Projects 
     Manager, Harris Ranch; on Behalf of National Cattlemen's Beef 
                              Association
          Mr. Costa. Thank you very much, Mr. Chairman. I want to go to 
        Mr. Smith.
          Mr. Smith, you, I thought, did a good job of highlighting the 
        impacts of the drought, especially the regulatory impacts of 
        the drought to California and the production of agriculture 
        products that the fruits and vegetables that we do so good, not 
        only to Harris Ranch but to agricultural producers throughout 
        California.
          I want to go back to MCOOL. At Harris Ranch, what do you 
        believe you are going to have to do in order to comply with the 
        MCOOL rule based upon obviously what happens with the WTO 
        ruling here later this year?
          Mr. Smith. Well, Congressman Costa, we are currently in 
        compliance with the rule and even the revised rule. It has 
        actually added some additional negative impacts on our company 
        in terms of the additional----
          Mr. Costa. How much on costs? Have you done an estimate on 
        the cost?
          Mr. Smith. No, sir, not direct estimate on the cost of the 
        company, but it is--and you know what, Congressman, I will--we 
        will actually run those numbers and get them back to you, but--
        I can have that number.
          Mr. Costa. If you could provide them for the Subcommittee, I 
        think it would be helpful.
          Mr. Smith. Yes, sir.

    During our last fiscal year, Harris Ranch Beef Company lost 
approximately $2.4 million due to our implementation of mandatory COOL.
                                 ______
                                 
  Submitted Letter by Clint Krebs, President, American Sheep Industry 
                              Association
March 17, 2014

  Hon. Harold Rogers,
  Chairman, 
  House Committee on Appropriations,
  Washington, D.C.;

  Hon. Nita M. Lowey,
  Ranking Minority Member,
  House Committee on Appropriations,
  Washington, D.C.

    Dear Chairman Rogers and Ranking Member Lowey:

    The 169 undersigned organizations represent a broad range of food 
producers, wildlife organizations, sportsmen, local governments and 
resource interests that benefit from the cooperative efforts of the 
USDA-APHIS/Wildlife Services (WS) program. We write in strong support 
of sufficient funding for this critical program and in opposition to 
any effort to restrict or eliminate WS funding.
    Wildlife causes more than $12.8 billion in damage each year to 
natural resources, public infrastructures, private property and 
agriculture. WS works to prevent, minimize or manage this damage and to 
protect human health and safety from conflicts with wildlife. Wildlife 
damage to U.S. livestock, aquaculture, small grains, fruits, vegetables 
and other agricultural products has been estimated to reach nearly $1 
billion annually. Wildlife predators cause more than $126 million in 
death loss to livestock; field crop losses due to wildlife total $619 
million annually; losses to vegetables, fruits and nuts total $146 
million annually; and 70 percent of catfish farmers incur wildlife-
related damage resulting in losses of $10 million to $13 million 
annually from double-crested cormorants in Mississippi alone. As a 
result, WS is an essential program in agriculture production in the 
United States.
    The spread of wildlife-borne diseases to humans, livestock and 
other wildlife is a growing concern. WS monitors and manages pests and 
diseases in the United States. WS is often the first line of defense in 
reducing and eliminating diseases such as the West Nile virus, avian 
influenza, pandemic H1N1, chronic wasting disease, pseudo rabies, 
bubonic plague, Hantavirus, lyme disease, bovine tuberculosis and 
rabies. In fact, rabies-associated costs range from $300 million to 
$450 million annually in the United States primarily for pet 
vaccinations, education, diagnostics, post-exposure treatment and case 
investigations. WS also prevents entry and controls invasive species 
such as feral swine, nutria, the brown tree snake, European starlings 
and the beaver. Feral swine are a subject of increasing concern as 
potential carriers or catalysts for a variety of diseases. It is 
estimated that there are more than five million feral swine in 38 
states that cause an estimated $1.5 billion in damage annually with 
more than $800 million of damage to agriculture resources.
    In fiscal year (FY) 2012 alone, WS conducted 67,842 technical 
assistance projects to reduce wildlife damage to property in urban, 
suburban and rural locations as well as airports across the country, 
which include homes, schools, industrial facilities, roads, bridges, 
airport runways, dams and electrical and water systems. One example of 
this work is WS efforts in reducing deer collisions with automobiles, 
which injure an average of 29,000 people annually and cause more than 
$1 billion in damage. In addition, WS works to protect wetlands 
habitat, riparian habitat, tidal marsh and timber from a variety of 
pest species including feral hogs, nutria and beavers, which alone 
cause millions of dollars of damage each year--more than any other U.S. 
wildlife species. WS expended more than $18.6 million to protect 
property from wildlife damage in FY 2012, up from $16.1 million in 
2008.
    Protection of natural resources is a growing need for WS. Last 
year, WS invested resources in conservation of game species including 
mule deer, bighorn sheep, antelope and waterfowl in eight states. In FY 
2012, WS spent $6.5 million for cooperative work with Federal and state 
agencies to protect and assist 169 threatened or endangered species in 
35 states, Puerto Rico, Guam and the U.S. Virgin Islands. In more than 
95 percent of the projects, local threatened and endangered species 
either increased or remained stable.
    More than 130,000 wildlife strikes with civil aviation have been 
reported since WS began keeping records in 1990. In FY 2012, there were 
more than 10,700 wildlife collisions with civil aircraft reported, with 
an additional 5,930 strikes reported by military aviation costing the 
total aviation industry more than $700 million annually. WS provided 
direct services at 354 airports in FY 2012 including population 
management through harassment, habitat modification or removal. 
Technical assistance, such as initial consultations and wildlife hazard 
assessments, was provided at 772 airports across the country.
    As the ``Miracle on the Hudson'' demonstrated in 2009, the 
management of wildlife hazards on and near our nation's airports is a 
critical safety priority. WS provides valuable support to the aviation 
community in addressing these hazards. From its assistance in preparing 
FAA-required wildlife hazard assessments to its help with managing 
hazardous wildlife populations, WS staff ensure that U.S. airports both 
meet the regulatory obligations under 14 CFR Part 139 and reduce the 
safety risks associated with aircraft wildlife strikes. WS also assists 
the FAA in monitoring national trends regarding wildlife populations 
and the hazards they pose to aviation. At a time when airports are 
facing significantly expanded wildlife hazard management requirements 
through recently issued FAA Advisory Circulars and grant assurance 
modifications, its role will be even more critical to the aviation 
community, going forward.
    It has been WS's cooperative nature that has allowed it to 
accomplish all of the above listed programs and has made it the most 
cost effective and efficient program in the Federal Government in the 
areas of wildlife damage management and public health and safety. WS 
has more than 2,000 cooperative agreements, up 20 percent from FY 2000, 
and, in FY 2012, had 90,641 access agreements to professionally monitor 
and manage wildlife on private, state and Federal lands.
    WS cooperators include agriculture, forestry, private industry, 
state wildlife agencies, state departments of health, state departments 
of agriculture, schools, universities, counties, local governments, 
Indian nations, homeowner associations, conservation groups and others 
that, together with WS, mitigate the damage and dangers that public 
wildlife can inflict.
    Chairman Rogers and Ranking Member Lowey, we appreciate your 
demonstrated leadership and strong support of this essential program. 
Our organizations are committed to working with you to strengthen WS 
resources and to ensure a continued Federal partnership in the 
responsible management of our nation's wildlife.




Air Line Pilots Association, Int'l   National Association of Federal
                                      Veterinarians
Airlines for America                 National Association of State
Airports Council, International--     Departments of Agriculture
 North America
American Association of Airport      National Cattlemen's Beef
 Executives                           Association
American Beekeeping Federation       National Farmers Union
American Farm Bureau Federation      National Milk Producers Federation
American Feed Industry Association   National Pork Producers Council
American Horse Council               National Renderers Association
American Sheep Industry Association  National Rifle Association
American Society of Agricultural     National Shooting Sports Foundation
 and Biological Engineers            National Sorghum Producers
American Veterinary Medical          North American Meat Association
 Association
Animal Health Institute              Public Lands Council
Association of American Veterinary   Rocky Mountain Elk Foundation
 Medical Colleges
Association of Fish and Wildlife     Safari Club International
 Agencies Association of National    Society for Range Management
 Grasslands
Catfish Farmers of America           Sportsmen for Fish and Wildlife
Catfish Institute                    State Agriculture and Rural Leaders
                                      Association
Congressional Sportsmen's            United States Animal Health
 Foundation                           Association
Livestock Marketing Association      U.S. Cattlemen's Association
Mule Deer Foundation                 USA Rice Federation
National Aquaculture Association     Wild Sheep Foundation
National Association of Counties
 
Alabama Catfish Producers            New Mexico Trappers Association
Alabama Farmers Federation           New Mexico Wool Growers, Inc
Alabama Meat Goat and Sheep          North Carolina Sheep Producers
 Producers                            Association
Arizona Cattle Feeders Association   North Dakota Lamb and Wool
                                      Producers Association
Arizona Cattle Growers' Association  North Dakota Stockmen's Association
Arizona Cattlemen's Association      North Dakota Department of
                                      Agriculture
Arizona Wool Producers Association   North Dakota Game and Fish
                                      Department
Arkansas Cattlemen's Association     Northeast States Association for
Arkansas State Sheep Council          Agricultural Stewardship
Association of Oregon Counties       Ohio Cattlemen's Association
California Agricultural              Oklahoma Cattlemen's Association
 Commissioners and Sealers
California Cattlemen's Association   Oregon Cattlemen's Association
California Farm Bureau Federation    Oregon Dairy Farmers Association
California Wool Growers Association  Oregon Department Agriculture
Colorado Cattlemen's Association     Oregon Farm Bureau Federation
Colorado Wool Growers Association    Oregon Forest Industries Council
Connecticut Sheep Breeders           Oregon Outdoor Council
 Association, Inc
Delaware Sheep and Wool Producers    Oregon Seed Council
 Association, Inc.
Delta Council                        Oregon Sheep Growers Association
Eastern Regional Conference of the   Oregon Small Woodlands Association
 Council of State Governments        Oregonians for Food & Shelter
Empire Sheep Producers               Pennsylvania Cattlemen's
                                      Association
Florida Cattlemen's Association      Pennsylvania Farm Bureau
Garden State Sheep Breeders Inc      Pennsylvania Sheep and Wool Growers
                                      Association
Georgia Cattlemen's Association      South Carolina Sheep Industries
                                      Association
Georgia Sheep and Wool Growers       South Dakota Cattlemen's
 Association                          Association
Hawaii Sheep and Goat Association    South Dakota Sheep Growers
                                      Association
Idaho Cattle Association             South East Dairy Farmers
                                      Association
Idaho Farm Bureau                    Sportsmen for Fish and Wildlife
                                      Idaho
Idaho Wool Growers Association       Tennessee Cattlemen's Association
Illinois Lamb and Wool Producers     Tennessee Sheep Producers
 Inc.                                 Association
Independent Cattlemen's Association  Texas and Southwestern Cattle
 of Texas                             Raisers Association
Indiana Sheep Association            Texas Cattle Feeders Association
Iowa Cattlemen's Association         Texas Farm Bureau
Iowa Sheep Industry Association      Texas Pork Producers Association
Kansas Livestock Association         Texas Sheep and Goat Predator
                                      Management Board
Kansas Sheep Association             Texas Sheep and Goat Raisers'
                                      Association
Kentucky Cattlemen's Association     Texas Wildlife Damage Management
                                      Association
Kentucky Sheep and Wool Producers    United Dairymen of Arizona
 Association
Louisiana Cattlemen's Association    U.S. Cattlemen's Association
Maine Sheep Breeders Association     Utah Cattlemen's Association
Maryland Sheep Breeders Association  Utah Department of Agriculture and
                                      Food
Massachusetts Federation of Sheep    Utah Farm Bureau Federation
 Associations
Meat Sheep Alliance of Florida, Inc  Utah Wool Growers Association
Michigan Sheep Breeders Association  Vermont Sheep and Goat Association
Midwestern Legislative Conference    Virginia Farm Bureau
 of the Council of State             Virginia Cattlemen's Association
 Governments
Minnesota Lamb and Wool Producer     Virginia Sheep Producers
 Association                          Association
Minnesota State Cattlemen's          Wasco County Livestock Association
 Association
Missouri Cattlemen's Association     Washington Cattlemen's Association
Missouri Sheep Producers             Washington Cattle Feeders
                                      Association
Montana Association of State         Washington Forest Protection
 Grazing Districts                    Association
Montana Farm Bureau Federation       Washington State Sheep Producers
Montana Public Lands Council         West Virginia Cattlemen's
                                      Association
Montana Stockgrowers Association     West Virginia Shepherds Federation
Montana Wool Growers Association     Western United Dairymen
Nebraska Cattlemen, Inc.             Wisconsin Sheep Breeders
                                      Cooperative
Nebraska Sheep and Goat Producers    Wyoming Animal Damage Management
                                      Board
Nevada Cattlemen's Association       Wyoming Farm Bureau Federation
Nevada Wool Growers Association      Wyoming Game and Fish Department
New Hampshire Sheep and Wool         Wyoming Sportsmen for Fish &
 Growers Association                  Wildlife
New Mexico Cattle Growers'           Wyoming Stock Growers Association
 Association
New Mexico Department of             Wyoming Wild Sheep Foundation
 Agriculture
New Mexico Farm & Livestock Bureau   Wyoming Wool Growers Association
New Mexico Federal Lands Council
 

                                 ______
                                 
                          Submitted Questions
Response from Joseph Glauber, Ph.D., Chief Economist, U.S. Department 
        of Agriculture
Questions Submitted by Hon. Frank D. Lucas, a Representative in 
        Congress from Oklahoma
    Question 1. As has been stated several times in the prepared 
testimony for this hearing, the cattle herd is at its smallest size 
since 1951. Has the nature of this drawdown been more a matter of a 
reduction in size of individual herds, or a matter of cow/calf 
operators exiting the business altogether? What are the short and long-
term implications of this situation for the beef packing sector?
    Answer. The national herd has shrunk due to a combination of both 
factors. The number of farms with cattle and calves fell 5.2% from 2007 
to 2012 to a total of 913,246 farms and at the same time the cattle and 
calves inventory fell by 66% to 89.9 million head over the same period. 
The very smallest and largest farms showed either modest declines or 
even growth, while the bulk of the operations, those between 50 and 500 
head, saw their numbers and inventory decline.
    The short run implication for the packing sector will be increased 
competition for the cattle that are available as they seek to keep 
existing capacity operating, supporting live animal prices and 
encouraging producer expansion. The longer run situation for the 
packers depends on the extent of that expansion in the future. Cattle 
producers may respond to current high prices, expand output and offer 
supplies to keep existing slaughter capacity in operation or if 
supplies are insufficient, it may result in an adjustment in slaughter 
capacity which more closely reflects cattle availability. Packers in 
the short run may reduce slaughter schedules which could be reversed if 
supplies increase but extended periods of excess capacity could result 
in a more lasting reduction in capacity through the closure of 
slaughter facilities.

    Question 2. The price of lean ground beef has taken a double hit 
over the last couple of years. First, the quality of lean finely 
textured beef was called into question, which led to a safe product 
being largely excluded from the ground beef supply. And now, consumers 
are looking at a low supply of beef and, consequently, high beef prices 
overall. Can you please comment on the impact of reintroducing products 
like lean finely textured beef on the price and availability of lean 
ground beef?
    Answer. Lean finely textured beef remains in the market place and 
available although demand has fallen substantially and several 
operations which process the product have closed. The trimmings used to 
produce lean finely textured beef product have been diverted to other, 
lower value uses, reducing the value of the live animal to the packer.
    Prices of 50 percent lean (50CL) trimmings dropped sharply as 
demand for fat trimmings as an ingredient in blending for hamburger 
dropped; conversely, prices for 90 percent lean (90CL) trimmings jumped 
as processors looked for alternatives for LFTB. 50CL prices have 
recovered as demand for processing beef has remained strong.
    While this has contributed to the increase in ground beef prices by 
reducing supplies, the larger issue of reduced cattle numbers and 
strong consumer demand through preference changes are more significant 
contributors to the increase in ground beef prices. Increased consumer 
acceptance of the product could expand supplies of ground beef which 
would have a modest impact on prices. However, it remains uncertain if 
consumers would be willing to accept the product in ground beef 
purchases. Media stories indicate that the market for LFTB remains 
fairly weak.
Weekly Wholesale Fresh Lean Beef Prices



    Question 3. The high price of beef and pork has become a fairly 
common topic of conversation. The cattle herd will take a long time to 
rebuild, even if conditions improve immediately. What role does cattle 
production in Canada and Mexico play in ensuring consumers in the 
United States have access to beef when they do their shopping?
    Answer. The United States imports live beef animals from both 
Canada and Mexico. Mexico primarily supplies feeder cattle while Canada 
provides both slaughter and feeder cattle to the U.S. market. At the 
same time, the United States imports some table cuts of beef but 
primarily processing grade beef from abroad.
    Animal and meat trade has become increasingly important for both 
U.S. consumers and producers. Live animal trade of both cattle and hogs 
from Canada including feeder pigs, has helped increase supplies, as 
have imports of processing grade beef. At the same time, U.S. meat 
exports have grown and remain strong despite current high prices. Trade 
in animals and meat products allows U.S. consumers to benefit from a 
larger pool of supplies as well as allow processors to sell specific 
cuts into markets where they are most valued meeting consumer demand at 
home and abroad. A broader market helps to reduce price swings in times 
of local market disruptions.

    Question 4. Estimates show that per capita beef consumption is 
expected to drop more than 2.5 pounds in the coming year and trends are 
similar for the other major meat sources. How strong is the correlation 
between this drop in consumption and the rising cost of meat? Do you 
expect the industry work to curb these statistics, or will higher 
profit margins nullify the incentive to increase consumption levels?
    Answer. In the short run, demand for meat in the United States is 
fairly inelastic, meaning U.S. consumers tend to be slow to respond to 
increases in meat prices, but will adjust over a longer period of time 
as well as make changes to types of meats they purchase. Beef demand 
has thus far remained surprisingly resilient, but continued high prices 
may eventually weigh on demand or cause a shift to lower priced beef 
cuts or reduced cut sizes. Processors have also turned to export 
markets where they have had some success in marketing fed beef product.
    High feeder calf prices will eventually prompt herd expansion by 
cow-calf operators if profitability is sustained which will improve 
cattle availability at the feedlot and processor levels. Competition at 
each level of the industry will provide the necessary incentive to 
expand, however, the significant biological lags in bringing cattle to 
market and past economic performance in the cattle sector may make for 
a somewhat slower turn in cattle numbers. In the meantime, some parts 
of the sector will enjoy strong profits.
    I expect the industry is concerned about driving away demand at the 
consumer level with current high prices, demand that may be difficult 
to win back in the future when cattle numbers increase. In addition, 
the industry is likely concerned with maintaining the necessary 
infrastructure in feedlots and processing facilities for an expanded 
herd. 


    Other meat prices have risen along with beef in part due to 
consumer shifts to other lower priced meats.

    Question 5. Part of the U.S. Department of Agriculture's response 
to Porcine Epidemic Diarrhea Virus (PEDv) has been to deem it a 
reportable disease. Producers will be required to report instances of 
the disease associated with premises identification numbers (PIN). 
Please list what additional information will be required with each 
report, what information is generally associated with premise 
identification numbers, and what steps USDA is taking to ensure that 
this information is protected.
    Answer. Reporting on PEDv and other swine enteric coronavirus 
diseases (SECD) began on June 5. If a herd is known to be affected with 
an SECD by a positive laboratory test, producers, veterinarians and 
laboratory personnel must report it to USDA or State animal health 
officials.
    The report must contain the following:

   A premises identification number (PIN or alternate);

   Date the sample was collected;

   Type of unit being sampled (sow, nursery, finisher);

   Test methods used to make the diagnosis; and

   Diagnostic test results.

    The premises identification number is a six-digit figure that 
points to a street address, including city, state, and ZIP Code, for a 
location.
    USDA will use all available authorities to protect information it 
collects, and we will protect producer privacy to the fullest extent of 
the law.

    Question 6. The packing sector has identified the May 24, 2013 
Country-of-Origin Labeling rule-an attempt to bring the United States 
into compliance with its WTO obligations-as particularly onerous with 
respect to an efficient processing system benefitting producers, 
retailers, and consumers. If the WTO formally establishes that this 
rule has not brought the United States into compliance, will the 
Administration withdraw the rule until the issues surrounding Country-
of-Origin Labeling have been resolved?
    Answer. The U.S. Department of Agriculture (USDA) implemented 
regulations as directed by the COOL statute, which Canada and Mexico 
successfully challenged through the WTO dispute settlement process. On 
May 24, 2013, USDA amended those regulations to bring the United States 
into compliance with its WTO obligations. Canada and Mexico brought WTO 
compliance proceedings against the United States arguing that the May 
24, 2013, regulation did not bring the United States into compliance.
    We expect a report of the panel to be circulated to WTO Members and 
made public later in 2014. Should the WTO ultimately find that the 
United States has not complied in this dispute, the Administration will 
certainly work with Congress, and interested stakeholders.
Questions Submitted by Hon. Collin C. Peterson, a Representative in 
        Congress from Minnesota
    Question 1. Is there a way to quantify which industry may have been 
impacted the most with the increase in corn prices? One of the 
witnesses on the next panel indicated that they believe that the 
livestock and poultry industry is the most impacted. Can you relate 
what you saw since 2009 in the various end-user markets for corn?
    Answer. Feed costs are a large part of livestock and poultry 
operations. For example, roughly 81 percent of dairy production costs 
are feed costs; 62 percent of operating costs for a hog farm are feed 
costs; and about 70 percent of a cow-calf operation are feed costs. 
Those are up since 2007 due to the increase in prices for corn and 
soybeans.
Feed as a % of Total Operating Cost


    By comparison, the farm share (including corn and soybeans) of the 
food dollar spent by consumers is currently about 17 percent. For some 
consumer items the farm share is higher or lower. For example, the farm 
share of cereal and bakery products peaked at about 25 percent in 1974 
and is now only seven percent. Similarly, the farm share of fats and 
oils peaked in 1974 at 47 percent, but has fallen since, and now is 
only 20 percent of the food dollar spent by consumers.
    These shares and the associated elasticity in these markets, the 
willingness of buyers to accept increases in price, and the price of 
competing offerings all impact market response. In the case of corn, 
the margins in production, be it beef or ethanol, will ration the 
supply of corn. If the processor is unable to pass on the increased 
corn cost, margins will narrow, and producers of beef or ethanol will 
respond by reducing output.
    In the short run, livestock producers may have limited ability to 
reduce grain purchases as they feed existing animals on hand despite 
margin reductions.

    Question 2. Dr. Glauber, as you are well aware, feed costs are of 
critical concern to the livestock industry. Can you discuss the 
volatility in the market and some of the reasons for those movements? 
Among this group there has been significant focus on the corn market so 
could you also discuss that market separately?
    Answer. Corn ethanol production increased dramatically over the 
past decade, from just over 2 billion gallons in 2002 to almost 14 
billion gallons in 2011. Driven by a combination of favorable market 
forces and government biofuel policies, including the RFS, the increase 
has spurred corn production and corn use for ethanol and has been one 
of the factors in the recent grain price boom and overall improvements 
in farm balance sheets including record farm incomes over the past few 
years.
    Strong demand for agricultural commodities, combined with global 
supply shortfalls, have reduced global stocks and increased price 
volatility. We have seen three price spikes since 2006. Moreover, 
driven in part by tight feed supplies and high feed costs, low 
operating margins have characterized the livestock, dairy and poultry 
industry over the past few years. Corn ethanol production has been a 
factor; however, the rise in commodity prices over the past few years 
has been due to a variety of factors, such as increasing global demand, 
key production shortfalls due to droughts, as well as increasing energy 
prices.
    Looking forward, with corn use for ethanol slowing due to 
constraints on domestic ethanol consumption (the so-called ``blend 
wall'') and prospects for record corn and soybean harvests this fall, 
it is anticipated that stock levels will rise and prices will moderate, 
which should lead to stronger profits in the livestock and dairy 
sectors. The outlook over the next 10 years calls for moderate 
productivity growth and flat to declining real prices for commodities.

    Question 3. You indicate that higher feed costs have had an impact 
on the livestock sector. Can you lay out which factors you believe are 
most responsible for those higher feed costs among the various factors 
of weather impact on production, export demand and other domestic uses 
such as ethanol, that have led to higher crop commodity prices?
    Answer. As mentioned above, corn ethanol production increased 
dramatically over the past decade. That increase has spurred corn 
production and corn use for ethanol and has been one of the factors 
contributing to higher feed grain prices. However, I also mention that 
the rise in commodity prices (and consequently feed prices) over the 
past few years has been due to other factors, such as increasing global 
grain demand, key production shortfalls due to droughts, as well as 
increasing energy prices.
    In particular the 2012 drought pushed livestock feed prices to 
historic highs. With the highest plantings since 1937 and expectations 
of record yields due to early planting progress, expectations in May 
2012 suggested a record crop of 14.8 billion bushels of corn. The 
drought sharply reduced yields and harvested acreage. Final production 
estimates were over 4 billion bushels less than what had been expected 
in May.
    Soybean prices rose in early 2012 due to poor crops harvested in 
Brazil and Argentina in the winter and early spring. The drought pushed 
soybean farm prices to record highs in the United States, where they 
reached $16.30 per bushel in September 2012. Lower production and 
higher prices saw estimated soybean crush for 2012/13 reduced to 1.6 
billion bushels, down three percent from May 2012 projections.
    Hay production in 2012 was estimated at 120 million tons, down 8.6 
percent from 2011 levels and the lowest yield since 1976. Yields were 
down across the country except in the South where moisture was more 
readily available when compared to 2011. Hay stocks as of December 1, 
2012, were at their lowest level since 1957.
    Those increases were particularly difficult on producers in the 
Southern Plains due to the persistent drought in that region since 
2011, which have degraded pasture conditions and left cattle producers 
in those areas reliant on purchased livestock feeds. Since the start of 
2011, the cattle and calves inventory has declined by almost five 
million head, with almost 65 percent of those losses occurring in the 
drought-affected states of Texas and Oklahoma.
    The increase of feed prices due to the 2012 drought significantly 
increased livestock feed costs. That increase in feed costs can be seen 
in the expenditures on purchased feed expenses in 2012 and 2013 (about 
$60 billion per year), which were about 20 percent higher than the 2011 
and 2014 average (about $48 billion). Data available from USDA (2014).

    Question 4. There is obviously concern in the livestock and poultry 
sectors about the impact of renewable fuels; can you talk about the 
interaction with dried distillers grains from ethanol production and 
the livestock/poultry sector as well as the interaction between soybean 
meal and oil prices and biodiesel?
    Answer. Dried distillers grains with soluables (or DDGS) is a co-
product in the production of ethanol in a dry-mill facility and a high 
value animal feed that has seen rapid expansion in use and export as 
ethanol production has expanded. Dry-mill facilities represent roughly 
80-90% of ethanol productive capacity and have been the primary source 
of growth in the sector over the last decade. For every bushel of corn 
processed in one of these facilities, roughly \1/3\ of the weight is 
output as DDGS. So while a significant volume of corn is absorbed by 
the ethanol industry, on the order of 5 billion bushels annually, a 
significant share of that volume returns as a high value livestock 
feed, mitigating upward pressure on feed prices.
    However, the use and interactions in the feed market are more 
complex than a simple volume calculation may suggest. After a series of 
feeding trials and a period of adaptation, U.S. producers have 
integrated DDGS into domestic livestock, poultry and dairy rations. 
DDGS may be used to displace more than just corn in rations for some 
livestock species. For example, a portion of the DDGS displaces higher 
priced soybean meal in pork and poultry rations. Given their 
substitutability, prices for corn and DDGS often follow a similar 
pattern.
    Soybean oil represents 50-65% of the vegetable oil and fats used to 
produce biodiesel in recent years. Therefore expansion of biodiesel 
increases the demand for soybean oil and increases its price. Soybean 
crush produces both soybean oil and soybean meal, used in animal 
rations. Greater demand for soybean oil increases the price crushers 
are willing to pay for soybeans and has a slight suppressing effect on 
soybean meal prices as supplies increase. However, the effect on 
soybean meal prices may be limited by the availability of other 
feedstocks such as palm oil or animal fats which don't produce a large 
volume of feed co-product.

    Question 5. How much impact does the price of fossil fuels such as 
oil and natural gas, have on the livestock and poultry sectors?
    Answer. Higher energy costs will affect a number of inputs directly 
(e.g., higher oil and natural gas prices will make heating more 
expensive) and indirectly (e.g., higher natural gas prices will 
increase fertilizer and irrigation costs and will lead to higher feed 
prices). While fuel and electricity costs are typically lower as a 
percentage of total operating costs on livestock or poultry operations 
compared to cropping operations, feed costs are a larger part of the 
overall operating costs for livestock and poultry farms. In general an 
increase in direct and indirect costs due to higher energy prices will 
lead to a reduction in net farm income for livestock and poultry farms, 
but by less than the percent increase in fuel prices. A higher price of 
energy would affect beef cattle and dairy operations more than hog and 
poultry operations. For more details see USDA-ERS (2011) ``Impacts of 
Higher Energy Prices on Agriculture and Rural Economies,'' Economic 
Research Report No. 123 (August; available online at http://
www.ers.usda.gov/publications/err-economic-research-report/
err123.aspx#.U9-YSqP1uVo).

    Question 6. If the RFS was revoked today, what would be the impact 
on demand for corn over the next 5 years? What do you estimate the 
price of corn would be?
    Answer. In 2008, my office was asked to examine the impact of 
biofuels on food prices and in testimony before the Senate Energy 
Committee I reported our findings that increased ethanol production 
accounted for about 30 percent of the increase in corn prices over 2007 
to 2008 accounting for the increased production needed to meet the rise 
in ethanol production (Glauber, 2008). More recently, the increase in 
U.S. ethanol production was estimated to account for about 36 percent 
of the increase in corn prices over the period from 2006 to 2009 (see 
Babcock and Fabiosa, 2011). They argue that high energy prices 
accounted for the majority of the impetus behind expanded ethanol 
production.
    Last year I spoke to the House Committee on Energy and Commerce 
about the RFS (Glauber, 2013). I noted that many analyses of the 2012 
waiver petitions found the likely impact of a short-term waiver was 
found to be small (see Babcock, 2012; and Irwin and Good, 2012; and 
EPRINC 2012). At the time, researchers cited the need to stockpile 
production credits as a compliance strategy for the blend wall, the 
importance of ethanol as octane enhancer, and the current prices of 
ethanol and gasoline, which favor blending ethanol.
    However, the impact of a longer-term waiver, such as suggested by 
your question, would likely depend on energy prices. So long as ethanol 
is priced less than gasoline, it is unlikely that there will be much 
reduction in ethanol usage from current levels. Most studies that 
examined a longer term waiver on mandates forecasted a larger impact on 
corn ethanol production than under a short-term waiver (see for 
example, FAPRI, 2013). That is because ethanol is a much lower cost 
gasoline volume extender and source of octane than refinery sourced 
butane, reformante and alkylate.Therefore, most researchers have 
concluded it is unlikely that at current prices ethanol production and 
consumption would fall much lower than the amount of ethanol necessary 
for E10, or about 13.4 billion gallons.
    For example, CBO (2014) recently examined a full repeal of the RFS 
in 2017 and found that ethanol consumption would likely be between 13 
and 14 billion gallons. CBO notes that the long-term effects of a full 
repeal could be greater, depending on oil prices and other factors. BO 
also found under a full repeal of the RFS relative to full 
implementation in 2017, corn prices could be about 25 lower per 
bushel. They do not find much difference in corn prices comparing the 
proposed RFS volumes (from the 2014 proposed rule) to a complete repeal 
of the RFS. Those findings are consistent with a recent Iowa State 
study (Babcock and Zhou, 2013) that find that the levels of usage in 
EPA proposed rule for 2014 would result in corn prices that were about 
24 lower than under the statutory levels of ethanol usage.
    USDA forecasts that corn use for ethanol will remain relatively 
constant over the next 5 years, settling between 5 and 5.1 billion 
bushels, or between 13 and 14 billion gallons of ethanol production. 
When the final rule for 2014 volumes is promulgated, it is unlikely 
that a resulting level of ethanol consumption that is somewhere between 
the proposed volumes and the statutory volumes would change USDA's 
projection much for the short-run. Currently, we project farmgate corn 
prices to fall between $3.35/bu to $3.75/bu over the next 5 years. Any 
adjustment in our projected corn prices as a result of the 2014 final 
rule would likely be minimal relative to any price effects we would 
expect from normal year-to-year variability in weather. Similarly, 
based on CBO and Iowa State research we would expect that a full repeal 
of the RFS to have little effect on our baseline projections of corn 
prices given the likelihood that ethanol consumption would remain in 
the 13 to 14 billion gallon range.
Citations
    Bruce Babcock and Wei Zhou (2013) ``Impact on Corn Prices from 
Reduced Biofuel Mandates,'' CARD Policy Brief No. 13-WP 543, Iowa State 
University (November: available at http://www.card.iastate.edu/
publications/synopsis.aspx?id=1215).
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