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



 
            MODERNIZING AGRICULTURE PRODUCER SIZE STANDARDS

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

                                HEARING

                               before the

             SUBCOMMITTEE ON AGRICULTURE, ENERGY AND TRADE

                                 OF THE

                      COMMITTEE ON SMALL BUSINESS
                             UNITED STATES
                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED THIRTEENTH CONGRESS

                             SECOND SESSION

                               __________

                              HEARING HELD
                             JULY 24, 2014

                               __________

                               [GRAPHIC] [TIFF OMITTED] TONGRESS.#13
                               

            Small Business Committee Document Number 113-078
              Available via the GPO Website: www.fdsys.gov


                                 ______

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                   HOUSE COMMITTEE ON SMALL BUSINESS

                     SAM GRAVES, Missouri, Chairman
                           STEVE CHABOT, Ohio
                            STEVE KING, Iowa
                         MIKE COFFMAN, Colorado
                      BLAINE LUETKEMEYER, Missouri
                     MICK MULVANEY, South Carolina
                         SCOTT TIPTON, Colorado
                   JAIME HERRERA BEUTLER, Washington
                        RICHARD HANNA, New York
                         TIM HUELSKAMP, Kansas
                       DAVID SCHWEIKERT, Arizona
                       KERRY BENTIVOLIO, Michigan
                        CHRIS COLLINS, New York
                        TOM RICE, South Carolina
               NYDIA VELAZQUEZ, New York, Ranking Member
                         KURT SCHRADER, Oregon
                        YVETTE CLARKE, New York
                          JUDY CHU, California
                        JANICE HAHN, California
                     DONALD PAYNE, JR., New Jersey
                          GRACE MENG, New York
                        BRAD SCHNEIDER, Illinois
                          RON BARBER, Arizona
                    ANN McLANE KUSTER, New Hampshire
                        PATRICK MURPHY, Florida

                      Lori Salley, Staff Director
                    Paul Sass Deputy Staff Director
                      Barry Pineles, Chief Counsel
                  Michael Day, Minority Staff Director


                            C O N T E N T S

                           OPENING STATEMENTS

Hon. Scott Tipton................................................     1
Hon. Patrick Murphy..............................................     2

                               WITNESSES

Mr. John Shoraka, Associate Administrator for Government 
  Contracting and Business Development, United States Small 
  Business Administration, Washington, DC........................     4
Mr. Mark Oestman, Owner, Oestman Farms, LLC, Eckley, CO..........     5
Mr. Ken Keesaman, Owner, KK Farms Red Angus, Osborn, MO, 
  testifying on behalf of the National Cattlemen's Beef 
  Association....................................................     6
Mr. Robert Guenther, Senior VP, Public Policy, United Fresh 
  Produce Association, Washington, DC............................     8

                                APPENDIX

Prepared Statements:
    Mr. John Shoraka, Associate Administrator for Government 
      Contracting and Business Development, United States Small 
      Business Administration, Washington, DC....................    19
    Mr. Mark Oestman, Owner, Oestman Farms, LLC, Eckley, CO......    21
    Mr. Ken Keesaman, Owner, KK Farms Red Angus, Osborn, MO, 
      testifying on behalf of the National Cattlemen's Beef 
      Association................................................    22
    Mr. Robert Guenther, Senior VP, Public Policy, United Fresh 
      Produce Association, Washington, DC........................    29
Questions for the Record:
    None.
Answers for the Record:
    None.
Additional Material for the Record:
    None.


            MODERNIZING AGRICULTURE PRODUCER SIZE STANDARDS

                              ----------                              


                        THURSDAY, JULY 24, 2014

                  House of Representatives,
               Committee on Small Business,
     Subcommittee on Agriculture, Energy and Trade,
                                                    Washington, DC.
    The Subcommittee met, pursuant to call, at 10:00 a.m., in 
Room 2360, Rayburn House Office Building. Hon. Scott Tipton 
[chairman of the subcommittee] presiding.
    Present: Representatives Tipton, Luetkemeyer, Murphy, and 
Schrader.
    Chairman TIPTON. Good morning. I would like to call this 
hearing to order.
    I would like to thank all of our witnesses for taking time 
out of your busy schedules to be able to join us today and to 
discuss the Small Business Act and how it currently applies to 
small agricultural enterprises.
    As Members know, the Small Business Act authorizes the 
Small Business Administration to develop small business-size 
standards to specific industries.
    The SBA currently has size standards for over 1,000 
different industries, and size standards ranging from $4.5 
million to $35.5 million in annual receipts, or 50 to 1,500 
employees.
    The SBA sets the size standards only after studying a 
number of statistical factors and industry-specific 
considerations, including technological changes and industry 
growth trends. The law also now requires the SBA to revisit 
each industry's size standard at least once every five years, 
and to ensure public participation in the process through 
notice and comment rulemaking.
    However, we treat small agricultural enterprises different; 
Congress statutorily sets this size standard.
    It was not always this way. Until 1985, the SBA set the 
size standards for these 46 industries. In 1984, the SBA set 
the size standard for these industries at $100,000, a level 
Congress believed would harm family farms because it was too 
low.
    Therefore, in 1985, Congress amended the Small Business Act 
to create a $500,000 size standard for small agricultural 
enterprises. This size standard was updated in the year 2000, 
when it was set at $750,000 in annual receipts.
    The $750,000 standard is currently the lowest revenue-based 
standard for any industry, and it simply has not kept pace with 
inflation or changes in the farming sector of the economy.
    If the size standard is too low, it limits agricultural 
producers' access to billions in federal prime contracts and 
subcontracts. By lumping all small agricultural enterprises 
into a one-size standard, we also are not accurately capturing 
distinctions between the various industries.
    Furthermore, the Department of Agriculture typically relies 
on the $750,000 size standard when assessing the effects of its 
proposed rules pursuant to the Regulatory Flexibility Act. An 
artificially low standard could lead to additional regulatory 
burdens for small agricultural enterprise. Thus, a provision 
that originally helped small businesses may now actually be 
harming them.
    The purpose of today's hearing is to examine whether the 
current statutory size standard continues to meet the needs of 
small agricultural businesses, and if not, what alternatives 
Congress should pursue to ensure equitable treatment for small 
businesses and their concerns in this industry.
    Andrew Jackson once said that the American farmer is the 
bone and sinew of our economy, so we need to make sure that the 
policies we create help, rather than hinder, our small farmers.
    Before I introduce the witnesses for our next panel, I 
would like to yield to Ranking Member Murphy for his opening 
statement.
    Mr. MURPHY. Thank you, Mr. Chairman. Thank you all for 
being here.
    This Committee has long recognized the vital role small 
businesses play in our national economy. Small firms remain a 
cornerstone of economic growth and make up the vast majority of 
employer firms and create two-thirds of all net jobs. Given the 
many economic benefits of a strong small business sector, 
Congress and the federal government have established a range of 
programs helping small companies flourish and hire new workers.
    How a small business is defined can vary widely by 
industry. For some sectors, a measurement of number of 
employees makes sense. For others, annual revenues are a better 
benchmark. Regardless of which benchmark is used, what 
qualifies as a small business under federal law can have major 
consequences. For example, small businesses qualify for 
billions of dollars in government guaranteed loans every year, 
and being deemed a small business can give a firm pursuing 
federal contracts boost in the procurement process. Everything 
from regulations to tax write-offs are impacted by whether a 
firm is classified as a small business or not.
    In that regard, how this Committee, Congress, and the SBA 
define a small business very directly shapes our nation's small 
business policy. The size standards SBA uses determine which 
businesses are eligible for assistance and which firms have 
grown so large as to no longer warrant assistance under the 
Small Business Act.
    With regards to small firms and agriculture production, SBA 
has encountered significant difficulty setting a practical 
standard. In the 1980s, Congress took some responsibility for 
setting the agriculture size standard. Since then, the 
threshold has been adjusted only once since 2012. Given changes 
in the major differences with the sector, it is important that 
this Committee and Congress evaluate whether it is time to 
update this standard so as to better reflect the modern 
landscape of American agriculture.
    Since Congress began setting the small business size 
standard for agriculture, the midpoint for crops has grown 88 
percent, from 589 acres to 1,105. As of 2011, farmers with at 
least 2,000 acres now account for more than 34 percent of crop 
land. Additionally, with the advent of new technologies, many 
agricultural businesses have vastly increased their production 
rates.
    Despite these changes, there has also been a reduction in 
the number of small and mid-size farms. According to the 
Department of Agriculture, the number of farms with at least 
one million in sales more than doubled between 1982 and 2007. 
Small commercial farms, those with $10,000 to $250,000 in 
sales, fell by two-thirds. Although SBA has issued proposed 
size standard changes for a number of industries, agriculture 
has been left out of that process as Congress took on this 
responsibility in the 1980s.
    Today, we will examine how current size standards function 
in the real world. We will hear from those in the relevant 
industries as to how the standard is working for them and 
whether it is in need of a change. Additionally, we will hear 
from SBA as to their current methodology and how it could be 
applied to set new size standards for those operating in those 
industries. It is my hope that we can come to the best solution 
as to how to review the size standard for those in agriculture 
production. This is an important task with resources already 
stretched thin. It is important that small business assistance 
truly reaches agriculture producers, thereby maximizing 
economic growth and job creation.
    I want to thank all the witnesses for traveling here today. 
Your participation and insights will help this Committee as we 
consider this timely topic.
    Thank you, Mr. Chairman.
    Chairman TIPTON. Thank you, Mr. Murphy.
    If Committee members have an opening statement prepared, I 
would ask that they submit it for the record.
    I would like to take a moment to be able to explain our 
timing lights for you. You will each have five minutes to be 
able to deliver your testimony. The light will start out as 
green, and when you have one minute remaining, the light will 
turn yellow. And finally, at the end of your five minutes, it 
will turn red, and we would ask that you adhere to the time 
limit.
    We will now begin with our testimony.
    I would like to be able to introduce our first witness, Mr. 
John Shoraka, associate administrator for Government 
Contracting and Business Development at the United States Small 
Business Administration. Prior to his service at the SBA, he 
served as vice president of the Aries Group at Silver Spring, 
Maryland.
    Mr. Shoraka, welcome back, and we look forward to your 
testimony.

    STATEMENTS OF JOHN SHORAKA, ASSOCIATE ADMINISTRATOR FOR 
GOVERNMENT CONTRACTING AND BUSINESS DEVELOPMENT, UNITED STATES 
  SMALL BUSINESS ADMINISTRATION; MARK OESTMAN, OWNER, OESTMAN 
  FARMS, LLC; KEN KEESAMAN, OWNER, KK FARMS RED ANGUS; ROBERT 
   GUENTHER, SENIOR VP, PUBLIC POLICY, UNITED FRESH PRODUCE 
                          ASSOCIATION

                   STATEMENT OF JOHN SHORAKA

    Mr. SHORAKA. Thank you for having me.
    Chairman Tipton, Ranking Member Murphy, and Members of the 
Subcommittee, I am honored to be here today to discuss SBA's 
size standard methodology as it pertains to agricultural 
enterprises.
    As you know, with the exception of certain agricultural 
enterprises, the Small Business Act provides the U.S. Small 
Business Administration with statutory authority to establish 
small business size definitions, referred to as size standards, 
for federal government programs. The size standards for 
agricultural enterprises, as was mentioned earlier, are unique 
in that they are directly established by statute. The size 
standard for agricultural enterprises was first set by statute 
in 1985. Currently, the size standard for 46 industries in the 
North American Industry Classification System (NAICS) Section 
11, which includes agriculture, forestry, fishing, and hunting, 
is set by statute at $750,000 in annual receipts.
    SBA is capable of conducting the analysis to establish size 
standards for small businesses for agricultural enterprises, as 
SBA would use the same process that it currently uses to 
establish size standards for business concerns in other 
industries. When establishing size standards, SBA examines 
economic characteristics, such as average firm size, industry 
concentration, start-up costs and entry barriers, and federal 
market conditions in each industry. At SBA, we believe in a 
transparent process. A detailed explanation of how we establish 
size standards is provided in our Size Standards Methodology 
White Paper, which is available on the Agency's
    Website.
    Establishing size standards based on characteristics of 
individual industries is consistent with Section 3(a)(3) of the 
Small Business Act, which requires the administrator to ensure 
that size standards vary, to the extent possible, to reflect 
the differing characteristics of individual industries. SBA 
believes its methodology for establishing standards meets this 
requirement by incorporating economic characteristics and 
federal market conditions into its analysis of an industry-by-
industry calculation.
    The Small Business Jobs Act of 2010 requires SBA to review 
all size standards and make necessary adjustments to reflect 
market conditions every five years. The Small Business Act does 
not require SBA to review size standards for most agricultural 
industries, so the Agency did not review agricultural size 
standards under the current review. In addition, SBA reviews 
all monetary based size standards every five years for 
inflation and makes necessary adjustments. Currently, SBA does 
not adjust the statutory agricultural size standards for 
inflation. As a result, again, the agricultural size standard 
has remained at the $750,000 receipts level since 2000, while 
SBA has reviewed and adjusted monetary-based size standards for 
inflation four times in that same time period.
    If SBA were mandated to review agricultural size standards, 
adjustments for inflation and other economic conditions could 
be made.
    Thank you for your continued leadership and support. I am 
happy to be here today, and I look forward to your questions.
    Chairman TIPTON. Thank you, Mr. Shoraka.
    I would now like to be able to introduce Mr. Ken Oestman, 
owner of Oestman Farms located in Eckley, Colorado, which is a 
town in the recognized center of the universe, the Third 
Congressional District of Colorado. In addition to his farming 
operation, Mr. Oestman served a term as president of the 
Colorado Corn Administrative Committee. He is testifying today 
on behalf of the Colorado Corn Growers Association.
    Mr. Oestman, thank you for appearing today, and you may now 
deliver your testimony.

                   STATEMENT OF MARK OESTMAN

    Mr. OESTMAN. Good morning, and thank you.
    Chairman Tipton, Ranking Member Murphy, and all Committee 
Members, my name is Mark Oestman, and I am a fourth generation 
farmer and rancher from near Eckley in Northeast Colorado. I 
farm 2,500 acres of irrigated ground raising corn, wheat, and 
soybeans in a family partnership with my dad. Together, we also 
run about 400 steers in a grower/stocker operation. My wife 
Dessany and I are raising our children to hopefully be the 
fifth generation to operate our farming operation. In addition 
to farming, I currently serve as the president of the Colorado 
Corn Administrative Committee, which is the state corn ``check-
off'' organization.
    When someone asks me today to sum up production 
agriculture, I like to say that farmers are just like everyone 
else, except that the cost of running our business adds a few 
extra zeroes to the income and expense columns at the end of 
the month. From the combines that we use to harvest our crops, 
which coast as much, if not more, than many homes, to the 
enormous increases in the input costs associated with producing 
that crop, such as fertilizer, seed, and energy costs, the 
challenges of staying in the farming business can be difficult 
to manage.
    I believe part of the reason for increased costs can be 
attributed to an unprecedented period of growth in the 
agricultural industry. Many things have contributed to this 
period, such as an ever-increasing population demand for more 
protein and more grain, along with improved markets for 
ethanol. These factors and others have led to record demand for 
most production agriculture commodities and, in turn, to higher 
prices for these commodities as well.
    With these higher prices, both for the commodities we grow 
and the inputs we must purchase, there has been a trend of 
consolidation in modern agriculture resulting in larger farms. 
These additional acres help us to spread our machinery costs 
and land payments over more acres and use our equipment more 
efficiently. With the average age of the American farmer 
continuing to rise, we will see more and more farms sold or 
rented out.
    Increased yields are another trend we are seeing in 
agriculture today. Thanks to advanced technologies, I am able 
to select hybrid seeds. I can effectively plant a field and 
know that because of seed selection I have reduced the amount 
of inputs needed to combat weeds and insect attacks. Precision 
technology has helped me to maximize yields, minimize inputs, 
all while protecting the environment.
    Any single one of these variables I have talked about could 
support a need to increase the $750,000 level for production 
agriculture to meet the small business criteria. When you 
consider all of them together, it becomes abundantly clear that 
this level needs to be increased, and by a substantial amount.
    If you take my farm for an example, we usually raise 
roughly 1,500 acres of corn, 500 acres of soybeans, and 500 
acres of wheat. In a typical year, we would hope to raise 
300,000 bushels of corn, 25,000 bushels of soybeans, and 50,000 
bushels of wheat. I did some research, and from 1985 to 2006, 
an average price for corn was approximately $2.27 per bushel. 
So, our farm receipts just from our corn during that period 
would have been $681,000. Compare that to today's average 
price. From 2007 to 2013, it was around $4.94 per bushel; the 
same 300,000 bushels would bring in around $1,482,000.
    So in summary, I believe that the Small Business Committee 
should consider substantially raising the arbitrary $750,000 in 
receipts that currently exist for agriculture producers. The 
dynamics of today's farms and farmers, especially those who 
farm as their sole source of income, have changed dramatically, 
and I believe the limit should as well. Due to factors largely 
out of a farmer's control, my total receipts can change 
dramatically from year to year, and I believe the SBA standard 
should take many of those factors into consideration and 
increase the standard.
    Thank you.
    Chairman TIPTON. Thank you, Mr. Oestman.
    I would now like to be able to introduce Mr. Keesaman of 
Osborn, Missouri. Mr. Keesaman is owner of KK Red Angus Farms, 
where He raises breeder livestock. He is testifying today on 
behalf of the National Cattlemen's Beef Association.
    Mr. Keesaman, thank you for appearing here today. Pleasure 
to visit with you. You may now deliver your testimony.

                   STATEMENT OF KEN KEESAMAN

    Mr. KEESAMAN. Thank you, sir. It is a pleasure of meeting 
you sir and talking about Colorado.
    Good morning, Chairman Tipton, Ranking Member murphy, and 
Members of the Committee. I am Ken Keesaman, a cattle farmer 
from Osborn, Missouri. My family and I are members of the 
National Cattlemen's Beef Association and the Missouri 
Cattlemen's Association. It is a pleasure to testify before 
your Committee today on how the livestock industry, and 
particularly our farming operation, KK Farms Red Angus has 
evolved over the years.
    Our family started in the cattle business in the 1870s, and 
I began farming full-time in 1969 when I returned from active 
duty with the Missouri Air National Guard. KK Farms consists of 
1,500 acres, of which 900 are owned by our family and the 
remaining acres are leased. Of the 900 acres, 240 of the farm 
have been in the family since the establishment of our farm, 
earning us the Missouri Century Farm award. Maintaining the 
original farm acreage continues to be a priority for my family, 
and we have expanded our business model throughout the years to 
maintain our livelihood. Raising cattle is the foundation of 
our farm, and we have been in the Registered Red Angus business 
since 1972.
    The face of the livestock industry is much different today 
than it was in 1969 when I returned to the farm. In 1969, there 
were approximately 845,000 beef cattle farms with more than 34 
million head of beef cattle. Other than the expansion of farms 
and herd size in 1974 and 1995, there has been a steady decline 
of the number of farms and the total number of head of beef 
cattle in the United States. Today, we have approximately 29 
million head of beef cattle, and according to the 2012 Ag 
Census, there are 729,000 beef cattle farms. Even though we 
have the smallest beef herd since 1951, our industry has been 
able to utilize the latest science and management practices to 
produce approximately 25 billion pounds of beef.
    When you evaluate the success of America's cattle farmers 
and ranchers, we have developed a successful business model not 
only domestically, but also globally. In terms of production, 
the United States has only seven percent of the world's cattle 
supply, but we are able to produce 20 percent of the world's 
beef. We have found ways to utilize more of our natural 
resources and the latest science to be more efficient than our 
international competition.
    Our demand has changed, like many other small farms since 
1985. During the late 1980s, due to changing trends in 
agriculture, we downsized our hog operation and increased our 
Red Angus herd. Our production costs have increased also, 
making it difficult for family farmers to compete in today's 
environment.
    The cattle industry in Missouri is comprised of a lot of 
small family farms who make a big impact. We have a lot of 
small players who make a big impact nationwide. The average 
herd size in Missouri is 36 head, but overall, we are the 
second largest beef cattle state behind Texas. We have to do 
everything we can to send signals to these families that the 
climate is right to expand.
    We use risk management by utilizing research and technology 
afforded to us through land grant universities, like the 
University of Missouri. Examples include planting cover crops 
over our corn and soybeans, which can be grazed by livestock. 
This helps us manage our feed costs during the recent droughts 
of 2012 and 2013. Also, in regards to risk management, we have 
added new ventures. In 2009, my son Kraig and his wife added 
Windy Wine Company and planted nearly eight acres of Missouri 
grapes. My son Kody and I ventured into the All-Natural Meat 
production/sales of our Red Angus Beef, and another son Kasey 
and his wife started a microbrewery called Blackbelt Brewery. 
Future plans to help spread risk are to include a farm-to-table 
restaurant, event center, and bed and breakfast. All of this 
adds value to our products and helps spread risk. It also 
ensures that every family member and sons and their sons will 
have a place on our family farm.
    The evolution of today's livestock industry has shifted, 
and in order for family business to survive, we have expanded, 
diversified, and in terms of agriculture, today's small 
business has changed. It is appropriate for the size standards 
to be changed by the Small Business Administration to most 
accurately represent today's small operations. It is my 
understanding that agriculture is the only industry where the 
statute establishes our size standard. With that being the 
case, Congress needs to change the statute and consider 
alternatives to these standards. Smaller operations play a 
significant role in the beef cattle industry.
    In closing, I appreciate the work that the Committee has 
done, and there are opportunities for individuals to pursue the 
American dream. Small businesses are the life-blood of America 
and rural communities. We also appreciate the good work the 
Committee has done to bring small business perspective into the 
regulatory climate and it is appreciated by smaller operations, 
like KK Farms.
    Thank you for the opportunity today to share our family's 
history and commitment to agriculture. It is more than a 
business; it is our way of life.
    Chairman TIPTON. Thank you, Mr. Keesaman, for your 
testimony. We hope those sample are going to be passed out. We 
noticed that.
    Mr. KEESAMAN. You are more than welcome to come take one. I 
think they are one ounce samples, so I think the Ethics 
Commission will be all right with that.
    Chairman TIPTON. I would now like to yield to Ranking 
Member Murphy so that he may introduce our final witness.
    Mr. MURPHY. Thank you, Mr. Chairman.
    It is my pleasure to introduce Mr. Robert Guenther, senior 
vice president of Public Policy for United Fresh Produce 
Association, which represents the fresh fruit and vegetable 
industry. During his time there he has been interviewed and 
quoted by CNN, C-SPAN, Wall Street Journal, New York Times, and 
other major publications. Formerly, Mr. Guenther served as 
congressional aide to the U.S. House Committee on Agriculture, 
and also worked as an environmental protection specialist for 
the Environmental Protection Agency's Office of Pesticide 
Programs.
    Welcome, Mr. Guenther.

                  STATEMENT OF ROBERT GUENTHER

    Mr. GUENTHER. Thank you, Ranking Member Murphy, Chairman 
Tipton.
    My name is Robert Guenther, and I am the senior vice 
president of Public Policy for the United Fresh Produce 
Association. As you know, United Fresh is the national trade 
association representing the entire distribution chain of fresh 
fruit and vegetable production, including growers, shippers, 
wholesale distributors, processors, and retailers. Since 1904, 
United Fresh has worked with Congress and the administration to 
help shape legislative and regulatory policies to provide a 
strong business climate for our members that encourages growth 
and development. We thank you for the opportunity to address an 
issue that impacts the ability of many of our United Fresh 
members to utilize key programs designed to assist small 
businesses as they seek to develop and diversify their 
operations. And on a personal note, I, like two of my other 
colleagues at the table today, also grew up on a small family 
farm, which is located in North Central Florida and has focused 
on citrus and nursery production for over 100 years.
    For a variety of reasons, such as changes in the economy or 
fluctuations in commodity prices, the number of agriculture 
producer operations classified as small businesses has been on 
a continual decline, even though many of these operations made 
no significant changes that would otherwise justify a 
reclassification. Taking into account current agriculture 
business models, a standard many times higher than the current 
$750,000 in annual receipts would be the norm in today's 
agriculture community. More importantly, fruit and vegetable 
producers, like producers of other commodities, will tell you 
that the annual gross receipts are not a reliable indicator of 
an operation's size, nor is it a good indicator of 
profitability in light of cost of inputs and labor, which in 
fruit and vegetable production are particularly significant.
    In addition to being an unrealistic representation of many 
agriculture operations, the current SBA standard puts 
agriculture small business operators at a disadvantage in their 
ability to avail themselves of assistance they could utilize to 
grow and adapt their operations. Again, the current $750,000 
size standard applied to agriculture operations limits small 
agriculture producers' access to SBA's assistance programs and 
federal contracting preferences for small prime and 
subcontractors. Key SBA programs that may prove useful to 
produce operations include loans to start, acquire, or expand a 
small business or loans that provide long-term, fixed-rate 
financing for assets such as land or buildings, among others.
    More importantly, when you look at the wide variety of 
programs available at the Department of Agriculture to help the 
fresh produce operations, including farm loan programs, market 
promotion and export assistance, technical assistance for 
conservation and compliance, nutrition programs, rural and 
infrastructure development, new and beginning farmer programs, 
we believe it is important to ensure that there is a level of 
consistency between USDA and other federal agencies when it 
comes to a small business definition.
    Finally, among the most significant challenges that 
agriculture operations face, like any business, is compliance 
with government regulations. Some agencies use SBA size 
standards to assess the impact of their proposed regulations in 
accordance with the Regulatory Flexibility Act. However, the 
current standard for agriculture operations to qualify as a 
small business of annual receipts of no more than $750,000 was 
set by Congress in 20000, as was mentioned earlier. As 
discussed, given the enormous changes in agriculture since that 
time, a review of the small business standard, which would 
provide agriculture producers with justifiable regulatory 
relief, is long overdue.
    To this end, we would suggest that Congress and the 
administration consider alternatives that would eliminate the 
current standard and allow SBA to review industries currently 
considered to be small agriculture businesses. Following that 
review, SBA could then propose new size standards through the 
normal regulatory process, which would allow agriculture 
operators to comment and provide recommendations for a new 
standard. In addition, this would allow SBA to routinely review 
and update the standard and to keep pace with variations in the 
agriculture community such as change in commodity prices. As a 
result, the correct and appropriate size standard will be in 
place, better allowing producers to have access to SBA programs 
and ensure that agriculture producers' needs are better 
reflected in a variety of regulatory initiatives. In addition, 
we suggest that it would be very helpful if there was a 
stronger harmonization of standards used by SBA and the U.S. 
Department of Agriculture.
    Again, thank you Chairman Tipton and Ranking Member Murphy 
for holding this hearing and for allowing me to share United's 
position with you. We look forward to working with you, and I 
will be happy to answer any questions.
    Chairman TIPTON. Thank you, sir.
    I will now begin the questioning, and I would like to begin 
with Mr. Luetkemeyer.
    Mr. LUETKEMEYER. Thank you, Mr. Chairman. And welcome to 
all the panelists today. It is good to see somebody from 
Missouri as well.
    Mr. Shoraka, I am kind of curious. I think at one time SBA 
had the authority and the flexibility to do this themselves. 
Why was it taken away? Let us have a little history here.
    Mr. SHORAKA. Sure. I cannot speak to the intent back in the 
1980s when this was taken away. As was mentioned today, at the 
time I understand the size standard was $100,000 annual 
receipts, and it was felt that that was below what was 
appropriate. But I cannot speak to the congressional intent as 
to why that authority was taken away from the SBA. But since 
that time we have not had the authority to establish that size 
standard.
    Mr. LUETKEMEYER. I was curious if there was a standard that 
caused the flexibility to be taken away. Congress, you know, 
they always like to take more power themselves or they like to 
do things, you know, not necessarily well, but they like to do 
more things. I am just kind of curious about it.
    I know in your testimony you talked about the different 
things that you look for, the characteristics, and I did not 
see in there the number of employees. One of the things that we 
do with SBA, a lot of the other definitions are by the number 
of employees. Why was that not included?
    Mr. SHORAKA. There actually is difficult classifications 
for size standards. Some size standards are based on revenues. 
Others, like manufacturing, are based on number of employees. 
So there are different methodologies. What I would say is that 
as was mentioned earlier, the rulemaking process is such that 
we follow the Administrative Procedures Act. So we would do an 
analysis, but then we would have the opportunity not only to 
share it with our sister agencies to get their feedback, but it 
would also go to the community. And that is where we could 
really gather the feedback from industry. And oftentimes, it is 
that industry feedback and data from the industry that helps us 
really establish a size standard that represents industry.
    Mr. LUETKEMEYER. Agriculture is a unique industry in that 
the fluctuation within it, because of the markets, because of 
the weather--I always tell people if you think going to Las 
Vegas is a real gamble, you need to be a farmer for a while and 
just roll the dice every day when you walk out your front door.
    But it is amazing. Farming, I always tell people, it is one 
of the few occupations where you really do not have control 
over your inputs. You do not have any control over the weather. 
You do not have any control over the outputs. And yet you want 
to be a farmer. Congratulations, guys. It is amazing.
    One other comment I want to make with Mr. Shoraka before we 
move on, one of the things I do not see in here, although you 
say federal market conditions in each industry, one of the--I 
think Mr. Keesaman mentioned something about market 
fluctuations, the yearly fluctuations. I mean, that is not 
listed here. Is that something that is also in your federal 
market conditions? Is that where you take care of the 
fluctuations in the market?
    Mr. SHORAKA. We try to look at three-year averages to 
address the fluctuations.
    Mr. LUETKEMEYER. Okay, so easy question. Where do you think 
it needs to be? Or what do you----
    Mr. SHORAKA. I think we would have to the analysis. We have 
not done it for decades. I think we really would have to do the 
analysis and really go through the process, as I said, to work 
with USDA and other agencies in establishing the size 
standards. But it is very important to get industry----
    Mr. LUETKEMEYER. Do you do it on an annual basis then or 
would you do it every five years because of the uniqueness of 
agriculture? Or what do you want to do?
    Mr. SHORAKA. Based on the Small Business Jobs Act, we were 
required--we actually had not looked at size standards 
comprehensively for decades, but the Small Business Jobs Act of 
2010, which we were thankful to receive, as an agency required 
us to look at a third of the size standards every 18 months. 
And we are on schedule to review all the size standards. And we 
go back every five years. But it is adjusted for inflation.
    Mr. LUETKEMEYER. Very good.
    Mr. Oestman and Mr. Keesaman, what size do you think would 
be appropriate? I am sure your associations have got some 
thoughts on it.
    Mr. KEESAMAN. Well, Congressman, our farm bumps this limit. 
I love to do business with small family farms or small family 
businesses. Our meat sticks are made by a farm family business. 
Our beef is processed USDA inspected that we sell in our winery 
by a small family, and I like to do that. I know a lot of small 
farms that are way over the limit very easily. You know, one, 
two, three, four million. It depends on whether I am buying his 
corn at $8.60 or I am buying it at $3.00. Or it makes a 
difference whether he is buying my beef at $1.00 a pound or 
$2.50 a pound on hanging weight.
    Mr. LUETKEMEYER. Farming is a very capital-intensive 
business. I mean, your restaurant business and your winery are 
going to be completely different business models than what 
agriculture is.
    Mr. KEESAMAN. They are, and it is just a way, as you can 
see from my testimony, we want to bring sons back into the 
operation.
    Mr. LUETKEMEYER. Right.
    Mr. KEESAMAN. My great granddad was there. My grandfather 
was there. My father, that is all he knew, was farm. That is 
all I know. I have got one son that farms with me full-time 
that followed me around when he was a little kid. And so that 
is what our roots are in. We have had to change, and small 
business needs to change because of the limits, you know, and 
our Congress needs to change it. But yes, agriculture is a 
different breed of cat.
    Mr. LUETKEMEYER. I appreciate your testimony today. I know 
that by rule here we are supposed to do this every five years 
and all the other entities, and yet we have not done this since 
2000. So obviously it is time for a change.
    Mr. Chairman, I yield back.
    Chairman TIPTON. Thank you, Mr. Luetkemeyer.
    And now I yield to Mr. Murphy for his questions.
    Mr. MURPHY. Thank you, Mr. Chairman. Thank you all again.
    It seems that there is sort of a fine line here. And over 
the past several years and decades we have seen a continual 
consolidation of smaller farms into the larger farms. By 
modernizing these standards and size-setting standards, how do 
we protect the integrity of the small businesses and prevent 
the corporations and the large businesses from seizing all 
these opportunities? How do we make that distinction? This is 
for the whole panel.
    Chairman TIPTON. You can go ahead, Mr. Shoraka, if you want 
to start.
    Mr. SHORAKA. Sure. I think, obviously, the question becomes 
as we set size standards for other industries because as has 
been mentioned today, there are certain benefits that flow to 
the small businesses that we set standards for. So making sure 
that the benefits flow to the intended recipients. And one 
thing that you mentioned, potentially affiliation. Right? When 
you see affiliation amongst businesses, that has to be 
considered. What we consider as an individual small entity is 
an independently owned entity. So that takes a lot of that sort 
of affiliation concern away. But you are absolutely right. As 
we establish size standards, there are benefits that flow to 
those small businesses, and we need to make sure that the 
benefits flow to the intended recipients.
    Mr. MURPHY. Thank you.
    Mr. Oestman?
    Mr. OESTMAN. Great question. I kind of agree with what he 
said. You know, individually owned, our farm has turned into an 
LLC, but that is just for liability reasons. I mean, we have 
talked about these numbers and how great they are, and that 
does not mean we are an evil corporation but we just realized 
that we do not want to jeopardize all our family's assets. So, 
I mean, like he said, there is a continuing consolidation. So 
there are great big farmers out there, you know, but I am not 
sure exactly how to set that standard. But most of them are 
smaller, family-owned.
    Mr. MURPHY. Thank you.
    Mr. KEESAMAN. As I commented a minute ago, there is a lot 
of large farmers. A good friend of mine farms right across the 
road from me and they have got 9,000 acres of corn and probably 
12,000 acres of beans. And he is a small farm family. He and 
his two sons. And so that is what we have done to bring sons 
in, is form--we have three different LLCs for each of the sons. 
So each of them share in that, but each one of them is sole 
proprietor of those LLCs. And it is a position now where that 
needs to be changed. Just thinking here a minute ago, two of my 
sons were still in diapers when this was changed. So times do 
need to change. Thank you.
    Mr. GUENTHER. Yeah. I would agree with everybody on the 
panel here in terms of independently owned. Looking at a 
combination of things, of size, and number of employees, but 
also kind of what the makeup of that small business looks like 
in terms of its needs and kind of what potentially they are 
asking for quite frankly through SBA, too. I think that is an 
important thing as well to consider.
    Mr. MURPHY. Mr. Guenther, it sounds like what I am hearing 
today and what I have read, that most people are in agreement 
the size standard does need to increase. Do you believe that is 
true? And if so, to what level? And do you have a range that 
that should be?
    Mr. GUENTHER. That is a hard question to answer. I think 
something we would certain, you know, have to reach out to our 
members and our industry because it is an interesting dynamic 
that you place. When you look at a corn farm operation, a beef 
cattle operation, or a produce operation, those are totally 
different agriculture business models and a lot of them are 
very family owned, family, you know, multiple generations. So I 
think that would be a tough task for SBA to kind of look at 
agriculture and kind of look at the different diversity within 
these companies and how they are developed in these small 
businesses. So kind of giving you a range, certainly $750,000 
is out of date. Certainly, it needs to be adjusted to reflect 
more of the last 15-plus years or 14-plus years since it has 
been done and look at the characteristics of what a small 
business farm or agriculture operation really looks like. We 
would certainly want to talk to our members about that and kind 
of get a sense of that as well. But certainly, $750,000 is a 
very low threshold.
    I can tell you from my parents, you know, to kind of add on 
to what you guys have said about, you know, my parents, they 
have one person working for them, and my son works for them a 
little bit, and they would not meet that threshold. I mean, 
they would be over that threshold. It is just them, and it has 
been that way for many years.
    Mr. MURPHY. And Mr. Guenther, as you know, SBA has many 
programs that could help many farmers grow their businesses. 
What percentage do you think, or how many folks that you work 
with know about the opportunities available through SBA?
    Mr. GUENTHER. I think a fair amount do. They probably lean 
more towards the programs at UDSA in looking at those types of 
programs through, you know, development of farm bills and those 
programs. But certainly, I do think when you go up the 
distribution chain, even from agriculture to the wholesale 
distributors, the processors, you know, folks that are in that 
part of the produce industry, they are more attune to looking 
at SBA as a partner in developing startups or new acquisitions 
and things like that.
    Mr. MURPHY. Do you think you have many members that would 
qualify but simply do not know about it?
    Mr. GUENTHER. I think based on the current threshold, at 
least at the agriculture operations at $750,000, it would be 
very difficult. When you go up into the wholesale distributor 
where I think it is 500 employees or less, you would have a lot 
more in that world who were creating--like food hubs, for 
instance, and the wholesale distributor in the wholesale 
markets around the country. They potentially would have a lot 
easier time to meet that employee threshold because there are 
very few that are over 500,000 that I am aware of in that world 
of the produce industry.
    Mr. MURPHY. Okay. Thank you, Mr. Guenther. And thank you 
all.
    Chairman TIPTON. Thank you, Mr. Murphy.
    Mr. Shoraka, just for clarity really probably more for the 
record than anything, in the view of the SBA, does the current 
statutory size accurately reflect the current economic 
realities of the agricultural industry? How are these measured 
by the SBA?
    Mr. SHORAKA. Since we really have not set the size standard 
when the statute was established in the '80s, I think it would 
require an analysis really to determine if $750,000 is 
appropriate. We really just have not analyzed the industry, and 
I could not really speak to what the appropriate number would 
be. And what has been mentioned here a number of times I think 
is important is we have by statute clumped a lot of different 
things together, and we really need to look at the industries 
under that overall umbrella and determine what the appropriate 
size standards are for each.
    Chairman TIPTON. I appreciate that.
    If the authority for setting the size standards in these 
industries is going to be returned to the SBA, with 
agricultural enterprise size standards, would those 
automatically default at least to that number or would the SBA 
look at even lower numbers potentially?
    Mr. SHORAKA. That is a great question. Thank you.
    I think, you know, again, I think it is the analysis that 
is going to produce the results. And that is why I think it is 
really important to have the public comment period and to get 
input from industry. Certainly, the analysis may show certain 
industries going up, certain going down, but again, it is 
dependent through the Administrative Procedures Act for us to 
not only engage our sister agencies like USDA and others, but 
to get input from industry and make sure that it is accurate or 
that our size standards are accurate. And then on a five-year 
basis review it and adjust it appropriately.
    Chairman TIPTON. Would each of the 46 subcategories I 
believe it is, would they get their own size standards?
    Mr. SHORAKA. I believe so. I would have to double-check 
that, but I believe so.
    Chairman TIPTON. When we are talking about gathering the 
information, you know, listening to Mr. Oestman and Mr. 
Keesaman, it is going to take a little while to be able to do 
that. Do you have a vague idea of how long it would take you to 
actually get----
    Mr. SHORAKA. That is a great question. Obviously, I think 
based on the Small Business Jobs Act of 2010, we have been on 
schedule at looking at one-third of the size standards every 18 
months. So we would have to, you know, if authority was given 
to us, we would have to see to work that into our schedule. It 
is obviously something that we have a methodology to do. We 
have staff to do. When we look at our resources and map out 
what we are doing in 2015 and 2016, obviously this is not one 
of the ones that has been on our radar screen but we would have 
to work it into our schedule accordingly.
    Chairman TIPTON. Well, that is good news I am hearing, and 
that is that it should not any further appropriations.
    Mr. SHORAKA. Well, I cannot speak to our appropriations. I 
would leave that up to our administrator.
    Chairman TIPTON. And I guess maybe for our producers that 
are here, you know, it is fascinating. I grew up in rural 
Colorado. Our family did a little bit of ranching, a little bit 
of farming, going out, and agricultural practices have changed 
a lot.
    Mr. Oestman, you were talking about developing new seeds. 
Probably worked with CSU. And could you maybe talk to us a 
little bit about, Mr. Keesaman, you have got a family farm 
going back to the 1800s, how things have changed maybe since 
your grandparents had the family farm, family ranch?
    Mr. OESTMAN. Yeah, thanks. Great question, Congressman.
    I think part of what I talked about in testimony is just 
technology today. I mean, everything, you know, we have 
implemented a lot of precision technologies on our farm. When 
we harvest a field, we map the yields and we break it down into 
a data zone, and we treat each zone differently. We apply 
fertilizer different to that zone than to a different zone. And 
that allows us to put the inputs where we need them. We used to 
blanket apply a field, whether it could be wasteful in a spot 
or it might not be enough in another one. And just those 
advancements in technology and, you know, bigger equipment, 
being able to do things more efficiently and effectively. I 
just believe we are better managers and stewards of our natural 
resources now. And not that they were not then but we just have 
a lot more technologies available now to do that.
    Chairman TIPTON. Mr. Keesaman?
    Mr. KEESAMAN. We are fifth and sixth generations work on 
our farm now, and we can see that use of genetics, the same as 
in seed corn, we use it in the Red Angus breed today. We have 
bulls that are negative birth weight which make calving ease 
great. They will go from 76 pounds, a new herd bull, to 705, 
725 in weaning weight. That is in 205 days. And then they will 
go on at 365 days and weigh 1,300 pounds.
    So you can see in my testimony, wherein only 7 percent of 
the world supply of cattle are in the United States, but we are 
raising 20 percent. So they are growing faster on less feed, 
they are more efficient. So that is where we keep working on 
through the universities, through the National Cattlemen's Beef 
Association, and Missouri Cattlemen's Association. It is a good 
life but you have got to keep doing more to continue, and the 
Ag is not much different in northwest Missouri as it is in 
northwest Colorado.
    Chairman TIPTON. Mr. Guenther, do you have any comments on 
that?
    Mr. GUENTHER. I mean, I would agree with technology. 
Diversification is fascinating. When you look at Mr. Keesaman 
and the diversification in his family's operations and others. 
You know, I look at it in our world, in the produce world, and 
the different varieties that are available now that were never 
available several generations ago. And the continuing need to 
keep updated with new varieties and new scientific developments 
that help maintain profitability in our industries with the 
challenges, as you know, on food safety and other issues in our 
world. You know, it is important to make sure that you are up 
to speed on those types of new technologies and opportunities 
available to you.
    Chairman TIPTON. That is just kind of a personal thing I 
think to our agricultural producers, you know, across the 
board, it has always been my opinion that the best 
environmentalists actually that we have, you know, Mr. Oestman 
when you are talking about going out and broad-based 
fertilizing and now spot fertilizing. You know, the analysis. 
This has become literally a high-tech world from the planning 
end of it to the analysis of the soils, to water consumption 
and product growth and development, I think that is absolutely 
remarkable in terms of the yield that we are getting out of our 
cattle industry and what we are able to do. And that is 
incredibly admirable.
    Mr. KEESAMAN. If I could say, you now, we are good stewards 
of the land or we cannot pass it on generations and raise the 
yields that this man is raising, and our beef is fast. You 
know, we take care of our product and our commodities and our 
animals, and if we did not take care of them, you know, there 
are organizations (HSUS, PETA) that are looking down at us, you 
know, and they do not want, you know, we are not doing things 
right. But we are. We are taking care of our--we are stewards 
of the land, and we have to fight Mother Nature, as Congressman 
Luetkemeyer commented a while ago, we have to fight Mother 
Nature. We have to fight the government and commodity prices, 
everything else, but then we have got all these weight of the 
far-out here organizations that are really cracking down on us, 
you know, and sometimes they do not know the true story.
    Chairman TIPTON. And I think there is at least general 
appreciation from a lot of the folks I visit with. The American 
farmer, American rancher feeds this country and a good part of 
the world, and that does not come without a lot of risk that 
you cannot control when we are talking about the weather, to 
some of the unintended consequences of some government 
regulations.
    Talking about that, in your view, do government agencies in 
your estimation, do they accurately measure and consider some 
of the potential impacts of proposed rules, regulations on our 
agricultural producers?
    Mr. KEESAMAN. Well, yes and no. I think, you know, some 
regulation I think is really good. On others, I do not know. 
And we were talking coming over here today, the regulations on 
the wine and the liquor industry, you know, we have had to jump 
through more hurdles and some of it is just bureaucracy and red 
tape, and it is the same way in the meat business. And again, 
some of this is good and some of it is bad, and that is where 
we get back to the regulations. You know, sometimes it hurts 
us. Sometimes it helps. And just like some of what they are 
calling right now large farms, you know, we are not. We are 
small family farms that are up there in over the $750,000 
gross.
    Chairman TIPTON. Do you have anything, Mr. Oestman?
    Mr. OESTMAN. Thanks, Congressman.
    Yeah, I think some regulations, you know, are a great thing 
and help curve some people and abuses in other places, but I 
sometimes see that some government regulations and agencies may 
overstep or overreach a lot of times in things that may or may 
not need to be regulated in my opinion. So, I mean, I have seen 
some of them come down to the farm level and make sure what 
they are doing is good, and that is good. I encourage any of 
them to do that. I think that is a great way. Thank you.
    Chairman TIPTON. Yes, sir?
    Mr. KEESAMAN. If I could, the regulations on the water is 
going to be terrible on all of us. We are kind of from the high 
country of Missouri, northwest Missouri, I guess, and our 
farms, luckily, not much water drains on us, but it does run 
off. And what EPA is trying to do on all these water rights is 
going to really hurt us with the regulations.
    Chairman TIPTON. Do you find it a little disturbing--I find 
it infuriating--when we have the EPA--I consider this the 
greatest water grab in American history that is coming out of 
the EPA now in terms of regulatory authority. We have a 
rancher, Wyoming, potentially facing a $74,000 fine because he 
put in a stock pond. Just forget that he got all of the permits 
and abided by the law of the State of Wyoming. And now they 
want to be able to step in and garnish wages. Come in to your 
farm, to your wine business, to your cattle industry, to be 
able to garnish wages on a fine. And we have seen a 160 percent 
increase in terms of fines coming out of the EPA right now. 
That has got to be of incredible concern to you because without 
water, be it in Missouri, be it in Florida, certainly in 
Colorado, that is the life blood.
    Mr. KEESAMAN. Well, it is. And I think they are picking on 
the people that are really doing a good job and trying to 
protect. Because if you run cattle in a lot of these streams or 
ponds, you know what happens. The life expectancy of them is 
not very long. And we have got several ponds that have been 
built by the NRCS on a cross-share program, and we fence them 
and keep them out, and we have been doing this for a long time. 
So, but they still could come down on us on about anything, and 
it is very disturbing.
    Chairman TIPTON. We might well have to have you come back. 
I would love to be able to have a hearing and to be able to 
have the EPA administrator come in and try and justify the 
savaging of the American agricultural community through some of 
their rules and regulations that are going on because we have 
very common ground. We all like clean air. We all like clean 
water. But we do take umbrage of overreach that is going on, 
and I think what I am hearing from you, and certain from the 
administrator as well, that dialogue is important. We need some 
rules. We need some regulations. But we also need to be able to 
insert some common sense into the process, make sure that that 
dialogue is continuing, and if something is not working, let us 
stop doing it. If we cannot fix it, let us just take it off the 
books. If we can fix it, let us make those adjustments.
    I would like to thank you all for taking the time to be 
able to be here. I know that this is certainly a big effort. 
Thank you all for your busy schedules, making time to be able 
to come in and testify here. You have provided us all with, I 
believe, some important insights on how federal policy and 
decisions in Washington will impact our small businesses and 
the economies. And most importantly, your families and the 
ability to be able to provide for them.
    I would like to ask for unanimous consent that members and 
the public have five legislative days to be able to insert 
statements and supporting materials for the hearing record.
    With no objection, so ordered.
    This hearing is now adjourned. Thank you again.
    [Whereupon, at 10:52 a.m., the Subcommittee was adjourned.]


                            A P P E N D I X


[GRAPHIC] [TIFF OMITTED] T8924.001

    Chairman Tipton, Ranking Member Murphy, and members of the 
Subcommittee, I am honored to be here today to discuss SBA's 
size standard methodology as it pertains to agricultural 
enterprises.

    As you know, with the exception of certain agricultural 
enterprises, the Small Business Act (P.L. 85-536, as amended) 
provides the U.S. Small Business Administration (SBA) with 
statutory authority to establish small business size 
definitions, referred to as ``Size Standards'', for federal 
government programs. The size standards for agricultural 
enterprises are unique in that they are directly established by 
the statute. The size standard for agricultural enterprises was 
first set by statute in 1985 (P.L. 99-272). Currently, the size 
standard for 46 industries in North American Industry 
Classification System (NAICS) Sector 11 (Agriculture, Forestry, 
Fishing and Hunting) is set by statute at $750,000 in average 
annual receipts (P.L. 106-554).

    SBA is capable of conducting the analysis to establish 
small business size standard for agricultural enterprises, as 
SBA would use the same process that it currently uses to 
establish size standards for business concerns in other 
industries. When establishing size standards, SBA examines 
economic characteristics, such as average firm size, industry 
concentration, start-up costs and entry barriers, and federal 
market conditions in each industry. At SBA, we believe in a 
transparent process. A detailed explanation of how SBA 
establishes size standards is provided in our ``Size Standards 
Methodology'' White Paper, which is available on the Agency's 
website at www.sba.gov/size.

    Establishing size standards based on characteristics of 
individual industries is consistent with Section 3(a)(3) of the 
Small Business Act which requires the Administrator to ensure 
that size standards vary--to the extent necessary--to reflect 
the differing characteristics of industries. SBA believes its 
methodology for establishing size standards meets this 
requirement by incorporating economic characteristics and 
federal market conditions into its analysis on an industry-by-
industry basis.

    The Small Business Jobs Act of 2010 (Jobs Act) requires SBA 
to review all size standards and make necessary adjustments to 
reflect market conditions every five years. The Small Business 
Act does not require SBA to review size standards for most 
agricultural industries, so the Agency did not review 
agricultural size standards under the current review. In 
addition, SBA reviews all monetary based size standards every 
five years for inflation and makes necessary adjustments. 
Currently, SBA does not adjust the statutory agricultural size 
standards for inflation. As a result, the agricultural size 
standard has remained at the $750,000 receipts level since 
2000, while SBA has reviewed and adjusted monetary based size 
standards for inflation four times in that time period.

    If SBA were mandated to review agricultural size standards, 
adjustments for inflation and other economic conditions could 
be made.

    Thank you for your continued leadership and support. I look 
forward to your questions.

[GRAPHIC] [TIFF OMITTED] T8924.002

[GRAPHIC] [TIFF OMITTED] T8924.003

    Good morning, Chairman Tipton, Ranking Member Murphy and 
members of the Committee. I am Ken Keesaman a cattle farmer 
from Osborn, Missouri. My family and I are members of the 
National Cattlemen's Beef Association and the Missouri 
Cattlemen's Association. It is a pleasure to testify before 
your Committee today on how the livestock industry and in 
particular our family operation, KK Farms Red Angus, has 
evolved over the years. My wife and I own KK Farms along with 
our three sons Kody, Kasey and Kraig. KK Farms is a purebred 
livestock farm that sells breeding cattle from 300 head of 
registered Red Angus cattle. Our farm is also diversified as we 
raise corn, soybeans, hay, a few hogs and over the years have 
added a vineyard and winery featuring Angus Red wine and a 
microbrewery. Currently, we are in the process of planning a 
restaurant and event center to add to our agri-tourism venture.

    Our family started in the cattle business in the 1870's and 
I began farming full-time in 1969 when I returned from active 
duty with the Missouri Air National Guard. KK Farms consists of 
1500 acres of which 900 acres are owned by our family and the 
remaining acres are leased. Of the 900 acres, 240 have been in 
the family since the establishment of our farm earning KK Farms 
the ``Missouri Century Farm'' award. Maintaining the original 
farm acreage continues to be a priority for our family and we 
have expanded our business model throughout the years to 
maintain our livelihood. Raising cattle is the foundation of 
our farm and we have been in the Registered Red Angus business 
since 1972.

    The face of the livestock industry is much different today 
than it was in 1969 when I returned to the farm. In 1969, there 
were approximately 845,000 beef cattle farms with more than 34 
million head of beef cattle. Other than the expansion of farms 
and herd size in 1974 and 1995 there has been a steady decline 
of the number of farms and the total head of beef cattle in the 
United States. Today, we have approximately 29 million head of 
beef cattle and according to the 2012 Ag Census, there are 
729,000 beef cattle farms. Even though we have the smallest 
beef herd since 1951 our industry has been able to utilize the 
latest science and management practices to produce 
approximately 25 billion pounds of beef.

[GRAPHIC] [TIFF OMITTED] T8924.004

[GRAPHIC] [TIFF OMITTED] T8924.005

    When you evaluate the success of America's cattle farmers 
and ranchers, we have developed a successful business model not 
only domestically but also globally. In terms of production, 
the United States has only seven percent of the world's cattle 
supply but we are able to produce 20 percent of the world's 
beef. We have found ways to utilize more of our natural 
resources and the latest science to be more efficient than our 
international competition.

    Our farm has changed like many other small family farms 
since 1985. During the late 1980s, due to changing trends in 
agriculture, we downsized our hog operation and increased our 
Red Angus herd. Our production costs have increased making it 
difficult for family farms to compete today's agricultural 
environment.

    The cattle industry in Missouri is comprised of a lot of 
smaller family farms who make a big impact. We have a lot of 
small player who make a big impact nationwide. The average herd 
size in Missouri is 36 head but overall, we are the second 
largest beef cattle state behind Texas. We have to do 
everything we can to send signals to these families that the 
climate in right to expand.

    We use risk management by utilizing research and technology 
afforded to us through land grant universities like the 
University of Missouri Extension. Examples include planting 
cover crops over our corn and soybeans, which can be grazed by 
livestock. This helps us manage our feed costs during the 
recent droughts of 2012 and 2013. Also, in regards to risk 
management, we've added new ventures to spread our risk. In 
2009, my son Kraig and his wife added Windy Wine Company and 
planted nearly 8 acres of Missouri grapes. We've also ventured 
into All-Natural Meat production/sales of our Fed Angus Beef 
and another son started a microbrewery called Blackbelt 
Brewery. Future plans to spread risk include a farm-to-table 
restaurant, even center and bed and breakfast. All of this adds 
value to our farm helps to spread risk. It also ensures every 
member of my family have a place on this family farm.

    The evolution of today's livestock industry has shifted and 
in order for family businesses to survive we have expanded and 
diversified our operations. In terms of agriculture, today's 
small business has changed and it is appropriate for the size 
standards applied by the Small Business Administration to more 
accurately represent today's small operations. It is my 
understanding that agriculture is the only industry where the 
statute establishes our size standard. With that being the 
case, Congress must change the statute and consider 
alternatives to the current size standards so they more 
accurately reflect today's small businesses. Smaller operations 
play a significant role in the beef cattle industry. The chart 
below from USDA's National Agricultural Statistics Service 
shows the number of operations that have fewer than 500 head of 
cattle and the percentage of our industry inventory they raise. 
You'll quickly notice that smaller operations account for the 
majority of beef cattle operations in the U.S.

[GRAPHIC] [TIFF OMITTED] T8924.006


    In closing, I appreciate the work this Committee does to 
ensure there are opportunities for individuals to pursue the 
American Dream. Small businesses are the life-blood of America 
and our rural communities. As industries evolve it is important 
for the government to modify the governing statutes and 
regulations to better reflect the changes in the business 
climate. Another area where I appreciate the work of the 
Committee is on the regulatory front. Burdensome regulations 
stifle innovation and cripple America's small businesses. The 
good work this Committee does to bring the small business 
perspective into the regulatory climate is appreciated by 
smaller operations like KK Farms. Thank you for the opportunity 
today, to share our family's history and commitment to 
agriculture--it's more than a business, it's our way of life.

[GRAPHIC] [TIFF OMITTED] T8924.007

    Thank you Chairman Tipton and Ranking Member Murphy, my 
name is Robert Guenther and I am the Senior Vice President of 
Public Policy for United Fresh Produce Association. As you 
know, United Fresh is the national trade association 
representing the entire distribution chain of fresh fruit and 
vegetable production including, growers, shippers, wholesale 
distributors, processors and retailers. Since 1904, United 
Fresh has worked with Congress and the Administration to help 
shape legislative and regulatory policies to provide a strong 
business climate for our members that encourages growth and 
development. We thank you for the opportunity to address an 
issue that impacts the ability of many of our United Fresh 
members to utilize key programs designed to assist small 
businesses as they seek to develop and diversify their 
operations. And on a personal note, I, like my two other 
colleagues at the table today, also grew up on a small family 
farm which is located in North Central Florida and has focused 
on citrus and nursery production for over 100 years. So this 
issue does take on a personal appeal for me.

    For a variety of reasons such as changes in the economy or 
fluctuations in commodity prices, the number of agriculture 
producer operations classified as small businesses has been on 
a continual decline, even though many of these operations made 
no significant changes that would otherwise justify a 
reclassification. Taking into account current agriculture 
business models, a standard many times higher than the current 
$750,000 in annual receipts would be the norm in today's 
agriculture community. More importantly, fruit and vegetable 
producers, like producer of other commodities, will tell you 
that annual gross receipts are not a reliable indicator of an 
operation's size. Nor is it a good indicator of profitability--
in light of the cost of inputs and labor, which in fruit and 
vegetable production, is particularly significant.

    In addition to being an unrealistic representation of many 
agriculture operations, the current SBA standard puts 
agriculture small business operators at a disadvantage in their 
ability to avail themselves of assistance they could utilize to 
grow and adapt their operations. The current $750,000 size 
standard applied to agriculture operations limits small 
agriculture producer's access to SBA's assistance programs and 
federal contracting preferences for small prime and 
subcontractors. Key SBA programs that may prove useful to 
produce operations include loans to start, acquire or expand a 
small business or loans that provide long-term, fixed-rate 
financing for assets such as land or buildings, among others.

    More importantly when you look at wide variety of programs 
available at the U.S. Department of Agriculture to help fresh 
produce operations including farm loan programs, market 
promotion and export assistance, technical assistance for 
conservation compliance, nutrition programs, rural and 
infrastructure development, new and beginning farmers, or 
organic programs, we believe it is important to ensure that 
there is a level of consistency between USDA and other federal 
agencies when it comes to a small business definitions.

    Finally, among the most significant challenges that 
agriculture operations face, like any business, is compliance 
with government regulations. Some agencies use SBA size 
standards to assess the impact of their proposed regulations in 
accordance with the Regulatory Flexibility Act. However, the 
current standard for agriculture operations to qualify as a 
small business of annual receipts of no more than $750,000 was 
set by Congress in 2000. As discussed earlier, given the 
enormous changes in agriculture since that time, a review of 
the small business standard, which would provide agriculture 
producers with justifiable regulatory relief, is long overdue.

    To this end, we would suggest that Congress and the 
Administration consider alternatives that would eliminate the 
current standard and allow SBA to review industries currently 
considered to be small agriculture businesses. Following that 
review, SBA could then propose new size standards through the 
normal regulatory process, which would allow agriculture 
operators to comment and provide recommendations for a new 
standard. In addition this would allow SBA to routinely review 
and update the standard and keep pace with variations in the 
agriculture community such changes in the commodities markets. 
As a result, the correct and appropriate size standard will be 
in place, better allowing producers to have access to SBA 
programs and ensure that agriculture producers' needs are 
better reflected in a variety of regulatory initiatives. In 
addition, we suggest that it would be very helpful if there was 
stronger harmonization of the standards used by SBA and the 
Department of Agriculture (USDA). For example, USDA uses 
acreage as a determining factor in how an operation is 
categorized. We believe that is a more accurate indicator of 
whether a business can be considered small and should be 
incorporated in any determination of what category an 
agriculture operation should be included.

    Again, thank you Chairman Tipton and Ranking Member Murphy 
for holding this hearing for allowing me to share United's 
position with you. We look forward to working with you and I 
will be happy to take questions.

                                 
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