[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]
IMPROVING SIZE STANDARDS FOR SMALL FARMERS AND RANCHERS
=======================================================================
HEARING
before the
SUBCOMMITTEE ON AGRICULTURE, ENERGY AND TRADE
OF THE
COMMITTEE ON SMALL BUSINESS
UNITED STATES
HOUSE OF REPRESENTATIVES
ONE HUNDRED FOURTEENTH CONGRESS
FIRST SESSION
__________
HEARING HELD
NOVEMBER 19, 2015
__________
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Small Business Committee Document Number 114-031
Available via the GPO Website: www.fdsys.gov
______
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HOUSE COMMITTEE ON SMALL BUSINESS
STEVE CHABOT, Ohio, Chairman
STEVE KING, Iowa
BLAINE LUETKEMEYER, Missouri
RICHARD HANNA, New York
TIM HUELSKAMP, Kansas
CHRIS GIBSON, New York
DAVE BRAT, Virginia
AUMUA AMATA COLEMAN RADEWAGEN, American Samoa
STEVE KNIGHT, California
CARLOS CURBELO, Florida
MIKE BOST, Illinois
CRESENT HARDY, Nevada
NYDIA VELAZQUEZ, New York, Ranking Member
YVETTE CLARK, New York
JUDY CHU, California
JANICE HAHN, California
DONALD PAYNE, JR., New Jersey
GRACE MENG, New York
BRENDA LAWRENCE, Michigan
ALMA ADAMS, North Carolina
SETH MOULTON, Massachusetts
MARK TAKAI, Hawaii
Kevin Fitzpatrick, Staff Director
Stephen Denis, Deputy Staff Director for Policy
Jan Oliver, Deputy Staff Director for Operation
Barry Pineles, Chief Counsel
Michael Day, Minority Staff Director
C O N T E N T S
OPENING STATEMENTS
Page
Hon. Carlos Curbelo.............................................. 1
Hon. Grace Meng.................................................. 2
WITNESSES
Hon. Mike Bost, (IL-12), United States House of Representatives,
Washington, DC................................................. 4
Nicholas D. Paulson, Ph.D., Associate Professor, Agricultural and
Consumer Economics, University of Illinois at Urbana-Champaign,
Urbana, IL..................................................... 6
Mr. Jeff Beasley, Co-owner, Beasley & Sons Livestock, Creal
Springs, IL, testifying on behalf of the National Cattlemen's
Beef Association............................................... 7
Mr. Larry Burgin, Owner, Mushkoday Farm, Delhi, NY, testifying on
behalf of the National Council of Farmer Cooperatives.......... 9
Mr. Robert Guenther, Senior Vice President, Public Policy, United
Fresh Produce Association, Washington, DC...................... 11
APPENDIX
Prepared Statements:
Hon. Mike Bost, (IL-12), United States House of
Representatives, Washington, DC............................ 18
Nicholas D. Paulson, Ph.D., Associate Professor, Agricultural
and Consumer Economics, University of Illinois at Urbana-
Champaign, Urbana, IL...................................... 20
Mr. Jeff Beasley, Co-owner, Beasley & Sons Livestock, Creal
Springs, IL, testifying on behalf of the National
Cattlemen's Beef Association............................... 28
Mr. Larry Burgin, Owner, Mushkoday Farm, Delhi, NY,
testifying on behalf of the National Council of Farmer
Cooperatives............................................... 33
Mr. Robert Guenther, Senior Vice President, Public Policy,
United Fresh Produce Association, Washington, DC........... 37
Questions for the Record:
None.
Answers for the Record:
None.
Additional Material for the Record:
None.
IMPROVING SIZE STANDARDS FOR SMALL FARMERS AND RANCHERS
----------
THURSDAY, NOVEMBER 19, 2015
House of Representatives,
Committee on Small Business,
Subcommittee on Agriculture, Energy and Trade
Washington, DC.
The Committee met, pursuant to call, at 10:00 a.m., in Room
2360, Rayburn House Office Building. Hon. Carlos Curbelo
[chairman of the subcommittee] presiding.
Present: Representatives Curbelo, Huelskamp, Gibson, Brat,
and Meng.
Chairman CURBELO. Good morning. I call this hearing to
order.
Next week, Americans will gather around tables across the
country in an abundance of goodwill for one another to
celebrate a time-honored tradition, Thanksgiving. America's
oldest holiday is inextricably linked to American agriculture.
Approximately 46 million turkeys, 2 billion bushels of wheat,
and 750 million pounds of cranberries will be consumed. And I
will note that Florida makes significant contributions to our
nation's generous bounty that we will all enjoy and share with
our friends and families over the Thanksgiving holiday. Florida
is the country's largest producer of squash, fresh tomatoes,
and fresh snap beans, among a great deal of other fruits and
vegetables. Obviously, this would not be possible without the
hard work of our nation's small farmers and ranchers. So I
think it is a fitting time that this Subcommittee is discussing
legislation that will help ensure that they have access to
federal programs and are given appropriate consideration by
federal agencies.
Today, the Subcommittee on Agriculture, Energy, and Trade
will examine H.R. 3714, the Small Agriculture Producer Size
Standards Improvements Act of 2015, introduced by our
colleague, Mr. Mike Bost of Illinois. Small business size
standards are used by the Federal Government to determine
eligibility to receive certain federal contracts and Small
Business Administration guaranteed loans. They are also used by
federal agencies when they analyze the economic impact of new
regulations on small businesses.
The existing size standard for agricultural enterprises,
$750,000 in annual receipts, is established in statute and has
not been updated in 15 years. It applies to 46 different
agricultural subsectors from citrus groves to beef cattle
ranching. In contrast, the size standards for all other
industries are developed through a congressionally mandated
rulemaking process that is transparent and allows small
businesses to provide input. The Small Business Administration
analyzes a number of factors--average firm size, startup costs,
and entry barriers, industry competition, and the distribution
of firms by size--and then proposes changes to small business
size standards through the notice and comment rulemaking
process.
It seems to me that small farmers and ranchers have been
neglected for too long. The size standards setting process for
agricultural enterprises needs to be modernized. The existing
statutory size standard does not account for changes in
industry structure, cost of production, economic conditions, or
other factors. That is why I am proud to join Ranking Member
Meng in cosponsoring H.R. 3714, which was introduced by
Representative Bost. The Small Agriculture Size Standards
Improvements Act of 2015 would strike the $750,000 statutory
size standard and require the SBA to establish size standards
for agricultural enterprises through the notice and comment
rulemaking process. It would also require those size standards
to be periodically reviewed at least every 5 years. This will
ensure that size standards for small farmers and ranchers are
up-to-date so that they are able to compete for federal
contracts, have access to SBA guaranteed loans, and are
considered when agencies draft new regulation.
I want to thank Mr. Bost and Ranking Member Meng for their
legislation and the witnesses for appearing before the panel
today. I look forward to hearing your thoughts on this
important legislation.
With that, I yield to the ranking member for an opening
statement.
Ms. MENG. Thank you, Chairman Curbelo.
Small businesses play a critical role in the American
economy. They make up the vast majority of employer firms and
create nearly two-thirds of new jobs. Over the years, Congress
has created numerous federal program set-asides, tax
preferences, and SBA loan programs to help these small
businesses succeed. However, the advantages confirmed by these
programs have led to heated debate over who is truly a small
business and acceptable small business size standards to govern
eligibility.
Last year, small business were able to access over $28
billion in capital using SBA loan programs. Many businesses
used loan proceeds to keep their doors open, retain employees,
and create new jobs. Small business-oriented tax provisions
allow firms to write off expenses quickly, putting money back
in their hands to create new avenues for growth. One of the
most significant impacts size standards have is on federal
agency regulatory changes that have the potential to cause
financial hardships to small businesses. The Regulatory
Flexibility Act requires agencies to assess whether the rule
they are contemplating would have a significant economic impact
on a substantial number of small entities. If a business is not
considered small, agencies are under no requirement to review
the impact that regulatory changes would have on small firms,
nor offer alternatives.
Generally, SBA is tasked with defining size standards that
establish eligibility for its programs and the applicability of
reg flex. While the agency has crafted size standards for over
1,100 individual industries, agriculture has been exempted.
Instead, Congress has set a rigid gross revenue base standards
for all agriculture industries. Unfortunately, the standard has
not been adjusted since it was statutorily set to $750,000 in
the year 2000 and is now woefully out of date.
Since Congress took over setting the standard, agricultural
production has shifted dramatically. The midpoint for crops has
grown 88 percent from 589 acres to 1,105, and as of 2011, farms
with at least 2,000 acres now account for 34.2 percent of crop
land. Additionally, with the advent of new technologies, many
operating agricultural businesses have been able to increase
their production rates.
Yet, during this time there has also been a reduction in
the number of small and mid-size farms as crops have been
consolidated or absorbed by larger farms. According to research
by the U.S. Department of Agriculture, the number of farms with
at least $1,000,000 in sales grew from 24 percent of the value
agricultural production in 1982 to 59 percent in 2007. During
this period, small commercial farms with $10,000 to $250,000 in
sales, fell by two-thirds.
Properly determining small farm size standards is
particularly important for New Yorkers. Most of the farmers in
my home state of New York occurs on smaller farms, and this
discrepancy across the various sectors of the agriculture
industry limits opportunities.
The Small Agriculture Producer Size Standards Improvements
Act introduced by Congressman Bost, Chairman Curbelo, and
myself, will eliminate the outdated size standard in the year
2000. The bill gives the SBA the authority to tailor standards
to the wide variety of agricultural businesses across our
country. What is small for a cattleman is not the same for
fresh produce producers or dairy farmers. Our bill will require
SBA to apply their current methodology, solicit feedback from
industry stakeholders, and implement specific standards that
can be tweaked periodically to respond to changes in the
industry.
Today, we will examine how the current size standards are
impacting small farms in the real world. We will discuss how
H.R. 3714 will help bring agricultural size standards into the
21st century. It is my hope that H.R. 3714 will give the SBA
the tools necessary to set size standards for those in
agricultural production that are reflective of their industries
while ensuring that adjustments are done with careful
consideration as to the effects on smaller farms.
In advance of the testimony, I want to thank all the
witnesses who traveled here today for both their participation
and insights into this important topic. Welcome, Congressman
Bost.
Thank you, and I yield back, Mr. Chairman.
Chairman CURBELO. Thank you, Ms. Meng.
If Committee members have an opening statement prepared, I
ask that they be submitted for the record.
I would like to take a moment to explain the timing lights
for all of you. You will each have 5 minutes to deliver your
testimony. The light will start out as green. When you have 1
minute remaining, the light will turn yellow. Finally, at the
end of your 5 minutes, it will turn red, and I ask that you try
to adhere to that time limit.
Our witness for the first panel is someone we know quite
well around here, the Honorable Mike Bost from Illinois. As a
member of both the House Committee on Small Business and the
House Committee on Agriculture, Mr. Bost has worked hard in
Congress for small and family-owned farms. Last month, Mr. Bost
introduced H.R. 3714, the Small Agriculture Producer Size
Standards Improvements Act of 2015 in an effort to ensure farms
have access to the small business programs that help many of
them blossom.
Mr. Bost, we look forward to your testimony. You are now
recognized for 5 minutes.
STATEMENT OF THE HONORABLE MIKE BOST, UNITED STATES HOUSE OF
REPRESENTATIVES
Mr. BOST. Thank you, Chairman Curbelo and Ranking Member
Meng. Thank you for inviting me to testify here today on the
Small Agriculture Producer Size Standards Improvement Act. My
comments will be brief for the sake of everybody's time and so
that we can begin hearing from the panelists that are behind us
and that are on the next panel.
President Eisenhower once said, ``Farming looks mighty easy
when the plow is a pencil and you are a thousand miles from a
corn field.'' Unfortunately, the quote is accurate for
describing the statutory established size standard for
agriculture producers.
Agriculture production is an important contribution to the
American economy. According to the USDA, the total value of
farm products exceeds $390 billion, and the agricultural
industry supports 16 million domestic jobs. Farmers and
ranchers provide the food, fiber, and fuel that is critical to
our daily lives.
Family-owned farms will account for the majority of farms
and ranches in the United States. However, the event of new
technology has greatly increased productivity, leading to a
lower price for many commodities. This pressure on commodity
prices is expected to grow as newer technologies are adopted.
Farming and ranching are a low margin industry. This has led to
a consolidation of many single-family owned operators and
operations into larger, multifamily-owned operations, but these
operations remain small businesses.
Unfortunately, the current small business size standard for
agriculture has been set in statute and is outdated. The
standard is too low for a vast majority of farms and ranches to
participate in potential government contracting and
subcontracting opportunities. In addition, the stationary
standard has no rational basis. It appears that the numbers
were just picked out of the air by some previous Congress.
In the 30 years since its enactment, the statutory size
standard, the Small Business Administration has significantly
improved its process for determining small business size
standards. This should address whatever issue previous
Congresses had when it established the statutory size standard.
I believe it is important that Congress and the federal
agencies promote consistency in policymaking. My legislation
will help to ensure that consistency.
Once again, Chairman Curbelo and Ranking Member Meng, I
want to thank you for holding today's hearing and for being
original cosponsors of the bill. I also want to thank and
welcome your questions now, and I will be glad to answer any
questions.
Chairman CURBELO. Thank you, Representative Bost. I have a
long list of questions.
Mr. BOST. Oh, good. I was looking forward to those.
Chairman CURBELO. But I understand you have another
important meeting----
Mr. BOST. I do.
Chairman CURBELO.--that you have to get to. Is there
anything else that you have for the record?
Mr. BOST. No. I want to thank you for bringing this up
before the Subcommittee, and I would encourage everybody for an
aye vote to try to move it on to the Full Committee. Thank you.
Chairman CURBELO. Again, I would like to thank
Representative Bost for testifying before the Subcommittee this
morning, and now we will pause for a moment to have the second
panel seated. Thank you.
[Recess]
Chairman CURBELO. Welcome to all of you. Our next witness
is Dr. Nicholas Paulson, associate professor of Agricultural
and Consumer Economics, at the University of Illinois at
Urbana-Champaign. Dr. Paulson's research interests include
agricultural finance, farm, and risk management and crop
insurance. Dr. Paulson received his Ph.D. in Economics from
Iowa State University.
Our second witness is Mr. Jeff Beasley, co-owner of Beasley
and Sons Livestock in Creal Springs, Illinois. Mr. Beasley's
business is located in Mr. Bost's district. This morning, Mr.
Beasley will be testifying on behalf of the National
Cattlemen's Beef Association.
The next witness is Mr. Larry Burgin, owner of Mushkoday
Farm in Delhi, New York. Mushkoday Farm is a fifth-generation
family-owned dairy farm. Today, Mr. Burgin will be testifying
on behalf of the National Council of Farmer Cooperatives.
And now I yield to our ranking member for the introduction
of the next witness.
Ms. MENG. Robert Guenther is a senior vice president of
Public Policy for United Fresh Produce Association,
representing the fresh fruit and vegetable industry before
Congress, the administration, regulatory agencies, and the
media. Prior to United Fresh, Robert's political career spanned
the halls of Capitol Hill and federal agencies, working for
former Representative Gary Condit and at the Environmental
Protection Agency. Highly regarded for his bipartisan approach
and strategic advocacy initiatives, Robert has been appointed
to numerous prestigious positions, including the Board of
Directors of the North American Dispute Resolution Corporation,
the Minor Crop Farm Alliance, the USDA Agriculture Policy
Advisory Committee on Trade for Fruits and Vegetables, and the
Food and Drug Policy Forum Editorial Advisory Board. Welcome.
Chairman CURBELO. Thank you all for being here.
Dr. Paulson, you are recognized for 5 minutes.
STATEMENTS OF NICHOLAS D. PAULSON, PH.D., ASSOCIATE PROFESSOR,
AGRICULTURAL AND CONSUMER ECONOMICS, UNIVERSITY OF ILLINOIS AT
URBANA-CHAMPAIGN; JEFF BEASLEY, CO-OWNER, BEASLEY AND SONS
LIVESTOCK; LARRY BURGIN, OWNER, MUSHKODAY FARM; ROBERT
GUENTHER, SENIOR VICE PRESIDENT, PUBLIC POLICY, UNITED FRESH
PRODUCE ASSOCIATION
STATEMENT OF NICHOLAS D. PAULSON
Mr. PAULSON. Thank you. Good morning, Mr. Chairman, Ranking
Member Meng, Subcommittee members, staff, and observers. I
would like to thank you for the invitation and opportunity to
address the Subcommittee as part of this hearing. My testimony
today will focus on the Small Business Association's current
size standard for agricultural businesses and the
appropriateness of adjusting those standards as outlined in
H.R. 3714.
Given my background, I will be addressing this issue from a
commodity crop farm perspective and will include some specific
examples for a corn and soybean farmer.
I would first like to comment on commodity prices and the
current size standard of $750,000 per year. This standard is
fixed by statute and has not been updated for the past 15
years. Over that time period, the average price received by
farmers for many major commodities has increased dramatically.
For example, the national average price received for corn from
2010 to 2014 was 149 percent higher than the average from 2000
to 2004. Average soybean prices have also increased by 123
percent. Average barley, oat, rice, sorghum, and wheat prices
have all also increased by over 100 percent over that time
period. For the producers of these crops, higher price levels
have increased sales values even if no real changes have been
made to the scale of their farm operations.
Consider a representative corn and soybean farmer in the
U.S. The current standard would have implied a maximum small
farm size of nearly 3,000 acres when the standard was initially
established. Over the next 5 years, using projected corn and
soybean prices, the maximum size for a small corn and soybean
farmer will have fallen to just under 1,450 acres, or roughly
half the size of what was considered a small farm when the
standard was established.
While this example is specific to a corn and soybean farm,
there would be a similar impact for producers of all other
crops whose prices have increased over the past 15 years.
The increase in sales levels can also be illustrated
nationally for all farms. The 2012 Census of Agriculture
reports that the number of farms with at least $500,000 in
sales increased by more than 38,000 operations, and the number
of farms with at least $1,000,000 in sales increased by more
than 24,000 operations since 2007.
These figures suggest a significant number of farms have
shifted beyond the current size standard, losing eligibility
status for SBA programs with higher price levels and natural
responses that these farms must be generating more income and
have less need for SBA programs. However, production expenses
have also increased dramatically. According to USDA data, total
expenses have increased by 97 percent for all farms and by over
200 percent for grain farms in the U.S. since 2000.
While U.S. farm income has been higher in recent years,
current baseline projections provide a short-term outlook with
price levels below what has been experienced recently for most
major commodities. With higher production costs, this implies a
return to much lower income levels for producers of many of
these crops.
Again, a specific example of a corn and soybean farm may
help to illustrate crop budget data from my colleagues at the
University of Illinois shows a significant increase in
production costs, and the average farmer returns for corn and
soybeans were negative in 2014 and are currently projected to
be negative for this year and for 2016. As production costs
have risen, the working capital and credit needs of farmers has
also increased. Debt use in terms of total dollars has
increased significantly over the past 15 years. The average
current or short-term liability balance per U.S. farm has
increased more than 90 percent, while noncurrent liabilities
have increased by 50 percent. The increase in debt use on U.S.
grain farms is even more pronounced with an increase of over
200 percent since 2000. This provides yet another reason to
carefully consider the size standard as the current definition
can severely limit eligibility for SBA programs during a time
of critical need for a significant number of farm operations.
Finally, I would like to make the Committee members aware
of the precedent for adjustments to sales-based size
definitions used in agriculture. In 2010, the USDA revised the
definitions of their size typology categories to reflect the
structural changes which had occurred over the preceding 15
years. The large family farm threshold was increased to
$1,000,000 per year in sales, shifting more than 64,000
operations into the small farm typology category. The main
justification cited for this revision was a significant
increase of 41 percent in the producer price index from 1995 to
2010. The PPI for farm products has further increased by more
than 16 percent since 2010.
I hope the points that I have outlined and that are
included in my written testimony have convinced the
Subcommittee members that sales-based size standards for
agriculture should, at a minimum be periodically considered for
adjustment. Higher commodity prices have significantly
increased sales levels for U.S. farms, and production expenses
and debt needs have also been on the rise. Thus, it is critical
to have an appropriate definition in place for small
agricultural businesses to ensure continued access to and
eligibility for SBA programs.
I urge the Committee to carefully consider this issue as
deliberations proceed. Thank you again for the invitation to
address the Committee, and for your time as part of this
hearing.
Chairman CURBELO. Thank you for your testimony, Dr.
Paulson.
Now, Mr. Beasley, you are recognized for 5 minutes.
STATEMENT OF JEFF BEASLEY
Mr. BEASLEY. Good morning, Mr. Chairman, Ranking Member,
and members of the Subcommittee. My name is Jeff Beasley from
Creal Springs, Illinois, and I am the co-owner of Beasley and
Sons Livestock. It is my pleasure to be here today on behalf of
our family farm and the National Cattlemen's Beef Association.
Nearly a century ago, my great grandfather and his siblings
purchased land that remains the core acreage of the Beasley
Farm in Southern Illinois. The farm was passed down to my
grandfather and my father, and over 20 years ago, I joined the
family farm. Raising beef cattle is a way of life that we love,
but we must also be financially successful to continue our
family's legacy.
Our farm has grown and expanded significantly over the
years. De pending on the year and circumstances, we have been
caring for anywhere between 2,000 to 4,000 head of cattle per
year on several hundred acres of our own land, in addition to
leasing and managing two other farms.
The changes to agriculture in my lifetime have been
overwhelming and hard to fathom to say the least. As any
business, I must accept the reality that we are in a family
business, and to sustain the business, we have to earn a profit
on what we have invested. I truly believe that farming and
ranching is the quintessential ``small business,'' and we
should be recognized as such in regard to business regulations
that can greatly impact us.
The amount of capital that we are required to manage these
days is almost mindboggling. Costs of production have soared.
It takes a good amount of equipment and facilities to manage
and care for the cattle, and that comes at a hefty price tag.
Feed costs, grass and crop seedings, fencing, equipment,
maintenance and labor costs all add up significantly, not to
mention the cost of purchasing cattle.
While I consider a cattle operation the size and structure
of ours as a small business, the dollars that we must spend and
manage far exceed what Congress considers an agricultural small
business. The current definition is not reflective of today's
agricultural industry and limits our ability to operate on a
level similar to other nonagricultural businesses. For us to be
able to pass along the family farm, we need regulations that
are modernized, fair and equitable, and that is what I am
seeking today.
The outdated size standards of the Small Business Act
clearly do not reflect modern agriculture. An average farmer in
1987 would have been eligible for a loan through the Small
Business Administration by not exceeding the statutory limit of
$500,000. However, the average farm value in 2012 would vastly
exceed the current statutory limit of $750,000. The Small
Business Administration should have the authority to adjust
statutory limits on a regular basis by using data from the
Census of Agriculture, as well as other data provided by the
U.S. Department of Commerce.
American agriculture is a prime example of an industry that
has evolved to meet market demands by embracing technology,
making necessary investments, overcoming natural disasters, and
becoming more efficient than previous generations. Most of our
international competitors also face similar risk but the one
advantage American agriculture has had over the years has been
our access to credit. The majority of agricultural financing is
conducted through private local banks, the Farm Credit System,
USDA-backed credit programs, and other government loans. Our
industry appreciates access to these credit opportunities, but
it is important to realize that agriculture has evolved over 30
years into businesses that are more diversified in order to
face less volatility on the balance sheet.
Agriculture is a unique industry because we provide a basic
necessity--food. History is full of stories of nations rising
and falling by not having access to basic needs. The United
States has seen its population of farmers fall from 16.5
percent of the total population in 1950, to 1 percent of the
population in 2012. At the same time, U.S. agriculture
production has grown exponentially from $109 billion in 1950 to
$279 billion in 2012.
Unlike previous generations who had very little job options
other than the family farm, today's agriculture industry
primary consists of an educated workforce that wants to engage
in agriculture. Due to the enormous startup and operational
costs, it is very difficult for new people to enter the
agriculture industry. Even though UDA has programs to assist
young farmers and new farmers, many times those loans are not
great enough to cover the necessary cost. There is no silver
bullet that can solve this problem. A common sense approach
should be applied to small business loans to provide the
agricultural sector greater access for small business programs.
I appreciate the Subcommittee's interest and time to have
this hearing today on how small businesses like our family's
cattle farm could accurately be represented within the
definitions of the Small Business Administration. Enacting the
Small Agriculture Producer Size and Standards Improvement Act
is a step in the right direction to recognize small
agricultural businesses.
Thank you for inviting me to be here today, and I look
forward to your questions later on.
Chairman CURBELO. Thank you very much, Mr. Beasley.
Mr. Burgin, you are now recognized for 5 minutes.
STATEMENT OF LARRY BURGIN
Mr. BURGIN. Chairman Curbelo, Ranking Member Meng, and
members of the Subcommittee, my name is Larry Burgin and I am
honored to be here today.
Among with my two oldest songs, I milk 150 cows in Delhi,
New York. We also grow corn for silage, hay, and other crops on
our 300 acres.
I market my milk through Dairy Farmers of America, a
national milk marketing cooperative. DFA is a proud member of
the National Council of Farmer Cooperatives, who I am
representing here today.
Farmer coops handle about 80 percent of the nation's work
production.
New York is a diverse agricultural state, and is the
nation's third largest producer of milk behind California and
Wisconsin. New York's dairy industry is also diverse in both
farm size and management style. It has approximately 5,600
dairy farms that range from 10 cows to several thousand cows.
In the last 5 years, New York's milk production has
increased about 10.5 percent compared to 8.8 percent growth
nationally. Milk cow numbers, however, have declined by
approximately 1 percent. Since 2008, New York dairy cows have
increased their individual milk production from under 20,000 to
over 22,000 pounds per cow. Producing more milk with less cows
is due to better herd management and efficiencies gained
through better genetics and feed rations. This is a trend we
have experienced on our dairy over the past several decades, as
well as nationally.
USDA's average milk production numbers demonstrate the
industry's increased efficiency. In 1970, the U.S. dairy herd
of 12 million cows was spread across nearly 650,000 dairy
farms. That herd produced approximately 10,000 pounds of milk
per cow per year. In 2012, 9.2 million cows residing on less
than 60,000 dairy farms produced more than double that amount.
This increase in productivity means that farms that were once
considered small may be too large to qualify for Small Business
Administration loan programs.
The dairy industry and my farm's success year over year are
dependent upon a number of factors I have outlined in my
written testimony, but I would like to note that increased
production costs over the past 20 years have been driven by
higher input, labor, and land costs. Because of those varied
factors, on-farm income varies from year to year. In 2009, the
dairy industry went through a period of historic low milk
prices. Dairy farms struggled and a farm my size would have
qualified for SBA benefits. Jump to 2014. Record-high milk
prices would have pushed my farm above the SBA threshold. In
comparison with farms in New York and other parts of the
country, my dairy would be considered a smaller operation. But
the growing efficiency of the dairy herd and volatility of milk
prices would sometimes skew my farm's status with the SBA.
USDA's average all-milk price for 2009 was $12.81 per 100
weight. An average producing dairy in New York could have had
up to 260 cows before it breached the SBA threshold of
$750,000. In 2014, when the average milk price was almost $24,
140 cows with an average production would have likely have been
too big.
Mr. Chairman, in 2009, a Florida dairy farm with about 280
cows would have been considered small by the SBA, but by 2014,
that number would have decreased to about 150. Farming can
change dramatically from year to year and generation to
generation. Therefore, federal programs meant to support an
industry need to be revised periodically in order to
appropriately reflect those changes.
Through the years, my farm has grown in size. It has grown
to allow me to spread out expenses and to allow for more family
member involvement. It has also helped to ensure my wife and I
were able to provide for our family, but the growth in size was
not directly commensurate with the growth in income. Like other
businesses, input costs always seemed to rise and margins to
shrink. SBA programs should acknowledge these unique aspects of
agriculture in order to be a partner in our success.
I appreciate the House Small Business Committee taking
interest in this issue. I support the Small Agriculture
Producer Size Standards Improvements Act of 2015 introduced by
Mr. Bost and supported by members of this Committee. The
dynamics of today's farms and farmers, especially those who
farm as their sole source of income, have changed dramatically.
I believe the SBA size standards should reflect those changes.
Thank you for allowing me to be here today. I would be
pleased to take any questions.
Chairman CURBELO. Mr. Burgin, thank you very much for your
testimony.
Votes have been called, but what we are going to do is take
Mr. Guenther's testimony. Then, we will recess the Committee
and we will reconvene it at the conclusion of votes.
So Mr. Guenther, you are now recognized for 5 minutes.
STATEMENT OF ROBERT GUENTHER
Mr. GUENTHER. Thank you, Chairman Curbelo and Ranking
Member Meng. My name is Robert Guenther. 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 fruits and
vegetables 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 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. As you know, United Fresh provided testimony last
year when this Subcommittee looked at the issue of the size
standards used by the Small Business Administration. We would
also like to commend Representatives Bost and Meng, along with
Chairman Curbelo, for introducing H.R. 3714, to modernize the
small business size standards for farmers and ranchers by
permitting SBA to update methodologies in setting size
standards.
For a variety of reasons, such as changes in the economy or
fluctuation 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 the 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 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 significant.
In addition to being an unrealistic representation of many
agriculture operations, the current SBA standards put
agriculture small business operators at a disadvantage in their
ability to avail themselves of assistance that they could
utilize to grow and adapt their operations. The current
$750,000 size standard applied to agriculture operations limits
small agriculture producers' access to SBA 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.
As you are aware, in the United Fresh testimony from 2014,
we suggested 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 producers. 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. United Fresh
believes that such a proposal would allow SBA to routinely
review and update the standard and keep pace with the
variations in the agriculture community such as changes in the
commodity 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 agriculture producers'
needs are better reflected in a variety of regulatory
initiatives. In addition, in 2014, we also suggested, and still
believe, that it would be very helpful if there was greater
harmonization of standards used by SBA and the U.S. Department
of Agriculture. For example, USDA uses acreage as a
determination factor of 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.
While we still believe that such an initiative by SBA would
bring about needed changes to size standards that apply to
farmers and ranchers, we also believe that H.R. 3714 would also
result in a much-needed modernization of agriculture size
standards that reflect present-day farm operations and the
current farm economy, and we support its passage. We also
estimate that approximately 10 to 15 percent of our members
would have better access to SBA programs if this legislation
were enacted.
Again, thank you, Chairman Curbelo, Ranking Member Meng,
for holding this hearing and for allowing me to share United's
position with you today. We look forward to working with you,
and I will be happy to take any questions.
Chairman CURBELO. Thank you very much, Mr. Guenther, for
your testimony, and all of you for your testimonies and for
sharing your personal stories. After votes, we will open it up
to member questions. I assume we will be back sometime around
11:20 perhaps. 11:20, 11:30 at the latest, hopefully.
So with that, we will adjourn, and we will reconvene after
votes.
[Recess]
Chairman CURBELO. The hearing is called back into order.
Thank you all for your patience, and I thank my colleagues for
their cooperation.
I have a question. Mr. Guenther, in June, the Subcommittee
held a hearing that focused on current challenges affecting
small citrus growers, including a bacterial disease called HLB
or citrus greening. The cost of producing an acre of citrus
have increased from $850 to $2,250 due to the cost of treating
trees to fight HLB. It seems to me that if size standards were
periodically reviewed by SBA, they could account for the
increased cost of producing crops. This is a major concern in
my area. Do you agree?
Mr. GUENTHER. Definitely, Chairman Curbelo. I mean, I think
this is a huge issue down in Florida, and as you know, and from
the hearing you did this summer, it is spreading to Texas,
California. I mean, this is a widespread issue that is really
affecting the country's citrus industry in particular.
I will give you a personal perspective that I mentioned
earlier to some folks. My family is a small citrus farm in
Florida. I talked to my parents just in the last week and my
father is kind of, you know, he has got greening and he has
decided to probably try other products, like peaches and
persimmons because it is just not viable right now because of
the increased costs in terms of keeping a citrus operation
running. So, I mean, I just had that conversation.
Chairman CURBELO. And you view this legislation as a
potential solution for those growers?
Mr. GUENTHER. Exactly. Exactly. Because it gives them more
diversity in terms of potential programs. It helps them keep
those crops viable.
Chairman CURBELO. Thank you very much.
I would like to now recognize the ranking member for
questions.
Ms. MENG. Thank you, Mr. Chairman.
I had a question in general. Well, one of Mr. Guenther and
then anyone who would like to answer.
One of the major advantages of having SBA set size
standards for the agriculture industry is increasing
eligibility for the agency's 7(a) and 504 loan programs. Is
access to capital something small produce farms or any farm
struggles with? And how can SBA's program fill the gap in the
USDA loan programs?
Mr. GUENTHER. Very good question. I think where there are
opportunities that a vast majority of farmers use a lot of the
different programs at USDA. But there are, you know, kind of
those areas where the Small Business Administration or the
Small Business loan and grant programs that they have can also
supplant kind of infrastructure investments and things like
that that potentially can help them build and increase
infrastructure areas that potentially USDA cannot apply for.
So I think, again, to the point we were just talking about
this legislation, provides, you know, if it was passed and put
into law, it provides opportunity for a much broader set of
agriculture, small agriculture producers to benefit from SBA
that really cannot right now. They are limited in terms because
of the size issues related to that.
Ms. MENG. Thanks. Anyone else?
Mr. BEASLEY. I would address that. In my statement, I
mentioned that we have access, all in agriculture, to private
local banks--Farm Credit, and USDA, for example. However, this
would give us an alternative, an additional option. One thing
that we have found--and we deal with local banks, local
community banks--access to financing is more difficult now than
it used to be, and that is primarily because of federal
regulations on the banking industry affecting the smaller
banks. So because their hands are, I will say ``tied'' to some
extent, and they have trouble dealing with the regulations,
that is sort of passed on to the farmers like myself, and
Larry, in having to deal with these banks. So not that we still
do not have that opportunity, but being able to work with the
SBA would give us an additional option. And I think could prove
to be very beneficial.
Mr. BURGIN. I would like to comment on that as well. I
think the SBA would be able to offer producers help in
developing business plans and such for expansions or moving
into on-farm processing or on-farm marketing as well.
Ms. MENG. The last time SBA was in control of agricultural
size standards it tried to reduce the definition to just
100,000 in revenue, which promoted Congress to step in. What is
your level of confidence that the SBA will do a better job this
time around? And if you had a wish list, what is your advice to
give them to ensure that your industries are accurately
assessed?
Mr. BURGIN. I would like to speak to that. I believe that
each one of the agricultural industries is very unique in its
scope and size of operations and therefore, the standards
should be reviewed for each one of those industries to give
each producer in each one of those industries the access to the
SBA funding and counseling that is available.
Mr. BEASLEY. I would agree with the statement. What we see
is that we just have so many restrictions now. For example,
let's say that we wanted to diversify our family operation. If
we want to go through Farm Credit, they are focused on
agriculture only. But let's say that my family wanted to take
its beef operation and expand, maybe do retail, restaurant,
grocery, whatever. Through Farm Credit, that might not be a
possibility. With SBA, we could possibly work with them. So
that, again, gives us more opportunities to diversify and have
additional finance. So, again, I just think that would be truly
a good benefit for us.
Ms. MENG. Thank you. I yield back.
Mr. GIBSON. Well, thank you. I will yield myself 5 minutes
and say that I really appreciate this hearing. Thank you very
much for the testimony. I think it has been very informative.
And I want to say to Mr. Burgin, who is a constituent of
mine, how proud I am of him and also his family. I think
farmers represent all that is good in our country, and I think
you made a very compelling case why sticking with $750,000 does
not make sense. Just because, as you pointed out, just given
the business cycle of what the 100 weight is going for, you
will either be eligible or not eligible potentially several
times in one year. So that is really not the level of certainty
that we want to have for our business plans going forward.
My question is, for the record, I would love to hear from
Mr. Burgin and Mr. Beasley to talk about how you leverage
federal programs in general because I think this is very
important for the American people to hear the public-private
partnership. I think it is very important that an independent
nation needs to be able to grow and consume ideally locally,
but certainly, produce its own food. And that is one of the
reasons why we work so hard on a farm bill which we do in
collaboration with small business, but I think it will be
worthwhile to hear from both of you how you engage federal
programs to ensure the viability of your programs.
We will begin with Mr. Burgin, and then Mr. Beasley.
Mr. BURGIN. Well, our farm accesses federal programs mainly
through the MPP program at this point. It provides us with an
insurance for our business. Over the past several years, we
have done quite a bit of reinvesting in our business, and
investing in new technology, and the MPP program allowed us to
have an insurance, so to speak, that if milk prices took a
severe downturn, or the margin caused by milk prices being
reduced, if those margins decreased, that we would have enough
cash flow in our operation to cover our commitments to the
financing required for those assets. We also do participate in
the countercyclical programs through USDA as well for the row
crop portion of our operation as well.
Mr. BEASLEY. We, likewise, utilize a lot of USDA services.
Primarily, we have worked with FSA, Farm Service Agency. They
helped administer the drought--the Disaster Assistance Program.
Probably more so, we work with NRCS, National Resource
Conservation Service. They have been valuable because one thing
that is important to farmers and ranchers is to conserving the
soil, the land. That is what we make our living off of. We
certainly do not want to abuse it and there are some good tools
working within RCS to help us make it more sustainable. So I
think it is great that we have those options and there are some
good programs. I guess while I have the opportunity, I will say
there is a bit of a downside and sometimes working through the
federal agency there are a lot of hoops to jump through. Time
is not always of the essence seeming with them, whereas it may
be of the essence with the farmer to try to get something
accomplished. So make it more user friendly, for lack of a
better term, I think would be helpful to farmers like
ourselves. But certainly, they play a role in helping our
operations. NRCS has been out at my farm several times this
year as we are implementing some conservation practices that
are vital to the long-term future of our farm. So I think that
is very important.
Mr. GIBSON. I appreciate the testimony of both you
gentlemen, indeed. It echoes or mirrors some of the things I
hear when I am out there all the time, mentioning on
conservation, how important these programs are. They are
incentivizing to make these practices that are good for our
business plans and also good for the earth. And I think it also
showcases farmers who are premier conservationists, and I think
that helps us when we get into conversations about, as you
indicated or alluded anyway, Mr. Beasley, sometimes when
government may be very aggressive or looking to move down an
angle, say with like Waters of the U.S. And when I engage on
your behalf, I say, ``Look, no one is a stronger
conservationist than farmers because they know that if they
ruin their land, they basically ruin their business plan. So
thank you for making that testimony for the record.
And Dr. Paulson, can you give me an example of some factors
present today that were not present 15 years ago when these
standards were set in stone that have significantly impacted
prices and how these changes have affected financial reporting
for small farms?
Mr. PAULSON. So I would say maybe the biggest factor from
the price perspective is just the amount of volatility that
exists in the market, and this is kind of echoing some of the
statements that were made and some of the other panelists'
responses. I covered how price levels have increased for many
major commodities, but it is really the level at which we can
see those prices vary. And your comment about how dairies may
move in and out of the standard within a year, that is very
true for crop producers as well.
Some of the market factors that I think have been big for
crop production would be some areas of additional demand that
have been created, both on the export side and for some
alternative domestic uses for crops, and that has created
higher competition for land across all commodities and just
increase that volatility factor in addition to moving market
prices up.
Mr. GIBSON. Well, I thank you. And before we close, what I
would like to do is give each of you an opportunity to have a
moment for the record. I mean, we have already got good records
of what you have said so far, but this is going to be shared
far and wide, not only within the Committee and the
professional staff, but it is available then for colleagues as
we move bills towards the floor.
So really, I want to start with Mr. Guenther, and just
allow you to make any closing remarks that can be germane to
this bill or anything else you think you would want to share to
members of Congress.
Mr. GUENTHER. I usually have a lot to share with members of
Congress. I do want to thank the Committee for allowing us to
testify, allowing to hear from producers across the country,
different parts of agriculture to, you know, this issue is very
important to a lot of producers and a lot of people within the
agriculture community. You know, trying to make sure good,
common sense legislation is passed that helps our federal
regulatory agencies really address key issues that are
important to us. So, again, we want to thank you for the
opportunity to do this as always and we think this bill is
extremely important to move forward through the House and
hopefully through the Senate to be implemented in near future.
Mr. GIBSON. Thanks, Mr. Guenther.
Mr. Burgin?
Mr. BURGIN. I would echo what Mr. Guenther has said in
terms of the importance of this SBA legislation. I think from
the perspective of our farm, the thing that is most concerning
to us right now is the Waters of the U.S. that the EPA is
imposing upon us, and quite frankly, I do not know about Mr.
Beasley, but on our farm, that scares us half to death because
of what it could do to our operation.
I would like to thank this Committee for allowing me the
opportunity to testify here today as well. Thank you.
Mr. GIBSON. Thanks, Mr. Burgin.
Mr. Beasley?
Mr. BEASLEY. I will agree with him on the WOTUS comment. I
think this legislation that Mr. Bost has put forward is very
important.
If you were to come to our farm, you would see that it is a
small business. It is myself, my father. We have two full-time
employees, one part-time employee. But we are, as I mentioned
in the statement, the quintessential small business by all
means. The $750,000 threshold, however, is way below the level
of business that we do. So this has definitely got to be
addressed. I think it has got to be raised significantly
because to think that I would not fall under the category of a
small farmer I think is ridiculous. So that definitely needs to
be given consideration, raised substantially, and to make
farmers like Mr. Bergen and myself eligible for SBA
consideration.
So I want to thank you all for hearing our testimony. It
has been an honor to be here today, and I appreciate your time
and consideration.
Mr. GIBSON. Thank you. And well said.
Dr. Paulson?
Mr. PAULSON. So again, I will maybe try to give a crop
producer's perspective on this. In addition to working with
crop producers in Illinois and throughout the Midwest, I also
grew up on a corn and soybean farm. And as I was preparing some
of the numbers in my testimony, I found it kind of coincidental
how well my family farm kind of fit into that acreage example
that I showed where in 2000, my father would have been
considered a small farm. His farm has not changed, but because
of what we have seen with commodity prices, he would no longer
be considered a small farm by the definition under statute. So
I would just like to reiterate some of the point that have
already been made, but just the fact that we have had
increasing prices but on also the expense side, the need, the
sheer volume that farmers need in terms of working capital,
farmers are literally working with twice as many dollars, and
in the short-term it looks like we are back to very low
margins. So just the need for access to credit is very
critical. So I think it is a very important time to reconsider
this definition and set it at an appropriate level.
Thank you.
Mr. GIBSON. Thank you, Doc. Before we close, does the
ranking member have any final comments?
Ms. MENG. No. I just want to thank all of you for being
here, and obviously, to Congressman Bost and Chairman Curbelo
for pushing this and supporting this important piece of
legislation. As a New York City member, I obviously do not have
farms in my district, but as a New Yorker, and as a mom of two
children, I thank you for your work.
Mr. GIBSON. Well, that is awesome. And we appreciate that
very much that we show a united front on all of this.
I want to thank all the witnesses for taking time away from
their businesses to participate in today's hearing. It was,
indeed, very informative. I am proud to be a cosponsor as well,
and I know the chairman and the ranking member will be
recommending to Chairman Chabot that the Committee on Small
Business markup H.R. 3714 as soon as possible.
And I ask unanimous consent that members have 5 legislative
days to submit statements and supporting materials for the
record.
Without objection, so ordered.
And I would also like to wish all the panelists here a very
Happy Thanksgiving. We certainly are very thankful for you. And
with that, this hearing is adjourned.
[Whereupon, at 12:04 p.m., the Subcommittee hearing was
adjourned.]
A P P E N D I X
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. Chairman, Ranking Member, and members of the
subcommittee, my name is Jeff Beasley and I am the co-owner of
Beasley & Sons Livestock from Creal Springs, Illinois. It is my
pleasure to testify before your subcommittee to discuss my
family's beef cattle operation. Nearly a century ago my great-
grandfather, along with his four siblings and families came
together to purchase the land that remains as the core acreage
of the Beasley Farm in Southern Illinois. Times were really
tough then for my family and the older children worked for
friends and family to earn enough money, over time, to fulfill
their hope of farming their own land. The siblings worked
together to grow crops and hay, raising cattle, hogs, horses
and mules. Over the next several decades, they were able to
scratch out a living and provide for their families, but had
achieved what they set out to do, and that was farm the land
they owned and raise livestock. My grandfather, his brother and
cousin helped work the farm, and eventually the farm was passed
down to them. Then my grandfather and father became proprietors
of the farm together. I remember helping work on the farm as a
boy, then as a teenager and then as a young man. More than
twenty years ago I joined my father in working and managing the
farm. Our dream of raising beef cattle and crops is now a
reality; we pursued the goal of living the life and work that
we loved, yet knowing that it was a business that must be
financially viable to survive.
Our farm has grown and expanded significantly over the
years. Depending on the year and circumstances, we have been
caring for anywhere between 2,000-4,000 head of cattle per year
on several hundred acres of our own land in addition to leasing
and managing two other farms. Because of our love for raising
cattle, well over ninety percent of our farm income is derived
from cattle sales. We are focused on growing grass, raising and
feeding beef cattle that we know consumers around this country
and the world need and desire as their delicious and healthy
source of protein.
The legacy of the Beasley's cattle raising continues, but
the changes to agriculture in my lifetime have been
overwhelming and hard to fathom to say the least. Living and
working on a cattle farm is a wonderful way of life, and a
great place to raise a family. You must have a strong desire,
passion and good work ethic to accept this challenge of raising
livestock. I've never had anyone tell me they got into
agriculture to get rich, but rather because they loved doing
this work. However, we in agriculture can't live solely on
dreams. We must accept the reality that we are in a business,
and to sustain the business we have to profit on what we have
invested I truly believe that farming and ranching is the
quintessential ``small business''. We should be recognized as
such and we need to be treated as such, in regard to business
regulations that can so greatly affect us.
The amount of capital that we are required to manage these
days is almost mind boggling. Costs of production have soared.
It takes a good amount of equipment and facilities to manage
and care for the cattle, and that comes at a hefty price tag.
Feed costs, grass and crop seedings, fencing, equipment,
maintenance and labor costs all add up significantly. This
doesn't even take into account the cost of purchasing cattle.
So while I consider a cattle operation the size and
structure such as ours as a small business, the dollars that we
must spend and manage far exceed what Congress considers an
agricultural small business. The current definition is
restrictive and limits our ability to operate on a level that
other non-agriculture businesses operate. For us to be
sustainable, to expand and profit in order to pass along the
family farm, or for young persons to enter and start their own
farm or livestock enterprise, we need regulations that are fair
and equitable, and that is what I am seeking today.
The Small Business Act of 1953 authorized the Small
Business Administration to establish the standards for
determining the financial eligibility assistance of small
businesses. The definition of a small business has been
somewhat subjective over the years and varies by industry.
Under the Small Business Act, a small business is determined by
number of employees, dollar volume of business, net worth, net
income, a combination thereof, or other factors. The definition
is meant to be relative to each industry and reflect the
differing characteristics among industries.
In effort to keep up with an evolving economy, the Small
Business Administration has proposed comprehensive size
standards reform on five different occasions--three of which
have occurred since the last revision to the agriculture
standards for SBA loans. In 1984, the Small Business
Administration proposed changing the definition of `small' to
farms with cash receipts less than $100,000. Congress responded
in 1985 by removing SBA's ability to establish a small business
size standard for agriculture by enacting a statutory level of
$500,000 that was later increased to $750,000 by Congress in
2000. The authority to update the standards has not been
transferred back to the Administrator of the Small Business
Administration. The Small Agriculture Producer Size and
Standards Improvement Act is a bill I support to amend the
Small Business Act and return the authority to the Small
Business Administration to establish size standards for
agriculture based on the same process as other small
businesses.
Agriculture is one of the oldest industries in the world,
and many of our daily concerns haven't changed: weather, soil,
the health of my farm animals, debt, natural disasters, and
taxes are still my priorities. As a cattle farmer, I adjust to
the daily challenges and try to be successful given the
conditions I face. The cattle operation my family owns today
looks very different from how it started when you consider the
market conditions and cost of production have changed
significantly over time.
The outdated size standards of the Small Business Act
clearly do not reflect the needs of modern agriculture. Here
are some comparisons from USDA's 1987 Census of Agriculture and
USDA's 2012 Census of Agriculture for my state, Illinois (see
attachment).
------------------------------------------------------------------------
1987 2012
------------------------------------------------------------------------
Total Number of Farms 88,766 75,087
Average Farm Size 321 acres 359 acres
Farms owned by families 85% 86%
Farmer as primary occupation 64% 50%
Average Age of Farmer 50.4 years old 57.8 years old
Average Value of Farm $402,970 $2.26 million
Average Value of Farmland $1,262/acre $6,305/acre
Avg. Value of Farm Equipment $60,935 $203,192
Total Farm Expenses $4.56 billion $13.46 billion
Market Value of Products Sold $6.37 billion $17.19 billion
------------------------------------------------------------------------
You can see that many farm operations, like mine, are still
family owned and operated, but the cost of doing business has
increased tremendously; as has the average age of the farmer
has also increased. By this account, an average farmer in 1987
would have been eligible for a loan through the Small Business
Administration by not exceeding the statutory limit of
$500,000. However, an average farm value in 2012 would vastly
exceed the statutory limit of $750,000 established in 2012. The
Small Business Administration should have the authority to
adjust statutory limits on a regular basis by using data such
as the Census of Agriculture that is conducted every five
years, as well as other data provided by the U.S. Department of
Commerce.
Throughout America's history, our economy has been
resilient due to our willingness to take risks seeking success
when previous attempts have failed. In spite of the increasing
regulatory and tax burdens and the frivolous abuse of the legal
system, American continues to be a fertile ground for the
entrepreneurial spirit and multi-generational, family-owned
businesses. For many Americans, including myself and my family,
this is our pursuit of happiness and it is the foundation of
the American Dream; something that each generation has fought
to protect.
American agriculture is a prime example of an industry that
has evolved to meet market demands by embracing technology,
making necessary and often times risky investments, overcoming
natural disasters and becoming more efficient than previous
generations. Most of our international competitors also face
similar risks, but the one advantage American agriculture has
had over the years has been our access to credit. The majority
of agricultural financing is conducted through private local
banks, the Farm Credit System, USDA-backed loans and other
government loans. Our industry appreciates access to these
credit opportunities, but it is important to realize that
agriculture in the 21st Century has evolved over 30 years into
businesses that have diversified in order to face less
volatility on the balance sheet.
Agriculture is a unique industry because we provide a basic
necessity--food. History is full of stories of nations rising
and falling by not having access to basic needs. The United
States has seen its population of farmers fall from 16.5
percent of the total population in 1950, to one percent of the
population in 2012. At the same time, our production has grown
exponentially from $109 billion in 1950 to $279 billion in
2012. Imagine that, less than two percent of the U.S.
population is engaged in agriculture and yet we are able to
feed America and many other nations. We provide stability that
most people take for granted.
Unlike previous generations who had very little job options
other than the family farm, today's agriculture industry
primarily consists of an educated workforce that wants to
engage in agriculture. Even still, the average age of farmers
continues to increase, and we face a growing trend of
urbanization that continues to draw the next generation away
from the farm. Due to the enormous startup and operational
costs it is very difficult for new people to enter the
agriculture industry. Even though USDA has programs to assist
young farmers and new farmers, many times those loans are not
great enough to cover the necessary costs. So how do we feed
the entrepreneurial spirit of those who want to stay involved
or become involved in food production?
There is no silver bullet that can solve this problem alone
but one thing our industry has learned over the years is when
we are confronted challenge we can work together to find a
reasonable solution. That same common-sense approach should be
applied to small business loans to provide the agricultural
sector greater access for small business loan programs.
Improving the existing tools available through the Small
Business Administration to modernize definition of a small
agricultural business. I appreciate the subcommittee's interest
and time to have this hearing today on how small businesses
like our family's cattle farm could accurately be represented
within the definitions of the Small Business Administration.
Enacting the Small Agriculture Producer Size and Standards
Improvement Act is a step in the right direction to recognize
small agricultural businesses. Thank you for inviting me to be
here today.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Thank you Chairman Curbelo and Ranking Member Meng, I am
Robert Guenther, 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 the fresh fruit and vegetable production
including, growers, shippers, wholesaler-distributors,
processors and retailers. Fruit and vegetable farms account for
nearly 10 million acres of production with a $57 billion market
value and nearly 80 percent of fruit and vegetable farms are
family owned. 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. As you know, United Fresh provided
testimony last year when this subcommittee looked at the issue
of the size standards used by the Small Business Administration
(SBA). We would also like to commend Representatives Bost and
Meng for introducing H.R. 3714, to modernize small business
size standards for farmers and ranchers by permitting SBA to
updated methodologies in setting size standards. And on a
personal note, I 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 producers 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 the 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.
As you may be aware, in United Fresh's testimony from 2014,
we suggested 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 producers. 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. United Fresh
believes that such a proposal would allow SBA to routinely
review and update the standard and keep pace with variations in
the agriculture community such as 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, in 2014 we suggested and still believe that it would
be very helpful if there was greater 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.
While we still believe that such an initiative by SBA would
bring about needed changes to size standards that apply to
farmers and ranchers, we also believe that Reps Bost's and
Meng's legislation would also result in a much-needed
modernizing of agriculture size standards that reflect present-
day farm operations and the current farm economy and we support
its passage. We also estimate that approximately 10 percent of
our members would have better access to SBA programs if the
Bost-Meng legislation were enacted. As has been noted, the
standard for agriculture producers has been updated only once,
in the year 2000; a review is long overdue. We agree with the
statement made by the National Council of Farmer Cooperatives
that Representative Bost and Meng's legislation means that
``...farmers, ranchers and growers have greater access to the
SBA's programs and expertise and it will help promote economic
activity and job growth across rural America.''
Again, thank you Chairman Curbelo and Ranking Member Meng
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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