    [House Hearing, 114 Congress]
    [From the U.S. Government Publishing Office]

                              FOCUS ON THE FARM ECONOMY

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

                                    HEARINGS

                                   BEFORE THE

                          SUBCOMMITTEE ON GENERAL FARM
                        COMMODITIES AND RISK MANAGEMENT

                                    AND THE

            SUBCOMMITTEE ON COMMODITY EXCHANGES, ENERGY, AND CREDIT

                                    AND THE

                                SUBCOMMITTEE ON
                   BIOTECHNOLOGY, HORTICULTURE, AND RESEARCH

                                    AND THE

                           SUBCOMMITTEE ON NUTRITION

                                    AND THE

                   SUBCOMMITTEE ON CONSERVATION AND FORESTRY

                                    AND THE

               SUBCOMMITTEE ON LIVESTOCK AND FOREIGN AGRICULTURE

                                     OF THE

                            COMMITTEE ON AGRICULTURE
                            HOUSE OF REPRESENTATIVES

                        ONE HUNDRED FOURTEENTH CONGRESS

                                 SECOND SESSION

                                   ----------

                        APRIL 14, 19, 27, 28, 2016; AND
                                MAY 17, 24, 2016

                                   ----------

                               Serial No. 114-49

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

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

                           FOCUS ON THE FARM ECONOMY

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

                                    HEARINGS

                                   BEFORE THE

                          SUBCOMMITTEE ON GENERAL FARM
                        COMMODITIES AND RISK MANAGEMENT

                                    AND THE

            SUBCOMMITTEE ON COMMODITY EXCHANGES, ENERGY, AND CREDIT

                                    AND THE

                                SUBCOMMITTEE ON
                   BIOTECHNOLOGY, HORTICULTURE, AND RESEARCH

                                    AND THE

                           SUBCOMMITTEE ON NUTRITION

                                    AND THE

                   SUBCOMMITTEE ON CONSERVATION AND FORESTRY

                                    AND THE

               SUBCOMMITTEE ON LIVESTOCK AND FOREIGN AGRICULTURE

                                     OF THE

                            COMMITTEE ON AGRICULTURE
                            HOUSE OF REPRESENTATIVES

                        ONE HUNDRED FOURTEENTH CONGRESS

                                 SECOND SESSION

                                   __________

                          APRIL 14, 19, 27, 28, 2016;
                                MAY 17, 24, 2016

                                   __________

                               Serial No. 114-49

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

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

                             U.S. GOVERNMENT PUBLISHING OFFICE

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                            COMMITTEE ON AGRICULTURE

                      K. MICHAEL CONAWAY, Texas, Chairman

    RANDY NEUGEBAUER, Texas,             COLLIN C. PETERSON, Minnesota,
        Vice Chairman                    Ranking Minority Member
    BOB GOODLATTE, Virginia              DAVID SCOTT, Georgia
    FRANK D. LUCAS, Oklahoma             JIM COSTA, California
    STEVE KING, Iowa                     TIMOTHY J. WALZ, Minnesota
    MIKE ROGERS, Alabama                 MARCIA L. FUDGE, Ohio
    GLENN THOMPSON, Pennsylvania         JAMES P. McGOVERN, Massachusetts
    BOB GIBBS, Ohio                      SUZAN K. DelBENE, Washington
    AUSTIN SCOTT, Georgia                FILEMON VELA, Texas
    ERIC A. ``RICK'' CRAWFORD, Arkansas  MICHELLE LUJAN GRISHAM, New Mexico
    SCOTT DesJARLAIS, Tennessee          ANN M. KUSTER, New Hampshire
    CHRISTOPHER P. GIBSON, New York      RICHARD M. NOLAN, Minnesota
    VICKY HARTZLER, Missouri             CHERI BUSTOS, Illinois
    DAN BENISHEK, Michigan               SEAN PATRICK MALONEY, New York
    JEFF DENHAM, California              ANN KIRKPATRICK, Arizona
    DOUG LaMALFA, California             PETE AGUILAR, California
    RODNEY DAVIS, Illinois               STACEY E. PLASKETT, Virgin Islands
    TED S. YOHO, Florida                 ALMA S. ADAMS, North Carolina
    JACKIE WALORSKI, Indiana             GWEN GRAHAM, Florida
    RICK W. ALLEN, Georgia               BRAD ASHFORD, Nebraska
    MIKE BOST, Illinois
    DAVID ROUZER, North Carolina
    RALPH LEE ABRAHAM, Louisiana
    JOHN R. MOOLENAAR, Michigan
    DAN NEWHOUSE, Washington
    TRENT KELLY, Mississippi

                                     ______

                        Scott C. Graves, Staff Director

                    Robert L. Larew, Minority Staff Director

                                     ______

          Subcommittee on General Farm Commodities and Risk Management

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

    FRANK D. LUCAS, Oklahoma             TIMOTHY J. WALZ, Minnesota,
    RANDY NEUGEBAUER, Texas              Ranking Minority Member
    MIKE ROGERS, Alabama                 CHERI BUSTOS, Illinois
    BOB GIBBS, Ohio                      GWEN GRAHAM, Florida
    AUSTIN SCOTT, Georgia                BRAD ASHFORD, Nebraska
    JEFF DENHAM, California              DAVID SCOTT, Georgia
    DOUG LaMALFA, California             JIM COSTA, California
    JACKIE WALORSKI, Indiana             SEAN PATRICK MALONEY, New York
    RICK W. ALLEN, Georgia               ANN KIRKPATRICK, Arizona
    MIKE BOST, Illinois
    RALPH LEE ABRAHAM, Louisiana

                                      (ii)

            Subcommittee on Commodity Exchanges, Energy, and Credit

                        AUSTIN SCOTT, Georgia, Chairman

    BOB GOODLATTE, Virginia              DAVID SCOTT, Georgia, Ranking
    FRANK D. LUCAS, Oklahoma             Minority Member
    RANDY NEUGEBAUER, Texas              FILEMON VELA, Texas
    MIKE ROGERS, Alabama                 SEAN PATRICK MALONEY, New York
    DOUG LaMALFA, California             ANN KIRKPATRICK, Arizona
    RODNEY DAVIS, Illinois               PETE AGUILAR, California
    TRENT KELLY, Mississippi

                                     ______

           Subcommittee on Biotechnology, Horticulture, and Research

                        RODNEY DAVIS, Illinois, Chairman

    GLENN THOMPSON, Pennsylvania         SUZAN K. DelBENE, Washington,
    AUSTIN SCOTT, Georgia                Ranking Minority Member
    CHRISTOPHER P. GIBSON, New York      MARCIA L. FUDGE, Ohio
    JEFF DENHAM, California              JAMES P. McGOVERN, Massachusetts
    TED S. YOHO, Florida                 ANN M. KUSTER, New Hampshire
    JOHN R. MOOLENAAR, Michigan          GWEN GRAHAM, Florida
    DAN NEWHOUSE, Washington

                                     ______

                           Subcommittee on Nutrition

                      JACKIE WALORSKI, Indiana, Chairwoman

    RANDY NEUGEBAUER, Texas              JAMES P. McGOVERN, Massachusetts,
    GLENN THOMPSON, Pennsylvania         Ranking Minority Member
    BOB GIBBS, Ohio                      MARCIA L. FUDGE, Ohio
    ERIC A. ``RICK'' CRAWFORD, Arkansas  ALMA S. ADAMS, North Carolina
    VICKY HARTZLER, Missouri             MICHELLE LUJAN GRISHAM, New Mexico
    DAN BENISHEK, Michigan               PETE AGUILAR, California
    RODNEY DAVIS, Illinois               STACEY E. PLASKETT, Virgin Islands
    TED S. YOHO, Florida                 BRAD ASHFORD, Nebraska
    DAVID ROUZER, North Carolina         SUZAN K. DelBENE, Washington
    RALPH LEE ABRAHAM, Louisiana
    JOHN R. MOOLENAAR, Michigan

                                     ______

                   Subcommittee on Conservation and Forestry

                     GLENN THOMPSON, Pennsylvania, Chairman

    FRANK D. LUCAS, Oklahoma             MICHELLE LUJAN GRISHAM, New
    STEVE KING, Iowa                     Mexico, Ranking Minority Member
    SCOTT DesJARLAIS, Tennessee          ANN M. KUSTER, New Hampshire
    CHRISTOPHER P. GIBSON, New York      RICHARD M. NOLAN, Minnesota
    DAN BENISHEK, Michigan               SUZAN K. DelBENE, Washington
    RICK W. ALLEN, Georgia               ANN KIRKPATRICK, Arizona
    MIKE BOST, Illinois

                                     (iii)

               Subcommittee on Livestock and Foreign Agriculture

                     DAVID ROUZER, North Carolina, Chairman

    BOB GOODLATTE, Virginia              JIM COSTA, California, Ranking
    STEVE KING, Iowa                     Minority Member
    SCOTT DesJARLAIS, Tennessee          STACEY E. PLASKETT, Virgin Islands
    VICKY HARTZLER, Missouri             FILEMON VELA, Texas
    TED S. YOHO, Florida                 RICHARD M. NOLAN, Minnesota
    DAN NEWHOUSE, Washington             CHERI BUSTOS, Illinois
    TRENT KELLY, Mississippi

                                      (iv)

                                 C O N T E N T S

                                  ----------
                                                                       Page

    Thursday, April 14, 2016--Subcommittee on General Farm Commodities and
                                Risk Management

    Conaway, Hon. K. Michael, a Representative in Congress from
      Texas, opening statement.......................................     3
    Crawford, Hon. Eric A. ``Rick'', a Representative in Congress
      from Arkansas, opening statement...............................     1
        Prepared statement...........................................     2
    Peterson, Hon. Collin C., a Representative in Congress from
      Minnesota, opening statement...................................    38
    Walz, Hon. Timothy J., a Representative in Congress from
      Minnesota, opening statement...................................     3

                                   Witnesses

    Duvall, Vincent ``Zippy'', President, American Farm Bureau
      Federation, Washington, D.C....................................     4
        Prepared statement...........................................     5
    Johnson, Roger, President, National Farmers Union, Washington,
      D.C............................................................    10
        Prepared statement...........................................    11
    Johansson, Ph.D., Robert, Chief Economist, U.S. Department of
      Agriculture, Washington, D.C...................................    16
        Prepared statement...........................................    18
    Outlaw, Ph.D., Joe L., Professor and Extension Economist,
      Department of Agricultural Economics, Texas A&M University; Co-
      Director, Agricultural and Food Policy Center, College Station,
      TX.............................................................    27
        Prepared statement...........................................    29

     Tuesday, April 19, 2016--Subcommittee on Commodity Exchanges, Energy,
                                   and Credit

    Conaway, Hon. K. Michael, a Representative in Congress from
      Texas, opening statement.......................................    51
    Scott, Hon. Austin, a Representative in Congress from Georgia,
      opening statement..............................................    51
        Prepared statement...........................................    52
    Scott, Hon. David, a Representative in Congress from Georgia,
      opening statement..............................................    53

                                   Witnesses

    Buzby, Timothy L., President and Chief Executive Officer, Federal
      Agricultural Mortgage Corporation (Farmer Mac), Washington,
      D.C............................................................    54
        Prepared statement...........................................    55
    Featherstone, Ph.D., Allen M., Professor and Head, Director of
      Master in Agribusiness Program, Department of Agricultural
      Economics, Kansas State University, Manhattan, KS..............    76
        Prepared statement...........................................    78
    Nelson, Randy, President, CHS Capital LLC, Inver Grove Heights,
      MN.............................................................   100
        Prepared statement...........................................   101

    Wednesday, April 27, 2016--Subcommittee on Biotechnology, Horticulture,
                                  and Research

    Conaway, Hon. K. Michael, a Representative in Congress from
      Texas, opening statement.......................................   180
    Davis, Hon. Rodney, a Representative in Congress from Illinois,
      opening statement..............................................   121
        Prepared statement...........................................   123
    DelBene, Hon. Suzan K., a Representative in Congress from
      Washington, opening statement..................................   124

                                   Witnesses

    Conner, Hon. Charles F., President and Chief Executive Officer,
      National Council of Farmer Cooperatives, Washington, D.C.......   125
        Prepared statement...........................................   127
        Submitted questions..........................................   231
    Witte, Hon. Jeff M., Secretary/Director, New Mexico Department of
      Agriculture; Member, Board of Directors, National Association
      of State Departments of Agriculture, Las Cruces, NM............   135
        Prepared statement...........................................   137
        Submitted questions..........................................   238
    Torrey, Maureen J., Vice President, Torrey Farms, Inc., Elba, NY;
      on behalf of United Fresh Produce Association..................   148
        Prepared statement...........................................   149
        Supplementary material submitted by Robert L. Guenther,
          Senior Vice President, Public Policy, United Fresh Produce
          Association................................................   189
    Woods, Kate, Vice President, Northwest Horticultural Council,
      Yakima, WA.....................................................   152
        Prepared statement...........................................   153
        Submitted questions..........................................   259
    Guebert, Jr., Richard L., President, Illinois Farm Bureau;
      Member, Board of Directors, American Farm Bureau Federation,
      Bloomington, IL................................................   155
        Prepared statement...........................................   157
        Submitted questions..........................................   263
    Murden, Dale, President, Texas Citrus Mutual, Mission, TX........   165
        Prepared statement...........................................   166
        Submitted questions..........................................   273
    Vroom, Jay, President and Chief Executive Officer, CropLife
      America, Washington, D.C.......................................   169
        Prepared statement...........................................   170
        Supplementary material.......................................   192
        Submitted questions..........................................   277

                               Submitted Material

    Bond, Bill, Executive Director, Minnesota Crop Production
      Retailers, submitted letter....................................   196
    Covello, Kelly, President, Almond Hullers & Processors
      Association, submitted statement...............................   197
    Jones, Keith, Executive Director, Biopesticide Industry Alliance,
      submitted statement............................................   199
    Keeling, John, Executive Vice President and Chief Executive
      Officer, National Potato Council, submitted letter.............   201
    Nassif, J.D., Hon. Tom, President and Chief Executive Officer,
      Western Growers Association, submitted statement...............   202
    Smith, Cindy Baker, Senior Vice President and Director of Global
      Regulatory and Product Development, AMVAC Chemical Corporation,
      submitted letter...............................................   210
    Valadez, Christopher, Director, Environmental, and Regulatory
      Affairs, California Fresh Fruit Association, submitted letter..   211
    Wenger, Paul, President, California Farm Bureau Federation,
      submitted letter...............................................   212
    Wilkins, Richard, President, American Soybean Association,
      submitted statement............................................   213
    AmericanHort, submitted statement................................   214
    American Seed Trade Association, submitted statement.............   218
    American Society for Horticultural Science, submitted statement..   220
    Biotechnology Innovation Organization, submitted statement.......   221
    National Turfgrass Federation, submitted statement...............   229
    RISE (Responsible Industry for a Sound Environment), submitted
      statement......................................................   230

              Thursday, April 28, 2016--Subcommittee on Nutrition

    Conaway, Hon. K. Michael, a Representative in Congress from
      Texas, opening statement.......................................   289
    McGovern, Hon. James P., a Representative in Congress from
      Massachusetts, opening statement...............................   289
    Walorski, Hon. Jackie, a Representative in Congress from Indiana,
      opening statement..............................................   287
        Prepared statement...........................................   288

                                   Witnesses

    Henderson, Ph.D., Jason R., Associate Dean and Assistant Vice
      President of Engagement, College of Agriculture, Purdue
      University; Director, Cooperative Extension Service, Purdue
      University, West Lafayette, IN.................................   290
        Prepared statement...........................................   292
    Leibtag, Ph.D., Ephraim, Assistant Administrator, Economic
      Research Service, U.S. Department of Agriculture, Washington,
      D.C............................................................   302
        Prepared statement...........................................   303
    Harig, Andrew, Senior Director of Sustainability, Tax, and Trade,
      Food Marketing Institute, Arlington, VA........................   307
        Prepared statement...........................................   309

        Tuesday, May 17, 2016--Subcommittee on Conservation and Forestry

    Conaway, Hon. K. Michael, a Representative in Congress from
      Texas, opening statement.......................................   371
    Lujan Grisham, Hon. Michelle, a Representative in Congress from
      New Mexico, opening statement..................................   331
    Thompson, Hon. Glenn, a Representative in Congress from
      Pennsylvania, opening statement................................   329
        Prepared statement...........................................   330

                                   Witnesses

    Ebert, Richard R., President, Pennsylvania Farm Bureau; Member,
      Board of Directors, American Farm Bureau Federation,
      Blairsville, PA................................................   333
        Prepared statement...........................................   334
    English, J.D., Katherine R., Partner, English Family Limited
      Partnership, LLC, Fort Myers, FL; on behalf of Florida Farm
      Bureau Federation; American Farm Bureau Federation.............   340
        Prepared statement...........................................   342
    O'Toole, Patrick, President, Family Farm Alliance, Savery, WY....   348
        Prepared statement...........................................   349
    Gould, Celia R., Director, Idaho State Department of Agriculture,
      Boise, ID; on behalf of National Association of State
      Departments of Agriculture.....................................   373
        Prepared statement...........................................   375
    McDaniel, Lee, President, National Association of Conservation
      Districts, Washington, D.C.....................................   380
        Prepared statement...........................................   382
    McClure, Terry W., President, McClure Farms LLC, Grover Hill, OH.   384
        Prepared statement...........................................   386
    Buman, Tom, Chief Executive Officer, Agren, Carroll, IA..........   389
        Prepared statement...........................................   391

         Tuesday, May 24, 2016--Subcommittee on Livestock and Foreign
                                  Agriculture

    Costa, Hon. Jim, a Representative in Congress from California,
      opening statement..............................................   423
    Peterson, Hon. Collin C., a Representative in Congress from
      Minnesota, opening statement...................................   425
    Rouzer, Hon. David, a Representative in Congress from North
      Carolina, opening statement....................................   421
        Prepared statement...........................................   422

                                   Witnesses

    Anderson, Ph.D., David P., Professor and Extension Economist,
      Livestock and Food Products Marketing, AgriLife Extension
      Service, Agricultural and Food Policy Center, Texas A&M
      University, College Station, TX................................   427
        Prepared statement...........................................   428
    Brown, Ph.D., Scott, Extension Assistant Professor, Department of
      Agricultural and Applied Economics, University of Missouri;
      State Agricultural Economics Extension Specialist, University
      of Missouri Extension, Columbia, MO............................   431
        Prepared statement...........................................   433
    Zimmerman, John, Member, Board of Directors, National Turkey
      Federation, Northfield, MN.....................................   437
        Prepared statement...........................................   439
    Mooney, Randy, Chairman, National Milk Producers Federation and
      Dairy Farmers of America, Rogersville, MO......................   441
        Prepared statement...........................................   443
    Herring, David, Member, Board of Directors, National Pork
      Producers Council, Newton Grove, NC............................   449
        Prepared statement...........................................   451
    Brunner, Tracy, President, National Cattlemen's Beef Association;
      Cow Camp Feedyard Inc., Ramona, KS.............................   458
        Prepared statement...........................................   459

                               Submitted Material

    Livestock Marketing Association, submitted statement.............   475

                          FOCUS ON THE FARM ECONOMY

                       (GROWING FARM FINANCIAL PRESSURE)

                                  ----------

                            THURSDAY, APRIL 14, 2016

                      House of Representatives,
             Subcommittee on General Farm Commodities and Risk
                                                    Management,
                                      Committee on Agriculture,
                                                       Washington, D.C.
        The Subcommittee met, pursuant to call, at 10:00 a.m., in
    Room 1300 of the Longworth House Office Building, Hon. Eric A.
    ``Rick'' Crawford [Chairman of the Subcommittee] presiding.
        Members present: Representatives Crawford, Neugebauer,
    Austin Scott of Georgia, Denham, LaMalfa, Allen, Bost, Conaway
    (ex officio), Walz, Bustos, Graham, Ashford, David Scott of
    Georgia, Kirkpatrick, and Peterson (ex officio).
        Staff present: Bart Fischer, Callie McAdams, Haley Graves,
    Matt Schertz, Mollie Wilken, Skylar Sowder, Stephanie Addison,
    John Konya, Anne Simmons, Liz Friedlander, Matthew MacKenzie,
    Mike Stranz, Nicole Scott, and Carly Reedholm.

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

        The Chairman. This hearing of the Committee on Agriculture
    on Focus on the Farm Economy: Growing Farm Financial Pressure,
    will come to order.
        As many of you know, this is the first hearing in a series
    focused on the farm economy. Every Subcommittee will play a
    role in highlighting current conditions on our farms and
    ranches and in rural America today. Today, the economic
    conditions in farm and ranch country are fundamentally
    different than the conditions we faced when we crafted the 2014
    Farm Bill. In just 3 years, net farm income has fallen by 56
    percent. You have to go back to the start of the Great
    Depression to find a comparable collapse in net farm income.
        During the farm bill debate, we committed to the principle
    that farm policy should not be written to make the good times
    even better. Instead, the goal was to provide producers with
    risk management tools for the bad times that are always bound
    to happen in this boom or bust industry of farming and
    ranching.
        While some safety net features of the farm bill may meet
    the current economic test, other features have yet to prove
    their mettle. Two important questions we must keep asking are:
    first, can the existing safety net meet the growing challenges
    of prolonged periods of depressed prices; and second, will
    these policies be effective when farmers and ranchers need them
    most. We know the answer already in the case of STAX for
    cotton. Crop insurance is not designed to withstand the
    pressures caused by the predatory trading practices of China
    and India. I want to thank the leadership of this Committee for
    pressing USDA for action to address the growing crisis in
    cotton country. I am hopeful Secretary Vilsack will announce
    soon that immediate and meaningful help is on the way. I am
    also hopeful that we will continue to work toward a more
    permanent solution to a serious problem for cotton farmers that
    is not going away anytime soon.
        Next year, we will head into a new Congress, and we will
    write a new farm bill. As we head into that long and difficult
    process, I hope our colleagues who are less directly involved
    in agriculture or farm policy will reflect on just how
    critically important farm policy is in responding to a crisis
    that can happen overnight. While we were able to deliver a farm
    bill in 2014 that saved taxpayers some $23 billion, primarily
    through the elimination of the direct payment program, our
    colleagues must now appreciate that we will struggle mightily
    to write an effective farm bill in 2018 with the very limited
    amount of money we have left.
        I believe it is time to look beyond the farm safety net for
    budget savings and deficit reduction, as our farmers have
    already been asked to shoulder their fair share of the burden.
    For my colleagues who will share the responsibility of writing
    a new farm bill, I hope that the lessons from the 2014 Farm
    Bill will not be lost on us: the best safety net is the kind
    that will be there not when times are good but when the bottom
    is falling out.
        [The prepared statement of Mr. Crawford follows:]

    Prepared Statement of Hon. Eric A. ``Rick'' Crawford, a Representative
                           in Congress from Arkansas
        As many of you know, this is the first hearing in a series focused
    on the farm economy. Every Subcommittee will play a role in
    highlighting current conditions on our farms and ranches and in rural
    America today.
        Today, the economic conditions in farm and ranch country are
    fundamentally different than the conditions we faced when we crafted
    the 2014 Farm Bill. In just 3 years, net farm income has fallen by 56
    percent. You would need to go back to the start of the Great Depression
    to find a comparable collapse in net farm income.
        During the farm bill debate, we committed to the principle that
    farm policy should not be written to make the good times even better.
    Instead, the goal was to provide producers with risk management tools
    for the bad times that are always bound to come around in the boom-or-
    bust business of farming and ranching. While some safety net features
    of the farm bill may meet the current economic test, other features
    have yet to prove their mettle. Two important questions we must keep
    asking are: First, can the existing safety-net meet the growing
    challenges of a prolonged period of depressed prices? And second, will
    these policies be effective when farmers and ranchers need them most?
        We know the answer already in the case of STAX for cotton. Crop
    insurance is not designed to withstand the pressures caused by the
    predatory trading practices of China and India. I want to thank the
    leadership of this Committee for pressing USDA for action to address
    the growing crisis in cotton country. I am hopeful Secretary Vilsack
    will announce soon that immediate and meaningful help is on the way. I
    am also hopeful that we will continue to work toward a more permanent
    solution to a serious problem for cotton farmers that is not going away
    anytime soon.
        Next year, we will head into a new Congress, and we will write a
    new farm bill. As we head into that long and difficult process, I hope
    our colleagues who are less directly involved in agriculture or farm
    policy will reflect on just how critically important farm policy is in
    responding to a crisis that can happen overnight.
        While we were able to deliver a farm bill in 2014 that saved
    taxpayers some $23 billion, primarily through the elimination of the
    Direct Payment program, our colleagues must now appreciate that we will
    struggle mightily to write an effective farm bill in 2018 with the very
    limited amount of money we have left. I believe it is time to look
    beyond the farm safety net for budget savings and deficit reduction, as
    our farmers have already been asked to shoulder their fair share of the
    burden.
        For my colleagues who will share the responsibility of writing a
    new farm bill, I hope that the lessons from the 2014 Farm Bill will not
    be lost on us: the best safety net is the kind that will be there not
    when times are good but when the bottom is falling out.
        With that, I recognize my Ranking Member and good friend for his
    opening statement.

        The Chairman. And with that, I would like to recognize the
    Ranking Member and my good friend for his opening statement.

    OPENING STATEMENT OF HON. TIMOTHY J. WALZ, A REPRESENTATIVE IN
                        CONGRESS FROM MINNESOTA

        Mr. Walz. Well thank you, Chairman Crawford, and thank you
    for holding this, and Chairman of the full Committee, Chairman
    Conaway, for your continued vigilance on this. Each of you,
    thank you for bringing your expertise.
        I associate myself with the remarks of Chairman Crawford.
    We know our folks are resilient, but the statistics he gave you
    are correct. Real farm incomes are at a 20+ year low. It
    doesn't look like a lot of relief is on the horizon, and the
    Chairman is right. We wrote that farm bill in a very good time
    for the bad times. I am proud of what we did, but all of us
    know, we are writing the next one and several months ago, we
    weathered a move to open up the farm bill and change crop
    insurance. And I want to thank the Chairman for his absolute
    stalwart defense of that to make sure that did not happen,
    because at this time, more than anything, risk management is
    critical.
        So I am going to yield back my time. I look forward to
    listening to you and give us an on-the-ground assessment of
    what you think is happening now and what is coming.
        And I yield back.
        The Chairman. I thank the Ranking Member, and appreciate
    your leadership and friendship.
        I would also like to recognize the full Committee Chairman
    for any statement he would like to make at this time.

    OPENING STATEMENT OF HON. K. MICHAEL CONAWAY, A REPRESENTATIVE
                         IN CONGRESS FROM TEXAS

        Mr. Conaway. I would like to briefly thank our witnesses
    for being here today. I am looking forward to your testimony to
    get on the record a better reflection of how things really are
    in rural America and for agriculture. We had a good hearing
    yesterday on the impact the oil and gas industry has on rural
    America and the struggles that are going on there, so I am
    anxious to hear from our witnesses and I appreciate the
    comments of the Ranking Member. I yield back.
        The Chairman. Thank you, Mr. Chairman, and the chair would
    request that other Members submit their opening statements for
    the record so the witnesses may begin their testimony, and to
    ensure that there is ample time for questions.
        I would like to welcome our witnesses to the table. We have
    four today. Mr. Zippy Duvall, President of American Farm Bureau
    Federation in Washington, D.C.; Mr. Roger Johnson, President of
    the National Farmers Union here in Washington, D.C.; Dr. Rob
    Johansson, Chief Economist, U.S. Department of Agriculture here
    in Washington, thanks for being here; and finally, Dr. Joe
    Outlaw, Professor and Extension Economist, and Co-Director,
    Agricultural and Food Policy Center, Department of Ag
    Economics, Texas A&M University in College Station, Texas.
        Thank you to each of you for being here, and you all are
    pretty familiar with the process. I am going to recognize each
    of you for 5 minutes, and you will notice that series of lights
    in front of you. Green means good to go. Yellow, it is just
    like when you are driving, step on the gas because the light is
    fixing to change. And when you see that red light, we will ask
    you to slam on the brakes so we can get to the questions as
    quickly as possible and hear more expanded testimony from you
    through the questioning process.
        With that, I would like to recognize our first witness, Mr.
    Zippy Duvall. You are recognized for 5 minutes.

    STATEMENT OF VINCENT ``ZIPPY'' DUVALL, PRESIDENT, AMERICAN FARM
                  BUREAU FEDERATION, WASHINGTON, D.C.

        Mr. Duvall. Good morning, Chairman Crawford and Ranking
    Member Walz. I appreciate you and the Members of the
    Subcommittee giving us the opportunity to be here today.
        Thank you for the opportunity to tell American Farm
    Bureau's story about the state of the economy in farm country.
    My name is Zippy Duvall, and I am a poultry, hay, beef producer
    in Georgia and spent 30 years dairying there. It is my
    privilege to be the President of the American Farm Bureau, the
    nation's largest general farm organization.
        Talking to our economists at AFBF, we do not see a crisis
    today, but we do see one on the horizon. Here are some of the
    latest USDA projections that lead us to say that. USDA projects
    that net cash farm income will fall by 33 percent in 2016,
    compared to 2013, and net farm income has fallen more than 55
    percent over the same period of time. These declines are
    starting to have an impact on the farmer debt-to-asset ratio,
    and a farmer's operating debt has grown from $124 billion in
    2012 to more than $165 billion today. Meanwhile, farmers are
    drawing down on their financial assets, such as cash and
    equity.
        So let me tell you some stories in my own community. Within
    a 10 mile radius of my house, there are two middle aged
    farmers. One left the banking industry and went back home to
    fulfill his love and life and to farm, and he farmed for 10 or
    12 years. In the last 2 years, he went in the hole $100,000 a
    year, and he has sold all his equipment and his cows, said he
    will not put his family's farm real estate at risk, and he is
    calling it quits and looking for a job. He called me looking
    for a job.
        Another one, just a few miles from him, he came home from
    college, and joined his dad in the dairy business, trying to
    make that generational transition, and at the end of that
    transition, he realized there is not going to be enough money
    there for him to maintain his family, his dad is going to sell
    that dairy and he is going to move on to other jobs. Those are
    just two examples of what is happening all over our country,
    and once we start hearing these examples daily, we know that it
    is going to be too late to stop it. It will be upon us.
        So let's talk about what we can do. We can continue to
    financially support the risk management tools in the farm bill,
    and thanks to these programs, we as the agriculture sector
    overall, will hold on. If I do not deliver any other message
    today, I want to deliver one, and that is the Farm Bureau
    members and the Farm Bureau appreciate your continued efforts
    to protect these important farm programs, especially now when
    they are so badly needed.
        So let's talk about other costs and constraints that our
    farmers have facing them today. The Waters of the U.S. rule, if
    it goes into effect, will have a huge impact. So we can stop
    now and think about what our farmers are facing, stop some of
    the overreach of Federal Government through continued
    regulation, and let's just talk about some of them.
        WOTUS, the increased restriction on Federal grazing land
    permits, Food Safety Modernization Act and its implementation,
    the expansion of the spill prevention and control requirements,
    the 6th Circuit decision on pesticide permits, the EPA's
    failure in fully implementing the Renewable Fuel Standard, the
    Interior Department proposing to rewrite the Federal plans to
    protect the sage-grouse, and now, the possibility of a state-
    by-state GMO labeling mandate that will threaten our farmers'
    ability to use this important agricultural technology.
        Almost everywhere we look, there are new and expanding
    regulations that are adding cost, more cost to our production.
    The last thing our farmers and ranchers need today is to have
    to face more regulatory burdens.
        Finally, we can help the farm economy by passing TPP. The
    Trans-Pacific Partnership is a great example of action that
    Congress could take to raise farm income without the need of
    boosting government spending. This agreement, when fully
    implemented, will have the potential of raising farm income
    $4.4 billion.
        Mr. Chairman and Members of this Committee, I thank you for
    holding this important hearing. We thank you for standing up
    for the farmers that grow the crops and livestock that put the
    food on our table, that put the clothes on our back, and that
    makes our country more energy independent. And we look forward
    to working with you to find ways to help our farmers through
    this difficult time. Thank you.
        [The prepared statement of Mr. Duvall follows:]

      Prepared Statement of Vincent ``Zippy'' Duvall, President, American
                    Farm Bureau Federation, Washington, D.C.
        Chairman Crawford, Ranking Member Walz, and Members of the
    Subcommittee on General Farm Commodities and Risk Management, thank you
    for the opportunity to share the views of the American Farm Bureau
    Federation (AFBF) on the current state of the agricultural economy.
        I am Zippy Duvall, a beef cattle and hay producer from Georgia, and
    I am privileged to serve as President of AFBF, the nation's largest
    farm organization with nearly 5.9 million member families, and work on
    behalf of our members in every state in the nation and Puerto Rico. Our
    farmer and rancher members grow virtually every crop produced and all
    sectors of the livestock, dairy and poultry industry on farms and
    ranches of every size, using the full range of production systems from
    organic methods to the latest in high-tech and biotechnology tools. And
    we proudly include as members many of the men and women who are our
    neighbors across rural America.
        Let me start with our view of the big picture, Mr. Chairman: We all
    are well aware of the downturn in commodity prices: row crop prices for
    almost everything--corn, peanuts, soybeans, wheat--are down sharply
    from where we were just a couple years ago. Livestock prices also have
    tumbled.
        Just as you all are doing by holding this hearing, farmers and
    ranchers are asking how the outlook for the agricultural economy got
    here after so many years of good prices and higher than normal farm
    income figures.
        In 2003 our nation consumed or exported just over 10 billion
    bushels of corn and about 2.5 billion bushels of soybeans. By the 2009
    marketing year corn use was over 13 billion bushels, and demand for
    soybeans exceeded 3.5 billion bushels--and soybean demand has continued
    to grow and is now over 3.7 billion bushels. The strong growth in
    exports to China and the effects of the Renewable Fuel Standard have
    contributed to this demand growth. The drought in 2012 also cut
    supplies and helped boost some commodity prices to new records.
        You have been well aware of the challenges being faced by the
    cotton sector at every level of that industry. Cotton farmers have seen
    prices tumble from near 80 a pound just a few years back to dipping
    into the 50 range as world supplies of cotton stocks pressure the
    market. Industry analysts indicate there is in excess of 100 million
    bales of cotton lint on hand worldwide, with China alone holding more
    than 60 million bales. The carryover stocks along with strong
    competition from manmade fibers have pushed market returns for cotton
    farmers down an estimated 23 percent in the last 2 years.
        As a former dairy producer, I would also note the picture for dairy
    farmers is just as concerning. Just a couple of years ago, all-milk
    prices were in the range of $20 or more per hundredweight. Recently, we
    have seen all-milk prices decline by more than $5 per hundredweight,
    with projections for this year staying in the $15 to $16 range.
        Other livestock sectors have also been through some challenging
    times. The high feed costs in 2012 forced adjustments. The drought of
    just a couple of years ago, particularly in Texas and Oklahoma and
    still lingering in California, cut the beef herd and stopped dairy
    production growth cold in some parts of the country. To be sure, this
    led to livestock prices that were setting or getting close to record
    levels--and as the old market maxim states, the cure for high prices is
    high prices.
        Farmers and ranchers boosted production in response, bringing more
    land into production and expanding herds and flocks. As we all have
    witnessed, the outcry of just a few years ago regarding rising food
    costs is now pretty much just a memory.
        As our economists have warned over the years, once demand stops
    growing and the inherent delay in those signals reaching farmers and
    ranchers is realized, agriculture experiences a period of effectively
    producing the profit out of the system.
        That is about where we find ourselves today.
        Several reports from United States Department of Agriculture's
    Economic Research Service and the Congressional Research Service have
    done excellent work in laying out the recent past and current condition
    of the farm economy. A capstone statement from USDA's latest
    projections of Farm Income lays this out pretty clearly:

       In 2013 net cash farm income was $135 billion; for 2016,
            USDA's projection is $91 billion.

       Net farm income, which includes other factors like
            depreciation, inventory change and other non-cash costs, moved
            from $123 billion to $55 billion over the same period.

       Longer-term projections by USDA leave net cash income
            averaging less than $80 billion for the coming decade and net
            farm income at less than $70 billion.

        It is this long-term expectation of much lower farm income that is
    most concerning. For many of our major commodities, there is little
    domestic demand growth on the horizon. Add to this a strong dollar
    amplified by weaker economic growth in many countries and the
    production expansion by our major competitors, and one also has to be
    concerned over limited hopes for significant export demand growth.
        The bottom line is that farmers and ranchers are being forced to
    tighten their belts and pay much closer attention to their financial
    situation, and they will be in greater need of safety net and risk
    management programs than has been the case for some time--for some,
    since they started farming.
        One other signal, though still in the early stages, is that farmers
    and ranchers are only now beginning to take on additional debt. When
    one examines the financial ratios, such as debt to equity or debt to
    asset, they are at some of the lowest levels ever--but those levels,
    along with debt overall, are starting to climb.
        Of particular concern is the rise in operating debt since 2012.
    Over those last few years, this category has risen from $124 billion to
    over $165 billion, a 33 percent increase. At the same time, as farmers
    and ranchers are adding debt, they have also been drawing down
    financial assets, such as cash or equity. Looking again at 2012--which
    was admittedly a record year--farmers held nearly $134 billion in
    financial assets. For 2016, USDA estimates that figure will drop to
    less than $80 billion. Boosting debt by \1/3\ at the same time as one
    is chewing through \1/3\ of one's savings is not a long-term survival
    strategy, and puts substantial pressure on both the short and
    intermediate terms for farmers and ranchers in managing their
    operations.
        It is this very situation--this economic reality, if you will--that
    makes the safety net programs provided by the farm bill so important.
    Younger and newer farmers and livestock producers are about to go
    through a steep learning curve on the difference between ``variable''
    and ``total'' costs of production.
        Dr. Gary Schnitkey at the University of Illinois regularly
    publishes cost of production estimates for corn and soybean producers
    in his state. His estimate for the 2016 per bushel cash or variable
    cost--seed, fertilizer, pesticides, fuel, crop insurance, etc.--on a
    highly productive farm in Illinois comes in at $2.40 per bushel for
    corn and $4.79 per bushel for soybeans. USDA is projecting $3.60 per
    bushel for a 2016 corn price and $8.75 per bushel for soybeans.
        But before anyone jumps to the conclusion that this farm is
    operating in the black, recognize that out of the difference in this
    particular projection, a farmer has to pay for equipment, land costs
    and other farm expenses, as well as provide income for his or her
    family to live on. According to Dr. Schnitkey's analysis, cash rents
    ran approximately $236 per acre, effectively leaving nothing to cover
    equipment replacement or for family living for those renting land. For
    those farmers who own their land and have no debt on equipment, they
    will have some return, albeit a small amount. I have included at the
    end of the testimony some graphics showing the returns over variable
    and total costs for several commodities. Should these prices and land
    rents hold, financial stress on those renting land will build. And when
    you add potential interest rate increases, the problem just gets worse.
        The Kansas City Federal Reserve produces its Agricultural Finance
    Databook every quarter. In its latest report, its analysts indicate
    that for the third quarter of 2015 the share of non-performing
    production loans at commercial banks was near historic lows, as is the
    case for the share of total loans that are non-performing at
    agricultural banks. From their perspective, individual farmers and
    ranchers have their own individual financial circumstances they are
    dealing with, but for now the sector, overall, is holding on. But
    warning signs abound, from the crash in farm income to the draw-down in
    financial assets and the buildup of operational debt.
        This again highlights the importance of the safety net and risk
    management tools this Committee has provided for agricultural
    producers. The last thing the sector would need at this point is some
    substantial reduction in the level of Federal commitment, and on behalf
    of Farm Bureau members across the nation, we appreciate your continued
    efforts to protect these important programs.
        There have been and will likely continue to be efforts to cut the
    level of government support provided through the crop insurance
    program. Farm Bureau will strongly oppose attempts to renege on the
    deal we all worked on as the farm bill was developed. Opponents of crop
    insurance need to realize that the program adjusts directly to changes
    in market signals, that the program directly reflects market prices on
    an annual basis.
        Let me touch on one other important feature of crop insurance,
    particularly for the major program crops. It allows farmers to better
    market their crops, knowing that funding to replace any crops
    contracted for early delivery will be there should they be hit by a
    drought. These are precisely the kind of marketing strategies suggested
    to farmers in low price periods. Price the crop before it is planted in
    order to have costs covered. Farmers can do that with insurance as a
    backup to that marketing approach.
        One sector of the agricultural economy that is doing somewhat
    better from a market standpoint are our fruit and tree nut producers.
    While the list of products there is longer than I have time to cover
    here, prices for many citrus products are higher today than last year.
    Unfortunately this is driven in part by production loses coming from
    the citrus greening issues in Florida. If ever there was a need for
    research and technology, it is certainly there. As another example of
    higher fruit prices, apple prices are up in part due to lower supplies
    driven by poor growing conditions last season in Washington State.
        It is not just market realities and farm program issues that our
    farmers and ranchers are facing today that are impacting their
    respective bottom lines.
        Regulatory costs in agriculture are almost too numerous to
    quantify:

       If the new Waters of the U.S. rule goes into full effect, it
            is bound to put additional costs and uncertainties on farming
            operations.

       The new Food Safety Modernization Act implementation has
            implications for farm operations, particularly in the specialty
            crop sector.

       The expansion of Spill Prevention and Control requirements
            will add costs and clearly provide no new revenue to the bottom
            line (and is unlikely to result in any environmental benefit).

       Stalled legislative efforts to overturn the 6th Circuit
            decision on pesticide permits may leave farmers vulnerable to
            unjustified citizen lawsuits as they deal with disease and pest
            outbreaks on their land.

       EPA's failure to fully implement the Renewable Fuel Standard
            has sent a disturbing signal to the agriculture sector.

        The Department of the Interior's proposal to rewrite Federal plans
    to protect the sage grouse will undoubtedly have implications for
    ranchers in western states. EPA's increasing resistance to registering
    new farm protection tools while also threatening the ones we already
    have, like chlorpyrifos, are very concerning. And we cannot overlook
    the impact of state-by-state GMO labeling mandates that threaten
    farmers' ability to use this important technology to not only boost
    production, but also for the environmental and economic benefits it
    provides. Everywhere we look, costs of complying with ever-expanding
    regulations continue to build. And the last thing farmers and ranchers
    need right now are more unfunded government mandates.
        Tax policy can also play a major role in determining a farm or
    ranch's financial health. Converting the annual ``extenders'' into
    several permanent provisions has certainly been helpful in allowing
    farmers to plan, particularly in terms of equipment purchases or in
    estate planning with the adjustments in the ``death tax.'' But there
    are other provisions that would have been very helpful had they already
    been on the books.
        Finally, demand growth will be critical to helping the sector get
    out of this revenue downturn. The Trans-Pacific Partnership is a great
    example of action Congress could take that would help raise farm income
    without the need to boost government spending. This agreement, when
    fully implemented, will boost animal protein exports to Japan and other
    Asian countries, and has the potential to raise net farm income by $4.4
    billion on an annual basis. Passage of that agreement is one of the
    American Farm Bureau Federation's highest priorities.
        Mr. Chairman, I again thank you and your members for holding this
    important hearing to examine the state of the agricultural economy. I
    also thank you and your colleagues on the full Committee for standing
    up for the men and women who produce the crops and the livestock that
    provide food for our tables, make up the clothes we wear and contribute
    to our energy independence.
        We appreciate your leadership and look forward to working with you
    as you seek ways to ensure America's farmers and ranchers are sustained
    through the economic challenges we face today.
                                    [Charts]
    Return Over Variable Costs

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Return Over Total Costs

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        The Chairman. Thank you, Mr. Duvall, and I have been remiss
    in not congratulating you on your recent election as President
    of American Farm Bureau. We appreciate you being here.
        Mr. Duvall. Thank you, sir. It is my privilege and honor.
        The Chairman. And now, Mr. Johnson, you are recognized for
    5 minutes.

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

        Mr. Johnson. Thank you, Chairman Crawford, Ranking Member
    Walz, and Members of the Subcommittee for holding this
    important hearing. My name is Roger Johnson, President of the
    200,000 member National Farmers Union.
        There is growing pressure in the countryside as commodity
    prices continue to fall to levels \1/2\ of what they were just
    3 years ago. USDA now forecasts a prolonged period of depressed
    prices, with serious implications for producers accessing
    credit, negative farm budgets, depressed markets, tests to the
    safety net, and increased demand for mediation services
    regarding credit. While still early in the downturn, FSA's loan
    volume demand is up 21 percent over the past year. Requests for
    restructuring services packets are already up 30 percent.
    Mediation activity is up 75 percent, and they anticipate a 23
    percent increase in actual restructuring this year.
        Private creditors are also moving short-term debt to
    medium- and longer-terms. If commodity prices stay stubbornly
    low, next year the number of troubled portfolios for Farm
    Credit Services in my part of North Dakota could increase from
    ten to somewhere between 60 and 100 members in its lending
    area. My local lenders stress the importance of a strong safety
    net. ARC and PLC programs will be higher in the fall. Crop
    insurance does not help shield from low prices, given these low
    prices right now. Nonetheless, my local lender says without
    crop insurance, I would not have ten troubled accounts. I would
    have between 300 and 2,200 troubled accounts. That lender
    services 2,600 members in the center of North Dakota, 99
    percent of whom carry crop insurance.
        Projected 2016 crop budgets from north central North
    Dakota, the same area, paint a very grim picture. Corn alone
    per acre profitability is projected to be a negative $2.61 per
    acre; spring wheat, a negative $14 an acre; canola, a negative
    $30 an acre. Only soybeans show a profit of about $19 an acre.
    Since grain prices peaked in 2012, the prices for wheat and
    soybeans have declined 40 percent. The price of corn has been
    cut in half. At the same time, costs have declined very little
    and are clearly out of line with projected market returns.
    Actual farm management numbers put a finer point on this. In
    2012, net farm income as an average across the state was
    $367,000. A year later in 2013, it was $133,000, in 2014,
    $76,000, last year, $28,000. We expect widespread losses this
    year.
        Title I safety net programs are designed to assist with
    falling commodity prices. Nationwide, signup for ARC County and
    PLC were very high. Without these programs, producers would be
    in a much more difficult spot.
        ARC is relatively complicated and has issues surrounding
    county yield data. We have seen cases in North Dakota, Texas,
    Colorado, Kansas, and South Dakota where the benchmark yields
    and current year yields are from differing sources and not
    providing representative revenue calculations. We are
    requesting administrative policy revisions and urge this
    Committee also to work with us and USDA to resolve some of
    these issues. In the next farm bill, your Committee should
    consider increasing PLC reference prices and look at ways of
    shoring up crop insurance for low price periods.
        This Committee also made significant and important
    investments for livestock producers under the Livestock
    Indemnity Program, which seems to be working quite well. The
    Dairy Margin Protection Program, however, is not working so
    well. It needs better levels of protection and an incentives-
    based inventory management program. We would like to see the
    Committee hold regional hearings to discuss dairy pricing and
    regional feed costs. We are also concerned about STAX and its
    lack of responsiveness to cotton producers. We hope Congress
    can work with USDA to expand its authority to assist producers,
    as well as USDA working within its existing authority to
    provide relief.
        While things are challenging in the countryside, there are
    also some bright spots. Organic and local food sectors continue
    to grow, and seem, for the most part, to be less subject to
    falling prices. With the help of this Committee, there are now
    21,000, almost 22,000 certified organic producers in the U.S.
    They have increased by 12 percent last year, a 300 percent
    growth since 2002, and those investments have witnessed
    impressive returns.
        Overall, the ag sector looks to be under increasing stress
    in the coming years. Thank you for the opportunity to testify.
        [The prepared statement of Mr. Johnson follows:]

    Prepared Statement of Roger Johnson, President, National Farmers Union,
                                Washington, D.C.
        Chairman Crawford, Ranking Member Walz, Members of the
    Subcommittee,

        Thank you for the invitation to testify today and the work this
    Committee is doing to understand the challenges that face agriculture.
    My name is Roger Johnson and I serve as President of the National
    Farmers Union (NFU). NFU represents roughly 200,000 family farmers,
    ranchers, fishermen and rural members. NFU works to improve the well-
    being and quality of life of family farmers, ranchers and rural
    communities by advocating for grassroots-driven policy adopted annually
    by our membership.
        As the title of this hearing indicates there is growing pressure in
    the countryside as commodity prices continue to decline and farmers and
    ranchers struggle to adjust to lower prices. While still in the first
    few years of this downturn, forecasts by the USDA point to a prolonged
    period of depressed prices. Such a scenario has implications for
    producers accessing credit, negative farm budgets, depressed markets,
    tests to the safety net and increased demand for mediation services. In
    my testimony I will discuss all of these issues and also note some of
    the positive trends we see in agriculture.
    Credit
        We are beginning to witness an increase in challenges nationwide
    associated with accessing credit. While still early in the downturn,
    Farm Service Agency's (FSA) Farm Loan Program has seen an uptick in
    activity. Given the makeup of borrowers that utilize FSA's programs, we
    would expect to see challenges in their loan portfolio before problems
    hit other portions of the lending sector. At this time, the FSA's loan
    demand is up 21 percent over the same time last year with $3.4 billion
    of the $6.47 billion in lending authority for Fiscal Year (FY) 2016
    being utilized.
        There are a number of other activities associated with FSA loan
    servicing that can provide helpful insight. USDA's credit teams have
    numerous options to help their borrowers including servicing packets
    for restructuring debt, actual restructuring of loans, loan deferrals,
    debt write-down, debt reduction via conservation contract, state-
    sponsored mediations and as an absolute last resort, foreclosure. USDA
    reports that requests for servicing packets are up 30 percent over
    2015; and mediation activity was up 75 percent in FY15. Assuming
    servicing activity continues at a similar rate, FSA anticipates a 23
    percent increase for 2016. Last, FSA, at this time is not aware of any
    increases in foreclosure at this time.
        Moving to private-sector lending, Farm Credit Services of North
    Dakota, which services northwest and north-central North Dakota, based
    out of Minot, is also dealing with some credit challenges in my part of
    the state. It has been a challenging renewal season for them with low
    commodity prices. There was a fair amount of rebalancing to be done in
    order to move operating and equipment costs from short-term to medium-
    and long-term debt. While these actions are useful in the short-term,
    they can lead to larger problems if even lower prices persist. There
    are a handful of producers in this lending area who have already used
    excess capital from prosperous years and now find themselves with very
    little liquidity.
        The good news is that most of the folks who were struggling to find
    enough operating capital have been assisted for this year. There were
    ten customers who really needed to restructure debt, with some using
    FSA loans to bridge till next year. If commodity prices stay stubbornly
    low next year the number of troubled portfolios could increase
    somewhere between 60 and 100 members in the lending area.
    Unfortunately, prices are not the sole driver of profitability. While
    there are currently no worries of drought, eastern North Dakota is very
    dry right now; and weather, as you know, can quickly impact yield.
    Local lenders are concerned that with high yields being necessary to
    protect from low prices, weather-induced yield losses will exacerbate
    an already difficult situation.
        One thing that my local lenders wanted to drive home to members of
    this Committee is the importance of a strong safety net, which I will
    discuss at length below. It is expected that Agriculture Risk Coverage
    (ARC) and Price Loss Coverage (PLC) payments will be higher in the fall
    for my area. Crop insurance, while not a break-even venture, does help
    shield from down prices. My local lender said ``without crop insurance,
    I would not have ten troubled accounts, I would have between 300 and
    2,200 troubled accounts.'' Farm Credit Services of North Dakota
    services 2,600 members, 99 percent of who carry crop insurance,
    underscoring the necessity for a strong safety net. It is also
    important to understand that today's crop insurance products provide
    even lower guarantees as prices decline.
    Farm Budgets
        North Dakota State University (NDSU) Extension Service produces
    annual projected crop budgets in an effort to assist producers with
    estimates of revenue and costs for selected crops. The projected 2016
    crop budgets for North Central North Dakota paint a pretty grim
    picture. While these are averages and make a variety of assumptions, it
    nonetheless provides a window into the challenges that my neighbors
    face. By regionalizing the estimates we arrive at a more accurate
    estimate of profitability.\1\
    ---------------------------------------------------------------------------
        \1\ Swenson, A., & Ron, H. Farm Management Planning Guide Projected
    2016 Crop Budgets North Central North Dakota. North Dakota State
    University. Retrieved April 12, 2016, from https://www.ag.ndsu.edu/
    publications/landing-pages/farm-economics-management/2016-north-
    central-nd-ec-1654.
    ---------------------------------------------------------------------------
        I will use corn, spring wheat, soybeans and canola as examples.
    NDSU adds projected direct costs with indirect costs and compares them
    to projected market incomes. The resulting per acre profitability is
    shown below:

    ----------------------------------------------------------------------------------------------------------------
                                                                 Market  Income     Sum of Listed     Profitability
                      Crop                     Projected Price     (Per Acre)      Cost (Per Acre)     (Per Acre)
    ----------------------------------------------------------------------------------------------------------------
    Spring Wheat                                         $5.26           $231.44           $245.51           ^$14.07
    Corn                                                 $3.50           $360.50           $363.11            ^$2.61
    Soy                                                  $3.50           $243.35           $224.41            $18.94
    Canola                                               $.148           $248.64           $279.17           ^$30.53
    ----------------------------------------------------------------------------------------------------------------

        What is even more alarming is that while the crop budget projects
    $3.50 a bushel corn, the same price at closing on April 7, 2016 in
    Chicago, local cash prices in Minot for delivery to CHS was $2.62. So
    while the crop budget shows a loss of $2.61 an acre, losses will likely
    be much worse.
    Prices of Commodities
        As this Committee knows, prices of major commodities have fallen
    dramatically over the last several years and are continuing to decline.
    March National Agricultural Statistics Service's (NASS) Prospective
    Plantings and Grain Stocks reports, project corn planted acreage up six
    percent, soybean acres down less than one percent, wheat acres down 9
    percent and cotton acreage up 11 percent from 2015.\2\ At the same time
    corn stocks are up one percent, soybean stocks are up 15 percent, and
    all wheat stocks are up 20 percent from 2015.\3\ The cumulative effect
    of these projections has been negative to prices. When the reports were
    released 2 weeks ago, May-delivered corn fell 13 to $3.54 a bushel on
    the Chicago Board of Trade, May soybeans dropped 4 to $9.05 and May
    wheat was down 1.25 to $4.6275.\4\ Locally, in western Minnesota corn
    prices dropped 0.20 a bushel at local delivery points.
    ---------------------------------------------------------------------------
        \2\ Prospective Plantings. (2016). Washington, D.C.: U.S. Dept. of
    Agriculture, Economic National Agriculture Statistics Service.
        \3\ Grain Stocks. (2016). Washington, D.C.: U.S. Dept. of
    Agriculture, Economic National Agriculture Statistics Service.
        \4\ Gregory, M. (2016, March 31). U.S. Farmers to Plant Most Acres
    of Corn Since 2013. Retrieved April 12, 2016, from http://www.ft.com/
    fastft/2016/03/31/us-farmers-to-plant-most-acres-of-corn-since-13/.
    ---------------------------------------------------------------------------
        From a longer-term perspective, since grain prices peaked in 2012,
    the price for wheat and soybeans has declined by 40 percent and the
    price of corn has been cut in half.\5\ At the same time, costs have
    declined very little. Farmers are struggling to balance input costs and
    declining prices. Variable costs or annual input costs, which include
    seed, fertilizer, pesticides, fuel, repairs, crop insurance, drying and
    operating interest, continue to stay high. Farmers are struggling to
    control these costs, which are clearly out of line with projected
    market returns.
    ---------------------------------------------------------------------------
        \5\ Aakre, D. Think Twice Before Cutting Input Costs. North Dakota
    State University Agriculture Communication. Retrieved April 12, 2016.
    ---------------------------------------------------------------------------
        Lower spending will not only impact the overall farm economy, but
    when done incorrectly, it could have further negative impacts on farm
    profitability. Negative net farm income will add additional stress to
    family farms.
        Discussions with local seed dealers and coops have substantiated
    concerns over significant shifts in planting. My staff, while out in
    the same geographic area mentioned above, report substantial concern
    over significant shifts from biotech seeds to conventional seeds. Some
    co-ops expressed concern over an inability to meet demand for
    additional fertilizer and chemical treatments needed in order to match
    the yields of biotech traits, while using conventional seeds. In a
    number of locations, coop management is aggressively ordering
    additional chemicals, anticipating much higher mid-season demand.
        The following numbers are courtesy of NDSU's Farm Business
    Management Education program. Net farm income for all participating
    operations (numbering 537-518) at its high in 2012 was $367,317; in
    2013 it was $133,466; in 2014 it was $76,404; and in 2015 it was
    $28,399. Given the negative trends we have witnessed in 2016, and
    projected crop budgets highlighted above, this Committee should expect
    widespread losses this year.
    Livestock
        The USDA projects 2016 market prices for choice steers, feeder
    steers, cutter cows, and poultry to continue a downward trend from 2014
    and 2015 annual prices.\6\ USDA has reported livestock producers as
    showing an average loss when comparing total costs of production and
    total gross value of production in 2013 and 2014 for Cows and
    calves.\7\ Research from the University of Tennessee supports this
    continued downward trend, estimating the total production cost of one
    cow in Tennessee at $1,029.19 and the total revenue for that cow at
    $821.54, that's a loss of $207.65.\8\ A Kansas State University report
    validates the trend as well showing livestock producers at a loss when
    comparing gross returns per cow and total costs per cow.\9\
    ---------------------------------------------------------------------------
        \6\ Livestock, Dairy, & Poultry Outlook. (2016). Washington, D.C.:
    U.S. Dept. of Agriculture, Economic Research Service.
        \7\ Commodity Costs and Returns: Cow-Calf: 2013-14. (2015).
    Washington, D.C.: U.S. Dept. of Agriculture, Economic Research Service.
        \8\ Griffith, A.P., & Bowling, B. (2016, January). 2016 Cow-Calf
    Budget (Rep. No. AE 16-01). Retrieved April 04, 2016, from University
    of Tennessee website: http://economics.ag.utk.edu/budgets/2016/Beef/
    CowCalf2016.pdf.
        \9\ Tonsor, G.T., & Reid, R. (2016, March). KSU Beef Cow-Calf
    Budget. Retrieved April 04, 2016, from Kansas State University website:
    http://agmanager.info/livestock/budgets/projected/default.asp.
    ---------------------------------------------------------------------------
        Despite the challenges within the livestock sector, this Committee
    made significant and much needed investments for livestock producers in
    the 2014 Farm Bill. Since its enactment, 14,840 payments have been made
    through the Livestock Indemnity Program, providing a total of
    $114,934,832 in benefits to livestock producers for livestock deaths
    due to adverse weather or animals reintroduced into the wild by the
    Federal Government.\10\ This program, with its ability to make
    retroactive payments, provided much needed relief for producers,
    especially ones that had been impacted by winter storm Atlas. As an
    increase in the occurrence of extreme weather events is predicted for
    2016, these numbers will most likely continue to rise.\11\
    ---------------------------------------------------------------------------
        \10\ Livestock Indemnity Disaster Program (LIP) Payments as of
    January 28, 2016. (2016). Washington, D.C.: U.S. Dept. of Agriculture,
    Farm Service Agency.
        \11\ National Climate Assessment. (n.d.). Retrieved April 12, 2016,
    from http://nca2014.globalchange.gov/highlights/report-findings/future-
    climate.
    ---------------------------------------------------------------------------
    Mediation
        USDA's Certified Agricultural Mediation Program (CAMP) helps
    farmers and ranchers, their lenders, and other persons directly
    affected by the actions of the USDA to resolve disputes. Through
    mediation, a trained, impartial mediator helps participants review
    conflicts, identify options, and agree on solutions. Mediation is a
    valuable tool for settling disputes in many different USDA program
    areas, but for our purposes it is particularly helpful in financial and
    farm loan areas.
        The genesis of USDA's CAMP was the farm financial crisis of the
    1980s. The program was designed to assist financially strapped farm
    families and their lenders explore and implement options to resolve
    serious debt problems and avoid bankruptcy through neutral third-party
    intervention. This third-party intervention helps producers complete
    loan servicing applications with accurate information and provides a
    neutral, confidential and facilitated setting for producers and their
    lenders to frankly discuss and consider all options available to both.
    I was personally involved in North Dakota's Certified Agricultural
    Mediation Program from its beginnings until my election as President of
    National Farmers Union. I served as a farm credit counselor, negotiator
    and mediator during the 1980s, administering the North Dakota
    Agriculture Mediation Program in the late eighties and into the
    nineties. Subsequently I served as North Dakota Agriculture
    Commissioner, overseeing the North Dakota Agriculture Mediation program
    from 1997 to 2009. We provided mediation services to thousands of farm
    families that averted many bankruptcies and foreclosures. Even in those
    cases where farm liquidation could not be avoided, mediation was
    invaluable in the assurance that farm families and their lenders had
    both been heard and treated as fairly as possible.
        Over the years, the program's success and value led to an expansion
    of USDA agencies and issues that are eligible for assistance through
    the USDA's CAMP. NFU is fully supportive of the USDA's CAMP and has
    urged the Secretary of Agriculture and Congress to not only be prepared
    for an uptick in financial distress requests, but also provide the
    necessary funding for the program to be as effective as possible.
    A Working Safety Net
        Overall Title I programs are functioning as designed and assisting
    producers with falling commodity prices. USDA deserves serious praise
    when it comes to the rollout and education behind these relatively
    complicated new farm bill programs. But that does not mean that there
    is an absence of flaws both in design and execution of these programs.
        Nationwide, 96 percent of soybean farms, 91 percent of corn farms,
    and 66 percent of wheat farms elected the Agricultural Risk Coverage
    County program (ARC-CO). Seventy-six percent of all base acres enrolled
    in ARC-CO. Over 90 percent of long grain rice, medium grain rice, and
    peanut farms elected the Price Loss Coverage program (PLC).\12\ Totals
    for the 2014 crop year for both the ARC and PLC programs were roughly
    $5.18 billion. Of that total, $772 million went to PLC participants and
    $4.41 billion went to ARC participants.\13\ Without these programs,
    producers would be in a much more difficult spot than they are right
    now. Especially when considering 2016 projections for net cash and net
    farm income, which is set to decline for the third consecutive year
    after reaching recent highs in 2013 for net farm income and 2012 for
    net cash income. Net cash farm income is expected to fall by 2.5
    percent in 2016, while net farm income is forecast to decline by three
    percent. While those numbers do not appear alarming, when stacked on
    declines of 27 and 38 percent reductions in net cash income and net
    farm income that occurred in 2015 the picture worsens.\14\
    ---------------------------------------------------------------------------
        \12\ ARC/PLC Program. (2016). Washington, D.C.: U.S. Dept. of
    Agriculture, Farm Service Agency.
        \13\ ARC-CO/PLC Payments as of Feb 22, 2016. (2016). Washington,
    D.C.: U.S. Dept. of Agriculture, Farm Service Agency.
        \14\ 2016 Farm Sector Income Forecast. (2016). Washington, D.C.:
    U.S. Dept. of Agriculture, Economic Research Service.
    ---------------------------------------------------------------------------
        The assistance that Title I programs are providing is also
    complemented by the role of crop insurance. Nothing makes up for strong
    prices, especially not crop insurance. It is not a breakeven program
    and, on average, farmers must incur losses of almost 30 percent before
    their insurance coverage starts to provide assistance. Farmers also
    spend approximately $4 billion per year out of pocket to purchase
    insurance from the private-sector.\15\ All that being said, crop
    insurance, year over year, has provided a meaningful, timely and
    flexible program that fits individual producer demands.
    ---------------------------------------------------------------------------
        \15\ Crop Insurance Coalition--Protect Crop Insurance. (2016, March
    16). Retrieved April 12, 2016, from http://archive.constantcontact.com/
    fs158/1103508273436/archive/11241266725
    78.html.
    ---------------------------------------------------------------------------
        Federal crop insurance is based on fundamental market principles,
    which means high risk areas and high value crops pay higher premiums
    for insurance. This emphasis on crop insurance and risk management has
    replaced constant demand for ad hoc disaster assistance, which is
    subject to congressional wrangling, and is paid for entirely by the
    taxpayer, while not being delivered in a timely manner. In addition to
    price and yield declines, the program helps farmers and ranchers facing
    market conditions greatly impacted by foreign subsidies, tariffs, and
    non-tariff trade barriers. This Committee must protect the integrity of
    crop insurance for the benefit of farmers and ranchers.
    Challenges Within the Safety Net
        There are a number of Title I programs that deserve additional
    attention by this Committee. There can be no doubt of the yeoman's work
    that USDA did in compiling data on all crops in all counties for use in
    the ARC program. But problems remain. One problem is the program
    itself.
        ARC has had a number of problems including sign-up problems
    associated with administrative counties. For the benefit of producers
    and program integrity, FSA worked with grower groups to resolve the
    problem for the benefit of producers and administrators alike. At the
    same time, we are also dealing with issues that have not been solved,
    including ARC county yield data. We have seen cases in North Dakota,
    Texas, Colorado, Kansas and South Dakota where the benchmark yields and
    current year yields are from differing sources and are not providing
    representative revenue calculations.
        NFU, along with other grower groups, are requesting administrative
    policy revisions. These revisions include: an allowance for current
    year county yields to be determined using comparable source yield data
    that was used for both the benchmark and current year yields, and
    changes to the ``ARC-CO yield cascade policy.'' The change in cascade
    should be as follows: NASS county yield, NASS adjoining county yield,
    and determinations made by State Committees utilizing RMA yield data,
    unpublished NASS yield data, NASS district yield data and NASS state
    yield data.
        The PLC Program is simple to administer and understand and has
    faced no substantial implementation issues. NFU supported this
    Committee's work as it pushed for the promotion of PLC in the 2014 Farm
    Bill. We had serious concerns over ARC. Price protection and weather
    protection should be separate, with ARC there is a mixture of the two
    that have caused problems from our perspective. NFU would have liked to
    see a single program in the form of PLC that contained higher reference
    prices with crop insurance serving as the backstop.
        NFU has also heard from dairy producers with concerns over the
    Dairy Margin Protection Program (MPP). While this program was always
    intended to be a risk management tool in a sector that historically
    relied on direct payments, it has nonetheless fallen short of
    expectations. Dairy farmers are experiencing an extended period of very
    low milk prices and MPP has been unable to provide meaningful relief
    for farmers during this period of low prices and surplus production. We
    have serious concerns that if this problem goes uncorrected more dairy
    farms will go out of business. We hope this Committee can begin to
    examine a reasonable dairy price setting mechanism that takes into
    account production costs and an incentives-based inventory management
    program. NFU would like to see the Committee hold regional hearings to
    discuss dairy pricing and regional feed costs.
        The last Title I program that our members have concern over is the
    Stacked Income Protection Plan (STAX). The current economic situation
    for cotton is anemic and is threatening to cause long-term and
    potentially irreversible damage to the industry and the associated
    infrastructure. Losses in cotton areas translate into pressure on
    associated businesses, infrastructure and rural economies. The
    infrastructure for the U.S. cotton industry (gins, warehouses,
    marketing coops and merchants, and cottonseed crushers and
    merchandizers) will continue to shrink unless there is a stabilizing
    policy for cotton to help sustain the industry in periods of low prices
    such as currently exists today.
        Cotton futures prices are trading in the 55 to 60 range, the
    lowest levels since 2009. Concerns about world demand, burdensome
    global stocks, a stronger U.S. dollar and general price pressure in
    commodity markets are all factors in the current price environment.
    Lower prices for cotton lint and cottonseed contributed to a decline in
    U.S. average market revenue of $156 per harvested acre in 2014 compared
    to 2013 levels. For the 2015 crop, market revenue from cotton fiber and
    seed will fall short of USDA's full costs of production by more than
    $230 per acre.\16\
    ---------------------------------------------------------------------------
        \16\ National Cotton Council of America. (n.d.). Retrieved April
    12, 2016, from http://www.cotton.org/.
    ---------------------------------------------------------------------------
        NFU believes that STAX is not sufficient to solve the current
    situation on its own. To start, STAX only covers roughly 29 percent of
    cotton acres.\17\ NFU, along with other allies including the National
    Cotton Council are supportive of classifying cottonseed as an ``other
    oilseed'' for the purposes of ARC and PLC. We recognize there has been
    a debate over current USDA authority and would urge USDA and Congress
    to find a meaningful path forward. We also hope Congress can work with
    the USDA to expand its authority to assist producers as well as USDA
    working within its existing authority to provide relief.
    ---------------------------------------------------------------------------
        \17\ Shurley, D. (3 Dec., 2015). STAX: A by-the-numbers look at its
    first year for cotton farmers. Southeast Farm Press.
    ---------------------------------------------------------------------------
    Bright Spots
        During these difficult times there will be many of conventional
    producers who will manage to get through the down farm economy and in
    some cases come out stronger in the end. There are also bright spots in
    the farm sector where there is additional growth. Organic and local
    foods sectors continue to grow and seem, for the most part, to be less
    subject to falling prices. This Committee, which made record
    investments through the 2014 Farm Bill, deserves credit for the current
    landscape in these sectors. These investments include $11.5 million
    annually for the National Organic Certification Cost-Share, $20 million
    annually for the Organic Agriculture Research and Extension Initiative,
    $5 million over the life of the farm bill for the Organic Production
    and Market Data Initiatives, $5 million for the National Organic
    Program technology upgrades and $30 million annually for the Farmers
    Market and Local Food Promotion Program.\18\
    ---------------------------------------------------------------------------
        \18\ H.R. 2642.
    ---------------------------------------------------------------------------
        With the help of this Committee and the 2008 and 2014 Farm Bill
    investments, there are now 21,781 certified organic operations in the
    U.S. According to data released by the Agricultural Marketing Service's
    (AMS) National Organic Program (NOP) in the beginning of April, the
    number of domestic certified organic operations increased by almost 12
    percent between 2014 and 2015. To further highlight the increase in
    demand, the organic sector has undergone nearly 300 percent growth
    since 2002. USDA, with the help of Congress has provided more than $1
    billion in investments to over 40,000 local and regional food
    businesses and infrastructure projects since 2009. Sales estimates of
    local food have totaled $12 billion in 2014, up from $5 billion in
    2008.\19\
    ---------------------------------------------------------------------------
        \19\ USDA Reports Record Growth In U.S. Organic Producers. (2016).
    Washington, D.C.: U.S. Dept. of Agriculture, Office of Communication.
    ---------------------------------------------------------------------------
    Conclusion
        There are many challenges facing agricultural today. This Committee
    has a challenging task ahead of it as it begins to grapple with these
    problems especially as it looks to crafting the next farm bill. The
    safety net needs to be protected from those entities that would like to
    see it torn apart. There must also be recognition on our part that
    these programs are not perfect and will need to be modified where
    necessary, for the benefit of producers. At the same time some areas of
    agriculture are doing well. Our collective challenge is to continue
    working to provide help when and where needed--and to encourage the
    continued growth and success of our most vital industry--agriculture.
        Thank you.

        The Chairman. Thank you, Mr. Johnson.
        Dr. Johansson, you are recognized for 5 minutes.

              STATEMENT OF ROBERT JOHANSSON, Ph.D., CHIEF
               ECONOMIST, U.S. DEPARTMENT OF AGRICULTURE,
                            WASHINGTON, D.C.

        Dr. Johansson. Mr. Chairman, Ranking Member Walz, and
    Members of the Committee, I am pleased to have this opportunity
    today to discuss the state of agriculture and rural economy in
    the United States. Today I will direct my comments towards the
    macroeconomic forces and the impacts in the broader
    agricultural economy. I have submitted a more detailed
    statement for the record, so today, I will focus my initial
    remarks on three main points.
        First, expected prices for the new crop have fallen from
    recent peaks, which will make it difficult for some producers
    to cover variable costs of production. Globally, production has
    exceeded use for corn, soybeans, and wheat for the past 3
    years. As a result, global stocks have been growing. In
    addition, the value of the U.S. dollar has strengthened,
    resulting from slow and uncertain prospects for growth globally
    and relatively strong and stable growth expected for the United
    States. We anticipate the dollar will remain strong through
    2017, relative to customer and competitor currencies. As a
    result, we project that export values in 2016 will be 10.5
    percent lower compared to 2015. One-third of that decline is
    due to reduced trade value with China.
        Second, producers will respond to the expectation of lower
    prices in several ways that we have already heard about. Facing
    lower expected prices for crops, we know that producers will
    adjust planting decisions, cut back on some inputs, rely on
    capital reserves, take on additional debt, renegotiate land
    rental arrangements, and participate in new farm bill programs.
    We have already seen significant changes in farmers' planting
    intentions with 5 million fewer acres of wheat and almost 4
    million acres of corn, more than our expectation from February.
    Machinery sales have lagged behind the 5 year average for the
    past 2 years. Demand for farm loans has been growing since 2011
    and is expected to continue to grow. For example, as of the end
    of February, FSA's use of funds compared to last year is up 16
    percent for direct operating loans, 25 percent for guaranteed
    operating loans, and eight and 25 percent for the direct and
    guaranteed farm ownership programs, respectively.
        We expect farm bill programs will help farmers adjust to
    lower farm income. Agricultural Risk Coverage Program payments
    last year totaled approximately $4.2 billion, and payments for
    ARC this year are forecast to be approximately $7.2 billion.
    PLC Program payments last year totaled approximately $700
    million and are forecast to be nearly $2 billion this year. In
    addition, many producers who have the ability to choose crop
    insurance to manage risks have unforeseen losses for the 2016
    crop. Overall, government payments are expected to rise from
    about $10.6 billion in calendar year 2015 to about $13.9
    billion this year, and that includes conservation payments of
    approximately $3.5 billion.
        Third, farm incomes will fall in 2016, but household
    incomes are expected to show some positive growth. Farm net
    cash income, as we have heard, is expected to fall by roughly
    three percent relative to last year. Of course, last year's net
    cash income, which includes commodity receipts, cash, farm-
    related income, and government payments less cash expenses,
    fell by 27 percent relative to 2014. So, that is a flattening
    of the drop in farm income. In the crop sector, our initial
    projections suggest that crop commodity receipts will be down
    this year by $1.6 billion, a decrease of about a percent. In
    the livestock and dairy sector, our producers will benefit from
    lower feed costs, but will also continue to be affected by
    tighter prospects for trade. Projections indicate a decrease in
    livestock receipts of $7.9 billion, or about four percent.
        However, despite slightly lower aggregate, net cash income,
    we still project that the majority of farm households will see
    some increase in household income in 2016. Median farm
    household income is expected to exceed $81,000 in 2016. That is
    a record. Our initial projections show that median on-farm and
    off-farm incomes are expected to rise slightly in 2016,
    compared to 2015. In general, that means that the majority of
    farm households are in a relatively stable position going into
    the year, but it also means that there will be a group of farms
    that are likely to face significant financial stress in 2016.
        To summarize, the overall farm economy in the U.S. does
    have growing financial pressures. Global production is up.
    Stock levels have been growing. The U.S. dollar is strong, and
    the trade environment is very competitive, all of which mean
    prices are down relative to recent years. Farmers will adjust
    to lower expected sales through a number of strategies to
    minimize unnecessary costs and optimize their production. To
    cover costs, they will utilize capital reserves such as
    financial reserves or new equipment, and may take out new
    operating loans. Currently, interest rates remain very low so
    new debt is not expected to result in significant increase in
    operating costs. We would expect land value and cash rent
    levels to realign to the lower price environment, but more
    slowly than other costs. Last, we expect farmers to utilize new
    farm bill payments to cushion that transition to new lower
    commodity prices.
        However, I will point out that many of our expectations and
    projections for the new crop year and the impacts on the farm
    economy were developed prior to our Outlook Conference at the
    end of February. Since then, farmers have signaled they will
    plant more corn and less wheat than we initially expected.
    Similarly, the Chinese have recently indicated they will start
    to unwind their strong stock position in corn. All of that
    information, as well as spring weather, will ultimately
    determine the acres and management decisions chosen by
    producers this year.
        Mr. Chairman, that concludes my opening statement. I am
    happy to answer any follow up questions that you may have now
    or later for the record. Thank you.
        [The prepared statement of Dr. Johansson follows:]

     Prepared Statement of Robert Johansson, Ph.D., Chief Economist, U.S.
                  Department of Agriculture, Washington, D.C.
        Mr. Chairman and Members of the Committee, I am pleased to have
    this opportunity to discuss the state of agriculture and the rural
    economy in the United States.
        Last year the outlook for the agricultural sector was driven by
    factors, such as transportation issues, energy price declines, and
    drought in the West. This year, while energy prices and drought remain
    important components of the outlook, the overall picture for
    agriculture in the United States is being driven more by macroeconomic
    factors such as economic growth both here and abroad and resulting
    currency adjustments.
        A strong dollar coupled with high-levels of global agricultural
    production leave U.S. producers facing commodity prices that continue
    to decline from record levels and a more difficult trading environment
    than last year. As a result there will be growing financial pressures
    on some producers this year, as expected revenue may not be sufficient
    to cover expected costs. Overall, USDA forecasts that net cash income
    will fall again in 2016.
        Because in some cases expected revenues may not be sufficient to
    cover potential costs, some producers will likely rely on capital
    reserves (farm incomes were at record highs between 2011 and 2014),
    increase demand for loans, lower their input use, and rely on farm
    programs. Overall, the outlook for 2016 is for flat to lower farm
    income in aggregate, but median farm household income is forecast to
    increase 4.5 percent to $81,666, reflecting expected increases in off-
    farm income.
        Today, I will direct my comments toward macroeconomic forces and
    the impacts on the broader agricultural economy, as I am sure the other
    two speakers here will discuss farm-level impacts in greater detail.
    Macroeconomic Outlook
        [CY] 2015 marked a significant change in the global business cycle.
    Projections for global growth fell consistently throughout 2015. USDA's
    10 year baseline used assumptions that showed world GDP growth rising
    slowly and to plateau at just over three percent. A key component of
    that global slowdown is slowing economic growth in China (see Figure
    1). Baseline projections also assumed China's GDP growth would slow to
    6.1 percent in 2016, 5.7 percent in 2017, and gradually edge down
    towards 5.0 percent. The latest IMF projections now show Chinese growth
    improving slightly with growth at 6.5 percent and 6.2 percent in 2016
    and 2017, respectively.
        While that growth is still relatively high, the slower growth means
    China's GDP is now forecast to be $700 billion lower in 2020 (about 5.7
    percent lower than forecast at this time in 2015). The implication is
    that China will be importing raw materials at a slower pace as it
    embarks on a more consumer- and service-oriented economy compared to
    one fueled more by housing construction and a buildout of its
    manufacturing capacity. Countries that were heavily dependent on
    selling goods and services to China are now facing a reduction in
    economic growth themselves (Australia, Korea, and Brazil, for example).
    By comparison, the United States is expected to be the growth leader
    among developed countries over the next decade. U.S. economic growth is
    expected to be near 2.5 percent in 2016 and 2017 before gradually
    moving to a longer-term growth rate of 2.3 percent
        Driven by the relative strength and safety of the U.S. economy and
    by relatively expansionary monetary policies in many other countries,
    the real value of the dollar increased substantially in 2015 relative
    to competitor and customer currencies, and that growth is expected to
    continue through 2017 (see Figure 2). Clearly, a stronger dollar means
    it is more difficult to sell products to countries with weaker
    currencies, such as Egypt and Nigeria (major wheat importers), and it
    is easier for countries, such as Canada, the EU, Brazil, and Argentina
    to sell their agricultural products abroad, making for an extremely
    competitive trade environment.
        However, a strong economy also helps U.S. producers in several
    ways. First, it is easier for U.S. buyers to import goods, such as
    fertilizer, from countries with weakening currencies, such as Canada,
    Russia, and Ukraine. Second, a stronger U.S. economy provides improved
    off-farm income opportunities for a large majority of U.S. farm
    households. Third, 80 percent of agricultural products are sold
    domestically, so a stronger domestic economy likely means more
    opportunities to sell more U.S. products and provide additional value-
    added at home.
    Outlook for Trade Is Down in the Near-Term
        Turning to the outlook for trade, U.S. agricultural exports were
    most recently forecast at $125 billion for FY2016 (see Figure 3). That
    is down 10.5 percent from last year, with much of that stemming from
    lower values, not volume, and with \1/3\ of the decline coming from
    reduced sales to China. Yet, while strong competition, reduced demand,
    and lower prices have contributed to falling U.S. export sales, the
    last 5 years, and this year if forecasts hold, mark the 6 top years for
    value of agricultural exports. On the import side, a stronger dollar
    means that U.S. consumers have a greater ability to buy foreign goods.
    This year, agricultural imports are forecast to rise to a record $118.5
    billion. The next USDA trade forecast will be in May.
        The FY 2016 forecast for grain and feed exports is down $4.4
    billion from FY 2015 to $27.2 billion, due to lower volumes of corn and
    feeds and fodders, lower prices, and increased competition from other
    suppliers. Oilseed and product exports are forecast at $25.4 billion,
    down in both value and volume. Soybean exports are projected at 46
    million metric tons in FY 2016, which would be the second highest level
    ever, if realized, after last year's 50.4 million metric tons. Cotton
    exports are forecast $900 million below last year, at $3.2 billion on
    reduced supplies and shrinking global demand. Rice exports are forecast
    at $1.8 billion, $300 million below last year, mostly on declines in
    volume. Livestock products are down $2 billion from last year, to $16
    billion, due to lower prices, while dairy has dropped $700 million due
    to lower prices and strong competition from the EU. However, sales of
    horticultural products driven by tree nut exports and processed fruit
    and vegetables are up by almost $600 million.
        Changing market conditions explain the export projections. For
    example, over the past 10 years, agricultural export volumes to China
    have increased by more than 125 percent. We expect China imports of
    corn to be limited and imports of sorghum and barley to slow in the
    near future, but to continue to grow over the next decade (see Figure
    4). Conversely, for Brazil, we expect its producers to respond to
    relatively high prices for corn and soybeans (given Brazil's currency
    depreciation) and to increase production over the next 10 years. That
    will translate into increased Brazilian exports and greater competition
    for the United States (see Figure 5).
        Overall, global trade of grains and oilseeds is expected to
    increase over the next decade to meet rising global demand. Global
    trade for wheat is projected to increase by 17 percent, for coarse
    grains by 15 percent (25 percent for corn), and for soybeans and
    products by 24 percent (25 percent for soybeans). Based on projected
    yield growth, the world will need to allocate about 50 million more
    acres to corn, wheat and soybeans, at U.S. productivity growth levels,
    to meet the increase in trade demand.
    Prices Continue To Soften
        U.S. prices have moderated with weaker demand for U.S. products and
    greater foreign competition. Stock levels have increased, and record
    global crops, largely a result of relatively high prices for much of
    the last decade, have expanded supplies. Since December, the dollar has
    continued to strengthen relative to the Brazilian real and Argentine
    peso; Argentina has taken actions to be more competitive in world
    commodity markets; oil prices and fertilizer prices have weakened;
    China's demand for sorghum has slowed; and the U.S. rice market has
    tightened.
        In February, we released our expectations for the new crop. At that
    time, we expected further price reductions for the 2016/17 crop year
    for corn, soybeans, wheat, rice and cotton as compared to our long-run
    baseline forecast from December of last year. Wheat prices for 2016/17
    were estimated at $4.20 per bushel, a decline of 16 percent from the
    current year. There are signs of weak exports, and we have already seen
    winter wheat area come in below trade expectations suggesting producers
    adjusted their plantings. Corn prices were projected to fall to $3.45
    per bushel for 2016/17. Soybeans prices were forecast at $8.50 per
    bushel in 2016/17. The all-rice price was forecast at $12.90 per
    hundredweight for 2016/17. Cotton prices were projected at 58 per
    pound (see Figure 6).
        Lower commodity prices are expected to idle some land that had been
    brought into production as commodity prices rose in the late 2000s.
    With the continued pressure on margins, based on farmers' intended
    plantings, the total area allocated to major crops in 2016 is expected
    to fall by 2 million acres compared to last year, even as area enrolled
    in the Conservation Reserve Program continues to decline, and would be
    down nearly 6.5 million acres from the recent peak in 2014 (see Figure
    7).
        USDA's Prospective Plantings report released on March 31 reported
    that farmers intend to plant 93.6 million acres of corn in 2016, a
    surprising 3.6 million acres higher than average trade expectations and
    the level we had projected back in February. At that level, under
    normal growing conditions and coupled with already high stock levels,
    domestic corn supplies would be a record and corn prices could fall to
    levels not seen in a decade. Markets quickly reacted to the Prospective
    Plantings report, pushing the Dec. 2016 corn futures to a life of
    contract low. In contrast to corn, planting intentions of 82.2 million
    acres of soybeans were toward the low end of trade expectations. Actual
    winter wheat planted area and spring wheat intended plantings were down
    a combined 5.1 million acres from last year. At 49.6 million acres, all
    wheat planted area would be the lowest total since 1970.
        Along with weather, changes in anticipated harvest time prices and
    input costs between now and planting time will determine final acreage.
    Farmers will adjust their early planting intentions as new information
    becomes available as the planting season unfolds. For example, China
    recently announced that the temporary corn reserve purchase policy in
    northeastern provinces and Inner Mongolia would be replaced by a new
    mechanism of ``market acquisition'' and ``subsidy,'' intended to reduce
    government-held stocks. How that policy will be implemented is unclear
    but it is controversial and contentious in China as it will likely
    affect farm income. The United States has not been exporting very much
    corn to China since 2014. China's main corn supplier has been Ukraine,
    following an agreement between the two countries signed in 2013.
    Nevertheless, this is likely to be another bearish factor on feed grain
    markets. The United States has exported a significant share of sorghum
    and distillers dried grains with solubles (DDGS) production to China in
    the last couple of years, although this trade has slowed and could be
    impacted by the policy change in China.
        Turning to the livestock, dairy and poultry sectors, we project
    that total meat and poultry production will be at a record high of 97
    billion pounds in 2016, as production of beef, pork, broilers (chicken
    bred for meat production), and turkeys all increase. Milk production is
    also projected to be at a record 212 billion pounds in 2016. U.S. meat
    exports are expected to increase in 2016 following declines in beef and
    broiler exports and relatively slow growth in pork exports in 2015 (see
    Figure 8). Exports in 2016 are expected to be up from the last year as
    larger supplies and lower prices increase the attractiveness of U.S.
    products to foreign consumers. Broilers were affected in 2015 by the
    closure of markets to U.S. poultry as a result of the discovery of
    Highly Pathogenic Avian Influenza (HPAI), although many of those
    markets have reopened. However, a relatively strong dollar paired with
    Russia's continued ban on imports of U.S. meat and relatively slow
    economic growth in a number of markets may also constrain export growth
    for meats. Until last year, dairy exports were growing fairly steadily;
    however, the confluence of a strong dollar, large competitor supplies,
    and lower imports in key markets resulted in lower exports in 2015.
    Many of those conditions have carried into 2016, and dairy product
    exports are expected to fall slightly.
        In 2016, prices for cattle, hogs, broilers, and dairy products are
    projected to fall from last year's levels. Fed steer prices are
    forecast to decline to $137 per cwt, down seven percent as increased
    cattle supplies move through feedlots. Hog prices are expected to fall
    to $48 per hundredweight, down five percent from last year. Broiler
    prices are expected to average 86 per pound, down five percent from
    2015. Although domestic demand for milk and milk products provides some
    support for product prices, supplies remain large and export demand for
    certain dairy products has weakened, pressuring prices. Milk prices are
    expected to average $15.25 per cwt in 2016, 10.7 percent lower than in
    2015. Milk prices are expected to decline to an average of $14.55 per
    cwt this quarter, before rebounding in the second half of the year to
    average $15.90 per cwt in the fourth quarter.
    Farm Income Is Expected Down
        USDA's farm income forecast from February shows farm budgets
    tightening with lower prices. USDA-ERS projects that net cash income
    and net farm income are both expected to fall slightly compared to
    2015, but by much less than last year. A crop budget calculator from
    University of Illinois has been updated to show expected prices for
    corn and soybeans in 2016 (see Figure 9). Revenue to cover such things
    as rent and salary after accounting for other costs is lower than the
    average cash rent value. This illustrates some places where producers
    could seek to tighten budgets: chemical inputs, seed purchases, crop
    insurance, machinery costs, etc.
        Given the situation and outlook for commodity prices and farm
    income, USDA's Farm Service Agency (FSA) is experiencing strong demand
    in FY 2016 in both direct and guaranteed loan programs. FSA loan
    volumes were up more than 40 percent between 2013 and 2015 and as of
    the end of February, the use of FY 2016 funds compared to levels from a
    year ago were up by 16 percent for direct operating loans, 25 percent
    for guaranteed operating loans, and eight and 25 percent for the direct
    and guaranteed farm ownership programs respectively. That situation is
    indicative of the financial sector as a whole. According to the Kansas
    City Federal Reserve Bank, which collects information about farm
    banking and credit, debt has been increasing at agricultural banks
    since 2011. In late 2015, farm debt at commercial banks was running
    about eight percent higher than in late 2014. However, the Kansas City
    Federal Reserve Bank also notes that interest expenses have remained
    low as a percentage of operating costs.
        We expect farm bill programs to help farmers adjust to lower farm
    income. The largest program, Agricultural Risk Coverage (ARC) payments
    in CY 2015 totaled approximately $4.2 billion. Payments for ARC in CY
    2016 are forecast to be approximately $7.2 billion. Another new farm
    bill program, Price Loss Coverage (PLC), also provide payments of
    approximately $0.7 billion in CY 2015 and are forecast to provide
    nearly $2 billion in CY 2016. In addition, many producers have the
    ability to choose crop insurance to manage risk for their 2016 crop, to
    help offset any unforeseen losses. Overall government payments, which
    are more tied to economic conditions than before, are expected to rise
    from about $10.6 billion in CY 2015 to about $13.9 billion in CY 2016,
    which also includes conservation payments of approximately $3.6 billion
    in Cy 2015 and CY 2016
        The new farm bill also provided producers with more options for
    Federal crop insurance, including new policies like peanut revenue
    insurance and the Stacked Income Protection Plan (STAX) for upland
    cotton. While STAX uptake has been higher in some states than others,
    reaching over 50 percent of planted cotton area in Alabama, generally
    it has been well below purchase of traditional crop insurance revenue
    protection policies. Revenue protection policies cover over 80 percent
    of total cotton planted area in the United States, and reached 94
    percent in Texas. Coverage levels average around 70 percent. In 2015
    STAX covered about 29 percent of insured cotton acres.
    Conclusions
        Global crop production for grains and oilseeds have recently
    exceeded global demand and have contributed to stock building and price
    declines over the past year, and those trends are expected to level off
    in 2016. In addition, the U.S. dollar has remained relatively strong
    compared to our competitors and customers for agricultural products. As
    a result the U.S. faces a very competitive trading environment in 2016.
        Lower prices for crops imply a slightly lower forecast for overall
    farm incomes. The new farm programs will benefit many producers, while
    falling energy prices will continue to lower input costs, and new crop
    insurance products will cover more products at higher coverage rates
    than in previous years. While farm cash rents remain high relative to
    expected returns, we are starting to see some declines in cropland
    values and cash rent levels. Domestically, lower commodity prices will
    likely lead to reduced planted acres overall.
        However, record high net farm income levels from several years ago
    helped U.S. producers to strengthen their financial base and that is
    still reflected in the financial outlook. Heading into spring planting
    this year, USDA projects that producers' debts relative to their assets
    will remain near historic lows. A slightly higher debt (mostly from
    operating loans) and lower assets (from some erosion in land values)
    will result in a slight increase in the debt-to-asset level in 2016.
    While borrowing is up, the level of bankruptcies and farm loan
    forfeitures remain at historically low levels.
        In addition, despite slightly lower expected net farm income in
    2016, we still project that a majority of farm households will see
    increases in household income in 2016, a sign of a strong economy, new
    farm bill programs, and falling expenses. Taking a look at the median
    household is often more informative than looking at the average
    household, since the average will be significantly skewed towards the
    much larger farms, even though they represent a minority of households.
    Median farm household income is expected to reach $81,666 in 2016, a
    record. Median U.S. household income and median farm household income
    were nearly the same in 2008. Since that time, farm household income
    has grown more rapidly. In 2014 median farm income was $80,600 and
    median U.S. household income was $53,657 (median U.S. household income
    is not yet available for 2015 or 2016).
        Of course, it is difficult to know what the median farm household
    in the United States looks like. Roughly 60 percent of farm households
    are small, with sales of less than $350,000 and without a full-time
    farm operator. Another 31 percent of farm households are considered
    intermediate and have sales of less than $350,000, but do have a full-
    time farm operator in the family. Last, there are roughly nine percent
    of U.S. farm households that would be considered commercial-level
    operations with more than $350,000 in sales. Our initial projections
    show that both on-and-off-farm income for all three groups are expected
    to rise slightly in 2016 compared to 2015. In general, this means that
    the majority of farm households are in a relatively stable position
    going into the year.
                                    [Charts]
    Figure 1. World GDP Growth Slows, Most Notably in China

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

              Source: USDA Agricultural Projections to 2025, February 2016.
    Figure 2. U.S. GDP Growth and Real Agriculture Trade-Weighted Exchange
            Rate

            [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

              Source: USDA Agricultural Projections to 2025, February 2016.
    Figure 3. U.S. Agricultural Exports

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

              Source: Outlook for U.S. Agricultural Trade, February 2016,
            Data are fiscal year.
    Figure 4. Projections Up for China's Imports of Grains, Soybeans, and
            Cotton

            [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

              Source: USDA Agricultural Projections to 2025, February 2016.
    Figure 5. Projections Up for Brazil's Exports of Corn and Soybeans

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

              Source: USDA Agricultural Projections to 2025, February 2016.
    Figure 6. Corn, Wheat, and Soybean Prices Soften, But Still Above 2000-
            2003 Average

            [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

              Source: USDA-NASS (History), OCE (April 2016 WASDE for 2015
            and Agricultural Outlook Forum for 2016). Wheat, corn, and
            soybeans are in dollars per bushel; cotton is in cents per
            pound, and rice is in dollars per hundredweight.
    Figure 7. Planting Intentions Down From Last Year

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

              Source: USDA-OCE. The 2016 forecasts are from Prospective
            Plantings, NASS.
    Figure 8. U.S. Meat Exports Expected To Increase

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

              Source: USDA, World Agricultural Supply and Demand Estimates,
            April 2016.
    Figure 9. Illinois Case Shows Crop Budgets Tightening

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

              Source: USDA-OCE; University of Illinois 2016 Crop Budgets,
            Central Illinois--High Productivity Farmland.

        The Chairman. Thank you, sir.
        And we will finish with Dr. Outlaw. You are recognized for
    5 minutes.

            STATEMENT OF JOE L. OUTLAW, Ph.D., PROFESSOR AND
      EXTENSION ECONOMIST, DEPARTMENT OF AGRICULTURAL ECONOMICS,
                   TEXAS A&M UNIVERSITY; CO-DIRECTOR,
              AGRICULTURAL AND FOOD POLICY CENTER, COLLEGE
                              STATION, TX

        Dr. Outlaw. Chairman Crawford, Ranking Member Walz, and
    Members of the Subcommittee, thank you for the opportunity to
    testify on behalf of the Agriculture and Food Policy Center at
    Texas A&M as you focus on the growing farm financial pressure
    gripping our nation.
        For over 30 years, we have worked with Agriculture
    Committees in both the U.S. Senate and House of
    Representatives, providing Members and Committee staff
    objective research regarding the potential farm level effects
    of agricultural policy changes. Working closely with commercial
    farmers has provided our group with a unique perspective on
    agricultural policy.
        In 1983, we began collecting information from panels of
    four to six farmers or ranchers that make up what we call
    representative farms located in the primary production regions
    of the United States for most of the major ag commodities. The
    results I am going to discuss today focus on the financial
    condition at the end of 2016 and again at the end 2020 for 63
    representative crop farms located in 20 states, and Figure 1 of
    my testimony has their locations, if you are interested. The
    analysis utilizes FAPRI's January baseline commodity price
    projections, and we have a color coding system that I am going
    to discuss. We have developed a color coding system to provide
    a quick way of showing how the farms are doing. Much like your
    stop light here in front of me, a green indication is a farm
    that only has a 25 percent chance of not cash flowing or 25
    percent chance of losing their real equity. A yellow farm is
    indicated by a farm that has between 25 and 50 percent chance
    of losing--not cash flowing, and the same percentage for losing
    their real wealth. A red farm, as we have indicated here, has a
    greater than 50 percent chance of not cash flowing at the end
    of 2016 or 2020, and a greater than 50 percent chance of losing
    their equity. The Figures 2 through 5 provide a listing of the
    farms characterized as either feedgrain and oilseed, wheat,
    cotton or rice. And I just mentioned, the characterization is
    based on the farm's gross receipts, whatever they have, 50
    percent or greater of in terms of their gross receipts.
        As prices change over time, some of these farms that are
    characterized as a cotton farm might actually be doing better
    because of the grains they have switched to instead of cotton,
    and we will talk about that later, I am sure.
        So getting to the results: these results are the worst for
    feedgrains and oilseed farms, as well as wheat and cotton
    farms, that we have ever had in most of my career, at least
    since the early 1990s and probably before that. Specifically,
    11 of 23 feedgrain farms are projected to end the period in
    poor financial conditions, so more than \1/2\. Six of 11 wheat
    farms are projected to end the period in poor financial
    condition, again, more than \1/2\. Eight of 15 cotton farms and
    the only bright spot, only four of 14 rice farms are suspected
    to end the period in 2020 in the red or poor condition. These
    results already include any projected ARC and PLC payments that
    will be triggered by low prices or low incomes in future years.
        We contact our individual representative farm members when
    we need their feedback on important events or issues. For this
    hearing, we specifically asked them about the financial
    situation in their area, how they are dealing with low prices,
    and overall observations of the current financial environment.
        I have four points I would like to make. First, obtaining
    financing is much harder. Although all of our producers were
    financed this year, a number of them had to go back to the bank
    and put up a lot more collateral than they have ever had to in
    their careers. The sentiment most feel is that this year is
    going to be a bad crop year and the situation for financing
    next year is going to be nearly impossible.
        Second, almost everyone said they were putting off
    machinery updates through the lean times. A number reported
    that they are going to reduce hired labor and reduce the amount
    of purchased inputs, which also runs counter to trying to make
    the yield that they are trying to do. Cash rents have come down
    a little, but nowhere the amount that commodity prices have
    fallen, and that is due largely to multi-year lease
    arrangements and some landlords who just will not budge. The
    last is probably the most concerning. Most of them are
    concerned about the future for themselves, but also for young
    farmers who don't tend to have the equity in their operations
    that older farmers would have.
        So I am going to summarize my comments with three points I
    would like to make. First, the low prices being experienced on
    most of covered commodities are well below the cost of
    production for almost all of our representative farms. These
    farms have been shown to represent producers with well below
    the average cost of production. So if our representative farms
    are hurting, the average farm or worse than average farm in
    this country is in terrible shape, and we have just shown that.
    Second, the current poor situation on farms across the country
    would be considerably worse, if not for the safety net provided
    by both Title I commodity programs and policies, and Federal
    crop insurance. There are some who say that commodity policies
    are more important than crop insurance, or vice versa. I don't
    believe it is time to pick and choose a winner there. I think
    they are both incredibly important.
        For lenders, lenders tend to view crop insurance as being
    more important because the insurance guarantee is bankable,
    meaning it is something on which they can base a loan. On the
    other hand, producers see the commodity assistance as the only
    chance they have of coming close to breaking even in a low
    price environment.
        And finally, in my opinion, the interest groups that
    continue to call for changes that would negatively impact these
    key policy tools clearly either have no idea how difficult the
    financial situation is across agriculture, or they simply do
    not care. Farmers in this country deserve better than to
    continually be threatened with changes that I consider a
    dismantling of the safety net.
        Mr. Chairman, that concludes my statement.
        [The prepared statement of Dr. Outlaw follows:]

      Prepared Statement of Joe L. Outlaw, Ph.D., Professor and Extension
           Economist, Department of Agricultural Economics, Texas A&M
     University; Co-Director, Agricultural and Food Policy Center, College
                                  Station, TX
        Chairman Crawford, Ranking Member Walz, and Members of the
    Subcommittee, thank you for the opportunity to testify on behalf of the
    Agricultural and Food Policy Center at Texas A&M University as you
    focus on the growing farm financial pressure gripping our nation. As
    many of you know, our primary focus as been on analyzing the likely
    consequences of policy changes at the farm level with our one-of-a-kind
    dataset of information that we collect from commercial farmers and
    ranchers located across the United States.
        Our Center was formed by our Dean of Agriculture at the request of
    Congressman Charlie Stenholm to provide Congress with objective
    research regarding the financial health of agriculture operations
    across the United States. For over 30 years we have worked with the
    [Agriculture] Committees in both the U.S. Senate and House of
    Representatives providing Members and Committee staff objective
    research regarding the potential farm-level effects of agricultural
    policy changes.
        Working closely with commercial producers has provided our group
    with a unique perspective on agricultural policy. While we normally
    provide the results of policy analyses to your staff without
    commentary, I was specifically asked to provide my perspective today.
        In 1983 we began collecting information from panels of four to six
    farmers or ranchers that make up what we call representative farms
    located in the primary production regions of the United States for most
    of the major agricultural commodities (feedgrain, oilseed, wheat,
    cotton, rice, cow/calf and dairy). Often, two farms are developed in
    each region using separate panels of producers: one is representative
    of moderate size full-time farm operations, and the second panel
    usually represents farms two to three times larger.
        Currently we maintain the information to describe and simulate
    around 100 representative crop and livestock operations in 29 states.
    We have several panels that continue to have the original farmer
    members we started with back in 1983. We update the data to describe
    each representative farm relying on a face-to-face meeting with the
    panels every 2 years. We partner with FAPRI at the University of
    Missouri who provides projected prices, policy variables, and input
    inflation rates. The producer panels are provided pro forma financial
    statements for their representative farm and are asked to verify the
    accuracy of our simulated results for the past year and the
    reasonableness of a 6 year projection. Each panel must approve the
    model's ability to reasonably reflect the economic activity on their
    representative farm prior to using the farm for policy analyses.
        The results I am going to discuss today focus on the financial
    condition at the end of 2016 and 2020 for 63 representative crop farms
    located in 20 states (Figure 1). The analysis utilizes FAPRI's January
    baseline commodity price projections. We have developed a color coding
    system to provide a quick way of showing how the farms are doing. Each
    farm is evaluated based on two criteria--their ability to cash flow and
    maintain real net worth. If a farm has less a 25% chance of not cash
    flowing or losing equity then it is coded green. Yellow farms have
    between a 25% and 50% chance of not cash flowing and losing equity. Red
    farms have greater than a 50% chance of not cash flowing and losing
    equity.
        Figures 2-5 provide a listing of all the farms characterized as
    either feedgrain and oilseed, wheat, cotton or rice along with our
    rating of their financial condition at the end of 2016 and 2020. In
    general, more farms get worse (from green to yellow or yellow to red)
    than get better by 2020. The results for feedgrain and oilseed farms,
    as well as, wheat and cotton farms are the worst (in terms of the
    highest percentage of farms in the poor category) since the late 1990s.
    Specifically,

       11 of the 23 feed grain and oilseed farms are projected to
            end the baseline period in poor financial condition.

       6 of the 11 wheat farms are projected to end the period in
            poor financial condition.

       8 of the 15 cotton farms are projected to end the period in
            poor financial condition.

       4 of the 14 rice farms are expected to end the period in
            poor financial condition.

        These results already include any projected ARC and PLC support
    that would be triggered by low prices or low incomes in future years.
    Unfortunately, the results should be viewed as optimistic because of an
    assumption we make regarding cash balances. It is important to note
    that ARC support tends to be frontloaded and with prices remaining low
    throughout the projection period, the ARC benchmark declines
    significantly resulting in producers receiving little support by the
    end of the period.
        We contact our individual representative farm members when we need
    their feedback on important events or issues. For this hearing, we
    specifically asked them about the financial situation in their area,
    how they are dealing with low prices, and overall observations of the
    current financial environment. Thus far we have received comments from
    about \1/3\ of the 300 representative crop producers that make up our
    panels. Below are a few generalizations I can make after reviewing all
    of their responses:

      1.  Obtaining financing is much harder. All of our farmers received
                financing (although almost all knew of farmers in their
                areas that were forced out of business). Many had to go
                from bank to bank to secure financing, endure tougher
                rules, and put up more collateral. Most feel the worst is
                still yet to come (meaning after this crop year).

      2.  Almost everyone said they are putting off capital/machinery
                updates due to lean times. Many reported reducing the
                number of hired laborers and amount of purchased inputs.

      3.  Cash rents have come down a little, but nowhere near the amount
                that commodity prices and returns have fallen. This is due
                in-part because some producers have multi-year lease
                agreements. However several cash lease tenants reported
                their landlord's have been unwilling to lower cash lease
                rates. There are a substantial number of farms located in
                the South and Southeast that have share-lease arrangements.
                Some of these arrangements have been adjusted to give
                tenants a slightly larger share of the crop.

      4.  Most are concerned about the future, both for themselves and for
                young farmers who don't tend to have the equity in their
                operations that older farmers have.

        In summary, I want to offer a few key points for your
    consideration:
        First, the low prices being experienced by most of our covered
    commodities are well below the cost of production for almost all of our
    representative farms. These farms have been shown to represent
    producers with below-average costs of production. So if our
    representative farms are projected to do poorly, then higher-cost farms
    are in trouble.
        Second, the current poor situation on farms across this country
    would be considerably worse if not for the safety net provided by both
    Title I commodity policies and Federal crop insurance. There are some
    in agriculture who say that commodity policies are more important than
    crop insurance or vice versa. I believe they are equally important--
    especially during times of low prices. For example, lenders tend to
    view crop insurance as being more important because the insurance
    guarantee is ``bankable'', meaning it is something on which they can
    base a loan. On the other hand, producers see the commodity assistance
    as the only chance they have of coming close to breaking even in a low
    price environment.
        And finally, in my opinion, the interest groups that continue to
    call for changes that would negatively impact these two key policy
    tools clearly either have no idea how difficult the financial situation
    is across agriculture or they simply do not care. Farmers in this
    country deserve better than to continually be threatened with changes
    that I consider a dismantling of the safety net.
        Mr. Chairman, that completes my statement.
                                    [Charts]
    Figure 1. AFPC's Representative Crops Farms
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Figure 2. Projected Feedgrain and Oilseed Farm Outlook
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Figure 3. Projected Wheat Farm Outlook
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Figure 4. Projected Cotton Farm Outlook
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Figure 5. Projected Rice Farm Outlook
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        The Chairman. Thank you, Dr. Outlaw. I would remind Members
    that they will be recognized for questioning in order of
    seniority for Members who were here at the start of the
    hearing. After that, Members will be recognized in order of
    arrival. I appreciate the Members' understanding.
        With that, I will recognize myself for 5 minutes. Let me
    start with a general question here. What do you say to those
    who look at the situation of agriculture and wonder why don't
    farmers just not plant a certain crop if they don't think they
    will make money doing it? And I will ask Dr. Outlaw first,
    because you have done extensive research on this. If you want
    to start us off?
        Dr. Outlaw. Sure. Basically the producer situation we have
    right now is they are trying to plant the crop they are going
    to take the least loss at. Said differently, they are also
    trying to plant the crop that they might be able to get an
    above average yield on, which would make them come closer to
    breaking even.
        But the big question you asked is specifically why don't
    they just stop? And the reality is that very few farms across
    this country don't have loans that they have taken out on
    equipment, land. These investments are quite large. In order to
    try to service that debt, they have to try to make some money
    back, and so we have people trying to give it a go. I am not
    going to sit here and say that every farmer in the United
    States is in dire straights, but I am telling you that is the
    trend. And to answer your question, basically we have producers
    trying to do something that might, either through a higher than
    average yield or something that happened in the price on the
    commodity side, make money. They don't want to not farm.
        The Chairman. Right.
        Dr. Johansson, what areas of the U.S. are farmers reporting
    the most financial stress? Is there a specific geography, or
    are we pretty much all across the country? And when we talk
    about that kind of stress on farmers, what form does that
    stress take?
        Dr. Johansson. I would say right now, obviously, we have
    talked about the difficulties for cotton farmers this year.
    Prices are expected to be low going into planting this year,
    and are expected to rise significantly over the next 5 years or
    so. So certainly there will be stress in cotton areas, and we
    can come back to that question later.
        Looking at the farm business income from USDA estimates
    recently, the regions and the sectors that we see the most
    declines in crop receipts expected for this year are dairy
    sectors in the Northeast, Midwest, as well as specialty crop
    receipts in Florida and the Pacific Coast. Obviously, we are
    also going to see declines in other areas too, but those are
    the largest that we are showing right now. We do see some
    additional declines in pork receipts and poultry as well, so
    that again will be in the middle part of the country for the
    most part.
        So what form will the stress take? As I mentioned and as we
    have all heard, producers will try and cut back on their losses
    in a lot of different ways, but we would expect at least for
    this year: I can't project out 5 years like Dr. Outlaw just
    did, but at least for this coming year they will be looking for
    increased operating loans when they are having difficulties
    making ends meet, as well as relying on reserves that may have
    been built up over the last 5 years.
        The Chairman. Thank you.
        Mr. Duvall, if you would, I would like to get some
    comparisons here. We note that there were some huge challenges
    for agriculture and ag credit during the 1980s. Based on the
    experience farmers have had over the last few years, how do you
    think the farm environment now compares to that period in the
    1980s? And if it is not as bad as the 1980s, how close are we
    to that level?
        Mr. Duvall. Well, we are at the beginning of what we saw
    eventually in the 1980s, and hopefully we have learned a lot
    from that. Of course, our big concern is about the young men
    and women that went in lately and haven't experienced anything
    like this before. But, once this process starts, you start
    trying to find a way to survive until it comes back, and of
    course through refinancing, delaying your future plans. A man
    my age wants to bring his son back, and I brought my son back
    and purchased another farm. You put those plans on delay to try
    to help him get started. There are so many things that are
    going to happen before we get to that point. But what we see
    happening now are indicators that we are going to get there.
    Right now, we still have good cash and good assets there, and
    our land values are beginning to trend down, but they haven't
    trended down as rapidly as they were during that time. So when
    that starts happening, then we are going to start seeing the
    critical stage that we saw during that time.
        The Chairman. Mr. Johnson, do you concur?
        Mr. Johnson. I do. There is a huge difference between now
    and the 1980s: interest rates. We were looking at interest
    rates approaching 20 percent, in some cases exceeding 20
    percent. And of course, you saw land values drop by 50 percent
    in a period of just a couple years. You saw machinery values go
    even more than a 50 percent drop. And so debt just spiraled out
    of control. We don't have that interest rate environment right
    now, but if that changes, this situation is ripe for going very
    fast in a negative direction, in my opinion.
        The Chairman. Thank you, sir.
        I am going to recognize Ranking Member Walz, for 5 minutes.
        Mr. Walz. Thank you, Chairman. Thank you all for your
    testimony. I would like start, I want to thank you, Dr. Outlaw,
    for that articulate statement on crop insurance, and I hope
    that gets broadcast wide because I do think misinformation, and
    again, when that reared its head at the omnibus, thank goodness
    the Chairman and others stood for that. So I appreciate that.
        I will go quickly here. I want to start with Mr. Johnson
    and Mr. Duvall. Are you seeing a generational difference on how
    producers are handling this in any way?
        Mr. Johnson. Yes, there is a generational difference, and
    the folks that I think we need to be most concerned about are
    those who have started farming in, let's say, the last 10 years
    or 5 years in particular where they started at a time of very
    high prices, high profitability, and extraordinarily high
    costs. And one of the characteristics of an agricultural
    economy is that when market prices go down, the costs go down
    much, much more slowly and they take a lot, lot longer to go
    down. And so you will find the economy move into this sort of
    negative income and negative cash flow situation very quickly.
    If these young farmers haven't had a chance to build up the
    cash reserves that Dr. Johansson talked about, then they just
    don't have the ability to survive nearly as long. That is the
    big concern, in my opinion.
        Mr. Duvall. Yes, sir, one of the bright spots when our
    young people come back home, they are so in tune to all of the
    new technologies that are out there to use, and they are going
    to be so efficient with what they do and have the opportunity
    to exercise that knowledge and that ability to use those
    technologies.
        Of course, that also goes back and speaks volumes about
    research and development and monies that we are spending there
    with the land-grants and everywhere, and how important that is
    to continue and keep making that investment in the future so
    that when times come like this, we have the technologies to be
    able to tighten up our belt just a little bit tighter, maybe
    put the future on hold a little bit, and help us get through
    this time.
        Of course, a lot of our young farmers are dependent on
    their families and their dads to sign the bottom line. Those
    guys that are coming in fresh, they are really going to be in
    for a hard time.
        Mr. Walz. I agree, and this Committee has emphasized
    beginning farmers and ranchers in this generational issue, and
    we have a lot of them in there. Now it is our job to keep them
    in there.
        Section 179, the permanent $500,000 deduction, did that
    help? Is it good? Is it where we were at? I ask that because we
    don't get credit for doing much around here, but we did do
    that.
        Mr. Duvall. Most certainly it has. What you did was a good
    thing to do, and it was of very much help.
        Mr. Walz. So you see a real impact, all right.
        Dr. Johansson, I am going to go to you. You said despite
    slowly lower--because I think I am hearing and we are similar
    on this. We are using the same data, but you seem a little more
    optimistic than the others, and I am trying to understand this
    dynamic of off-farm income and some of that. So your statement
    was slightly lower expected net farm income, but we still
    project the majority of farm households will see increases. I
    don't hear that often, but I trust from the economist. I want
    to hear the dynamic of what is working.
        Dr. Johansson. Well sure. We know that a lot of farm
    households earn income off-farm, so when I talk about household
    income for farms, I am talking about both on-farm and off-farm
    income. So we have seen an increase in farm income relative to
    the U.S. household income. Starting in 2008, following the
    recession, farm household income has been growing faster than
    overall U.S. household income. That is due to a number of
    factors, not just on-farm income. Obviously we had great on-
    farm income during those years, but we have had growing off-
    farm income. That is from investments, increased opportunities
    for working off the farm as well.
        But you are right. It is the same data, it is just
    explaining it somewhat differently. I am just saying that at
    the midpoint, \1/2\ the farms above this, \1/2\ below this, at
    that midpoint we are likely to see those farms with slight
    positive growth relative to last year. Obviously, last year was
    a big drop from 2014 to 2015, so it wouldn't have been the same
    case last year. I am just saying looking at 2016 relative to
    2015, it is pretty flat in terms of their change in income,
    slightly up. But we do also show that at the 50 percent of
    farms that are below that point are going to be facing some
    financial pressures, and I think that is what we are hearing
    about from the other speakers here. We do see the share of
    farms that are highly leveraged, okay, so when we talk about
    that debt-to-asset ratio around 13 percent being much lower
    than it was in the 1980s, so that is an aggregate. That is a
    good thing. But when we look at the share of farms that are
    highly leveraged, that is also growing, so that is what is
    leading to a lot of the discussion that we are having today.
        Mr. Walz. Great, thank you. I yield back.
        The Chairman. The gentleman yields back, and I recognize
    the full Committee Chairman, Mr. Conaway, for 5 minutes.
        Mr. Conaway. Well thank you, Chairman, and Tim pretty much
    started exactly where I did. Let's follow up a little further,
    Dr. Johansson.
        If the median boot size for the Army is a 9, and we buy all
    size 9 boots, then the folks whose feet are 9 or below are
    going to be happy campers, but those of us who have shoe sizes
    bigger than 9 are not going to be really happy. So I worry that
    when we use those statistics--and it is valid I don't question
    the number itself--but it could be misleading in the sense that
    there are very few of them at the median farm household income
    of $81,600. So how do we communicate better? As part of your
    analysis, did you do sector by sector? Again, all politics are
    local. I represent west Texas. I have a lot of cotton farmers
    that are not at that $81,000 mark, I don't believe. As a part
    of your work, do you have sector by sector work that could be
    used to help flesh out and get a better, clearer picture of the
    stresses? Because I agree with Tim. You sounded a lot more
    optimistic than Dr. Outlaw did in his comments.
        Dr. Johansson. Well, just to go back to the main message
    that I was saying, and then I will address your point here.
        We do see farm prices coming down, and that is going to be
    making it difficult for----
        Mr. Conaway. Farm prices for land or crop prices?
        Dr. Johansson. Crop prices.
        Mr. Conaway. Crop prices.
        Dr. Johansson. Crop prices and livestock prices are
    expected to be much lower this year, and that is leading to a
    lot of the question about how farms are going to meet the
    bottom line in general.
        But when we talk about median and then just aggregating
    that a little bit, so we can look at the midpoint of small
    farms, intermediate farms, and large farms. So commercial farms
    with more than $350,000 in sales, intermediate farms with a
    full-time operator but less than $350,000 in sales, and then
    the 60 percent of farms that are considered small, for example.
    The midpoint of all of those are also reflective of the general
    point, which is \1/2\ of all of those categories are going up,
    so size 9\1/2\ narrow, wide, and extra wide are all going to be
    going up a little bit.
        The point that is worth focusing on is, as you point out,
    we hear about the stress in the lower end of distribution. So
    the new and beginning farmers that are more leveraged,
    producers that may have taken out more loans in the last couple
    years to expand their operations, those operations are going to
    have higher debt-to-asset ratios. It would be nice to compare
    those to the 1980s, but our data for those disaggregate pieces
    we can compare the aggregate numbers back to the 1980s, but we
    can't compare those smaller chunks back to the 1980s. Our data
    only goes back to the 1990s.
        The last thing I will point out is we also follow farm loan
    delinquencies as well as bankruptcy rates, and those are still
    at very low levels. Interest rates, as Mr. Johnson pointed out,
    are at extremely low levels. So there are some areas for
    concern, mainly because we do see expected costs exceeding
    expected returns in a lot of cases, but we do have some----
        Mr. Conaway. Okay, I am a CPA, so when my client's costs
    are higher than their revenues, it is hard to get to $81,000
    net farm income. Does that $81,000 count the program
    contributions and everything else? How do we get our production
    costs higher than production revenues to the point where they
    are making money?
        Dr. Johansson. Yes, that includes program payments as well.
        Mr. Conaway. Okay, all right. Zippy and Mr. Johnson, can
    you give us a couple of examples near your home, talking about
    the ability to get credit, to be able to go to the bank and get
    the working capital you need? Can you talk to us about that?
        Mr. Duvall. Yes, one middle aged farmer that was telling me
    that every time he would go to the bank and talk about an
    operating loan earlier this year, they would say well, what do
    you think Congress is going to do about cottonseed, because he
    was a cotton producer. And that bank was almost sitting there
    waiting to see what was going to happen in this town to whether
    or not they were going to make that operating loan. I haven't
    talked to that young man since to see what happened eventually,
    but that banker was concerned about that.
        I heard just this week that in the panhandle of your county
    there were two cotton farmers that called it quits and are
    moving out, so I am sure you probably heard that, too.
        Mr. Conaway. Mr. Johnson, any comments from your folks
    about lending?
        Mr. Johnson. Yes, thank you, Mr. Chairman.
        The ability to get credit, an indicator of what is
    happening to FSA loans, and if there is something that I would
    encourage the Committee to focus on is making sure that there
    is enough funding for FSA, because that really is the lender of
    last resort. That is where you are going to see commercial
    lenders moving their clients to. And the other alarming thing
    that we hear is a lot of folks are taking their operating
    credit that didn't get repaid last year and rolling it over
    either credit or onto land mortgages. We saw that before the
    1980s collapse. I worked as a credit counselor and a lot of
    those years and literally worked with hundreds of farmers
    facing creditors where they couldn't make their payments. That
    is a very alarming trend. I mean, it makes sense if the economy
    improves in the next year or 2. If it does not, then what you
    do is you put at risk more of the assets, as Mr. Duvall was
    saying, a farmer that didn't want to mortgage the land in order
    to keep farming.
        Mr. Conaway. All right, thank you, gentlemen. I appreciate
    all your testimony.
        The Chairman. The gentleman yields back, and I am pleased
    that the Ranking Member of the full Committee could join us
    today. You are recognized for 5 minutes.

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

        Mr. Peterson. Thank you, Mr. Chairman.
        I am wondering if any of you have reaction to what I am
    hearing out in my part of the world. I don't know if it is that
    way in the South with crop insurance. Crop insurance worked
    very well when the prices were going up and when the prices
    were high, but it is the biggest single problem now that
    producers have in getting credit and surviving this downturn.
    And it is going to get worse, and the ARC program basically
    mirrors the crop insurance system in terms of how it works. Now
    I know in the South most people took the PLC. I don't know
    exactly how it is impacting down there, but I am concerned
    about where this thing is at. I don't know what producers are
    going to do, if they are going to stick with revenue, if they
    are going to go back to yield insurance. I don't know. But, I
    would like your take on this issue, if you have any thoughts on
    it, and any of you that want to respond.
        Mr. Johnson. If I could, Congressman, I would make two
    points. First of all, relative to crop insurance, I absolutely
    agree with you. Crop insurance in good price periods does an
    extraordinarily good job. Most policies that are sold today are
    revenue policies, and so if the price is low, then the revenue
    guarantee is also low. And so we are hearing more concerns
    about that. I would encourage the Committee to spend some time
    looking at that dynamic, because it is in these times when help
    is needed the most.
        The second point I would make is that I know that in the
    last farm bill there was a need to sort of compromise, and that
    compromise ultimately meant that the House PLC Program was made
    an option alongside of the Senate ARC programs. Price
    protection is extraordinarily important in these kinds of time
    periods, and so we were very favorably inclined to support the
    PLC Program that came out of this body, and I would encourage
    you to look at trying to move those reference prices higher in
    order to provide that kind of protection. Your point I fully
    agree with.
        Mr. Duvall. Yes, sir, crop insurance is vitally important
    to our farmers because they can decide if they can come to a
    number what their input costs are and try to buy revenue crop
    insurance to cover that cost. They know that if they don't make
    that crop, they can at least cover the cost of getting that
    crop. So it is vitally important, and of course, dependent on
    the environment they are in, whether or not it is important at
    one time or other, it just depends on the environment. So I
    would agree with your comments. But crop insurance is important
    to our farmers, and there are mixed feelings where I come from
    in Georgia. There are mixed feelings about crop insurance. We
    have been a little bit slow to adapt to it down there. A lot of
    our guys, instead of spending it on premium, put it in pivot
    irrigation systems, guarantee the production of crop from
    weather disaster, of course, but they are slowly but surely
    grasping the idea of crop insurance as revenue protection.
        Dr. Johansson. Yes, I would agree with your comments. I
    know that the producers that I speak to when they come in to
    talk about various farm programs generally start with crop
    insurance, that they want to make sure that USDA is firmly
    supporting that, and certainly we would agree that the program
    is offering coverage of about $100 billion in liability, and a
    lot of that is in revenue coverage, as we heard. So, that is
    providing a large part of the safety net, and as you mentioned,
    movement from the direct payment programs in Title I to more of
    an insurance type of program in ARC PLC where those programs,
    particularly with ARC, do kick in when conditions are
    difficult, and that is why we are going to likely see our
    payments going up this coming year.
        Dr. Outlaw. I probably have a little bit different take on
    this because of all the analyses we do; and, like I said during
    my testimony, both Title I programs are critically important
    and crop insurance is critically important, and they serve the
    same purpose to keep the farmer on the farm, but as Mr. Johnson
    said, during low price times, crop insurance, when you are
    buying a coverage covering 80 percent of a loss, it is not very
    exciting. And so the combination of Title I that provides a
    floor on the income that they were going to receive from low
    prices, plus crop insurance, is about as strong as we are going
    to get in this kind of a budget environment.
        The Chairman. The gentleman's time has expired.
        The gentleman from Illinois, Mr. Bost, is recognized for 5
    minutes.
        Mr. Bost. Thank you, Mr. Chairman.
        This question is for Mr. Duvall and Mr. Johnson. I have
    been hearing in my district producers say that the USDA
    Prospective Planting report that came out, and they tell me
    there is no way that they will be able to have that much corn
    grown in the U.S. this year. You both come from different parts
    of the country, and what is your take on the Prospective
    Planting report, and does the USDA report come close to what
    the producers in Georgia and North Dakota are thinking?
        Mr. Johnson. Thank you, Congressman, for that question.
        I was personally surprised at the increase in corn, but I
    am also very, very pleased I am not the one that has to make
    those projections. I think what farmers will do faced with a
    series of price and profit or loss potential outcomes is they
    are going to look to plant a crop that is going to lose them
    the least or make them the most, and have lower risk. If you
    look at the numbers that I provided in North Dakota, they
    actually suggest that soybeans are going to make money, corn is
    going to lose money. North Dakota is probably not a
    representative corn state. We are kind of on the fringe, so I
    don't know that that is the best example, but I would expect
    that in our area, you would probably see corn go down, soybeans
    go up, just based on that analysis. And that is kind of what we
    have been hearing.
        Mr. Duvall. Of course, those numbers you said are just
    intended planted acres, and we are going to be watching that to
    see if we plant everything we intend to.
        But I would make an observation that if you look at what
    happened weather-wise across the country last year, there were
    a lot of acres that weren't planted.
        Mr. Bost. Right.
        Mr. Duvall. Whether it be drought or too much rain, and if
    I am a farmer, my optimism says I am going to plant those acres
    this year. So you had an increase there just in those acres
    there. But we are going to be watching those numbers, but those
    are intended planted acres.
        Mr. Bost. Mr. Johnson, you actually went down a path that I
    was going to ask next, and that is when North Dakota, and you
    in your testimony said as much as $2 an acre loss on corn. Do
    you think that other high prairie states will be moving back to
    some other crop rather than corn?
        Mr. Johnson. At the end of the day there aren't a whole lot
    of choices for farmers. The one thing that they are going to do
    is they are going to plant.
        Mr. Bost. Right.
        Mr. Johnson. And it is really important, I know folks on
    this Committee understand that. I don't think the general
    public gets that. The general public thinks, ``You know what,
    if you are going to lose money on everything, well then don't
    plant anything, you fool.'' And the fact of the matter is, that
    is not an option for farmers. They have to plant for the
    reasons that Dr. Outlaw mentioned earlier, and lots of reasons.
    I mean, you just have to plant. I farmed most of my life. You
    can't imagine not planting just because you are going to lose
    money. You lose way more money if you don't plant.
        My guess is you may see a fair amount of shifting that
    occurs between that projection and when actual planting
    conditions emerge. In our place, it depends an awful lot on
    what planting conditions are like. If the weather starts
    pushing planting later and later and later, you are going to
    forego corn. You are going to do shorter season crops.
        A contrary point that I would make to a point I made
    earlier is we have talked to some folks who are planting corn
    who are looking to increase the amount of corn acreage because
    they are relatively new in it. They have the ability to do more
    rotational kinds of things so they have ground that was in
    canola or wheat or soybeans that can now move into corn, and
    they look at corn as being a stable yielder, particularly if
    they have very high soil moisture conditions which corn uses a
    lot of.
        Mr. Bost. I understand the plight of the farmer. I was in
    the trucking business for years, so we just kept investing
    until we went broke. So I mean, it is kind of the same.
        Mr. Duvall. I would say from the area that I live in and
    come from in Georgia, a cotton picker can only pick cotton. A
    peanut combine can only combine peanuts. We can't change the
    head on our machines in Georgia and decide to grow another
    crop. We are corn deficit state, which is good for the guys in
    the Midwest, because we have a lot of chicken and cattle to
    feed, but that makes it very difficult in Georgia to be able to
    just change crops, plus to get out of your rotation could cost
    you a lot of money in the future.
        Mr. Bost. Thank you, and I yield back.
        The Chairman. The gentleman yields back.
        I now recognize the gentlelady from Florida, Ms. Graham,
    for 5 minutes.
        Ms. Graham. Thank you, Mr. Chairman, Ranking Member Walz. I
    appreciate this opportunity. Thank you so much to all the
    witnesses.
        Yesterday I had the pleasure of meeting with a couple
    groups from the Florida Farm Bureau, I represent the panhandle
    of Florida, and we discussed the decrease of feed prices and
    also the decrease in milk prices. Mr. Duvall, I would be
    curious if you could help illuminate me a little bit more on
    the relationship between crops and livestock, and why we see
    these broad declines across both.
        Mr. Duvall. Well, it has a lot to do with the stockpiles of
    the crops, whatever crop that might be, and how much is out
    there on the world market, and it has a lot to do with trade.
        I was in the dairy business 30 years, and I will be the
    first one to admit, just about the time I got to understand how
    they priced my milk, they changed it. So dairy is a very, very
    difficult thing to explain. But I do know in listening to my
    neighbors that are in the dairy business, they are in some of
    the most trying times they have ever been in. They come off of
    $20 and $25 milk, and now they are looking at $14 and $15 milk
    in Georgia. And I got out of the dairy business in 2005, and I
    was shipping $17 milk then. So there is absolutely no way that
    they could take the inflation factor and put on what they are
    having to put in their input costs, maybe with the exception of
    feed, but everything else, the inflation goes along with the
    other stuff, and be able to keep up with that kind of price if
    they are coming back to it.
        I am also in the poultry business. I understand how it
    influences the poultry industry. I grow for an integrator, and
    they very often told me what a problem they were having when
    corn was $9 a bushel, but now it is cheap. So they are gaining
    ground as far as the integrators are. In the poultry business,
    as far as broilers, it is pretty good because everybody seems
    to want chicken, and our downtime between batches are really
    close. And for a producer like me, that is a good thing. So, if
    corn is high, that is hard on animal agriculture. If it is low,
    the animal agriculture seems to reap some of the benefit from
    it. But I can't really explain to you, other than the
    stockpiles of commodities and how prices dictate it through,
    especially milk in trade.
        Ms. Graham. Thank you. Does anyone else have anything to
    add to that?
        Mr. Johnson. Well if I could, I would simply make a point
    about dairy, particularly as it relates to this Subcommittee's
    responsibility over the Dairy Margin Protection Program. I know
    that was a new program that was put into place. It needs quite
    a bit of attention. We have had lots of complaints from dairy
    farmers that it just isn't working for them. Most recently, I
    have learned I believe from USDA sources some alarming numbers
    about the premiums that are paid for that program are something
    like $73 million, and yet only about $700,000 has been paid
    out. So that suggests to me that maybe the balance that we have
    struck isn't quite right, that there needs to be some
    ``rejiggering'' of what those margins are, and one of the
    things I have suggested in my testimony; listen, I know dairy
    policy is the most complicated policy in all of agriculture. I
    have been in this business most of my life, and when the dairy
    guys all agree on something, that is a time to celebrate. What
    they all agreed on last time was the Dairy Margin Protection
    Program with a supply management piece, and that got lopped
    off. So whether that is part of the mix, that is a question
    that your Committee is going to have to wrestle with. But in
    particular, the ranges that were provided in statute need to be
    adjusted.
        Ms. Graham. That is very good guidance, and I am going to
    try today to work the word rejiggering into my conversations.
    Thank you for providing that word for me today.
        I have other questions but my time is almost expired, so I
    yield back, Mr. Chairman. Thank you. Thank you, gentlemen.
        The Chairman. The gentlelady yields back.
        I recognize the gentleman from Georgia, Mr. Scott, for 5
    minutes.
        Mr. Austin Scott of Georgia. Thank you, Mr. Chairman.
        Mr. Duvall, you sure look like a fellow named Zippy from
    Georgia. Have you ever met him?
        Mr. Duvall. I am afraid I have. There are not many of them
    around.
        Mr. Austin Scott of Georgia. I am glad you are in that
    position. I know you will do a great job for the farmers.
        One of my primary concerns as a Member of this Committee is
    when we get into writing the next farm bill, one of the things
    we have to make sure of is that we don't allow commodity groups
    to be pitted against commodity groups. This is agriculture and
    the rural economy, and quite honestly, feeding Americans, that
    we have to get the policies right for.
        As you know, while the commodity prices are mighty low in
    the farm right now, if you go to the grocery store, you
    wouldn't know it when you check out, and there seems to be a
    big disconnect between what Americans are paying for their
    groceries and what people, who are actually out there growing
    the crop are receiving for it.
        Mr. Austin Scott of Georgia. Dr. Outlaw, I was with an ag
    economist in Tifton a couple of weeks ago and when the meeting
    was over, for every phone call I got from a farmer, I got from
    a banker expressing concerns and if farmers don't do good in my
    part of the world, then nobody makes money. In your analysis,
    which regions of the country are experiencing the most
    financial pressure right now, and which ones do you expect to
    experience the most pressure in the near future?
        Dr. Outlaw. Well, for our purposes, obviously, the South
    and the Southeast, our results would say they are having more
    difficult times. But there are also pockets. We visit with
    these producers quire often and we just came back from North
    Dakota where they were some of the more unhappy people we have
    visited with in quite some time, because they made a decent
    corn crop and then they couldn't ship it, so they were taking
    prices well below what anybody else has to take for their
    commodity because there was real shortage near the time they
    needed to get shipped out. That only happens at a point in
    time, but it happened at the important point in time where they
    had to take low prices for their commodities and that was their
    income for the year.
        So we have pockets around the country, out West, far West,
    and the regions of Oregon and Washington, there are some
    problems there as well. But if you want to just lay it on it,
    it is the South and Southeast.
        Mr. Austin Scott of Georgia. Do you foresee that changing
    as time goes forward, obviously cotton prices have a tremendous
    impact on us, more so than they do the Mideast. Although, I
    will tell you that cotton prices have a tremendous impact on
    Iowa, because that is where the majority of the cotton pickers
    that run in the Southeast come from is from John Deere and
    Acme.
        Dr. Outlaw. My expectation is that producers are looking
    for any crop they possibly can, canola or oilseeds. One of the
    letters I received from a North Carolina producer said they are
    expanding the growth of sweet potatoes in that state
    tremendously as a niche market, trying to find something they
    can make a profit on.
        My expectation is that this group is going to have to do
    something to fix cotton, or we won't have the cotton industry.
    As Dr. Johansson said, looking into the future, all we can do
    is deal with price forecasts, and it doesn't matter whose
    forecast you use, the situation looks really poor. And with the
    price forecast that I am using from FAPRI, which is very
    similar to USDA's long-term outlook----
        Mr. Austin Scott of Georgia. Dr. Outlaw, I am almost out of
    time, but you mentioned cotton a couple of times in there. I am
    extremely concerned about that.
        I want to go back to Mr. Duvall, if I can. Our cotton
    producers can't just--those cotton pickers cost a lot of money,
    and I went past a dealership the other day, a tractor dealer,
    and there were an awful lot of them sitting on the yard. It is
    not just a matter of the farmer, it is the whole infrastructure
    that surrounds the ag economy.
        Could you speak to kind of the ag economy as a whole, from
    the farmer to the tractor dealer to the ginners and the impact
    that it has when farmers can't make that profit?
        Mr. Duvall. Well, if we look at equipment sales, we see
    that small tractors, small horsepower tractors are going up,
    which indicates that that is a different area to sell those
    products in. It is not in agricultural production. But if you
    look at over 100 horsepower and over 100 horsepower four-wheel
    drive, over 100 horsepower is down 33 percent and four-wheel
    drive are down 38 percent across the country. So those
    indications say that hey, as a farmer, I don't know about these
    prices. I am going to try to run this tractor 1 more year
    before I update, and hopefully prices will come back and I will
    be able to do that. Well how many years can he do that before
    it starts caving in? And it is a chain reaction, of course. If
    the farmer makes that decision, that equipment dealer doesn't
    get to sell that piece of equipment and all the people around
    that industry are beginning to start crumbling down.
        We talk about cotton. Cotton has a huge infrastructure
    built around it, just like the Renewable Fuel Standard has a
    big infrastructure built around it. And we need to make sure
    that safety net--it continues how the financial backing to it
    to be able to move forward, and of course, we have already
    discovered the safety net we have in our farm bill does not
    help cotton.
        Mr. Austin Scott of Georgia. Thank you for being here,
    gentlemen.
        The Chairman. The gentleman's time has expired.
        We will move now to the other Mr. Scott from Georgia. I
    recognize you for 5 minutes.
        Mr. David Scott of Georgia. Thank you very much, Chairman
    Crawford. Mr. Duvall, it is good to have you here, and let me
    just say that the Farm Bureau is very lucky to have you as its
    President.
        Mr. Duvall. Thank you, sir.
        Mr. David Scott of Georgia. You are a good man, and Georgia
    is proud of you.
        Mr. Duvall. Thank you, sir.
        Mr. David Scott of Georgia. Let me first start, Mr. Duvall.
    We have heard throughout this hearing of all the downward
    pressures and the crises facing all of our farmers,
    particularly our cotton. I am very concerned about that.
    Georgia is the number two cotton producing state in the nation,
    that is my state, next to Texas. Many of us on this Committee
    have been working with Secretary Vilsack to address and try to
    get you and get cotton folks some help financially. We have
    done this through their two approaches. In the ginning program
    we were working on the CCC, which is another program, if we
    could get some temporary appropriations until we can get back
    into the farm bill, and then we can permanently correct the
    situation. What is your understanding? Are you all pleased with
    how we are moving, and am I accurate in saying that Secretary
    Vilsack is responding and you feel confident we will be able to
    get that money to you through one of those efforts?
        Mr. Duvall. Yes, sir. First, let me make a first comment.
    There is no support of opening up this farm bill that we had,
    so we want to make sure that everybody understands that. We
    know there is a lot more damage to be done by opening it up, so
    we need to find solutions around that. And if we specifically
    talk about cotton, I have had several conversations with the
    cotton groups. We are trying to work hand-in-hand with them to
    move in a direction to find a band aid fix for cotton, and I
    have had particular meetings with the Secretary and he has the
    desire to help. Of course, we think the way to fix it is to
    declare it an other oilseed and fix it that way. We fully
    support the Chairman here, but we also know that there is
    another avenue that has to do with the ginning assistance that
    the Secretary is looking into. And I know the cotton groups,
    ourselves, and the Secretary are looking to try and move
    forward in that direction.
        Mr. David Scott of Georgia. Well the reason I asked that is
    that I have had conversations with the Secretary. My office is
    working with them, and it is my understanding that we are
    proceeding in the direction of doing that.
        Mr. Duvall. Yes, sir.
        Mr. David Scott of Georgia. But that is hearing it from the
    Administration.
        Mr. Duvall. Yes, sir.
        Mr. David Scott of Georgia. So I am anxious to hear back
    from you and the cotton farmers how accurate that is. In other
    words, what I am saying is do I and others who are very
    concerned about the cotton farmers need to apply more pressure,
    or are you saying okay, they are working with us, we are
    hearing from them. That is what I need to hear.
        Mr. Duvall. According to our last communication with the
    cotton groups is that their negotiation or the discussions with
    the Secretary is moving forward but you asked me how I felt. I
    am beginning to lose my patience in this area because we need
    to do something for these farmers really facing difficulty.
        Mr. David Scott of Georgia. Okay. I need to know when I
    need to push a button more----
        Mr. Duvall. Yes, sir.
        Mr. David Scott of Georgia. I have been in touch with them.
    They have gotten back to me. The Obama Administration said they
    are moving. So I am ready to be your Huckleberry on this and we
    need to drive them on further.
        Now let me go to the other issue, because our farmers are
    in great crisis. I have never seen it like this, and it is not
    only this, but it is this massive over-regulation, and nowhere
    is that more personified than in this WOTUS issue with the EPA.
    And what I want to ask the Farm Bureau to do is that this
    ruling, I believe, because the Obama Administration is very
    stubborn on this and it is very hard to get them to see how
    terrible this Waters of the U.S. rule from the EPA is. So there
    may be a point where the farming community itself needs to
    stand up and sue and threaten to sue the EPA if they move
    forward with this terrible rule. And I want you to know that I
    will be delighted to join the farmers in this suit against the
    EPA.
        The Obama Administration and EPA has only 7 or 8 more
    months in this Administration. If they move ahead and we do
    nothing, then we have a rule taking place. But if we move and
    stand up and fight against the EPA with our legal rights, which
    is the foundation of this country, our day in court must be
    held on this rule. Because if it goes into effect, even if it
    is the last day of this Administration, then we have to move to
    overturn it, to remove it with whatever the new one is in.
        So I want to appeal to the farming community that there
    comes a time when farmers have to stand up and fight back, and
    if we can move with legal action against the EPA, because they
    are totally wrong in this, that farmers' property is his
    private property. They need those independent pools and wells
    and digging and ditching so they can have the irrigation, so
    they can have water on their property when we have the
    droughts. The animals still have to have water. The plants have
    to have water. And furthermore, to come on and put additional
    financial pressure on these farmers, to fine them, make them
    pay for permits. They can come on their property night or day,
    anytime. That is wrong. We can make a stand in the courts, and
    the whole point of what I am saying is at least a judge can
    give the farmers a stay until this Administration is gone. And
    then we have another chance, a new day with a new
    Administration that can come in and treat the farmers and our
    agriculture industry with the respect they deserve.
        Mr. Duvall. Yes, sir, and I appreciate what you are saying,
    and I will welcome your assistance to help us. We already have
    a legal team that is already working on it. We are in the
    process of doing that right now.
        Mr. David Scott of Georgia. Good. Put me on it and if I can
    be helpful by having my name on that suit with you, please put
    it on there.
        Mr. Duvall. Yes, sir, and we will bring you up to date of
    where we are at with that.
        Mr. David Scott of Georgia. Thank you.
        The Chairman. The gentleman's time has expired.
        We will continue with Georgia and recognize Mr. Allen, for
    5 minutes.
        Mr. Allen. You can put another Georgian to join Congressman
    Scott on that legal battle.
        First, Zippy, I want to welcome you. It is your first
    testimony before a House Committee as President of the American
    Farm Bureau, and of course, before leading the Farm Bureau, you
    led Georgia's Farm Bureau, and I remember one of my first
    meetings campaigning for Congress was to go down to Macon and
    meet you in your office, and I was delighted to have that
    opportunity to talk with you. Because, being born and raised on
    a farm, if you remember, my brother was also a Commissioner
    there in Columbia County, and you were a former Commissioner, I
    believe, in Green County.
        Mr. Duvall. Yes, sir.
        Mr. Allen. So you have had an incredible career of public
    service, and obviously, too, a great farmer. I have no doubt
    that you are going to do a great job for the farmers across
    America. I am just glad to have you in this position.
        Mr. Duvall. Thank you.
        Mr. Allen. In addition to obviously, President Duvall, we
    have a distinguished panel here, and we have heard and I hear
    it in the district about the farm income being down 56 percent
    over the last 3 years. And it was interesting. We just had the
    Masters golf tournament in Augusta and of course, one of the
    things that they do there is sell a lot of merchandise, which
    is very generous of them to allow patrons to come in and buy
    things that they can remember their trip there.
        But one thing that I did see is that everything that I
    bought was made in China, and last that I have heard is that
    China is paying their farmers $1.40 a pound for cotton. Their
    cotton is inferior to our cotton. Our farmers are getting paid,
    what, I don't know. It was 62. I understand it is below 60
    now a pound on the world market.
        Mr. Duvall. It is 56, 57.
        Mr. Allen. Yes, and our cotton is far superior. It is not
    contaminated. It is not handpicked. It is not contaminated, and
    in fact, and my guess is, that a large amount of our cotton has
    to be used in the making of that material that I purchased at
    the Masters, because their cotton is inferior.
        But what I don't understand is if we are buying all the
    merchandise, why aren't they paying our farmers a fair price
    for cotton? If we are going to be the consumer, and I have
    never heard anybody really address this, and I don't know if
    you have thought about it, and I am hitting you probably blind
    on this question. Or maybe we have talked about it. I don't
    know. But I don't understand if we are the consumer and we are
    going to pay the price for nice cotton goods, why can't we
    demand that we get a fair price for our cotton? Is there any
    task force or anybody that is looking at that as far as in
    World Trade Organization anything like that to your knowledge?
        Mr. Duvall. I can't tell you. I may have some staff that
    could answer that question.
        Mr. Allen. Right.
        Mr. Duvall. I don't know that we have a task force looking
    at that, but I can tell you that China has been the in the
    immediate past buying up big stocks of cotton.
        Mr. Allen. Right.
        Mr. Duvall. They have a tremendous amount of cotton stored
    over there to be able to feed their manufacturing plants that
    are selling it back to us, of course. And you gave me the
    perfect opportunity to say what I have said for so long, and it
    not just deals with Georgia, rural Georgia, but it appeals to
    rural America. If we as a people decide that we are going to
    invest in rural America and further process what we grow here,
    we will put people back to work and we will make rural America
    thrive.
        Mr. Allen. Right.
        Mr. Duvall. And that is exactly what you are saying.
        Mr. Allen. Yes. In other words, we are at their mercy as
    long as we don't have a--is what you are saying.
        Mr. Duvall. That is exactly right.
        Mr. Allen. Yes, and so we have to--we as a country have to
    make that decision, because right now, we are exporting 80
    percent of the cotton in my district.
        Well listen, thank you so much. I am just about out of
    time, but thank you for being here. We need to solve this
    problem because as you know, if we lose our cotton, we are
    going to lose our gins and I don't know how long it would take
    to rebuild that infrastructure?
        Mr. Duvall. It would take, if it could ever be rebuilt, it
    would take years upon years to rebuild it.
        Mr. Allen. Yes.
        Mr. Duvall. Could I make one statement?
        Mr. Allen. Yes, sir.
        Mr. Duvall. If you look at farm assistance from countries,
    developing countries, if you look at us compared to China,
    about 17 of every dollar that goes to a China farmer comes as
    assistance from the government, where we are sitting at about
    7. So they are already at an advantage above us, and their
    cotton producers too are getting better at it.
        Mr. Allen. Let me tell you, all our farmers want is a fair
    fight.
        Mr. Duvall. That is exactly right.
        Mr. Allen. Level playing field.
        Thank you, Zippy. Keep up the good work. I yield back.
        The Chairman. The gentleman yields back.
        The gentleman from California is recognized for 5 minutes.
        Mr. LaMalfa. Thank you, Mr. Chairman. Thank you, panelists,
    for being here today, and I am glad to be able to join in the
    discussion here. I totally get what you are talking about in
    some of the testimony I heard earlier where, around my farm,
    you decide how much farther can you push a tractor or a pickup
    or what have you as opposed to replacing it. I pulled one of
    the D-8s out of the shop the other day built in the 1940s,
    puttered around on that until I had to fix a fuel pump, but
    that is a different thing. So and then last all, the dealer
    brought out a demo rice combine, and so I jumped on there for a
    few minutes and tried that out. By the way, what is the price?
    They said with a 25 macked on header and tracks and rear wheel
    assist, $600,000 for a rice combine. It blew my mind. So, we
    will make our old stuff go another 10 years maybe, but don't
    tell the dealer that.
        Dr. Johansson, you talked about it a little bit earlier. I
    didn't get to hear all of it, but so we saw last year over \1/
    2\ million acres of land were fallowed. I am from California
    and we have our own set of problems there, but the drought we
    are temporarily relieved from that. The good Lord has blessed
    us with a lot of rain and snow pack this year, and our lakes
    are filling largely, if we can have those that regulate the
    water let them fill all the way. California has had a respite.
    It has its own problems such as forcing the $15 minimum wage
    and they are looking at decreasing hours you can work on the
    farm without overtime from the standard of 10/60 to 8/40. So we
    have a lot of stuff coming at us in California, and who knows
    if the drought is going to be back in place next year.
        And so I don't quite share the optimism that was talked
    about a little bit earlier with the stability for most farm
    households, and my colleagues here talking about the cotton
    situation and others. So the cost of everything is going up,
    especially in California where we enjoy the bonus of 60, 80
    higher per gallon of fuel. So I know nobody can fix California
    until the attitude changes. But can you elaborate a little more
    on where the optimism comes from for farm households and for
    the farmgate?
        Dr. Johansson. Yes, that is a great question. I would point
    out, as we heard earlier that dairy policy is probably the most
    complicated policy that you can talk about, but certainly
    talking about regional production in California and the West
    Coast rivals that. There is a lot going on out there, as you
    pointed out. Certainly California has been hard-pressed to deal
    with the water issues out there over the last 5 years, and as
    you mentioned, the water situation seems to have improved this
    year, but we are still----
        Mr. LaMalfa. Not everybody is out of the woods in the Simi
    Valley
        Dr. Johansson. We are still 80 percent of normal, so not
    recovering yet. We would want to see 100 percent of normal to
    start recovering.
        So certainly we have seen a lot of changes in production in
    California as a result of the water issues. We have seen some
    fallowing of rice land, for example. We have seen a lot more
    tree nuts going in, and now tree nut prices are coming back
    down. So, back to my point, I obviously talked about the larger
    macroeconomic story of China's economic growth slowing down,
    the global economic conditions slowing, whereas the U.S. is
    relatively stable. So that is causing our dollar to be
    relatively strong. It is causing a lot of prices to come down
    for commodities. Our producers are facing a pretty competitive
    trading environment overseas. Certainly, that is the case for a
    lot of the California commodities that we would see.
        Pointing out this household income story certainly provides
    economists a lot of areas for discussion. There is a lot behind
    those aggregate numbers and when we start digging into them, we
    see the stories that we are talking about today. There are
    farms that are very highly leveraged, and they are going to
    have a hard time finding the financing, paying for the
    financing and meeting the expected costs that we are going to
    see this year, given the fact that prices are coming down. That
    being said, I wouldn't want to say that the bottom end of the
    distribution for financial leverage paints the whole story for
    the whole farm economy. There are a lot of producers out there
    that did relatively well over the last 5 years. They do have
    financial reserves. They did buy a lot of equipment after the
    Section 179 went through. They have new equipment and as
    everybody here would--knows that there are ups and downs in the
    farm economy and we just need to take advantage of the good
    times and hope that the safety net is sufficient to cover the
    times that are more difficult.
        Mr. LaMalfa. It just seems the cost structure has ratcheted
    up and will not be coming down on inputs, whether it is
    machinery or what you put in at the field. Those don't come
    down, so the pendulum not only swings, but pivots and stays
    farther at one side.
        Dr. Johansson. Yes, and the costs certainly don't come down
    at the same time as the prices do, as Mr. Johnson pointed out
    and fortunately, we have seen very low energy prices, even for
    California. Prices have come down and that has helped in a lot
    of the chemical input side. So some input prices are coming
    down and helping on that, and again, fortunately we have very
    low interest rates so taking out loans isn't expected to add a
    lot to up righting costs right now.
        Mr. LaMalfa. All right. I will yield back, Mr. Chairman.
    Thank you.
        The Chairman. The gentleman yields back.
        Before we adjourn, I would like to recognize the Ranking
    Member for any closing comments he would like to make.
        Mr. Walz. I thank the Chairman, and to the witnesses, thank
    you again as always. A lot of good food for thought helping us
    prepare as we go forward, and I would like to associate myself
    with the gentleman from Georgia who commented about value-added
    is a real win for us, if we can do that.
        And I was just going to ask, maybe just a quick yes or no,
    and maybe we could get it later, but Dr. Johansson or Dr.
    Outlaw, have either of you done an analysis on what would
    happen if we reduce or eliminate the RFS, what would happen to
    commodity prices? Has that been done by either one of you?
        Dr. Johansson. There has been reports put out on how prices
    would respond to that. Most of those were done, either when we
    were in the drought back in 2012 or when oil prices were pretty
    high at $100 a barrel, for example. I don't know if I have seen
    any that have been done looking at sort of the low oil price,
    low commodity price environment we are in right now, but the
    Congressional Budget Office put out a report maybe last year on
    this topic.
        Mr. Walz. Well, I appreciate all of your expertise and
    greatly appreciate it. I want to make a note that joining us
    was Minnesota Farm Bureau President Kevin Paap. I appreciate
    his advocacy for our producers in the first district of
    Minnesota. I yield back.
        The Chairman. The gentleman yields back.
        I want to thank the witnesses as well. This has been very
    productive and I look forward to working with you all, going
    forward, and we certainly do have a task in front of us dealing
    with the next farm bill, and we appreciate your input.
        Under the Rules of the Committee, the record today of
    today's hearing will remain open for 10 calendar days to
    receive additional material and supplementary written responses
    from witnesses to any question posed by a Member.
        This hearing of the Subcommittee on General Farm
    Commodities and Risk Management is adjourned.
        [Whereupon, at 11:28 a.m., the Subcommittee was adjourned.]

                           FOCUS ON THE FARM ECONOMY

                         (TIGHTENING CREDIT CONDITIONS)

                                  ----------

                            TUESDAY, APRIL 19, 2016

                      House of Representatives,
       Subcommittee on Commodity Exchanges, Energy, and Credit,
                                      Committee on Agriculture,
                                                       Washington, D.C.
        The Subcommittee met, pursuant to call, at 10:00 a.m., in
    Room 1300 of the Longworth House Office Building, Hon. Austin
    Scott of Georgia [Chairman of the Subcommittee] presiding.
        Members present: Representatives Austin Scott of Georgia,
    Lucas, Neugebauer, Davis, Conaway (ex officio), Crawford, David
    Scott of Georgia, Vela, Kirkpatrick, and Aguilar.
        Staff present: Bart Fischer, Caleb Crosswhite, Callie
    McAdams, Josh Maxwell, Matt Schertz, Mollie Wilken, Stephanie
    Addison, Faisal Siddiqui, Anne Simmons, Lisa Shelton, Matthew
    MacKenzie, Nicole Scott, and Carly Reedholm.

      OPENING STATEMENT OF HON. AUSTIN SCOTT, A REPRESENTATIVE IN
                         CONGRESS FROM GEORGIA

        The Chairman. Good morning. This hearing of the Committee
    on Agriculture: Focus on the Farm Economy: Tightening Credit
    Conditions, will come to order.
        Mr. Conaway, did you want to say anything before my opening
    statement?

    OPENING STATEMENT OF HON. K. MICHAEL CONAWAY, A REPRESENTATIVE
                         IN CONGRESS FROM TEXAS

        Mr. Conaway. No, just a welcome to our witnesses, and I
    look forward to hearing from them, and look forward to this
    hearing of your's and David, the Scott Brothers show, this
    morning.
        The Chairman. Thank you, Mr. Chairman. Good morning, and
    welcome to today's hearing. This is the second in the series of
    hearings that each Subcommittee is holding on the state of the
    farm economy.
        As we know, the agricultural economy is highly cyclical.
    Given the recent 56 percent drop in net farm income and the
    hard times that inevitably come along with that, I believe it
    is important to hold hearings like the one today to make sure
    the credit needs of producers are being met and will continue
    to be met, particularly if current market conditions continue
    into the future.
        While providing credit to America's farmers and ranchers is
    vital, it is a growing challenge for many lenders in the United
    States. Perhaps no one knows this better than lenders in cotton
    country. After a recent period of historic highs, crop prices
    have plummeted due to various factors which were discussed at
    last week's hearing before the General Farm Commodities and
    Risk Management Subcommittee. While input costs have softened,
    they remain near historic highs, and some of our biggest
    foreign competitors are sharply increasing their subsidies,
    tariffs, and non-tariff trade barriers. Unfortunately,
    burdensome government regulations have added to the challenges
    faced by America's farmers and ranchers, with the EPA
    continuing to push for new and costly regulations.
        Meanwhile, farmland values are on a downward trend, and
    while some livestock producers are rebounding on the balance
    sheet with lower feed costs, our western producers are
    struggling with consecutive years of drought. It is times like
    these that our farmers and ranchers are most in need of
    reliable sources of credit at competitive rates. Thankfully, we
    have a network of commercial and community banks, USDA loan
    programs, and the Farm Credit System that each play a crucial
    role in providing that access.
        In order to sustain an abundant supply of food and fiber
    well into the future, we must ensure that a responsible farm
    safety net and sound agricultural credit policies are in place
    now. To that end, I am pleased to welcome a distinguished group
    of witnesses and look forward to learning more from them about
    their perspective on current credit conditions and their
    outlook for credit conditions in rural America.
        [The prepared statement of Mr. Austin Scott follows:]

     Prepared Statement of Hon. Austin Scott, a Representative in Congress
                                  from Georgia
        Good morning, and welcome to today's hearing. This is the second in
    a series of hearings that each Subcommittee is holding on the state of
    the farm economy.
        As we know, the agricultural economy is highly cyclical. Given the
    recent 56 percent drop in net farm income and the hard times that
    inevitably come along with that, I believe it is important to hold
    hearings like the one today to make sure the credit needs of producers
    are being met and will continue to be met, particularly if current
    market conditions continue into the future. While providing credit to
    America's farmers and ranchers is vital, it is a growing challenge for
    many lenders in the United States. Perhaps no one knows this better
    than lenders in cotton country.
        After a recent period of historic highs, crop prices have plummeted
    due to various factors which were discussed at last week's hearing
    before the General Farm Commodities and Risk Management Subcommittee.
    While input costs have softened, they remain near historic highs, and
    some of our biggest foreign competitors are sharply increasing their
    subsidies, tariffs, and non-tariff trade barriers. Unfortunately,
    burdensome government regulations have added to the challenges faced by
    America's farmers and ranchers, with the EPA continuing to push for new
    and costly regulations.
        Meanwhile, farmland values are on a downward trend, and, while
    livestock producers are rebounding on the balance sheet with lower feed
    costs, our western producers are struggling with consecutive years of
    drought.
        It is in times like these that our farmers and ranchers are most in
    need of reliable sources of credit at competitive rates. Thankfully, we
    have a network of commercial and community banks, USDA loan programs,
    and the Farm Credit System that each play a crucial role in providing
    that access.
        In order to sustain an abundant supply of food and fiber well into
    the future, we must ensure that a responsible farm safety net and sound
    agricultural credit policies are in place now.
        To that end, I am pleased to welcome a distinguished group of
    witnesses and look forward to learning more from them about their
    perspective on current credit conditions and their outlook for credit
    conditions in rural America.

        The Chairman. With that, I would like to recognize the
    Ranking Member, Mr. David Scott, also from Georgia, for any
    opening statement that he may have.

      OPENING STATEMENT OF HON. DAVID SCOTT, A REPRESENTATIVE IN
                         CONGRESS FROM GEORGIA

        Mr. David Scott of Georgia. Thank you, Chairman Scott, and
    thank you to this distinguished panel for coming to speak with
    us about this very important subject, and I think a very
    critical issue right now of the tightening credit conditions.
        Without access to credit, farmers cannot put a crop in the
    ground, and they cannot do the important work of feeding the
    world. I am especially worried about beginning farmers who are
    the future of production agriculture in this country and in the
    world. If we cannot provide the path to capital for these new
    farmers, we will continue to have an aging population of
    farmers. This is an issue that I am, and this Committee, is
    very much concerned about, beginning farmers. And I want to
    give a shout out and some credit to Farm Credit, who is working
    closely with me in coming up with ways and means that we can
    address the issue of beginning farmers. Because according to
    the 2012 Census of Agriculture, the average age of the
    principle operator of a farm is 58.3 years old. That is nearly
    60 years old, ladies and gentlemen. In 1982, that age was 50.5.
    So within a span of just 30 years, the average age of the
    farmer has gone up nearly 10 years. This trend will continue if
    we don't have new farmers who are taking over family farms, and
    then also getting new faces, young people in this country
    starting out their own agriculture careers.
        I want to add a little word here about our cotton farmers,
    this is a very critical issue. And what the cotton farmers are
    going through now is an example of what so many other farmers
    and growers, whether it is peanuts, whether it is tobacco,
    whether it is watermelons, whatever. Right now cotton farmers
    in my State of Georgia and around the country are in a
    situation where the price of cotton doesn't cover the variable
    costs of production. The cost of cotton doesn't cover the
    variable cost of production, much less the total costs,
    including any land rents that must be paid.
        This is why I say the issue is critical. The Department of
    Agriculture predicts that prices could stay low for the next 3
    to 5 years. That is why this is a crisis. It is a long-term
    issue, and we have to have a long-term strategy to deal with
    it. And with total farm debt forecast to hit $372.5 billion in
    this year alone, I wonder if some farmers will have problems
    accessing credit in 2017 and 2018.
        So we have a lot of issues here. I look forward to hearing
    the panel's comments, and thank you, Mr. Chairman.
        The Chairman. Thank you, Mr. Scott.
        The gentleman from Arkansas, Mr. Crawford, is not a Member
    of the Subcommittee, but has joined us today. Pursuant to
    Committee Rule XI(e), I have consulted with the Ranking Member,
    and we are pleased to welcome him to join the questioning of
    the witnesses.
        I would like to welcome our witnesses to the table. Mr.
    Timothy Buzby, President and Chief Executive Officer, Federal
    Agricultural Mortgage Corporation, Washington, D.C.; Dr. Allen
    Featherstone, Professor and Head of the Department of
    Agricultural Economics, Kansas State University, Manhattan,
    Kansas; and Mr. Randy Nelson, President, CHS Capital, LLC,
    Inver Grove Heights, Minnesota.
        Mr. Buzby, please begin when you are ready.

     STATEMENT OF TIMOTHY L. BUZBY, PRESIDENT AND CHIEF EXECUTIVE
      OFFICER, FEDERAL AGRICULTURAL MORTGAGE CORPORATION (FARMER
                         MAC), WASHINGTON, D.C.

        Mr. Buzby. Thank you, Chairman Scott, Ranking Member Scott,
    and distinguished Members of the Subcommittee. Thank you for
    your invitation to appear today to testify on behalf of the
    Federal Agricultural Mortgage Corporation, commonly known as
    Farmer Mac. My name is Tim Buzby, and I am the President and
    CEO of Farmer Mac. I am here to give you a perspective of what
    Farmer Mac is seeing in the field related to credit conditions
    and the overall health of the agricultural financial community.
        As the secondary market created to serve rural America,
    Farmer Mac works with over 900 institutions of all kinds in all
    50 states through its programs, alliances, and partnerships. By
    working with such a vast network of lenders throughout the
    country, Farmer Mac not only introduces more competition into
    the marketplace to help your constituents receive the lowest
    interest rates and most favorable terms possible for their
    financing needs, but we are also able to give you a unique
    perspective on credit conditions across America.
        Allow me to sum up briefly what is in my written testimony
    with a few observations on what Farmer Mac has seen most
    recently.
        Working capital levels are currently being tested. It
    appears farm debt is slowly climbing from historical lows. The
    Farm Credit System reported nearly a seven percent increase in
    loans outstanding for agricultural production, intermediate
    term, and real estate lending in 2015 compared to 2014.
    Commercial banks and savings institutions reported a similar
    percentage increase in loans outstanding for agricultural
    production and real estate lending. Farmer Mac's purchases of
    USDA guaranteed loans increased eight percent from 2014. This
    rising lending activity highlights the growing demand for
    agricultural credit, but also demonstrates the willingness and
    ability of ag lenders to meet that demand.
        Although market data indicates good credit availability in
    early 2016, we urge market participants to exercise caution and
    patience as the current industry cycle plays out. Specifically,
    we believe lenders should apply disciplined lending practices,
    and at the same time, be supportive but firm with their
    customers' requests. Regulators should be aware of the scope of
    potential credit problems, but also should be cognizant that
    agriculture is a long-term endeavor and that sometimes the best
    cure for a troubled credit is not always liquidation. Producers
    should be aware that major increases in agricultural commodity
    prices do not appear to be imminent, and that cost containment
    could provide a new path to a new profitability.
        Congress should continue to support the tools available to
    farmers and ranchers to help offset lower incomes and provide
    access to credit. One of those tools is Farmer Mac, and we
    stand ready and able to continue our mission of providing
    capital to rural America.
        I understand that there is some concern about land values,
    so let me touch briefly on this important matter. Of the nearly
    $3 trillion in farm assets in 2014, over 80 percent was in the
    value of agricultural land and buildings. Between 2004 and
    2014, the USDA estimate of the total value of farm real estate
    increased by more than $1 trillion, a doubling of asset values
    in just 10 years. The rising tide did not affect all regions
    equally. Much of the increases were centered in the midwestern
    United States and major grain producing states.
        Let me give you a couple of observations on this. Revenue
    generated by agricultural real estate has fallen sharply, and
    it is natural for an asset with declining future cash flow
    potential to also decline in value. Farming expenses have not
    fallen at the same rate as farm revenues, which puts additional
    pressure on the ultimate profitability of farmland. The U.S.
    dollar strengthened tremendously in 2015, lowering commodity
    prices and making agricultural exports less attractive in
    foreign markets. Interest rates have not changed significantly
    since 2010 and remain near historic lows. A lower interest rate
    environment supports asset values by reducing the discount rate
    of future cash flows, and it makes the returns on farm assets
    more attractive, relative to other investment opportunities.
        As we look forward, there is great competition in the
    agricultural lending space, and this is particularly helpful
    for borrowers. More and more borrowers are prudently choosing
    to finance farm purchases and refinancing with long-term fixed
    rate mortgages to lock in low and known interest costs.
        At Farmer Mac, we work with lenders of all sizes, from
    those who sell us loans as small as $50,000, to multi-million
    dollar purchases. We have a unique solution for lenders who
    work with small family farms, and those that require
    sophisticated lending facilities. Farmer Mac continues to
    provide a stable source of liquidity, capital, and risk
    management tools to help rural lenders meet the financing needs
    of their customers. With a diverse array of lending products
    and capital sources, Farmer Mac is well positioned to provide
    lenders across America with the sophisticated and low cost
    lending products demanded by today's rural borrowers.
        Thank you, and I would be happy to answer any questions you
    may have.
        [The prepared statement of Mr. Buzby follows:]

     Prepared Statement of Timothy L. Buzby, President and Chief Executive
       Officer, Federal Agricultural Mortgage Corporation (Farmer Mac),
                                Washington, D.C.
    Introduction
        Chairman Scott, Ranking Member Scott, and distinguished Members of
    the Subcommittee, thank you for your invitation to appear today to
    testify on behalf of the Federal Agricultural Mortgage Corporation,
    which is commonly known as ``Farmer Mac.'' My name is Tim Buzby, and I
    am the President and Chief Executive Officer of Farmer Mac. I
    appreciate the opportunity to appear before your Subcommittee today to
    provide some insight about what Farmer Mac sees taking place in the
    rural credit financing markets, especially as it pertains to the
    availability of credit.
    Farmer Mac
        Farmer Mac's position at the intersection of Main Street and Wall
    Street allows us to provide a unique perspective about the environment
    for rural credit. We are a stockholder-owned, federally chartered
    corporation that combines private capital and public sponsorship to
    serve a public purpose. Established under legislation first enacted in
    1988, Congress has charged Farmer Mac with the mission of providing a
    secondary market for a variety of loans made to borrowers in rural
    America, including mortgage loans secured by agricultural real estate,
    loans made to rural utility cooperatives, and certain loans guaranteed
    by the U.S. Department of Agriculture (USDA). This secondary market
    increases the availability of long-term credit at stable interest rates
    to America's rural communities, including farmers, ranchers, rural
    residents, and rural utility cooperatives, and provides those borrowers
    with the benefits of capital markets pricing and product innovation. In
    Farmer Mac's role as the secondary market for rural America, we work
    closely with lenders of all sizes, including commercial and community
    banks, Farm Credit System institutions, credit unions, rural utility
    cooperative lenders, and insurance companies to offer more financial
    choices to their rural customers and help them keep pace with today's
    capital-intensive environment.
        For over a quarter-century, Farmer Mac has remained steadfast in
    its mission of delivering capital and liquidity and increasing lender
    competition for the benefit of American agriculture and rural
    communities. Our team of 72 employees located in Johnston, Iowa and
    Washington, D.C. share a mutual passion for rural America and in
    serving our customers. We take pride in the work we do and the
    important role we play in American agriculture. While we work directly
    with rural lenders, ultimately the greatest benefit we are able to
    provide is to your constituents--America's farmers, ranchers, rural
    utility cooperatives, and business owners in rural communities. To
    date, over 1,400 lenders across the nation have used Farmer Mac's
    programs and solutions to increase capital and liquidity and reduce
    their credit risk. By working with such a vast network of rural
    lenders, we inherently introduce more competition into the marketplace,
    which helps your rural constituents to receive the lowest interest
    rates and most favorable terms for their financing needs. In fact, the
    interest rates available to borrowers through the products offered by
    Farmer Mac are some of the most competitive in the market today.
    However, whether or not a rural borrower ultimately chooses a Farmer
    Mac loan product, Farmer Mac's participation in the rural lending arena
    provides that borrower with the opportunity to obtain a low interest
    rate on terms that work for that individual. That is good for rural
    borrowers, their families, their communities, and rural America in
    general. Since its creation, Farmer Mac has helped to fund loans to
    nearly 70,000 borrowers in all 50 states, resulting in approximately
    $39 billion of investment in rural America.
    Agricultural Credit Demand and Availability
        American agriculture is no stranger to cyclicality. The industry
    has been through three widely recognized business cycles, the first in
    the 1940s, followed by the second in the late 1970s through the 1980s,
    and most recently beginning in 2005. Each cycle has been characterized
    by a rapid increase in farm profitability followed by a reversion to
    trend or an over-correction below trend. In the trench of the cycle,
    producers often offset lower income levels by consuming working capital
    earned during the profitable years, perhaps selling liquid assets, or
    taking on additional debt to meet cash flow demands of their farming
    operations. For 2016, USDA forecasts a third consecutive year of lower
    farm incomes. While the financial health of the sector remains largely
    intact, the industry is certainly feeling some stress as the current
    cycle nears its trough. Working capital levels are under stress today,
    and it appears farm debt is slowly climbing from historical lows.
        Recent activity in both the retail and secondary lending markets
    underscore the growing need for agricultural financing. According to
    year-end call report data for 2015, the Farm Credit System (FCS)
    reported $147.3 billion in loans outstanding for agricultural
    production, intermediate-term, and real estate lending, up nearly seven
    percent from 2014.\1\ Similarly, commercial banks and savings
    institutions reported $171.9 billion in loans outstanding for
    agricultural production and real estate lending at the end of 2015,
    also up nearly seven percent from 2014.\2\ Applications for credit
    through Farmer Mac's programs remained elevated through 2015. Farmer
    Mac approved more than 80 percent of all applications for Farm & Ranch
    lending during the calendar year and purchased a record $748 million of
    Farm & Ranch loans during the year. Farmer Mac's purchases of Farm
    Service Agency (FSA) and other USDA guaranteed loans also remained
    robust in 2015 with $363 million in transactions, up eight percent from
    2014. This rising lending activity highlights the growing demand for
    agricultural credit but also demonstrates the willingness and ability
    of agricultural lenders to meet that demand.
    ---------------------------------------------------------------------------
        \1\ Federal Farm Credit Banks Funding Corporation 2015 Annual
    Information Statement (https://www.farmcreditfunding.com/).
        \2\ Federal Financial Institutions Examination Council Quarterly
    Call Report Data, 2015Q4 (https://cdr.ffiec.gov/public/).
    ---------------------------------------------------------------------------
        Despite the cyclical headwinds from the overall agricultural
    economy, Farmer Mac sees other indicators of credit availability to a
    wide variety of borrowers. In 2015, Farmer Mac purchased or committed
    to purchase loans secured by agricultural real estate that were
    producing more than 70 different agricultural commodities in 42 states
    from over 300 lending institutions. Participating lenders included
    commercial banks, FCS institutions, insurance companies, and many other
    non-bank financial institutions dedicated to serving the financial
    needs of our nation's farmers and ranchers. We continue to see strong
    interest in our programs from rural lenders, with some 80 new lenders
    signed up during 2015 and over 1,200 lenders eligible and approved to
    transact business with Farmer Mac. Approximately 40 percent of all
    Farmer Mac transactions during 2015 involved small operators, and over
    95 percent of transactions involved a family operation. This business
    diversity by borrower location, size, and style as well as by customer
    and industry underscores the breadth and depth of agricultural lending
    today.
        Although market data indicates good credit availability in early
    2016, we urge market participants to exercise caution and patience as
    the current industry cycle plays out. Creditors should apply
    disciplined lending practices and at the same time be supportive but
    firm with their customers' requests. Regulators should be aware of the
    scope of potential credit problems, but they should also be cognizant
    that agriculture is a long-term endeavor and that sometimes the best
    cure for a troubled credit is not always liquidation. Producers should
    be aware that low commodity prices are likely to be with us for a
    while, and that cost containment could provide a new path to renewed
    profitability. Long-term fixed rate debt at today's historically low
    interest rates, which Farmer Mac helps many lenders to provide, can be
    an important tool to help stabilize the cost structure for many
    producers. In addition, lawmakers should continue to support the tools
    available to farmers and ranchers to help offset lower incomes and
    provide access to credit.
    Land Values
        Farm real estate represents the overwhelming majority of the
    agricultural balance sheet. Of the nearly $3 trillion in farm assets in
    2014, over 80 percent was in the value of agricultural land and
    buildings. Between 2004 and 2014. the USDA estimate of the total value
    of farm real estate increased by more than $1 trillion, a doubling of
    asset values in just 10 years. The rising tide of farmland values did
    not affect all regions equally--much of the rapid rise in land values
    was centered in the midwestern United States in major grain producing
    states. The USDA reports increases in farmland value of 243 percent in
    Nebraska, 222 percent in Iowa, and 134 percent in Illinois between 2004
    and 2014. These increases are undoubtedly a result of the industry's
    recent expansionary cycle and commodity price boom beginning in 2005.
        More recently, factors influencing farmland values have been mixed.
    As previously mentioned, certain commodity prices have fallen sharply,
    and it is natural for an asset with declining future cash flow
    potential to also decline in total value. Farming expenses have not
    fallen at the same rate as farm revenues, which puts additional
    pressure on the ultimate profitability of farmland. In addition, the
    U.S. dollar strengthened tremendously in 2015, which lowered commodity
    prices and made U.S. agricultural exports less attractive in foreign
    markets. However, several factors have also combined to help support
    farmland values. Interest rates have not changed significantly since
    2010 and remain near historical lows. A lower interest rate environment
    supports asset values by reducing the discount rate of future cash
    flows, and it makes the returns on farm assets more attractive relative
    to other investment opportunities. Additionally, the supply of farmland
    available for sale does not appear to be growing significantly. This
    current trend is particularly significant as lower supplies are
    typically associated with higher market prices. Finally, Federal crop
    insurance and other support offered to farmers such as the Agricultural
    Risk Coverage (ARC), Price Loss Coverage (PLC), and the Margin
    Protection Program (MPP) significantly lower market risk for producers
    and thus lower the inherent revenue volatility of the underlying
    farmland assets. We cannot stress enough how vital the current safety
    net policies are to agricultural lenders. They provide a great level of
    certainty in an industry that is anything but certain.
        The combined market forces described above have netted out a modest
    decline in farmland values through early 2016, focused largely in the
    Midwest. According to the University of Nebraska-Lincoln, land values
    in Nebraska decreased six percent from early 2014 through February
    2016.\3\ A recent survey released by Iowa State University shows the
    value of medium-quality Iowa cropland fell 17 percent from September
    2014 to March 2016.\4\ Similarly, the annual survey results from the
    Illinois Society of Professional Farm Managers and Rural Appraisers
    (ISPFMRA) showed average farmland values in Illinois fell by nine
    percent in 2015.\5\ The relatively modest declines experienced in some
    states are very different from the dramatic changes seen during the
    1980's farm crisis, which is a testament to the strength and resiliency
    of U.S. agriculture today. Indeed, in other parts of the country, the
    appreciation of farmland values continued in 2015. According to data
    from the USDA's National Agricultural Statistics Service (NASS),
    farmland values in western states like Washington, Oregon, and
    California increased in 2015. These states produced a wider variety of
    agricultural products and thus were not so sensitive to changes in
    grain and oilseed prices. Similarly, land values in states like Georgia
    and others in the South and Southeast were near zero or slightly
    positive with a greater diversity of agricultural production.
    ---------------------------------------------------------------------------
        \3\ 2016 Trends in Nebraska Farmland Markets: Farming and Ranching
    on the Margin. University of Nebraska-Lincoln (http://agecon.unl.edu/
    2016-trends-nebraska-farmland-markets-farming-and-ranching-margin).
        \4\ Iowa Farm & Ranch Chapter #2 REALTORS
    Land Institute March 2016 Land Value Survey. Iowa State University
    Extension and Outreach (https://www.extension.iastate.edu/agdm/
    wholefarm/html/c2-75.html).
        \5\ 2016 Illinois Farmland Value and Lease Trends. Illinois Society
    of Professional Farm Managers and Rural Appraisers (http://
    www.ispfmra.org/).
    ---------------------------------------------------------------------------
    Agricultural Sector Analysis
        Much of the decline in agricultural profitability in recent years
    is a result of market changes for bulk crop commodities like corn,
    soybeans, and cotton. Global supplies of nearly all bulk commodities
    are in surplus, putting downward pressure on world prices. U.S.
    producers are at an added disadvantage with a strengthening dollar that
    puts further downward pressure on both commodity prices (that are
    denominated in U.S. dollars) and the relative value of U.S. exports.
    Cotton producers face additional pressure from significant supplies in
    China, the world's largest consumer of cotton, and signals of the
    country's willingness to liquidate those supplies in large trade
    blocks. Combined, the USDA estimates that the decline in crop prices
    has caused a drop of nearly $50 billion in net farm income between 2013
    and 2016.
        However, bulk commodity producers are not the only ones coming
    under pressure. Milk and dairy product prices are down significantly in
    2016 due to greater competition from foreign producers. Cattle prices
    are softening from historical highs as consumers began to balk at
    record-setting retail beef prices in 2015. Hog prices have decreased
    due to the rebound in hog inventories after the 2013 outbreak of the
    Porcine Epidemic Diarrhea Virus (PEDv) and tighter export markets.
    Poultry producers are also experiencing lower market prices due to
    higher domestic supplies, a result of several import bans on broiler
    meat after the 2015 outbreak of Highly Pathogenic Avian Influenza
    (HPAI). Finally, fruit and nut producers are seeing lower prices and
    tighter export markets affected by the stronger U.S. dollar in 2015. In
    general, the pattern of lower commodity prices has cause an increased
    demand for credit, as well as a need for the lender and borrower to
    work together more collaboratively when addressing the borrower's
    financing needs.
        For additional insight into these and other topics, I have attached
    the spring edition of The Feed, Farmer Mac's quarterly perspective on
    agriculture. While much of what is trending in agriculture today seems
    negative, we believe the medium- and long-term prospects for the sector
    remain favorable, a function of the many years of profitability in the
    last decade, the strength of the farm balance sheet, and the grit of
    America's farmers and ranchers.
    Conclusion
        As mentioned at the beginning of my testimony, American agriculture
    has always been cyclical in nature. Farmers and ranchers have long
    memories, and they, more than most, pay close attention to mistakes
    made in the past to avoid them in the future. The conservation programs
    enacted and maintained after the weather-related disasters in the early
    20th century are a prime example of that. Farmers, ranchers, and their
    lenders also learned some hard lessons from the agriculture financial
    crisis of the late 1970s and 1980s. Today, producers are much more
    aware of the need to build working capital as the first line of defense
    against price volatility. I would be remiss if I did not also point out
    that the current low interest rate environment significantly helps
    borrowers. Looking ahead, credit conditions appear to be beginning to
    tighten modestly as the financial impacts of the recent stresses to
    farm incomes are becoming apparent in the financial position of some
    agricultural producers. For producers with higher profit margins and
    strong balance sheets, credit remains available at a low cost, while
    for other producers that lack these attributes, the cost is beginning
    to increase.
        There is no doubt that policies which enable our farmers and
    ranchers to market and sell their commodities overseas are more
    important than ever. It is no secret that we can feed the world, but
    our friends working on the farms and ranches in rural America need the
    tools to do this. Free and fair trade agreements are essential. In
    addition, just as the nation's economy and the world's economy are very
    different than they were in the late 1980s, so is the agricultural
    economy. Farms have naturally grown larger through consolidation,
    especially to help lower costs through scale. This is not necessarily a
    bad thing, but it simply points to a new reality, which depends on
    increasing efficiencies to maintain profitability. The participants in
    the agricultural financing markets have adjusted to these changes, and
    we believe that public policies in this regard should also reflect this
    new environment while continuing to recognize the importance of small
    farms and family operations in maintaining the vitality and diversity
    of American agriculture.
                                   Attachment
    The Feed [*]
    ---------------------------------------------------------------------------
        * The Feed is a publication produced by the Federal Agricultural
    Mortgage Corporation (``Farmer Mac''), which distributes this
    publication directly. The information and opinions contained herein
    have been compiled or arrived at from sources believed to be reliable,
    but no representation or warranty, express or implied, by Farmer Mac is
    made as to the accuracy, completeness, or correctness of the
    information, opinions, or the sources from which they were derived. The
    information and opinions contained herein are here for general
    information purposes only and do not constitute investment or
    professional advice. Farmer Mac does not assume any liability for any
    loss, however arising, that may result from the use of or reliance upon
    any such information or opinions by any person. Such information and
    opinions are subject to change without notice, and nothing contained in
    this publication is intended as an offer or solicitation with respect
    to the purchase or sale of any security, including any Farmer Mac
    security. This document may not be reproduced, distributed, or
    published, in whole or in part, for any purposes, without the prior
    written consent of Farmer Mac. All copyrights are reserved.
    ---------------------------------------------------------------------------
    Farmer Mac's Quarterly Perspective on Agriculture
    Spring 2016
    Issue No. 3
    Executive Summary
    Production and Market Price Perceptual Map
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Key Highlights
              Farm income in 2016 is expected to be down across most farm
            business types.
              Farm debt is increasing but now at a decreasing rate;
            estimated annual farm debt payments are still low compared to
            the 1980s.
              Agricultural exports face major headwinds, but there are
            reasons to remain optimistic.

        For the third consecutive year, net farm income is projected to
    fall in 2016 as a result of lower commodity prices and ample global
    supplies. Very few sectors touted higher prices at the end of 2015
    compared to the beginning, and the price forecasts for 2016 are lower
    for most major ag commodities. However, government payments through the
    Agricultural Risk Coverage (ARC) and Price Loss Coverage (PLC) programs
    should help offset the lower profitability for crop producers. Farm
    assets were down in 2015 and are projected down again for 2016 due to
    the liquidation of financial assets to meet cash flow needs, lower
    inventory values carried at lower market prices, and small declines in
    real estate values. Real estate and non-real estate debt look to be on
    the rise in 2016 but at a slower pace than during the transition years
    of 2014 and 2015. Weather conditions in the West are improved because
    of El Nino precipitation, particularly in the Pacific Northwest. Though
    considerably more precipitation may be required to fully alleviate the
    effects of the drought, a wet 2016 water year is a good start. The U.S.
    Department of Agriculture (USDA) projects an overall decrease in acres
    planted to crops in 2016, largely driven by lower wheat acreage. Acres
    planted to corn are expected to increase in 2016. Crop prices have
    declined in recent months due to the large carry-in crop from the 2015
    harvest. Stiff competition persists for U.S. dairy producers in foreign
    markets, and lower market prices are likely to remain throughout the
    year. Cattle herds continue to rebuild in 2016, putting downward
    pressure on cattle prices. Reduced profitability for feedlots will
    likely continue to depress cattle prices throughout 2016. Broiler
    prices were down in 2015 on higher cold storage inventories, but demand
    is inching up on the pricing differential between poultry and beef,
    while it is hopeful that avian influenza concerns ease in overseas
    markets. Wine grape producers received lower prices in 2015, which was
    the result of a good harvest, increased interest in mid-to-higher
    priced wines, and increased competition from the craft beer industry.
    Hops prices have soared in response to a tough harvest and the rapid
    growth of craft brewing.
    Farm Economy Highlights (Resource 1, 2)
    Key Highlights
              USDA economists expect farm income to decline for the third
            consecutive year in 2016.
              Farm equity is expected fall again in 2016, but farm assets
            are holding up fairly well.
              Although debt levels continue to increase, estimated
            inflation-adjusted annual debt payments are still significantly
            lower than the 1980s.
        The initial USDA projections for the 2016 farm economy could be an
    inflection point. Net farm income, an accrual-based economic measure of
    sector income, is projected to fall by only three percent to $55
    billion. This is a small drop compared to the declines in 2014 and 2015
    of 27 and 38 percent, respectively. Net cash income, the amount of
    income left to producers after they have paid for all cash expenses, is
    also expected to decline in 2016 but by only two percent to $91
    billion. Net cash income is a sounder measure of sector financial
    health for lenders as it gives a better picture of cash available for
    living expenses and debt servicing. Commodity prices have stabilized
    somewhat in early 2016, unfortunately at lower levels, which appears to
    be driving the leveling-off of farm income. This year will represent
    the third consecutive year of lower crop prices and the second year of
    lower livestock and protein prices. Producers in all major classes of
    sector production show stable-to-lower than expected incomes during the
    year with dairy producers showing the largest drop due to declines in
    milk prices. While a third successive decline in farm incomes is
    historically rare, producers are adapting to the lower market price
    environment from a position of relative financial strength.
        Farm assets are also expected to compress in 2016 while debt levels
    are set to expand. Farm assets are expected to decline by just under
    two percent this year to $2.7 trillion, driven by lower real estate
    values, lower crop and livestock inventory values, and lower levels of
    financial assets. The combined effects of the asset value declines
    indicate a realized or unrealized loss of nearly $130 billion since
    2014. Simultaneously, farmers and ranchers are expected to take on
    additional debt loads to offset the lower level of incomes. While the
    total debt load projected for 2016 will hit a nominal high at $372
    billion, when adjusted for inflation, the level of combined farm debt
    does not exceed the historic highs reached in the 1980s. Not only is
    the projected level of farm debt below peak, the annual cash required
    to service that debt is well below the levels witnessed during the farm
    crisis years. By reversing the USDA's debt servicing ratio and
    adjusting for inflation, Figure 2 demonstrates the buildup of debt
    service requirements in the 1980s driven largely by higher interest
    rates. Debt payments today have roughly the same principal component
    but a significantly lower portion attributable to the interest payment.
    Given today's accommodative interest rate environment, the cash flow
    required to service debts remains well below the sector net cash
    income. In 1981, however, the sector debt payments exceeded net cash
    income, causing significant sector-wide financial stress. Today,
    expected net cash income is 1.8 times the estimated sector debt
    payments, just below the historical average of 2.1 times. Clearly, a
    dovish interest rate environment is beneficial to farmers, ranchers,
    and agricultural lenders.
    Figure 1: Farm Business Net Cash Income Trends by Year and Production
            Type
    Average Farm Business Net Cash Income by Year
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Figure 2: Real Farm Debt Payments
    Inflation-Adjusted Farm Sector Debt Payments
    (2009=100)
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Special Report: Agricultural Exports and the U.S. Dollar
            (Resource 3, 4, 5)
    Key Highlights
              Agricultural trade represents approximately \1/3\ of the
            value of U.S. agricultural production.
              The recent strength of the U.S. dollar has proved to be a
            headwind for agricultural exports.
              Certain states (California, Illinois, and North Dakota, among
            others) are more sensitive to changes in foreign demand due to
            a higher percentage of annual agricultural cash receipts
            exported.
              Bulk commodities (e.g., soybeans, corn, wheat, etc.)
            represent a high percentage of the total value of U.S.
            agricultural exports.
              Expanded trade opportunities remain a bright spot in the
            future of the U.S. agriculture sector.

        Trade is now a major source of demand for the U.S. agriculture
    sector. In 2015, the USDA Foreign Agricultural Service estimates that
    U.S. ag exports fetched $133 billion in receipts, which is roughly 31
    percent of the total value of U.S. agricultural production during the
    calendar year. In 1970, the ratio of agricultural exports to production
    was only 13 percent. Some of the growth has come from expanded trade
    with long-term trading partners like Mexico, Canada, and Japan;
    approximately 40 percent of the value of exports is with these three
    countries, up from 25 percent in 1980. Other growth has come from new
    and expanded markets such as China, where sales of agricultural
    products represent over 15 percent of total U.S. exports, up from just
    five percent in 1980.
        However, there are several conditions that threaten U.S.
    agricultural export markets. First, currency effects from a stronger
    dollar in 2015 have made U.S. agricultural products more expensive
    relative to competitors in Brazil, Australia, and the European Union
    (EU). Figure 3 shows the history of U.S. agricultural trade adjusted
    for inflation overlaid with an index of U.S. dollar strength. During
    all three spikes in U.S. dollar strength, agricultural export values
    declined, particularly in the early 1980s and the 1990s. In fact, the
    correlation coefficient between the two metrics is ^0.71 implying a
    very strong, inverse relationship between the two. In 2015, U.S. ag
    exports slumped by more than 11 percent while the U.S. dollar
    strengthened by 16 percent. The U.S. dollar has weakened somewhat in
    early 2016, but it remains highly elevated compared to 2014. Second,
    global supplies of agricultural products have rebounded significantly
    from the lows experienced in 2012 and 2013. The extraordinary run of
    commodity prices from 2008 through 2013 triggered a worldwide expansion
    in the production of bulk commodities--between 2007 and 2015, world
    production of corn, soybeans, and wheat increased by 22, 46, and 20
    percent, respectively. The rise in global production has increased the
    competition faced by U.S. producers tremendously, particularly from
    South American producers in Brazil and Argentina. Finally, global
    politics have seeped into the farm gate. In 2014, Russia banned imports
    of Western products in retaliation for sanctions related to its
    annexation of Crimea and intervention in Eastern Ukraine. Domestically,
    trade has become a hot-button issue in the 2016 Presidential race, with
    virtually all candidates in both parties stepping back from
    international trade deals like the Trans-Pacific Partnership (TPP). All
    of these circumstances create considerable headwinds for the expansion
    of U.S. agricultural exports.
    Figure 3: U.S. Agricultural Exports and the U.S. Dollar
    U.S. Agricultural Exports
    (2009=100)
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Pressure on U.S. agricultural exports will not affect all producers
    equally. Some states export a higher percentage of their agricultural
    production than others. Figure 4 depicts the top ten agricultural
    exporting states and how much of their 2014 cash receipts were
    represented by export values. California had the highest absolute level
    of agricultural exports in 2014, but North Dakota exported the highest
    proportion of its total agricultural cash receipts at 52 percent. The
    higher the proportion of exports to sales, the greater the exposure to
    foreign markets and a downturn in agricultural trade. States like
    California, Illinois, and North Dakota have higher export to sales
    ratios owing to the types of goods produced within their borders. For
    example, California is a major producer of almonds and about 75 percent
    of each almond crop is exported to global markets. Field crops such as
    soybeans and corn represent roughly \1/3\ of U.S. ag exports. Soybeans
    alone represent 16 percent of 2014 U.S. ag export values. Producers of
    these commodities will likely be adversely affected by a slowdown in
    global trade in 2016.
    Figure 4: U.S. Agricultural Exports by State of Production
    Importance of Exports to State Agriculture
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Despite these headwinds, there are still many good signs for U.S.
    agricultural exports. Over 95 percent of the world's population in 2015
    lived outside the United States, and that number will likely increase
    in the future as emerging markets in Africa and Asia continue to
    develop. The most recent United Nations estimates put world population
    at nine billion by 2040, a full decade earlier than many thought just 5
    years ago. The global population growth presents an incredible
    opportunity for U.S. farmers and ranchers to increase reach and market
    size. The TPP may have lost some steam during the U.S. Presidential
    primary season, but there is still good support for the trade deal in
    many corners of Congress. Trade agreements like the TPP and the
    Transatlantic Trade and Investment Partnership (T-TIP) will open the
    doors to these growing markets, giving a growing number of consumers
    access to the richest, safest, and healthiest food the planet has to
    offer.
    Weather (Resource 6, 7)
    Key Highlights
              El Nino brought improvement to drought conditions across the
            West until a mild and dry February, though March was certainly
            moister.
              California snowpack is improving but appears to be close to
            normal, rather than a ``blockbuster'' El Nino snow year.
              Soil moisture conditions in the U.S., particularly in the
            Midwest, are good heading into spring.
              As El Nino conditions begin to wane, warm and dry conditions
            can form in the Midwest from late spring into mid-summer.
            Current seasonal forecasts are consistent with this tendency.

        The much-hyped El Nino of 2015-2016 began the year largely living
    up to expectations as widespread rain and snow improved the drought
    situation throughout much of the West. However, a mild and dry February
    halted some of the progress as California Sierra Nevada snow water
    equivalents (SWE) diminished from above normal at the beginning of the
    month to below normal by the end of the month. March trended back
    toward a stormier pattern, which helped bring SWE closer to historical
    averages. Heading into spring, attention in California will turn toward
    reservoir fill rates as the winter snow melts, along with state and
    Federal water allocations for 2016, which are both expected to remain
    modest. Much of the Pacific Northwest has experienced a significant
    improvement in drought conditions through the winter.
        Soil moistures throughout the United States are generally at or
    above normal for this time of year, particularly throughout the
    Midwest. This augurs well for spring planting, provided that moisture
    levels do not increase significantly and impede field work.
        As the 2015-2016 El Nino begins to diminish throughout the spring
    and early summer, the amount and timing of precipitation in the Midwest
    should be monitored. As El Nino events fade, there is often a trend for
    warm and dry weather in the Midwest from late spring into summer.
    Current seasonal forecasts reflect this pattern. This is not to say
    that a widespread drought is expected; however, poorly-timed dry
    weather can certainly affect seed germination and crop growth.
    Figure 5: Drought Monitor Map
    (USDA, NOAA, University of Nebraska-Lincoln)
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Figure 6: U.S. Soil Moisture Ranking
    Calculated Soil Moisture Ranking Percentile
    April 7, 2016
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Corn & Soybeans (Resource 4, 8)
        For corn and soybean growers, 2016 looks to rhyme fairly well with
    2015. Global supplies of both commodities head into the planting season
    at multi-year highs. World production of corn and soybeans increased
    two and 13 percent, respectively, in 2015, and expectations for 2016
    demonstrate similar levels of production due to record crops in China,
    Argentina, and Brazil. In the U.S., early USDA surveys show more acres
    planted with corn and soybeans in 2016 compared to 2015, with many
    acres coming out of wheat. The higher acres planted may or may not
    increase production, however, as the probability of a dry growing
    season is higher after a strong El Nino weather pattern. Soil moisture
    is very good heading into the plant, so more time will be needed to
    better estimate the size of the U.S. crop in 2016. But supplies are
    ample heading into planting season.
        Demand for corn and soybeans is expected to increase in 2016. Grain
    consuming animal units are up in the early part of the year, and the
    lower feed prices should motivate protein producers to increase the
    number of animals on feed and their time on feed. Ethanol and biodiesel
    production remains steady despite lower oil and gas prices, and lower
    prices at the pumps may lead to an increase in national gasoline
    consumption this travel season. Export market growth will likely be
    limited by intense competition from South American growers in 2016.
    Brazil is expected to have a very large safrinha, or second corn crop,
    which harvests at virtually the same time as the U.S. crop (see Figure
    8). Argentina is quickly developing as a major competitor for U.S. corn
    producers after its recent Presidential election. Specifically, the new
    Administration is very pro-agriculture, and in December of 2015, just 5
    days after the Presidential inauguration, it reduced export tariffs and
    instituted currency controls that will prompt producers to expand
    production and exports of corn. And while Argentina's harvest timing
    does not directly compete with the U.S., a larger supply of spring corn
    will hurt growers with crop in the bins after harvest.
        The net of the supply-demand forces for grains indicate lower
    prices in 2016. The USDA projects a season-average corn price of $3.45
    per bushel (a $0.15 drop from 2015) and a soybean price of $8.50 per
    bushel (a $0.30 drop from 2015). Barring a major supply-side or U.S.
    dollar disruption, these lower prices are likely to persist into 2017.
    Figure 7: Historical Crop Plantings and Expectations for 2016
    Crop Planting Trends
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Figure 8: Global Crop Harvest Timing Grid
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Dairy (Resource 4, 9, 10)
    Key Highlights
              Low world dairy prices persist in response to more than
            adequate supplies.
              Milk production rose in 2015 for major exports in the U.S.,
            the EU, and Oceania.
              Producer profitability will be tight in 2016 with continued
            low milk prices but stable production costs.

        Supply-side economics in the dairy industry continue to drag sector
    profitability. USDA data shows U.S. production in the winter months
    from December to February is up by almost two percent on a higher
    number of cows combined with a higher average output per cow. The ratio
    of ending stocks-to-use, a relative measure of dairy supplies in
    inventory at the end of each calendar year, reached its highest levels
    in 2015 since 2009 for many dairy products. Milk production at
    California dairies continues to struggle in early 2016 due to lower
    output per cow. The stress on herds from the extended drought
    conditions is likely the major contributor to the decline, but water
    conditions have improved in many parts of the state. Global supplies
    remain in surplus after strong production in 2015 and slower global
    trade in early 2016.
        Product demand remains muted in the early months of 2016. Domestic
    dairy product use has held steady during the winter months, but exports
    are down dramatically through January. Russia continues its ban on
    Western agricultural imports through August 2016, and their
    disappearance from the import picture has put more European dairy
    products onto the world market. Chinese dairy imports picked up in late
    2015 and early 2016, and that has provided some support to world dairy
    prices. U.S. producers are at an added disadvantage to both the EU and
    Oceania due to the currency effects of a stronger dollar.
        The combined effects of the supply and demand functions imply
    continued pressure on producer profitability in 2016. The Federal Order
    Class III milk price for March was $13.78 per cwt, up slightly from
    February but well below prices in 2014 and 2015. The USDA is
    forecasting an average Class III milk price near $13.90 per cwt for
    2016. Feeding costs could abate somewhat in 2016 if grain and hay
    prices stay low. Supplies are not likely to contract by much, so
    producers must look to control costs and spur demand growth at home and
    in new overseas markets. Implied profit margins based on estimated
    costs of production and a Class III milk price have been negative for
    14 consecutive months, but the implied margins are not nearly as severe
    as they were in 2009 when the dairy industry last faced a major
    cyclical downturn. This year is unlikely to turn into another 2009, as
    restaurant sales remain strong, domestic cheese consumption is holding
    up, and global trade is merely subdued, not closed.
    Figure 9: Historical Dairy Profitability
    U.S. Average Dairy Returns
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

              Source: USDA ERS National Milk Cost of Production Estimates.
    Almonds (Resource 11, 12)
    Key Highlights
              The 2015 California almond crop weighed in at approximately
            1.8 billion pounds, roughly equal to the 2014 crop.
              Grower almond prices peaked in early 2015 and have continued
            to decline into early 2016 on weaker export demand.
              Inventories sit at near-term highs putting downward pressure
            on prices.

        While the 2015 almond crop failed to break any records, producers
    maintained production levels attained in 2014. California, the state
    that produces nearly 100 percent of all U.S. almonds and over \1/2\ of
    the world's annual supply, spent the entirety of the growing year in a
    deep drought with restricted access to state and Federal water
    allocations. Yields were down again in 2015, likely a factor of the
    deepening drought and early bloom. Lower yields were offset by the
    greater bearing acreage under production, a trend that has been
    increasing in recent years due to more acres planted to orchards. Non-
    bearing almond acreage stood at 150,000 acres in 2014, a 20 year high.
    As orchards mature, more of the almond acreage begins to bear nuts, and
    the total potential production increases. Global supplies were up in
    2015 on higher production in Australia and the EU, but U.S. producers
    dominated world trade, as U.S. almonds represented over 85 percent of
    almond shipments in 2015.
        Demand for U.S. almonds weakened during the last year. A robust
    export market in 2014 drove up prices more than 15 percent during the
    year, but both domestic and foreign consumers pulled back in 2015. U.S.
    almond exports fell five percent during the 2014/15 marketing year on
    ample global supply and a stronger U.S. dollar, and domestic
    consumption fell by ten percent. Shipments have picked up in early
    2016, but the drop in demand during 2015 left higher carry-in and
    boosted inventories on the almond balance sheet.
        In response to these market conditions, almond prices have dropped
    considerably since early 2015. The combination of steady supplies and
    lower demand pushed up uncommitted inventories in early 2016 to new
    heights. The Almond Board of California reports inventory levels
    monthly, and while in most years committed shipments of almonds pushed
    the inventory levels into a negative position during the late summer
    months, the last 2 years have seen positive inventories during that
    same period (see Figure 10). However, lower prices and a drop in the
    U.S. dollar are spurring sales, so market prices may find some support
    by mid-year. Reports published by Derco Foods, an almond trading
    company, show its market prices dropping nearly 60 percent in mid-to-
    late 2015 from over $5.00 per pound to nearly $2.00 per pound. While
    the average price to growers is likely closer to $3.00 per pound, this
    intense price volatility will negatively affect prices paid to almond
    growers in 2016 and 2017.
    Figure 10: U.S. Almond Inventories
    U.S. Almond Inventory Trends
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Livestock (Resource 13, 14, 15)
    Key Highlights
              Beef market conditions signal herd expansion and lower cow/
            calf prices in the near future.
              Pork production is up in 2016 but the higher supplies and
            weaker export markets have put downward pressure on hog price
            expectations.
              Broiler sales continue to struggle overseas and prices are
            down as a result of large inventories.

    Beef
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Beef production in the U.S. is set to rebound in 2016 after a 5
    year slide (Figure 11). Cattle inventories are on the rise and the good
    pasture conditions and cheaper feed prices during 2015 have spurred
    cow/calf operators and feedlots to increase animal weights prior to
    slaughter. Cattle producers are retaining more heifers in 2016, and the
    higher retention signals further expansion into 2017. Demand for beef
    buckled somewhat during 2015 as consumers faced record-high retail
    prices and exporters dealt with a stronger dollar. Since March of 2015,
    retail beef prices have fallen between three and seven percent
    depending on cut and quality. Changes in market prices take time to
    work backward through the supply chain, but fed and feeder cattle
    prices have fallen by almost 20 percent since early 2015.
        The outlook for cattle and beef prices is muddled by competing
    effects of supply and demand. Supplies are certainly headed higher
    thereby signaling lower prices, but demand is also likely to head
    higher in the face of lower retail prices and a stable-to-weaker U.S.
    dollar. Feedlots face mounting losses in early 2016: the implied net
    loss per head peaked in December 2015 at $560 due to the high feeder
    cattle prices (see Figure 12). Feedlots will need to lower placement
    costs in order to swing back to profitability, and that fact may be the
    final straw to push prices down further throughout the year.
    Figure 11: Meat Production Trends and Expectations
    U.S. Meat Production Trends
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Figure 12: Historical Feedlot Operation Profitability
    Iowa Feedlot Returns by Month
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

              Source: Iowa State University Extension and Outreach,
            Estimated Livestock Returns.
    Hogs
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Pork producers are also ramping up production in 2016 but demand
    has been increasing. The USDA estimates U.S. pork production will be up
    2.2 percent this year as a function of both larger litters and higher
    slaughter rates. The hog industry has largely recovered from the
    Porcine Epidemic Diarrhea Virus (PEDv) outbreak of 2014, and that
    recovery has brought about higher hog supplies. China, the world's
    largest producer and consumer of pork, has tightened environmental
    restrictions on hog producers in the last 2 years, and the tighter
    regulation is just beginning to be reflected in the country's annual
    production numbers. Pork production in China fell just under one
    percent in 2015, and output looks to be steady or lower in 2016. Demand
    for pork looks good in early 2016 with the USDA projecting record high
    domestic consumption during the year. The retail price differential
    between pork and beef fell precipitously during 2015, and the relative
    value of pork likely spurred additional demand for swine. Export
    markets look attractive despite the strong U.S. dollar on a shortfall
    of production in China and better-than-expected sales in Japan.
        The factors of supply and demand have had mixed effects on hog
    prices. The rebound of the U.S. hog inventories put clear and immediate
    downward pressure on live hog prices. Prices soared to $85 per
    hundredweight in early 2014 as the PEDv outbreak leveled pig litters,
    but by the end of 2015, prices fell back below historical averages to
    nearly $45 per hundredweight. The increase in pork demand will keep
    prices from falling too much further, and will likely provide support
    throughout 2016. Hog prices could see another dip if slaughter capacity
    gets constrained again in 2016, as most facilities are running at or
    near capacity. Barring a major supply-side disruption, the USDA puts
    the live equivalent price for hogs between $50 and $55 per
    hundredweight throughout the calendar year.
    Broilers
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Last, broiler meat production and demand are both up in early 2016.
    More weight per bird and birds per flock are expected, which would
    drive up already high levels of frozen meat stocks. The Highly
    Pathogenic Avian Influenza (HPAI) outbreak of 2015 devastated many egg
    and turkey operations, but broiler production went largely unaffected.
    When many foreign markets, including large importers like China and
    South Korea, banned the importation of U.S. poultry, production soon
    outpaced consumption and stocks built up. The large stocks in cold
    storage pushed broiler meat prices down with wholesale prices falling
    27 percent from January to December. Prices stabilized at the end of
    2015 and into early 2016, but the stocks will take time to draw down.
    Weekly prices have fluctuated a great deal since January 2016 due to
    the oversupply. Domestic demand has been excellent in early 2016 as
    consumers have enjoyed lower relative prices for chicken compared to
    pork or beef for the last 18 months. Exports are down but should pick
    up later in 2016 as the resurgence of HPAI was limited to one case in
    Indiana this January.
        The mixture of supply and demand factors in the broiler industry
    indicate a flat-to-increasing price trend in 2016. The supplies of
    broiler meat continue to build, and production is not slowing down.
    However, U.S. per capita consumption should support the market prices
    that currently range from 80 to 90 per pound. Export markets could
    provide a boost later in the year depending on the international
    response to HPAI. Feed costs are likely to abate in 2016, so
    profitability in the poultry sector should be better in 2016 than in
    2015.
    Wine and Beer (Resource 16, 17, 18, 19)
    Key Highlights
              California grape crush in 2015 shows good yields but lower
            prices for most non-premium growing regions.
              Hop growers expanded production in 2015 in response to higher
            prices and growing demand from the craft beer industry.
              Demand for both wine and beer looks strong in 2016.

        Since the 1970s, the U.S. has continually expanded as a producer
    and consumer of wine. Acres planted to wine grapes in California
    increased four-fold between 1970 and 2014, and in 2014, the U.S. ranked
    fourth in total world wine production behind France, Italy, and Spain.
    California viticulturists generated 3.8 million tons of grapes
    following the 2015 harvest, roughly equaling output from the record
    2014 crush. As a result of the surprisingly good crush in 2015 and
    changes in consumer demographics, average California wine grape prices
    came under pressure last year. According to the Silicon Valley Bank
    (SVB) 2016 Wine Report, sales of low-cost, bulk wine were down 4.5
    percent from 2014 while sales for wines more than $9 per bottle
    increased an average of approximately ten percent. The
    ``premiumization'' of wine consumption is causing a divergence of grape
    prices; premium growing regions such as Napa and Sonoma counties
    experienced increases in average prices paid to growers while bulk
    growing regions in the San Joaquin Valley saw decreases in average
    prices paid to growers.
        Consumers are changing agricultural-based adult beverage
    preferences in other ways that threaten the U.S. wine industry: the
    craft and specialty beer industry has been on a major run in the last
    10 years. Between 2006 and 2015, the number of craft beer
    establishments doubled, and the estimated revenues attributable to
    those institutions more than doubled. Hops, a distinguishing ingredient
    for many craft beers, has benefitted from the increase in production.
    Hops prices are up from $2.05 per pound in 2006 to over $4.38 per pound
    in 2015. Market prices have incented higher planted acreage in the
    principal growing regions of Washington, Oregon, and Idaho, and the
    economics have been good enough to spur hops farmers to plant in
    Pennsylvania, New Jersey, and Virginia among other East Coast states
    where craft brewers are closer to final markets. Small hopyards are
    becoming agritourist destinations, and millennial consumers appear to
    expend on craft beers and quality wines in equal amounts depending on
    convenience and value. The U.S. wine industry will certainly experience
    competition from craft brewing, but fortunately there looks to be more
    than enough demand to go around as the millennial generation matures
    into prime consuming age.
    Figure 13: Wine Grape Market Trends
    Califorina Wine Grape Production and Price Trends
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Figure 14: Craft Beer, Hop Production, and Prices
    Craft Beer and Hop Production
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Areas of Interest (Resource 1, 6, 7, 20)
    California Drought
        The 2016 water year unquestionably ameliorated a parched
    California, but the Western drought is far from over. Reservoir levels
    throughout the state received a much-needed recharge in March. Lake
    Shasta began 2016 at 31 percent of capacity, and Lake Oroville began
    the year at 29 percent of capacity. The reservoirs approached the end
    of March at 87 and 84 percent of capacity, respectively. Near the end
    of March, California snowpack was also much deeper than recent history
    standing at nearly 90 percent of average. Despite the infusion of much-
    needed water and snow this water year, the drought lingers throughout
    the fruitful San Joaquin Valley. According to USDA expense data,
    irrigation costs have skyrocketed during the last few years climbing
    from $400 million per year in 2009 to over $1.1 billion in 2014.
    Drought Monitor reports show significant reductions in Northern
    California during the month of March, but the bulk of Central and
    Southern California remain in the most severe category of drought
    intensity. State Water Project officials announced in March
    agricultural water allocations at 45 percent of contracted amounts, a
    big improvement from the 20 percent allocations in 2015 and the zero
    percent in 2014. These increases should be met with cautious optimism
    in 2016, and conditions must continue to be monitored closely.
    Figure 15: California Department of Water Resources Reservoir Level Map
            (March 23)
    Conditions for Major Reservoirs: 23 MAR 2016
    Data as of Midnight 23 MAR 2016
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

              Report Generated: 24-MAR-2016 7:40 a.m.
    GMO Labeling Laws
        There is no more divisive topic in food and agribusiness today than
    the use of genetically modified organisms (GMOs) in the food system.
    GMOs can be a principal or secondary ingredient in many finished
    consumer food products, and GMO versions of corn and soybeans are a
    very high percentage of U.S. acres planted. Opponents of GMO crops
    argue that the long-term effects of human consumption of genetically
    engineered food products are unknown, that the genes can increase the
    power or potency of insects and disease, and that once in the food
    production system, the genes that have been modified can end up in
    unexpected places or mutating in unknown ways. Advocates of GMO foods
    argue that science has proven the resulting products are safe for human
    consumption, that they increase plant resistance to a number of
    stresses like drought or disease, and that genes can be modified to
    improve the nutritional content of foods. The debate took a new turn in
    2014 when the State of Vermont enacted a law requiring labels to
    disclose the use of GMO ingredients in consumables that goes into
    effect in July 2016. Many food manufacturers and grocers have attempted
    to fight the legislation citing the burden it creates to have
    independent labeling of goods across state borders. In July 2015, the
    U.S. House of Representatives passed the Safe and Accurate Food
    Labeling Act of 2015 which disallowed states from enacting individual
    food labeling laws and instead created a Federal standard for voluntary
    labeling of foods with GMO ingredients. The bill was referred to the
    U.S. Senate last July, and while it cleared the Senate Agriculture
    Committee early this March, it has failed to gain enough support in the
    wider Senate body, thus ending debate on the bill. July is rapidly
    approaching, and food companies are now starting to prepare for the
    possibility that state-based labeling laws are here to stay. These
    labeling requirements will increase the costs for food manufacturers,
    and those costs may be passed along to producers, consumers, or some
    combination of the two.
    Resources
        The information and opinions or conclusions contained herein have
    been compiled or arrived at from the following sources:

      1.  USDA Farm Sector Finances (http://www.ers.usda.gov/topics/farm-
                economy/farm-sector-income-finances.aspx).

      2.  USDA Farm Sector Financial Ratios (http://www.ers.usda.gov/data-
                products/farm-income-and-wealth-statistics/farm-sector-
                financial-ratios.aspx).

      3.  USDA Foreign Agricultural Service Global Agricultural Trade
                System Data (http://apps.fas.usda.gov/GATS/Default.aspx).

      4.  USDA Foreign Agricultural Service Production, Supply, and
                Distribution Data (https://apps.fas.usda.gov/psdonline/
                psdhome.aspx).

      5.  United Nations Department of Economic and Social Affairs,
                Population Division (2015). World Population Prospects: The
                2015 Revision. New York, United Nations.

      6.  National Drought Mitigation Center's Drought Monitor (UNL/NOAA;
                http://droughtmonitor.unl.edu/).

      7.  NOAA Weather Prediction Center (http://www.wpc.ncep.noaa.gov/).

      8.  USDA Office of the Chief Economist--2016 Commodity Outlooks
                (http://www.usda.gov/oce/forum/commodity.html#commodity).

      9.  University of Wisconsin--Understanding Dairy Markets (http://
                future.aae.wisc.edu/).

      10. U.S. Dairy Export Council (http://www.usdec.org/).

      11. Almond Board of California Position Reports (http://
                www.almonds.com/newsletters/position-reports).

      12. Derco Foods Almond Price Reports (http://www.dercofoods.com/en/
                english-reports/english-almond-reports).

      13. USDA Economic Research Service Livestock, Dairy, and Poultry
                Outlook (http://www.ers.usda.gov/publications/ldpm-
                livestock,-dairy,-and-poultry-outlook/.aspx).

      14. Iowa State University Extension (http://www2.econ.iastate.edu/
                estimated-returns/).

      15. USDA Meat Price Spreads (http://www.ers.usda.gov/data-products/
                meat-price-spreads.aspx).

      16. Wine Institute Statistics (http://www.wineinstitute.org/
                resources/statistics).

      17. 2016 Silicon Valley Bank Wine Report (http://www.svb.com/wine-
                report/).

      18. 2015 California Grape Crush Report (http://www.nass.usda.gov/
                Statistics_by_State/California/Publications/Grape_Crush/).

      19. IBISWorld U.S. Craft Beer Production Report (August 2015).

      20. California Department of Water Resources (http://
                cdec.water.ca.gov/index.html).
    About The Feed
        The Feed is a quarterly agricultural economic outlook for current
    events and market conditions within agriculture. The report is broad-
    based, covers multiple regions and commodities and incorporates data
    and analysis from numerous sources to present a mosaic of the leading
    industry information, with a focus on the latest information from the
    United States Department of Agriculture and their Economic Research
    Service. There are several regularly included sections like weather and
    major industry segments, but the author rotates through other
    industries and topics as they become relevant in the seasonal
    agricultural cycle. Where the report adds value to readers is through
    its unique synthesis of these multiple sources into a single succinct
    report. Please enjoy.
    About the Authors
        Author--Jackson Takach, Farmer Mac's resident economist, is a
    Kentucky native whose strong ties to agriculture began while growing up
    in the small farming town of Scottsville. He has since dedicated a
    career to agricultural finance where he can combine his passion for
    rural America with his natural curiosity of the world and his strong
    (and perhaps unrealistic) desire to explain how we interact within it.
    He joined the Farmer Mac team in 2005, and has worked in the research,
    credit, and underwriting departments. Today, his focus includes
    quantitative analysis of credit, interest rate, and other market-based
    risks, as well as monitoring conditions of the agricultural economy,
    operational information systems analysis, and statistical programming.
    He holds a Bachelor's degree in economics from Centre College, a
    Master's degree in agricultural economics from Purdue University, and a
    Master's of Business Administration from Indiana University's Kelley
    School of Business. He has also been a Chartered Financial Analyst
    (CFA) charterholder since 2012.
        Contributing Author--Curt Covington, Farmer Mac's Senior Vice
    President, Agricultural Finance, leads the company's business
    development efforts, as well as the company's credit administration and
    underwriting functions. Curt's passion for rural America developed at a
    young age on his family's grape and tree nut farm in Selma, California.
    He has since leveraged his passion into a long career in ag lending,
    which spans almost 4 decades. In addition to his role at Farmer Mac,
    Curt is a respected leader in the agricultural mortgage industry and is
    actively involved in leadership roles within industry trade groups,
    including the RMA Agricultural Lending Committee, the Agricultural
    Lending Institute, The Agricultural Banking Institute of the Americas,
    and Federal Financial Institutions Examination Council (FFIEC).
        Contributing Author--Brian Brinch, Farmer Mac's Vice President
    Financial Planning and Analysis manages the development of Farmer Mac's
    financial projections and plans, stress testing, and data analytics.
    Brian's interest in Farmer Mac began while attending Pennsylvania State
    University for his Masters in Agricultural and Applied Economics where
    he won the Outstanding Master's Thesis Award for his thesis titled ``An
    Analysis of Farmer Mac Prepayment Penalty Designs''. Prior to his study
    of agricultural economics, Brian received his Bachelor's degree in
    meteorology at Penn State. Today, he is the company's unofficial
    weatherman with an uncanny ability to predict the weather more
    accurately than any news station in the country. Brian is also a CFA
    charterholder and FRM Certified.
    About Farmer Mac
        Farmer Mac is the stockholder-owned company created to deliver
    capital and increase lender competition for the benefit of American
    agriculture and rural communities. For more than a quarter-century,
    Farmer Mac has been a vital partner in helping American's rural lenders
    meet the evolving needs of their customers, bringing the financial
    strength of the nation's premier secondary market for agriculture right
    to their customers' farms and ranches. Lenders of all sizes use Farmer
    Mac's broad portfolio of loan products to offer more financial choices
    to their rural customers, helping them keep pace with today's capital-
    intensive agricultural industry.
    Contacts
              To subscribe to The Feed, please visit www.farmermac.com/
            news-events/the-feed
              For inquiries:

                Megan Pelaez,
                Director--Communications,
                MPelaez@farmermac.com
                202.872.5689

              Follow the author on Twitter

                @JacksonTakach
                @FarmerMacNews

        The Chairman. Dr. Featherstone.

    STATEMENT OF ALLEN M. FEATHERSTONE, Ph.D., PROFESSOR AND HEAD,
                   DIRECTOR OF MASTER IN AGRIBUSINESS
      PROGRAM, DEPARTMENT OF AGRICULTURAL ECONOMICS, KANSAS STATE
                       UNIVERSITY, MANHATTAN, KS

        Dr. Featherstone. Chairman Scott, Ranking Member Scott, and
    Members of the Commodity Exchanges, Energy, and Credit
    Subcommittee of the House Committee on Agriculture, I want to
    thank you for inviting me to testify. My name is Allen
    Featherstone, Professor and Head of the Department of
    Agricultural Economics, Kansas State University.
        With a 56 percent decrease in U.S. net farm income reported
    by USDA occurring over a 3 year period, concern has begun to
    arise regarding the future direction of cash rents and land
    values, along with the overall credit situation. With a decline
    of 56 percent, some regions of the U.S. have experienced
    smaller declines, some larger declines.
        Kansas State University works with roughly 2,000 farmers
    statewide through the Kansas farm management associations.
    These producers provide balance sheet and income statement
    information that allows the understanding of the distribution
    of financial performance, and provides an overall financial
    picture of Kansas farms. The north central region in Kansas is
    the first association where we have completed information for
    2015. They experienced a dramatic change in the profitability
    of production agriculture. Beginning in 2007, net farm income
    in north central Kansas increased from between $85,000 to
    $150,000 per farm per year, 8 years of excellent profitability.
    In 2015, average net farm income in this region dropped
    precipitously from an average per farm of $102,500 in 2014 to
    an average of $11,500, an 89 percent reduction. This was the
    lowest level of net farm income for that region since 1985.
    Based on preliminary analysis with the other five Kansas farm
    management associations within the state, declines in incomes
    of this magnitude will be common across all of Kansas.
        Kansas State University, in conjunction with the University
    of Georgia, conducts a semiannual nationwide survey of lenders
    to understand agricultural credit conditions. The most recent
    survey was conducted in March 2016, and uses similar
    methodology to the University of Michigan Consumer Sentiment
    Survey. The survey obtains agricultural lender sentiment on a
    number of factors for the last 3 months, the next year, and the
    longer-term. Several important changes have occurred in the
    agricultural economy since the fall of 2015 survey. Non-
    performing loans have increased during the past 3 months.
    Agricultural lenders expect that non-performing loans will
    increase during the next year. According to the survey, non-
    performing loans are expected to increase for corn and soybean
    farms and wheat farms. For the livestock sector, agricultural
    lenders expect more non-performing loans for beef farms and
    dairy farms.
        During the spring 2016 survey, that same survey, 48 percent
    of agricultural lenders indicated that land values decreased,
    45 percent indicated they remained the same, and six indicated
    they increased during the previous 3 months. The expectation of
    land value changes in the next year became markedly more
    negative in the fall of 2015 to the spring of 2016.
        In conclusion, the declining net farm income in 2015 has
    made for an uncertain agricultural lending environment. The
    agricultural production sector and lending sectors are
    intertwined, causing many lenders to be asking the same
    questions as agricultural producers regarding the future, as
    they make decisions regarding loan restructuring and other
    lending decisions.
        If the sector is entering a major readjustment phase,
    several factors should be considered. The averages will not
    drive a bust, but the lower tail of the distribution can;
    therefore, more attention needs to be paid to the distribution
    of financial performance indicators, and less on the averages.
    Given the thinness of agricultural land markets, small
    increases in land parcels on the market can have major effects
    on the price of land. The debt-to-asset ratio was more of a
    lagging indicator of financial stress during the 1980 boom to
    bust cycle where the debt-to-EBITDA (earnings before interest,
    taxes, depreciation, and amortization) ratio was more of a
    leading indicator.
        Farmers and agricultural lenders are entering a current
    downturn in a strong financial position because of several
    years of excellent profitability. Crop year 2016 will be a
    pivotal year in production agriculture. Given that average net
    farm income in some regions were the lowest they have been
    since 1985, a repeat of that in 2016 will cause some
    agricultural producers and lenders to make difficult decisions
    before entering the spring of 2017.
        Thank you.
        [The prepared statement of Dr. Featherstone follows:]

    Prepared Statement of Allen M. Featherstone, Ph.D., Professor and Head,
    Director of Master in Agribusiness Program, Department of Agricultural
               Economics, Kansas State University, Manhattan, KS
        Chairman Scott, Ranking Member Scott, and Members of the Commodity
    Exchanges, Energy, and Credit Subcommittee of the House Committee on
    Agriculture; I want to thank you for inviting me to testify. My name is
    Allen Featherstone, Professor and Head of the Department of
    Agricultural Economics, Kansas State University.
        The agricultural economy suffered from two major boom-bust cycles
    in the 20th century. The first occurred in the 1920s through the mid-
    1930s and the second from 1973 to 1986. With the recent decline in net
    farm income, lenders, farmers, and policymakers are beginning to
    question whether 2007 was the start of another major boom-bust cycle
    with 2015 being the beginning of a bust period. There are similarities
    with the 1973 to 1986 cycle, but there are also differences. The last
    two cycles developed differently, and when the next cycle occurs, it
    will likely be unlike the previous cycles.
        U.S. net farm income has declined from $123.3 billion in 2013 to a
    forecasted amount of $56.4 billion in 2015 and by another $1.6 billion
    forecasted for 2016 (USDA-ERS). With a 56% decrease in U.S. net farm
    income occurring over a 3 year period, concern has begun to arise
    regarding the future direction of cash rents and land values along with
    the overall credit situation; the bust phase of a major agricultural
    readjustment. While the balance sheet of the production agriculture
    sector was strong at the end of 2015 due to several years of sector
    profitability, declining net farm incomes could negatively affect land
    values causing the balance sheet to erode because the value of land
    represents in excess of 75% of the asset values on the farm balance
    sheet.
        Kansas State University works with roughly 2,000 farmers statewide
    through the Kansas farm management associations. These commercial
    producers provide balance sheet and income statement information to the
    Department of Agricultural Economics that allows the understanding of
    the distribution in financial performance and provides an overall
    financial picture of Kansas farms.
    The Current Situation
        An understanding of the current situation begins by examining the
    net farm income from the U.S., Kansas, and north central Kansas (Figure
    1). The Kansas and north central Kansas numbers are dollars per farm
    and are measured on the left-side of the axis. The aggregate U.S. net
    farm income are measured in billions of dollars and are on the right
    axis. Before 2007, average net farm income per farm in north central
    Kansas ranged in the $43,000 to $53,000 per year. Beginning in 2007,
    net farm income increased to between $85,000 and $150,000 per farm
    through 2014, 8 years of excellent profitability. In 2015, average net
    farm income in this region dropped precipitously from an average of
    $102,508 in 2014 to a 2015 average of $11,452, an 89% reduction. This
    was the lowest average level of nominal net farm income for that region
    since 1985.
        The north central region in Kansas (Figure 1) is the first
    association in the state of Kansas with completed information for 2015,
    and indicates a dramatic change in the profitability of production
    agriculture. Based on preliminary analysis of the other five Kansas
    farm management associations (KFMA) within the state for 2015, declines
    in incomes of this magnitude will be common across all of Kansas and
    likely for similar agricultural production regions in the Midwest and
    Great Plains. In addition, it is important to observe the similarity in
    U.S. and Kansas trends in Figure 1.
        Agricultural land values are an important factor in the overall
    well-being of the production agriculture sector given that they
    represent roughly 80% of the assets on a farmer's balance sheet. Land
    serves as collateral and enhances a farmer's ability to obtain credit.
    Thus, decreases in land values affect the ability to obtain credit.
    According to USDA, from 2006 through 2015, U.S. average cropland value
    increased from $2,300 to $4,130 per acre, an increase of roughly 80%.
    Taking into account inflation, agricultural land values increased by
    roughly 55% in real terms. Figure 2 provides a view of Kansas
    agricultural land values since 1950 adjusted for inflation. Using 2015
    as a base, inflation adjusted land values in 1973, the beginning of the
    last boom-bust period, were about $800 per acre in Kansas. Inflation-
    adjusted land values peaked in 1980 at roughly $1,470, an increase of
    85%. Inflation-adjusted land values subsequently fell to $690 in 1987,
    a decline of 53% from the peak. Agricultural land values in Kansas in
    2015 are 101% higher than they were in 2006 in inflation-adjusted
    terms. They are also 38% higher than the peak of the last boom-bust
    cycle in real terms in Kansas.
        Agricultural land markets are driven by the returns to land, farm
    returns and non-agricultural factors such as development potential and
    recreational returns. Therefore, not all states or regions of the
    United States are experiencing the situation that the Corn Belt, Great
    Plains, and South are currently experiencing. The inflation-adjusted
    increase in agricultural land values since 2006 (blue) and the 2015
    land value percentage increase from the 1978 to 1983 high for various
    states (orange) are in Figure 3. Since 2006, Illinois, Oklahoma, and
    Texas (Corn Belt and Great Plains states) have experienced greater than
    a 30% increase in agricultural land values. For these three states,
    current land values are 46% (Illinois), 10% (Oklahoma), and 65% (Texas)
    higher than the inflation-adjusted peak in the last boom-bust cycle.
    Thus, the land value experience is not homogeneous among states and
    regions of the U.S. The Corn Belt and the Great Plains experience is
    different than much of the rest of the U.S.
    Credit Conditions
        The Department of Agricultural Economics at Kansas State
    University, in conjunction with Brady Brewer at the University of
    Georgia, conducts a semi-annual nationwide survey of lenders to
    understand agricultural credit conditions. The most recent survey was
    conducted the second half of March 2016 and uses a similar methodology
    to the University of Michigan consumer sentiment survey. The survey
    obtains agricultural lender sentiment on interest rates, spread over
    the cost of funds, farm loan volume, non-performing loans, and land
    values for the last 3 months, the next year, and the longer-term (2 to
    5 years). As an example, participants are asked whether they expect
    interest rates will increase, decrease, or remain the same. If all
    survey participants indicate that an item is expected to increase, the
    index is 200. If all indicate an item is expected to decrease, the
    index is zero. If an equal amount of lenders expects an item to
    increase as expect an item to decrease, the value is 100.
        While this survey is nationwide, responses are concentrated in the
    Midwest and the Great Plains, and to a lesser extent in the South and
    the Atlantic region. The survey respondents are mainly employed by
    commercial banks or the Farm Credit System. The complete report can be
    found at http://www.ageconomics.k-state.edu/research/ag-lender-survey/
    index.html (Attachment). Several important changes have occurred in the
    agricultural economy since the fall 2015 survey (Figure 4). Non-
    performing loans have increased during the past 3 months as during the
    spring 2016 survey window, 43% of participants indicate that non-
    performing loans have increased compared to 12% during the Fall 2015
    survey window. Agricultural lenders expect that non-performing loans
    will increase during the next year, 77% in the spring of 2016 compared
    to 53% in the fall of 2015. Over the next 2 to 5 years, the sentiment
    is that non-performing loans will increase, but that sentiment has
    lessened slightly over the last two surveys. Looking at non-performing
    loans by crop industry sector, non-performing loans are expected to
    increase for corn and soybean farms and wheat farms. For the livestock
    sector, agricultural lenders expect more non-performing loans for beef
    farms and dairy farms.
        The survey also measures lender expectations on agricultural land
    values (Figure 5). During the spring 2016 survey window, 48% of
    agricultural lenders indicate that land values decreased and 45%
    indicate that they remained the same, and 6% indicate they increased
    during the previous 3 months. The spring 2015 results indicated that
    35% indicated decreases, 57% indicated no change, and 8% indicated
    increasing land values for the previous 3 months. The expectation of
    land value changes in the next year became markedly more negative from
    the fall of 2015 to the spring of 2016 with the index falling from 32
    to 16. Currently 84% of lenders expect land values to fall over the
    next year and 16% expect they will remain the same. For the longer-
    term, the sentiment has not changed much over the last four surveys;
    roughly 65% expect decreases, 25% expect no change, and the remainder
    expect land price increases. The overall sentiment by agricultural
    lenders turned more pessimistic from the fall of 2015 to the spring of
    2016.
        The survey provides lenders the opportunity to add any other open-
    ended comments they would like to make. Table 1 reports the comments
    from those lenders that chose to provide them. Certainly some lenders
    are experiencing difficult agricultural lending conditions.
    Measuring Financial Stress
        The concern expressed by agricultural lenders indicate the
    importance of measuring financial stress. One measure that is commonly
    used is the debt-to-asset ratio. Figure 6 from a forthcoming Choices
    article by Paul Ellinger (University of Illinois), Allen Featherstone,
    and Michael Boehlje (Purdue University) takes a look at alternative
    measures of financial stress. The average debt-to-asset ratio in Kansas
    and Illinois was greater than 30% in 2001 and 2002 and it has generally
    declined to 19% for both states by the end of 2014, the most recent
    data available. The average debt-to-asset ratios did not peak until
    1985 and 1986 the United States and Kansas, the end of the last boom-
    bust cycle.
        The use of an average debt-to-asset ratio as a measure of financial
    stress without examining the distributional characteristics across
    agricultural producers may be incomplete. A study by Featherstone and
    Chris Boessen (University of Missouri) published in the North Central
    Journal of Agricultural Economics (http://aepp.oxfordjournals.org/
    content/16/2/249.abstract) in 1994 examined the loan loss experience of
    a nationwide lender, Equitable Agribusiness during the 1980s farm
    crisis. They found that 75% of the loans that defaulted were originated
    from 1977 to 1980. They also found that 80% of loans defaulted from
    1983 to 1986. The loans that defaulted were made during the time just
    before the land values peaked and most performed for 5 to 6 years
    before they defaulted. They further report that only 10.9% of loans
    made from 1977 to 1980 defaulted, the worst time to be lending to
    agriculture, ex-post. Thus, it is important to examine the margin and
    not the average. During the last financial crisis, many farmers
    experienced financial stress; however, it was a minority of the
    producers moving the sector average. Because, in the Midwest where only
    2% to 4% of agricultural land is sold each year, small increases in the
    land on the market can cause significant land price changes.
        Figure 7 measures the distribution of debt-to-asset ratios for
    Illinois Farm Business Farm Management (FBFM) farms. A common
    underwriting standard in agricultural lending is that the borrower
    should have at least as much at risk as the lender--that is, at least
    50% equity in the business. Figure 7 indicates that 8.7% of Illinois
    farmers did not meet this underwriting standard at the end of 2014.
        An alternative measure that Ellinger, Featherstone and Boehlje
    propose is the Debt-to-EBITDA ratio. In many respects, the use of a
    debt-to-asset ratio is indicative of a lending era that has passed as
    the agricultural lending sector has moved from a collateral based
    lending system (debt-to-assets) to a cash flow based lending system
    (Debt-to-EBITDA). This measure is used in corporate lending and can be
    compared to a Moody's ratings system. In general, a rating of B or
    below is typically believed to be a speculative investment with
    significant or high credit risk, and Ca ratings are highly speculative
    and near or in default. The Debt-to-EBITDA ratios exhibit higher
    variability over time than the debt-to-asset ratios (Figure 8).
    Ellinger, Featherstone, and Boehlje found that the aggregate debt-to-
    asset ratios did not peak until 1985 and 1986 for farms in the United
    States and Kansas, whereas the Debt-to-EBITDA ratios were highest in
    1981 and 1982 at the beginning of the farm financial crisis. Thus, the
    debt-to-asset ratio may be more of a lagging indicator. Moreover, the
    financial stress in agriculture in the early 2000s is also more evident
    with the Debt-to-EBITDA measure.
        While the averages, are useful, the distribution of farms are
    important. Ellinger, Featherstone and Boehlje report that the
    proportion of farms with Caa and Ca ratings at the end of 2014 were
    27.8% and 13.4% for Illinois and Kansas, respectively and had increased
    from the 2012 levels of 5.7% in Illinois and 10.7% in Kansas. In
    addition, the percentage of farms in the highest two categories (AAA
    and AA) fell by 14.2% in Illinois over the last 2 years and by 4.4% in
    Kansas over the last year.
        From 2014 to 2015, the average north central Kansas Debt-to-EBITDA
    ratio using data from 243 farms increased from 2.45 to 4.20 or two
    rating classes (Figure 9). A similar net-farm income in 2016 for north
    central Kansas with no change in debt would increase the ratio to 6.54
    and into the Caa category. Other notable changes that occurred on north
    central farms in 2015 was a reduction in average working capital from
    $313,131 to $230,250. This represents a reduction of $82,881 per farm
    or 26.5%. The working capital to assets ratio fell from 12.9% to 9.6%.
    The average debt-to-asset ratio increase from 21.8% to 23.0%.
    Comparisons with the 1980s
        Data on individual farms are available from the KFMA since 1973.
    This allows a comparison of the condition at the end of 2014 with the
    condition of farms in 1979; 2 years before the bust began.
    Featherstone, Roessler, and Barry estimated a synthetic Standard &
    Poor's credit scoring model using Farm Credit Loans based on three
    origination ratios; a leverage ratio, a working capital percentage
    ratio, and a capital debt repayment capacity ratio. Their study is
    available in volume 28 issue 1 of the Review of Agricultural Economics.
    (http://aepp.oxfordjournals.org/content/28/1/4.abstract) This model was
    used to synthetically rate each farm in the KFMA data, each year
    assuming all the loans were new loans. The results of this analysis
    allows comparison of the situation at the end of 1979 with the current
    situation (Figure 10). The distribution indicates that the 2014
    distribution has a slightly higher percentage of farms rated in the BB
    and BB+ range and a slightly fewer percentage of farms rated in the
    BB^, B+, and B ranges than in 1979. Thus, the financial condition of
    farms is slightly higher in 2014 than it was in 1979. However, the
    situation changed very quickly from 1979 to 1981.
        Similarly, the distribution of the debt-to-asset ratios were also
    compared. In 1979, the average debt-to-asset ratio was 24.6%, while it
    was 19.0% at the of 2014. There were 19.4% of the farms with a debt-to-
    asset ratio greater than 40% in 1979, compared to 12.6% in 2014.
    Finally, there were 1.3% of the farms with a debt-to-asset ratio
    greater than 70% in 1979 compared with 2.3% in 2014. Thus the sector at
    the end of 2014 was in a moderately better leverage position compared
    to 1979.
    The Farm Safety Net
        One of the major questions agricultural producers and lenders have
    as we enter a low price environment is the ability of the farm safety
    net to alleviate significant financial hardship in the sector. The farm
    safety net currently consists of crop insurance and either the ARC or
    PLC programs. Revenue insurance products have been valuable in Kansas
    for farmers managing through an extended drought. Table 2 presents an
    example of the minimum revenue guarantee for corn assuming a 150 bushel
    production history and a coverage election of 80%. The lower bound on
    coverage per acre for corn has declined from $678 per acre in 2013 to
    $463 per acre in 2016 with the declining corn price. This represents a
    32% increase in the amount of risk that a farmer is bearing. Similar
    changes occur for soybeans (31%) and winter wheat (41%). Thus, farmers
    are managing a substantially higher level of risk with the 2016 crops
    than they were just 3 years ago.
        While the levels of revenue guaranteed have been dropping, the cost
    of production per acre has been increasing. Table 3 illustrates the ex-
    post variable and total cost of production for non-irrigated corn and
    soybean production from the KFMA gathered from actual farm records.
    From 2006, the variable cost per acre for corn production increased
    from $191 to $322 per acre, an increase of nearly 70%. The variable
    cost for soybean production increased from $125 to $229 per acre, an
    increase of nearly 83%.
    Land Value Effects
        With the decline in net farm incomes, concerns arise with regards
    to the potential land value effects. Taylor, Featherstone, and Gibson
    have estimated the relationship between net farm income, cash rents,
    and land values in Kansas. Using the net present value model, the
    agricultural land market in Kansas and data from 1973 to 2012, the
    relationship between land values and net farm income was estimated.
    They found that land adjusts to changes in net farm income slowly with
    a 1 year elasticity at the state level of 6.7%. The long-run elasticity
    is 96.9%, which is very close to the 100% suggested by the income
    capitalization model. At the state level, the long-run multiplier for
    income in Kansas is 21.71 which implies a capitalization rate of 4.61%.
        These estimates were used to forecast changes in Kansas land values
    given futures prices and income expectations, ceteris paribus. Futures
    prices were collected for the harvest time contracts through 2018 for
    the July contract from the Kansas City Board of Trade for wheat and
    from the Chicago Board of Trade for the December contract for corn and
    the November contract for soybeans. These prices were adjusted for
    historical basis and used to forecast net farm income through 2018.
    Figure 11 presents the historical corn and soybean price received and
    the expected basis-adjusted price into the future for corn and
    soybeans. In addition, the net farm income was calculated based using
    expected trend yield and the price expectations.
        Corn prices received by Kansas farmers are expected to remain at
    around the $4.00 per bushel range through 2018, while soybean prices
    received are expected to remain around the $8.50 per bushel range
    (Figure 11). Net farm income was the highest in 2012 at $81.91 per
    acre. That amount is expected to decline to $49.01 for 2016. After
    2016, net farm incomes are expected to increase to $53.04 per acre in
    2018.
        The estimated results suggest that Kansas land values would peak in
    2016 and begin to slowly decline. If market conditions were to remain
    the same, land values could ultimately decrease to $1,171 per acre, a
    28% decline from current levels assuming the land price earnings
    multiple returns to the longer-term average of 4.61%. Declines of this
    magnitude could negatively affect the financial condition of the
    sector.
    Conclusions
        In conclusion, the declining net farm income in 2015, has made for
    an uncertain agricultural lending environment. The agricultural
    production sector and the agricultural lending sectors are intertwined
    causing many lenders to be asking the same questions as agricultural
    producers regarding the future of production agriculture as they make
    decisions regarding loan restructuring and other normal lending
    decisions. If the sector is entering a major readjustment phase,
    several important factors should be considered.

      (1)  The averages will not drive a bust, but the lower tail of the
                distribution can. Therefore, more attention needs to be
                paid to the distribution of financial performance and less
                on the averages.

      (2)  Given the thinness of agricultural land markets, small increases
                in land parcels being liquidated can have major effects of
                the price of land.

      (3)  The debt-to-asset ratio was more of a lagging indicator of
                financial stress during the 1980s boom-bust cycle whereas
                the Debt-to-EBITDA ratio was more of a leading indicator.

      (4)  The lending industry has moved more to a cash flow based loan
                assessment and less of a collateral based loan assessment.

      (5)  Farmers and agricultural lenders are entering the current
                downturn in a strong financial position because of several
                years of excellent profitability.

      (6)  Relative to entering adjustment phase in the 1980s, farms are in
                a moderately stronger financial position.

        [CY] 2016 will be a pivotal year in production agriculture. Given
    that average net farm income in some regions were the lowest they have
    been since 1985, a repeat of that in 2016 will cause some agricultural
    producers and lenders to make difficult decisions before entering the
    spring of 2017.
        Thank you.
                              [Tables and Figures]

        Table 1. Opened-Ended Comments from the Spring 2016 Kansas State
                           Agricultural Lender Survey
    ------------------------------------------------------------------------

    -------------------------------------------------------------------------
        ``The ag finance environment is tough. 2015 was very tough.
     Projections for 2016 look worse.''
    ------------------------------------------------------------------------
        ``Cropland values have declined 15-25% depending on quality. Pasture
     values have stayed fairly constant, although the lack of sales might
     indicate that they are priced too high given the market.''
    ------------------------------------------------------------------------
        ``With these crop prices expect a significant gut check by the
     producers. I am seeing significant decrease in capital purchases and
     family living. I expect other operating expenses to follow.''
    ------------------------------------------------------------------------

        Table 1. Opened-Ended Comments from the Spring 2016 Kansas State
                      Agricultural Lender Survey--Continued
    ------------------------------------------------------------------------

    -------------------------------------------------------------------------
        ``We are in the early stages of a major correction in the Ag
     economy. Given the accumulation of corn & soybean inventories, this
     could be a prolonged and painful process. Eventually an equilibrium of
     costs and revenues will be reached and the Ag economy will stabilize.
     The producers that made conservative decisions will weather the storm,
     others will need to make major adjustments or fail. We have seen a 20%
     reduction in AG real estate values with more reductions to follow. We
     are seeing values of farm equipment fall by up to 33%. I expect further
     softness in Ag equipment to follow as forced liquidations place more
     equipment on the market and this market will need to find market
     clearing price levels.''
    ------------------------------------------------------------------------
        ``Stronger dollar is putting pressure on margins in virtually all Ag
     sectors. Dairy has held up surprisingly well vs. world market due to
     domestic demand for butterfat. Expecting tighter margins for cow/calf
     ahead as we are into herd building, expect feedyard margins to improve
     in last quarter of 2016. Potato and onion margins remain tight and
     expecting to remain tight as alternative crops which compete for
     acreage struggle to provide positive margins. The last 7 or so years
     have been very profitable for tree fruit which has spurred orchard
     development. With new orchard acres and more productive plantings
     coming on line it is expected that tree fruit will be coming under
     pressure for next \1/2\ dozen years.''
    ------------------------------------------------------------------------
        ``We only have one farm loan that is classified. If commodity prices
     remain low, could be more in the future.''
    ------------------------------------------------------------------------

      Table 2. Crop Revenue Coverage Minimum Revenue Guarantee Example for
                                 Corn, 2013-2016
    ------------------------------------------------------------------------
                         2013           2014          2015          2016
    ------------------------------------------------------------------------
    APH (bushel)             150            150            150           150
        Coverage             80%            80%            80%           80%
         Election
      Guaranteed             120            120            120           120
           Bushel
      Base Price           $5.65          $4.62          $4.15         $3.86
     (per bushel)
    Coverage (per           $678           $554           $498          $463
            acre)
    ------------------------------------------------------------------------

    Table 3. KFMA Non-Irrigated Corn and Soybean Cost of Production per Acre
    ------------------------------------------------------------------------
                                Corn                        Soybean
                   ---------------------------------------------------------
                                                    Variable
                    Variable Cost    Total Cost       Cost       Total Cost
    ------------------------------------------------------------------------
            2005            $188           $263           $118          $177
            2006            $191           $269           $125          $183
            2007            $231           $331           $145          $229
            2008            $265           $374           $167          $250
            2009            $267           $371           $173          $261
            2010            $268           $382           $176          $268
            2011            $281           $391           $192          $286
            2012            $325           $435           $202          $299
            2013            $308           $420           $224          $342
            2014            $322           $447           $229          $339
    ------------------------------------------------------------------------
    Source: KFMA, 2016.

    Figure 1. U.S., North Central Kansas, and Kansas Net Farm Income
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

              Source: USDA-ERS, 2016, KFMA, 2016.
    Figure 2. Kansas Inflation-Adjusted Land Values, 1950 through 2015
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Figure 3. Inflation-Adjusted Land Value Price Changes since 2006 and
            the 1980s for Selected States
            [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Figure 4. Non-Performing Total Farm Loans--Diffusion Index of Survey
            Respondents
            [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

              Source: Brewer, Featherstone, Wilson, and Briggeman.
    Figure 5. Land Value Price Expectations
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

              Source: Brewer, Featherstone, Wilson, and Briggeman.
    Figure 6. United States, Illinois, and Kansas Debt-to-Asset Ratios
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

              Source: Ellinger, Featherstone, and Boehlje.
    Figure 7. Distribution of Debt-to-Asset Ratios for Illinois Farms,
            2003-2014
            [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

              Source: FBFM, 2016.
    Figure 8. U.S., Illinois and Kansas Debt-to-EBITDA Ratios
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

              Source: Ellinger, Featherstone, Boehlje.
    Figure 9. U.S., Kansas, and North Central Kansas Debt-to-EBITDA Ratios
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Figure 10. Synthetic Credit Ratings of Kansas Farm Management
            Association Farms, 1979 and 2014
            [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Figure 11. Expected Corn and Soybean Prices and Net Farm Income in
            Kansas, 2016-2018
            [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                                  [Attachment]
    Agricultural Lender Survey
    Kansas State University
      Brady Brewer,\1\ Allen Featherstone,\2\ Christine Wilson,\3\ and
        Brian Briggeman.\4\
    ---------------------------------------------------------------------------
        \1\ Assistant Professor, University of Georgia.
        \2\ Professor, Head and Director of the Masters of Agribusiness
    Program, Kansas State University.
        \3\ Professor and Director of Undergraduate Programs, Kansas State
    University.
        \4\ Associate Professor, Director of Arthur Capper Cooperative
    Center, Kansas State University.
    ---------------------------------------------------------------------------
    Results: Spring Survey 2016
    Survey Summary and Highlights
        For the Spring 2016 edition of the agricultural lender survey,
    lenders from across the nation reported their expectation for interest
    rates, spread over cost of funds, farm dollar volume, non-performing
    loans, and agricultural land values. The major theme from lender
    responses is that the agricultural economy is slowing and that the
    expectations for relief to farmers is a few years away. This sentiment
    is summed up by the comments of one respondent:

              ``We are in the early stages of a major correction in the
            agricultural economy. Given the accumulation of corn & soybean
            inventories, this could be a prolonged and painful process.
            Eventually an equilibrium of costs and revenues will be reached
            and the agricultural economy will stabilize. The producers that
            made conservative decisions will weather the storm, others will
            need to make major adjustments or fail.''

        Many lenders stated that low commodity prices and stubbornly high
    input prices continue to put pressure on cash flows. Below is a summary
    of the highlights from the Spring 2016 survey.

       Short-term expectations are for land values continues to
            decrease.

       Lenders indicate a reversal in the downward trend for spread
            over cost of funds. This is the first increase in spread over
            cost of funds reported since the inception of this survey in
            Spring 2013, and may be indications of an increased risk
            premium needed for agricultural lending.

       From Fall 2015 to Spring 2016, lenders noted that the number
            of non-performing loans rose for total farm loans.

       Lenders expect non-performing loans to continue its rise,
            particularly for the corn and soybeans, wheat, and beef sub-
            sectors.

       Demand for farm operating loans remains high as liquidity
            and cash flow are problematic for many producers.

       Respondents reported cash rental rates remain elevated and
            have been slow to adjust with the decline in commodity prices.

        The Department of Agricultural Economics at Kansas State University
    conducts a semi-annual survey of Agricultural Lenders to gage the
    recent, short term and long term future assessment of the credit
    situation for production agriculture. The results provide a measure of
    the health of the sector in a forward looking manner.
        Each institution surveyed provided their sentiment on the current
    and expected state for: (1) farm loan interest rates; (2) spread over
    cost of funds; (3) farm loan volumes; (4) non-performing loan volumes;
    and (5) agricultural land values. Within each of these key areas,
    different loan types were assessed (farm real-estate, intermediate and
    operating loans) as well as the different agricultural sectors (corn
    and soybeans, wheat, beef, dairy, etc.).
        The survey responses are summarized using a diffusion index. This
    index is calculated by taking the percentage of those indicating
    increase minus the percentage of those indicating decrease plus 100.
    Therefore, an index above (below) 100 indicates respondents expect or
    experienced an increase (decrease) in the measure of interest. For
    example, Figure 2 illustrates that the index for the Spring 2016
    expected long-term farm real estate loan interest rates equals 197.
    This number can be described as 97% more respondents felt farm real
    estate loan interest rates will go up in the long run than those who
    felt interest rates would go down.
    Figure 1, Demographics of Survey Respondents
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Figure 1 shows the demographics of the Spring 2016 survey
    respondents by primary service territory. The five territories are:
    Midwest, West, Atlantic, South and Plains. Table 1 has a list of the
    states in each region. Fifty-four percent of survey respondents came
    from the Plains region while 32%, 0%, 7% and 7% came from the Midwest,
    West, Atlantic, and South regions, respectively. Nine percent of
    respondents indicated their respective lending institution was national
    in scope.
        Lenders expect interest rates to rise. Figure 2 shows the continued
    expectation of higher interest rates in the future. Over the past three
    months, 45% of respondents indicated an increase in interest rates for
    farm real estate loans. This rise was partially caused by the increase
    of the Fed Funds Rate by the Federal Reserve in December 2015. Staying
    with past trends, no respondents expect interest rates to decrease in
    the short-term or long-term. Furthermore, this survey was the third
    consecutive survey where no respondent expects a decrease in interest
    rates in the short-term or long-term (Table 2).
    Figure 2, Loan Interest Rates--Diffusion Index of Survey Respondents
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        The spread over cost of funds is the difference between the loan
    interest rates charged by the lending institution and the interest rate
    paid by the financial institution for the funds that they deploy in
    their business. The reason for obtaining information for both loan
    interest rates and spread over cost of funds is to gauge competition in
    the agricultural lending market. A decrease in the spread over cost of
    funds suggests competition for agricultural loans among lending
    institutions may be increasing. Also, this information may reflect an
    increase in the premium for agricultural lending.
        This survey marks the first time lenders have indicated an increase
    in the spread over cost of funds over the past three months. Figure 3
    shows that survey respondents expect this trend to continue for both
    the short-term and long-term for all loan categories. However, despite
    more respondents reporting an increase in spread over cost of funds,
    the majority of lenders reported no change in the spread over cost of
    funds. Lender expectations for the future increases still remain
    divided with 50% of lenders expecting no long-term change and 50% of
    lenders expecting an increase.
    Figure 3, Spread Over Cost of Funds--Diffusion Index of Survey
            Respondents
            [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        While farm loan volumes rose significantly over the past 3 months,
    the increase farm real estate loan volumes are expected to slow. Figure
    4 shows the responses for the aggregate amount of agricultural lending.
    Lenders expect total farm loan volumes to continue to increase, but
    farm real estate loan volumes are not expected to rise by as many
    respondents as in previous surveys. The current high demand for funds
    is a reflection of the deteriorating liquidity position of farmers and
    is more pronounced for operating credit.
        The sentiment for farm real estate loans continues on a downward
    trend in the long term that started with the peak in lender expectation
    in Spring 2014. This is partly due to the decreasing demand for
    farmland. The expectation for operating loan volume remains high for
    the short-term and long-term due to lower cash farm receipts, though it
    has decreased slightly in the short-term from the Fall 2015 survey
    likely due to expectations of lower operating expenses. One respondent
    noted:

              ``I am seeing significant decrease in capital purchases and
            family living. I expect other operating expenses to follow.''
    Figure 4, Farm Loan Volume--Diffusion Index of Survey Respondents
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Lenders expect non-performing loans to increase. Figure 5 shows the
    results for non-performing loans analyzed by loan type. 43% of
    respondents indicated an increase in non-performing loans. It is
    concerning that this increase represents a 31% percentage point
    increase from Fall 2015 (Table 2). Agricultural lenders expect that
    non-performing loans will increase during the next year, 77% in the
    spring of 2016 compared to 53% in the fall of 2015. Over the next 2 to
    5 years, the sentiment is that non-performing loans will increase, but
    that sentiment has lessened slightly over the last two surveys.
        With that said, not all lending institutions are feeling the
    pressure. Rising non-performing loans are not necessarily universally
    felt by all lenders. One respondent noted:

              ``We only have one farm loan that is classified. If commodity
            prices remain low, could be more in the future.''
    Figure 5, Non-Performing Loans, By Loan Type--Diffusion Index of Survey
            Respondents
           [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Non-performing loans are rising across all crop production sectors.
    Figure 6 shows the non-performing loans by crop industry sector.
    Respondents continued to indicate an increase in expectations for non-
    performing loans for corn and soybeans and wheat.

              ``With these crop prices expect a significant gut check by
            the producers.''

        Fruits and vegetables also experienced an increase in the long-term
    expectation for non-performing loans. This is partly due to expanded
    orchard plantings in reaction to recent, sizeable profits.

              ``The last seven or so years have been very profitable for
            tree fruit which has spurred orchard development. With new
            orchard acres and more productive plantings coming on line it
            is expected that tree fruit will be coming under pressure for
            next half dozen years.''
    Figure 6, Non-Performing Loans, By Crop Industry Sector--Diffusion
            Index of Survey Respondents
            [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Similar to the crop sector, non-performing loans for livestock
    producers are expected to rise. Figure 7 shows the non-performing loans
    for various livestock sectors. This was the first survey that
    respondents indicated an increase in non-performing loans for the beef
    sector during the past three months. Recent declines in livestock
    prices are beginning to impact loan performance.

              ``Expecting tighter margins for cow/calf ahead as we are into
            herd building, expect feed yard margins to improve in last
            quarter of 2016.''
    Figure 7, Non-Performing Loans, By Livestock Industry Sector--Diffusion
            Index of Survey Respondents
            [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        During the spring 2016 survey window, 48% of agricultural lenders
    indicate that land values decreased and 45% indicate that they remained
    the same, and 6% indicate they increased during the previous 3 months.
    The spring 2015 results indicated that 35% indicated decreases, 57%
    indicated no change, and 8% indicated increasing land values for the
    previous three months. The expectation of land value changes in the
    next year became markedly more negative from the fall of 2015 to the
    spring of 2016 with the index falling from 32 to 16. Currently 84% of
    lenders expect land values to fall over the next year and 16% expect
    they will remain the same. For the longer term, the sentiment has not
    changed much over the last four surveys; roughly 65% expect decreases,
    25% expect no change, and the remainder expect land price increases.
    The overall sentiment by agricultural lenders turned more pessimistic
    from the fall of 2015 to the spring of 2016. One respondent stated:

              ``Cropland values have declined 15-25% depending on quality.
            Pasture values have stayed fairly constant, although the lack
            of sales might indicate that they are priced too high given the
            market.''
    Figure 8 Land Values--Diffusion Index of Survey Respondents
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                         Table 1, States in Each Region
    ------------------------------------------------------------------------

    ------------------------------------------------------------------------
    Atlantic                             CT, DE, KY, ME, MD, MA, NH, NJ, NY,
                                          NC, PA, RI, TN, VA, VT, WV
    South                                AL, AR, FL, GA, LA, MS, SC
    Midwest                              IA, IL, IN, MI, MN, MO, OH, WI
    Plains                               KS, NE, ND, OK, SD, TX
    West                                 AZ, CA, CO, ID, MT, NM, NV, OR, UT,
                                          WA, WY
    ------------------------------------------------------------------------

                                                                                                          Table 2, Respondent Responses
    ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                 Interest Rates                                                                                Spread Over Cost of Funds
                                      ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                               Farm Real Estate                   Intermediate                       Operating                     Farm Real Estate                   Intermediate                      Operating
                                      ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                         Lower       Same      Higher     Lower       Same      Higher     Lower       Same      Higher      Lower       Same      Higher     Lower       Same      Higher     Lower       Same      Higher
    ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                Past Three Months
    ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
    Spring 2013                              55%        42%         3%        52%        43%         2%        48%        50%         0%         56%        35%        10%        56%        37%         6%        58%        39%         3%
    Fall 2013                                17%        44%        39%        12%        58%        30%        18%        70%        12%         36%        56%         8%        30%        61%         9%        32%        61%         7%
    Spring 2014                              14%        67%        19%        13%        78%        30%        16%        50%         5%         28%        67%         5%        24%        71%         5%        23%        71%         5%
    Fall 2014                                14%        74%        12%        12%        78%         7%        15%        44%         7%         30%        65%         5%        29%        68%         2%        32%        63%         5%
    Spring 2015                              19%        76%         5%        11%        89%         0%        11%        89%         0%         30%        70%         0%        26%        74%         0%        25%        75%         0%
    Fall 2015                                 5%        79%        13%         8%        78%        11%        11%        81%         6%         32%        63%         3%        22%        72%         3%        25%        69%         3%
    Spring 2016                               3%        52%        45%         0%        57%        43%         0%        50%        50%         10%        77%        13%        13%        77%        10%        13%        67%        20%
    ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                   Short Term
    ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
    Spring 2013                              11%        75%        14%        14%        72%        12%        17%        73%         9%         48%        51%         3%        46%        54%         2%        43%        52%         3%
    Fall 2013                                 0%        44%        56%         0%        51%        49%         0%        65%        35%         22%        56%        22%        19%        58%        23%        23%        54%        23%
    Spring 2014                               5%        50%        45%         5%        50%        45%         7%        53%        40%         32%        60%         9%        31%        58%        11%        27%        60%        13%
    Fall 2014                                 2%        44%        53%         2%        46%        51%         2%        50%        48%         23%        63%        14%        22%        66%        12%        22%        61%        17%
    Spring 2015                               0%        43%        57%         0%        40%        60%         0%        39%        61%         24%        57%        19%        20%        69%        11%        22%        61%        17%
    Fall 2015                                 0%        34%        66%         0%        42%        58%         0%        32%        13%         24%        58%        18%        27%        51%        22%        31%        44%        25%
    Spring 2016                               0%        32%        68%         0%        30%        70%         0%        27%        73%          6%        68%        26%         7%        60%        33%         3%        57%        40%
    ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                    Long Term
    ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
    Spring 2013                               2%        14%        85%         2%         9%        88%         2%         8%        89%         31%        34%        38%        30%        29%        38%        27%        32%        40%
    Fall 2013                                 0%        19%        81%         0%        21%        79%         0%        19%        81%         14%        42%        44%        12%        42%        46%        14%        44%        42%
    Spring 2014                               0%         5%        95%         0%         4%        96%         0%         7%        93%         26%        42%        32%        27%        44%        29%        25%        42%        33%
    Fall 2014                                 0%         5%        95%         0%         7%        93%         0%         7%        93%         16%        47%        37%        27%        46%        39%        15%        44%        41%
    Spring 2015                               0%         8%        92%         0%         9%        91%         0%         6%        94%         22%        35%        43%        23%        40%        37%        22%        33%        44%
    Fall 2015                                 0%         3%        97%         0%         3%        97%         0%         3%        97%         16%        42%        42%        16%        43%        41%        19%        38%        43%
    Spring 2016                               0%         3%        97%         0%         3%        97%         0%         3%        97%         16%        35%        48%        13%        37%        50%        13%        33%        53%
    ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

                                                                                                               Farm Dollar Volume
    ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                        Total Farm Loans                                      Farm Real Estate                                        Intermediate                                            Operating
                     -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                            Lower             Same             Higher             Lower             Same             Higher             Lower             Same             Higher             Lower             Same             Higher
    ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                Past Three Months
    ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
    Spring 2013                    32%               22%               45%               12%               35%               52%               28%               46%               22%               40%               26%               31%
    Fall 2013                       5%               46%               49%                7%               51%               42%                9%               66%               25%               12%               54%               33%
    Spring 2014                    20%               32%               48%                9%               41%               50%               16%               56%               27%               29%               35%               36%
    Fall 2014                      12%               35%               53%               16%               40%               44%               20%               44%               37%               12%               29%               59%
    Spring 2015                     5%               38%               57%               14%               54%               32%               11%               43%               46%                8%               42%               50%
    Fall 2015                       5%               27%               68%                8%               53%               39%                8%               70%               19%                3%               22%               72%
    Spring 2016                     0%               33%               67%               10%               42%               48%                7%               47%               47%                7%               23%               70%
    ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                   Short Term
    ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
    Spring 2013                     9%               43%               46%                8%               43%               49%                9%               58%               28%                6%               50%               42%
    Fall 2013                       0%               41%               59%                8%               46%               46%                5%               56%               39%                5%               40%               54%
    Spring 2014                     2%               21%               77%                3%               38%               59%               22%               29%               49%                4%               24%               73%
    Fall 2014                       9%               35%               56%               19%               49%               33%               17%               41%               41%                7%               24%               68%
    Spring 2015                     5%               27%               68%               22%               43%               35%               20%               43%               37%                3%               25%               72%
    Fall 2015                       3%               14%               81%               13%               47%               37%               24%               41%               32%                0%               14%               83%
    ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

                                                                                                    Table 2, Respondent Responses--Continued
    ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                        Total Farm Loans                                      Farm Real Estate                                        Intermediate                                            Operating
                     -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                            Lower             Same             Higher             Lower             Same             Higher             Lower             Same             Higher             Lower             Same             Higher
    ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
    Spring 2016                     0%               33%               67%               16%               29%               55%               20%               43%               37%                7%               23%               70%
    ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                    Long Term
    ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
    Spring 2013                     9%               25%               65%               15%               29%               55%               19%               30%               48%                5%               28%               65%
    Fall 2013                       2%               36%               63%                8%               42%               49%                5%               47%               47%                4%               33%               63%
    Spring 2014                     0%               21%               79%                7%               29%               64%                7%               39%               54%                0%               29%               71%
    Fall 2014                       5%               23%               72%               14%               19%               67%               15%               30%               56%               17%               17%               76%
    Spring 2015                     3%               27%               70%               11%               35%               54%                8%               28%               64%                0%               28%               72%
    Fall 2015                       8%               19%               70%               18%               21%               58%               14%               43%               41%                3%               11%               83%
    Spring 2016                     0%               23%               77%               16%               29%               55%               10%               30%               60%                3%               20%               77%
    ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

                                                                                    Non-Performing Loan by Loan Type
    ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                        Total Farm Loans                 Farm Real Estate                   Intermediate                       Operating                      Ag Land Values
                               ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                  Lower       Same      Higher     Lower       Same      Higher     Lower       Same      Higher     Lower       Same      Higher      Lower       Same      Higher
    ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                            Past Three Months
    ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
    Spring 2013                       28%        58%         0%        27%        63%         0%        27%        61%         0%        24%        63%         3%
    Fall 2013                         31%        67%         2%        24%        74%         2%        29%        69%         2%        27%        69%         4%          0%        61%        39%
    Spring 2014                       27%        71%         2%        28%        68%         4%        20%        78%         2%        20%        76%         4%         14%        50%        36%
    Fall 2014                         32%        68%         0%        29%        68%         3%        29%        71%         0%        26%        66%         9%         14%        69%        17%
    Spring 2015                        3%        91%         6%         3%        97%         0%         3%        91%         6%         3%        88%         9%         35%        57%         8%
    Fall 2015                          0%        85%        12%         3%        86%         9%         0%        85%        12%         0%        81%        16%         58%        37%         3%
    Spring 2016                        0%        57%        43%         0%        74%        26%         0%        67%        33%         0%        47%        53%         48%        45%         0%
    ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                               Short Term
    ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
    Spring 2013                       28%        58%         3%        30%        64%         3%        26%        65%         3%        30%        61%         7%
    Fall 2013                         18%        70%        13%        15%        80%         5%        17%        74%         9%        13%        72%        15%         17%        61%        22%
    Spring 2014                        9%        69%        22%         9%        71%        20%         9%        74%        17%         8%        63%        29%         33%        52%        16%
    Fall 2014                          5%        49%        46%         5%        68%        27%         5%        67%        28%         5%        38%        56%         48%        45%         7%
    Spring 2015                        3%        49%        49%         3%        68%        30%         3%        57%        40%         3%        47%        50%         59%        41%         0%
    Fall 2015                          3%        41%        53%         3%        57%        37%         3%        47%        47%         3%        24%        71%         71%        24%         3%
    Spring 2016                        0%        23%        77%         6%        39%        55%         3%        33%        63%         0%        13%        87%         84%        16%         0%
    ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                Long Term
    ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
    Spring 2013                       19%        56%        20%        21%        62%        17%        16%        65%        18%        16%        63%        19%
    Fall 2013                         14%        46%        40%        12%        49%        39%        11%        53%        36%        11%        45%        45%         46%        44%        10%
    Spring 2014                        7%        40%        53%         7%        41%        52%         6%        48%        46%         4%        42%        54%         59%        29%        12%
    Fall 2014                         10%        33%        57%        10%        45%        45%        12%        44%        44%        13%        33%        55%         64%        26%        10%
    Spring 2015                        3%        35%        62%         3%        49%        49%         3%        42%        56%         3%        27%        70%         65%        32%         3%
    Fall 2015                          6%        29%        63%         6%        31%        61%         6%        26%        66%         6%        20%        71%         66%        24%         8%
    Spring 2016                       10%        27%        63%        16%        32%        52%        10%        27%        63%        10%        27%        63%         68%        26%         6%
    ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

        The Chairman. Mr. Nelson.

     STATEMENT OF RANDY NELSON, PRESIDENT, CHS CAPITAL LLC, INVER
                           GROVE HEIGHTS, MN

        Mr. Nelson. Chairman Scott, Ranking Member Scott, and
    Members of the Committee, thank you for inviting me to testify
    today. My name is Randy Nelson, President of CHS Capital, and I
    appreciate this opportunity to share with you what we are
    seeing in credit demand among our farmer and cooperative
    owners.
        CHS Capital is a wholly owned subsidiary of CHS, the
    largest nationwide farmer-owned cooperative. Headquartered near
    St. Paul, Minnesota, CHS is a highly diversified Fortune 100
    company that supplies crop nutrients, grain marketing services,
    food and food ingredients, and energy products. We also provide
    a range of business solutions, including insurance and hedging,
    as well as financial services through CHS Capital.
        CHS Capital provides operating and term loans directly to
    cooperatives and individual producers who farm anywhere from
    100 acres to over 100,000 acres. In our view, the decrease in
    crop prices has had a major impact on the financial strength of
    farmers. Low prices, combined with high rent costs, have caused
    nearly all farm projections for 2016 to reflect a shortfall in
    farmers' ability to meet their current obligations.
        We have seen some common trends among many of our
    producers. While some have had their 2014 crop contracted at
    profitable prices, few farmers had their 2015 crop contracted,
    and we have seen limited corn and soybeans contracted for 2016.
    We have seen many farmers who were unable to cash flow their
    operations in 2015, despite record yields across parts of the
    Dakotas and Wisconsin, and most of Minnesota.
        However, thanks to several good years in farming, many
    farmers have built up significant equity in their real estate.
    This provides them with the option to refinance their land and
    inject working capital. While this fixes the working capital
    issue, prices still need to rise in order to service the added
    debt. It is this farm real estate equity that will allow many
    to farm again this year. However, the current outlook at the
    end of 2016: some will reduce their equity to a level that is
    not sufficient to continue farming.
        CHS Capital has received a number of requests to finance a
    number of customers whose primary lender does not want to
    continue to finance their farming operation. CHS Capital is
    able to help some of these customers, but we are also taking a
    closer look at projections and how their equity can support
    future losses. CHS Capital completed term loans totaling $55.5
    million in the first 3 months of 2015, compared with $226.5
    million in loans that have been completed so far in 2016.
    Nearly all of the term loans were written to refinance existing
    real estate versus new real estate purchases. We expect the
    number of term loans to continue to increase if commodity
    prices remain low.
        CHS Capital has seen a significant increase in past due
    loans and requests to extend the prior year's operating loan.
    The low commodity prices have resulted in more customers
    holding on to their inventory in hopes of higher prices, and an
    increasing number have had to liquidate assets in order to
    repay their loan. We have also seen a higher number of
    customers who have not been able to obtain the operating
    funding for the upcoming year.
        With the current stockpiles of grain and the number of
    acres projected to be planted, the outlook through 2016 and
    into 2017 is for crop prices to remain depressed. CHS Capital
    estimates a breakeven cash price for many growers to be in the
    range of $3.90 to $4.25 per bushel for corn. If prices remain
    low throughout 2016, and the outlook is not positive, CHS
    Capital believes that many farmers will choose to preserve
    their equity and rent out their farmland or liquidate assets.
    We believe that this will be especially true for farmers who
    are at or near retirement with no family succession plan. We
    feel that if significant acres of farmland are put on the
    market and farmers are willing to walk away from expensive
    rented ground, rental prices will decline and real estate
    values will devalue. We also believe some young farmers will
    leave or work off the farm, and we believe that continued low
    prices will cause banks to pull away from financing
    agriculture.
        Thank you again for the opportunity to share our views on
    the state of credit in farm country. I look forward to
    answering your questions.
        [The prepared statement of Mr. Nelson follows:]

     Prepared Statement of Randy Nelson, President, CHS Capital LLC, Inver
                               Grove Heights, MN
        Chairman Scott, Ranking Member Scott, and Members of the Committee,
    thank you for inviting me to testify today. My name is Randy Nelson,
    President of CHS Capital, and I appreciate this opportunity to share
    with you what CHS Capital does, who we serve, and what we are seeing
    right now in credit demand among our farmer and cooperative owners.
    About CHS Capital
        CHS Capital is a wholly-owned financing subsidiary of CHS Inc., the
    nation's largest farmer-owned cooperative. Headquartered in Inver Grove
    Heights, Minnesota, CHS Inc. is owned by more than 600,000 producers
    and 1,100 member cooperatives from around the United States, including
    77,000 direct producer-owners and approximately 20,000 preferred stock
    holders. CHS is governed by a 17 member board of directors elected by
    our producer and member co-op stockholders. Our directors are all
    active farmers and ranchers with a broad range of experience in
    agribusiness, as well as other business sectors.
        As a cooperative, CHS also returns cash to our owners every year,
    based on the company's performance and the amount of business an owner
    conducts with CHS during the year. During its Fiscal Year 2016, CHS
    will distribute about $519 million to farmers, ranchers and
    cooperatives across the country. Between fiscal 2012 and 2016 CHS has
    distributed a total of $2.7 billion in cash, a $544 million annual
    average.
        CHS is a highly diversified Fortune 100 company that supplies crop
    nutrients, grain marketing services, animal feed, and food and food
    ingredients. We also operate petroleum refineries and pipelines and
    manufacture, market and distribute refined fuels, lubricants, propane
    and renewable energy products. Additionally, we provide a range of
    business solutions including insurance and hedging, as well as
    financial services through CHS Capital.
        CHS Capital was established in 2005 and provides operating and term
    loans directly to cooperatives and producers. We work with a wide range
    of producers who farm anywhere from 100 acres to over 100,000 acres. We
    work with these producers through CHS-owned locations and independent
    member-owned cooperatives that sell inputs, feed, fuel and other
    supplies to the producer. The loans are offered to help facilitate the
    sale of inputs. The operating loans may be set up to only finance the
    inputs sold by the retailer or they may finance all the farmer's
    operating needs.
        CHS Capital also provides loans for the purchase of market
    livestock, and loans for margin calls that provide pre-qualified
    customers access to additional capital for hedging without affecting
    current operating lines of credit.
    Current Financing Trends
        In our view, the decrease in crop prices has had a major impact on
    the financial strength of farmers. The low prices combined with high
    rent costs have caused nearly all farm projections for 2016 to reflect
    a shortfall in their ability to meet their current obligations. Some
    customers are looking for innovative options to increase profitability,
    such as growing specialty crops or purchasing beef heifers to feed,
    rather than selling their grain.
        We have seen some common trends among many of our producers. While
    some farmers had their 2014 crop contracted at profitable prices, few
    farmers had their 2015 crop contracted, and we have seen limited corn
    and soybeans contracted for 2016. We have seen many farmers who were
    unable to cash flow their operation in 2015, despite record yields,
    across parts of the Dakotas and Wisconsin and most of Minnesota.
        The challenges I have mentioned, are now evident in the negative
    working capital on the farmer's balance sheet. However, through the
    benefit of several good years in farming, many have built up
    significant equity in their real estate. This provides them with the
    option to refinance their land to inject working capital. While this
    fixes the working capital issue, prices still need to rise in order to
    service the added debt. It is this real estate equity that will allow
    many to farm again this year. However, with the current outlook, at the
    end of 2016 some will reduce their equity to a level that is not
    sufficient to continue farming.
        CHS Capital has received requests to finance a number of customers
    whose primary lender does not want to continue to finance the farming
    operation. CHS Capital is able to help some of these customers, but at
    the same time, we are also taking a close look at the projections to
    understand the possible shortfall at the end of 2016, and how their
    equity can support these losses.
        In anticipation of the working capital shortfalls, CHS Capital
    began offering term loans to utilize customers' real estate equity to
    improve working capital and finance losses. The chart below provides an
    overview of the number of real estate loans we have processed by year:

    ------------------------------------------------------------------------
         2012           2013           2014           2015       YTD 3/2016
    ------------------------------------------------------------------------
               1              0              6             16             7
    ------------------------------------------------------------------------

        CHS Capital completed term loans totaling $55.5 million in the
    first 3 months of 2015, compared with $226.5 million in loans that we
    have been completed so far in 2016. Nearly all of the term loans were
    written to refinance existing real estate versus new real estate
    purchases. We expect the number of term loans to continue to increase
    if commodity prices remain low.
        CHS Capital has seen a significant increase in past-due loans and
    requests to extend the prior year's operating loan. The low commodity
    prices have resulted in more customers holding their inventory in hopes
    of higher prices, and an increasing number have had to liquidate assets
    in order to repay their loan. We are also seeing a higher number of
    customers who have not been able to obtain the operating funding for
    the upcoming crop year
        The chart below reflects the year over year change in past-due
    customers (customers with a past-due balance in excess of $1,000).
    Number of Customers with a Past-Due Balance over $1,000
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        The majority of CHS Capital's loans mature in the first quarter so
    an increase in past-due loans during that timeframe is not unusual.
    However, the number of past-due loans is significantly higher than a
    year ago
    Looking Ahead
        With the current stockpiles of grain and number of acres projected
    to be planted, the outlook through 2016 and into 2017 is for crop
    prices to remain depressed. A weather issue in one of the major growing
    regions could positively impact prices. CHS Capital estimates the
    breakeven cash price for many growers to be in the range of $3.90-
    $4.25/bu. for corn. If prices remain low throughout 2016 and the
    outlook is not positive, CHS Capital believes that many farmers will
    choose to preserve their equity and will rent out their farmland or
    liquidate assets.
        We believe this will be especially true for farmers who are at or
    near retirement with no family succession plan. We believe there is
    also a segment of farmers who will have to liquidate due to high debt
    levels and a lack of equity. We feel that if significant acres of
    farmland are put on the market, and farmers are willing to walk away
    from expensive rented ground, the result will be a decline in rental
    prices and an increased devaluation rate of farm real estate.
        We also believe some of the younger generation of farmers who came
    back to the farm during times of strong prices will leave, or at a
    minimum look for work off the farm. We believe that continued low
    prices will cause banks to pull away from financing production
    agriculture and look for a more stable industry to which they can lend.
        Whether it is through CHS Capital or other segments of our
    enterprise, CHS recognizes the importance of maintaining a safety net
    for agricultural producers. As you and your colleagues on the
    Agriculture Committee examine the current state of the farm economy in
    anticipation of future legislative initiatives, we urge you to craft
    farm policy that covers multi- and single-year losses and strengthens
    risk management tools.
        Thank you again for the opportunity to share our views on the state
    of credit in farm country. I look forward to answering your questions.
                                   Attachment
    Commercial Financing
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                     Loan Breakdown
                                                          Grand Total on
                                                            Commitments

       Ag Supply: 119             Seasonal: 87          $1,127,600,000
           Ethanol: 1         Special Term: 30
            Grain: 56            Amortized: 59

    Producer Local Financing
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                     Loan Breakdown
                                                          Grand Total on
                                                            Commitments

            Crop: 660                   Hedge Line: 34    $222,991,000
                     Livestock: 6Machinery: 20
       Real Estate: 4

    Producer Country Operations Financing
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                     Loan Breakdown
                                                          Grand Total on
                                                            Commitments

          Crop: 3,030                   Hedge Line: 6     $748,221,000
                     Livestock: 12Machinery: 7
      Real Estate: 32

        The Chairman. Thank you, gentlemen. The chair would like to
    remind Members that they will be recognized for questioning in
    order of seniority for Members who were here at the start of
    the hearing. After that, Members will be recognized in order of
    arrival. I appreciate Members' understanding.
        Gentlemen, the most recent farm crisis occurred in the
    1980s, and many of those families in that crisis never
    recovered. What are the similarities of the situation in the
    1980s and today, and what are the differences that you see in
    what happened in the 1980s and today?
        Mr. Buzby, we will start with you and just kind of go down.
        Mr. Buzby. One of the major differences between the 1980s
    and now is interest rates. The level of interest rates has been
    at current levels for roughly 5 or 6 years. A dramatic increase
    in interest rates would cause the situation to be much more
    similar to that of the 1980s. A lot was learned in the 1980s.
    Lenders, in particular, take a very historical view when they
    look at the opportunities to finance farmers. I think that is
    very important. It is definitely very instrumental to see
    lenders who were around and lending in the 1980s. There are
    many farmers and young lenders who were not around then, we do
    see them learning from the history and from their colleagues
    who were around then.
        It is important, not only this year, as agriculture has
    come under stress, but as we progress into the next 2 years, I
    think that will be very challenging, in particular, if
    commodity prices stay where they are.
        Dr. Featherstone. I would concur with Mr. Buzby. Probably
    one of the other differences that I would say is the
    opportunity to use fixed rates products. A number of producers
    have used fixed rate products to lock in interest rates on land
    loans, and so roughly 50 percent of their debt is at under
    fixed rates. The other 50 percent is roughly under operating
    that would be subject to changes in interest rates.
        In terms of the land value build up, it is very similar to
    what we saw in the 1970 to 1980 run up when you look at
    inflation-adjusted terms. We are about 30 percent higher in
    places of the Midwest than we were during the peaks. Other
    places around the country did not see a run up, and so it is
    very different. But certainly in the Midwest and the Great
    Plains region, there was quite a run up in land values, which
    is somewhat similar to the 1970-1980 period.
        Mr. Nelson. As I look back at the 1980s, I saw that as
    really a high debt crisis situation, so farmers had leveraged
    their balance sheets significantly. Obviously, as mentioned
    here, the interest rates were much higher than they are today.
        As we look at where we are today, though, lenders and
    farmers have been much more cautious about leveraging their
    balance sheet, giving more opportunity to try and get through
    the downturn and the cash positions that they are seeing today.
        The Chairman. Dr. Featherstone, you said something that
    stands out in your written testimony with regard to the farm
    economy, that the averages will not drive a bust, but the lower
    tail of the distribution can. What is being done to track this?
    How can we track what is happening on these farms at the lower
    tail of the distribution, and is there anything that can be
    done on these farms to help prevent the lower tail of the
    distribution from driving a bust?
        Dr. Featherstone. I think there are a couple issues that
    are important to realize. The worst time in the 1970s that you
    were able to lend was kind of that 1977 to 1980 period. I had
    the opportunity at the beginning of my career to look at how
    those loans performed for a nationwide lender, and roughly
    about 85 to 90 percent of the loans they made in the worst time
    did make it through eventually, although it was very stressful.
        The big thing is there is a need to focus on the downside
    of the distribution and really understand that the agricultural
    land market is a pretty thin market. In a lot of places, you
    are looking at two to three percent of land trading a year, so
    four to five percent, which doesn't seem like a big change
    really can affect price. The other thing is identifying those
    farmers and working with them in terms of restructuring their
    operations and for some of them, it may be working with them to
    figure out whether or not farming is in their future.
        The Chairman. Mr. Scott.
        Mr. David Scott of Georgia. Thank you, Mr. Chairman.
        This has been a good panel, and I would like to ask Mr.
    Buzby, Dr. Featherstone, and Mr. Nelson, because each of you
    touched on this in your testimony.
        Let's suppose I have two graduating seniors, and which is
    the case. I gave the commencement address at University of
    Georgia's School of Agriculture last year, and I also had a
    group of young students who want to be farmers from Ft. Valley
    State in my office last week. And this issue came up. How are
    we going to really address this issue of getting the financing?
    You have young people who want to go into farming, but they are
    hitting a brick wall on two fronts.
        First of all, the high cost of land, the high cost of
    equipment. What is being done to get some help there? And then
    second, many of these graduating students have student loan
    debt, so it is not like if you graduate and you get a degree in
    finance, you go work for a bank, then you get a big salary, but
    in agriculture, you have to seriously go to work. You have to
    get land, you have to get equipment, you have to get property.
    How are we addressing this for this young person that wants to
    go into farming and is faced with college debt, with all the
    other debt?
        And I would like to know just what the land price would be
    for an acre.
        Mr. Buzby. Well certainly for a young beginning farmer,
    entering into farming is an uphill battle. Without the support
    of a family structure and perhaps an older farmer within the
    family who is exiting the business, it is very difficult to get
    started. Certainly where we see an environment where interest
    rates are low for the purchase of land that is helpful, but we
    also still see land values at relatively close to historic
    highs. You also see expensive rental rates if a farmer were to
    enter and begin renting, and the availability of equipment
    financing as well can be challenging.
        With all that said, there is a push amongst lenders,
    particularly in the Farm Credit System and in the banking
    communities to focus on young beginning and small farmers. It
    will continue to be a challenge for many years, and if the
    farming conditions and the farming economy struggle for the
    next several years, I think that will persist and be very
    difficult to enter into farming for beginners, particularly
    those coming right out from school.
        The existence of other debts related to education or other
    things will also only add to that burden. Many years ago,
    looking back to the 1980s, as many people saw struggling on the
    farms, people didn't want to get into agriculture and they kind
    of fled to the coast, got away from agriculture and went into
    different areas, maybe related to ag finance but not in
    agriculture in particular. Over the past decade or so, as
    farmers have done very well, there has been a push for people
    who grew up on the farm, went away to college, and then want to
    come back to the farm, I think that has returned and it has
    really just happened in this last year or so where that is not
    looking as favorable as it has for the last decade.
        Mr. David Scott of Georgia. Well let me just ask you, don't
    you all think it would be helpful--some of us here in Congress
    really feel the pinch on this--and I believe it will be helpful
    if we could develop some financing help here that would take
    care of loan forgiveness for a certain number of students. It
    doesn't have to be everybody, but at least we can start that
    with those who will go into farming, and to give scholarship
    aid to those. So when they come out, at least they will not
    have that hanging over them going in, but it would be
    interesting to know what would you say is the total operating
    cost of the average farm?
        Dr. Featherstone?
        Dr. Featherstone. For the farms that----
        Mr. David Scott of Georgia. And what would be the average
    size farm?
        Dr. Featherstone. Yes, the average size farm, there would,
    probably, in Kansas be about 800 to 1,000 acres. The average
    expenses would be about $500,000. One of the things that may be
    a possibility, and I know the Department of Defense is working
    with transitioning some of the soldiers into farming operations
    where they are trying to match soldiers that have a desire to
    farm with individuals that may be nearing retirement, and so
    perhaps something like that might be a possibility to also look
    for college students.
        Mr. David Scott of Georgia. Thank you, Mr. Chairman.
        The Chairman. Mr. Conaway?
        Mr. Conaway. Thank you, Mr. Chairman, and thank you,
    gentlemen, for being here.
        I would like to understand mechanically what is happening,
    and make sure we get that in the record. With high land prices
    and the risk of those prices dropping, when we look at the
    lending side, what is the normal or what would be the typical
    ratio of collateral value to loan value in most of these
    organizations?
        Mr. Buzby?
        Mr. Buzby. At Farmer Mac, what we see generally industry-
    wide is a maximum loan to value ratio of 70 percent.
        Mr. Conaway. All right, so if we had a 30 percent drop in
    the value of land, the bank will be about even with its debt at
    that point in time, so the drop in land prices has to be
    greater than that in order to have a real dramatic impact on
    lending or on those loans.
        Mr. Buzby. Correct.
        Mr. Conaway. Dr. Featherstone, you mentioned farm income.
    Does that include any kind of compensation to the farm family
    itself? Let's say you have the typical family farmer: is he
    taking a salary out of that number? What is that number?
        Dr. Featherstone. Yes, the net farm income that I mentioned
    would not include any other income that they may have.
        Mr. Conaway. So, if it went from $111,000 to $11,000, that
    $11,000 would mean farmers make about $1,000 a month to pay his
    own medical costs and other, normal things that a family would
    have to pay for?
        Dr. Featherstone. Yes, in this situation if all the income
    from the family was from the farm.
        Mr. Conaway. Well that $11,000 is just farming income.
        Dr. Featherstone. It is just the farm income, and so
    therefore, if there were off-farm incomes and that is going to
    be pretty important with regards to the rural economy, making
    sure that that is strong, to provide those job opportunities.
        Mr. Conaway. All right. Mr. Nelson or Mr. Buzby, there are
    a lot of challenges with respect to lending. Obviously, it has
    to be safe and sound. The bank has to be confident that it is
    getting its money back. Are there regulatory burdens associated
    with farming that are exacerbating lending decisions, either
    the regulations to operating a farm or regulations as to how
    you lend to a farmer?
        Mr. Nelson, you were nodding your head. We will let you go
    first.
        Mr. Nelson. Yes, I will make a comment as that pertains to
    CHS Capital. We are regulated in a different way than banks
    are, so it allows us a little bit more flexibility to create
    innovative programs to help out farmers. At the same time, we
    need to make sound decisions around the credit viewpoint and
    what it looks like into 2016. But we do have some innovative
    programs that we have put out here recently to help farmers
    get----
        Mr. Conaway. Right. I guess I am looking for the
    regulations that are preventing you from doing that.
        Mr. Buzby, do you have comments about specific regulations
    that farmers are dealing with that don't really help bankers
    make sound decisions?
        Mr. Buzby. Well, there are a wide spectrum of regulations
    that impact farmers, varying from those that impact the lenders
    and the financial institutions that serve them, but also
    environmental and water laws as well. While many of those laws
    may be from a social accountability standpoint, they may be
    well intended. There can certainly be adverse consequences
    which can adversely affect farming, the value of land that is
    available, and then ultimately the lending decisions that we
    may make.
        Mr. Conaway. Dr. Featherstone, you mentioned that a
    potential leading indicator would be debt-to-earnings before
    interest, taxes, depreciation and improvisation, or the ever
    popular EBITDA. What is that leading indicator telling you now?
        Dr. Featherstone. Essentially, that is beginning to move
    up. I have done some work with this at the university.
        Mr. Conaway. Up good or up bad?
        Dr. Featherstone. It is moving up quite a bit.
        Mr. Conaway. I know. Is up good, or is up bad?
        Dr. Featherstone. Oh, sorry. Moving up is bad in terms of
    the lower that ratio is, the better off you are. For example,
    in north central Kansas, I haven't calculated those numbers
    yet, but they will be negative for this coming year simply
    because you have to look at principle repayment and family
    living when you begin looking at that.
        Mr. Conaway. Okay, but I thought you said it was earnings
    before interest and taxes----
        Dr. Featherstone. Earnings before interest, taxes,
    depreciation----
        Mr. Conaway. Those don't include the farmer's expenses?
        Dr. Featherstone. I misspoke there. It won't be negative.
        Mr. Conaway. But that would be really----
        Dr. Featherstone. Right. I am thinking----
        Mr. Conaway. You said down was good.
        Dr. Featherstone. I am thinking of the capital repayment
    capacity ratio, which will end up going negative for that
    region.
        Mr. Conaway. All right, so as a leading indicator----
        Dr. Featherstone. It is a leading indicator of cash flow
    and just the ability to repay loans.
        Mr. Conaway. Which indicated to you that things are going
    to get worse before they get better at this stage?
        Dr. Featherstone. Unless that changes, yes.
        Mr. Conaway. Okay.
        Thank you, Mr. Chairman. I yield back.
        The Chairman. Mr. Aguilar.
        Mr. Aguilar. Thank you, Mr. Chairman.
        Mr. Buzby, you talked a little bit about younger farmers in
    response to the Ranking Member. In California, beginning
    farmers tend to be slightly younger than the national average,
    but the number of beginning farmers has dropped 29 percent
    between 2007 and 2012. What role does the high real estate
    market play in these declining numbers of young farmers
    entering the market? What other factors are discouraging young
    people from managing a farm? And to pick up where the Ranking
    Member left off, what can Congress do to foster some of these
    policies to support young farmers' strengths to combat their
    weaknesses?
        Mr. Buzby. Certainly with respect to land values, the
    situation in California is very different than from what you
    see in the Midwest. USDA, in some ways, in the products that
    they offer can be instrumental in helping young and beginning
    farmers as well. The flexibility that can be offered to farmers
    that can't, whether beginning or seasoned, access credit in the
    traditional markets do see vehicles through USDA that can be
    helpful. Congress's oversight of financial institutions, the
    Farm Credit System, and elsewhere promoting the lending to
    young beginning and small farmers is critical; as well in
    California, in particular, as you see very diverse agriculture
    there that is very capital intensive. There are specific
    challenges in that state alone that are much more difficult to
    address than throughout the Midwest.
        Mr. Aguilar. Thank you.
        Dr. Featherstone, you mentioned a program for returning
    soldiers. Can you elaborate on what that program looks like,
    and where we might be able to take that from a Congressional
    perspective, moving forward?
        Dr. Featherstone. Yes, essentially there is a grant program
    that allows organizations to work with retiring soldiers, and
    the way that it is working in Kansas is Farm Bureau, in
    conjunction with Kansas State University and Fort Riley, which
    is located very close to the campus, were trying to match up
    individuals, teach them basic agriculture skills, try to match
    them up with individuals that could mentor them into the
    process and maybe at some point transition the operation from a
    generation that does not have heirs to the individual that has
    built that human capital.
        Mr. Aguilar. Great, thanks. I think that is a worthy
    program that we should discuss. Some of us are on the Armed
    Services Committee as well, and there could be a connection
    there. I appreciate that answer.
        Dr. Featherstone, and for Mr. Nelson, in recent years in
    the community I am from, a number of farmers in my district--
    and you have alluded to this in your testimony--are finding
    that their children don't want to continue the family business.
    These farmers resort to selling their land to fund their
    children's college education or to help finance their own
    future. For many family farmers, it is important to keep the
    business with a trusted source when selling.
        What types of tools are available for those who are
    evaluating what the outlook of their farm is as they are
    selling it, and what factors should be taken into consideration
    so they can find the right time for them to sell, if that is
    the choice that they are making?
        Dr. Featherstone. Until this year, essentially at least in
    Kansas where I am from, there was a strong desire for college
    graduates to go into agriculture. And so as of yet, I am not
    sure we have seen the graduates catch up with reality. I will
    be doing exit interviews the next couple weeks, so I will have
    a better picture of that in a couple weeks. But, the big thing
    is timing, and the big thing is providing some mentorship
    opportunities for those individuals, but certainly timing is
    critical in terms of now is probably not a time that they are
    going to find it very easy to move into the production
    agriculture sector.
        Mr. Nelson. As has already been mentioned here today, for
    the next generation of farmers, it is going to be very, very
    difficult to get into agriculture. Just yesterday I was
    speaking to a customer of ours from Texas, a cotton farmer in
    Texas. He farms 6,000 acres. He has been in farming 38 years.
    And his comment was I don't know who is going to farm my land
    when I retire, because again, he said young people will not
    have the opportunity to come in and purchase land and begin
    farming in this environment.
        We continually need to look at ways to help young farmers
    enter into farming. We are looking at programs today, CHS
    Capital, to help finance and provide operating funding for
    young farmers. But certainly, it will be a challenge in the
    future.
        It is important that farmers also look at succession
    planning, and they need to start that immediately. I think that
    industry could do a much better job in planning ahead so that
    the next generation can come in and continue the operation.
        Mr. Aguilar. Thank you, gentlemen. Thank you, Mr. Chairman.
        The Chairman. Mr. Kelly.
        Mr. Kelly. First of all, and this is to Mr. Buzby, thank
    you, Mr. Chairman, and thank you, witnesses on the panel, for
    being here. I really appreciate it.
        Mr. Buzby, what effect can government regulations such as
    Waters of the U.S., what are they having on our farming right
    now?
        Mr. Buzby. Well certainly there are regulations as, what
    you mentioned, that can have adverse impacts on a farmer and
    his operation, as that also may have a dramatic direct increase
    on the farm itself and the land, certainly making it very
    difficult to provide financing to land that is adversely
    affected by such laws, and also preventing, in some cases, that
    farmer from being able to liquidate his land and sell. I think
    that can be quite a challenge.
        Mr. Kelly. And just following up, what specifically does it
    do to farmland values?
        Mr. Buzby. Dramatic reductions.
        Mr. Kelly. And either of the other two witnesses are
    welcome to comment if you would like.
        Mr. Nelson. Yes, I think that was covered well.
        Mr. Kelly. And Dr. Featherstone, farmers rely on crop
    insurance, you mentioned important points in your written
    testimony about how when the price of commodities decrease,
    farmers with crop insurance take an additional risk because
    their insurance covers less of their variable costs. What are
    the implications of this reduction in risk coverage for
    farmers?
        Dr. Featherstone. The key implication is farmers are
    assuming more of the risk than they did just 2 or 3 years ago.
    Using some numbers that were in the testimony, comparing it to
    2013, which admittedly is the high, they are taking on between
    30 and 40 percent more risk, simply because that guarantee
    decreased. There is the opportunity for them to buy up
    additional higher coverage levels, but certainly with the
    prices decreasing, there is more risk and less of the revenue
    is protected on those revenue products.
        Mr. Kelly. And Mr. Buzby, in your testimony you indicated
    that crop insurance and the other components of farm safety
    net, including ARC and PLC, are extremely important to
    agricultural leaders. Can you elaborate a little bit on this?
        Mr. Buzby. As we have seen in recent times and times of
    drought and other adverse weather conditions, crop insurance
    becomes a safety net, and certainly allows farmers to continue
    their operation where they otherwise may not be able to in a
    particular year. I think for the long-term health and safety
    and risk management of those farmers, those crop insurance
    programs are critical.
        Mr. Kelly. Any of you other witnesses have any comments?
        Mr. Nelson. As a lender, I look at the crop insurance
    program and the government payments as a critical component in
    any kind of credit analysis. So as we look in the future,
    obviously we have seen crop prices drop, which does impact the
    level of coverage from the insurance standpoint and will
    adversely affect potential decisions around credit extension in
    the future.
        Mr. Kelly. And then finally, and this is to anyone on the
    panel who wants to answer, farmland values are the potential
    bubble in the farm real estate, would you give some brief
    examples of if you think the bottom may fall out, and can you
    compare in any way to the 2008-2009 housing crisis? Do you see
    that as a potential with farmland values?
        Mr. Nelson. We have seen over the past year a slight drop
    in farmland values, but nothing real significant. I think there
    is still an optimism in the market around what farming will be
    in the future and a need for farmland, of course, in that
    equation, so I don't see the bottom falling out of this. I
    certainly see a softening of the prices as we go into 2017, if
    the prices stay as they are today.
        Mr. Kelly. Mr. Buzby, do you have a comment on that?
        Mr. Buzby. I would just say that over the years, many
    farmers for decades have been farming and have done well, and
    have very solid balance sheets. The softening in land prices
    that we have seen does present opportunities for some of those
    farmers to purchase additional land, so I think that provides a
    bit of support that should prevent a similar crisis to what we
    saw in housing.
        Mr. Kelly. I thank the witnesses again, and Mr. Chairman, I
    yield back.
        The Chairman. Thank you.
        I now recognize the gentlelady from Arizona, Mrs.
    Kirkpatrick.
        Mrs. Kirkpatrick. Thank you, Mr. Chairman, Ranking Member
    Scott.
        I want to follow up on my colleague's comments about the
    veterans for farming. I visited, Dr. Featherstone, one of those
    programs in Arizona where the veterans come, they live on the
    farm, they learn to grow a certain crop, and then presumably go
    out and farm. But in talking with them, they are not from
    wealthy families. They come back from the wars with no assets,
    no home. Some of them don't even own a car. And so my question
    is not just for you, Dr. Featherstone, but the entire panel.
    Are you aware of any programs specific for veterans that would
    lend them money to buy a farm and operating capital when they
    have no assets?
        Let's start with you, Mr. Buzby, and we will just go down
    the line.
        Mr. Buzby. Well I think that is challenging. I did allude
    earlier to the USDA and some of the programs that they have for
    beginning farmers; however, they continue to be under financial
    pressure and staffing pressure. I have recently visited a
    number of states where you see the administration of the FSA
    and other USDA programs throughout the country, and in certain
    states, that functions better than it does in other states. So,
    from a service perspective, the funding of those USDA programs,
    the staffing of those programs, and a focus on making them
    successful is critical.
        Mrs. Kirkpatrick. Dr. Featherstone?
        Dr. Featherstone. In some respects it is very hard for the
    asset acquisition, and in some respects that is where the match
    of who the mentor is in terms of whether or not they can set up
    some type of sharing-type process through that mentorship. But
    it is probably going to be a long process, which isn't all that
    unusual for individuals that are in a family farm. Many years
    they work for their parents, who hopefully are their mentors,
    and at some point take over. And so typically, it has been a
    long process in agriculture to acquire those assets to begin to
    take the lead and manage them.
        Mrs. Kirkpatrick. Mr. Nelson?
        Mr. Nelson. Yes, obviously a difficult situation when we
    start looking at lending to the next generation, but I do think
    there are creative ways to accomplish that as you look at
    staging and potentially lending to young farmers or next
    generation farmers, by relying on the equity and support of the
    family, and so there are definitely ways to accomplish that
    task.
        Mrs. Kirkpatrick. Yes, I am really concerned about this and
    maybe the Committee can look into it more. Because in talking
    to these young people, they definitely have the desire to farm,
    and evidently, according to your answers, it really would be
    almost impossible for them to purchase land.
        But let's assume then that they find something they can
    lease. Do you approve leases before you consider lending
    operating capital? And again, just go down the line. I am just
    curious about how that works.
        Mr. Buzby. At Farmer Mac we lend money to owner operators,
    those who buy a farm and operate it themselves. We also lend
    money to farmers that lease their land out. Generally, we have
    not seen to date challenges with getting land leased. As land
    values have come down, and the profitability for farmers who
    are leasing land comes under pressure, there will be demand by
    those operators for the rental lease payments to come down,
    which adversely affects the landlord who we have lent money to.
    So there is a balance there that needs to be struck, and as
    multi-year leases that are 2 or 3 year leases come due, there
    will be pressure on those landlords to reduce rents to the
    operators.
        Mrs. Kirkpatrick. Let me just follow up. Would it be
    possible, say, for a first time veteran farmer then to get
    operating capital on a lease through your company?
        Mr. Buzby. Not through Farmer Mac, no. We lend just on real
    estate.
        Mrs. Kirkpatrick. Dr. Featherstone?
        Dr. Featherstone. I work for a university, so we don't
    lend.
        Mrs. Kirkpatrick. Oh, that is right. Mr. Nelson, you are in
    the private-sector?
        Mr. Nelson. From CHS Capital's standpoint, we do offer
    coverage for lease payments, so it is an option certainly in an
    operating line to finance those kinds of expenses.
        Mrs. Kirkpatrick. I am really concerned. We train them,
    they have the desire, but then the door closes because they
    can't get the capital to buy a farm or to operate. That
    concerns me, Mr. Chairman and Ranking Member.
        My time is running out, but I just want to ask if any of
    you, who typically buys farmland that is up for sale, and do
    any of you have a concern that we might run into a deficit in
    this country in terms of having farmland that is actually being
    farmed?
        Why don't we start with you, Mr. Nelson, and we will go
    down the row the opposite way.
        Mr. Nelson. Yes, surprisingly, we just typically don't see
    a lot of farmland go on the market, even with the situation we
    are in today. A lot of times it is neighboring farmers that
    look to expand their farm that are taking advantage of those
    opportunities. We have had a lot of farmland come into
    production during the good times when we had $7 corn, so there
    are significantly increased acres being farmed today. So I
    don't see that as a concern or shortage, going forward, to meet
    the demand.
        Mrs. Kirkpatrick. As my time has run out, does anyone
    differ with that answer?
        Okay, thank you, Mr. Chairman. I yield back.
        The Chairman. I now recognize the gentleman from Texas, Mr.
    Neugebauer, for 5 minutes.
        Mr. Neugebauer. I thank you, Mr. Chairman.
        Recently, I have had conversations with some of the bankers
    in my district and some of the farmers, and one of the things
    that we are hearing, and it is unfortunate that some of those
    farmers are not being able to renew their loans at the bank.
    And so they are being referred to FSA to see if they can
    arrange their financing.
        The question I have is what kind of trends are you seeing
    in that direction, and also what are the long-term consequences
    of people being forced to move out of traditional financing
    availability?
        Mr. Buzby. The example you give is a very good one, and
    something that we hear quite often here very recently is that
    an operating lender is unwilling to renew an operating loan.
    The farmer is unwilling to pay it back, and what often happens
    is they then refinance their land, their mortgage on their real
    estate to include the operating loan. Hopefully in those cases,
    lock in a long-term fixed rate where rates are now, but
    oftentimes because of the qualifications and credit
    underwriting standards, they are not able to be served in the
    traditional markets and do turn to USDA, sometimes with hybrid
    financing through a private lender and USDA, and sometimes just
    with an FSA loan.
        Mr. Neugebauer. Anybody else want to comment on that?
        Mr. Nelson. I will just comment on what we are seeing in
    CHS Capital. It is mid-April, well past the day when we should
    be seeing applications for operating lines, and we are seeing
    many come in today that have been turned down by other
    financial institutions. So it is definitely a concern, and
    there are farmers that are looking for ways still to finance
    their operation for 2016.
        Mr. Neugebauer. The issue that we have been kind of talking
    about, particularly with the land and something that you
    mentioned, your customer that farms 36,000 acres in Texas, most
    likely could be in my district. And that very important
    question, who is going to farm this land in the future? And
    what we have seen in agriculture, particularly in my part of
    the world, is consolidation. My wife grew up on a cotton farm
    in west Texas, and that family farmed a \1/2\ section, \1/4\
    section, and they made a living doing that. And those days are
    over, so the farms are bigger, the risks are larger, the
    capital requirements are larger, and some people are renting. I
    don't know that 36,000 acres, if he owns all that land or he
    probably owns some, and leasing some.
        But the question is in the future, who is going to have the
    ability to absorb that? Because we have seen quite a bit of
    consolidation, and as the gentleman from Georgia pointed out,
    the 59, 60 year old farmers, at some point in time, they
    finally say, ``I am not going to do that anymore.''
        Mr. Nelson. Yes, I would like to continue with my example
    with the Texas farmer. He had mentioned that he took on 2,000
    more acres a couple years ago because the farmer couldn't
    continue, but at the same time, what he is saying about 2016,
    he said we are set up for failure. Right now with average
    prices and average yields, we will not be able to pay back our
    operating loan in 2016.
        So the question becomes if things continue as they are,
    what does happen to the extra farmland that comes up for lease
    or purchase? There is definitely going to be a reduction in
    rent values or a reduction in some real estate values to
    actually make that work out in the future farm.
        Mr. Neugebauer. Yes, some of the farmers, just like the one
    in your example, have told me, ``You know what, Randy? This
    year I am going to turn back some acres.'' He said I just can't
    make the numbers work.
        One of the interesting things, and I was in the banking
    business from 1975 to 1983, and we were in a different
    regulatory environment back then, and our bank was a pretty
    large agricultural lender. We carried over farmers from year to
    year and sometimes probably when we shouldn't have, but we knew
    those people. Today's environment is such that with the
    regulatory environment, those days are over if you can't show
    the cash flow and you can't show the equity, just from a
    regulatory perspective, those lenders can't continue to do
    that. And, as we see folks move to FSA at some point in time,
    if the numbers don't work for the conventional lender, it is
    going to be difficult for the FSA to continue with some of
    those.
        So the crop insurance piece is an important piece of it,
    and one of the problems we have in west Texas with cotton is
    that there really is no price protection built into crop
    insurance. And so it doesn't matter whether you can make a crop
    or not. If you make it and you can't make any money doing it,
    then the crop insurance has not really done you a whole lot of
    good.
        With that, Mr. Chairman, I yield back.
        The Chairman. I now recognize the gentleman from Arkansas,
    Mr. Crawford, for 5 minutes.
        Mr. Crawford. Thank you, Mr. Chairman. I appreciate you
    allowing me to sit in today.
        I want to talk about crop insurance, and I know that that
    is important from the standpoint of lenders, analyses in
    preparing crop loans and things of that nature. I will put my
    parochial lenses on here and talk about my district for just a
    little bit. My district is home to about \1/2\ of the U.S. rice
    crop, and crop insurance is really kind of a tough sell. We are
    pretty heavily irrigated, as you would know, from rice
    production, and so they spend that money in investing and
    irrigation, and rice is an expensive crop to produce. And then
    another issue that is sort of problematic for rice producers
    with respect to how they secure or provide a little risk
    management is that price discovery is difficult. The rice
    market is very thinly traded, and it makes it expensive to try
    and hedge for the average farmer. So using those types of risk
    management tools are difficult.
        Mr. Nelson, I will start with you. If you might have some
    suggestions on where they should go, and your crop insurance
    products, the actuary base for rice is somewhere around $3
    million. That makes it cost prohibitive to a large degree. But
    what would you recommend as maybe a new approach?
        Mr. Nelson. There is no question that crop insurance adds a
    critical benefit to both farmers and to lenders, but it doesn't
    for the widespread crops. It is not covering all crops, as you
    mentioned on rice. There are certainly issues, what I am
    hearing from a cotton perspective as well. So, as we look at
    the new farm bill, we need to look at how that program can be
    enhanced to create a greater safety net for our producers. And
    some of that has to be not so much price driven potentially in
    the future. Obviously as we see prices drop, the level of
    coverage in that safety net has declined as well. So, we need
    to look at creative ideas beyond just price and expand the
    coverage so it reaches more crops as well.
        Mr. Crawford. Mr. Buzby, any thoughts?
        Mr. Buzby. I would say research and hearing from producers
    themselves, what protections they are looking for. As lenders,
    we look through a slightly different lens. We are looking for
    the ultimate ability for that farmer to be able to pay back
    their loans. The farmers themselves are looking for ways to
    fund their operations, finance the capital needs for their
    operation, but also to sustain their family's sustenance.
        So, they may look at it slightly differently, so I would
    encourage hearing from farmers themselves and producers, as
    opposed to just lenders and others.
        Mr. Crawford. Dr. Featherstone, you are an economist,
    correct?
        Dr. Featherstone. That is true.
        Mr. Crawford. Let's hear your economist perspective.
        Dr. Featherstone. The key thing with crop insurance is to
    allow producers to have choice and to have different types of
    products, and experiment a little bit.
        One of the things that some other countries are working
    with is some weather type insurance contracts where they will
    end up basing the payments out based on rainfall or other types
    of weather-type phenomena. With the increased technology that
    we have to measure sunlight, rainfall, those types of things,
    those might be something to look at down the road.
        Mr. Crawford. I am concerned, in the broad sense, that we
    are looking at crop insurance as sort of the panacea for
    agriculture, and if we tweak it enough, we will be able to come
    up with something that works. I think that we may be going down
    a road where we think we can just insure ourselves into
    prosperity for the ag economy.
        Mr. Nelson, your thoughts on that?
        Mr. Nelson. I agree. We look at crop insurance strictly as
    that worst case situation as a lender, and it provides us with
    some assurance that the downside number risk is going to be
    ``X'' amount using insurance. So it is not going to solve the
    problems.
        Mr. Crawford. My other concern, quite frankly, is we talk
    about some of the policy, amendments to the farm bill that were
    introduced that address the AGI and that also address active
    engagement, that in effect what we are really creating is a
    dynamic that almost forces consolidation.
        As an economist, Dr. Featherstone, do you see that?
        Dr. Featherstone. Certainly, there can be those concerns.
    The key thing that we have to get back with insurance is it
    prevents downside risks or helps manage that. We have gotten
    into a situation where it is a profitability or an income
    enhancement, and I didn't collect my life insurance last year,
    and I am very glad that I did not.
        Mr. Crawford. Exactly. Exactly, and that is why I think we
    need to rethink our approach to that. I appreciate you being
    here, and I yield back.
        The Chairman. I will now recognize the former Chairman of
    the Committee, Mr. Lucas, for 5 minutes.
        Mr. Lucas. Thank you, Mr. Chairman, and I appreciate that,
    and no one has described me as having a key role in this mess,
    so I appreciate the kindness of my colleagues.
        Dr. Featherstone, I will turn to you first. Of course, your
    colleagues at the table can comment if they care to. I
    apologize for being slightly late. There has been discussion
    about how commodity prices have affected land prices, and it is
    impacting people's ability to sell.
        But just as important as it is for primarily our older
    farmers to be able to harvest that lifetime of equity, which
    is, in many cases, the equity in their most recent capital
    asset, their farms. There is also the issue about producers,
    both beginning and established and senior, not being able to
    tap that perceived equity to operate their businesses. Because
    after all, every banker smiles if your farm is paid for or
    mostly paid for, or a high percentage paid for.
        Let's discuss for a moment about how commodity prices have
    affected land prices and how that is affecting day-to-day
    operations on producers who use that as their piggy bank, so to
    speak?
        Dr. Featherstone. Yes, certainly essentially with the run
    up in land values, I think there are a couple of important
    aspects. First, is that it increases the barrier of people
    wanting to enter the farming profession. And so from that
    perspective, there are always two sides to a coin in terms of
    whether or not you are buying or whether or not you are
    selling.
        The other thing, and it will be interesting to see over the
    next couple of years in terms of just what costs are out there
    than can be pulled out of the sector. One of the things we have
    seen in Kansas is essentially a 20 to 25 percent increase in
    variable costs. Some of that is normal economics. When prices
    are high, you are going to spend more to get that last bushel
    out. When prices are low, there are going to be adjustments
    made and over the next couple of years, we are really going to
    see just what that cost structure is in terms of my brother-in-
    law's farm. And what they ended up doing is they ended up
    paying for someone to spray to get it timed more correctly.
    However, in this environment they may decide we are going to do
    it ourselves, or maybe we are not going to go for quite that
    yield level, given the price outlook.
        Mr. Lucas. Well put, Professor.
        I represent, of course, a district that has a huge amount
    of state border with the great State of Kansas, and I always
    remind the folks who are not from our region of the country
    that Mr. Steinbeck's book about the 1930s was not an
    agricultural economics text. It was a social statement. With
    that said, in the lifetime of myself, my parents, and my
    grandparents, we have had a number of great catastrophes in the
    South Plains: the Depression of the 1930s and the great drought
    of the 1950s, the economic meltdown of the early 1980s, and now
    hopefully it is broken, the drought in my own area from 2011
    through 2014.
        Some of those things we cannot help. Mother Nature is
    Mother Nature, the weather is the weather. But the other
    issues, such as the 1980s and the 1930s, were bad Federal
    policy almost destroyed entire generations of farmers. That is
    something we can do things about.
        We have talked here today about the challenge in commodity
    prices. We have discussed the nature of the safety net that
    insurance is supposed to provide, either through yield issues
    or price issues, depending on which commodity you are grouped
    in, and it is not all universal. But isn't it fair to say,
    doctor, that a little bit of the challenge we face is the
    combination of things that this Committee doesn't control? For
    instance, the requirements for ethanol, renewable fuels, which
    perhaps drove the consumption of certain feedgrains, perhaps at
    a steeper pace than should, now looking back, have been
    appropriate. Then combine that with God awful weather events,
    the 2012 failure in the Midwest of the corn crop that led to $7
    corn, which then drove the decisions as acres were coming up
    for renewal in CRP. We are dealing with things here that are
    not just the farm bill, isn't a fair statement, doctor, the
    weather, policy decisions and other committees, international
    trade issues. The cotton folks are suffering from a WTO case
    that perhaps was not in their best interest, but all those
    factors together created the situation we are in now.
        Dr. Featherstone. I would concur, and one of the things
    that concerns me most is not within the agricultural sector. It
    is just the value of the dollar, and the macroeconomic effect.
        Simply to give a little bit of indication, if you were in
    Brazil, based on the value of the real, you could consume as if
    you were producing about $14, $15 beans, where in the U.S. we
    are looking at $7, $8 beans. So certainly a lot of what is
    going on here is outside the agricultural policy realm that
    this Committee focuses on.
        Mr. Lucas. Yet there are things that we have to deal with
    on the Committee, you as a policy developer have to try to
    address, and ultimately, our constituents in Oklahoma and
    Kansas put their very capital and life on the line.
        Humor me just one more moment, Mr. Chairman. The old adage
    amongst the country economists, the folks at the feed store is
    the answer to price is price. Seven dollar corn drove planting
    decisions that have now reduced corn by essentially \1/2\. But
    again, the answer to price is price. As you noted earlier on
    inputs and the over exuberance to spend on investing in the
    crop, we will now see that drop, so we will go through a
    rebalancing at some point. I would just note to the esteemed
    Chairmen of this Committee and Subcommittee that perhaps we
    have to take a look at those CRP authorized acres again over
    the course of the next couple years. We don't want to waste
    resources, and soil is our most valuable resource.
        That said, Mr. Chairman, I yield back, and thank you for
    the hearing today.
        The Chairman. Thank you, Mr. Chairman.
        I have one final question. I want to go back to the fact
    that while we are talking a lot about the farmer, it is not
    just the farmer. It is the whole rural economy. It is the
    person who sells the seed and the fertilizer. In cotton
    country, it is the gins. Tractor dealers certainly are directly
    impacted by it. Local car dealers are impacted by it. Local
    banks are impacted by it. Local restaurants are impacted by it.
    Certainly if things are good on the farm, then things are good
    with regard to the rural economy in this country, and if things
    are bad on the farm, things are tough for the whole rural
    economy.
        Mr. Nelson, one of the things that people outside of
    agriculture may not fully understand is that if you can't
    obtain your operating loan, what that actually means to
    farmers, and therefore, that rural economy. Can you explain the
    end result if a farmer is unable to obtain an operating loan?
        Mr. Nelson. There is no question of the negative impact to
    the community. This is a far reaching problem that goes beyond
    just a farmer that is having trouble financing his operation.
    And we are already seeing the impact. We are seeing the impact
    with local cooperatives who are struggling or the margins are
    being compressed. We are seeing, as you mentioned, with the
    machinery dealerships who are not selling new equipment. And so
    this is a far-reaching problem that goes down Main Street in
    the rural communities. And obviously, the operating lines are
    the key for farmers to get in the field, to finance the crop
    inputs, finance planting, finance the harvest of the crops. And
    farmers, as I mentioned before, are having difficulty finding
    operating lending in 2016, and that will have a far-reaching
    impact through rural communities.
        The Chairman. Most of the cotton pickers that run in
    Georgia are made in Iowa, and even though you don't grow any
    cotton in Iowa, certainly that means that they are directly
    tied to the cotton economy.
        With that said, I would yield to Mr. Scott from Georgia for
    any closing statements or final questions he may have.
        Mr. David Scott of Georgia. Yes, thank you, Mr. Chairman.
    This has been, perhaps, the most important hearing that we have
    had this year, because finally we are touching on what is the
    real crisis facing agriculture and farming. And Mr. Nelson, Dr.
    Featherstone, Mr. Buzby, each of you I congratulate you on the
    depth and knowledge that you have of the crisis that our
    farmers are facing with this terrible collapse of the net
    income of farming and the rising categories of debt that they
    have. At what point, and no wonder, as some of the other
    Members of the Committee have pointed out, family members have
    no choice. They can't even go on and continue the family farm.
        The greater tragedy of this is the American people's only
    familiarity with farming and agriculture is Publix or Kroger's.
    We go there and that is about as close as we get to farming.
    And, Chairman Scott, I commend you on pulling this hearing
    together because, hopefully, we are hearing what I call a Paul
    Revere moment. He went around and said, ``The British are
    coming, the British are coming!'' Well we are saying right here
    that trouble is coming to our nation if we don't address these
    critical issues of agriculture and farming in our country,
    beginning farmers, the cost of it, the inability to keep up
    with it, and woe to this country if we don't address it and
    become more and more dependent on foreign nations for our food.
    Man, if we ever get to that point, we are truly done.
        So Mr. Chairman, thank you and I just want to say that when
    our farmers have had trouble before in this country,
    particularly going through the 1920s and then into the
    Depression, the Congress and the Federal Government rose to the
    occasion and helped our farmers. Whether it was for the boll
    weevil or what the farmer was facing, and this is our challenge
    at this crisis to rise to the occasion. It is not just the
    finances. You have that enough on the farm. But as Mr. Kelly
    pointed out, you have over-regulation like the WOTUS rule
    coming at them. We have to address these issues, Mr. Chairman.
    I thank you for this hearing, and I thank the panel members.
        The Chairman. I certainly agree with my colleague from
    Georgia. Americans have never been dependent on a foreign
    country to produce our food supply, and I hope that we never
    are. I think that one of the charges of the Agriculture
    Committee is to make sure that we are able to keep good
    farmers, good families on the farm out there producing the food
    supply that we as Americans need and are dependent on, and I
    just pray that we are never dependent on any foreign source for
    our food supply in this country.
        And with that, under the Rules of the Committee, the record
    of today's hearing will remain open for 10 calendar days to
    receive additional materials and supplemental written responses
    from the witnesses to any question posed by a Member.
        This hearing of the Subcommittee on Commodity Exchanges,
    Energy, and Credit is adjourned.
        [Whereupon, at 11:17 a.m., the Subcommittee was adjourned.]

                           FOCUS ON THE FARM ECONOMY

                   (FACTORS IMPACTING THE COST OF PRODUCTION)

                                  ----------

                           WEDNESDAY, APRIL 27, 2016

                      House of Representatives,
     Subcommittee on Biotechnology, Horticulture, and Research,
                                      Committee on Agriculture,
                                                       Washington, D.C.
        The Subcommittee met, pursuant to call, at 10:33 a.m., in
    Room 1300 of the Longworth House Office Building, Hon. Rodney
    Davis [Chairman of the Subcommittee] presiding.
        Members present: Representatives Davis, Thompson, Yoho,
    Moolenaar, Newhouse, Conaway (ex officio), DelBene, McGovern,
    Kuster, and Peterson (ex officio).
        Staff present: Haley Graves, John Goldberg, Mykel Wedig,
    Stephanie Addison, Faisal Siddiqui, John Konya, Keith Jones,
    Liz Friedlander, Matthew MacKenzie, Mike Stranz, Nicole Scott,
    and Carly Reedholm.

      OPENING STATEMENT OF HON. RODNEY DAVIS, A REPRESENTATIVE IN
                         CONGRESS FROM ILLINOIS

        The Chairman. This hearing of the Committee on Agriculture
    entitled, Focus on the Farm Economy: Factors Impacting Costs of
    Production, will come to order. And good morning to everyone.
    Thank you to all the witnesses. Some I am very familiar with;
    others I am not. I look forward to hearing your testimony.
        Two weeks ago, the Agriculture Committee commenced a series
    of hearings focused on the farm economy. Each Subcommittee has
    been tasked with highlighting issues within their respective
    jurisdictions that impact the economic well-being of rural
    America.
        In the Biotechnology, Horticulture, and Research
    Subcommittee, we have spent considerable time discussing
    programs and policies that impact specialty crop producers. We
    have highlighted research, education, and extension programs
    that contribute both to the safety and security of our food
    supply, as well as benefit farmers by increasing efficiency,
    productivity and profitability. We have promoted the
    development of local and niche markets for farm products, and
    considered the opportunities and challenges for direct
    marketing. We have drawn the relationship between ag security
    and our national security through an examination of our
    defenses against the introduction of foreign pests and
    diseases.
        We have also engaged the next generation of leaders
    participating in the nation's largest youth development
    program, 4-H, in an ongoing dialogue to enhance relationships
    between rural and urban communities. These youth leaders, 18 of
    our nation's best and brightest, most recently visited with the
    Subcommittee to provide their insights into how we might
    improve the outlook for agriculture through education and
    outreach.
        While much of the work we have done as a Subcommittee has
    brought positive attention to the role of government programs
    and policies which assist rural America, we have also spent
    some time investigating policies that negatively impact
    producers.
        In a hearing more than 2 months ago with EPA Administrator
    McCarthy, Members engaged in extensive questioning regarding
    actions her agency has taken which impose considerable costs
    with questionable, if any benefits. Following this hearing, the
    Committee submitted additional questions for the record. In
    fact, Committee Members, both Republican and Democrat submitted
    approximately 36 pages of questions to the Agency for which we
    have yet to receive a single response. I wish I could say the
    Agency's apparent lack of regard for American agriculture is an
    anomaly, but history tells us otherwise.
        I had an amendment in the 2014 Farm Bill which would
    establish a permanent subcommittee of the EPA Science Advisory
    Board to ensure the voice of agriculture was represented in the
    Agency's decision-making process. Not surprisingly, more than 2
    years later, the EPA leadership has yet to appoint even a
    single member to this Committee. The result of this disregard
    for the law is a continuing flood of decisions and actions
    contrary to the needs and desires of America's farmers and
    ranchers.
        Unfortunately, it is not just the policies of the EPA that
    add unreasonable production costs. The implementation of the
    Food Safety Modernization Act will pose enormous challenges for
    producers and processors with little evidence that some
    requirements will offer quantifiable food safety benefits. We
    have often spoken about the threat of the ill-conceived Vermont
    law governing agricultural biotechnology, yet we are also
    concerned about what many observers believe is unnecessary
    regulatory hurdles researchers must go through to bring new
    applications of biotechnology to the market. As anyone can
    plainly see, the list of overly burdensome regulations
    threatening the farm economy is apparently endless.
        Today, the Subcommittee will focus more broadly on many of
    the factors that contribute positively and negatively to the
    cost of production for our nation's farmers and ranchers. While
    the farm safety net helps somewhat mitigate the impact of
    chronically low prices, our nation's farmers continue to
    operate on very thin, and in some cases, as I hear from my
    constituents, negative margins. Going forward, their ability to
    contain costs will be key to their survival, particularly if
    low prices exist and persist.
        We have invited a distinguished panel of leaders from
    industry and state government to provide their insights into
    the challenges facing our producers along with actions that can
    be taken to enhance the rural economic outlook. The record that
    is created today will be extremely beneficial in directing
    future oversight as well as development of the next farm bill.
    Thank you again, each of you, for being here today.
        I do want to say something very briefly too. I am very
    proud to serve with my Ranking Member, Ms. DelBene. She has
    been a great partner in all of these Subcommittee hearings that
    we just talked about, and really, it has been a pleasure to
    work in conjunction. While we may not agree on every issue, it
    is part of the Agriculture Committee's history that we are just
    not disagreeable.
        [The prepared statement of Mr. Davis follows:]

     Prepared Statement of Hon. Rodney Davis, a Representative in Congress
                                 from Illinois
        Good morning.
        Two weeks ago, the Agriculture Committee commenced a series of
    hearings focused on the farm economy. Each Subcommittee has been tasked
    with highlighting issues within their respective jurisdictions that
    impact the economic well-being of rural America.
        In the Biotechnology, Horticulture, and Research Subcommittee, we
    have spent considerable time discussing programs and policies that
    impact specialty crop producers.
        We have highlighted research, education, and extension programs
    that contribute both to the safety and security of our food supply, as
    well as benefit farmers by increasing efficiency, productivity and
    profitability.
        We have promoted development of local and niche markets for farm
    products, and considered the opportunities and challenges for direct
    marketing.
        We have drawn the relationship between agricultural security and
    our national security through an examination of our defenses against
    the introduction of foreign pests and diseases.
        We have also engaged the next generation of leaders participating
    in the nation's largest youth development program, 4-H, in an ongoing
    dialogue to enhance relationships between rural and urban communities.
    These youth leaders, 18 of our nation's best and brightest, most
    recently visited with the Subcommittee to provide their insights into
    how we might improve the outlook for agriculture through education and
    outreach.
        While much of the work we have done as a Subcommittee has brought
    positive attention to the role of government programs and policies
    which assist rural America, we have also spent some time investigating
    policies that negatively impact producers.
        In a hearing more than 2 months ago with EPA Administrator
    McCarthy, Members engaged in extensive questioning regarding actions
    her agency has taken which impose considerable costs with questionable,
    if any benefits.
        Following this hearing, the Committee submitted additional
    questions for the record. In fact, Committee Members, both Republican
    and Democratic submitted approximately 36 pages of questions to the
    Agency for which we have yet to receive a single response. I wish I
    could say the Agency's apparent lack of regard for American agriculture
    is an anomaly, but history tells us otherwise.
        I had an amendment in the 2014 Farm Bill, which would establish a
    permanent subcommittee of the EPA Science Advisory Board to ensure the
    voice of agriculture was represented in the agency's decision making
    process. Not surprisingly, more than 2 years later, the EPA leadership
    has yet to appoint even a single member to this Committee. The result
    of this disregard for the law is a continuing flood of decisions and
    actions contrary to the needs and desires of America's farmers and
    ranchers.
        Unfortunately, it is not just the policies of the EPA that add
    unreasonable production costs. The implementation of the Food Safety
    Modernization Act will pose enormous challenges for producers and
    processors with little evidence that some requirements will offer
    quantifiable food safety benefits. We have often spoken about the
    threat of the ill-conceived Vermont law governing agricultural
    biotechnology, yet we are also concerned about what many observers
    believe is unnecessary regulatory hurdles researchers must go through
    to bring new applications of biotechnology to the market. As anyone can
    plainly see, the list of overly burdensome regulations threatening the
    farm economy is apparently endless.
        Today, the Subcommittee will focus more broadly on many of the
    factors that contribute positively and negatively to the cost of
    production for our nation's farmers and ranchers. While the farm safety
    net helps somewhat mitigate the impact of chronically low prices, our
    nation's farmers continue to operate on very thin (and in some cases
    negative) margins. Going forward, their ability to contain costs will
    be key to their survival, particularly if low prices persist. We have
    invited a distinguished panel of leaders from industry and state
    government to provide their insights into the challenges facing our
    producers along with actions that can be taken to enhance the rural
    economic outlook. The record that is created today will be extremely
    beneficial in directing future oversight as well as development of the
    next farm bill. Thank you all for being here.
        I now yield to the distinguished Ranking Member, Rep. DelBene for
    any comments she wishes to make.

        The Chairman. Now, I am going to turn it over to my Ranking
    Member, Ms. DelBene, for her opening statement.

    OPENING STATEMENT OF HON. SUZAN K. DelBENE, A REPRESENTATIVE IN
                        CONGRESS FROM WASHINGTON

        Ms. DelBene. Thank you, Mr. Chairman, and it has been a
    pleasure to work with you as well. I want to thank all our
    witnesses for being here with us today, and I want to thank the
    Chairman for holding today's hearing on the farm economy.
        It is critical that we continue to identify the challenges
    that are facing farmers and ranchers today, especially as the
    Committee begins to consider the next farm bill.
        I am honored to represent a district very rich in
    agriculture. The farmers I meet are proud of what they do, and
    they should be.
        When I first came to Congress and in the time leading up to
    the 2014 Farm Bill, I often heard a familiar refrain from
    farmers in my district. They said they need two things: get a
    farm bill done and pass comprehensive immigration reform.
    Passing the 2014 Farm Bill itself was a huge accomplishment,
    but it was also, in my view, one of the best farm bills we have
    ever had for specialty crop growers, which make up a sizable
    percentage of the producers in my district. The investments
    made in programs like the Specialty Crop Research Initiative,
    Specialty Crop Block Grants, and the Organic Research and
    Extension Initiative were unprecedented and they have a huge
    impact in the real world. This is a prime example of how
    Congress should be investing in programs that give us a great
    return on our investment while saving money in the long run.
        Recently, Chairman Davis and I wrote a bipartisan letter in
    support of the National Institute of Food and Agriculture.
    Unfortunately, Congress hasn't appropriated funding at the
    levels authorized in the farm bill, and in the last 4 years the
    Agriculture and Food Research Initiative review process
    identified $3.85 billion in grants worthy of funding. However,
    due to budgetary constraints, the program awarded only \1/4\ of
    the projects that were deemed worthy. This research is a
    critical unmet need that vastly assists producers with pests,
    emerging diseases, and food safety; and ultimately lowers the
    cost of production, which brings me to the second thing that
    farmers I represent said they needed most: comprehensive
    immigration reform.
        Our immigration system is broken and badly in need of
    repair. Last Congress, I was one of the lead sponsors of a
    bipartisan comprehensive immigration reform bill similar to the
    one that passed in the Senate, and I believe this bill would
    have passed if it was just allowed a vote, and while the
    President's executive actions could provide relief to some, it
    does nothing to solve the problem of the unworkable H-2A
    program. For too long, Congress has failed to take meaningful
    action to address our broken immigration system, and as a
    result, we have a deeply flawed system that is not working for
    our farmers, for businesses, for immigrants, or for families.
        I see it all across our state and particularly in my
    district. Farmers can't get the seasonal agricultural workers
    they need to support one of our state's largest industries.
    Students face uncertain futures in the only country they have
    ever really known. Technology businesses still don't have the
    access they need to the global talent pool that could help
    create the next major innovation, and families are being torn
    apart.
        So despite these setbacks, I remain committed to passing
    comprehensive immigration reform, and I will keep working with
    my colleagues on the Agriculture and the House Judiciary
    Committees to get this done. Passing enforcement-only
    mechanisms like border security only or e-verify only would do
    nothing to solve the problem and may make things even worse.
        That being said, producers face a wide variety of
    challenges today, especially in the current agriculture
    economy. Today's panel of witnesses spans a variety of
    perspectives including Northwest horticulture from Washington
    State, so I look forward to hearing all of your testimony.
    Thank you again for being here today, and I yield back.
        The Chairman. I would like to welcome again our witnesses
    to the table to give their opening statement. I would remind
    Members that they will be recognized in order of seniority for
    Members who were here at the start of the hearing, and after
    that, Members will be recognized in order of their arrival for
    a 5 minute time period, and I would appreciate too that the
    oral statements, since we have so many witnesses, to remain
    within that time window too. You'll hear me tap if we start to
    go a little over that.
        Let's start down here at this end. The Honorable Charles
    Conner, President and CEO, National Council of Farmer
    Cooperatives here in Washington, D.C. Mr. Conner, please
    proceed with your testimony.

       STATEMENT OF HON. CHARLES F. CONNER, PRESIDENT AND CHIEF
                 EXECUTIVE OFFICER, NATIONAL COUNCIL OF
                 FARMER COOPERATIVES, WASHINGTON, D.C.

        Mr. Conner. Chairman Davis, Ranking Member DelBene, and
    Members of the Subcommittee, thank you for holding today's
    hearing. I am honored to be here on behalf of America's nearly
    3,000 farmer-owned cooperatives and their nearly two million
    producer owners. I applaud the Subcommittee, and the Committee
    as a whole, for taking a deeper dive into the broad range of
    factors impacting the farm economy. This fact-finding will
    enhance, I believe, prospects for completing a new farm bill in
    the future.
        The focus on factors influencing the cost of production is
    especially timely. As we work our way through the bottom of a
    price cycle, producers are looking to improve their margins in
    any way possible. In today's ag economy, the difference between
    making small profits or big losses is controlling your costs
    down to every penny. Producers know that many of these costs
    are beyond their control. Some are driven by markets, others by
    Mother Nature.
        But some costs are also driven by public policy. These
    policies can act either as investments that help lower costs or
    as regulatory hammers that raise them. I would like to touch
    briefly on both.
        Investing in research and fostering innovation falls in the
    former category. The improved efficiencies producers have
    captured in the last 30 years are based on strong research.
    These advances have helped to increase productivity and reduce
    the cost of production. With the support of this Subcommittee,
    vital research initiatives have provided essential knowledge
    and innovation to combat pests, address food safety, comply
    with environmental regulations, and enhance nutritional value.
    NCFC strongly believes research is key to providing long-term
    solutions to agriculture's challenges.
        One important advance of the past few decades warrants
    special mention today: agricultural biotechnology. The United
    States has been a leader in enhancing sound public policy and a
    rational science-based regulatory structure to promote the
    development and use of biotech crops. We hope that our country
    will continue this leadership as new advanced plant-breeding
    techniques look to enter the marketplace. They hold enormous
    promise and are uniquely accessible to public and commercial
    breeders. They also can be used on almost all crops, including
    specialty crops.
        As these new innovations move forward, all of us in
    agriculture must also develop a thoughtful approach for bring
    these technologies to the marketplace and talking to consumers
    about them. Getting things right could mean cost savings across
    a broad swath of agriculture and better future food production.
    But a range of Federal regulatory actions could artificially
    raise costs as well. These regulations deal with the
    environment, immigration, labor, and food safety. They create
    an uncertainty that holds back investment and growth across
    agriculture. These also hit small family farms and small
    agribusinesses the hardest. My written testimony contains a
    long but by no means complete list of regulations impacting
    farmers and their co-ops. In the interest of time, I will not
    go into each one of them now but will be happy to take any
    questions specific to our recommendations.
        At the same time, agriculture is not automatically against
    regulation. There are many examples of regulatory agencies
    working together with stakeholders to develop targeted,
    sensible programs to address common goals. Such a process,
    however, oftentimes requires more resources than simply
    imposing top-down regulations, and it certainly depends upon
    public confidence in our regulatory agencies.
        Finally, it should also be noted that farmers and ranchers
    and cooperatives face regulation imposed upon them by others
    beyond government. We commonly refer to what is called
    regulation by retail. Many food companies and retailers are
    asking much more of our farmers and co-ops in terms of
    sustainability, animal welfare, and other issues.
        Agriculture has a great story to tell. USDA and the
    Subcommittee have played an important role in public education
    about agriculture, and we certainly hope, Mr. Chairman, this
    work continues.
        In conclusion, at a time when producers across the country
    are facing the lowest commodity prices in over a decade, we
    must find ways for producers to grow and to proper. Research
    and innovation are key to doing this, but we also must reduce
    any unnecessary regulations and uncertainty that will hold back
    investment and growth.
        Thank you for the opportunity to testify today, Mr.
    Chairman, and I look forward to your questions.
        [The prepared statement of Mr. Conner follows:]

       Prepared Statement of Hon. Charles F. Conner, President and Chief
    Executive Officer, National Council of Farmer Cooperatives, Washington,
                                      D.C.
        Chairman Davis, Ranking Member DelBene, and Members of the
    Subcommittee, thank you for holding today's hearing on the farm economy
    and factors impacting cost of production.
        I am Chuck Conner, President and Chief Executive Officer of the
    National Council of Farmer Cooperatives (NCFC). NCFC represents the
    interests of America's farmer cooperatives. There are nearly 3,000
    farmer cooperatives across the United States whose members include a
    majority of our nation's more than two million farmers. NCFC members
    also include 22 state and regional councils of cooperatives.
        Farmer-owned cooperatives are central to America's abundant, safe,
    and affordable food, feed, fiber, and fuel supply. Through their
    cooperatives, farmers are able to improve their income from the
    marketplace, manage risk, and strengthen their bargaining power,
    allowing individual producers to compete globally in a way that would
    be impossible to replicate as individual producers.
        By pooling the buying power of hundreds or thousands of individual
    producers, farmer cooperatives are able to supply their members--at a
    competitive price--with nearly every input necessary to run a
    successful farming operation, including access to a dependable source
    of credit. Furthermore, farmer cooperative members also are able to
    capitalize on new marketplace opportunities, including value-added
    processing to meet changing consumer demand.
        On behalf of my members, I thank this Subcommittee for ensuring
    public policy continues to protect and strengthen the ability of
    farmers and ranchers to join together in cooperative efforts in order
    to maintain and promote the economic well-being of farmers, ensure
    access to competitive markets, and help capitalize on market
    opportunities.
        I also applaud this Subcommittee and the Committee as a whole for
    taking a deeper dive into the factors influencing the farm economy.
    This early action and educational focus by the House Agriculture
    Committee will enhance prospects for completing new farm bill
    legislation when the time comes. Even though every farm bill takes its
    own unique path to final enactment, one fact of the process remains the
    same: it has to start somewhere and the sooner the educational process
    starts, the better.
        As this work begins, it is imperative that Federal policies
    provided by the farm bill promote an economically healthy and
    competitive U.S. agriculture sector. These programs serve a variety of
    purposes, including: meeting the food, fuel, and fiber needs of
    consumers worldwide; strengthening farm income; improving our balance
    of trade; promoting rural development; and creating needed jobs here at
    home.
        In examining the dynamics of the farm economy, we are reminded that
    numerous influences--some of which are out of our control--come into
    play. Extremely volatile weather and global markets result in equally
    volatile farm gate prices, yields, and costs of production. Today's
    margins for most agricultural commodities are tight, and farm income
    has retreated significantly from its highs just a few years ago. Our
    common, ultimate goal--and at the heart of the farm bill--is to
    preserve the productive capacity of our farms by maintaining a
    responsive and equitable safety net, combined with adequate funding,
    for all regions and commodities, as well as comprehensive risk
    management tools, such as a strong crop insurance program.
        On behalf of my members, I also appreciate this Subcommittee's
    support and investment to keep U.S. specialty crop production strong,
    including research to enhance competitiveness and further document
    health benefits, and in the prevention and treatment of plant pests and
    diseases that could harm domestic production and international trade.
        Today, I wish to highlight the positive role this Subcommittee can
    have on the farm economy in several areas, including a focus on
    research and fostering innovation, oversight on regulatory issues
    impacting the cost of production along the value chain, and a renewed
    commitment to market promotion and accessibility.
    The Value of Research
        American agriculture has long been at the forefront of meeting the
    world's ever expanding needs for food, feed, fuel, and fiber. Many
    factors have contributed to the unparalleled success of American
    agriculture, but one of undeniable importance has been the expansion of
    food production enabled in large part by science-based advances in food
    and agriculture. Improved efficiencies begin with a foundation based on
    strong research.
        With the support of this Subcommittee, vital research initiatives
    have provided essential knowledge and innovation to combat pests and
    diseases, address food safety and security issues, comply with
    environmental regulations, and enhance the nutritional value of certain
    crops. According to the National Coalition for Food and Agriculture
    Research, of which I currently serve as chair, this tremendous pay-off
    of public investments in agricultural research and education over the
    past 50 years amounts to $3,400 of savings on the average American
    family's food bill. Additionally, the beneficial impact of the vital
    funding that effective agricultural research can deliver has been
    identified as a 30 to 1 return on investment for the American taxpayer.
        Thanks to the contributions of agricultural research, we have a
    more affordable, healthier, safer, and more sustainable food, feed,
    fuel, and fiber supply. NCFC strongly believes an important ingredient
    in providing longer-term solutions to American agriculture's challenges
    is increased support for food and agricultural research, and we look
    forward to working with Members of the Subcommittee to build greater
    opportunities for advancements through research in the years to come.
    Specialty Crop Research Initiative
        Of specific interest to this Subcommittee is the Specialty Crop
    Research Initiative (SCRI), a program supported broadly within the
    sector. The SCRI program was established to meet the unique needs of
    the specialty crop industry by supplying grants to support research and
    extension. In particular, the SCRI Citrus Disease Research and
    Extension Program (CDRE), which was authorized by the 2014 Farm Bill,
    awards funds to conduct research, extension activities, and technical
    assistance to fight citrus diseases and pests, such as Huanglongbing
    (HLB), commonly referred to as citrus greening.
        This research is vitally important as citrus greening is
    responsible for devastating losses in the citrus industry, threatening
    its future viability. A solution is desperately needed as it has
    already destroyed millions of citrus acres across the U.S. Once a tree
    is infected, there is no cure; research must get out ahead of this
    disease before it is too late. This is just one of the many examples of
    the importance of agricultural research programs and its integral
    relationship to the success of the industry.
    Fostering Innovation & Next Generation Technologies
        Inextricably tied to advancements made with research, agricultural
    innovation is important to all Americans because it enables plant and
    animal producers to increase productivity of healthful food using less
    land, while conserving soil and water and reducing on-farm energy
    consumption. These benefits are passed on to consumers in the form of
    an affordable and nutritious food supply, a healthy environment, and a
    strengthened rural economy.
        Growers across the country are using new equipment and information
    systems to improve efficiency and increase profits. Today, advanced
    technologies help ensure the most efficient use of fertilizers and
    chemicals, while modern tractors and combines use of state-of-the-art
    propulsion systems that more efficiently use diesel fuel. Agricultural
    biotechnology also is an important part of this mix.
        In the U.S., biotech crops are ubiquitous and, in fact, represent
    ``conventional'' production agriculture as more than 90 percent of
    corn, cotton, canola, soybeans, and sugar beets grown contain at least
    one biotechnology-derived trait. Farmers are also choosing
    biotechnology to grow crops, such as alfalfa, papaya, apples, potatoes,
    and squash. The traits in all of these crops help farmers manage
    potentially devastating insects, weeds, diseases, and weather
    conditions.
        Biotech crops contribute substantially to the rural economy by
    enabling farmers to produce more food in a more time efficient way
    while using fewer inputs. Globally, farmers growing biotech crops saw
    net economic benefits at the farm level amounting to more than $20
    billion in 2013, the most recent year for which there is data, and more
    than $133 billion in the thirty years since biotech crops were first
    introduced. Of the total farm income benefit, 60 percent is due to
    yield gains.
        Gains in productivity associated with biotech crops also have been
    essential in bolstering American agricultural trade, which totaled more
    than $130 billion in 2015.
        Additionally, USDA's Economic Research Service (ERS) has published
    reports noting how the adoption of biotech crops by farm families is
    associated with higher off-farm household income. Two ERS studies,
    which I would like to submit for the record, highlight how biotech
    crops allow farmers to save time, which is then used to generate income
    from off-farm employment. One report highlights that a ten percent
    increase in the use of herbicide tolerant soybeans is associated with a
    16 percent increase in off-farm household income. These statistics
    illustrate how more efficient farming practices, including the use of
    biotechnology, generate greater economic activity in rural communities.
        Looking beyond what we think of as biotechnology today, advanced
    plant breeding techniques hold enormous promise for improving the
    productivity and environmental sustainability of food, feed, fiber, and
    biofuels. By applying newer methods, plant breeders can be more
    efficient and precise at making the same desired changes that can be
    made over a much longer period of time through earlier breeding
    methods. Because these new methods are efficient and economical, they
    are accessible to public and commercial breeders and can be used across
    all agriculturally important crops, including specialty crops.
        As adoption of these new technologies spreads, the U.S. has an
    opportunity to be a leader in the global discussion over their
    regulation, just as it has, in many ways over the past thirty years
    with respect to enabling the research, development, and widespread
    commercialization of beneficial crops developed using agricultural
    biotechnology.
        Given economic benefit related to the current set of biotech crops
    and the significant potential for the commercialization of crops
    derived from other innovative plant breeding techniques, it is
    essential that Congress consistently promotes policies that encourage
    innovation and ensure that Executive Branch actions--regulatory and
    otherwise--foster the growth of a strong 21st Century farming economy.
    We urge you to consistently monitor pre-market regulatory programs at
    USDA, EPA, and FDA to ensure that they are transparent, predictable,
    and science-based. This is particularly important as USDA reexamines
    its pre-market regulatory framework for biotechnology--a process that
    is ongoing and with which NCFC and a large group of stakeholders are
    actively engaged. We will want to keep in close contact with you to
    ensure new pre-market biotechnology regulations at USDA foster
    innovation and create an environment in which farmers of all stripes
    have access to the best seeds.
        NCFC also thanks the full Committee for its work to establish
    national biotech food labeling standards, shepherding a labeling
    uniformity bill through the House of Representatives--a bill that
    gained overwhelming bipartisan support. We appreciate your work and
    will be back to see you soon once the Senate passes their version of
    labeling uniformity. On a similar note related to biotech crop
    detractors causing problems at the city, county, and state levels of
    government (as they have done with labeling), we would like to note our
    concern about local government bans on biotech crop cultivation and
    restrictions on the sale of biotechnology-derived seeds. This issue is
    another one we are monitoring carefully and may need to revisit with
    you at a later date.
    Regulatory Impacts on Cost of Production--Issues Beyond Farm Policy
        Beyond an investment in research and ensuring access to technology,
    we must also ensure that our public policy does not hurt the economic
    viability of farm and ranch families across the country. Often these
    issues are outside traditional farm policy and come from corners of the
    Federal Government that may not understand production agriculture. Yet
    a broad range of regulatory actions--those pending at Federal agencies
    or in the pipeline and coming soon to a farm near you--have the
    potential to increase the costs and reduce the margins of cooperatives
    and their farmer and rancher member-owners. Whether the regulations
    deal with the environment, immigration and labor, food safety, or
    financial reform, they can create an uncertainty that threatens to hold
    back investment and growth across the agricultural sector.
        Over 20 million jobs across the country are directly or indirectly
    dependent on agriculture, and account for nearly $1 trillion or 13
    percent of gross national product. If our agricultural sector can
    preserve its competitiveness in the global marketplace, we can grow
    this number and be a strong contributor to a growing economy.
        Congress must ensure that the marketplace, not the Federal
    Government, determines the cost of production for America's farmers and
    ranchers. If our farms, ranches, and cooperatives are weighed down with
    costs imposed by either regulatory actions or delays in the regulatory
    process, farm income will decrease and market share will be lost to our
    competitors.
        The U.S. Environmental Protection Agency (EPA) is often thought of
    first as the main culprit when it comes to regulatory actions impacting
    agriculture, and they have rightfully earned that dubious honor. From
    the expansion of the definitions of the `waters of the U.S.' rulemaking
    to outright circumventing the legal requirements under the
    Administrative Procedures Act (APA) when it comes to registration of
    crop protection products, the cumulative weight of their actions is
    cited by my members as a serious impediment to future investment in
    their operations and businesses.
        Specific to crop protection, Federal laws dictate that the U.S.
    Department of Agriculture (USDA) serve as an important advisor to EPA
    in the regulation of pesticides. Historically, USDA's expertise and
    advice have been evident in the actions EPA has taken to evaluate
    pesticides and their uses. USDA's perspective and knowledge of
    production agriculture is critical since we know that crop protection
    products can increase farm yields as much as 40 percent to even 70
    percent depending on the crop.
        It should concern this Subcommittee to hear the farm community
    expressing increasingly urgent concerns about the lack of seriousness
    with which EPA takes and incorporates USDA expertise, advice, and
    opinions, especially during formal interagency review. In particular,
    it is unclear to what extent USDA expertise was valued and included in
    recent actions, such as Endangered Species consultations, the revised
    Worker Protection Rule, and the recent benefits analysis for seed
    treatments on soybeans. If EPA fails to adequately calculate and/or
    consider the economic costs of these impacts--and beneficial uses--in
    its regulatory proposals, the consequences could be devastating.
        The U.S. has the world's most rigorous pesticide registration and
    review processes. When registering a pesticide, EPA reviews voluminous
    data to ensure that the product is protective of people, wildlife,
    pets, and the environment. Furthermore, under the law, all chemicals
    must be reevaluated every 15 years. Pesticides are regulated by
    assessing `risk' to determine whether and how a product can be used
    safely. In evaluating risk, `hazard' (whether something can cause harm)
    and `exposure' (whether you will be exposed to harm) are balanced
    against the benefit of using a product, such as protection of the
    public health from disease-carrying pests, protection of our nation's
    buildings and infrastructure, protection of the food supply, etc. This
    is something EPA should be confident in and proud to defend. As a
    matter of fact, EPA does a great job defending the merits of our risk-
    based system when commenting on the EU's precaution-based regulatory
    scheme. However, recently when EPA regulatory decisions are challenged
    in the U.S., the Agency seems reluctant to defend, or even more
    troubling, is unable to properly provide evidence of its scientific
    decisions.
        Some recent EPA activities appear to focus only on the hazard
    aspect and ignore factors, such as exposure and benefits. EPA's
    proposed mitigation measures for pesticides that are acutely toxic to
    bees are one such example. Should this trend continue, EPA runs the
    risk of encouraging public mistrust surrounding the products that are
    used to protect public health, our infrastructure, and the food supply.
        I anticipate my fellow panelists will cover a variety of EPA-
    related issues more fully, and I echo their concerns across the board.
    At this time, I wish to turn attention to several other regulatory
    issues which could have potential impacts on the farm economy.
    Regulatory Scope for Innovative New Breeding Techniques
        Just last week, NCFC and several other members of the agriculture
    community had the opportunity to comment on the USDA Animal and Plant
    Health Inspection Service's (APHIS) notice of intent to prepare an
    environmental impact statement on the introduction of the products of
    biotechnology with possible revisions to its biotechnology regulations
    (7 CFR part 340). A prominent theme throughout our comments focused on
    the reducing the regulatory burdens of bringing the latest, most
    precise breeding techniques to market. Embracing modern agriculture is
    the right thing to do for our country, which has a rich history of
    nurturing science, research, and innovation in all areas of the
    economy. The United States is strong and prosperous because American
    leaders embrace the responsible use of technology and set forth public
    policies to move the nation forward in this regard.
        Breeding technologies have rapidly evolved over the last half
    century, enabling plant breeders to be more precise and efficient at
    making the same desired changes that can be made over a much longer
    period of time through earlier breeding methods. In light of the fact
    that no plant pests or noxious weeds have been identified in 30 years
    of regulatory oversight of transgenic plants, including every
    transgenic plant on the market today, the expansion of regulatory scope
    cannot be justified by APHIS from either a scientific or risk
    perspective. Nor is this proposal consistent with the Coordinated
    Framework principle that the focus of regulatory oversight should be on
    the characteristics of the product rather than the process by which it
    was produced.
        Plant varieties developed through the latest breeding methods
    should not be differentially regulated if they are similar or
    indistinguishable from varieties that could have been produced through
    earlier breeding methods. Therefore, the definition of `biotechnology
    product' should only include plants that contain genetic material that
    has been modified through in vitro recombinant deoxyribonucleic acid
    (DNA) techniques for which the modification could not otherwise be
    obtained through conventional breeding.
        Under this definition, new plant varieties should be subject to
    little or no pre-market regulatory review if there is no insertion and
    stable transmission to subsequent generations of genetic material that
    encodes an expressed protein. Additionally, based on over 30 years of
    regulatory experience, if there is insertion and stable transmission of
    genetic material, new plant varieties would also not be subject to a
    pre-market regulatory review if the inserted genetic material is from a
    sexually compatible plant. This regulatory scope would allow plant
    breeders to quickly and efficiently deliver targeted genetic
    improvements that would be possible, but with much greater difficulty,
    using earlier breeding methods. It would also facilitate the use of
    these newer breeding methods in a wide range of crops, including
    specialty crops, and by a wide range of both public and commercial
    plant breeders without modifying current proven and well-established
    standards of safety.
        It is imperative that the U.S. agriculture industry continues to
    lead the way with innovation, research, and product development, but
    also do a better job communicating with the consuming public on the
    benefits and value of such innovation. It is incumbent on all of us in
    agriculture--from the policymaker to the producer--to find
    opportunities that better tell the good story of American agriculture
    that we have worked so hard to achieve. Developing a thoughtful
    approach to how these new technologies are brought to the marketplace
    will be very important and could dramatically impact the cost of
    production in either direction.
    Immigration Reform & Capacity Restraints on H-2A
        Farmers and ranchers continue to face a significant challenge in
    finding an adequate, dependable, and flexible workforce. While the
    ultimate solution to these problems is legislative, aspects of how
    Federal agencies run the H-2A seasonal temporary worker program pose
    hurdles to its usage.
        This program is the sole legal visa program available to production
    agriculture; however, it is limited to labor of a `temporary or
    seasonal nature.' Employment of H-2A workers has nearly tripled in the
    past 5 years; yet, it still only accounts for less than ten percent of
    all seasonal farm workers. This growth has occurred despite the
    program's extreme regulatory hurdles, government inefficiencies, and
    high costs.
        Capacity and infrastructure issues at the Departments of State
    (DOS), Homeland Security (DHS), and Labor (DOL) are leading to greater
    processing delays than ever before. This means bureaucratic red tape
    and interruptions in the program are seriously impacting the viability
    and profitability of farmers and ranchers as workers show up at the
    farm well after the date they were needed, and millions of dollars in
    agricultural production is lost in the interim.
        As part of the Agriculture Workforce Coalition (AWC) Steering
    Committee, NCFC has long advocated for immigration reform that meets
    both the short- and long-term workforce requirements of all of
    agriculture. Our primary objective remains legislation that fully
    addresses agriculture's workforce crisis. Congress must come together
    to find a solution. Yet understanding that in the best of scenarios
    such reforms may not come to fruition in the near term and it could be
    years before new programs are up and running, we have sought any and
    all relief possible in order to survive in the meantime.
        We believe there are significant policy measures that the DOS, DHS,
    and DOL could, and should, put into place that do not require
    legislation or even a regulatory change. There are improvements to the
    program that can be made within the agencies' existing authorities that
    will help curtail processing delays and allow for the flexibility
    required to ensure that farmers and ranchers receive the workers they
    so critically need within an appropriate timeframe. Doing so could
    significantly improve the situation for growers and ranchers while the
    agencies continue to fulfill their duties to respect the rights of
    domestic workers and provide homeland security.
        For example, DOL's Office of Foreign Labor Certification (OFLC) has
    a policy that is not supported by the regulations which requires all
    workers requested in any single petition be brought onto the job on the
    start date of the petition. Under the current delays experienced by
    growers at both the OFLC and U.S. Citizenship and Immigration Services
    (USCIS), there is no opportunity to receive these workers by the date
    they are needed. Growers must be given the opportunity to provide a
    start date that is earlier than the actual anticipated start date as a
    `grace period' in an effort to better manage the delays that are being
    forced upon them.
        Additionally, the Validation Instrument for Business Enterprises
    (VIBE) program is inappropriate for agriculture. Consequently, it
    should not be utilized in verifying employers in the H-2A program.
        A number of employers have been receiving Notices of Deficiencies
    (issued by DOL) or Requests for Further Evidence (issued by USCIS)
    related to proving that agriculture is seasonal in nature. These
    notices create an unnecessary and untimely delay in the process. It
    should be recognized that much of production agriculture is inevitably
    seasonal and analysts in both agencies should be instructed not to
    delay the process for that reason, especially during the current
    crisis.
        In view of this crisis, we urge that the three agencies err on the
    side of expediency in processing agricultural employers' H-2A
    applications where possible. The livelihoods of farmers and ranchers
    depend upon timely application processing and visa issuance in advance
    of farmers' dates of need.
        While American agriculture desperately waits for immigration
    reform, NCFC and the AWC will make every effort necessary to try to
    ease the regulatory burdens of the H-2A program so that farmers and
    ranchers have the chance to survive until the broader issue is
    addressed through a legislative fix to our broken immigration system.
    Overtime Rule
        Another example of a well-intentioned but detrimental regulation is
    the Overtime Exemption rule. On June 30, 2015, the DOL proposed changes
    to the exemptions for executive, administrative, and professional
    employees under the Fair Labor Standard Act's overtime pay
    requirements. The Department is proposing to double the salary
    threshold from the 20th percentile to the 40th percentile. This vast
    increase from $23,660 to $50,440 will substantially increase labor
    costs, significantly driving up the overall cost of doing business.
        NCFC believes that the Department should maintain the salary
    threshold at the 20th percentile. Maintaining this threshold using
    updated figures would achieve the desired outcome of increasing the
    effectiveness of the salary test, as well as bringing the salary level
    above the poverty line.
        However, if an increase is made, it should not be as severe as
    escalating the threshold to the 40th percentile. A jump to the 40th
    percentile is far too steep and would have grave consequences for
    businesses. In particular, small businesses, like the farmer-owned
    cooperatives NCFC proudly represents, would have a very hard time
    adjusting to such an unnecessarily high surge in the salary threshold
    percentage.
        If the proposed rule were implemented without change, NCFC fears
    numerous unintended consequences would ensue. The reclassification of
    employees could lead to the loss of benefits, flexibility, and
    incentive compensation options. Reclassification for certain positions
    will require employers to track overtime for these jobs, leading
    employers to limit flexible work options which greatly benefit
    employees and their families. Additionally, many employees highly value
    the status that accompanies a salaried, exempt position. Employees
    would be reluctant to give up the professional status of these
    positions. Furthermore, employees may experience fewer opportunities
    for upward mobility as businesses struggle to respond to the severe
    increase in labor costs.
        NCFC has encouraged the Department to refrain from drastically
    increasing the salary threshold and we seek your help in promoting
    policies which support allowing the market to dictate an employee's
    compensation based on the individual's role, skill-set, and experience.
    Occupational Safety and Health Administration--Process Safety
            Management
        Farmers rely on their local cooperatives to supply the inputs
    needed to grow crops safely and efficiently. One of the many inputs
    farmers rely on to return nutrients to the soil is anhydrous ammonia, a
    safe and cost-effective fertilizer with low environmental impact. As is
    the case with most commercially sold chemicals, these facilities
    already comply with extensive storage, handling, and security
    regulations for anhydrous ammonia under the direction of the EPA as
    well as the DHS and DOL's Occupational Safety and Health Administration
    (OSHA), helping to ensure a safe and secure work environment for
    employees and the local community.
        However, on July 22, 2015, OSHA issued a revised policy for the
    retail facility exclusion under the Process Safety Management (PSM)
    Standard (29 CFR 1910.119). Since 1992, OSHA's policy has been that an
    establishment was exempt from PSM coverage if it ``derived more than 50
    percent of its income from direct sales of highly hazardous chemicals
    to the end-user.'' The new policy states: ``Only facilities, or the
    portions of facilities, engaged in retail trade as defined by the
    current and any future updates to sectors 44 and 45 of the NAICS Manual
    may be afforded the retail exemption at 29 CFR 1910.119(a)(2)(i).''
    Therefore, unless a facility is in NAICS 44 or 45 and holds threshold
    quantities of highly hazardous chemicals (NH3--10,000 lbs, aqua
    ammonia--15,000 lbs), they are now subject to PSM.
        These unexpected changes will place a significant time and cost
    burden on agricultural retailers--approximately 3,800 will be subject
    to new PSM standards. OSHA estimated the cost of compliance with PSM
    standards at $2,100 per facility. However, industry estimates costs
    will be approximately $30,000 for initial compliance, $12,000 for
    annual compliance, $18,000 for 3 year audit, making OSHA's initial
    estimate way off by several factors. These estimates do not include the
    cost of potential upgrades which could easily exceed $70,000 per
    facility if the facility needs to replace one anhydrous ammonia storage
    tank.
        Until OSHA issued its Process Safety Management (PSM) retail
    exemption enforcement memo, farm supply retailers were always exempt
    from the PSM regulations. The PSM standards are intended for chemical
    manufacturers, not agricultural retailers and other retail businesses
    that sell directly to end-users. OSHA's memo is contrary to over 2
    decades of their own enforcement. As a result, many farm supply
    retailers, including our member cooperatives, are either consolidating
    facilities or exiting the anhydrous ammonia business altogether. These
    outcomes could reduce the supply of fertilizer and its delivery
    logistics, drive up the price of food, and ultimately hurt American
    agriculture's ability to produce an abundant food supply.
        Congress sent OSHA a clear message to withdraw the memo in the
    Consolidated Appropriations Act of 2016 with the inclusion of an
    explanatory statement that prohibited OSHA from using funds to
    implement the retail exemption memo unless it goes through the formal
    rulemaking process and the Census Bureau creates a new North American
    Industry Classification System (NAICS) code under either Sector 44 or
    45 for farm supply retailers. In response to the Congressional
    directive, OSHA indicated that they are unwilling to follow the will of
    Congress and withdraw the memo. Therefore, we have requested that the
    Appropriations Subcommittee on Labor, Health, and Human Services,
    Education, and Related Agencies include the following directives in the
    statutory text (not just the explanatory statement or report language)
    of their appropriations bill:

      (1)  OSHA should withdraw the July 22 memo and submit the proposed
                rule change for full notice and comment rulemaking to allow
                for adequate stakeholder input.

      (2)  OSHA should submit the rule change for an independent third-
                party cost analysis.

      (3)  Congress should include similar language in the actual text of
                the FY 2017 Labor HHS Appropriations bill.
    Food Safety Modernization Act Implementation
        NCFC is very supportive of science- and risk-based enhancements to
    our nation's food safety system and have been actively engaged as the
    Food and Drug Administration (FDA) implements the Food Safety
    Modernization Act (FSMA). Our association and members appreciate FDA's
    outreach to the agricultural community as it elicited feedback,
    evaluated public comments, and updated regulations to make them more
    appropriate for diverse operations.
        Many of our farmer cooperatives were able to modify their
    operations as the regulatory processes played out and get out head of
    the changes the regulations would mandate. However, given the sheer
    size of FSMA and the multitude of regulations needed to implement the
    law, producers and farmer-owned cooperatives have had to, and will
    continue to make, significant adjustments to the way they do business;
    these changes are not without significant costs.
        While many improvements were made through FSMA, there are still
    parts of the regulation that remain overly burdensome, duplicative, and
    many of which do not actually result in a safer food supply. We
    continue to encourage FDA to consider the additional costs, staff time,
    and record-keeping as operations adapt the way they do business and
    retain records. FDA must ensure that any increase in regulation is
    justified by measurable food safety benefits and that there is
    flexibility to ensure that entities can continue to stay profitable
    while addressing actual risks that are present.
        Specific to the Feed Rule, there have been ongoing discussions
    regarding the use of current Good Manufacturing Practices (CGMPs) in
    lieu of preventive controls to mitigate animal feed manufacturing risks
    and hazards wherever applicable. Use of CGMPs to mitigate these risks
    and hazards would not mean a CGMP is a preventive control. NCFC
    strongly supports this approach and urges FDA to issue a formal written
    concurrence to ensure that stakeholders and FDA staff have a clear
    understanding of this important issue.
        For some of our cooperatives, the Preventive Controls Rule has
    necessitated a rewrite of their Food Safety Plans and a change in focus
    from critical control points to preventive controls for all risks.
    However, a majority do not believe that this has necessarily changed
    any assessment or analysis of the risks inherent in their business, but
    rather just the written plans for addressing those risks, which clearly
    required significant staff time and resources.
        The FDA's enforcement of the Preventative Controls Rule and others
    will be the telling factor. We hope FDA will approach industry with a
    sense of a cooperative effort to ensure food safety for the public, a
    common goal shared with FDA by NCFC and our cooperatives. Additionally,
    precipitous use of the administrative detention or mandatory recall
    could cause market disruption, economic harm, and consumer confusion.
    We encourage FDA to act thoughtfully and in consultation with the
    operations affected in these situations.
        Last, we have remaining trepidations concerning the Sanitary
    Transportation Rule. We are apprehensive that the rule may be
    detrimental to the use of byproducts for cattle feed. Currently, some
    of our members are working with third party dairies or ranchers and
    have a workable program for cattle feed or soil amendments. Some of the
    restrictions in the Sanitary Transportation Rule may cause our members
    to cease using these outlets and turn to landfills instead. Many
    industries have developed a sustainable and cost-effective way to
    manage byproducts of processing facilities and NCFC does not wish to
    see the new requirements hinder a process that has ample benefits and
    has been working successfully for many years.
        The regulatory hurdles faced by producers and their cooperatives
    outlined above are certainly not all inclusive; there are dozens of
    more minor issues whose costs, on their own, may not seem to be
    unreasonable but, when taken as a whole, impose real increases in the
    cost of production. It should be noted, however, that agriculture is
    not reflexively against any regulation. There are many examples of
    sensible regulations that address real needs, are science-based, and
    whose benefits outweigh costs; further, there are many examples of
    regulatory agencies working collaboratively with stakeholders to
    develop targeted, sensible programs to address common goals. Such a
    process, however, often requires more resources than simply imposing
    top-down regulatory requirements and depends on public confidence in
    regulatory agencies.
        Finally, it should also be noted that farmers, ranchers, and
    cooperatives face regulations beyond those imposed by government.
    Increasingly, we are seeing what we call ``regulation by retail.'' Many
    food companies and retailers, responding to what they see as consumer
    demands, are asking much more of our farmers and cooperatives in terms
    of sustainability, animal welfare, and other issues. Agriculture has
    great stories to tell in many of these areas; however, much work
    remains in helping to bridge the gap between farmers and manufacturers
    or retailers. While much of this work will be done by the private-
    sector, USDA has been playing an important role in public education
    about agriculture and we hope to see this work continue in the future.
    Market Promotion & Accessibility
        Trade is vital to the continued prosperity of cooperatives and
    their farmer and rancher members. With over 95 percent of the world's
    population living outside of the United States, our agricultural
    producers need foreign markets to grow demand and programs that serve
    as catalysts to increased market access.
        I encourage this Subcommittee to continue its strong support of
    export programs that are vital to maintaining and expanding U.S.
    agricultural exports, counter subsidized foreign competition, meet
    humanitarian needs, protect American jobs, and strengthen farm income.
    Market Access Program
        The Market Access Program is of particular importance, both because
    it is a vital tool used by producers and their cooperatives to market
    products overseas, and because it represents such a good investment of
    taxpayer dollars with a 35 to 1 return on every dollar spent under the
    program.
        Many specialty crop producers view MAP, above all other programs,
    as their `farm safety net' program. The ability of cooperatives to use
    MAP helps give individual farmers the ability to market their products
    overseas, which they otherwise would not be able to do on their own.
    Accessibility
        Additionally, NCFC strongly supports provisions that improve
    accessibility and bring neutrality of form to the Fruit & Vegetable
    Snack Program. Allowing dried, canned, frozen, and fresh fruits and
    vegetables to be offered through the Snack Program will give schools
    more choice in what they offer, and as a result more children to
    benefit from the program. Doing so ultimately also is an efficient use
    of taxpayer dollars as often dried, canned, and frozen fruits and
    vegetables are more the more affordable option. All of these efforts
    work to increase the consumption of healthy, nutrient-rich fruits,
    vegetables, and nuts. NCFC has long advocated that eligibility in
    nutrition programs should be based on the nutritional and health
    properties of food, which are not distinguishable between fresh,
    frozen, canned, or dried forms of fruits, vegetables, and nuts.
        The American Institute for Cancer Research supports the consumption
    of all forms stating, ``Canned and frozen fruits not only offer great
    nutrition, but they are inexpensive and convenient ways to make sure we
    maximize the variety and number of fruit servings needed to protect our
    health.'' Not only is expanding the program in line with sound science
    and the Dietary Guidelines, but it also empowers local school districts
    to decide which forms best fit the needs of their students from a
    nutritional and economic perspective.
    Specialty Crop Block Grants
        Since 2006, the Specialty Crop Block Grant Program (SCBGP) has
    served to improve the competitiveness of specialty crops. While
    specialty crops have access to research and Federal marketing programs,
    the industry has not had the benefit of a farm bill direct aid program.
    To make up for the lack of such a program, the SCBGP has offered
    additional Federal assistance to specialty crops. The program delivers
    grants to State Departments of Agriculture for projects dealing with
    many of the issues touched on in my testimony--education, research,
    food safety, pest and plant health, and marketing and promotion--as
    they relate to the specialty crop industry. In Fiscal Year 2015, 755
    grants were awarded to fund integral specialty crop projects. One
    example of the important projects funded by the program is a project
    that included a partnership with the University of Arizona to improve
    food safety by increasing the speed, accuracy, and affordability at
    which E. coli can be detected. As food safety continues to be a focus
    of regulators and consumers, this research plays an imperative role in
    protecting consumers and increasing consumer confidence.
        In conclusion, I realize that this testimony covers a lot of
    ground, some of which may be outside the jurisdiction of the
    Subcommittee, but these issues are no less important and impactful to
    the cost of production and overall farm economy, and are worthy of your
    oversight. Especially at a time when producers across the country are
    facing tight margins, we must identify ways for our agriculture sector
    to prosper, and reduce the burden and uncertainty that threatens to
    hold back investment and growth across the agricultural sector.
        Thank you again for the opportunity to testify today and I look
    forward to your questions.

        The Chairman. Thank you, Mr. Conner, and you were a perfect
    5 minutes. That was great.
        We will see if you can do the same, Mr. Secretary. The next
    witness, the Honorable Jeff Witte, Secretary/Director, New
    Mexico Department of Agriculture in Las Cruces, New Mexico, on
    behalf of the National Association of State Departments of
    Agriculture.

    STATEMENT OF HON. JEFF M. WITTE, SECRETARY/DIRECTOR, NEW MEXICO
    DEPARTMENT OF AGRICULTURE; MEMBER, BOARD OF DIRECTORS, NATIONAL
    ASSOCIATION OF STATE DEPARTMENTS OF AGRICULTURE, LAS CRUCES, NM

        Mr. Witte. Thank you, Mr. Chairman. That is a hard act to
    follow.
        Chairman Davis, Ranking Member DelBene, and Members of the
    Subcommittee, good morning, and thank you for the opportunity
    to testify today on the farm economy and factors impacting the
    costs of production.
        I am going to provide an abbreviated version of my full
    testimony, which will be submitted and has been submitted for
    the record.
        As the Chairman said, my name is Jeff Witte and I serve as
    New Mexico's Secretary of Agriculture and a Member of the Board
    of Directors of the National Association of State Departments
    of Agriculture. I also had the opportunity to serve on the EPA
    Local Government Advisory Committee. My department is
    responsible for a wide range of regulatory programs including
    pesticide use under the Federal Insecticide, Fungicide, and
    Rodenticide Act. In my various roles, I protect consumers,
    promote agriculture, and oversee producers through a host of
    regulatory programs. I sit before you today to discuss the
    successes, challenges and solutions around several Federal
    regulatory actions impacting our rural economies.
        One key success to highlight is the State Managed
    Pollinator Protection Plan, or the MP3 program. These plans
    facilitate collaborative relationships between beekeepers and
    growers. They are a proven success in many states, and we
    appreciate EPA's support to date in using MP3s as a non-
    regulatory risk mitigation vehicle. We see this model as a
    possible tool in other areas including biotech coexistence.
        However, there are a number of challenges impacting
    agriculture producers and state agencies across the country. I
    want to highlight two provisions from EPA's final Worker
    Protection Standard Rule from last fall that illustrates some
    regulatory burdens on agriculture that could have been avoided:
    the Application Exclusion Zone, and the designated
    representative provision. The AEZ creates a 100 buffer,
    prohibiting appropriate pest mitigation facilities around the
    application, within 100 of the application equipment. Even
    though EPA is working on interpretive guidance, stating that
    the AEZ goes beyond the Agency's intent, the guidance does not
    carry the authority of a codified Federal regulation and is
    subject to interpretation. And EPA's designated representative
    provision requires providing 2 years of pesticide application
    records to anyone who claims to represent a worker who has been
    on an operation over the past 2 years. We feel these
    initiatives were implemented in violation of the Agency's
    obligations under FIFRA, the Administrative Procedures Act, and
    various Executive Orders. Neither provision provides any
    enhanced regulatory benefits but both place additional economic
    burdens on producers. We have expressed our strong concern that
    EPA did not included the designated representative provision in
    the final rule it provided to this Committee as required under
    FIFRA, and we appreciate Chairman Conaway and Ranking Member
    Peterson for their engagement on this matter.
        Another challenge is EPA's proposed Certification of
    Pesticide Applicators Rule, which will significantly impact
    states by requiring significant overhauls to the state
    programs. We feel EPA greatly understated the impacts to the
    states and the regulated community, and this will be one
    unnecessary burden on the states and our producers.
    Furthermore, states conduct robust investigations of alleged
    pesticide exposure incidents and have provided EPA with volumes
    of data showing overwhelming compliance by the regulated
    community. It is disheartening to see that EPA does not
    incorporate that provision into the regulatory decisions.
        Another regulatory challenge that producers face involves
    the implementation of the Food Safety Modernization Act, which
    dramatically changes the approach to food safety and will
    require a long-term commitment to continuing education from all
    of us. The full cost to farmers to implement FSMA is still
    unknown, but depending upon the size, estimates have reached up
    to $100,000 a year. State Departments of Agriculture are
    working with the FDA to bring expertise to the new framework,
    but we estimate the need of at least $100 million annually to
    state programs to implement this. Further, NASDA is working
    with the FDA to find a balance on water policy and its Produce
    Safety Rule.
        States have long been partners with the Federal agencies to
    serve as co-regulators for many of the regulations imposed by
    the Federal agencies. Regulatory initiatives often lack
    consultation with state regulatory agency partners and are
    implemented with a lack of compliance with controlling
    statutes. This causes regulatory confusion not only to the
    intended recipient of the regulation but to the partner who has
    on-the-ground responsibility. Federal agencies must do better
    to consult in a robust and meaningful way with state regulatory
    partners. Further, our Federal partners must comply with the
    Administrative Procedures Act and other controlling statutes to
    develop scientifically sound and consistent regulations that
    allow agricultural producers to continue to do their jobs.
        I appreciate the opportunity to testify before you today
    and welcome any questions.
        [The prepared statement of Mr. Witte follows:]

       Prepared Statement of Hon. Jeff M. Witte, Secretary/Director, New
     Mexico Department of Agriculture; Member, Board of Directors, National
        Association of State Departments of Agriculture, Las Cruces, NM
    Introduction
        Chairman Davis, Ranking Member DelBene, and distinguished Members
    of the Subcommittee on Biotechnology, Horticulture, and Research: good
    morning and thank you for the invitation to testify on the important
    subject of the farm economy and factors impacting the cost of
    production. I appreciate the opportunity to share a state agency
    perspective on this important topic.
        My name is Jeff Witte, and I proudly serve as New Mexico's
    Secretary of Agriculture and as a Member of the Board of Directors for
    the National Association of State Departments of Agriculture (NASDA).
    NASDA represents the commissioners, secretaries, and directors of the
    State Departments of Agriculture in all fifty states and four
    territories. State Departments of Agriculture are responsible for a
    wide range of programs including food safety, combating the
    introduction and spread of plant and animal diseases, and fostering the
    economic vitality of our rural communities. Environmental protection
    and conservation are also among our chief responsibilities.
        In forty-three states and Puerto Rico, the state department of
    agriculture is the lead state agency responsible for the regulation of
    pesticide use under the Federal Insecticide, Fungicide, and Rodenticide
    Act (FIFRA).\1\
    ---------------------------------------------------------------------------
        \1\ 7 U.S.C.  136, et. seq.
    ---------------------------------------------------------------------------
        In New Mexico, my department is responsible for a wide range of
    regulatory and licensing programs including: apiary registration;
    commercial feed registration; dairy permitting; egg dealer licenses &
    registration; fertilizer & soil conditioner registration; nursery
    licenses; pesticides; weighmaster licenses; and weights & measures
    licensing & registration.
        I am intimately familiar with the regulatory process and the impact
    and challenges regulations have on the producers in my state. For those
    who may not be overly familiar with New Mexico, I invite you all to
    visit and experience the rich diversity of our specialty crop
    industries, which include: chiles (our signature crop); pecans; onions;
    greenhouse & nursery production; an emerging aquaponics industry; and
    countless other innovative and growing agricultural sectors.
        I also serve on EPA's Local Government Advisory Committee (LGAC),
    which is a formal advisory committee, chartered under the Federal
    Advisory Committee Act \2\ and has been in existence since 1993. The
    Committee is composed primarily of elected and appointed local
    officials, along with several state representatives, environmental
    interest groups, and labor interests from across the country. The LGAC
    provides advice and recommendations that assist the EPA in developing a
    stronger partnership with local governments through building state and
    local capacity to deliver environmental services and programs.
    ---------------------------------------------------------------------------
        \2\ 5 U.S.C. Appendix 2 (1972).
    ---------------------------------------------------------------------------
        In my various roles, I protect consumers, promote agriculture, and
    oversee producers through a host of regulatory programs.
    Successes, Challenges & Solutions
        I sit before you today to discuss some of the Federal partnerships
    and initiatives that are working well, highlight a few areas where the
    regulatory process--or lack thereof--has resulted in significant
    negative economic impacts to our producers. And finally, I will offer
    some solutions to ensure our growers, ranchers, and other agricultural
    stakeholders are able to continue to produce our nation's food, fiber,
    and fuel in a productive and collaborative manner while ensuring we
    have the safest food supply in the world.
    Successes
        One on-going success story that epitomizes the strength and value
    of the U.S. agricultural community is known as the State Managed
    Pollinator Protection Plan, commonly referred to as an ``MP3.''
        The State Departments of Agriculture, individually and
    collectively, have been actively engaged in identifying the various
    challenges surrounding bee health, and more importantly, developing
    partnerships on the state level to bring forward solutions so
    beekeepers, growers, applicators, and other agricultural stakeholders
    are able to continue to produce our nation's food, fiber, and fuel in a
    collaborative and productive manner.
        There are numerous and complex factors associated with bee health,
    including: parasites and diseases, lack of genetic diversity, need for
    improved forage and nutrition, need for increased collaboration and
    information sharing, and a need for additional research on the
    potential impacts certain pesticides may have on honey bee health. The
    multitude of these stressors do not lend themselves to a single,
    uniform solution that will successfully address all of these variables
    across the diverse and robust agricultural community in all fifty
    states and four territories. However, the MP3 model utilizing the State
    Departments of Agriculture as the vehicle to unify, discuss, and
    develop best management plans has resulted in improved pollinator
    health and a more productive and synergetic relationship between
    beekeepers, growers, applicators, and other agricultural stakeholders.
    In fact, this model is already a proven formula in a number of states
    (California,\3\ Colorado,\4\ Florida,\5\ Mississippi,\6\ and North
    Dakota \7\).
    ---------------------------------------------------------------------------
        \3\ California Department of Food and Agriculture. 2014. Bee and
    Beehive Information.
    http://www.cdfa.ca.gov/plant/pollinators/index.html.
        \4\ Colorado Environmental Pesticide Education Program. Pollinator
    Protection 2013. http://www.cepep.colostate.edu/
    Pollinator%20Protection/index.html.
        \5\ Florida Department of Agriculture and Consumer Services. 2014.
    Florida Bee Protection. http://www.freshfromflorida.com/Divisions-
    Offices/Agricultural-Environmental-Services/Consumer-Resources/Florida-
    Bee-Protection.
        \6\ Mississippi Honeybee Stewardship Program. 2014, http://
    www.msfb.org/public_policy/Resource%20pdfs/Bee%20Brochure.pdf.
        \7\ North Dakota Department of Agriculture. 2014. North Dakota
    Pollinator Plant. A North Dakota Department of Agriculture Publication.
    http://www.nd.gov/ndda/files/resource/
    NorthDakotaPollinatorPlan2014.pdf.
    ---------------------------------------------------------------------------
        MP3s are built on robust communication efforts, Best Management
    Plans (BMP), and Integrated Pest Management (IPM) programs specifically
    crafted to serve and support local agricultural practices and to ensure
    informed and workable solutions are developed and implemented through
    public-private partnerships at the state level to achieve sound policy
    initiatives. We appreciate the support and partnership we have received
    from our partners at EPA, to date, in identifying MP3s as a successful,
    non-regulatory vehicle to achieve risk mitigation and enhance
    collaboration across the agricultural stakeholder community, and we
    note the White House's National Strategy to Promote the Health of Honey
    Bees and Other Pollinators \8\ recognizes the MP3 as a model for
    success.
    ---------------------------------------------------------------------------
        \8\ White House. (2015). National Strategy to Promote the Health of
    Honey Bees and Other Pollinators. Retrieved from: https://
    www.whitehouse.gov/sites/default/files/microsites/ostp/
    Pollinator%20Health%20Strategy%202015.pdf.
    ---------------------------------------------------------------------------
        At the same time, we do have significant concerns with a current
    policy proposal EPA published for public comment that is currently
    under review. In this policy proposal, EPA identified 76 active
    ingredients that will impact over 3,500 crop protection tools as
    potentially ``acutely toxic to honeybees'' and subject these tools and
    uses to enhanced label restrictions. We are concerned with both the
    process and the substance of this proposal, neither of which are FIFRA
    compliant or based on a sound, science-based risk assessment approach.
    So we ask this Subcommittee to help ensure EPA's regulatory proposals
    are compliant with their obligations under FIFRA and consistent with
    their role as regulatory partners with the State Departments of
    Agriculture. We feel it is equally as important to allow the MP3s to
    continue to succeed before proceeding with any further regulatory
    action.
        We see great value and applicability with the MP3 model as a tool
    to drive solutions for other challenge areas within the farm gate, and
    we are encouraged with USDA's Federal ``Advisory Committee on
    Biotechnology & 21st Century Agriculture'' (AC21) interest in
    evaluating the MP3 model as a possible vehicle to address some of the
    challenges around coexistence issues.
        From the state perspective, we see the MP3 model as a means to
    cultivate public-private partnerships, and facilitate informed,
    science-based solutions that will address the various challenges around
    pollinator health, coexistence issues, and other complex matters. We
    stand ready to continue to work with EPA, USDA, and all of our Federal
    partners in applying a model of collaboration and communication to
    every challenge we face.
        Continuing the theme of ``Success'' and as we begin to look towards
    the next farm bill, there are two programs I want bring to your
    attention today that have seen great success and effectiveness in
    carrying out their respective missions. The first is known as the
    ``Section 10007'' Program and the other is the Specialty Crop Block
    Grants.
        First, I want to commend this Subcommittee, the full Committee,
    APHIS and the grower groups involved with the ``Section 10007'' program
    under the 2014 Farm Bill. As you all well know, this program provides
    funding for Federal, state, Tribal, and nongovernmental efforts to
    protect U.S. plant health across the country. This program brings a
    broad range of stakeholders together to proactively identify and
    achieve plant health protection goals through the Plant Pest and
    Disease Management & Disaster Prevention Program and the National Clean
    Plant Network. This model facilitates cooperation and collaboration
    between Federal, state, and impacted partners, and we feel this model
    has great promise and applicability to address some of the animal
    health and disease challenges on the livestock side.
        Second, I want to note the significant value of USDA's Specialty
    Crop Block Grant program (SCBGP), which is another critical area of
    collaboration between the State Departments of Agriculture, the
    specialty crop industry, and USDA. Since 2009, the State Departments of
    Agriculture have distributed nearly $393 million dollars in grants to
    5,400 project partners that have enhanced the competitiveness of
    specialty crops in the United States. These projects are not just
    increasing consumer access to safe and healthy food but are expanding
    economic opportunities across rural America.
        While we highlight this program as a success and are pleased with
    both the expanded funding and the establishment of the Specialty Crop
    Multi-State Program (SCMP) in the 2014 Farm Bill, we have growing
    concerns that the flexibility the SCBG program was built upon is
    eroding due to increased and unnecessary bureaucratic processes. This
    is especially evident in the establishment of certain performance
    measures for the program. While we all want to ensure the wise use of
    tax dollars, we are concerned these bureaucratic requirements--
    especially new sales reporting requirements for marketing projects--are
    simply not feasible for many of the kinds of projects that have made
    this program so successful, and we ask this Subcommittee to take these
    concerns into consideration as we work towards the next farm bill.
    Challenges
        Unfortunately, there are a number of challenges impacting,
    complicating, and frustrating agricultural production across the county
    and the state agencies tasked with conducting on the ground compliance
    and enforcement activities. Those challenges include, but are not
    limited to: EPA's Agricultural Worker Protection Standards (WPS); EPA's
    proposed Certification of Pesticide Applicator Rule; EPA's Waters of
    the U.S. rule (WOTUS); EPA's National Pollutant Discharge Elimination
    System (NPDES) duplicative regulatory framework; EPA's proposal to
    Mitigate Exposure to Bees from Acutely Toxic Pesticide Products;
    implementation of the Food Safety Modernization Act (FSMA); the
    Department of Labor's H2-A program; and numerous other regulatory
    initiatives or proposals currently pending in the Federal Register.
        I recognize WOTUS and the NPDES issues are not necessarily the
    focus of today's hearing, but I would be remiss not to mention the
    potential devastating impact these regulatory initiatives hold for
    agriculture across the country, and I refer this Subcommittee to my
    testimony last March in front of the House Agriculture Subcommittee on
    Conservation and Forestry for more information on those issues.
    Worker Protection Standards
        Last fall, EPA promulgated its final Worker Protection Standard
    rule that included numerous regulatory compliance and record keeping
    burdens with no definable regulatory benefits. We were especially
    disappointed with EPA's lack of compliance with its own obligations and
    requirements under: FIFRA; the Administrative Procedures Act (APA); \9\
    the Unfunded Mandates Reform Act (UMRA); \10\ the Regulatory
    Flexibility Act (RFA); \11\ and Executive Orders 13132 \12\ and
    13563.\13\
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        \9\ 5 U.S.C.  500, et. seq.
        \10\ 2 U.S.C.  1501.
        \11\ 5 U.S.C.  601, et. seq.
        \12\ Executive Order No. 13132, Federalism, 64 FR 43255 (1999).
        \13\ Executive Order No. 13563, Improving Regulation and Regulatory
    Review, 76 FR 3821 (2011).
    ---------------------------------------------------------------------------
        I want to elaborate briefly on two specific provisions included the
    final WPS rule that illustrate the negative consequences of a lack of
    adherence to the rulemaking process. First is the final changes to the
    Application Exclusion Zone (AEZ) and the second is the ``designated
    representative'' provision, which essentially allows anyone to arrive
    at a farming operation and demand an accounting of records related to
    pesticide applications over the past 2 years.
        EPA's insertion and final articulation of the AEZ provision goes
    far beyond the Agency's stated intent and creates a 100 buffer
    surrounding the application equipment that, according to the
    regulations now in place, extends beyond the agricultural
    establishment. This provision effectively constitutes a ``taking'' of
    the grower's land and prohibits appropriate pest mitigation activities
    if there is any kind of structure, permanent or otherwise, inhabited or
    vacant within 100 of the agricultural establishment. Furthermore, any
    individual standing or a passing vehicle within 100 of the property
    can effectively cease the grower's application activity.
        I should point out that EPA's Office of General Counsel (OGC) is
    working to issue interpretive guidance stating these unintended
    consequences go beyond the Agency's intent. However, I must also
    emphasize that such guidance does not carry the weight and authority of
    a codified Federal regulation, and courts may have a different
    interpretation from EPA's OGC on this matter. Unless and until EPA
    corrects and amends the regulation, this provision will continue to
    impose unreasonable regulatory and economic burdens for producers and
    subject state lead agencies to enforce unworkable regulations.
        In addition to the AEZ, EPA included the ``designated
    representative'' provision which places an extraordinary burden on
    growers to produce a full accounting of 2 years of application records
    to anyone who arrives on their farm with a piece of paper claiming to
    represent a worker who may have been on that establishment at some
    point over the past 2 years. If the agricultural employer does not
    produce these records they subject themselves to enforcement actions.
    If the agricultural employer does produce these records, the individual
    requesting them is free to use them for any purpose, propaganda, anti-
    marketing, litigious or otherwise that he or she sees fit.
        The most frustrating part of the AEZ and ``designated
    representative'' provisions is that these oversights and misguided
    initiatives were implemented outside of the Federal rulemaking process,
    in conflict with the information and input from EPA's state regulatory
    partners and the regulated community, and in violation of the Agency's
    obligations under FIFRA, the APA, and various Executive Orders. Perhaps
    worst of all, neither provision provides any enhanced regulatory
    protections or benefits. These realities, however, do not mitigate the
    economic burdens and liability our producers will be forced to absorb
    under this final Federal regulation.
        We know EPA did not include the ``designated representative''
    provision in the final rule it provided to this Committee, as the
    Agency is required to do so under FIFRA. We have expressed our strong
    concern and disappointment with EPA's lack of consultation with their
    state regulatory partners, and we want to thank Chairman Conaway and
    Ranking Member Peterson for their attention and on-going engagement on
    this matter.
        These rulemaking and process decisions have consequences. According
    to EPA, the WPS rule will impact an estimated 300,000 or more small
    farms, nurseries, and greenhouses, plus many hundred small commercial
    entities such as aerial and ground applicators contracted to control
    pests. EPA stated in its own economic analysis it could not quantify
    the complete economic impact of the rule. We agree with that
    conclusion, and we feel EPA's economic analysis significantly
    underestimated both the number of impacted operations and the true cost
    this rulemaking will have on the regulated community and the state
    regulatory agencies.
        The new regulations will also require significant staff time to
    provide outreach to workers, handlers, applicators, agricultural
    employers, trainers and other stakeholders. For example, trainers will
    now require retraining, and, according to EPA's implementation
    timeline, this retraining must take place during the same period the
    state agencies are expected to conduct outreach and education to the
    producers in their states. In addition, the average actual on-site
    inspection under the former WPS rule averaged 3 hours in duration, but
    under the new rule these same inspections are anticipated to require
    approximately 50% more time due to the enhanced record keeping and site
    information requirements.
        Equally concerning is that EPA is implementing the WPS rule with
    all of these enhanced regulatory burdens and record keeping
    requirements, but it has yet to provide educational resources or
    training materials to assist their state partners or the regulated
    community to understand the new requirements or how to comply with
    them. This approach to regulatory activity is in direct conflict with
    the fundamental principle of ``educating before you regulate.''
        Without a sound and transparent regulatory framework and the
    resources necessary to educate the regulated community on how to
    comply, all EPA has created is another economic burden on the men and
    women who produce our nation's food, fiber, and fuel. It is absolutely
    essential for EPA to correct the oversights in the WPS rule and provide
    their state partners and the regulated community the time and
    educational resources necessary to ``educate before we regulate.''
    Certification of Pesticide Applicators
        Similar to the Worker Protection Standards rule mentioned above,
    states have significant concerns with EPA's Certification of Pesticide
    Applicators pending rule changes.
        As written, the proposed rule will significantly and uniquely
    affect small governments and the state lead agencies charged with
    implementing the proposed changes. In the vast majority of states, the
    proposed rule will require comprehensive regulatory changes and/or new
    state legislative authorities, additional training, staff time, and
    resources for both the state regulatory agency and regulated community
    that go far beyond EPA's Economic Analysis (EA) estimates in order to
    develop, implement, and comply with the proposed changes.
        If EPA promulgates a final rule as written, without fundamentally
    and comprehensively changing substantial portions of its proposal, the
    end result will require a significant number of state lead agencies to
    terminate administration of their certification programs and revert
    this responsibility and cost back to EPA. In short, EPA's proposed rule
    incentivizes both the state regulatory agencies and the regulated
    community to respond to the implementation and compliance requirements
    in a manner that is in direct conflict with the stated objectives for
    publishing this proposed rulemaking.
        This is not a trivial matter as EPA estimated the proposed rule
    will impact over 800,000 small farms and over 400,000 commercial
    applicators, and unfortunately, EPA's EA did not fully and accurately
    account for the costs associated with implementing, complying, and
    enforcing the proposed changes. As a result, the states conducted our
    own economic analysis of the proposed rule using the Texas A&M AgriLife
    Extension Service, Agricultural Economics, Agricultural & Environmental
    Safety's economic model, which found the actual estimated cost to state
    programs will increase by multiple factors of ten above what EPA
    estimated. Applying the Texas A&M economic model to all fifty states
    and four territories clearly demonstrates EPA did not satisfy the
    requirements under UMRA.\14\
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        \14\ 2 U.S.C.  1501.
    ---------------------------------------------------------------------------
        EPA claims the primary economic benefits are monetized benefits
    from avoided acute pesticide incidents, qualitative benefits that
    include reduced latent effects of avoided acute pesticide exposures,
    and reduced chronic effects from lower chronic pesticide exposures
    (chronic diseases). To support this claim, EPA cites estimates of
    poorly reported data and anecdotal evidence from poison control
    centers. At the same time, EPA acknowledges the lack of economic
    integrity in these numbers, and subsequently notes it is ``not able to
    quantify the benefits expected to accrue from the proposed changes.''
        It is inappropriate for EPA to indicate or imply a causal
    association between these incomplete data sources to any estimated
    benefits, and as the Secretary of a state agency, I consider it highly
    inappropriate to estimate benefits of a proposed rulemaking on possible
    associations when there is no scientific evidence supporting such
    causal connections.
        Furthermore, EPA is intimately familiar with the routine and robust
    investigations state lead agencies conduct in response to alleged
    pesticide exposure incidents, and we are disappointed EPA has drawn
    various conclusions through unknown and unsubstantiated data to support
    the EA's estimated benefits associated with this proposed rule. I want
    to contrast this dynamic with the reality that states provide EPA with
    volumes of data showing overwhelming compliance by the regulated
    community, and it is disheartening, at best, to see EPA does not
    discuss or incorporate that information into its regulatory decisions.
        In addition to the understated costs to the state lead agencies,
    EPA failed to account for a number of factors impacting the regulated
    community. For example, the Small Business Administration's Advocacy
    Review (SBAR) Panel (hereinafter ``Panel'') reviewed this proposed rule
    and found ``the rule will impose unnecessary and unjustified burdens on
    [small businesses] and that alternatives exist that would reduce the
    economic impact of the rule on small entities while still accomplishing
    the agency's objectives.'' \15\ The Panel noted ``EPA did not estimate
    travel expenses for applicators to obtain training or take exams for
    certification or recertification,'' which will ``. . . impose excessive
    costs in operating their businesses as a result of increased time away
    from the job, travel expenses to attend recertification trainings, and
    the class fee for attending the CEUs.'' \16\ The Panel further
    determined ``EPA's proposal will result in decreased training and
    education rather than the agency's goal of increased training and
    education.'' \17\
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        \15\ Panel Report of the Small Business Advocacy Review Panel on
    EPA Planned Revisions to Two Related Rules: Worker Protection Standards
    for Agriculture and Certification of Pesticide Applicators.
        \16\ Panel Report of the Small Business Advocacy Review Panel on
    EPA Planned Revisions to Two Related Rules: Worker Protection Standards
    for Agriculture and Certification of Pesticide Applicators.
        \17\ Id.
    ---------------------------------------------------------------------------
        The Texas A&M Economic Model and the SBA Panel's findings are
    greatly concerning and further demonstrate EPA's significant
    inaccuracies in the actual estimated costs and alleged benefits of the
    proposed rule. We should all be concerned with the lack of thoroughness
    around EPA's economic analysis. We have asked EPA to specifically
    address and respond to the Panel's written comments and
    recommendations, as required under the Small Business Jobs Act of
    2010,\18\ before taking any further actions with this rulemaking, and I
    ask this Subcommittee to continue its oversight of EPA's actions in
    this process to ensure this proposed rulemaking does not become one
    more unfunded mandate on the states and one more unnecessary regulatory
    burden and cost to our producers.
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        \18\ Pub L. No. 111-240  124 Stat. 2504 (2010)
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        In addition to understating the economic impact to state agencies
    and the regulated community and incentivizing actions contrary to the
    proposal's stated objectives, we are troubled by EPA's lack of
    compliance with its requirements under: FIFRA; Regulatory Flexibility
    Act (RFA); \19\ and Executive Orders 13132 \20\ and 13563.\21\
    ---------------------------------------------------------------------------
        \19\ 5 U.S.C.  601, et. seq.
        \20\ Executive Order No. 13132, Federalism, 64 FR 43255 (1999).
        \21\ Executive Order No. 13563, Improving Regulation and Regulatory
    Review, 76 FR 3821 (2011).
    ---------------------------------------------------------------------------
        EPA claimed to have ``identified the potential for harmonized
    minimum requirements to enhance state-to-state reciprocity of
    applicator certifications . . .'' \22\ The Agency cited this claim as
    justification for mandating enhanced national minimum requirements
    across all fifty states and territories. In essence, EPA proposed to
    require all state, tribal, and territorial authorities to develop and
    implement a certification program equivalent to the most robust and
    comprehensive framework currently in existence. As a result, the
    proposed rule would place significant undue hardships and enhanced
    requirements on the vast majority of state certification programs,
    which do not have the staff, resources, or administrative capabilities
    to absorb these proposed changes under the proposed implementation
    timeline.
    ---------------------------------------------------------------------------
        \22\ 80 FR 51369.
    ---------------------------------------------------------------------------
        EPA further stated the proposed action does not contain any
    federalism implications and would not have substantial direct effects
    on the states or the relationship between the Federal Government and
    the states. However, the proposal has significant federalism
    implications and is in direct conflict with Executive Order 13132,
    which requires ``[a]ny regulatory preemption of state law shall be
    restricted to the minimum level necessary to achieve the objectives of
    the statute pursuant to which the regulations are promulgated.'' \23\
    ---------------------------------------------------------------------------
        \23\ 64 FR 43257.
    ---------------------------------------------------------------------------
        The states conducted our own in-depth review of the proposal's
    implications on state regulatory agencies and identified several
    potential federalism issues where a significant number of states will
    be required to amend their state regulations and/or legislative
    authority to comply with the proposed rule changes. We ask this
    Subcommittee to continue your work and oversight to ensure EPA complies
    with both the spirit and intent of Executive Order 13132 and work with
    their state regulatory partners to further review and resolve all
    potential federalism issues prior to any final rulemaking.
        EPA noted this proposed rule \24\ is part of its retrospective
    review plan; however, EPA did not include specific plans or identify
    specific measures needed to effectively evaluate the stated objectives
    of the proposed rule as required under Executive Order 13563 \25\ and
    the retrospective review for ex post evaluation.
    ---------------------------------------------------------------------------
        \24\ 80 FR 51368.
        \25\ EO No. 13563, Improving Regulation and Regulatory Review, 76
    FR 3821 (2011).
    ---------------------------------------------------------------------------
        The ex post evaluation under the retrospective review is essential
    to gauge whether the proposed rule was ``designed and written in ways
    that facilitate evaluation of their consequences and thus promote
    retrospective analyses and measurement of `actual results.' '' \26\ So
    we ask this Subcommittee to continue your work and oversight to ensure
    EPA identifies, articulates, and publishes the specific criteria it
    will use to analyze and measure the success of the proposed rule before
    taking any further action with this rulemaking.
    ---------------------------------------------------------------------------
        \26\ United States. Office of Management and Budget. Office of
    Information and Regulatory Affairs. Memorandum for the Heads of
    Executive Departments and Agencies: Retrospective Analysis of Existing
    Significant Regulations. By Cass Sunstein. April 25, 2011.
    ---------------------------------------------------------------------------
        In the preamble,\27\ EPA also referenced Executive Order 12866,\28\
    which requires ``[e]ach Agency shall identify the problem it intends to
    address (including, where applicable, the failures of private markets
    or public institutions that warrant new agency action) as well as
    assess the significance of that problem.'' \29\ EPA made several
    references to the time period that has elapsed since this rule was
    codified; however, a time interval, in and of itself, is not a sound
    justification for a proposed rulemaking and is not in compliance with
    the requirements laid out in any of the above referenced Executive
    Orders or the Agency's retrospective review standards. So we ask this
    Subcommittee to continue its work in ensuring EPA provides further
    explanation and specific information on the problem the Agency intends
    to address, as required under E.O. 12866.
    ---------------------------------------------------------------------------
        \27\ 80 FR 51399.
        \28\ 58 FR 51735.
        \29\ Id.
    ---------------------------------------------------------------------------
    Biotech NOI Proposal
        Another area in need of greater review and discussion is USDA's
    Animal & Plant Health Inspection Service's (APHIS) Notice of Intent
    (NOI) to update Section 340 of the Plant Protection Act, published in
    conjunction with EPA and the U.S. Food and Drug Administration (FDA)
    this past February.
        This NOI outlined alternatives that could change how the agencies
    regulate new breeding techniques and genetic material. The alternatives
    considered could vastly expand regulatory authority, giving APHIS the
    ability to more intensively regulate all but the most traditional of
    breeding techniques--both cutting edge techniques as well as generally
    accepted technologies used for decades.
        States support our Federal agency partners' willingness to revisit,
    revise, and improve Federal regulations to better reflect modern
    technologies and to facilitate an informed and efficient regulatory
    framework that enables producers and other agricultural stakeholders to
    continue to produce our nation's food, fiber, and fuel in a
    collaborative and productive manner. And we appreciate USDA recognizing
    the need to improve the current 7 CFR part 340 regulations. However,
    there are concerns the potential impacts, benefits, and/or unintended
    consequences of several alternatives put forward under the current NOI
    have not been adequately reviewed or explored by the state regulatory
    agencies or the agricultural community.
        One unclear aspect is how the proposal will distinguish between a
    new variety produced from different breeding techniques with the same
    end result. For example, traditional cross breeding and newer breeding
    techniques like gene editing can achieve identical results for disease
    resistance, drought tolerance, etc. The resulting new varieties from
    each process could be indistinguishable from one another with no
    possible test to identify which variety was produced using which
    process, requiring regulatory authorities to rely instead on breeder
    disclosure. Yet, under the proposed framework, one of these breeding
    techniques--gene editing--would be regulated while the other--
    traditional cross breeding--would not.
        We are concerned with any proposed revisions to Part 340 that may
    be inconsistent with the spirit and intent of the Coordinated Framework
    or the long-standing, scientific-sound advances demonstrated by more
    over than a century of developing improved and safe adapted plant
    varieties. One such departure from this longstanding framework and body
    of work is the proposed working definition for ``biotechnology'' in the
    NOI that goes far beyond the current regulations and focuses on the
    ``process'' by which a new plant variety is developed. If applied to
    Part 340, the proposed definition would require pre-market regulatory
    review of many modifications that could be achieved through
    conventional breeding, and this possible regulatory expansion would go
    beyond the scope and authority of the Coordinated Framework, APHIS's
    regulatory authority, and the science-based risk perspective.
        Furthermore, any future proposed rule should ensure a risk-based,
    transparent, and predictable regulatory framework, and APHIS's
    regulatory oversight must be limited to transgenic products that pose a
    plant pest risk. Plant breeding techniques that do not introduce genes
    from other species--techniques such as gene editing and cisgenics--
    should not be regulated under APHIS's regulatory framework.
        Given the regulatory complexity and the potential implications the
    proposed alternatives may raise throughout domestic and international
    markets, I caution against embarking upon any comprehensive program
    changes that have not been adequately explored or vetted. An enhanced
    consultation process will enable APHIS to improve its pre-market
    agricultural biotechnology regulatory system by identifying strategic
    and actionable solutions to address specific challenges and process
    improvements.
        We want this Subcommittee to be aware that the states are
    encouraging USDA to undertake a more thorough and robust review, in
    conjunction and consultation with partner agencies responsible for
    regulating products of biotechnology and the agricultural community, to
    enhance continued alignment, agency roles and responsibilities, and
    improve communication between the Federal, state, and agricultural
    stakeholders.
        While the current regulatory process is not perfect, it has
    operated successfully for decades without adverse plant health impacts
    to U.S. agriculture. So, prior to publication of a proposed rule, we
    are requesting USDA continue to work with the State Departments of
    Agriculture, growers, producers, scientific experts, and the regulated
    community to execute a more robust review of the alternatives
    considered under the current NOI and identify specific modifications to
    enhance or supplement the proposed alternatives through improving
    clarity, transparency, regulatory predictability, and ease of
    implementation.
        We see a clear and identifiable need for the agencies involved to
    conduct a thorough economic impact analysis and comprehensive cost-
    benefit analysis to better understand the potential impacts these
    proposed alternatives may have on the rural economy and our producers
    before proceeding further in this process. I believe an enhanced review
    process with the state regulatory agencies and the agricultural
    stakeholder community will result in greater understanding of the
    proposed changes, enhance communication and collaboration among
    partners, and facilitate greater support for future implementation
    proposals.
    Ag Labor & H-2A Program
        Due to New Mexico's geographic and demographic composition, our
    producers are not actively involved with the Department of Labor's
    (DOL) H-2A program, but I hear from a number of my colleagues across
    the country that there are significant processing delays with the H-2A
    program. As the Secretary of Agriculture in New Mexico, I have engaged
    with the NASDA membership to discuss these concerns with DOL, and we
    continue to work with the producers across the country to identify
    solutions to these challenges.
        The H-2A Temporary Agricultural Program is run through DOL and
    includes processing components from the U.S. Citizenship and
    Immigration Services (USCIS) and the Department of State. DOL has a
    statutory obligation (8 U.S.C. 1188(b)) to certify applications for
    workers no later than 30 days prior to the date of need, and if the
    application fails to meet certification requirements (if there is
    missing data) an employer must be notified within 7 days of the date of
    filing. January through March is the peak time for DOL to receive
    applications for the H-2A program. In this peak time in 2016, DOL has
    received a 12% increase in applications over last year. Overall, the
    program has seen an 85% increase in requests over the last 5 years.
        Currently, farmers and ranchers across the country are reporting
    delays between 20 to 40 days from the point they needed to receive
    their workers. Depending on the geographical location and crop
    production activity, producers may have a very short harvest window
    when they need H-2A labor. If these workers arrive late due to
    processing issues from DOL or USCIS, the grower is left with a reduced
    crop or no crop at all.
        DOL says these delays result from a lack of resources or processing
    issues from USCIS and State. These agencies need to work together to
    streamline their resources, solve this backlog and communicate the
    status of their review to growers in a timely and transparent manner.
    Without a solution to the Federal processing activities, farmers
    continue to face a pending crisis and a lack of ability to bring their
    crops to market.
        Farmers and ranchers across the country deserve better, and the
    consumers across the world will endure serious economic hardship as the
    cost of their food will continue to rise. We ask this Subcommittee to
    continue your critical engagement on this matter, and we stand ready to
    assist our Federal partners in reducing the economic hardship and
    uncertainty the current H-2A administrative process creates.
    Food Safety Modernization Act
        The Food Safety Modernization Act (FSMA), which was passed by
    Congress in 2010, is a massive overhaul of food safety authority which
    gives the U.S. Food and Drug Administration (FDA) authority to regulate
    growers and animal food producers for the first time. It also requires
    foreign producers to meet the same standards, codifies additional
    practices regarding processed foods, and establishes transportation and
    intentional adulteration rules. While NASDA has long maintained support
    for the concepts of FSMA, we have concurrently maintained the need for
    FDA to get the rules right and the need for Congress to fund the
    implementation--especially the need for support for state partnerships.
        NASDA has a robust and collaborative relationship with our partners
    at FDA and we appreciate the intense engagement FDA has undertaken with
    NASDA and state agencies. This change from reacting to contaminants to
    a preventative approach will require a significant cultural change at
    FDA and is not without its challenges. If the rules are too restrictive
    or the administration of the programs lack an understanding of farming,
    we risk upsetting the delicate balance between food security and food
    safety, as well as losing access to nutritious, high-quality fruits and
    vegetables.
        NASDA continues to work with FDA regarding the right balance on
    water policy. We do not believe the consequences of FDA's policy have
    yet been fully realized by FDA and this remains a problem area that
    needs to be resolved. NASDA will continue to engage with FDA to find
    alternate means to achieve the same level of public health protection
    as provided by the published criteria.
        While FDA has significant experience with regulating manufactured
    food facilities, State Departments of Agriculture bring additional
    needed expertise to the new regulatory framework under FSMA. Farms are
    not factories, and an understanding of farming will help to assure we
    have high-quality, wholesome food available that is safe. For example,
    FDA uses the development of guidance as a means to further explain/
    describe the requirements of rules. If farmers are going to know what
    to do in order to comply, they will need to understand the nuances of
    guidance and what is expected of them. If this is to work, the states
    must have a seat at the table assisting in the development of
    guidance--another area NASDA is working hard to assure.
        NASDA continues to stress that in order for prevention--as a
    policy--to be achieved we must approach FSMA via an ``educate before
    and while you regulate'' strategy. This will require a long-term
    commitment to continuing education as the backbone of the nation's food
    safety program.
        NASDA believes the most effective way to achieve compliance--and
    reach food safety goals more quickly--is the On-Farm Readiness Reviews
    (OFRR) program. This program is being developed to be provided
    voluntarily, after interested farmers have attended an education
    program. It is intended to be non-regulatory, instructional and
    systematic. While FDA is supportive of this concept and program, OFRR
    must be a long-term goal of the program and funded long-term.
        NASDA appreciates the investment in food safety Congress made in
    the FY16 omnibus bill by increasing funding for FSMA by $104.5 million.
    While this is a substantial down payment, more will be needed in the
    long run. For example, FDA recently announced $19 million in base
    funding for state programs for the Produce Safety rule implementation.
    However, if all 50 states apply for this base funding, over $28 million
    will be needed just for this initial program development. Further,
    NASDA estimates full funding--including a base to operate a program and
    additional funds to fund education, inspections, compliance actions,
    laboratory activities, etc.--will cost at least $40M per year. With the
    expanded involvement by states in the implementation of all three major
    FSMA rules (Produce, Human Food, and Animal Food Safety) we estimate a
    total of $100M annually for the state program needs.
        No testimony on FSMA is complete without mentioning the need for
    concurrent implementation of the same requirements for imported food.
    NASDA requests that Congress ensure FDA is meeting the requirements
    outlined by the legislation regarding imported foods and achieving a
    balanced approach to regulating imported and domestic food.
        While the actual costs to farmers to implement FSMA are still very
    much unknown, they will be significant. Some estimates put the cost to
    comply between $4,700 (for farms with sales from $25,000 up to
    $250,000) and $30,500 (for farms with sales above $500,000) per year.
    Though, these costs could go much higher. For example, estimates by
    some farmers on the costs for them to comply with the produce safety
    rule's water quality standards could reach as high as $65,000 per year
    for some farms in North Carolina and over $100,000 in Florida.
        This uncertainty and estimated cost of compliance has already
    directly impacted producers, and I am familiar with a number of
    producers in New Mexico, who previously grew crops specifically for
    direct sales to consumers, that have since shifted their production to
    other, non-FSMA crops. The true economic impact on rural America is
    difficult, if not impossible, to quantify. But we know the consequences
    of this rulemaking will be far greater than the direct cost of
    compliance to our producers and will impact the availability of locally
    grown, fresh vegetables and produce across the county.
        Finally, this Committee should begin examining potential
    opportunities in the next farm bill to provide agriculture producers
    with programs to help meet FSMA's goals. While it is still early in the
    process, low-cost loan guarantee programs, rural development programs--
    perhaps aimed at infrastructure--and other Farm Service Agency or Risk
    Management Agency programs could be helpful options to consider.
        The good news is there are solutions to all of these challenges.
    Solutions
        All of these uninformed or misguided regulatory initiatives place
    undue burdens on our agricultural producers, and all of these
    challenges stem from: (1) the lack of consultation with state
    regulatory agency partners; and (2) a lack of compliance with
    controlling statutes, such as FIFRA and the APA.
        State Departments of Agriculture are co-regulators with EPA, USDA,
    FDA, and other Federal agencies over significant aspects of the U.S.
    agricultural industry, and we are partners on numerous Federal
    programs, such as the SCBG program. We have a particular interest in
    our Federal partners' efforts related to reducing regulatory burdens,
    especially with respect to increased flexibility to state regulatory
    partners.
        Last year, NASDA participated in a series of meetings with other
    associations representing state and local government hosted by Shaun
    Donovan, Director of the White House Office of Management and Budget
    (OMB) and Howard Shelanksi, Administrator of OMB's Office of
    Information and Regulatory Affairs. These discussions focused on the
    Administration's efforts around improving regulatory processes and
    improving retrospective regulatory review.
        As we articulated in those discussions, there are several specific
    and actionable deliverables our Federal agency partners and the
    Administration should consider that will result in a more informed,
    applicable, and consistent regulatory framework that both provides the
    necessary regulatory protections and minimizes the impact and
    regulatory burden on both state governments and our agricultural
    producers.
        Those recommendations include:

      1.  Enhance Federalism Consultations: Federal agencies should conduct
                robust federalism consultations early in the regulatory
                process, and include participation of a wide range of state
                regulatory agencies, including State Departments of
                Agriculture. These consultations should occur prior to
                publication of a proposed rule. Throughout this process, it
                is important to emphasize state regulatory agencies are not
                simply stakeholders, but are instead partners with Federal
                agencies in the implementation of a host of programs.
                States can--and should--be used more as resources for
                Federal agencies. Often states have a wealth of data,
                experience, and expertise that would help Federal agencies
                better develop and implement regulatory programs.

      2.  Improve economic analyses that more realistically account for
                economic costs to states: Federal agencies should engage
                state regulatory agencies and stakeholders to evaluate
                proposed regulations, availability of required resources,
                and whether expected outcomes merit those expenditures.

      3.  Enhance public participation and greater transparency of the
                regulatory process: Federal agencies should improve public
                participation and increase transparency of the regulatory
                process.

      4.  Incorporate flexibility in regulatory programs: Federal agencies
                should engage state regulatory partners in creating
                programs that may provide local and state flexibility. We
                continue to encourage our Federal partners to look for ways
                to engage state agencies in creating programs to provide
                additional flexibility--especially when the alternative may
                be an undue regulatory burden on the regulated community.
                Such consultation and robust outreach will facilitate
                recognition of state equivalency regulatory programs and
                prevent duplicative regulatory layers.

      5.  Renew focus on utilization of best available science: Regulations
                must be based on the best available, sound, validated, and
                peer-reviewed science and rely on science-based risk
                assessments. Moreover, regulatory agencies must ensure
                policymakers do not misuse or inappropriately apply
                invalidated or unrelated scientific findings to policy
                determinations. We especially appreciate the work the
                Office of Pest Management Policy (OPMP) executes to ensure
                policy or regulatory initiatives are based on
                scientifically sound positions. OPMP is an invaluable
                resource and advocate for including sound science in the
                development of regulatory actions impacting agriculture,
                and we encourage increased support for OPMP's activities,
                as well as ensuring OPMP's perspectives are advanced in the
                interagency review process.

      6.  Improve stakeholder outreach, especially to rural communities:
                Federal agencies should enhance educational and outreach
                efforts to rural communities and provide teleconference
                access for oral comments, which can be submitted in the
                docket and become part of the official record.
    Conclusion
        State Departments of Agriculture play a critical role in carrying
    out the regulatory programs impacting our agricultural producers. We
    serve as both enforcement agents and ambassadors to our agricultural
    producers, and at a minimum, we have a responsibility and an obligation
    to fulfill the spirit and intent of the statutes, programs, and
    Executive Orders controlling and directing that regulatory development
    process.
        It is essential for our Federal partners to utilize the expertise
    of the states and the producers in those states to inform, develop, and
    implement a scientifically sound, consistent, and transparent
    regulatory framework to ensure our producers are able to continue to
    produce the food, fiber, and fuel our country and much of the world
    depends upon.
        Before I conclude my remarks, I want to offer a solution and point
    out a constant theme all of my colleagues as Secretaries, Directors and
    Commissioner of State Departments of Agriculture discuss throughout the
    country and that is the need to ``Educate before you Regulate.'' We
    have renewed opportunity to ensure true Federal-state partnerships. The
    70th anniversary of the Administrative Procedure Act on June 11th is an
    opportunity to re-educate our Federal partners on both their statutory
    obligations under the APA as well as the ``spirit and intent'' of the
    Federal-state partnership.
        I appreciate the opportunity to testify before you today, and I
    welcome any questions you may have.

        The Chairman. You even had 21 seconds left. It is great.
    Please make sure you harass my Secretary of Agriculture,
    Secretary Poe from Illinois, any chance you can. He is a good
    friend and doing a great job.
        Our next witness is Ms. Maureen Torrey, Vice President of
    Torrey Farms, Incorporated, Elba, New York, on behalf of the
    United Fresh Produce Association. Ms. Torrey, please proceed.

     STATEMENT OF MAUREEN J. TORREY, VICE PRESIDENT, TORREY FARMS,
     INC., ELBA, NY; ON BEHALF OF UNITED FRESH PRODUCE ASSOCIATION

        Ms. Torrey. Thank you, Subcommittee Chairman Davis and
    Ranking Member DelBene, for the opportunity to testify before
    the Committee today. I appreciate being able to provide my
    perspective as a fresh produce provider.
        While the list of factors that can make the difference
    between a profit and loss is long, I will only share a few.
        First, a little information about Torrey Farms and my
    background. I am an 11th generation farmer in this country. Our
    farm is located in Elba, New York. My brothers, longtime farm
    employees, and I have grown the farm from about 200 acres in
    the late 1970s to a 15,000 acre diverse farm operation from
    fresh market vegetables, processing vegetables, grain, and
    dairy, including a trucking company. We also feel very
    fortunate that the 12th generation and many young people have
    elected to return to our family farm and we are able to provide
    much-needed jobs in our rural community. Our main vegetable
    commodities that we grow and pack year round include cabbage,
    potatoes and onions. We have a summer season of cucumbers,
    squash, green beans, carrots, just to name a few.
        I am also speaking to you as a member of the United Fresh
    Produce Association. As you know, United Fresh is the only
    trade association that represents all segments of the fresh
    fruit and vegetable production chain across the United States.
    I served as Chairman of the Board of Directors in 2006 and
    continue to work on the Government Relations and other
    committees.
        As a member of the specialty crop industry, and as a
    participant in the Federal Government agriculture guest worker
    H-2A program, any summary of the factors impacting the cost of
    production must include an examination of labor issues, as
    labor is our No. 1 cost in our specialty crops and No. 2 in our
    dairy operation. I know that immigration issues are not under
    the parliamentary jurisdiction of this Committee. However,
    America's farmers are greatly affected by the fact that our
    immigration process, including the H-2A program, is badly in
    need of repair, if not complete reform. However, Congress has
    refused to act on much-needed immigration reform that could
    help growers meet their labor needs. So growers are turning
    increasingly to the H-2A program, and recent estimates indicate
    that nearly 8,000 individual employers will hire H-2A workers
    and this number will double, probably within the next 2 to 5
    years. These are not only farms needing many H-2A workers, but
    in the case in New York State, the majority of the farms
    applying for H-2A are only two to four workers. We also need
    our workers for 12 months a year on our farms.
        But the H-2A system barely works for the current level.
    There have been delays in processing the required paperwork at
    key government agencies. The Department of Labor national
    processing center in Chicago and the staff at USCIS have
    reported to Congressional staff that their visa processing is
    taking about 30 days instead of the previous 10 to 15 days. As
    you know, we need our help when we need it in our specialty
    crops. You know we only have a certain amount of time to make
    our crop. Currently at our farm, we were 28 days late in
    getting our workers to plant our onions, which need to be
    finished by May 15th to make our crop for this year.
        This is why United Fresh and counterpart agriculture
    organizations in the Agriculture Workforce Coalition are
    working together to identify and advocate for improvements to
    the H-2A program. I strongly urge the Members of this Committee
    to work with your colleagues to achieve sensible regulatory
    relief.
        Food safety is a crucial issue to the fruit and vegetable
    produce industry too, and we have been working closely with the
    FDA on the Food Safety Modernization Act and will continue to
    work with them as we help with some of the dilemmas and some of
    the interpretations. United Fresh is also the coordinating body
    of the Specialty Farm Alliance Bill, a coalition of over 120
    specialty crop organizations who worked with this Committee in
    the 2014 Farm Bill and were able to produce a lot of things
    that helped our industry greatly, and we look forward to
    working with this Committee again in the coming year.
        I offer support for the efforts of my fellow witnesses and
    colleagues in agriculture to raise awareness with the troubling
    direction the Environmental Protection Agency seems to be
    taking in respect to regulating crop production products. These
    products are essential to the safe and efficient production of
    food and fiber crops and to Integrated Pest Management programs
    regularly used in sustainable farming practices.
        Last, increasing regulations and reporting in all areas of
    farming has taken us away from what we do best: farming, to
    hours and days of constant interpretation of new regulations,
    paperwork and audits.
        I have just given you a few examples of the things that are
    impacting the cost of production, and I appreciate what all the
    Members of this Committee have done to promote agriculture and
    defend farmers' efforts to feed America and the world. Thank
    you again for this opportunity, and I and United Fresh look
    forward to working with you, and I am happy to answer your
    questions.
        [The prepared statement of Ms. Torrey follows:]

    Prepared Statement of Maureen J. Torrey, Vice President, Torrey Farms,
         Inc., Elba, NY; on Behalf of United Fresh Produce Association
        Thank you, Subcommittee Chairman Davis and Ranking Member DelBene,
    for the opportunity to testify before the Biotechnology, Horticulture
    and Research Subcommittee on the topic of Focus on the Farm Economy:
    Factors Impacting Cost of Production. I appreciate being able to
    provide my perspective as a fresh produce provider. While the list of
    factors that can make the difference between a profit and a loss is
    long, I am happy to elaborate on a few in particular, including Federal
    policies that enhance specialty crop production as well as those that
    can be a hindrance.
        First a little information about Torrey Farms. I am an 11th
    generation farmer in the United States with our operation located in
    Elba, New York. My brothers, longtime farm employees and I have grown
    the farm from over 200 acres in the 1970's to a 15,000 acre diverse
    farm operation from fresh market and processing vegetables, grain, and
    dairy to a trucking company. We also feel very fortunate that the 12th
    generation have returned to the family farm and we are able to provide
    much needed employment in our rural community. The vegetable
    commodities that we grow and pack year-round include cabbage, potatoes
    and onions. We have a summer season of cucumbers, squash, green beans,
    carrots, miniature pumpkins and winter squash.
        I am also speaking to you as a member of the United Fresh Produce
    Association. As you may know, United Fresh is the only trade
    association that represents all segments of the fresh fruit and
    vegetable production chain across the United States. I was pleased to
    serve as the Chairman of the Board of Directors of United Fresh in 2006
    and I continue to serve as a member of United Fresh's Government
    Relations Council. I am also a member of key working groups United
    Fresh has established to address Food Safety Modernization Act (FSMA)
    regulations.
        As a member of the specialty crop industry and as a participant in
    the Federal Government's agriculture guestworker program, known as H-
    2A, I have to say that any summary of the factors most impacting the
    cost of production must include an examination of labor issues, as
    labor is our No. 1 cost in our specialty crops and No. 2 in our dairy
    operation. I know that immigration issues are not under the
    parliamentary jurisdiction of this Committee. However, America's
    farmers are greatly affected by the fact that our immigration process,
    including the H-2A program, is badly in need of repair, if not complete
    reform. However, Congress has refused to act on much-needed immigration
    reform that could help growers meet their labor needs. So with no real
    reform in sight, growers are turning increasingly to the H-2A program,
    which means that an already faulty system will be burdened even
    further. Recent estimates indicate that nearly 8,000 individual
    employers hire H-2A workers and there are estimates that number could
    double within the next 5 years, possibly sooner. These are not only
    farms needing many H-2A workers, but as is the case in New York State,
    the majority of the farms applying only need two to four workers.
        They also need workers for 12 months on their farms.
        But the system barely works for the current level of usage. There
    have been delays in the processing of required paperwork at key
    government agencies. For example, the Department of Labor national
    processing center in Chicago and staff at USCIS have reported to
    Congressional staff that their visa processing is taking 30 days
    instead of the previous 10 to 15 days. It should go without saying that
    because of the highly time-sensitive nature of bringing a fruit or
    vegetable crop to the marketplace, a delay of even a few days in
    getting an adequate labor force can make all the difference between a
    producer getting a decent return on his or her investment in that crop
    or taking a total loss. Specialty crops have short windows of
    opportunity to ``make'' your crop. Currently, we are 28 days late in
    getting our workers to plant our onions which need to be finished by
    May 15th to make our crop.
        That is why United Fresh and counterpart agriculture organizations
    in the Agriculture Workforce Coalition (AWC) are working together to
    identify and advocate for improvements to the H-2A system. I strongly
    urge the Members of this Subcommittee to work with your colleagues to
    achieve sensible regulatory relief for producers who need this program.
        For fruit and vegetable providers whose commodities go straight to
    consumers, food safety is a crucial issue. As the Members of the
    Subcommittee are aware, FDA and the fresh produce industry have been
    working closely on the implementation of the Food Safety Modernization
    Act (FSMA).
        Thus far in the implementation process, FDA has shown a willingness
    to work with the industry and to be transparent about the agency's
    implementation activities. However, there are some remaining
    implementation issues that could have significant ramifications.
        For example, one of the unintended effects of the FSMA legislation
    itself has created a conundrum for FDA in regulating identical
    facilities that pack or handle raw agricultural commodities sometimes
    under the Produce Safety Rule (PS) and sometimes under the Preventive
    Controls (PC) Rule. As FDA has struggled with trying to write science-
    based regulations, the Agency has formulated a strained bifurcation of
    facilities as either on-farm or as secondary activities farms. Although
    identical facilities as far as food safety risks, ``on-farm''
    facilities fall under the PS Rule while most ``off-farm'' facilities
    fall under the PC Rule. United Fresh estimates that nearly 5,000
    facilities across the country fall into this latter category, requiring
    a vastly different regulatory structure under the PC Rule.
        Under United Fresh's coordination, 22 leading produce organizations
    recently wrote to FDA regarding concerns about such regulatory
    complications and requesting further dialogue with the agency to
    clarify this issue.
        As Members of the Subcommittee may be aware, United Fresh is the
    coordinating body of the Specialty Crop Farm Bill Alliance, a coalition
    of over 120 specialty crop organizations. For each successive farm
    bill, the Alliance has provided a set of recommendations about how
    those programs could maximize the ability of specialty crop producers
    to be successful. The Alliance is grateful that in the 2014 Farm Bill
    this Committee acted on our recommendations, which our industry
    believes are sound policies that will enhance our ability to meet
    America's nutritional needs.
        Briefly, a few highlights of the 2014 Farm Bill that enhance the
    work of specialty crop providers include:

       $80 million a year for the Specialty Crop Research
            Initiative for industry-specific research;

       $75 million a year for the Plant Pest and Disease Program to
            eradicate harmful pests and diseases; [and]

       $85 million per year for the Specialty Crop Block Grant
            program, including a multi-state program.

        In many instances these programs provide services and resources
    that growers are not always able to get on their own. For example,
    since 2008, the Clean Plant Network has provided nearly $30,000,000 in
    support of 35 initiatives in the critical mission of providing clean
    planting stock which is essential to preventing highly dangerous pests
    and pathogens from destroying crops. Another example is the language in
    the 2014 Farm Bill providing for a multi-state program in the Specialty
    Crop Block Grant program that allows for the kind of regional response
    to threats such as plant disease that farmers cannot do individually.
        I want to offer support for efforts of my fellow witnesses and
    colleagues in agriculture to raise awareness about the troubling
    direction the Environmental Protection Agency seems to be taking with
    respect to regulating crop protection products. These products are
    essential to the safe and efficient production of food and fiber crops
    and to IPM (Integrated Pest Management) programs regularly used in
    sustainable farming practices for successful implementation of IPM on
    all farms. I urge the Members of this Subcommittee to work with your
    colleagues to keep these resources available to producers.
        Last, increasing regulations and reporting in all areas of farming
    has taken us away from what we do best: farming, to hours and days of
    constant interpretation of new regulations, paperwork and audits.
        As I indicated at the beginning of my remarks, these are just a
    small sampling of the issues that have a significant effect on the
    ability of producers to stay in business and contribute to their local
    economies. We appreciate all that the Members of this Committee have
    done to promote agriculture and defend farmers' efforts to feed America
    and the world. Thank you again for this opportunity, I and United Fresh
    look forward to working with you and I am happy to answer your
    questions.

        The Chairman. Thank you, Ms. Torrey.
        I now would like to recognize my colleague from the great
    State of Washington, Mr. Newhouse, to introduce our next
    witness.
        Mr. Newhouse. Thank you, Chairman Davis and Ranking Member
    DelBene.
        The Chairman. Washington.
        Mr. Newhouse. Go, Washington.
        First of all, I would like to thank you for holding this
    hearing. As one of Congress's few active farmers, we don't have
    control of a lot of factors that impact our ability to make a
    living including Mother Nature and markets and those things.
    However, we do as Congress and as individuals have some ability
    to affect other factors that influence the cost of production.
    So I certainly appreciate delving into this subject today.
        I am also delighted to be able to introduce someone that
    for years has been an important figure to agriculture in the
    State of Washington. Ms. Kate Woods, who is now the Vice
    President of the Northwest Horticultural Council, hails from
    her family's cattle ranch in Centerville, Washington, which I
    am sure you have all heard of, but if you haven't, it is a
    suburb of the large metropolis of Goldendale, Washington. For
    over 10 years, Kate worked as my predecessor's legislative
    director and handled agricultural issues for him. She now works
    hard to represent tree fruit farmers and packers throughout the
    Pacific Northwest. There are few people in our state or region
    who have the depth and diverse understanding of agricultural
    issues as Kate does, and so Ms. Woods, it is my distinct
    pleasure to welcome you here today. It may be your first time
    on that side of the table, and we look forward to your
    insightful testimony.

          STATEMENT OF KATE WOODS, VICE PRESIDENT, NORTHWEST
                   HORTICULTURAL COUNCIL, YAKIMA, WA

        Ms. Woods. Well, thank you very much, Congressman. I
    certainly appreciate that introduction. And thank you, Chairman
    Davis and Ranking Member DelBene, for the opportunity to
    testify before the Subcommittee today on factors impacting the
    cost of farm production.
        I work for the Northwest Horticultural Council, which
    represents apple, pear and cherry growers, packers, and
    shippers in Idaho, Oregon and Washington on Federal and
    international policy and regulatory issues.
        Our family-owned orchards provide approximately 66 percent
    of the apples, 75 percent of the pears, and 80 percent of the
    sweet cherries grown in the United States. There is no question
    government regulations have had an increasingly significant
    impact on our members in recent years.
        There are a numbers of issues I could highlight, some of
    which I have included in my written testimony today, but I
    would like to focus on a new challenge facing our industry: the
    implementation of the Food Safety Modernization Act. Under this
    law, FDA will regulate on-farm practices for the first time,
    and the number of prescriptive Federal mandates on produce
    packing houses will be increased to an unprecedented level. Six
    of the seven regulations implementing FSMA have been released
    in final form. Today I would like to address the two that will
    most greatly impact the tree fruit industry: the Standards for
    the Growing, Harvesting, Packing and Holding of Produce for
    Human Consumption, or the Produce Safety Rule, and the more
    processor-oriented Current Good Manufacturing Practices and
    Hazard Analysis and Risk-Based Preventive Controls for Human
    Food, or the Preventative Controls for Human Food Rule.
        Let me begin by saying that providing a safe, high-quality
    and healthful product to consumers is the highest priority for
    our members. Not only do their businesses depend on it but our
    growers themselves and their families eat the harvested fruit
    of their orchards. However, these rules coming in at 801 pages
    and 930 pages, respectively, are daunting and confusing. For
    example, while orchards clearly fall under the Produce Safety
    Rule, packing houses and storage facilities must either follow
    the Produce Safety Rule or the Preventive Controls for Human
    Food Rule, which is written for processing facilities. This is
    dependent on a vague farm definition based on ownership
    structure and location, not risk. FDA has acknowledged
    industry's concerns with requiring facilities that perform the
    same operations to follow one of two very different rules, and
    as indicated, intends to enforce the Preventive Control for
    Human Foods Rule on these facilities in a way that is
    consistent as possible as what will be required under the
    Produce Safety Rule.
        However, with less than 5 months before the Preventive
    Controls for Human Food Rule is implemented in September, the
    guidance promised by FDA on what packing houses will actually
    be required to do has yet to be released. Curriculum developed
    to comply with training requirements in the rule does not
    address the reality of packing house operations, and
    individuals with decades of food safety experience within the
    industry and who therefore would be the most likely to be able
    to explain how the rule should be implemented. Produce packing
    operations are being turned away as trainers because they do
    not have a degree in education or science. Questions submitted
    to FDA's Technical Assistance Network on issues as basic as
    which rule a facility falls under is being answered months
    later with a non-answer of, ``Your question will be addressed
    in guidance.'' If you think this sounds confusing, imagine how
    packing house operators are currently feeling.
        Confusion also abounds regarding the Produce Safety Rule.
    For example, the rule requires growers to conduct a certain
    number of tests for each water source but fails to define what
    ``each water source'' means or where within the water system
    growers are expected to collect a sample. While this rule will
    not begin taking effect until 2018, guidance and training is
    needed as soon as possible for several reasons. First of all,
    the rule requires the growers to establish a microbial water
    quality profile prior to the rule's enforcement date by
    conducting 20 tests at or near harvest over a period of 2 to 4
    years. Should growers wish to take advantage of the full 2 to 4
    year period to take these tests, they would need to start
    testing in 2016. In the case of cherries, these tests would
    need to begin only a few weeks from now.
        Second, many private food safety audit schemes our growers
    and packers must comply with as required by retailers are
    already beginning to incorporate the Produce Safety Rule
    requirements into their programs. Essentially, this rule is now
    considered by the private marketplace to be the baseline food
    safety standard for produce and growers and packers will be
    required by their customers to comply long before the dates
    outlined in the rule.
        Third, the rule is long and complex. Our growers and
    packers will need time to understand its requirements and make
    the necessary changes to their operations. The bottom line is
    that our growers and packers need guidance, education and
    answers as soon as possible in order to have any chance of
    complying with these costly and confusing regulations, which
    are currently the law of the land in the timeline provided.
        Once again, thank you for the opportunity to testify today,
    and I'll be happy to answer any questions you have.
        [The prepared statement of Ms. Woods follows:]

          Prepared Statement of Kate Woods, Vice President, Northwest
                       Horticultural Council, Yakima, WA
        Thank you Chairman Davis and Ranking Member DelBene for the
    opportunity to testify before the Subcommittee today on factors
    impacting the cost of farm production. I work for the Northwest
    Horticultural Council, which represents apple, pear, and cherry
    growers, packers, and shippers in Idaho, Oregon, and Washington, on
    Federal and international policy and regulatory issues.
        Our family-owned orchards provide approximately 66 percent of the
    apples, 75 percent of the pears, and 80 percent of the sweet cherries
    grown in the United States. Export markets are critical to our growers,
    with approximately \1/3\ of the crop exported each year.
        There is no question that government policies and regulations have
    had an increasingly significant impact on our growers and packers in
    recent years. On the positive side, USDA's Market Access Program has
    played an invaluable role in leveraging grower dollars to increase
    access to foreign markets for all three of the crops we represent. The
    Agricultural Research Service and grants provided through the Specialty
    Crop Research Initiative and Specialty Crop Block Grant program are key
    to addressing production challenges ranging from pest and disease
    management to enhancing food safety.
        On the negative side, it is becoming more and more difficult to
    find the workers necessary to grow, harvest, and pack the crop. The
    continued delays in processing H-2A visa applications by the U.S.
    Department of Labor are disastrous for perishable tree fruit, where
    every day can mean a significant drop in fruit quality. This burdensome
    program is not meeting the needs of our growers and packers--we need a
    guestworker program that is affordable, reliable, and reasonable, and
    that provides a pathway to legal status for the current workforce so
    that this expertise is not lost.
        The continued decline in access to crop protection tools needed for
    pest and disease control is also having a significant adverse impact on
    our growers, which I'm sure will also be discussed by the other
    witnesses testifying before you today.
        I would like to focus my testimony on a new set of challenges that
    is facing our industry: the implementation of the Food Safety
    Modernization Act (FSMA). Under this law, FDA will regulate on-farm
    practices for the first time, and the number of prescriptive Federal
    mandates on produce packinghouses will be increased to an unprecedented
    level.
        Six of the seven regulations implementing FSMA have been released
    in final form. Today, I would like to address the two rules that will
    most greatly impact the tree fruit industry--the ``Standards for the
    Growing, Harvesting, Packing, and Holding of Produce for Human
    Consumption,'' (Produce Safety Rule), and the more processor-oriented
    ``Current Good Manufacturing Practices and Hazard Analysis and Risk-
    Based Preventive Controls for Human Food'' (Preventive Controls for
    Human Food rule).
        Let me begin by saying that providing a safe, high-quality, and
    healthful product to consumers is the highest priority for our members.
    Not only does their business depend on it, but our growers themselves
    and their families eat the harvested fruit of their orchards. However,
    these rules--coming in at 801 pages and 930 pages respectively--are
    daunting and confusing.
        For example, while orchards clearly fall under the Produce Safety
    rule, packinghouses and storage facilities must either follow the
    Produce Safety rule or the very different Preventive Controls for Human
    Food rule written for processing facilities. This is dependent on a
    vague farm definition based on ownership structure and location--not
    risk. FDA has acknowledged industry's concern with requiring facilities
    that perform the same operations to follow one of two different rules,
    and has indicated that it intends to enforce the Preventive Controls
    for Human Food rule on these facilities in a way that is as consistent
    as possible with what will be required under the Produce Safety rule.
        However, with less than 5 months before the Preventive Controls for
    Human Food rule is implemented in September, the guidance promised by
    FDA on what packinghouses will actually be required to do has yet to be
    released. Curriculum developed to comply with training requirements in
    the rule does not address the realities of packinghouse operations, and
    individuals with decades of food safety experience within the
    industry--and therefore who would be most likely to be able to explain
    how the rule should be implemented in produce packing operations--are
    being turned away as trainers because they do not have a degree in
    education or science. Questions submitted to FDA's ``Technical
    Assistance Network'' on issues as basic as which rule a facility falls
    under are being answered months later with the non-answer of ``your
    question will be addressed in guidance.''
        If you think this sounds confusing, imagine how packinghouse
    operators are currently feeling.
        Confusion also abounds regarding the Produce Safety rule. For
    example, the rule requires growers to conduct a certain number of tests
    for each water source, but fails to define what ``each water source''
    means, or where within the water system growers are expected to collect
    the sample.
        While this rule will not begin taking effect until 2018, guidance
    and training is needed as soon as possible for several reasons: first
    of all, the rule requires that growers establish a Microbial Water
    Quality Profile prior to the rule's enforcement date by conducting 20
    tests at or near harvest over a period of 2 to 4 years. Should growers
    wish to take advantage of spreading these costly tests over the full 4
    years, they would need to start testing in 2016. In the case of
    cherries, these tests would need to begin only a few weeks from now.
        Second, many private food safety audit schemes our growers and
    packers must comply with (as required by retailers) are already
    beginning to incorporate the Produce Safety rule requirements into
    their programs. Essentially, this rule is now considered by the private
    marketplace to be the baseline food safety standard for produce, and
    growers and packers will be required by their customers to comply long
    before the dates outlined in the rule.
        Third, the rule is long and complex, and growers and packers will
    need time to understand its requirements and make the necessary changes
    to their operations.
        The bottom line is that our growers and packers need guidance,
    education, and answers as soon as possible, in order to have any chance
    of complying with these costly and confusing regulations--which are now
    the law of the land--in the timeline provided.
        Once again, thank you for the opportunity to come before you today.
    I am happy to answer any questions the Subcommittee may have.

        The Chairman. Thank you, Ms. Woods. Now, you are a former
    staffer, right?
        Ms. Woods. Yes, I am.
        The Chairman. Is this your first time testifying in front
    of this----
        Ms. Woods. Yes, it is.
        The Chairman. How does it feel on the other side?
        Ms. Woods. It is a very different view.
        The Chairman. You can tell Doc Hastings he can still show
    his face around here once in a while. We miss seeing him.
        Ms. Woods. I will let him know that, sir.
        The Chairman. Not enough for him to come back. Welcome, and
    thank you for your testimony.
        Ms. Woods. Thank you very much.
        The Chairman. Up next, a gentleman, he and I have been on
    the same schedule--we were together yesterday and over the last
    few weeks--my good friend, the President of the Illinois Farm
    Bureau, Mr. Rich Guebert. Rich, go ahead and give your
    testimony.

            STATEMENT OF RICHARD L. GUEBERT, Jr., PRESIDENT,
    ILLINOIS FARM BUREAU; MEMBER, BOARD OF DIRECTORS, AMERICAN FARM
                   BUREAU FEDERATION, BLOOMINGTON, IL

        Mr. Guebert. Thank you, Chairman Davis, Ranking Member
    DelBene, and the Members of the Subcommittee. Thank you for the
    opportunity to provide testimony to you here today.
        I am President of the Illinois Farm Bureau and pleased to
    testify on behalf of both the Illinois Farm Bureau and the
    American Farm Bureau Federation. My wife, Nancy, and I along
    with our son, Kyle, operate a corn, soybeans and wheat farm in
    Randolph County.
        As we got down to planting corn last week and the week
    before, a number of thoughts came to mind, including the fact
    that we are planting a crop that will most likely return a
    price below the cost of production. I recently went back
    through our records, and a few things jumped out at me. In
    1985, it cost $110 in inputs for an acre of corn, not counting
    land costs. This year I estimate that could well be around $475
    per acre. Our seed costs averaged $72 for a bag of seed corn in
    1985, and this year it will average a little over $340 per bag.
    Nitrogen has increased from $150 to $625 a ton. While some
    things are better like interest rates and fuel prices, Illinois
    Farm Bureau farm management reports that over the past 4 years,
    farm income has dropped six percent per year while costs have
    fallen at \1/2\ that rate. In fact, indexed to inflation, the
    economic return for Illinois farmers after family expenses is
    currently at its lowest level since 1972.
        One thing hasn't changed: farming is still a risky
    business. To give you a personal example, we farm in the
    Mississippi River bottoms about 50 miles south of St. Louis,
    and in 1993, our family planted 1,750 acres of corn, soybeans
    and wheat, and later that year the devastating foods devastated
    our crops and we harvested only 17 acres that fall.
        It is tough to recover from something like that but
    frankly, programs like Federal crop insurance, commodity
    programs that are there to assist to recover from weather-
    related issues and disasters and multiple-year price declines,
    I can't imagine what farming, food production or food prices
    would be like in the absence of these essential programs.
        But I want to touch more broadly on the subject of the
    hearing and the factors of cost of production. Some of these
    are positive such as changes Congress has enacted affecting
    covered farm vehicles, improvements to our waterway systems,
    helpful improvements that will affect agriculture drivers and
    shippers. Others are works in progress like the new Food Safety
    Modernization Act regulation where we are hopeful Federal
    regulators would take into account agricultural needs. We also
    hope EPA will move forward with its pending proposal to extend
    Dicamba and Dicamba-tolerant soybeans and cotton, and we
    welcome EPA's support to state-managed pollinator protection
    plans like the one we are developing in Illinois which utilizes
    DriftWatch to help beekeepers and farmers communicate and
    cooperate more efficiently.
        Unfortunately, the list of things that increase our costs
    are even longer but there are a few at the top of the list that
    are most important and most urgent. After all the good work
    that this Committee did to past the Safe and Accurate Food
    Labeling Act, the Senate has refused to pass the bill. Farmers
    across the country and others are increasingly anxious about
    the impact of mandated Federal labeling of GMO foods. We hope
    you will talk to your Senate colleagues and urge them to pass
    this bill.
        The H-2A program is increasingly important to fruit and
    vegetable growers but it is an economic and bureaucratic
    nightmare for growers. Both the U.S. Department of Labor and
    the U.S. Citizenship and Immigration Services are causing
    unnecessary processing delays, and both agencies could make the
    program more efficient. They could start improving it now.
        Come this January, a new EPA rule will grant legal rights
    to anyone showing up at a farmgate claiming to be a designated
    representative of a worker from that farm. We thank the Members
    of the Committee for leading support of H.R. 897, a bill that
    would assure farmers that when they lawfully apply pesticides,
    they are not subject to Clean Water Act permit. Unfortunately,
    the Senate has failed to pass this bill but we are still
    looking for opportunities to enact it this year.
        EPA's new spill prevention rules will undoubtedly impose
    new costs on farmers and ranchers as they comply with the
    regulation containment and prevention requirements, and there
    are other issues as well. The Department of the Interior's
    Sage-Grouse Plan will undoubtedly affect farming and ranching
    operations out West, particularly for those ranchers with
    grazing allotments on public land.
        Mr. Chairman and Members of the Committee, I appreciate
    this opportunity to testify and to share with you some of the
    most pressing issues today facing farmers, and I am pleased to
    answer your questions. Thank you.
        [The prepared statement of Mr. Guebert follows:]

    Prepared Statement of Richard L. Guebert, Jr., President, Illinois Farm
     Bureau; Member, Board of Directors, American Farm Bureau Federation,
                                Bloomington, IL
        Chairman Davis, Ranking Member DelBene, and Members of the
    Subcommittee, thank you for this opportunity to provide testimony to
    the Subcommittee as you focus on the costs of agricultural production
    and factors that have an impact on those costs. My name is Richard
    Guebert, and I am President of the Illinois Farm Bureau. I am pleased
    to testify this morning on behalf of both Illinois Farm Bureau and the
    American Farm Bureau Federation.
        My wife, Nancy, and I with our son, Kyle, operate a corn, soybean
    and wheat farm in Randolph County. As we got down to planting corn last
    week, naturally lots of thoughts raced through my head, including the
    stark fact that we are planting a crop that will most likely return a
    price below our costs of production. Just in case, like any farmer I
    check the markets--regularly. At times when I'm ready to sell, I may
    check the markets 15 or 20 times a day.
        We're not alone. My neighbors and other farmers I represent across
    the state are faced with the same reality. Last year was a great
    production year in Illinois, but the dollar has been strong. Exports
    are down, and competitors in Brazil and Argentina seem lately to have
    the upper hand.
        As I reflect on changes in farming I've seen over the years,
    commodity prices used to be more predictable. They were primarily
    influenced by regional and national factors. It is a world market today
    with much greater volatility. Just in the past 2 weeks we've seen a
    $1.30 a bushel increase in soybean prices because of rain during
    harvest in Brazil. And then overnight on April 22 a drop of 22 a
    bushel. Farmers and ranchers are price takers whether on the input or
    commodity side of the equation.
        I recently went back through my records and discovered that in 1985
    it cost $110 in inputs for an acre of corn, not counting land costs.
    This year I estimate it will cost $475. Our seed costs averaged $72 a
    bag in 1985. This year it will average $340 a bag. We are paying for
    the technology that makes us more productive given what Mother Nature
    throws at us. Despite some resistance--especially in our area of the
    state--our ability to control weeds is still far better than it ever
    was in the past. And I can tell you that our environment is better for
    it.
        Recently, we had some excellent years. Kyle and I invested in new
    equipment and a new grain storage system. In some respects, some of our
    costs like rent, seed, and machinery seem to follow the market. They go
    up, up, up. It seems when prices go down, our input costs--what we pay
    for land, seed, fertilizer and crop protectants--don't fall quite as
    fast. Again, comparing to when I started in farming in the mid 1980's,
    nitrogen has increased from $150 to $625, DAP and urea costs are 3
    higher. Fortunately, interest rates are much lower. I was paying 15-18%
    on my loans in the 1980s. While it's not our biggest cost, the recent
    and sustained drop in fuel prices has also helped.
        I also spend significantly more time on filling out paperwork for
    permits, licenses, and applications.
        In 1985 when I started farming, 400 acres could support a family.
    Today our farm is much larger and supports three families. Revenue from
    our farm goes to pay down debt and pay for inputs. We need to pay for
    repairs--while hoping to make improvements in equipment, technology and
    infrastructure.
        All told, Illinois Farm Business Farm Management reports that over
    the past 4 years, farm income has dropped six percent a year, while
    costs have fallen at \1/2\ that rate. Over the last 18 months we have
    seen our working capital erode over 25%. Our equity is fading into the
    sunset. Illinois farmers are paying taxes this year on a more valuable
    2014 crop. Some are faced with the challenge of paying big tax bills at
    the same time they are buying inputs. Indexed to inflation, the
    economic return for Illinois farmers after family expenses is currently
    at its lowest level since 1972.
        All of this has proven to be a very steep learning curve for a new
    generation of younger and less experienced farmers--like my 40 year old
    son Kyle--who entered the business when times were better.
        When I started farming, I borrowed money over the phone. Not today.
    We know that farm lenders are being closely monitored. In turn, they
    pay close attention to their farmer customer's financial situation.
    Lately there has been some reluctance to lend to younger farmers who
    have not built up any cash reserves. It hasn't been a good time to get
    into corn and soybean farming and that does not bode well for
    agriculture.
        To the consumer, it might seem reasonable that when prices fall,
    farmers should back away and plant less. That's counterintuitive for a
    farmer. Our job is to produce. We have fixed costs to cover. And if we
    give up land we rent, we may never get it back.
        We are eternal optimists. At this time of year, as we sit in the
    planter, each of us hopes that we will produce our best crop ever.
        While farming has changed over the past 35 years, one thing hasn't
    changed. Farming is risky, riskier than most enterprises. I farm in the
    Mississippi River bottoms. In 1993 we planted 1750 acres of corn,
    soybeans and wheat. We invested in inputs to raise the crop. And
    because of flooding we harvested 17 acres in the Fall of 1993. It is
    tough to recover from that.
        In fact, we would not have survived without programs like Federal
    crop insurance and commodity programs. The farm safety net doesn't make
    us whole, nor should it. But it does help us recover from weather-
    related disaster and multi-year price declines. Crop insurance and
    commodity programs help farmers manage risk, recover some costs and get
    next year's crop planted while protecting consumers from sticker shock
    at the grocery store. I can't imagine what farming, food production or
    food prices would look like in the absence these essential programs.
        But today, I want to speak about the challenges and opportunities
    that affect farmers and ranchers across the country, not just my own
    state. We are facing stiff headwinds on commodity prices, as AFBF
    President Zippy Duvall testified before the General Farm Commodities
    Subcommittee just 2 weeks ago. He laid out those challenges in detail.
    Naturally, no individual farmer or even a large organization like Farm
    Bureau can dictate or predict what will happen in markets. So we are
    continuing to do what we have done for generations--adapting to more
    challenging conditions, using the resources and tools at our command to
    make the most of our investments and provide high quality food and
    fiber to American consumers and others around the world.
        At heart, every agricultural producer is a risk-taker. If they're
    not, they should probably be doing something else. Our livelihood isn't
    guaranteed. We don't expect it to be. But when it comes to legislation
    and regulations, we would ask that policymakers follow the old adage:
    Primum non nocere. ``First, do no harm.''
        There are bright spots now in Federal policymaking, and I would
    like to touch on those first and to express our appreciation for the
    help and support of the Members of this Committee. Then, I would like
    to make you aware of issues where we are facing and potentially costly
    challenges.
    Policies that Have Helped or Can Help to Restrain Production Costs
    Transportation
        In recent years, Congress has taken some significant steps on
    Federal transportation policy that are important to producers. These
    efforts have been bipartisan, and we want all the Members of the
    Committee to accept our gratitude for their hard work in making
    important changes to Federal transportation policy. These include:

       Regulatory relief for covered farm vehicle drivers in MAP-
            21.

       A WRRDA bill that made significant improvements to our
            waterway systems.

       An increase in revenues for the Inland Waterway Trust Fund.

       Additional regulatory clarity for agricultural drivers in
            the FAST Act.

       The Surface Transportation Board (STB) Reauthorization Act
            that updated the STB that we hope will benefit all shippers and
            agricultural producers particularly.

        Unfortunately, in the energy and transportation field we are
    increasingly concerned about the reluctance of EPA to fully implement
    the Renewable Fuel Standard (RFS). Renewable fuels have been a
    tremendous success story for the nation as a whole and to rural
    economies in particular. Thousands of farmers and individuals in rural
    communities have invested millions of dollars in infrastructure to meet
    the goals Congress has set out. The EPA should adhere to Congress'
    intent and fully implement the volumes specified in law.
    Food Safety Modernization Act
        Providing a safe food supply is a unified goal for farmers across
    the country and we believe farmers share the responsibility to work to
    meet that goal. Farm Bureau worked actively with the Food and Drug
    Administration as it developed its regulations to implement the Food
    Safety Modernization Act. We were heartened that, in many ways, FDA
    actively engaged the farming community. While the rules are not
    perfect, we do believe that FDA attempted to find solutions that
    balanced the need for public safety with farming realities. Regardless,
    FSMA requirements certainly place increased costs and burdens on
    farmers and open up farms to yet another Federal agency. We will
    continue to work with FDA in the implementation of FSMA so that we see
    limited increases in production costs and the benefit of a safer food
    supply.
    Crop Protection
        While Farm Bureau is concerned about EPA's approach on some crop
    protection tools, we are encouraged that EPA is now soliciting public
    comment on the use of Dicamba formulations for deregulated Dicamba-
    tolerant soybeans and cotton. Weed and pest management for farmers is
    an ongoing challenge, particularly as some weeds develop resistance to
    common herbicides. There is a growing need for new technologies to
    counteract weed resistance, and Farm Bureau supports EPA registration
    of these uses of Dicamba without onerous restrictions relating to tank
    mixes or buffer zones.
    State Managed Pollinator Protection Plans (MP3s)
        AFBF policy supports the continued use of neonicotinoids as well as
    the development and implementation of state-managed Pollinator
    Protection Plans (MP3s). These plans hold the prospect of greater
    communication between growers and beekeepers--an outcome that could
    help the bottom line for beekeepers while allowing crop farmers to
    manage their lands effectively.
    Research
        Agricultural research is critically important to solving some of
    society's greatest challenges, including improving human health,
    maintaining our global competitiveness and enhancing our national
    security. While it is true that a dollar of research money spent today
    might not translate immediately to the bottom line of farmers, these
    are truly investment dollars. They make a difference, and a vigorous,
    effective research program holds the promise of keeping more farmers
    more productive in the future.
        In this past year alone, the vulnerability of our food system and
    the necessity of additional research was put on stark display with an
    estimated $3.3 billion in economic losses from a new strain of the
    avian flu and unprecedented drought in places like California. Yet 2015
    also showed the strength of our agricultural research system with the
    development of vaccines and new products like the allergy-free peanut.
    These innovative discoveries are just the tip of the iceberg of what
    agricultural science and technology researchers can deliver with
    sufficient support.
        Apiculture is a sector of agriculture that clearly needs research
    support. The long-term health of the managed honeybee sector has been
    the focus of much attention over the last several years. Farm Bureau
    members include not only dairy producers, corn and soybean farmers,
    fruit and vegetable growers but beekeepers as well. We are working to
    protect their interests and want to do all we can to help the
    beekeeping industry meet the challenges it currently faces.
        As the President's Task Force mentioned last year, overwintering
    losses for beekeepers have been exceptionally high for a number of
    years. While some activists wish to pin the blame entirely on
    pesticides (especially neonicotinoids), the science and the facts point
    to other factors--most prominently the Varroa mite--that most likely
    have a greater impact on hive health. Farm Bureau supports ongoing
    research to assist the honey bee industry, and it is unquestionably
    true that a healthy beekeeping industry is important to agriculture and
    it affects some farmers' bottom line. For example, California almond
    growers are critically dependent on pollination services from managed
    honey bees to pollinate their crop; estimates are that approximately
    two million hives annually support the almond industry in California.
    And the price of pollination services, while it has moderated in more
    recent years, has risen appreciably over the last decade.
        American agriculture needs a healthy bee industry and we should all
    continue to work constructively to surmount the challenges beekeepers
    face while assuring that farmers retain access to critically important
    pesticides.
        In fact in Illinois, we are working hard with our Department of
    Agriculture and other stakeholders to begin the process of developing a
    Pollinator Protection Plan. We feel strongly that farmer stakeholders
    should be at the table and that we collectively arrive at reasonable
    solutions that protect both crops and pollinators. We in Illinois will
    continue to promote communication between neighbors through old
    fashioned face to face conversations, as well as with technology such
    as DriftWatch, an online platform for farmers and beekeepers to share
    location information. We will also continue to educate our members on
    the pesticide misuse complaint process through our Illinois Department
    of Agriculture, as well its apiary inspection process.
    Policies that Can Increase Costs to Growers
        Unfortunately, the number of issues where policies actually
    increase cost pressures are more numerous. But I want to draw the
    Subcommittee Members' attention to a few of the most urgent.
    Mandatory Labeling of GMO foods
        Probably our greatest concern at the moment is the failure of the
    Senate to take up and pass legislation to prohibit mandatory labeling
    of GMO foods. This failure may well lead to a patchwork of state
    labeling requirements that will be costly and difficult to sort out. If
    Congress cannot solve this problem, there is no question the long-term
    outlook for farmers is higher input costs, potentially lower yields, a
    more challenging environment in controlling pests--and higher costs for
    consumers.
        Farm Bureau is tremendously grateful to the bipartisan leadership
    of this Committee in crafting H.R. 1599, the Safe and Accurate Food
    Labeling Act, and steering its passage through the House.
    Unfortunately, this issue has been stalled in the Senate by our
    opponents. No one who supports American agriculture should pretend that
    mandatory Federal labeling of GMOs will not have a significant impact
    on our bottom line in the future. But let it also be clear that a
    smattering of state labeling requirements is not an acceptable outcome
    either. It is extremely disappointing that some individuals claiming to
    be seeking `compromise' are pressing for policies that will stifle
    innovation, hurt agriculture and raise consumer food costs.
    H-2A Processing Delays
        Although an increasing number of fruit and vegetable growers use
    the H-2A program, it still accounts for less than ten percent of hired
    labor in the agricultural sector. A major factor in this low
    utilization rate is the high cost of the program. Typical of the
    unworkable nature of the program are the delays faced by growers due to
    inefficiencies in the U.S. Department of Labor, which processes labor
    certifications. These delays can be devastating to a grower, who
    depends on his workers being present and available to plant, tend, and
    harvest his or her crops.
        Additionally, we have seen increased delays at the United States
    Citizenship and Immigration Services (USCIS) processing center. Both
    agencies could make the program more efficient but have so far declined
    to do so. For example, both agencies refuse to process key forms and
    documentation electronically, insisting instead that these documents be
    sent by standard mail--a process that often causes complications and
    delays that could be easily avoided.
    Worker Protection Standards Rule (WPS)
        Last year, EPA imposed a wide range of new obligations on farmers--
    more frequent training, record-keeping, designation of `applicator
    exclusion zones' and others--nearly all of which will mean greater
    costs for producers with very little, if any, real benefit for workers
    (in fact, EPA said repeatedly in its original proposal that it could
    not quantify the benefits of many of the new demands it was proposing).
    Even more significantly, however, EPA made a last-minute insertion in
    the rule that could have very pernicious impacts on growers.
        Under the new EPA rule, anyone who shows up at a farm gate claiming
    to be a `designated representative' of a worker can demand a farmer's
    pesticide use information merely by showing a signed piece of paper
    that is supposedly signed by a worker or former worker. The `designated
    representative' can then turn around and publish that information in
    the community, put it online or even start up a petition against the
    farmer.
        We see great potential liability in this provision, with no added
    protections for workers. And we are greatly distressed that EPA did not
    share that provision with this Committee, as it was required to do by
    law. But we want to thank Chairman Conaway and Ranking Member Peterson,
    who are now working on this matter and we hope it can be resolved.
    Property Rights and Grazing
        While Illinois might not have much grazing of cattle on public
    land, our colleagues out west have pointed out two significant Federal
    initiatives that could impose tremendous new costs on western growers:

       The decision by the Department of the Interior not to list
            the Sage-Grouse under the Endangered Species Act is bringing
            with it wholesale changes to Federal land planning in the West.
            For ranchers who have grazing allotments and whose livelihood
            is dependent on public lands, we have great anxiety that this
            step by DOI could mean greatly increased costs to producers.

       Until it was stopped by a Federal court, the U.S. Forest
            Service had proposed requiring some holders of Federal permits
            to transfer their state-adjudicated water rights to the USFS.
            Although the Forest Service has withdrawn the proposal, we
            remain concerned that the Federal Government, through the USFS
            as well as the Bureau of Land Management, could revisit this
            matter and attempt to coerce permit holders, such as ranchers
            who graze on public lands, to hand over their own property
            rights under threat of losing their permit.
    National Pollutant Discharge Elimination System (NPDES) Permit for
            Pesticide Applications
        Today farmers are facing a nearly unprecedented situation in which
    a normal pesticide application that is perfectly legal under FIFRA can
    be challenged by environmental groups as a violation of the Clean Water
    Act. The House of Representatives passed legislation (H.R. 897) to
    correct this regulatory `double-jeopardy' and we commend the House
    Agriculture Committee, which played a major role in shepherding this
    bill to a strong bipartisan vote. We are working to have the Senate
    take up the House bill. If we don't succeed, farmers could face
    potential legal jeopardy and uncertainty over their ability to manage
    their crops to prevent infestation of their crops from pests or
    disease.
        In Illinois, we have a General NPDES permit for pesticide
    application. In addition, we have general pesticide applicator
    certification and licensing requirements where farmers must take
    classes and pass exams. Farm Bureau supports the certified applicator
    process because we view it as one way to assure society that people who
    handle these products are trained and knowledgeable. Frankly, that's
    one reason why Farm Bureau is concerned about the changes EPA is
    proposing to the certified applicator program. We are not convinced the
    changes they are requiring--in mandating continuing education credits
    and increased licensure requirements--will result in meaningful
    changes; yet we know they will increase costs and put a real strain on
    extension services and others who often provide training. It's
    important to note the several different agencies, both state and
    Federal, and statutes that impact the single act of applying
    pesticides.
    Spill Prevention and Countermeasure (SPCC) Rule for Farms
        Farmers are now facing higher costs due to EPA's new SPCC rule as
    it applies to farms. Storage of oils, including fats, is captured by
    these regulations and the proposed revisions will broaden the
    regulation to more agricultural operations. These regulations impose
    secondary containment requirements, burdensome paperwork requirements,
    and penalties associated with failure to comply. Like the NPDES rule,
    the SPCC will also be directly affected by EPA's WOTUS rule should it
    be implemented.
    Pesticide and Pollinator Issues
        As mentioned earlier, AFBF is working actively to further the
    interests of the beekeeping industry. In this effort, we want crop
    producers and beekeepers to work together in a mutual effort to assure
    each other's success. In fact in Illinois, we are working hard with our
    Department of Agriculture and other stakeholders to begin the process
    of developing a Pollinator Protection Plan. We feel strongly that
    farmer stakeholders should be at the table and that we collectively
    arrive at reasonable solutions that protect both crops and pollinators.
        Unfortunately, some activists want to divide us from each other
    because they have a totally separate agenda--which has nothing to do
    with agriculture but everything to do with eliminating pesticides. We
    in Illinois will continue to promote communication between neighbors
    through old fashioned face to face conversations, as well as with
    technology such as DriftWatch, an online platform for farmers and
    beekeepers to share location information. We will also continue to
    educate our members on the pesticide misuse complaint process through
    our Illinois Department of Agriculture, as well its apiary inspection
    process.
        We are concerned that EPA has been reading too many inflammatory
    press releases from environmental groups and not enough science. Just
    in the past year, we have seen the agency take a number of actions that
    are troubling for growers. If the agency continues along this path, we
    are greatly concerned that it will eventually impose higher and higher
    costs on producers by depriving them of the crop protection tools they
    need. To cite just a few examples:

       When the 9th Circuit recently invalidated the registration
            of sulfoxaflor, EPA essentially said it would not defend its
            own decision to register the pesticide.

       EPA abruptly withdrew its approval of the Enlist/Duo
            herbicide on corn and soybeans and has delayed the approval
            review of that same chemistry for cotton.

       In November, EPA proposed to revoke all tolerances for
            chlorpyrifos--and despite its reliance on questionable
            epidemiology studies that are not publicly available and
            overwhelming requests from the stakeholder community, the
            agency refused to extend the comment deadline past January 5.
            Last week, EPA held a Science Advisory Panel (SAP) despite
            requests from Farm Bureau and others to postpone the panel.

       EPA is under increasing political pressure to use agenda-
            driven science to limit use and pesticide availability under
            the guise of protecting pollinators--despite the fact that the
            primary culprit lies elsewhere. In fact, in the ``Report on the
            National Stakeholders Conference on Honey Bee Health'' held in
            2012, it was noted that ``The parasitic mite Varroa destructor
            remains the single most detrimental pest of honey bees, and is
            closely associated with overwintering colony declines.''
    Health Care Costs
        Fruit and vegetable growers are heavily reliant on seasonal workers
    to harvest their crops. For those over the large employer threshold in
    the Affordable Care Act (ACA), the requirement to offer and administer
    health insurance increases the cost of doing business.
        Although the ACA grants an exemption for small seasonal employers,
    the rules are burdensome and confusing. The definition of a seasonal
    worker used to determine if an employer is required to offer health
    insurance is 4 months. The regulation that determines if a seasonal
    employee is considered full time and therefore must be offered coverage
    is 6 months.
        Farm Bureau believes as long as the ACA remains in place, it should
    be made as easy as possible for employers to comply with the law. This
    is why AFBF supports H.R. 863, the Simplifying Technical Aspects
    Regarding Seasonality Act (STARS), a bipartisan bill that would create
    a single definition for seasonal workers and seasonal employees in
    order to streamline and reduce compliance costs associated with the
    Affordable Care Act.
    Policies that Can Affect Future Costs
    Future Ag Innovation, Part 340 and OSTP Review of the Coordinated
            Framework
        To remain internationally competitive and lead the world in
    achieving the productivity and efficiency gains required to meet the
    food, fiber and fuel demands and environmental challenges of the
    twenty-first century, U.S. agriculture must stay on the cutting edge of
    technology.
        Therefore, Farm Bureau membership has a strong interest in
    maintaining and improving access to new input technologies, in
    fostering continued public confidence in the U.S. regulatory system and
    in preserving U.S. access to international markets, all while
    preserving and enhancing the coexistence of diverse crops and cropping
    systems.
        The Animal and Plant Health Inspection Service (APHIS) of the U.S.
    Department of Agriculture (USDA) recently requested public comment
    concerning the notice of intent (NOI) to prepare a programmatic
    environmental impact statement in connection with potential changes to
    the regulations regarding the importation, interstate movement, and
    environmental release of certain genetically engineered organisms. We
    are supportive of APHIS's efforts to take a hard look at its
    regulations, to ensure that they are up-to-date with the best-available
    science and utilize the more than 20 years of experience APHIS has in
    reviewing the safety of these crops. However, because the options APHIS
    is considering include potential major departures from the current
    regulatory framework, it is critically important that APHIS does not
    lose sight of the importance of agricultural innovation.
        In agriculture, the value of research, science, and innovation
    cannot be underestimated given serious challenges that lie ahead.
    Between today and the year 2050, farmers will be required to grow twice
    as much food to feed a rapidly growing global population. The U.S.
    Government must consistently promote policies that encourage
    agricultural innovation to enable American farmers to confront serious
    food security and environmental challenges for U.S. agriculture to
    remain competitive.
        Biotechnology has demonstrated significant potential for improving
    food and energy security, enhancing food safety and nutrition, and
    making agricultural and energy production systems more sustainable. The
    current set of biotechnology-derived plants have an impeccable record
    of safe use. During 30 years of research on these plants and 15 years
    of their wide-scale production globally, not a single instance of
    actual harm to human health, animals, or the environment has ever been
    demonstrated. In the United States, more than 90 percent of corn,
    cotton, canola, soybeans, and sugar beets grown in our soil contain at
    least one biotechnology-derived trait.
        For 2 decades, the United States has been viewed as the global
    leader in agricultural biotechnology innovation. Our past success was
    attributable, in part, to a science-based regulatory system, known as
    the Coordinated Framework for the Regulation of Biotechnology that has
    facilitated the development of safe and beneficial products. An
    appropriately-designed, well-functioning regulatory system, working in
    conjunction with government policies that encourage investment in
    agricultural innovation, has provided U.S. farmers and ranchers with
    the tools they need to produce the safe, affordable food supply we
    enjoy today.
        Despite the impressive record of safety and accumulated body of
    scientific knowledge about the technology, the requirements and costs
    of obtaining regulatory clearances for biotechnology products have
    grown and at times have been burdensome and unpredictable, subject to
    delay, and duplicative.
        Irrespective of the cause, the loss of predictability and
    timeliness in the U.S. regulatory system carries a high price that is
    paid by many. As timelines lengthen and the rate of approval of safe GE
    crop products slows, the potential benefits of the new crops are
    withheld from U.S. farmers and society at large.
        Farmers need access to new tools for controlling weeds, for
    withstanding insects and plant pathogens, and for coping with
    environmental stresses such as drought, in order to maintain a
    sufficient global food, fiber and fuel supply. The agricultural biotech
    industry employs tens of thousands of individuals across the country
    and invests millions of dollars each day to develop new technologies
    that farmers can use to help feed a growing global population.
        Recouping the costs of agricultural biotech product discovery and
    development, which currently averages $136 million per product, is
    difficult under the best of circumstances. The direct cost of biotech
    product development is exacerbated by delayed product approval
    timelines and the trend of increased legal costs associated with
    environmental litigation, diminishing the incentive for further
    investments in product discovery and agricultural innovation,
    especially for small acreage crops. Furthermore, the opportunity costs
    from not using biotechnology tools to improve these crops are
    disproportionately born by small farmers and consumers.
        The market for agricultural biotech products is global and growers
    in other countries have adopted biotech crops as quickly and decisively
    as U.S. growers because they are eager to reap the economic and
    environmental benefits provided by GE crops. Not surprisingly,
    countries with consistent, transparent, science-based regulatory
    systems that drive predictable decision-making processes provide
    opportunities for growers to gain access to new biotech products and
    are thus attractive to agricultural biotech companies looking to recoup
    their R&D investments.
        Agricultural biotech companies can and do seek regulatory approvals
    to sell biotech seeds in other countries. However, U.S. farmers are
    totally dependent on the functionality of the U.S. regulatory system to
    support their current and future needs for breakthrough technology
    traits to support their farming operations. U.S. growers cannot retain
    their prominent position in the increasingly competitive, global
    agricultural commodity markets if growers are denied access to the best
    available products, which they clearly need and demand. Regulatory
    hurdles at U.S. agencies that slow reviews for much-needed, safe
    products, such as new herbicide tolerant traits, companion herbicides,
    and new pest resistance traits, ultimately put U.S. commodity producers
    at a competitive disadvantage relative to growers in other countries.
        Regulatory hurdles at U.S. agencies have also deterred the
    diffusion of proven traits into small acreage crops and have severely
    impeded the development of new, innovative ``second generation traits''
    with broad consumer and environmental benefits, such as fresh fruits
    and vegetables that last longer, staple crops with improved nutritional
    value, and animal feed that would reduce the amount of pollution.
        A series of studies charting the diffusion of proven traits and
    research and development of new traits has shown that the loss of
    interest in developing these products is attributable to disincentives
    posed by the regulatory system. In addition, a report from the
    President's Council of Advisors on Science and Technology has also
    acknowledged the detrimental effect of the current regulatory system on
    product development by public-sector scientists and small companies.
        Breeders have historically integrated the latest discoveries in
    biology and genetics into their methodologies to fully exploit
    existing, and to induce new, genetic variation. Some of the latest
    breeding methods provide new ways to make similar genetic changes. They
    can also make very specific changes in existing genes in a way that
    mimics the changes that occur in nature. By applying these newer
    methods, breeders are more efficient and precise at making the same
    desired changes that can be made over a much longer period of time
    through earlier breeding methods.
        Reviews of the regulatory system, broadly, and proposed changes to
    specific USDA regulatory functions must be science based. The level of
    agency oversight for products of biotechnology ought to be
    proportionate to the actual risk posed by the organism. Policies should
    promote innovation and advancements in plant breeding throughout the
    agricultural economy--in both public and private-sector settings.
    Minimizing unnecessary regulation will allow small and medium sized
    companies and universities to move forward in developing innovative
    products for specific regions of the country.
        Definitions of biotechnology that are too broad don't make sense
    scientifically and will also stifle innovation by (1) erecting pre-
    market regulatory barriers that are difficult for small and medium
    sized companies and universities to overcome; and (2) classifying newer
    breeding methods as ``Genetically Modified Organisms'' in the eyes of
    regulators and the public (thus making it more difficult for them to be
    commercially acceptable for a broad range of crops).
        We support a regulatory environment that will enable all kinds of
    plant breeders, including those who grow fruits and vegetables, to
    utilize the broad range of modern breeding methods and advance
    innovative products to the commercial marketplace without facing
    burdensome or non-risk based regulations and stigma.
        Today, with an increased understanding of genetics, the capability
    to sequence plant genomes and the ability to link a specific gene to a
    specific characteristic, plant breeders are able to improve a plant's
    performance more precisely and efficiently by focusing on the plant's
    underlying genetics. Breeders can make very specific changes in
    existing plant genes in a way that mimics the changes that occur in
    nature.
        The development of any new plant variety requires the evaluation of
    thousands of plants, over many years and many locations. The scrutiny
    breeders routinely apply to new variety development is well established
    and has been the foundation for a food supply that is safe, nutritious,
    and diverse.
        These precise techniques help breeders achieve the same result that
    could be achieved via more traditional plant breeding methodologies.
    ``Gene editing'' is one of the more common and important techniques
    being utilized.
        Importantly, the U.S. Government must approach this process mindful
    of international implications. While the regulation of these products
    should be based purely on science, this is an opportunity for the U.S.
    Government to lead an active dialogue with international governments to
    ensure that mutually beneficial policy goals are met.
        Throughout the process of considering a new pre-market agricultural
    biotechnology regulatory system, APHIS should work closely with a broad
    range of scientific experts, stakeholders, and other government
    agencies to clarify, improve, and (as needed) modify and supplement the
    regulatory alternatives the agency is considering before publishing a
    proposed rule, with an eye to improving clarity, transparency,
    predictability, and ease of implementation.
        If I may leave one thought with you today . . . our world
    population continues to grow. Farmers must expand markets through
    exports, new markets like biofuels and expanding our livestock
    production. Trade agreements--like the Trans-Pacific Partnership are
    vital. The world population will continue to grow. American farmers
    have proven time and time again we produce the food, fiber and fuel the
    world needs. Please don't restrict, limit or constrain our ability to
    provide what consumers around the world need.
        Farm Bureau appreciates this opportunity to provide this testimony
    to the Committee and we look forward to working with you on these
    issues in the future.

        The Chairman. Thank you, Mr. President, and great seeing
    you again.
        Up next, no panel on this Agriculture Committee is without
    a Texan, and we are proud to be joined by our Chairman from the
    great State of Texas, Mr. Conaway, here.
        Mr. Dale Murden, the President of the Texas Citrus Mutual
    in Mission, Texas, please feel free to offer your testimony.

       STATEMENT OF DALE MURDEN, PRESIDENT, TEXAS CITRUS MUTUAL,
                              MISSION, TX

        Mr. Murden. Thank you, Chairman Davis, Ranking Member
    DelBene, Members of the Subcommittee. On behalf of the more
    than 600 commercial citrus growers in Texas, I would like to
    express our appreciation for allowing me to share details about
    some of the challenges facing the United States citrus
    industry. My name is Dale Murden. I am a grower and President
    of Texas Citrus Mutual.
        The Texas citrus industry is comprised of almost 27,000
    across three counties in lower south Texas. We grow more than
    nine million cartons of fresh grapefruit and oranges each year
    and another five million cartons of juice fruit. Citrus growers
    in California, Florida and Texas face a broad range of
    challenges. Like other sectors of agriculture we are
    consistently asked to do more with less. For example, look
    toward the confusion and challenges with the implementation of
    the Food Safety Modernization Act, along with our consistent
    concerns regarding labor needs. However, in my testimony today
    I will focus on pest and disease issues facing growers, which
    threaten our very existence and causes me to wonder if I will
    be in business in another year or so.
        In the last few years, we in Texas have found ourselves in
    not one but three Federal quarantines due to pest and disease
    outbreaks. We are battling Mexican fruit flies once again even
    after it was declared eradicated. We have discovered citrus
    canker, although it was eradicated back in the 1940s. And of
    course, you have all heard about HLB and citrus greening that
    is currently devastating the Florida industry and is now
    prevalent in Texas.
        Simply put, these issues have cost Texas citrus growers
    millions to battle these new issues and more as care costs have
    increased from an average of about $1,400 an acre to well over
    $2,000 per acre just in the last several years. Citrus growers
    in the United States are in need of solutions and Federal
    investments to counter the effects of the many pest and disease
    issues we are faced with.
        I would like to take a minute to highlight several programs
    implemented in the last farm bill that we do feel are making a
    difference. Funds from the farm bill section 10007 program are
    supporting USDA and state partners in their efforts to
    eradicate and find cures for pest and disease issues, the
    Citrus Disease Research and Extension Program under the
    Specialty Crop Research Initiative. They are helping
    researchers develop methods to culture HLB so that it can be
    studied more efficiently. In addition, these funds support
    scientists searching for bactericides that can reduce or
    eliminate the disease in efforts to breed HLB-resistant root
    stocks. Much of the breeding relies on virus-free and
    genetically diverse germplasm, which is maintained at the
    Citrus National Clean Plant Network Centers.
        Another tool that we will increasingly rely on for
    solutions is biotechnology. As USDA moves forward with its
    updates to part 340, I would ask the Committee to be intimately
    engaged. More regulation and the threat of litigation from
    anti-modern ag groups would stifle innovation. If USDA gets the
    updates to part 340 wrong, we will not have a viable ag sector
    in this country. That is how important biotechnology is to the
    future of agriculture.
        When I stop to consider the research and eradication
    activities underway to tackle the serious challenges facing
    citrus, I am reminded of the hard work this Subcommittee and
    your colleagues in the full Committee put in to see the last
    farm bill to completion and want to thank you for those
    efforts.
        As we look forward to the next farm bill, I am also hopeful
    that funds can be made available to rehabilitate some of the
    very aging USDA facilities that carry out much of the work that
    growers like me are counting on. However, recent actions by the
    EPA have done significant harm to our access to the very tools
    USDA and academic scientists suggest we use. In January, EPA in
    collaboration with Health Canada published a preliminary risk
    assessment on imidacloprid regarding the potential for the
    chemistry to have a sublethal impact on bees. EPA chose to put
    out a press release with the lead statement saying the
    assessment shows a threat to pollinators while EPA's partner in
    the assessment, Health Canada, put out a very different
    message, simply stating, ``Regulatory reviews shows slim risks
    to bees from imidacloprid.''
        One of the use patterns highlighted in the EPA's press
    release was foliar applications to citrus and cotton during
    bloom. As a grower of both of these commodities, this was
    especially inflammatory as neither of these crops even use bees
    for pollination purposes much less they didn't consider that we
    don't spray during the bloom. But again, the Agency didn't
    share that fact.
        As a farmer, I know that come next season the same pests
    and perhaps some new ones will be in my fields impacting my
    crop but I have no idea if I will have a product to treat them
    with. As a citrus grower, the risk side of my assessment is
    very high, and the financial benefits of growing food in this
    country continue to dwindle. In short, the United States citrus
    industry as you know it is in extreme trouble.
        Thanks again, Mr. Chairman, for holding this important
    hearing, and for all that you and the Subcommittee are doing.
    We need and appreciate your help.
        [The prepared statement of Mr. Murden follows:]

      Prepared Statement of Dale Murden, President, Texas Citrus Mutual,
                                  Mission, TX
        Thank you, Chairman Davis, Ranking Member DelBene, and Members of
    the Subcommittee. On behalf of the more than 400 commercial citrus
    growers in Texas, I want to express our appreciation for convening this
    hearing and allowing me to share details about some of the challenges
    facing the U.S. citrus industry and many of the small, family-owned
    growers in this country.
        My name is Dale Murden. I am President of Texas Citrus Mutual and a
    farmer. My family and I currently grow citrus, sorghum and raise cattle
    near Harlingen, Texas.
        The Texas citrus industry is comprised of almost 27,000 acres
    across three counties in the Lower Rio Grande Valley where we grow more
    than nine million cartons of fresh grapefruits and oranges each year
    and another five million cartons for fruit juice. Farmgate value of
    citrus is about $100 million per year with approximately $5 million of
    it coming from organic production.
        Citrus growers in California, Florida and Texas face a broad range
    of challenges, from labor shortages to plant pests and diseases, that
    threaten our very existence as an industry. Like other sectors of
    agriculture we are consistently asked to do more with less. Look also
    toward the confusion and challenges with the implementation of the Food
    Safety Modernization Act (FSMA). However, for my testimony today I will
    focus on two challenges facing growers that cause me to wonder if I
    will be in business in another year or 2 or 3--Mexican Fruit Fly and
    Huanglongbing (also known as HLB or Citrus Greening). My intention is
    to illustrate the very real threat these pests and pathogens pose to
    our industry and a contradictory Federal response that leaves growers
    vulnerable.
    Mexican Fruit Fly
        The Mexican fruit fly--or MexFly--is native to parts of Central
    America but has now spread across the border and into the lower Rio
    Grande Valley of Texas. The MexFly is a significant problem for citrus
    fruits, which are extremely susceptible to infestation. Economic losses
    result from direct damage caused by the larvae that feed on the fruit
    pulp.
        Eradication efforts have been underway for years. Since 1986, Texas
    has participated in a fruit fly control program headed by USDA-APHIS,
    to eradicate the fruit fly from Texas and the Mexican state of
    Tamaulipas. In 2012 APHIS thought they had successfully eradicated the
    MexFly. However, the pest has recently reemerged and just last week
    APHIS found a mated female MexFly in the Granjeno area of Hidalgo
    County causing them to expand the quarantine zone in that county to 234
    miles\2\.
        The small fruit fly triggers big economic losses. Last year proved
    especially hard for one small grove operation in Brownsville after a
    Mexican fruit fly was found in a neighboring back yard tree. The
    discovery triggered a decision to quarantine the area and the grower
    was no longer able to harvest his crop for the year, leaving thousands
    of dollars of inventory on the trees with no hope for harvest. The
    problem has reached a crisis level, since January 2014. There have been
    fruit fly quarantine areas off and on in the entire citrus growing
    region of South Texas.
    Huanglongbing (HLB or Citrus Greening)
        Recent finds of the disease HLB and its vector, the Asian Citrus
    Psyllid (ACP), has growers of all sizes in south Texas extremely
    concerned. There is no known cure for this disease and we've learned
    from the experience of our friends in Florida that its impacts are
    devastating. Since HLB was first detected in Florida in 2005,
    approximately 90% of production acres are now infected and production
    has been cut by more than \1/2\, costing the state nearly $8 billion in
    revenue.
        Greening was first discovered in a Texas grove in January of 2012.
    Three short years later, we have confirmed that trees located in almost
    100 groves valley-wide show signs of the disease. With the extremely
    long latency period of this disease, it is unclear how many more trees
    have already been infected.
        What this has done to growers in terms of dollars is hard to
    quantify. When it was first discovered in Texas, we removed not only
    infected trees, but several of the surrounding trees as well. This
    translated to lost income, and with no replacement trees to plant, it
    also equated to a loss of future income as well. Today, positive HLB
    finds have become so widespread, that most growers have discontinued
    tree removal.
        In a desperate attempt to mitigate the effects of HLB, most growers
    have initiated aggressive psyllid spray programs to try to slow the
    spread of infestation until a cure can be found. This strategy requires
    treatments above and beyond our regular care programs and has increased
    our grove care expenses by almost $400 per acre or 22%.
    Developing Solutions
        Considering these challenges, citrus growers in Texas and elsewhere
    are in need of solutions, and Federal investments to counter the
    effects of HLB and MexFly are vital. Surveys, diagnoses, research and
    eradication programs are critical to the survivability of the citrus
    industry in the U.S.
        Funds from the farm bill's section 10007 program, also known as the
    Plant Pest and Disease Management and Disaster Prevention Program, are
    supporting USDA and state partners in their regular surveying for new
    incursions of MexFly and arming them with the tools for its rapid
    identification. These dollars help scientists in devising eradication
    strategies and executing on those strategies, which include a mixture
    of biocontrols and insecticides.
        On HLB, [section] 10007 has been vital to slowing the diseases
    spread by providing the industry with recommendations on the best
    practices for pesticide rotations and treatment timings to take on the
    psyllid. This program has also funded the training of canines to detect
    the disease, which has been shown as the most reliable early detection
    method. Heat treatment protocols identified through [section] 10007-
    funded projects show promise in the ability to treat infected stock
    providing temporary relief from the disease.
        Through the Citrus Disease Research and Extension (CDRE) program
    under the Specialty Crop Research Initiative (SCRI) researchers are
    developing methods to culture HLB so that it can be studied more
    efficiently. In addition, these funds support scientists searching for
    bactericides that can reduce or eliminate the disease and efforts to
    breed HLB resistant rootstock. Much of the breeding relies on virus-
    free and genetically diverse germplasm maintained at the Citrus
    National Clean Plant Network Centers (NCPN) in Florida and California.
        When I consider the breadth of research and eradication activities
    underway to tackle the serious challenges facing citrus, much of it
    through farm bill programs, I am reminded of the hard work this
    Subcommittee and your colleagues in the full Committee put in to see
    the last farm bill to completion. Thank you for those efforts.
        As we look toward the next farm bill I am hopeful funds can be made
    available to rehabilitate some of the USDA facilities that carry out
    much of the work that growers like me are counting on. The USDA
    scientists, who are doing much of the research, need facilities and
    equipment that are up to the task to allow them to execute on the work
    we expect from them.
    EPA Undermining Solutions
        However, while we look to act on the information gleaned from the
    research and look ahead to the tools currently in development, as a
    result of this Committee's investments, we are frustrated by the fact
    that actions of another Federal agency serve to undermine these efforts
    and the associated investments.
        Recent actions by the EPA have done significant harm to our access
    to the very tools USDA and academic scientists are suggesting we use,
    while their public comments erode the consumer's confidence in our
    stewardship of the land we grow on. In January, EPA, in collaboration
    with Health Canada, published a preliminary risk assessment \1\ on
    imidacloprid, a neonicotinoid, regarding the potential for the
    chemistry to have a sublethal impact on bees. The results were
    generally positive with only three use patterns out of the 37 evaluated
    showing some level of concern.
    ---------------------------------------------------------------------------
        \1\ https://www.regulations.gov/#!docketDetail;D=EPA-HQ-OPP-2008-
    0844.
    ---------------------------------------------------------------------------
        Yet the agency decided to put out a press release with the lead
    statement \2\ saying the assessment ``shows a threat to some
    pollinators,'' and ``indicates that imidacloprid potentially poses risk
    to hives when the pesticide comes in contact with certain crops that
    attract pollinators.'' In contrast, EPA's partner in the assessment,
    Health Canada, put out a very different message resulting in Canadian
    news coverage \3\ stating, ``regulatory reviews show slim risk to bees
    from imidacloprid.''
    ---------------------------------------------------------------------------
        \2\ https://yosemite.epa.gov/opa/admpress.nsf/0/
    63E7FB0E47B1AA3685257F320050A7E3.
        \3\ http://www.agcanada.com/daily/regulatory-reviews-show-slim-
    risk-to-bees-from-imidacloprid.
    ---------------------------------------------------------------------------
        In the same EPA press release the Assistant Administrator for the
    Office of Chemical Safety and Pollution Prevention stated that the, EPA
    is committed, ``to protecting bees and reversing bee loss.'' However,
    the USDA-ARS clearly identifies a long list of issues impacting bee
    health including parasites, pathogens, lack of genetic diversity,
    beekeeper practices, habitat loss and, yes, pesticides, including the
    ones used by beekeepers to manage their primary pest, Varroa mites. Yet
    they place all of their emphasis on agricultural crop uses of
    pesticides.
        In addition, bee losses have already reversed. After hitting a low
    of 2.3 million hives in 2008,\4\ the number of hives have again been
    increasing and the 2015 USDA-NASS Honey Report \5\ showed that there
    were an estimated 2.74 million colonies, the highest number in 20
    years. The EPA is well aware of these facts yet that is not the
    narrative they present to the public.
    ---------------------------------------------------------------------------
        \4\ http://usda.mannlib.cornell.edu/usda/nass/Hone//2000s/2009/
    Hone-02-27-2009.pdf.
        \5\ http://usda.mannlib.cornell.edu/usda/nass/Hone//2010s/2015/
    Hone-03-20-2015.pdf.
    ---------------------------------------------------------------------------
        One of the use patterns that was highlighted as a potential concern
    in the preliminary risk assessment and again in the EPA's press release
    was foliar applications to citrus. But again, the agency did not share
    the fact that with minor tweaks in the timing of the application the
    risk could be easily mitigated. To many growers it seems like the EPA
    is helping to push an anti-pesticide agenda.
        Other products, like flubendiamide (Belt) and sulfoxaflor (Closer),
    both pivotal tools in fighting ACP, are in the process of being
    canceled or have been canceled. In the case of Closer, which I consider
    to be my best option for protecting my trees from HLB, the registration
    was canceled by a court decision. However, despite EPA's ability to
    grant Texas and Florida citrus an emergency use (Section 18) the agency
    has signaled that it will not grant them.
        The hope for more new products to be approved for citrus has
    largely evaporated after the EPA sent letters to the registrants
    instructing them to withdraw new use applications for neonicotinoids.
    The agency made this move without first evaluating the products' risks
    or considering benefits. When we look to the chemicals that have been
    registered and reregistered for decades like the organophosphates, such
    as chlorpyrifos, EPA has proposed to revoke the tolerances.
        As a farmer I know that come next season the same pests, and
    perhaps a new one or two, will be in my field impacting my crop but I
    have no idea if I will have a product to treat them with. As a citrus
    grower, the risk side of my assessment is very high and the financial
    benefits of growing food in this country continue to dwindle.
        Finally, another tool that we will increasingly rely on for
    solutions is biotechnology. As USDA moves forward with its updates to
    Part 340, I ask that the Committee be intimately engaged. Earlier in
    the year, USDA published a Notice of Intent that included suggestions
    on how they might move forward. It included a significant expansion of
    the agency's authority into aspects of plant breeding that have been
    around since the 1950s and never before regulated. Other aspects of the
    NOI appear to infuse greater subjectivity and open up their process to
    outside challenges. More regulation and the threat of litigation, from
    anti-modern agriculture groups, would stifle innovation. If USDA gets
    the updates to Part 340 wrong, we will not have a viable agricultural
    sector in this country. That is how important biotechnology is to the
    future of agriculture.
        I would like to thank you for your attention today on these
    critical issues. In short, the United States citrus industry as you
    know it, is in extreme trouble. We are fighting to preserve our very
    way of life and are doing everything in our power to prevent total
    eradication of an essential U.S. industry.
        Thank you again, Mr. Chairman, for holding this important hearing
    and for all that you and the Subcommittee are doing. I look forward to
    working with you in the future.

        The Chairman. Thank you, Mr. Murden, for your testimony,
    and thanks for being here today.
        Although, his bio says he is from Washington, D.C., he is a
    native Illinoisan also. Great to see you again. The next
    witness is Mr. Jay Vroom, President of CropLife America, and
    another good friend of mine, so please let's hear your
    testimony, Jay.

    STATEMENT OF JAY VROOM, PRESIDENT AND CHIEF EXECUTIVE OFFICER,
                   CropLife AMERICA, WASHINGTON, D.C.

        Mr. Vroom. Thank you, Mr. Chairman. Good morning. Thank
    you, Ranking Member DelBene, and the entire panel, for inviting
    us to share with you some perspectives on behalf of the members
    of CropLife America. Our members produce, distribute, innovate
    and deliver virtually all of the crop protection tools and crop
    biotechnology traits used by American farmers and literally
    millions of other farmers around the world.
        So I would like to start off by wishing all of us Happy
    Earth Day. So probably most of us think well, Earth Day was
    last Friday. So the whole world picks 1 day out of 365 days
    every year to celebrate Earth Day. Those of us in agriculture
    recognize that Earth Day is every day, certainly in farming, as
    we go about the business of producing an abundant supply of
    food and fiber.
        Twenty years ago this Earth Day, there are a lot of us
    fretting as we had for a number of years about how would we
    ever find a policy path forward to solve the Delaney clause
    that was a pesticide policy matter jurisdiction between this
    Committee and the Energy and Commerce Committee, and yet
    because of the wisdom of Members in this body and eventually in
    the Senate, by August 3, 1996, President Clinton signed into
    law the Food Quality Protection Act, a high-speed policy action
    that was the benefit of a lot of good work that started right
    here in this Committee hearing room. I say that because it
    relates to one of the three things that I want to point out
    here in my oral remarks, and that has to do with the settled
    process that then evolved after passage of the Food Quality
    Protection Act that put in place by EPA and the U.S. Department
    of Agriculture this sweeping new law 20 years ago, and yet last
    week EPA impaneled another Science Advisory Panel to look at
    the information from a New York City epidemiology study that
    claims to have found detections of chlorpyrifos, one of the
    important insecticides in use in agriculture, along with other
    organophosphates when they previously had Science Advisory
    Panels look at the same information in 2008 and 2012 and didn't
    get the answer that EPA was looking for. So, here we are again
    in 2016 with another EPA SAP looking at this epidemiology
    information; and unfortunately, they should act on the same
    kind of basis from this SAP, and that would be that without the
    raw data from this study from New York City where very little,
    if any, farming is done. This tool ought to still be available
    to farmers in the United States.
        I pointed out when I appeared before the SAP last week, Mr.
    Chairman, that your provision in the 2014 Farm Bill still
    hadn't been implemented to provide an agricultural advisory
    committee to EPA's SAP/SAB system. If they had that, maybe they
    would have better input before that even gets started going
    down a path like what we would regard as an unfortunate loss of
    resources in conducting this SAP last week.
        Another point I wanted to make is the International Agency
    for Research on Cancer over 10 months ago brought out a
    stunning finding that the widely used herbicide glyphosate
    might be a carcinogen completely in contrast to every other
    scientific study and government review on the planet for the
    last 30 or 40 years. We believe that there is an agenda in the
    Office of Research and Development at EPA to try to take this
    important tool away from farmers, and if you look at the
    selection of who the U.S. Government representative was to IARC
    that yielded this bizarre finding, I think there is a thread
    there. So we would invite further oversight from this Committee
    as well as the Energy and Commerce Committee to look at some of
    these key questions.
        It is all about the future. We are all pretty well fed in
    this country today but as we know, the population is growing.
    The rest of the world wants to have diets more like what we
    enjoy here in America, and continuing to keep that engine of
    innovation and research, which also helps to lower costs
    eventually for growers but also provide a safe and abundant
    food supply with care to the environment is what we are all
    about. We hope that you will continue to work with all of us in
    agriculture to ensure that that bright future continues to be
    bright for the young people that will take over in the future.
        Thank you, Mr. Chairman.
        [The prepared statement of Mr. Vroom follows:]

    Prepared Statement of Jay Vroom, President and Chief Executive Officer,
                       CropLife America, Washington, D.C.
        Thank you, Chairman Davis and Ranking Member DelBene, for the
    opportunity to address the Subcommittee on behalf of CropLife America
    and its member companies. CropLife America's member companies, and our
    counterparts at RISE, develop, manufacture, formulate and distribute
    crop protection products for American agriculture and specialty uses
    outside of agriculture, such as for the promotion of public health and
    commercial pest management.
        America's nutritious and affordable food supply depends on the
    availability of safe, effective crop protection products. Our members
    support modern agriculture by looking forward: each year the crop
    protection industry spends hundreds of millions of dollars on research
    and development, with much of that investment going into producing data
    that meets or exceeds the Environmental Protection Agency's (EPA)
    information requirements and requests for pesticides.
        Technology, innovation and adoption is a key factor in advancing
    farmer profitability and rural economies. A recent study commissioned
    by CropLife America showed profitability gains on the farm by the
    careful use of crop protection tools resulted in the annual generation
    of $33 billion in off-farm wages for more over one million American
    workers. (Link to report available here: www.croplifeamerica.org/
    economic-impact and CLA statement here: http://www.croplifeamerica.org/
    wp-content/uploads/2015/08/CLA-Socio-Economic-Report.pdf)
        CropLife America has a long history of working cooperatively with
    EPA on issues affecting crop protection, human health and the
    environment. But, recently, the crop protection businesses that support
    American agriculture have seen serious deviations from the regular
    order, transparency and scientific integrity of EPA's risk assessment
    based pesticide review process. These departures have made it difficult
    to provide business predictability for producers and users and they
    potentially inhibit investment in more advanced products.
        We hope that today's hearing will help put EPA and agriculture back
    on a path to a more productive dialogue that leads to reasonable,
    timely regulatory decisions and solutions to shared concerns. A return
    to established regulatory process and sound science will help our
    industry support rural communities and improve farm incomes.
        I would like to begin by reminding the Subcommittee of CropLife's
    longstanding support of the House, and now the Senate, effort to
    overturn the 6th Circuit court's requirement for Clean Water Act NPDES
    permits for pesticide applications over or to waters of the United
    States. Strong bipartisan support exists in the House and Senate for a
    legislative fix and pesticide users are well overdue for relief from
    the double regulation of pesticides under this water permit--especially
    those protecting public health from pest borne diseases like West Nile
    and Zika.
        The NPDES permit poses a substantial paperwork burden on operators.
    But, most significantly, it creates legal jeopardy due to the potential
    for citizen suits based solely on mistakes, missed deadlines, or, even
    a neighbors `judgement.' This is especially true now, since EPA's final
    Clean Water Rule expands the jurisdiction of what is determined to be a
    Federal waterbody. If the rule is allowed to be implemented, it would
    substantially increase the number and type of applications that could
    be subject to NPDES pesticide permit coverage and liability. We thank
    the Committee for your bipartisan efforts to unwind this burden and ask
    that you continue to look for vehicles to finally provide relief to
    pesticide users conducting FIFRA compliant applications.
        CropLife America and pesticide stakeholders have every reason to
    believe the current array of our most serious challenges are more about
    political science that actual science. On several occasions, EPA
    officials have alluded to policy decisions being driven by `Internet
    campaigns, social media' and NGO `write-in campaigns.' The result of
    this internal response to external forces is a systemic breakdown in
    established regulatory process within EPA's pesticide program and a
    deviation away from FIFRA risk assessment based science towards
    precaution.
        EPA is shifting focus to not just consider, but instead elevate and
    rely on less robust science, including epidemiological studies and
    models, rather than real-world and verified laboratory data. For
    example, in proposing to revoke the ``tolerance'' for chlorpyrifos--
    which could make the product virtually unmarketable--EPA is choosing to
    rely heavily on a decades-old epidemiological study, referred to as the
    Columbia Study, that suggests a correlation between adverse health
    outcomes for some children allegedly exposed to the pesticide in cities
    and for which Columbia will not publicly release the raw data from
    their study. At the same time, EPA is pushing aside the findings of
    long-standing verified laboratory studies and important new
    toxicological data that do exist about chlorpyrifos, all of which are
    available and subject to public scrutiny and demonstrate that the
    product is safe for agricultural use.
        Just last week, EPA impaneled a Scientific Advisory Panel--or SAP--
    to once again look at this Columbia epidemiological study. Twice
    previously--in 2008 and 2012--SAP's did the same work and both rejected
    the Columbia work. Last week's 3 day session should reach the same
    outcome based on the material presented.
        As a part of my presentation at the SAP, I noted the provision put
    in the 2014 Farm Bill, at your insistence mister Chairman, which
    instructs EPA's Scientific Advisory Board to create an Agricultural
    Advisory Committee within the SAP structure. (Link to CLA statement on
    SAP available here http://www.croplifeamerica.org/croplife-america-
    pushes-for-transparent-robust-data-at-fifra-sap/.) I noted that it is
    very unfortunate that EPA has yet to finalize and impanel that group.
        In the review of other pesticides, EPA has pivoted to relying
    extensively on new ultra-conservative models for predicting consumptive
    exposures from drinking water. Further, the agency will not even
    consider other assessment methods that would allow for the factoring in
    of robust, real-world water monitoring data. Denying the use of this
    actual data could mean the loss of products for some existing crop uses
    or preclude access for new crop uses.
        In evaluating the potential impacts of pesticides to pollinators,
    CropLife America believes that the pesticide program has been overly
    influenced by unscientific pressure from social media and other
    politicized campaigns. EPA attempted to ``regulate by letter'' on
    mandates for key seed treatments applications and in forcing label
    changes where we believe Administrative Procedures Act requirements for
    a public notice and comment were not properly followed. EPA went on to
    release a draft report suggesting that soybean crops did not benefit
    from neonicotinoid seed treatments, despite public findings from USDA
    demonstrating the products' benefits to the crop. Fortunately, the
    overarching White House Pollinator Task Force Report--called for by
    President Obama--is more balanced. But, unfortunately, the devil still
    remains in the actual regulatory details formulated at EPA.
        This Subcommittee may be aware of the activities of the United
    Nations World Health Organization (WHO) International Agency for
    Research on Cancer--known as ``IARC.'' As Reuters reported last week,
    this is the agency that `ranks bacon alongside plutonium' as a
    carcinogen. One of IARC's other monographs recently concluded that the
    herbicide glyphosate is a carcinogen, too--notwithstanding all the
    prior science and risk assessment pointing to the opposite conclusion
    and demonstrating the safety of its use. Oddly, the U.S. Government's
    representative to this IARC monograph came from EPA's Office of
    Research and Development--not the Office of Pesticide Programs where
    the expertise in glyphosate resides. Further, since this surprise IARC
    action on glyphosate, many governments around the world have refuted
    the finding . . . but, our own U.S. EPA has yet to do so! EPA's
    reluctance to defend its own scientific findings and the safe use of
    such an important, widely used and well-studied product is very
    troubling.
        You may be wondering, ``does CLA think EPA does anything right?''
    Of course. Most recently, EPA robustly defended the use of risk
    assessment based decision making and routinely argued against the
    precautionary principle during trade negotiations, including leading
    the effort to resolve environmental policy disputes during TTP
    discussions with Asian-Pacific nations and during ongoing T-TIP
    negotiations between the U.S. and European Union (Link to example of
    EPA-EU interaction available here: http://www.usda-eu.org/wp-content/
    uploads/2015/01/United-States-Submission-Endocrine-Disrupters-2015-01-
    20.pdf).
        EPA can be credited for their recent use of PRIA funds to advance
    new product approvals. However, we do ask that the Committee continue
    to provide careful oversight of the Pesticide Registration Improvement
    Act and, also, help to ensure that appropriators fund these critical
    program mechanisms at the agency.
        Recently, CropLife helped the market research firm, Phillips
    McDougall, develop a study that shows the overall cost to discover and
    advance a new crop protection product averages $286 million--up 21%
    over the previous 5 years! (Link to CLA statement with imbedded report
    available here: http://www.croplifeamerica.org/cost-of-crop-protection-
    innovation-increases-to-286-million-per-product/.) The biggest driver
    in that cost increase appears to be regulatory compliance. That
    statistic demonstrates why it is so important to be sure that U.S.
    regulatory requirements are assessments of real science and safety
    advancements, not simply reactions to non-scientific political
    ideologies.
        Despite EPA's significant deviations from process, science and,
    perhaps, even the law, the crop protection industry stands with farmers
    and rural communities as we all weather the uncertain economic and
    regulatory headwinds ahead--we hold a positive and long view for
    American agriculture. Tremendous, measurable increases in farm
    productivity and improved stewardship demonstrate that agricultural
    technology helps not only farmers but also creates jobs and economic
    development beyond the farm gate. CropLife America commits to the
    Committee to be full partners in providing the best crop protection and
    pest management tools that the law will allow in order to support rural
    communities and improve farm income.
        Thank you for the opportunity to testify today and I welcome your
    questions.

        The Chairman. Thank you, Mr. Vroom, and thank you for your
    comments on the EPA. I hope they are watching on closed circuit
    today, and if they are, I would like to remind them again,
    there are 36 pages of unanswered questions from both
    Republicans and Democrats that we submitted after our last
    hearing with Administrator McCarthy, but hopefully the cricket
    sound will end soon.
        I am going to begin the questioning period really quickly
    with Mr. Guebert, this is the home field advantage. You get to
    go first.
        What would be the impact on growers both in terms of costs
    and access to new innovative applications if a mandatory
    warning label for foods derived through modern biotechnology
    were to become the law of the land?
        Mr. Guebert. What we have seen, Mr. Chairman, if it is
    mandatory, we would have some real challenges. As you well know
    in agriculture, we are price takers, and we do not have those
    opportunities and industry has those opportunities to pass on
    those extra costs, and it would really have an impact, not only
    to the agricultural community but to the consumer in the long
    run. We would expect it to cause chaos throughout the whole
    marketplace and industry to make sure that the right product is
    on the right shelf in the right state if 50 other states have
    their own labeling law.
        The Chairman. Thank you, Mr. President.
        Let the record show just about a month ago, Secretary
    Vilsack sat at that same table and used the word chaos to
    describe what kind of impact the Vermont law going into effect
    without a national solution would mean to America too. So I am
    glad to see you agree with Secretary Vilsack.
        Mr. Vroom, rather than going through the normal public
    process to propose to cancel a registration, to your knowledge,
    has the EPA ever asked a court to order to vacate a
    registration, and if so, please describe any of those
    circumstances.
        Mr. Vroom. So there are lots of nuances with regard to how
    the law gets prosecuted and followed. I suspect that EPA would
    say that they have never actually asked a court to resolve a
    matter against a pesticide product that would overrule the
    existing science but clearly there are plenty of court cases
    where that kind of outcome has come about. So without putting
    public words in EPA's mouth, I would say the answer is clearly
    yes, that there is a lot of sue-and-settle kinds of activity in
    all kinds of agricultural matters including pesticide
    technologies that are appropriately licensed after a thorough
    review of the science.
        Another point that I would like to make is that we have
    heard a lot from our friends and colleagues at the
    Environmental Protection Agency that they are under lots of
    pressure. They rarely would call it political pressure but they
    extensively talk about the social-media pressure that they are
    facing from Facebook moms and teens on Twitter. And so it
    behooves all of us in agriculture to step up to those same
    social media plates and to also weigh in with the important
    messages as well. So one of the things that we have invented is
    a red fly swatter that says on it, ``Let's return science to
    pesticide regulation.'' We have a campaign going on social
    media, #scienceorswat, and again, we need to step and get into
    those social media venues and tell the truth about the
    importance of science in this overall pesticide regulatory
    agenda.
        But clearly the courts and the way negotiations occur in
    settling court cases is a very important matter and one of
    concern to all of us in the agricultural technology space.
        The Chairman. Thank you, Mr. Vroom. I am shocked to hear
    that government officials are getting criticized via social
    media. Really? It never happens around here ever.
        I would like to now recognize Ranking Member DelBene for
    questions.
        Ms. DelBene. Thank you, Mr. Chairman.
        Many of you mentioned the struggle that producers are
    having in finding the workers necessary to grow and harvest
    crops, and I want your feedback on how agriculture can be a
    voice of reason in what has been a very contentious debate on
    immigration reform. Also, please speak a little bit about why
    immigration reform is sorely needed, but also some of the
    things you would like to see in reform. I guess I will point
    that to you, Mr. Conner.
        Mr. Conner. Ranking Member DelBene, thank you. We believe
    this is a critical regulatory issue facing American
    agriculture. To repeat what everyone knows, 60 to 70 percent of
    our hired workforce in American agriculture are workers who
    would have documentation problems. We have talked a little bit
    this morning about H-2A reform. I would remind this Committee
    that that still, even with the growth and interest in H-2A is
    less than ten percent of our total workforce. So we are not
    solving the problem. We can make H-2A better and more
    streamlined, and it desperately needs that, but ultimately it
    is about dealing with the 60 to 70 percent of the workforce out
    there that are involved in putting food and fiber on all our
    shelves every single day. We cannot do what we do without those
    workers, and at some point that problem has to be addressed.
        Ms. DelBene. Ms. Torrey, you also mentioned this in your
    testimony. Do you have any additional thoughts you want to add?
        Ms. Torrey. Immigration reform is very important. Many of
    these people that are part of that 60 to 70 percent are people
    that are in mid-management on our farms and have gained skills
    that are very important to providing all their jobs besides the
    farm, and research has shown that for every farmworker I have
    there are another four jobs created.
        The other thing that we are seeing we are having to change
    the type of specialty crops that we are growing. We will see
    some of these fruits and vegetables no longer grown in the
    United States because of the lack of labor. We are trying to do
    a Band-Aid approach now with the H-2A program but the program
    is costly, not only for the paperwork but also for what you
    have to pay in order to have your workers at your farm. You
    never know what curve ball you are going to get. I have to have
    my order in at least 65 to 70 days ahead so that my crops only
    need 45 days to be planted and harvested and I don't know how
    Mother Nature is going to work with us. As I said, labor is our
    number one cost on our vegetable farm and our number two cost
    on our dairy farm. An example in our rural community, I can
    grow 1,000 acres of onions and my payroll is $2.5 million for
    50 families. If I take that same thousand acres and put it into
    field corn, my labor bill will be about $80,000 to $90,000. And
    our rural communities need these jobs. Growing these specialty
    crops offer more benefits.
        Ms. DelBene. Thank you.
        Issues related to the regulation of pesticides are very
    relevant not only to growers in my district but also the
    general public as well, and we need to acknowledge the public
    concerns about safety of pesticides for human health and the
    environment. But, it is also critical that the Federal
    Government address these concerns based on the best available
    science. Without that, our regulatory reputation and consumer
    education will suffer.
        Mr. Vroom, you brought this up. Can you describe what your
    member companies do to evaluate health and environmental
    impacts of their products and what the EPA currently requires?
        Mr. Vroom. Absolutely. So in summary, it is incredibly
    comprehensive and the system that EPA has evolved with inputs
    from a wide array of scientific community here and around the
    world really is the model for regulators in every other part of
    the globe. So there are about 130 different discrete scientific
    test areas that EPA mandates that companies test the products
    on so it has to do with the toxicological impacts for potential
    human health effects, both chronic and acute risks, and then
    also environmental exposures, environmental degradation
    studies, the potential for residues of the applied crop
    protection products ending up in either surface or ground
    waters, and this is not a static set of scientific tests. They
    evolved over time, and occasionally once a new scientific study
    is unveiled and implemented, it is discovered that it is
    redundant or duplicative with other tests that already exist,
    so we have actually seen a few of those kinds of tests
    moderated over time because the resources weren't appropriately
    being utilized, but our industry is always willing to step
    forward and negotiate and find the sweet spot, if you will, of
    what science is needed to prove and re-prove the safety of
    these products. It is just as important with regard to
    reevaluating older products that are on the market and ensuring
    that their risk profile is acceptable to the public as it is to
    get new products to the marketplace. So it is a very exhaustive
    system that gets lots of scientific input from all corners of
    society, and we believe that it represents a franchise ensuring
    level of safety that the public should be comfortable with.
        Ms. DelBene. My time has expired. Thank you very much. I
    yield back, Mr. Chairman.
        The Chairman. Thank you, Ms. DelBene.
        I now recognize my colleague, the gentleman from
    Washington, Mr. Newhouse, for questions.
        Mr. Newhouse. Thank you, Mr. Chairman, and thanks,
    everyone, for being here this morning.
        Ms. Woods, I wanted to ask you a question after listening
    and reading your testimony. I am increasingly concerned with
    the challenges that our growers and packers are facing due to
    what sounds like really a lack of clarification and education
    on how to comply with the new Food Safety Modernization Act
    rules. You mentioned food industry experts who have been
    working for decades in the industry that are unable to get
    certified to offer any kind of compliance instruction. Could
    you highlight some of the difficulties that you are seeing that
    our growers and packers are facing?
        Ms. Woods. Certainly. Just to kind of give you an idea of
    how this problem came about, when the Preventive Controls for
    Human Food rule was first released last fall and we realized
    that some packing houses were going to be falling under the
    Preventive Controls rule, industry brought up concerns with FDA
    and FDA did acknowledge those concerns and said they were going
    to try to be as flexible as possible and enforce the Preventive
    Controls rule on those packing houses similarly as possible as
    what was required under the Produce Safety rule. So we did
    appreciate that. It didn't completely address the problem but
    unfortunately, when the curriculum was released for the
    training that is required under the rule, it did not include
    any of the information the FDA had noted on how packing houses
    would be treated differently. We were running into a time
    crunch. It's 6 months until some packing houses are going to be
    required to be in compliance with this training requirement so
    we worked with a qualified trainer from the Washington State
    Department of Agriculture to put on a training for some of our
    most qualified food safety professionals, and this was a train
    the trainer course. Our intent was twofold; first, to identify
    specific areas where the constituents could be strengthened to
    better fit the needs of produce packers, and the second thing
    was to make sure that we had some people within industry who
    were at least qualified to provide the training so that we
    would have people who understand packing house operations who
    would be teaching these courses. Unfortunately, out of the 12
    people who applied to be trainers, ten were rejected. Several
    of them reapplied multiple times to provide additional
    information about all of the food safety training they had
    provided and were again rejected, and the primary reason we
    were given was because they didn't have a degree in education
    or science, which is going to be a problem throughout the
    produce industry because in many cases the people who are in
    these food safety positions and who have been for a number of
    years, they don't come from that background.
        So it really is creating a challenge of trying to not only
    meet the letter of the law on the training requirements, but
    also to make sure that our packing houses actually understand
    what they will be required to do to comply.
        Mr. Newhouse. That is problematic and challenging. I am
    glad to see WSDA's involvement in a positive way.
        Ms. Woods. Yes. They have been very helpful.
        Mr. Newhouse. Mr. Vroom, as you are well aware in regards
    to the ESA obligations, the EPA just released a biological
    evaluation for three active ingredients. I think each one was
    thousands of pages long. And based on very conservative
    precautionary assumptions that seem inconsistent with what you
    mentioned, that some of these things with available scientific
    data on these compounds. Is it true the assertions made that
    these three pesticides are harming 80 to 100 percent of all
    listed species as they suggest? Also, if this biological
    assessment approach is continued, what will the long-term
    effects be on access to pest management tools?
        Mr. Vroom. So the simple answer is no, and in fact, if that
    allegation were true based on these biological opinion
    documents produced by the Agency and in coordination with the
    ESA authorities, the National Marine Fishery Service and Fish
    and Wildlife Service, those species likely would be extinct
    because these products have been used in commerce by farmers
    and others including those undertaking public health protection
    with mosquito control to reduce disease vector threats for
    decades, 40, in some cases 50 years for these three compounds,
    and of course, one of them is a very essential part of some of
    the mosquito control activities of Mosquito Control Districts.
        So if that outcome were finalized, and this is the second
    time that the Federal Government has tried to get these three
    biological opinions completed to satisfied the Endangered
    Species Act review, it would be devastating and a precedent
    that not only could most crop protection products not meet, but
    probably a lot of other activities in agriculture would also be
    subject to similar kinds of restraints.
        Mr. Newhouse. Thank you, Mr. Vroom.
        Mr. Chairman, I see my time is expired but I hope there is
    a second round, I don't want to let my former colleague from
    New Mexico off the hook too easily.
        The Chairman. Secretary Witte, we will see if he gets that
    second round. We will just let everybody else go over so you
    can have a reprieve.
        I am going to recognize my colleague who entered with a
    very loud door bang----
        Ms. Kuster. I apologize.
        The Chairman. She does that all the time. Do not let her
    apologize like that. Ms. Kuster, you are recognized for your
    round of questions.
        Ms. Kuster. Thank you, Chairman Davis and Ranking Member
    DelBene, for holding this important hearing, and thank you to
    our panel of witnesses for being with us today.
        I am one of only two Members from New England sitting on
    the House Agriculture Committee, and I have been proud to
    support the small family farms that are ubiquitous around my
    state and our entire region.
        In New Hampshire, we have 4,400 farms that cover nearly \1/
    2\ million acres of farmland averaging out to roughly 100 acres
    per farm. Of the 4,000 farms, a large number focus their
    production on specialty crops that contribute to the health and
    vitality of our local and rural communities. New Hampshire
    producers have significantly benefited from the Specialty Crop
    Block Grant program, which has funded grant projects focused on
    food safety, pest and disease prevention, and industry
    marketing.
        So I wanted to direct my attention to Ms. Torrey. I was
    pleased to read in your testimony that you highlighted several
    benefits of the Specialty Crop Block Grant program. Could you
    provide some specific on-the-ground examples of how this
    Federal program has enhanced specialty crop production for
    farmers and are there ways that this program can be
    administered more efficiently to support specialty crop
    producers?
        Ms. Torrey. This program is very important from not only a
    large specialty crop producer but to your home gardener. At our
    farm level, we are seeing increased disease and pest activity,
    and basically because we have changed some of the ways that we
    farm: hoop houses, the greenhouses so our good New England cold
    weather is not taking the----
        Ms. Kuster. Hoop houses are very successful in New
    Hampshire. It has made a big difference.
        Ms. Torrey. Correct, but they also harbor over-winter pests
    that were killed with our 0 weather in New York and in New
    England. We have a global economy and we see different insects
    and pests coming in: potato blight, tomato blight, a lot of
    research going on with that. We have seen new broccoli
    varieties that we can grow in the East that offer better
    nutrition and are adapted to our weather. Onion disease, downy
    mildew. It is such an important part of a specialty crop and is
    enabling us to continue to grow many corps that we might lose
    to these new diseases and pests that seem to be increasing.
        Ms. Kuster. And do you have any recommendations about the
    administration of the program, anything that you have been
    frustrated by or you think we can improve upon?
        Ms. Torrey. I think each state is giving a section of the
    specialty crop where their research center can apply for the
    different grants. Our frustration has been, we need to look at
    some of the crucial needs of what needs to be done and maybe
    not some needs that have already been addressed previously, and
    home in on the primary needs of industry.
        Ms. Kuster. Okay. That is very helpful.
        And my second question is for Secretary Witte from New
    Mexico. Mr. Secretary, in your testimony, you described the
    growing concerns about the flexibility of the Specialty Crop
    Multi-State program that was part of our 2014 Farm Bill. As
    this Committee continues to identify farm bill programs that
    can be improved for our next farm bill, can you expand on some
    of the challenges you face with the Specialty Crop Multi-State
    program and specifically how can this program be improved to
    enhance competitiveness of specialty crops in the marketplace?
        Mr. Witte. Sure. Thank you. The Specialty Crop Block Grant
    is a very important program for our state as well. When you
    talk about flexibility in administration, the reporting, the
    sales reporting, the new sales reporting requirements, that
    gets very specific, and a lot of time when you issue these
    grants, it takes years to do the reporting on the increase in
    sales. It doesn't just happen just like that in agriculture.
    And so that is a challenge. The administration of the multi-
    state program where states have to go through another state
    potentially to administer a program, that becomes very
    cumbersome both to the state that is having to administer that
    and the state that is working the project. And so the reduced
    flexibility to do your own thing with multi-states, it needs to
    be looked at.
        Ms. Kuster. Great. Thank you so much. My time is up, and
    Mr. Chairman, I yield back. Thank you.
        The Chairman. Thank you, Ms. Kuster. Thank you for your
    questions. Thank you for your time and your service to this
    Subcommittee.
        Mr. Thompson from the great Commonwealth of Pennsylvania.
        Mr. Thompson. Thank you, Mr. Chairman, and thanks to all
    members of the panel for your expertise and being here. It is
    an important topic today.
        I want to start with Mr. Guebert. This past weekend, or
    Monday night actually--it is all a blur--I had the privilege
    and honor of returning to my home high school which is in my
    Congressional district where 2 years ago they started a 4-H
    program and an ag education program after decades of it not
    being there, and then in the second year, I mean, this was a
    cafeteria that was full of kids and their blue jackets, and it
    was just amazing what those teachers have done, and I am so
    proud of them: 4-H is such an important program.
        But my question centers around looking at the Census data,
    the average age of farmers is 58 despite large participation
    and positive experience in programs like 4-H like I saw at Bald
    Eagle Area on Monday night. In those few years that program has
    been in place, they actually have had some students come back
    from one of my other alma maters, Penn State University, kids
    that got introduced to agriculture education at the high school
    and are now freshmen and sophomores at that wonderful land-
    grant university and the College of Agricultural Science. It
    seems the passion for agriculture begins to dip as kids do grow
    older. To what extent do you think rising regulatory costs and
    limited profit margins deter young people from choosing
    agriculture as a profession or, more specifically, all those
    things deter parents, farmers from encouraging their kids to
    follow in their footsteps?
        Mr. Guebert. Mr. Thompson, thank you very much for the
    question and, as you look back, nothing puts more of a gleam in
    your eye than when I am at a meeting or at a convention or a
    conference when you see those blue-and-gold jackets and the
    green uniforms that some 4-H kids wear. It is really
    tremendous. We have had programs in our state where
    conferences, it is just enlightening to see the energy that
    those students have today and how smart they really are.
        If you look back a few years ago, go back to the 1970s and
    the 1980s, and times were pretty tough in the 1980s, and a lot
    of parents discouraged their sons and daughters or their
    grandchildren to come back to the farm because they did not see
    that there was a future there. You look at the Census data, we
    are growing older; but, from time to time, the more meetings I
    attend, I see more of an energy and more young people coming
    back to the farm, and we have seen that in the last decade or
    the last number of years of good farming opportunities and the
    encouragement not only in agriculture or in farming, per se,
    but the opportunities that surround agriculture whether it is
    mechanization, plant and soil sciences, the breeding, the
    industry. There are unique opportunities for the young people
    that are coming back and wanting to be engaged in food and what
    is important to them and what their parents have talked about
    for a number of years. It is just really enlightening to see
    the young people that want to be engaged.
        Mr. Thompson. Thank you.
        Secretary Witte, the pollinator issue, it is extremely
    complex. Some have oversimplified, I believe, by pointing to a
    single cause related to certain crop protection practices, but
    I don't believe the science supports that conclusion.
        In developing your State Managed Pollinator Protection
    Plan, how have you considered for the complexity of this issue?
        Mr. Witte. Well, thank you for the question. It is a
    complex issue, and my staff just recently completed a survey
    doing the survey work as part of their pollinator plan. We
    found that in 23 out of 24 of the hives that were surveyed,
    Varroa mite was the issue, and we started about the pests that
    were associated with the honeybee, and part of that issue is
    that we have a limited commercial population of beekeepers and
    an extensive hobbyist population of beekeepers. A lot of these
    programs don't take into account that factor and how that
    impacts the commercial beekeeping population. So we have a lot
    of work to do with both, and the beekeepers are walking side-
    by-side with us, and that is the nice thing about this MP3
    program is it is a collaborative effort, and you have to look
    at the entire picture, not just one aspect of it, all the way
    through, and that is what our group is doing.
        Mr. Thompson. Very good. Thank you.
        Thank you, Mr. Chairman. I yield back.
        The Chairman. Chairman Mike Conaway.

    OPENING STATEMENT OF HON. K. MICHAEL CONAWAY, A REPRESENTATIVE
                         IN CONGRESS FROM TEXAS

        Mr. Conaway. Thank you, Chairman Davis. I appreciate that.
    Thanks to our panel for being here.
        Mr. Murden, I want to talk to you about citrus greening and
    the revocation of pesticide registration, product registration,
    the impact it has, as well as does USDA have the infrastructure
    to fight the Mexican fruit fly?
        Mr. Murden. No. In the case of the Mexican fruit fly, we
    have a sterile rearing facility down there that is an old World
    War II Army base that was old before World War II. We put Band-
    Aids on top of Band-Aids to try to keep the thing going, and it
    is fighting a battle with two arms tied behind your back. So
    no, there are facilities around the United States that are
    deteriorating and falling apart, and we need some help there.
        In regards to the HLB problem, the citrus psyllid: just to
    back up a little bit, we have 750,000 estimated dooryard citrus
    trees in the Valley. Everybody has a lime tree in their
    backyard. So USDA and the industry go forth with collaborative
    outreach efforts based on lists of pesticides that you can go
    get at Lowe's or Home Depot. Well, EPA goes and takes them away
    from you and so the folks are in there trying to find chemicals
    that were approved and ready to go to try to help us with this
    outreach program and they are not there anymore. So we are
    sending a very mixed message as to how to go about and help. I
    hope that answered your question.
        Mr. Conaway. Yes. Someone told me that the largest orange
    tree orchard in California is in the backyards of all those
    homes out there.
        Mr. Murden. Yes. Well, that 750,000 acres in the Valley, if
    you tried to do that per acre, that's the equivalent of about
    4,000 acres.
        Mr. Conaway. Mr. Conner, given your background across a
    wide swath of service to a variety of folks, can you talk to us
    about the importance of investment in agricultural research and
    maybe some examples that has had a positive impact on the
    industry?
        Mr. Conner. Mr. Chairman, in my written and oral testimony,
    I went to this point strongly. I mean, we believe that the
    investment that this Committee has fostered and has occurred
    through our Department of Agriculture has really been
    responsible for a major decrease in the cost of producing food
    in this country whether it is pests, which have been talked
    about extensively today, technology, better food products, less
    water consumption. These are all very, very positive returns on
    investment from our work in agricultural research and we would
    encourage this Committee to continue down that course. That is
    the very positive aspect of cost of production. There is a
    negative aspect too for some of these other things but our
    investment in agricultural research has really made us the
    premier food producers on this planet.
        Mr. Conaway. Thank you.
        Mr. Vroom, all Executive Branch agencies have a set pattern
    of rulemaking they have to go through, the Administrative
    Procedures Act, all kinds of things. Have you seen EPA sending
    pesticide registrants letters telling them of new requirements
    that aren't in existing regs that they are just kind of back-
    dooring them into the system?
        Mr. Vroom. Thank you, Mr. Chairman. Yes, there is quite a
    history. It has been growing over the years but it seems to be
    more frequent occurrence. We would refer to this as regulation
    by letter as opposed to using the due process that is set out
    in the regulations under FIFRA, the jurisdiction of this
    Committee, to go to the Federal Register with notice and
    comment rulemaking, or to publish on matters of lesser
    importance, guidance in the Federal Register to do this either
    by a direct e-mail or other communication to a registrant, or
    through a press release. Sometimes we learn, by reading in
    social media or otherwise that EPA is making a change in
    direction. And so it is troubling. It is hard to have a
    predictable regulatory environment when these kinds of
    surprises occur.
        Mr. Conaway. Has EPA tried to enforce those letter-based
    requirements on a registrant? Have they put enforcement actions
    or fined anybody as a result of that?
        Mr. Vroom. Yes, absolutely, and the other aspect of this is
    that our industry for pesticide product approvals is governed
    by two laws, the FIFRA law, the pesticide law--this is the
    jurisdiction of this Committee--and the Food, Drug, and
    Cosmetic Act that is the jurisdiction of the Energy and
    Commerce Committee here on the House side. Unfortunately, the
    due-process protections for defending the tolerances that are
    established under the Food, Drug, and Cosmetic Act are a little
    lower a hurdle for EPA to prosecute and trying to revoke a
    tolerance as opposed to the more thorough adjudicatory
    protections that the pesticide company would have under FIFRA,
    and that is the reason it is troubling to us that EPA is now
    proposing to revoke only the tolerances for chlorpyrifos
    without simultaneously initiating under FIFRA a registration
    cancellation. We think that the law is clear that both laws say
    that you need a tolerance as well as a registration to come on
    to the market and that the same kind of constraint and burden
    ought to be on the regulatory authority if the regulator
    believes that there is a reason to restrict the product or to
    drive it off of the marketplace. So a lot of important matters
    that are attendant to due process that we think are being
    skipped in the current Administration, and it of course has
    occurred in other Administrations but with much more frequency
    today.
        Mr. Conaway. Thank you.
        Thank you, Mr. Chairman. I yield back.
        The Chairman. Mr. Chairman, if you had time to yield back,
    I would gladly accept it.
        Mr. Conaway. I was going to make some comment to Mr. Witte
    about a recent connection with our families but I will talk to
    you after this is over with.
        The Chairman. I learned one thing as the Subcommittee
    Chairman. If the Chairman wants to take some extra time, feel
    free.
        Mr. Conaway. You will aspire to be Chairman one of these
    days and then you will have that wonderful power.
        The Chairman. Since we are going to go ahead and go into a
    second round of questions, I had a couple I left off earlier.
        Mr. Conner, in 2012 and 2013, our counterparts over in the
    U.S. Senate overwhelmingly rejected farm bill amendments to
    allow for state-by-state GMO food labeling laws. In each vote,
    over 70 Senators sided with our Federal approach, yet now the
    Senate is being blocked from being able to bring the issue up
    for a vote on the merits, and with some companies already
    announcing their plans to reformulate food products to exclude
    biotech ingredients, what does this mean for producer
    production costs and ultimately consumer food prices?
        Mr. Conner. Thank you for the question, and I just want to
    say in front of both of you, I came in this Committee for your
    prompt action last year to solve this problem by putting in
    place a preemption of Federal labeling requirements. We
    continue to work with the United States Senate to try to get
    them to pass legislation to do the same as the House did last
    fall.
        The Chairman. Since you mentioned that, can you tell me
    where does this currently stand in the Senate? Is there some
    magical compromise yet?
        Mr. Conner. There has been one vote, as you know. That vote
    failed with the Majority Leader reserving the right to move to
    a second vote, and we are working to modify the so-called
    Roberts language in such a way that it would get to the 60 vote
    threshold in the Senate. Those negotiations are active as we
    speak.
        The Chairman. Wasn't there, like last week or 2 weeks ago,
    supposed to be a compromise that----
        Mr. Conner. Compromise, as you know, is an elusive term,
    Mr. Chairman, but----
        The Chairman. So there is no white smoke going through the
    chimney over there?
        Mr. Conner. It is down to what I would call three buckets
    of issues, and again, negotiations are very, very active. We
    remain optimistic that there will be compromise language that
    could not only get to the 60 vote threshold in the Senate and
    pass the Senate but we are hopeful, Mr. Chairman, something
    that you could take up again in the House and pass rather
    quickly because we are running out of time. July 1st, the full
    implementation of this horrible Vermont law is nearly upon us.
    The consequences of that, you mentioned food prices, $1,000 per
    family per year is the consequence of Vermont, and it is just
    simply unacceptable.
        The Chairman. I happen to agree with you, Mr. Conner, and
    while you are talking to our colleagues in the Senate, let them
    know that this bill that was a compromise over here with
    bipartisan support came out of this Agriculture Committee with
    bipartisan support out of the House, and bipartisan is pretty
    offensive to us on this side of the Capitol to hear from
    Senators say that this is their most partisan issue they are
    dealing with. Well, it didn't become partisan until it got over
    there, and we are not seeing any action, we are seeing a lot of
    talk, and you can vent some frustration to us when we pass a
    bipartisan bill that is a good compromise. Now they want us to
    take a look it again on our side. It is very difficult for us.
    So please let them know our frustrations.
        Mr. Conner. We are striving for that bipartisanship, Mr.
    Chairman. I noted earlier in the hearing that Chairman Roberts
    actually stuck his head in the door and hopefully he was on his
    way to meet with Ranking Member Stabenow to get this ironed
    out.
        The Chairman. Well, I hope the goalposts don't continue to
    move at that meeting. My staff is not happy I said that but Ms.
    Woods, you understand that, don't you?
        All right. I would like to go to Mr. Guebert next. Sorry,
    Rich. What are the Farm Bureau's top priorities for the
    research and horticulture titles in the next farm bill?
        Mr. Guebert. Well, Mr. Chairman, thank you very much for
    the question, research has always been very important to
    agriculture for new products, new technology coming onto the
    market that gives us the opportunities to grow more with less
    crop protectants, to use different crop nutrients in the right
    place, and particularly in the seed industry that gives us the
    seeds, and the technology, that we can produce more on an acre
    of cropland.
        But, our members have always had concerns about research
    and development and unbiased that come from the university
    side, land-grant colleges, but what we have seen over the years
    is a lack of funds and dollars that are available for research,
    dollars that could be passed on to different universities. It
    is getting tougher and tougher for universities to garner those
    dollars to put into the professors hands, to do the research at
    the university level where it gives farmers the greatest
    confidence of what is being done is in the best interest of the
    project, going forward.
        We have had some real challenges and issues in Illinois
    with not only research dollars but fiscal issues in the state,
    and our universities are up against some really tough times and
    competing roughly in private practice or in public-private
    partnerships to find those dollars to continue to do their
    research whether it is on the specialty grower side, ag seed
    side, whatever the issue. We need more dollars to come out into
    the land-grant universities and universities.
        The Chairman. Thank you, Mr. President. I would like to
    add, I think you would join me in applauding Governor Rauner
    for signing a recent bill that helped fund our higher education
    institutions including the University of Illinois, our land-
    grant institution that you mentioned.
        Secretary Witte, I am very sorry I was unable to wait out
    Mr. Newhouse, your former colleague. I recognize Mr. Newhouse
    for questions.
        Mr. Newhouse. You did your best, though, I could tell.
    Thank you, Mr. Chairman.
        Just a couple of more questions come to mind. We could talk
    about this issue for a long time, and like I said, I appreciate
    the focus on it, but Director Witte, you and I served together.
    I was a former director of my state's department of
    agriculture, and you coming to represent NASDA today is a
    tremendous testimony to your ability, and I just wanted to
    mention that NASDA does a great job of not only identifying
    issues, but advocating for the industry and helping to solve
    problems that we face in agriculture today. So I just wanted to
    make mention of that.
        But I did want to talk to you or ask you about some of
    these regulations that are coming down the pipeline. As you
    know, to get it right as a director of a state agency, to make
    these things work for not only a state but the farmers, for the
    consumers, our whole economy, we have to have a trust between
    the Federal regulators and the rest of us, and that
    communication is very important between the two parties. So
    keeping in mind some of the recent rulemakings whether it is
    the worker protection rules, some of the Endangered Species Act
    findings, pesticide regulations which we have talked about a
    lot, other things, would you say that there has been sufficient
    communication, trust and shared goals between the states,
    between farmers, between consumers and the Federal regulators
    who are trying to put these rules into place?
        Mr. Witte. Wow. Mr. Chairman, I am glad time is not up
    because I am very happy to address this question.
        Communication is key. States are typically co-regulators
    with the Federal laws. In the case of EPA, we have to implement
    the on-the-ground ``boots-on-the-ground'' kind of regulations
    that they come up with. Having early input is key, and we
    advocate and we try to work with the agencies to make sure our
    input is early and is structured in such a way that it's
    beneficial to the agency. On the WOTUS rule, my department
    submitted 38 pages of comments on our view of how to fix it. We
    are a dry state, but not according to WOTUS, and when you start
    thinking about the collaboration and then the on-the-ground
    implementation, the worker protection standards, the
    certification and training rule, we have to implement that, and
    in many cases we have told EPA early on that their proposed
    rules go contrary to what our existing statutes. We are going
    to need time to fix our statutes because they are going to be
    in conflict. We don't get a response back, and it is not like
    we were even at the table, and that is frustrating because we
    are the folks that have to do that, and in some cases I have
    heard states talk about if we can't implement that with our
    effective input, then we are going to turn it back to EPA, and
    that is not what the country needs.
        Agencies at the Federal level, agencies at the state level
    have limited resources, and we can't be tripping over each
    other in enforcement. It has worked very well in the past to
    have the states on the ground implementing these rules and
    doing the regulatory compliance assistance, ``educate before
    you regulate'' kind of activities, and if it is going to
    change, it is going to be bad for the agriculture, it is going
    to be bad for the country.
        So early consultation, effective consultation and having
    the agencies understand and truly look at what we are
    commenting on is key, and it hasn't been happening.
        Mr. Newhouse. Thank you very much. I appreciate that, and
    that is a good segue. I wanted to go back to Ms. Woods just
    real quickly.
        FDA, from my understanding, has been working well with
    industry, working with us as concerns come up. They have even
    suggested that there will be more time to educate growers, and
    like Director Witte said, ``educate before you regulate,''
    which is a great concept. Do you think that this will be
    ultimately helpful for growers and packers to help ease into
    the FSMA rules and will this make a difference even for some of
    those private inspectors that you talked about with some of the
    gap programs?
        Ms. Woods. I can tell you that our members certainly did
    appreciate especially Deputy Commissioner Michael Taylor's
    outreach to the industry while these rules were being
    developed, and we certainly do appreciate his intent to take an
    ``educate before you regulate'' approach. Part of our concern
    is FDA traditionally has been a very enforcement-minded agency,
    and it would really take a change in culture all the way down
    to the auditor, who is going to be visiting these farms and
    packing houses, to really achieve this ``educate before you
    regulate'' ideal.
        Second, Deputy Commissioner Taylor is going to be stepping
    down from the agency next month, and by the time the Produce
    Safety Rule is actually implementing, we are going to be
    entering a new Administration. So we would certainly like to
    see that ``educate before you regulate'' approach come down.
    And in addition, almost the reverse as well where the agency
    continues to work with industry on identifying concerns and
    really relying on their expertise as well to help identify the
    positions that they ultimately end up taking, but we are not
    relying that that is actually going to be what ends up
    happening.
        Mr. Newhouse. Yes, I would like to see that too and we will
    continue to work with the agency. In my experience, and I'm
    sure Secretary Witte's experience, it is much better to help
    people into compliance than it is to beat them into submission,
    and so hopefully we can follow along that line of thinking.
        Unless there is a third round of questioning, Mr. Chairman,
    I will relinquish my time. Thank you.
        The Chairman. I am going to finish that third round of
    questioning really quickly with one last question for each
    member of the panel.
        Please for time's sake and my hunger's sake limit it to 1
    minute. I just want to know from each of you if the EPA or the
    USDA were sitting where you are today and you are sitting in my
    chair, what is the most pressing question your organization
    would ask them relating to their impact on the rural economy?
    It doesn't have to be a question either. You can make a
    statement. Go ahead. We will start--actually, we are going to
    go to this way. Mr. Vroom. Go ahead, Jay.
        Mr. Vroom. Thank you, Mr. Chairman. So it very simply is,
    put the right priority on the right science as you apply that
    base of facts to your regulatory decision-making and policy
    establishment. Again, it is not for today as much as it is for
    the future, laying the groundwork for the precedents that will
    lead us forward to continue to be a world leader with regard to
    innovation and research in both the public- and private-sectors
    so those future tools--and I have the benefit of seeing behind
    the curtain with some of our member companies some of the
    really exciting new technologies that are out there, and I
    would just also like to commend Mr. Thompson for having
    mentioned the youth organizations, 4-H and FFA, that are
    training the young people to be ready to farm and to be ready
    to be in agribusiness and to serve in government as well
    because those organizations are really vital. I happen to have
    the honor of serving on the National FFA Foundation Board right
    now and can tell you that what Mr. Guebert talked about, those
    youth organizations are essential because farming and
    agribusiness today is so complicated that they have to have
    that training to go forward.
        The Chairman. Thank you. Mr. Murden?
        Mr. Murden. My message would be simple to EPA is, think
    before you issue damning press releases with half-truths.
        The Chairman. Thank you.
        Mr. Murden. They are hurtful.
        The Chairman. They are very much so. Thank you for your
    comments, and thank you for gaining some time back from Mr.
    Vroom.
        Rich?
        Mr. Guebert. Just three things. One, don't throw science
    out with the bathwater. Use that and bring common sense back to
    the table to make it work.
        The Chairman. So you can't cherry-pick when you want to
    believe science?
        Mr. Guebert. Right. Don't pick and choose. And last but not
    lease, don't handicap the farmer and industry to provide the
    opportunity to feed the world. We have millions of mouths to
    feed. We can do it, we have done it, and we will continue to do
    it.
        The Chairman. Thanks, Rich.
        Ms. Woods, are you having fun yet?
        Ms. Woods. Oh, yes.
        The Chairman. All right.
        Ms. Woods. I would say rely on actual data whenever
    possible and not modeling.
        The Chairman. Thank you.
        Ms. Torrey?
        Ms. Torrey. I am going to echo many of the things that have
    been said, but we need to make decisions using guidance from
    the grassroots and from people actually in the field. Also,
    decisions need to be made on sound science, and we need to make
    our regulations simpler and easier to understand.
        The Chairman. Thank you very much.
        Secretary Witte?
        Mr. Witte. Yes. My farmers tell me certainty and
    consistency are key to our success. There is a reason why we do
    a farm bill over 5 years for many reasons, but farming is not a
    1 year endeavor. You plan for the next cycle, and the cycle can
    be long-term. So regulatory certainty is key to success, and
    you have to be consistent in your implementation of the
    regulations.
        The Chairman. Thank you, Mr. Secretary.
        Mr. Conner.
        Mr. Conner. My admonishment to them, Mr. Chairman, would
    be, believe in your science, stay true to it, but then help us
    communicate the results of that to consumers and the general
    public.
        The Chairman. Well, thank you, and I would like to add, the
    next time any of you talk to the EPA, can you let them know we
    would appreciate them actually appointing somebody to the ag
    portion of the Science Advisory Board? It seemed like an easy
    thing to do 2 years ago but obviously not.
        In closing, I do want to say again thank you to each and
    every one of you for taking the time today. Your testimony is
    crucial. As I laid out in my opening statement, what we are
    trying to do on this Committee and each Subcommittee is to lay
    out how we can actually ensure that the agricultural economy of
    this country continues to feed the world and continues to
    remain strong.
        We all have our own geographical differences. We all have
    our own issues that each of your organizations face, but in the
    end we all fall under that umbrella of agriculture, and when we
    fall under that umbrella of agriculture, I see success, and
    success from each and every one of you and your organizations.
        Now, I want to remind each witness that there will likely
    be questions submitted to each of you for the record. Unlike
    the EPA, I don't think there will be 36 pages. However, I would
    encourage you, otherwise you risk the wrath of me making fun of
    you later for not responding, please respond to those
    questions. They will be done in a bipartisan way.
        I would now invite my Ranking Member to offer any closing
    remarks. Seeing none, I would like to remind, for housekeeping
    duties, under the rules of the Committee, the record of today's
    hearing will remain open for 10 calendar days to receive
    additional material and supplemental written responses from the
    witnesses to any questions posed by a Member.
        This hearing of the Subcommittee on Biotechnology,
    Horticulture, and Research is adjourned.
        [Whereupon, at 12:13 p.m., the Subcommittee was adjourned.]
        [Material submitted for inclusion in the record follows:]
      Supplementary Material Submitted by Robert L. Guenther, Senior Vice
     President, Public Policy, United Fresh Produce Association; on Behalf
            of Maureen J. Torrey, Vice President, Torrey Farms, Inc.
    June 3, 2016

    Hon. Rodney Davis,                   Hon. Suzan K. DelBene,
    Chairman,                            Ranking Minority Member,
    Subcommittee on Biotechnology,       Subcommittee on Biotechnology,
     Horticulture, and Research,          Horticulture, and Research,
    House Committee on Agriculture,      House Committee on Agriculture,
    Washington, D.C.;                    Washington, D.C.

    Re: Supplemental Comments for the Record: House Committee on
                Agriculture, Subcommittee on Biotechnology, Horticulture
                and Research Hearing: Focus on the Farm Economy--Factors
                Impacting the Cost of Production

        Dear Chairman Davis and Ranking Member DelBene:

        United Fresh Produce Association commends the House Agriculture
    Committee for holding hearings regarding the current state of various
    agriculture sectors. We also appreciate the opportunity to have our
    Member and former Chairman of the Board, Maureen Torrey of Torrey
    Farms, Elba, NY, testify before the Biotechnology, Horticulture and
    Research Subcommittee on April 27 on the topic of factors affecting the
    cost of agriculture production. United Fresh is also grateful for the
    opportunity to provide these supplemental views for the hearing record
    on questions posed by Members of the Subcommittee. In addition to the
    comments provided in Maureen's testimony, we would like to elaborate
    further on a variety of issues of interest to the fresh fruit and
    vegetable industry.
        Regarding the subject of biotechnology, in February of this year,
    USDA announced to the public, through a 14 page notice of intent in the
    Federal Register, its plan to completely re-write the United States'
    pre-market biotechnology regulatory framework called ``Part 340.''
    United Fresh joined with industry counterparts to submit the attached
    comments to the docket.
        As the Committee is aware, United Fresh Produce Association serves
    at the coordinating organization for the Specialty Crop Farm Bill
    Alliance, which has provided farm bill policy recommendations to
    Congress for each farm bill since 2002. Our industry is grateful to the
    Committee and Congress for acting favorably on the Alliance's
    recommendations.
        Each year that the Alliance has offered farm bill recommendations,
    we have stressed that Federal resources for research for specialty
    crops is among our top policy priorities.
        As Congress began work on the 2014 Farm Bill, the Alliance provided
    a variety of recommendations on priorities to address research needs
    such as:

       threats from pests and disease;

       mitigating the negative impact of drought on specialty
            crops;

       technological innovations;

       improved prevention, detection, monitoring and response to
            food safety hazards; and

       improved plant breeding and genetics.

        The Alliance also recommended that industry relevance play a
    greater role in determining the allocation of Specialty Crop Research
    Initiative (SCRI) grants. We are grateful to the Committee for
    incorporating this proposal into the 2014 Farm Bill and believe that
    such an effort will enhance producer support and interest in the grants
    process. Our members have expressed that the relevancy review process
    is very helpful toward the goal of ensuring that research projects have
    a direct effect on grower needs. Prior to the inclusion of the
    relevancy review process, United Fresh members voiced concerns that
    projects funded under the SCRI process may have had scientific merit,
    but not did not necessarily address the real-world needs of producers.
    We believe that the current process to make industry input a greater
    part of the review effort helps to ensure that research dollars are
    wisely spent. Examples of beneficial research include such efforts as
    disease management and mechanical harvesting in blueberry production;
    Fusarium wilt research in watermelon production; Phytophera c. disease
    management in peppers and melons, as well as research on issues in
    onion post-harvest and variety development in broccoli.
        As the Committee has indicated, the value of SCRI and other
    programs is heightened by grower awareness of these programs. While
    additional outreach efforts would be welcome and we would be pleased to
    work with the Committee and USDA on how best to develop such efforts,
    our members report that there seems to be a significant level of
    information disseminated about research programs through extension
    services, as well as industry publications and meetings.
        Questions have also been raised about the impact of EPA's proposed
    Worker Protection Standard rule, which is set to become effective in
    January 2017. As the Committee is aware, this rule sets new standards
    for the training of and handling of pesticides by farmworkers. Ensuring
    the safe and proper handling of crop protection chemicals is a top
    priority for any conscientious grower. However, United Fresh and many
    others in the agriculture community have expressed concern with the
    manner in which this rule was promulgated, particularly with respect to
    the insertion late in the process of a provision known as the
    ``designated representative'' provision. Under this proposal, farm
    workers may authorize a designated representative to receive pesticide
    application-specific information for the operation that employs them.
    To some, this may seem reasonable, but United Fresh sees a number of
    potential problems with this provision. Our concerns were articulated
    in a letter, signed by United Fresh and other agriculture
    organizations, to the [Chairman] and Ranking Member of the Committee in
    March of this year and include:

       Farmers have no way of authenticating such designations.

       Farmers may be legally liable even when presented with
            fraudulent designations.

       There are no restrictions whatsoever on what ``designated
            representatives'' may do with farm-specific data once they have
            obtained it.

       Under the rule, ``designated representatives'' are not
            required to share the information they receive with the workers
            who have supposedly signed the designation (thus, undercutting
            any assertion that this provision would improve worker safety).

       Release of the information is not related in any way to
            exposure, health or risk to the worker.

       There are no provisions in the rule sanctioning third
            parties who abuse the provision.

        Given the lack of transparency in the process for bringing this
    rule forward and the lack of accountability in the rule's provisions,
    we urge the Committee to work to ensure that worker safety programs
    such as this maintain high standards of safety for farm workers,
    without increasing growers' vulnerability to spurious attacks by third
    parties with a political agenda to promote.
        Again, thank you to the Committee for holding this hearing and
    opening the record for additional comments. As always, United Fresh
    Produce Association welcomes future opportunities to work with the
    Members of the Committee to develop policies that enhance the
    competitiveness of the specialty crop industry and promote the success
    of America's farmers.
                Thank you for your time and attention,
                [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Robert L. Guenther,
    Senior Vice President, Public Policy,
    United Fresh Produce Association.
                                   attachment
    April 21, 2016

      Sidney W. Abel,
      Regulatory Services,
      Animal and Plant Health Inspection Service.

    Re: Docket No. APHIS-2014-0054 Environmental Impact Statement on the
                impacts of possible revisions to the biotechnology
                regulations

        Dear Mr. Abel,

        On behalf of the organizations listed below that represent many of
    the producers of specialty crops in the United States, we offer the
    following comments submitted in response to the request for comments by
    the USDA Animal and Plant Health Inspection Service (APHIS) on the
    agency's Notice of Intent (NOI) to prepare an Environmental Impact
    Statement (EIS) on the impacts of possible revisions to the
    biotechnology regulations (7 CFR part 340). The process established by
    Part 340 is important to the specialty crop industry as it impacts the
    ability to utilize potentially important technologies that can improve
    the nutritional value and production efficiency of the fruits and
    vegetables we produce.
        We oppose the NOI APHIS proposed working definition for
    ``biotechnology'' that would essentially define the initial scope of
    products that would be subject to any of the alternatives described in
    the Notice of Intent:

              Laboratory based techniques to create or modify a genome that
            result in a viable organism with intended altered phenotypes.
            Such techniques include, but are not limited to, deleting
            specific segments of the genome, adding segments to the genome,
            directed altering of the genome, creating additional genomes,
            or direct injection and cell fusion beyond the taxonomic family
            that overcomes natural physiological reproductive or
            recombination barriers.

        This definition is much broader than what is found in current
    regulations and is entirely based on the process by which a new plant
    variety is developed. If applied to Part 340, this definition would
    require pre-market regulatory review of many modifications that could
    be achieved through conventional breeding. Such a change is not
    warranted and should not be pursued. With our advanced knowledge of the
    genome of a tomato we could, for example, identify which tomato genes
    impact water use. With that knowledge we could use genes from a wild
    tomato variety that uses less water and insert them into commercial
    tomato plants in order to improve water use efficiency. While this type
    of cross-breeding (between otherwise compatible plants) could be
    accomplished using existing breeding techniques, doing so would take
    many, many years. Yet with advanced genome techniques, we will be able
    to save significant time and cost off the breeding process. Likewise
    with modern gene technology we are in a position to more accurately
    identify genes within a plant that control certain traits; thus rather
    than spending years or decades using traditional breeding techniques to
    ``turn off'' or ``turn down'' these genetic traits, we can do so in a
    more timely fashion. Historically, we have--as only one example--bred
    apples to be more or less sweet using traditional breeding techniques
    in which we identify apples with such a trait and then emphasize that
    trait, yet using current science we are able to make those types of
    alterations within plants more quickly. Nothing USDA is considering in
    this rulemaking should alter or inhibit this type of scientific
    advancement all of which is an evolution of existing breeding
    techniques using modern technology.
        We believe that the current policies for evaluating the risks to
    health and the environment that may accompany the introduction of
    plants derived from biotechnology have been effective and have not been
    unduly restrictive in allowing innovative technologies to enter the
    market place. The current policies rely largely on the Coordinated
    Frame Work for the Regulation of Biotechnology (Coordinated Framework)
    established by the Executive Branch in 1986. The Coordinated Framework
    incorporated existing Federal laws to utilize the authority and
    expertise of established agencies to evaluate products developed using
    biotechnology. The evaluation of plants developed using biotechnology
    by the USDA is a clear example of why this approach has worked
    effectively. Under this approach USDA applies its significant knowledge
    of growing plants in the environment to evaluate the safety of food
    products regardless of their technological origin.
        Throughout the history of modern agriculture, farmers have needed
    to innovate to be successful and to satisfy the nutritional needs of a
    rapidly growing population. Innovation has allowed agriculture to
    achieve unprecedented success in meeting both food security and
    environmental challenges. In plant agriculture, advances in breeding
    new and improved varieties has been the cornerstone of this success.
    Our advanced knowledge of the genetic structure of fruits and
    vegetables allows improved varieties to be developed more directly and
    more consistently.
        The use of biotechnology is only one aspect of the application of
    this new knowledge. We believe that oversight of this array of new
    enhanced breeding techniques must be rooted in the principle that
    Federal oversight is based on an evaluation of the potential risk from
    the introduction, and not the process, by which it was developed.
    Failure to apply that principle will result in unnecessary costs and
    delays in bringing new products to the marketplace.
        USDA should utilize its existing authority to conduct oversight of
    any new plant varieties in order to protect U.S. agriculture from the
    risks associated with the possible introduction of plant pests and
    noxious weeds. Significant pre-market oversight is only necessary when
    there is reason to believe that the new variety presents a risk to the
    environment based on a potential risk, not the development process. We
    believe it unlikely that new varieties resulting from many advanced
    breeding techniques will require any significant oversight since the
    resulting variety will be indistinguishable from varieties developed by
    conventional breeding techniques.
        Finally, we urge the agency to conduct a robust process to obtain
    input from plant breeders and agricultural producers. We believe that
    their input will strongly support the idea that any changes to the
    current system should be minor and targeted and should allow more
    flexibility to utilize appropriate discretion on which new varieties
    require regulatory oversight. The long safety history and documented
    value of products developed through advanced breeding techniques
    including biotechnology strongly support this approach. Based on the
    current flexibility contained in USDA regulations and USDA's
    significant experience in previous reviews of similar traits developed
    through biotechnology, it may be possible to eliminate the need for
    pre-market regulatory review for many products.
        We appreciate the opportunity to provide these comments to the
    docket on USDA's proposed changes. In coming years, farmers will need
    to provide more food to more people using less resources. Innovation
    has always been critical to our industry and as it will be in the
    future. USDA should not make decisions today that make necessary
    innovations of the future more costly and difficult to achieve.
                Sincerely,

    United Fresh Produce Association;    Idaho Potato Commission;
    National Potato Council;             Empire State Potato Growers;
    U.S. Apple Association;              New York Apple Association;
    Fresh Produce Association of the     Oregon Potato Commission;
     Americas;
    Western Growers;                     Texas Citrus Mutual;
    California Fresh Fruit Association;  Texas International Produce
                                          Association;
    Grower-Shipper Association of        Texas Vegetable Association;
     Central California;
    Florida Tomato Exchange;             Washington State Potato Commission;
    Georgia Fruit and Vegetable Growers  Wisconsin Potato & Vegetable
     Association;                         Growers Association.
    Idaho Grower Shippers Association;

                                     ______

      Supplementary Material Submitted by Jay Vroom, President and Chief
                      Executive Officer, CropLife America
                         letter to hon. gina mc carthy
    April 13, 2016

      Hon. Gina McCarthy,
      Administrator,
      U.S. Environmental Protection Agency.

        Dear Administrator McCarthy:

        As organizations representing U.S. agriculture and users of crop
    protection tools and pest control products, we are deeply concerned
    about EPA's planned Scientific Advisory Panel (SAP) meeting, April 19
    to 21, to change the long-accepted, science-based regulatory endpoint
    for the pesticide chlorpyrifos, and we ask you to postpone this hastily
    called meeting.
        Chlorpyrifos is a widely-used and widely-tested chemistry proven to
    be safe and effective for an array of commodities, specialty crops, and
    public health uses throughout the United States.
        With this hasty and rushed SAP, EPA is attempting to fundamentally
    alter its process for evaluating potential risk and regulation of
    pesticides. EPA is moving forward as if the current regulatory process
    developed over 4 decades is broken. Recognizing the abruptness of this
    shift in approach and potential impact to all pesticides, the standards
    to be met for such a change should be set high. The failure to adhere
    to policies and regulations, reliance on a single epidemiological study
    for which the Agency does not even possess the underlying data, and
    lack of a solid basis for the most fundamental assumptions, do not meet
    such a high scientific or policy standard.
        This not only would adversely affect chlorpyrifos; it also sets a
    terrible precedent for other organophosphates and pesticides. This also
    comes at a time when America's production agriculture is facing low
    commodity prices and strained budgets. If EPA proceeds with this
    European-style precautionary approach not based on sound scientific
    principles, we are going to lose valuable crop protection tools.
    Unfortunately, this path would have a chilling effect on the ability of
    companies to bring new and improved products to market--an objective
    sought by EPA--and further harm producers' ability to protect crops and
    compete in domestic and international markets.
        We respectfully ask you to postpone the SAP until there is
    appropriate attention given to the scientific validity of the
    underlying assumptions for this dramatic change in how pesticides are
    regulated. Not only are there scientific questions, but only days have
    been given to review what the Agency has prepared and distributed to
    SAP members and the public.
        Our organizations believe that the Agency's lack of transparency is
    a violation of established EPA processes for review of products under
    the Federal Insecticide, Fungicide & Rodenticide Act (FIFRA). Within
    FIFRA, EPA also is required to review the best available data. In the
    process involving chlorpyrifos, the Agency has fallen woefully short of
    statutory requirements and as stakeholders we expect a consistent and
    scientific approach based on the law.
        We look forward to your response.
                Sincerely,

    Agricultural Retailers Association;  Golf Course Superintendents
                                          Association of America;
    Almond Hullers & Processors          National Agricultural Aviation
     Association;                         Association;
    American Farm Bureau Federation;     National Association of State
    AmericanHort;                         Departments of Agriculture;
    American Soybean Association;        National Association of Wheat
                                          Growers;
    American Society of Sugar Beet       National Corn Growers Association;
     Technologists;
    American Sugarbeet Growers           National Cotton Council;
     Association;
    Beet Sugar Development Foundation;   National Council of Farmer
                                          Cooperatives;
    California Citrus Mutual;            National Pest Management
                                          Association;
    California Citrus Quality Council;   National Potato Council;
    California Cotton Ginners            National Sorghum Producers;
     Association;
    California Cotton Growers            North American Blueberry Council;
     Association;
    California Date Commission;          Northwest Horticultural Council;
    California Dried Plum Board;         Sunsweet Growers Inc.;
    California Fig Advisory Board;       United Fresh Produce Association;
    California Fresh Fruit Association;  U.S. Apple Association;
    California Specialty Crops Council;  Valley Fig Growers;
    California Strawberry Commission;    Washington Friends of Farms &
                                          Forests;
    California Walnut Commission;        Washington State Potato Commission;
    Cranberry Institute;                 Western Agricultural Processors
                                          Association;
    CropLife America;                    Western Growers Association.
    Florida Fruit & Vegetable
     Association;

    CC:

    Secretary Thomas ``Tom'' J. Vilsack;
    Jason Furman, Chairman of the Council of Economic Advisers;
    Jeffrey Zients, Director of the National Economic Council;
    Christy Goldfuss, Managing Director, White House Council on
    Environmental Quality;
    Chairman Pat Roberts;
    Senator Debbie Stabenow;
    Chairman K. Michael Conaway;
    Congressman Collin C. Peterson.
          submitted comments concerning the scientific advisory panel
    EPA's Precedent-Setting Proposal for a New PoD for Chlorpyrifos is Not
            Based on Sound Science or Established Policy (Initial comments
            by Dow AgroSciences, LLC. April 8, 2016)
    Introduction
        Over 4 decades of carefully developed and designed testing programs
    and risk assessment approaches for how EPA evaluates pesticides are
    being set aside without solid justification for such an abrupt and
    drastic change. The foundations used by EPA for the proposed process
    for setting a new Point of Departure (PoD) for chlorpyrifos, which is
    the subject of this Scientific Advisory Panel (SAP) (April 19-21), fail
    to meet scientific and policy standards. Positions presented as fact
    are, in reality, not supported. Before the specific charge questions
    asked of this SAP are addressed, these foundations should first be
    considered. More relevant charge questions for the SAP should focus on
    how as new hypotheses are generated from epidemiology studies, the EPA
    must establish a science-based approach to evaluate the evidence under
    the standards set for guideline studies.
        This precedent-setting proposal jeopardizes the established,
    accepted science-based regulatory process. The impact of the proposed
    changes to determining a PoD goes beyond just the discussion of
    chlorpyrifos before this SAP. This approach will change regulatory
    endpoints by several orders of magnitude. If adopted, the regulatory
    status of many crop protection products will change and tools needed by
    American farmers will be lost.
        The following are initial comments by Dow AgroSciences. Further,
    more extensive comments will be provided. In addition to these, SAP
    members are referred to supportive articles and information cited at
    the end of these comments.
    EPA's Failure To Follow Established Policies Undermine the Scientific
            Validity of the Proposed Approach To Setting a PoD
        EPA cites a ``transparent process'' and ``systemic reviews'' as
    included in the 2014 Revised Human Health Risk Assessment, then updated
    for the 2015 Literature Review on Neurodevelopment Effects & FQPA
    Safety Factor Determination for the Organophosphate Pesticides
    (Literature Review), and then repeated in the 2015 Chlorpyrifos;
    Tolerance Revocations; Proposed Rule. However, it must be noted EPA has
    not responded to or otherwise addressed public comments submitted in
    response to these documents. EPA is obligated to do so under the
    Federal Insecticide, Fungicide, and Rodenticide Act (``FIFRA'') and the
    Federal Food, Drug, and Cosmetic Act (``FFDCA'') and their implementing
    regulations. The comments submitted by registrants, academics and
    stakeholders are directly relevant to the issues before this SAP and
    should be considered.
        EPA cites OPP's development of a 2010 draft Framework for
    Incorporating Human Epidemiological & Incident Data in Health Risk
    Assessment (Draft Framework). However, EPA has never responded to
    public comments solicited by EPA on this draft, and the Draft Framework
    has never been finalized. Giving epidemiology studies more weight than
    the extensive, required animal studies is premature and not well-
    supported if public comments have not been addressed and the Draft
    Framework not finalized.
    EPA's Reliance on the Columbia University (CCCEH) Study Undercuts the
            Basic Scientific and Regulatory Foundation for the Proposal
            Before This SAP
        A critical, fundamental question is whether data from a single
    epidemiology study can be used to replace decades of animal-based
    research to derive a new regulatory endpoint for chlorpyrifos. The
    regulatory process for accessing human health risks should be rigorous,
    science-based, and transparent; FIFRA, FFDCA, and FQPA (Food Quality
    Protection Act) demand no less. Fundamental to the discussion before
    the SAP is EPA's precedent-setting reliance on the reported results of
    the Columbia Study (CCCEH)--for which the Agency still lacks the
    complete underlying data and for which the scientific validity and
    transparency have been challenged. The Agency has been made aware of
    these challenges in several sets of comments to the chlorpyrifos
    dockets as well as in a critical review by D. Edwards, et al. (2014),
    which has been placed in the docket for this SAP.
    Analyses by CCCEH Researchers Do Not Eliminate the Need for Access to
            the Raw Data
        The EPA is evaluating the CCCEH maternal and cord blood data based
    only upon a frequency distribution provided by the investigators in
    published articles, not the actual data. Although challenged in
    repeated comment periods, EPA has not obtained the complete raw data in
    order for their own independent analysis and verification or peer-
    review. Many potential misinterpretations and even false conclusions
    are possible without full analyses of raw data. EPA could not have
    adequately accomplished a complete analysis and confirmation of finding
    in the few meetings and analyses cited. EPA has repeatedly sought,
    without success, all the raw data from the study researchers and has
    previously stated that it could not undertake dose reconstruction and
    analyses of other chemical exposures without the raw data.
    The Health Endpoint Selected Is Speculative
        EPA is proposing to use a health endpoint, working memory from an
    IQ test, from a single epidemiology study, which has not been
    replicated in other epidemiology studies. The Agency does not have
    expertise in epidemiology, intelligence testing, or pediatrics to
    select this as the best endpoint, nor are the charge questions for the
    SAP directed at the appropriateness of this endpoint.
        EPA makes assumptions that are unsubstantiated by published reviews
    of the CCCEH and other epidemiology studies. Multiple peer-reviewed
    publications consistently concluded that at exposure levels below
    acetylcholinesterase inhibition, the evidence for adverse human effects
    did not support these assumptions. (Burns, et al. 2013; Eaton, et al.
    2008; Li, et al. 2012; Prueitt, et al. 2011; Reiss, et al. 2015). These
    publications challenge the confidence for using a new endpoint.
    Weakness in the Science Undermines the Validity of the Proposed PoD
        Weaknesses in the science used to determine the proposed PoD have
    not been adequately investigated and addressed. For such an abrupt and
    dramatic change in overriding established regulatory approaches and
    policies, the standard for setting a new PoD should be much higher than
    offered by the current proposal
        CCCEH researchers have not accounted for the impact of all
    potential, well-recognized confounding factors and EPA has failed to
    conduct any type of sensitivity analysis. Some members of the 2012 SAP
    cautioned about associating the observed effects in the CCCEH studies
    with a single chemical since there were multi-chemical exposures over
    many important developmental years for the children. This issue has not
    been resolved by the EPA. Therefore, attributing independent
    physiological effects to a single chemical in this type of multi-
    chemical exposure scenarios is speculative.
        Chlorpyrifos has been widely-tested in studies that have identified
    a clear Mode of Action (MOA) for potential causation at exposures which
    result in cholinesterase inhibition. The current proposal does not put
    forth a MOA for neurodevelopmental effects at exposures lower than
    associated with cholinesterase inhibition. While EPA notes other cases
    where a MOA for non-pesticides has not been determined, EPA's own 2010
    Draft Framework requires that one be identified for the valid use of
    data from epidemiology studies. Since the extensive animal study data
    base for chlorpyrifos provides clear biological endpoints and MOA's,
    any causal relationship between exposure and effects based on the CCCEH
    is doubtful.
    Retention of the 10X Intraspecies Uncertainty Factor (UF) and of the
            Increase in the FQPA Safety Factor to 10X Are Not Based on
            Sound Science
    Reference to the 10X Intraspecies UF Approach for Methyl Mercury (MeHg)
            Is Not Relevant
        EPA notes that a 3X and 3X (PK/PD) uncertainty factor was used for
    MeHg as support for a 10X intraspecies UF for chlorpyrifos. However,
    there are critical differences between heavy metals such as methyl
    mercury and chlorpyrifos. For methyl mercury, the biological target has
    been shown to be various brain tissues, the half-life is significantly
    longer, and there is a known positive fetal-maternal gradient, all of
    which are profoundly different than chlorpyrifos, particularly if the
    EPA is proposing a non-cholinergic mechanism in the CCCEH study.
    Therefore, MeHg is not relevant nor a valid case study to inform on or
    regulate chlorpyrifos.
    PBPK Model Has Been Updated for Life-Stages of Pregnancy
        EPA notes in the supporting document that the PBPK-PD model was
    updated and submitted to the EPA in April 2015 to address life-stages
    of pregnancy. Updates included predictions of physiological, anatomical
    and chlorpyrifos--specific biochemical changes associated with
    pregnancy and their impact on cholinesterase inhibition in pregnant
    women. These model enhancements were based on well published and
    validated approaches for incorporating pregnancy into models of this
    type. The relevant Data Derived Extrapolation Factor (DDEF) for
    protecting >99% of the population is 4 for all cohorts. As a result,
    the 10X intra-species extrapolation factor for pregnant women could be
    set to 4X. EPA now states the model was not validated with
    chlorpyrifos-specific PK data and therefore cannot be used for this
    life-stage. Although having the model for almost a year, EPA has not
    brought these questions to the researchers to resolve. Rather than
    rejecting the model for this life-stage, EPA should work to address the
    issues and refine the uncertainty factor.
    An FQPA Safety Factor of 10X Is Not Justified
        EPA cites its 2015 Literature Review as justification for
    increasing the FQPA Safety Factor from 1X to 10X. However, the 2015
    Literature Review is significantly flawed and reliance on it lacks a
    sound scientific basis. It is built around an attempt to integrate non-
    occupational epidemiology studies that had low to unconfirmed exposure
    with the high dose toxicological endpoints derived from scientifically
    valid animal data.
        In the Literature Review, there are critical errors in the
    approach, process, and conclusions: (1) review of published literature
    is incomplete, (2) quality assessment of the literature is arbitrary
    and capricious, (3) estimates of OP exposures are subject to error, (4)
    there is arbitrary use of suggestive evidence for null data, and (5)
    EPA's own 2010 Draft Framework is poorly followed. Burns (2015) offers
    a critical evaluation of the Literature Review and has been placed in
    the current docket.
    Conclusions
        EPA is attempting to fundamentally alter the methodology and
    process for evaluating potential risk and regulation of pesticides.
    Central to this is EPA's premise that the current regulatory process
    developed over 4 decades is broken and in the case of chlorpyrifos,
    that the current reliance on cholinesterase inhibition is not
    adequately protective. Recognizing the abruptness of this shift in
    approach and potential impact to all pesticides, the standards to be
    met for such a change should be set high, including, the use of sound,
    validated, replicable science. The failure to adhere to policies and
    regulations, the limitations of the studies used as support, weaknesses
    in the science of determining a new PoD, and lack of a solid basis for
    the most fundamental assumptions, do not meet such a high scientific or
    policy standard.
    References and Additional Supporting Materials
    Review of EPA's Literature Review
        Burns, C. 2015. Comments on EPA's Literature Review on
    Neurodevelopment Effects & FQPA Safety Factor Determination for the
    Organophosphate Pesticides (document posted in docket EPA-HQ-OPP-2010-
    0119). Dated December 22, 2015. Available in dockets: EPA-HQ-OPP-2010-
    0019; EPA-HQ-OPP-2015-0653 and the current EPA-HQ-OPP-2016-0062.
    Review and Challenges to the Columbia Study (CCEH)
        Edwards, D., Juberg, D., Burns, C., Goodman, J., Li, A., Bartels,
    M., Lickfeldt, D., 2013. Epidemiology Studies Pertaining to
    Chlorpyrifos Exposures: Consideration of Reliability and Utility.
    Submitted by Dow AgroSciences to EPA November 12, 2013. Available in
    dockets: EPA-HQ-OPP-0850-0224; EPA-HQ-OPP-2015-0653 and the current
    EPA-HQ-OPP-2016-0062.
    Related to Lack of Adverse Effects Below the Level of
            Acetylcholinesterase Inhibition
        Burns, C.J., McIntosh, L.J., Mink, P.J., Jurek, A.M., and Li, A.A.
    2013. ``Pesticide exposure and neurodevelopmental outcomes: review of
    the epidemiologic and animal studies,'' J. Toxicol. Environ. Health B.
    Crit. Rev. (16:3-4), pp. 127-283.
        Eaton, D.L., Daroff, R.B., Autrup, H., Bridges, J., Buffler, P.,
    Costa, L.G., Coyle, J., McKhann, G., Mobley, W.C., Nadel, L., Neubert,
    D., Schulte-Hermann, R., and Spencer, P.S. 2008. ``Review of the
    toxicology of chlorpyrifos with an emphasis on human exposure and
    neurodevelopment,'' Crit. Rev. Toxicol. (38 Suppl. 2), pp. 1-125.
        Li, A.A., Lowe, K.A., McIntosh, L.J., and Mink, P.J. 2012.
    ``Evaluation of epidemiology and animal data for risk assessment:
    chlorpyrifos developmental neurobehavioral outcomes,'' J. Toxicol.
    Environ. Health B. Crit. Rev. (15:2), pp. 109-184.
        Prueitt, R.L., Goodman, J.E., Bailey, L.A., and Rhomberg, L.R.
    2011. ``Hypothesis-based weight-of-evidence evaluation of the
    neurodevelopmental effects of chlorpyrifos,'' Crit. Rev. Toxicol.
    (41:10) Nov, pp. 822-903.
        Reiss, R., Chang, E.T., Richardson, R.J., and Goodman, M. 2015. ``A
    review of epidemiologic studies of low-level exposures to
    organophosphorus insecticides in non-occupational populations,'' Crit.
    Rev. Toxicol. (45:7), pp 531-641.
    Submitted to EPA-HQ-OPP-2016-0062
      Dow AgroSciences, LLC,
      9330 Zionsville Rd.,
      Indianapolis, IN 46268.
                                     ______

       Submitted Letter by Bill Bond, Executive Director, Minnesota Crop
                              Production Retailers
    Wednesday, May 11, 2016

      Hon. Rodney Davis,
      Chairman,
      Subcommittee on Biotechnology, Horticulture, and Research,
      House Committee on Agriculture,
      Washington, D.C.

        Dear Chairman Davis,

        This correspondence is submitted for the record related to the
    April 27, 2016 hearing in the House Subcommittee on Biotechnology,
    Horticulture, and Research titled Focus on the Farm Economy: Factors
    Impacting Cost of Production in which the EPA regulation was a topic
    discussed. As a 60 year old agribusiness association in Minnesota we
    have witnessed an unprecedented series of missteps and confusing
    initiatives and statements which are a major concern to our 250 members
    who serve the 70,000 Minnesota farmers as they strive to provide food,
    feed, and fiber for the U.S. citizens and [the] world population.
        EPA's recent actions diverge from historical practices and/or law.
    MCPR is encouraging Congress to increase its oversight of EPA. Examples
    of worrisome Agency actions are below:

       Issuance by EPA of letters to companies requesting they
            withdraw pending applications for new uses and re-submit with
            additional, time consuming and costly data not originally
            required, slowing time to market and limiting IPM tools. EPA
            also stated they would not consider new applications for uses
            without the additional data but have failed to justify the
            change in policy.

       EPA issued a benefits analysis for treated soybeans without
            engaging agricultural economics experts at USDA. The Department
            of Agriculture responded with a public letter chastising EPA
            for conducting an ``incomplete'' study and for creating
            confusion for farmers.

       In an odd move, the EPA appealed to the 9th Circuit to
            request the court vacate the Agency's registration of the
            combined use of two established herbicides. NGOs had petitioned
            EPA to cancel the registration citing documents from the patent
            filings from Dow that may have indicated ``synergistic
            effects'' would increase toxicity when the two products are
            combined. It is odd that the Agency essentially sued itself
            over its own action, which undermines confidence in its
            processes.

       EPA released a risk assessment [in] selected media, along
            with a related press release, before releasing it to the public
            seeking to shape coverage. The press release included
            statements that inflated the risks identified in the analysis.
            The press release from the Canadian Government, which
            cooperated with EPA on the analysis, conflicted with EPA's.

       EPA has sought to revoke a pesticide registration based on
            ``theoretical modeling'' that showed a potential risk from its
            use while rejecting more credible data from 6 years of real-
            world monitoring of use.

       EPA proposed a rule to reduce exposure to pesticides by
            honey bees of commercial pollination services that is not based
            on a risk assessment and was published without the required
            notification of the USDA. USDA publicly criticized EPA for this
            and questioned whether the Agency followed other statutory
            regulatory process requirements.

        Please continue your oversight of this Federal agency which is
    operating suboptimal and is counterproductive to the interests of
    agriculture in the USA.
                Sincerely,
                [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Bill Bond,
    Executive Director, Minnesota Crop Production Retailers.
                                     ______

       Submitted Statement by Kelly Covello, President, Almond Hullers &
                             Processors Association
        Dear Chairman Davis, Ranking Member DelBene, Subcommittee Members:

        Thank you for accepting our input on factors affecting the
    productivity of the U.S. farm economy. On behalf of our industry, we
    appreciate the opportunity to provide our thoughts on this important
    subject.
        The Almond Hullers & Processors Association (AHPA) is a trade
    association that was established in 1980 and our members represent over
    90% of the California almond industry based on volume. The association
    is dedicated to innovative leadership and advocacy, ensuring the
    sustainability and success of the California almond community.
        California Almonds are California's No. 1 agricultural export and
    No. 2 agricultural crop valued at $5.9 billion in 2014 according to the
    California Department of Food & Agriculture. California produces 80
    percent of the world's almonds and 100 percent of the U.S. commercial
    supply. The California Almond industry supports California's economic
    well-being by generating more than 100,000 jobs and more than $21
    billion gross revenue across all industries in the state, adding about
    $11 billion to the size of the state's total economy.
        Finding ways to do things better, faster and more efficiently is
    what drives advancements in all industries, and farming is no
    exception. Modern agriculture's success depends on the availability of
    new technologies to help farmers grow more food, more sustainably, than
    ever before. Production costs are a key component of this success and a
    major factor affecting a farm operation's long-term viability.
    Unfortunately, the impact of higher costs associated with pesticide
    regulations does not appear to be a consideration when it comes to
    implementing today's Federal regulatory policies.
        The average farm today feeds almost six times as many people as it
    did in 1950 and Americans spend \1/2\ as much of their personal income
    on food as they did then. Also, the success allows the majority of the
    U.S. population (98%) to use their talents outside of growing food and
    fiber. This success has accompanied a move toward greater human health
    and environmental safety. Improved mechanization, soil management and
    nutrition, combined with investments in research and innovations in
    crop protection breeding have produced more high-quality food on less
    land, while preserving our natural resources for future generations.
        Despite this amazing success story, there are some who question the
    very innovations that have helped make our food more abundant and
    affordable to millions of people worldwide. Unfortunately, this
    attitude can ``take root'' in a society that is largely disconnected
    from farming. As less than two percent of all Americans work on a farm,
    a lack of understanding about farming can lead to wrong assumptions
    about how our food is produced. Misinformation can be quickly
    disseminated, unfortunately at times aided by a sympathetic media that
    gives credence to their unsupported claims.
        We fear these negative voices can be persuasive, and unfortunately
    often successful in their influence. While we support the need for
    strong regulatory oversight, it can only be effective if it is based on
    sound scientific principles. We believe recent actions taken by the
    U.S. Environmental Protection Agency have diverged from these
    principles, which threaten the future success of modern agriculture.
    Some examples are included below:

       Without any justifying evidence, the EPA has proposed
            changing its long-standing policy of scientific risk assessment
            in favor of hazard-based regulation with regard to pesticides
            that are ``acutely toxic'' to pollinators. This ignores the
            well-accepted scientific premise that both toxicity and
            exposure data are needed to determine a true assessment of risk
            and unnecessarily denies farmers the use of important products
            that have shown little or no impact to bees.

       The U.S. Department of Agriculture has been critical of the
            EPA's proposed rule regarding pollinators, because of EPA's
            lack of a risk assessment, along with asking EPA to ``carefully
            consider the economic impact this proposal may have on numerous
            specialty crop farmers and the rural economies they contribute
            to across the U.S.''

       Following a 5 year pollinator risk assessment of a popular
            insecticide, the EPA provided its report to selected media,
            along with a related press release, before issuing it to the
            public. Instead of accurately describing the report's findings
            (which found little risk to bees), the EPA's press release
            greatly inflated the potential risks and unnecessarily
            frightened the public.

       The EPA has sought to revoke the use of an insecticide
            important to grower IPM programs, including almonds, based on
            its own theoretical modeling which claims a potential risk to
            certain invertebrates found in farm ponds, despite 6 years of
            real-world monitoring that shows no indication of harm.

       Under pressure from anti-pesticide activists, the EPA asked
            the 9th Circuit Court to vacate the registration of a herbicide
            already approved by the Agency--essentially suing itself to
            nullify procedural protections to the registrant that are
            guaranteed by Federal law.

       EPA proposed to revoke the tolerances of another well-used
            insecticide due to drinking water concerns, again based on
            modeling, and despite years and widespread testing of surface
            waters showing residues were much lower than modeled.

         EPA chose to propose the route of tolerance revocation
                rather than the proper legal route of requesting a
                cancellation of the registration of the pesticide. EPA's
                choice prevents external judicial review of their decision
                as laid out in FIFRA.

        The common thread in these examples is an agency that appears
    increasingly less focused on a science-based approach to assessing
    risk. Whether this is due to external pressures from groups that are
    vehemently opposed to modern agriculture, or a lack of understanding
    about what it takes to grow a crop, the trend is disturbing and
    dangerous. One need only to look at Europe, where the politicization of
    regulatory decision-making and the adoption of risk-adverse policies
    over scientific risk assessment has resulted in a reduction of tools
    available to farmers and decreased public confidence in the benefits of
    technological innovation.
        Modern agriculture has been good for farmers, but it also has been
    good for the general public, the environment and our nation's economy.
    Our growers need the tools that come from innovation, which helps
    increase our productivity and improves our cost efficiency. With a
    world population that is expected to exceed nine billion people in the
    next 30 years, we need more, not less, tools to do the job. And we need
    a regulatory agency that understands and balances benefits and costs to
    farmers, the public, and the environment.
                Sincerely,
                [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Kelly Covello,
    President.
                                     ______

     Submitted Statement by Keith Jones, Executive Director, Biopesticide
                               Industry Alliance
    Overview of the Biopesticide Industry
        The biopesticide industry is a $1.6 billion industry.\1\ The
    industry is projected to grow at a compound annual growth rate of 16%
    through 2019.\2\ This industry's growth is fueled by two major factors
    including consumers' demands for safer pest control products that can
    be used in both conventional and organic agricultural programs. The
    second major impetus to growth comes from innovation and technology,
    adding science-based jobs and contributing to the economy while at the
    same time providing growers, pest control applicators and public health
    officials with effective and safe pest control options.
    ---------------------------------------------------------------------------
        \1\ The Kline Group. Global Biopesticides: An Overview of Natural
    and Microbial Pesticides. 2015.
        \2\ Biopesticides Market by Active Ingredient (Microbials &
    Biorationals), by Type (Bioinsecticides, Biofungicides, Bionematicides
    & Bioherbicides), by Application, by Formulation, by Crop Type & by
    Geography--Global Trends & Forecast to 2019.
    ---------------------------------------------------------------------------
        Biopesticides are low risk pesticides that are naturally derived
    from or synthetic equivalents of plants, bacteria, fungi, and minerals,
    generally posing little risk to humans or the environment. Growers use
    biopesticides to control plant disease, insects, weeds and other pests.
    Biopesticides can be used to protect our food supply in food processing
    establishments as well as protect the public from pest-borne illness
    and disease by controlling or repelling rats, fleas, ticks and
    mosquitoes. The members of this industry segment, from small start-up
    to large established companies, have active research and development
    programs to address a broad array of pest problems on the farm as well
    as emerging threats such as Zika virus.
        Generally, biopesticides are not persistent and pose little risk to
    people, birds, fish, bees and other wildlife. They help to maintain
    beneficial insect populations, break down quickly in the environment,
    and provide low risk alternative tools for conventional growers in
    integrated pest management programs.
    Benefits of Biopesticides
        Growers, pest control applicators and public health professionals
    are increasingly turning to biopesticides because they provide the
    following significant benefits:

       Biopesticides are versatile and functional in both organic
            and conventional production systems.

       Biopesticides allow organic growers to control pests while
            maintaining USDA National Organic Program (NOP) certified
            status.

       Biopesticides fit with integrated pest management systems
            and contribute to environmentally responsible production
            systems--while not compromising crop yield and quality.

       Biopesticides may offer greater flexibility when harvesting
            crops because of short pre-harvest and restricted entry
            intervals or waiting periods before individuals can enter a
            treated area.

       Biopesticides are important public health protection tools.
            They are used in food processing establishments to protect our
            food supply and in mosquito and tick control programs to
            protect the public from diseases like West Nile virus, Lyme
            disease and other pest-borne illness.

       Because naturally derived biopesticides often control pests
            through multiple modes of actions they can be less prone to
            pest resistance.
    Biopesticide Regulation
        The United States has one of the world's most robust programs to
    review and register biopesticides and is unique in that specific
    expertise has been developed within a single division of the
    Environmental Protection Agency (EPA). The EPA's Office of Pesticide
    Programs houses the Biopesticide and Pollution Prevention Division
    (BPPD), which conducts vigorous reviews of biopesticide products before
    they can be registered and brought to market. The Federal Insecticide,
    Fungicide, and Rodenticide Act (FIFRA) and Pesticide Registration and
    Improvement Act (PRIA) ensure that the highest safety standards are met
    while including specific incentives to encourage the adoption of these
    beneficial pest control products through tiered data requirements,
    significantly reduced registration fees and shorter timelines compared
    to conventional pesticides.
        There are some instances where regulation could unnecessarily limit
    growers' ability to use biopesticides. Three such examples are (1)
    EPA's proposal to Mitigate Exposure to Bees from Acutely Toxic
    Pesticides, (2) when science-based risk decisions for exemptions from
    tolerance are trumped by legal interpretations and policy
    considerations that do not give priority to lower risk pesticides and
    (3) the U.S. Department of Agriculture National Organic Program (USDA-
    NOP) work with EPA to address inert ingredients allowed in pesticides
    approved for organic production without industry's input on the effect
    of their decisions.
    EPA Proposal to Mitigate Exposure to Bees from Acutely Toxic Pesticide
            Products
        In some cases, ``catch-all'' pesticide policies, which do not
    distinguish between types of pesticide products, fail to recognize the
    significant benefits associated with biopesticides and actually create
    obstacles to product registration. EPA's proposal to Mitigation
    Exposure to Bees from Acutely Toxic Pesticides is one such example.
        In May 2015, EPA proposed mitigation measures for pesticides that
    are considered acutely toxic to bees. We are concerned that EPA's
    proposed approach to pollinator mitigation departs from FIFRA's risk-
    based standard and simply applies a hazard-based bright line number
    standard which leaves little or no room for varying interpretation. The
    proposed hazard classification is an indiscriminate trigger that could
    result in unnecessary restrictions on the use of biopesticides. This
    approach would deprive conventional growers from using some
    biochemicals in an integrated pest management program and severely
    diminish the already limited number of tools organic growers can use to
    control pests.
    Science-Based Risk Assessments
        Biopesticides are usually exempt from tolerances because of their
    negligible risk based on general lack of adverse health effects and low
    dietary exposure. An exemption from tolerance allows the biopesticide
    to be broadly labeled and used on any crop without the need for costly
    residue testing. However, over the past few years EPA has asserted that
    exemptions from tolerance for biopesticides cannot incorporate
    limitations from the label such as pre-harvest intervals and
    application rates to minimize exposure because FDA cannot enforce that
    label. Enforcement of the pesticide label has always been the
    responsibility of EPA and its state partners. EPA's new legal
    interpretation is unnecessarily restrictive. Moreover, it is at odds
    with EPA's past practice with biopesticides, its current practice with
    other pesticide product ingredients, and with the manner in which FDA
    has implemented the food safety provisions of the Federal Food, Drug,
    and Cosmetic Act for decades.
        The label is the law and a fundamental compliance tool for all
    pesticide products. EPA and FDA can--and have in the past--worked
    together to ensure enforcement of tolerances and the biopesticide
    industry sees no reason that a label cannot be used effectively with
    tolerance exempt biopesticides when necessary. Moreover, EPA's narrow
    legal interpretation without the context of science drives unnecessary
    cost and time to a biopesticide registration. Since most biopesticides
    are targeted to minor crops such as vegetables and fruit, the expected
    revenues are considerably smaller. Unnecessary regulatory hurdles for
    low risk pesticides stifle the innovation we all seek to foster.
        The biopesticide industry is keenly supportive of stringent safety
    standards to protect consumers as well as our industry and reputation.
    The biopesticide industry has raised the issue of ``exemptions with
    label imitations'' to EPA and provided our recommendations. We
    understand that this matter as well as other concerns relating to
    biopesticide risk assessment are under active discussion at EPA with
    the goal of developing Office of Pesticide Program-wide guidance so
    that substances such as biopesticides, antimicrobials and inert
    ingredients are assessed in a consistent manner. The biopesticide
    industry looks forward to having the opportunity to comment on this
    guidance.
    Inert Ingredients Allowed by the National Organic Program
        Inert ingredients are an integral part of effective biopesticide
    formulations, which require years of research to provide stability,
    crop safety and efficacy. Inerts are reviewed to stringent safety
    criteria by the EPA. In order for biopesticides to be used in organic
    production, the pesticide active ingredient and any inert ingredients
    in the formulation must be approved by the USDA National Organic
    Program (NOP). Because biopesticide active ingredients are often
    fragile, naturally derived ingredients, the inerts in the formulation
    are a vital part of making the product stable and efficacious. If
    certain inert ingredients are no longer allowed in organic production,
    growers could be left without critical tools to produce NOP compliant
    organic crops.
        The National Organic Program regulations, 7 CFR Part 205, allow for
    the use of synthetic inert ingredients in pesticide formulas which
    appear on the EPA's List 4--Inerts of Minimal Concern. Because EPA no
    longer maintains this list, the NOP is also looking at future criteria
    for the review of inert ingredients. Although under consideration, the
    NOSB does not yet have a draft process nor has it approved a new inert
    in 12 years making it difficult for industry to innovate new products
    with the desirable characteristics of biopesticides.
        Unfortunately, the biopesticide industry is not adequately
    represented in discussions on appropriate new criteria even though we
    are the only industry that can provide important technical guidance
    about the current inert ingredients used in organic pesticides and the
    feasibility of formulation changes. The USDA NOP and its National
    Organic Standards Board (NOSB), established under the Federal Advisory
    Committee Act (FACA), works with EPA on policy and procedures to assist
    the development and adoption of an alternative inert evaluation that
    adheres to the National Organic Program philosophy. The biopesticide
    industry would like to be a part of that discussion, since it will have
    a major effect on our business, and FACA's requirements support our
    participation in that effort. Last, the industry would like to note
    that any stress or change to the U.S. system further places the
    industry and growers at a trade disadvantage in reciprocal organic
    agreements with other countries.
    Conclusion
        The rapidly growing biopesticide industry is adding jobs and
    contributing to the economy while also providing organic and
    conventional growers, pest control applicators and public health
    officials with effective pest control tools that are safe for the
    environment and help reduce pesticide resistance. In order for the
    industry to continue to provide rural America with these pest control
    solutions, it is essential that regulations recognize the significant
    benefits associated with these products.
                                     ______

     Submitted Letter by John Keeling, Executive Vice President and Chief
                   Executive Officer, National Potato Council
    May 4, 2016

      Hon. Rodney Davis
      Chairman,
      Subcommittee on Biotechnology, Horticulture, and Research,
      House Committee on Agriculture,
      Washington, D.C.;

      Hon. Suzan K. DelBene,
      Ranking Minority Member,
      Subcommittee on Biotechnology, Horticulture, and Research,
      House Committee on Agriculture,
      Washington, D.C.

    Re: Focus on the Farm Economy: Factors Impacting Cost of Production,
                April 27

        Dear Chairman Davis and Ranking Member DelBene:

        The National Potato Council (NPC) applauds the Committee for
    holding this important hearing. We appreciate the opportunity to
    provide comments regarding the impact that EPA actions are having on
    the economic well-being of potato farmers. We ask that these comments
    be entered as part of the hearing record.
        The NPC provides a unified voice for the U.S. potato industry on
    national legislative, regulatory, environmental and trade issues to
    promote the increased profitability for growers and greater consumption
    of potatoes. NPC plays a significant role analyzing policy that
    directly affects the U.S. grower's ability to compete both domestically
    and globally.
        America's safe and affordable supply of food, including the 44
    billion pounds of potatoes grown domestically every year, depends upon
    many factors regulated by the government, including crop protection
    products. It concerns NPC that several recent actions by EPA point to
    the agency's decreasing commitment to transparency and scientific
    integrity. In a recent preliminary registration review process for
    imidacloprid, EPA deviated from nearly 40 years of established process.
    Potato growers utilize Imidacloprid as an integral part of their
    Integrated Pest Management Plans for their potato crop and for their
    rotational crops. This product provides the opportunity to target
    specific pests and reduce any impacts on beneficial insects. The loss
    of Imidacloprid and other neonicotinoids would reduce the effectiveness
    of IPM programs and would increase the use of other broad spectrum crop
    protection products.
        The potential loss of approved pest management products such as
    imidacloprid and chlorpyrifos would harm growers' ability to farm and
    could inhibit future investment in alternative pesticides. The case of
    chlorpyrifos raises serious questions about the agency's use of data to
    support regulatory decision making. EPA's decision to rely on a single
    epidemiological study during the recent Scientific Advisory Panel
    review of chlorpyrifos April 19-21 means the Agency was choosing not to
    use findings from verified laboratory studies, which have more
    scientific weight.
        While the panel agreed with NPC and others that the science from
    the epi study was not conclusive, EPA should not have based the review
    on such scant data.
        In addition to ignoring sound science, EPA's policy decisions that
    are coming down the road would have serious negative effects on rural
    communities, farm incomes, and U.S. exports. With the U.S. exporting
    hundreds of millions of potatoes to Japan, Canada, and Mexico, a loss
    in production could negatively affect future export prospects and
    endanger the ability of the potato industry to benefit from the tariff
    reductions contained in the Trans-Pacific Partnership once it is
    approved.
        We strongly agree with and support the testimony provided by
    CropLife America. In particular, NPC believes a return to established
    regulatory process and sound science will help U.S. farm economy, keep
    the costs of production stable and accordingly prevent rising costs for
    consumers. Most importantly, the NPC has asked EPA to seek the input of
    the growers who are most impacted by their decisions. Growers and
    agricultural groups are directly affected by regulatory actions, and to
    not obtain their feedback is to ignore useful information that can
    inform a science-based regulatory approach.
        Thank you for consideration of these comments.
                Sincerely,
                [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    John Keeling,
    Executive Vice President and CEO,
    National Potato Council.
                                     ______

       Submitted Statement by Hon. Tom Nassif, J.D., President and Chief
                 Executive Officer, Western Growers Association
        Western Growers is pleased to have the opportunity to provide
    comments to the Subcommittee on Biotechnology, Horticulture, and
    Research following its April 27 hearing entitled, Focus on the Farm
    Economy: Factors Impacting Cost of Production. Western Growers is a 90
    year old trade organization representing local and regional family
    farmers growing fresh fruits, nuts and vegetables in Arizona,
    California and Colorado. Our members and their workers provide \1/2\
    the nation's fresh fruits, vegetables and tree nuts, including nearly
    \1/2\ of America's fresh organic produce. Western Growers members
    produce in--and directly contribute to the economies of--over 25
    states. In total, Western Growers members account for nearly \1/2\ of
    the annual fresh produce grown in the United States and a majority of
    the tree nuts. For generations we have provided variety and healthy
    choices to consumers. Indeed, Western Growers' has long had the slogan:
    ``We grow the best medicine.''
        Western Growers commends the Subcommittee on Biotechnology,
    Horticulture, and Research for holding the April 27 hearing focusing on
    factors, both positive and negative, impacting the cost of production.
    Our members must meet ever growing regulatory and marketplace demands,
    several of which are described below.
    Innovation
        Western Growers would like to bring to the attention of the
    Subcommittee some of the steps we are taking in response to policy
    challenges that raise production costs. Western Growers members and the
    Association itself have invested heavily in propelling forward cutting
    edge agricultural research. During 2013-14, led by and partially funded
    by Western Growers members, the University of Arizona opened a research
    and innovation center in Yuma, Arizona. The Yuma Center of Excellence
    for Desert Agriculture provides rapid, direct value-adding responses to
    issues important for desert crop production systems.
        During the spring of last year, Western Growers announced several
    new partnerships around agricultural research and technology. First,
    Western Growers and Silicon Valley Global Partners (SVG Partners)
    entered into a strategic alliance agreement to find, accelerate,
    advance and invest in innovative solutions intended to solve critical
    challenges to production agriculture. Through technology we will
    produce more with less water, labor and inputs. In December 2015,
    Western Growers launched the Center for Innovation and Technology in
    Salinas, California as an agricultural technology incubator that brings
    innovative entrepreneurs together with farmers and other agricultural
    companies to collaborate on bringing emerging technologies to market.
        As a way to propel this activity, Western Growers and its members
    are involved as sponsors of Forbes' Reinventing America: The AgTech
    Summit in Salinas July 13-14, 2016. This summit will highlight emerging
    agricultural technologies from around the world. In addition, other
    mutual efforts include participation and collaboration in the SVG
    Thrive Accelerator program and the SVG Technology Growth Fund which are
    designed to help identify and then provide joint venture operating
    capital to agriculture technology companies.
        We cannot however carry the burden of innovation on our own.
    Clearly the Federal Government has a key role in stimulating
    innovation. While more resources should be allocated to these types of
    research priorities across the Federal budget within all relevant
    Departments, the Federal Government also has, at minimum, a role in
    helping to facilitate better and wiser use of funds that are already
    available both from private- and public-sector sources. The produce
    industry is stepping up to address challenge in the long-term through
    technology and innovation--the Federal Government must do the same.
    Crop Protection
        Western Growers is concerned about recent activity at EPA impacting
    the use of crop protection tools. Our members deal with a host of pest
    threats. Western Growers urges the Subcommittee to work to protect the
    tools our members rely on. Western Growers has historically engaged
    with state and Federal agencies to provide further protections to the
    workers, bystanders, public and the environment while at the same time
    preserving access to important tools. We strongly contend that
    decisions that reduce access to and/or flexibility to use key compounds
    must be predicated on clear and credible science and full evaluation of
    the risks and benefits of regulation.
        Crop protection concerns are particularly acute for the citrus
    industry as it fights to ward [off] Huanglongbing (HLB) or citrus
    greening. Last spring, the interagency Pollinator Health Task Force put
    out a strategy to better understand pollinator losses and improve
    pollinator health. Pursuant to this White House initiative, EPA is
    studying the pollinator risk of four neonicotinoid pesticides, which
    have been targeted as a potential cause of bee decline. In January, EPA
    released a draft pollinator risk assessment of one of the four
    compounds, imidacloprid, and found that use of these products on only
    citrus and cotton to surpass a threshold for harm to bees. In general,
    that substantive analysis was done well. Unfortunately, we know that
    EPA is under pressure to respond to public concern about the impact of
    pesticides on pollinators--concerns which may not be based in science.
    Perhaps as a result of these activist concerns, EPA's public statement
    gave the impression of widespread risk, even while the study itself
    affirmed the safety of imidacloprid in almost all cases. We urge the
    Committee to compare EPA's inflammatory press release with far more
    scientifically based press releases from companion study authors
    California EPA and Canadian Public Health (see Attachment[s] 1, [2, and
    3). While EPA has not yet proposed any regulatory action pursuant to
    the report, this misleading narrative gives fodder to state and local
    restrictions. Western Growers urges a balanced, science based approach
    as is outlined in the White House strategy. As Members of Congress you
    can urge EPA to remain scientifically focused and not make these types
    of inflammatory statements. In addition, you can help ensure that,
    going forward, inflammatory rhetoric does not color future regulation.
        In addition, EPA has proposed a blanket revocation of all
    tolerances for chlorpyrifos. This is an imprudent and overly broad
    proposal that is predicated on EPA's lack of information, poor
    understanding of the agricultural settings in which this product is
    used and generic models that do not fit western drinking water systems.
    Western Growers has expressed concerns regarding the over reliance on
    epidemiologic studies and specifically the Columbia study. We remain
    concerned that the authors have not provided the raw data for review
    and that without this data neither EPA nor the affected public can
    review the ``validity, completeness and reliability'' of information
    being used to make these policy decisions. While epidemiologic studies
    have historically been used to supplement EPA's analysis of substances
    it appears to us that this Administration seeks to rely upon these
    studies as the main evaluation tool for crop protection substances.
    This change should be examined by Congress to ensure there is merit to
    such a shift, just as we in the regulated community or EPA itself must
    be able to examine underlying data of these epidemiological studies
    themselves.
        Beyond the impacts of EPA's actions on any particular compound,
    Western Growers emphasizes the importance of a transparent, predictable
    science based process that fully engages the community of users while
    at the same time encouraging investment in newer, safe and better
    performing pesticides to meet crop protection challenges. It will be
    difficult to meet the challenges of growing food for a growing world
    without a fully capable toolbox.
    Biotech
        Western Growers asks the Committee to engage on USDA's Notice of
    Intent to update Section 340 of the Plant Protection Act. Currently the
    Executive Branch is taking comments and debating whether the high level
    of regulatory oversight used for transgenic biotech should apply to
    other uses of biotechnology. For example, using gene editing professors
    at Penn State recently announced that they were able to ``turn off''
    the gene in mushrooms that cause them to brown thus extending shelf-
    life. These mushroom products did not go through any additional
    regulatory oversight than would mushrooms that went through normal
    breeding techniques. Traditional breeding techniques and new breeding
    techniques such as gene editing can achieve identical results. The
    rules for biotechnology should not deviate from rules currently in
    place for normal plant breeding. If something can be accomplished more
    quickly, accurately and cheaply through gene technology rather than
    traditional breeding techniques then the Federal Government should not
    make any changes to regulatory systems.
    H-2A and Labor
        Fruit, vegetable and tree nut producers heavily rely upon a large
    group of skilled farm laborers in order to harvest and produce our
    nation's crops. Labor shortages have grown increasingly acute in our
    industry and it is critical that Congress step up to address this
    issue. While immigration reform and a new guest worker program will be
    the best long-term solution to our labor issues, we understand as an
    industry that we have to look at current solutions as well. In that
    regard, the industry will likely be forced to rely on the current H-2A
    program for meeting the labor demands we face.
        Indeed, labor shortages and pressures have grown to such a level
    that growers across California, Arizona, Colorado and other western
    states are turning to the H-2A program in greater numbers, including in
    areas that have had little exposure to the program in the past. This
    has resulted in a significant increase in H-2A applications across all
    western states. Unfortunately, as our growers increasingly use the
    program we are experiencing its downsides with greater frequency.
    During the first quarter of 2016 processing delays for H-2A
    applications became particularly acute. Western Growers urges the
    Subcommittee and all Members of Congress to engage on this issue. The
    current H-2A system must be improved while Congress works through a
    more complete replacement. Specifically, Congress should help ensure
    that the three Federal agencies involved in running the program are
    doing so with a minimum of red tape and with maximum efficiency. In
    addition, over the last 5 years we have seen a huge increase in H-2A
    applications yet funding to modernize computers and hire staff have
    shrunk, Congress needs to properly resource these agencies as use
    increases.
    Food Safety Modernization Act
        Although it is not widely discussed, the Food and Drug
    [Administration] (FDA) is to be commended for their roll out of the new
    regulations authorized under the Food Safety Modernization Act (FSMA).
    In fact, their process of consultation with affected parties,
    development of a draft regulation based on broad consultation, along
    with the formal comment process which they extended in order to more
    fully understand the affected community, and the resulting care they
    took to address all commentary prior to the publication of ``Final''
    rules should serve as a model for other agencies.
        The FDA's process has resulted in a set of regulations that while
    not universally embraced are credible and will result in safer food.
    While Western Growers believes there is still ambiguity in a few
    areas--for instance which operations are covered under which rule and
    the need for FDA to develop some process for recognizing food safety
    programs authorized and administered under state-Federal marketing
    authorities--we are confident that FDA will clarify these questions in
    guidance and FAQs that are under development. In addition, as several
    compliance dates are approaching, it is imperative that the agency has
    the resources to ensure a successful implementation of FSMA rules.
        Western Growers is strongly committed to food safety. Our industry
    is known for being proactive and has already started to develop
    resources and conduct outreach to assist impacted parties to work
    towards implementation of FSMA rules and food safety. No one can
    guarantee safety every bite, every time but we should guarantee that
    every operation is implementing robust food safety measures and the
    FSMA regulations will help ensure that is taking place. Finally, one
    issue that we do want to raise for Congress, is that as operators
    certify--to FDA's satisfaction--that operations are in compliance with
    FSMA we would ask that Congress work with FDA and producers to find
    ways to reduce criminal liability for unintentional food safety
    violations.
    Drought
        Western agriculture is severely impacted by drought conditions--
    indeed so much so that some of our growers have fallowed production,
    destroyed orchards, laid off employees or worse. In response to this
    crisis producers across the West are taking steps to use both less
    water and use what water we have more efficiently. Members of Congress
    should never forget that over a hundred years ago it was the efforts of
    the Federal Government that led to the development of water resources
    across the West which in turn lead to an explosion in the population of
    all western states. Western states however face a crisis point and
    while producers are adapting as best they can, the Federal Government
    can and must do more. Congress has a responsibility to comprehensively
    tackle this issue and do so immediately. In the long-term Congress
    needs to help reduce regulations that impede construction of new
    conveyance and storage systems--whether that storage is above ground or
    below--and we need to have both direct Federal assistance as well as
    create new financing tools to help local communities to pay for
    construction. In the short-term, we also need to ensure that water
    systems are operated with the proper balance between environmental
    concerns and concerns for fellow citizens.
    Conclusion
        Western Growers commends the Subcommittee's leadership on examining
    the factors impacting cost of production. Western Growers' members
    understand that we will need to grow more food while facing diminishing
    natural and human resources. The fresh produce industry is innovating
    to meet these challenges, but the Federal Government has a critical
    role to play.
        We look forward to working with the Committee on this issue.
                Sincerely,
                [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Hon. Tom Nassif, J.D.
                                  attachment 1
    Re-evaluation Note
    REV2016-04
    Joint PMRA/USEPA Re-evaluation Update for the Pollinator Risk
            Assessment of the Neonicotinoid Insecticides
    (publie aussi en francais) 6 January 2016
    http://www.hc-sc.gc.ca/cps-spc/alt_formats/pdf/pubs/pest/_decisions/
    rev2016-04/rev2016-04-eng.pdf

        This document is published by the Health Canada Pest Management
    Regulatory Agency. For further information, please contact:

    Publications                         Internet: pmra.publications@hc-
                                          sc.gc.ca
                                         healthcanada.gc.ca/pmra
    Pest Management Regulatory Agency    Facsimile: 613-736-3758
    Health Canada                        Information Service:
    2720 Riverside Drive                 1-800-267-6315 or 613-736-3799
    A.L. 6607 D                          pmra.infoserv@hc-sc.gc.ca
    Ottawa, Ontario K1A 0K9
    ISSN:                                1925-0630 (print)
                                         925-0649 (online)
    Catalogue number:                    H113-5/2016-4E (print version)
                                         H113-5/2016-4E-PDF (PDF version)

    Her Majesty the Queen in Right of Canada, represented by the Minister
                of Health Canada, 2016

              All rights reserved. No part of this information (publication
            or product) may be reproduced or transmitted in any form or by
            any means, electronic, mechanical, photocopying, recording or
            otherwise, or stored in a retrieval system, without prior
            written permission of the Minister of Public Works and
            Government Services Canada, Ottawa, Ontario K1A 0S5.
    Introduction
        In May 2015, Health Canada's Pest Management Regulatory Agency
    (PMRA) and the United States Environmental Protection Agency's Office
    of Pesticide Programs (USEPA OPP) (Agencies) announced, as an
    initiative of the Regulatory Cooperation Council, that they would be
    collaborating on a bilateral pesticide re-evaluation process for the
    pollinator assessment of three neonicotinoid pesticides (clothianidin,
    imidacloprid, and thiamethoxam), based on the jointly developed
    harmonized Pollinator Risk Assessment Framework.\1\ The Agencies have
    been working closely with the California Department of Pesticide
    Regulation (CDPR). In addition, USEPA OPP and CDPR are using the same
    framework to conduct a co-operative re-evaluation of dinotefuran, a
    neonicotinoid pesticide which is registered in the United States but
    not in Canada.
    ---------------------------------------------------------------------------
        \1\ http://www2.epa.gov/sites/production/files/2014-06/documents/
    pollinator_risk_assess
    ment_guidance_06_19_14.pdf.
    ---------------------------------------------------------------------------
        These pesticides are nitroguanidine neonicotinoids, a group of
    insecticides that have been approved for use in the United States and
    Canada for a number of years. In recent years, there have been reports
    in scientific literature suggesting that exposure to neonicotinoids may
    impact pollinator health; however, these studies have generally been
    conducted under laboratory situations, or in the field with exposure to
    doses that are higher than would normally be encountered in the
    environment.
        In support of science-based risk management decisions, the Agencies
    are relying on the harmonized Pollinator Risk Assessment Framework
    methodology to conduct the pollinator risk assessment for the
    neonicotinoids. The Framework relies on a tiered approach which begins
    with conservative exposure assumptions and laboratory toxicity data
    conducted with individual bees, then progresses to more realistic
    exposure measurements in nectar and pollen, as well as colony level bee
    studies conducted in the field.
        Data required under the Framework has been divided into three
    tiers. Tier 1 consists of laboratory toxicity studies with both adult
    and larval honey bees exposed for acute and chronic durations. Tier 2
    effects studies include feeding and tunnel studies in which honey bee
    hives are exposed to neonicotinoids in a more realistic setting than
    the laboratory. Tier 2 residue studies measure exposure based on pollen
    and nectar residue data from neonicotinoid products applied to crops
    using different application methods. Tier 3 studies are generally
    large-scale field studies that most closely resemble an in-field
    exposure scenario for honey bees.
        Neonicotinoid registrants have submitted, or are in the process of
    conducting, a number of studies to support their chemical-specific
    pollinator risk assessments. The Agencies will use these studies as
    well as information from published literature in the tiered risk
    assessment approach. All relevant scientific information will be
    considered alongside incident data in a weight-of-evidence approach,
    which considers if the information is robust and consistent, for the
    risk characterization.
        This document provides a status update on the pollinator risk
    assessments of clothianidin, imidacloprid, thiamethoxam, and
    dinotefuran.
    Status of Registrant Data Submission and Review by the Agencies
        Over 350 pollinator studies have been submitted by the
    neonicotinoid registrants and are currently undergoing a cooperative
    review by all three agencies. To date, over 300 of the studies received
    have been reviewed by at least one agency. While progress is being made
    with the study reviews, there are additional studies that are currently
    being conducted which are required for the completion of the re-
    evaluations.
    Status of Open Literature Review
        The Agencies will incorporate information from the body of peer-
    reviewed scientific literature into the pollinator risk assessments.
    Studies may include information about neonicotinoid residues in pollen/
    nectar as well as lethal and sublethal effects (foraging behavior,
    etc.) to different life stages (larvae, adults) in honey bee hives, and
    overall colony health. Studies on different types of bees (for example
    bumble bees and solitary bees) will also be included.
        The Agencies have conducted a number of literature searches which
    have identified hundreds of peer reviewed scientific studies. After a
    screen of the results, the Agencies prioritized about 250 open
    literature studies for further evaluation based on whether they
    assessed the residues or effects described above. Studies which are
    considered to be informative will be incorporated into the pollinator
    risk assessment. The Agencies continue to monitor current research
    findings and will incorporate more recent information as it becomes
    available.
    Next Steps
        Since the Agencies began the imidacloprid review about a year
    before the other neonicotinoids, imidacloprid is further along in the
    review process and initial findings have been presented in preliminary
    pollinator risk assessment documents:

       Health Canada's PMRA--Re-evaluation of Imidacloprid--
            Preliminary Pollinator Assessment.

       USEPA--Preliminary Pollinator Assessment to Support the
            Registration Review of Imidacloprid.

        See table below for anticipated milestones for the pollinator
    assessments. The publication of each document will be followed by a
    public consultation period.

    ------------------------------------------------------------------------
           Neonicotinoid              Assessment         PMRA/USEPA/CDPR \1\
    ------------------------------------------------------------------------
    Imidacloprid                Preliminary             Jan. 2016
                                Final                   Dec. 2016
    Clothianidin                Preliminary             Dec. 2016
                                Final                   Dec. 2017
    Thiamethoxam                Preliminary             Dec. 2016
                                Final                   Dec. 2017
    Dinotefuran                 Preliminary             Dec. 2016 \2\
                                Final                   Dec. 2017 \2\
    ------------------------------------------------------------------------
    \1\ CDPR plans to issue its determination with respect to its
      reevaluation of neonicotinoids (clothianidin, dinotefuran,
      imidacloprid, and thiamethoxam) on or before 1 July 2018.
    \2\ Not Applicable to PMRA.

    Additional Information
        The issue of pollinator health is complex, and is likely influenced
    by a number of factors including pests, pathogens and viruses,
    nutrition, pesticide exposure, bee management practices, and lack of
    genetic diversity. The PMRA and USEPA OPP, as the Federal regulators of
    pesticides in Canada and the United States, respectively, are working
    together to protect bees and other pollinators from pesticide exposure.
        Information regarding PMRA's and USEPA OPP's actions to protect
    pollinators and additional resources can be found at:

              Health Canada's PMRA--www.healthcanada.gc.ca/pollinators
              USEPA--http://www2.epa.gov/pollinator-protection
                                 [attachment 2]
    Neonicotinoid Reevaluation Progress and Protecting Bee Health
    http://www.cdpr.ca.gov/docs/registration/reevaluation/chemicals/
    neonicoti
    noids.htm

        The California Department of Pesticide Regulation (DPR) is at the
    national forefront of the effort to protect bee health, taking
    proactive steps and a scientific approach to address concerns about the
    impact of pesticides on bees and pollinators health.
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

              Apiary training sponsored by DPR, Parlier, CA June 2014.
    U.S. EPA Releases Preliminary Pollinator Risk Assessment for
            Neonicotinoid Insecticide Imidacloprid
        As part of DPR, U.S. Environmental Protection Agency's (U.S.
    EPA's), and Pest Management Regulatory Agency (PMRA) Health Canada's
    ongoing collaborative efforts to assure the protection of pollinators
    from neonicotinoid exposure, two imidacloprid preliminary pollinator
    risk assessment publications are available for public review. U.S.
    EPA's assessment (http://www.regulations.gov/#!documentDetail;D=EPA-HQ-
    OPP-2008-0844-0140), which was prepared in collaboration with DPR,
    indicates potential risk to pollinators at the hive level (as opposed
    to risks to individual bees) from use of imidacloprid on agricultural
    crops that are attractive to pollinators. PMRA Health Canada's
    imidacloprid pollinator-only assessment (http://www.hc-sc.gc.ca/cps-
    spc/pest/part/consultations/_rev2016-05/index-eng.php) reaches the same
    preliminary conclusions as U.S. EPA's. A joint status report (http://
    www.regulations.gov/#!documentDetail;D=EPA-HQ-OPP-2008-0844-0141) from
    all three agencies on the progress of neonicotinoid pollinator
    assessments for the neonicotinoids--clothianidin, thiamethoxam, and
    dinotefuran--is also available.
        During U.S. EPA's comment period and PMRA Health Canada's
    consultation period, the agencies will work with the manufacturers and
    other stakeholders to discuss possible early actions to reduce risks to
    pollinators from imidacloprid containing products. U.S. EPA's 60 day
    public comment period begins upon publication in the Federal Register.
    After the comment period ends, U.S. EPA may revise the pollinator
    assessment based on comments received and, if necessary, take action to
    reduce risks from imidacloprid containing products. Other supporting
    documents associated with the imidacloprid registration review are
    available in U.S. EPA's Docket EPA-HQ-OPP-2008-0844 (http://
    www.regulations.gov/#!docketDetail;D=EPA-HQ-OPP-2008-0844) on
    regulations.gov Web site. There is an option to sign up for daily,
    weekly, or monthly e-mail alerts when U.S. EPA modifies the docket.
        This imidacloprid assessment is the first of four preliminary
    pollinator risk assessments for neonicotinoid containing insecticides.
    Preliminary pollinator-only risk assessments for the other compounds--
    clothianidin, thiamethoxam, and dinotefuran--are anticipated to be
    released for public comment in December 2016. A comprehensive risk
    assessment for imidacloprid, including human health and ecological
    risk, is anticipated to be released in December 2016. A comprehensive
    risk assessment for clothianidin, thiamethoxam, and dinotefuran are
    anticipated to be released in December 2017.
    Reevaluation
        In 2009, DPR initiated the reevaluation of certain pesticide
    products containing four neonicotinoid chemicals: imidacloprid,
    thiamethoxam, clothianidin, and dinotefuran. Reevaluation is the legal
    mechanism that allows DPR to require the companies who have registered
    products for use in California to conduct tests and submit data for
    analysis by DPR scientists. The purpose of the reevaluation process is
    to provide DPR with a better understanding of the effects of
    neonicotinoids use on pollinators and provide a credible scientific
    basis for potential regulatory action to eliminate any significant
    impact resulting from their use on bee health.
        DPR partnered with scientists at the U.S. EPA's Office of Pesticide
    Programs and PMRA Health Canada to ensure that the required studies,
    and methods and procedures used to conduct studies on the effects of
    neonicotinoids provide useful and reliable information across the board
    to all three agencies for use in guiding their regulatory actions. A
    unified approach across jurisdictions is critical as bees and
    beekeepers are not limited by state borders, nor are their importance
    to agriculture and society.
        A considerable volume of scientific research has been required to
    be conducted in specified ways as designed by DPR or in collaboration
    with its partners to elicit the most important and useful data for
    regulatory purposes. Much of this data has been submitted and
    evaluated. However, there is more work to be done in order to assure
    that any actions taken actually address the perceived decline in bee
    health.
        Each of the four neonicotinoid pesticides have different
    application rates for specific crops, requiring a substantial number of
    studies to understand the impact of the different pesticides using the
    application methods used for each crop group. Studies were required for
    each of the four neonicotinoids as used in the most relevant
    representative situations to determine the level of residue that
    remains in the pollen, nectar, and leaves of plants after multiple
    applications--residue if found in high enough levels, could result in
    lethal exposure to adult pollinators. Tests were then required to
    determine what levels of neonicotinoid pesticide would have lethal
    effects on pollinator larv#. Finally, U.S. EPA required higher tiered
    honey bees studies with input from both DPR and PMRA Health Canada.
    Tier II studies, or honey bee feeding studies, examine the effects on
    colonies following exposures to known concentrations of a pesticide in
    a food source fed to a bee colony. Tier III studies, or full field
    studies, is a field-level test that looks at long-term effects under
    environmentally realistic exposure conditions. Each set of requirements
    pushed the research one step further after inconclusive or preliminary
    results and analysis showed no likely significant hazards from
    neonicotinoid use under existing labels. DPR anticipates receipt of the
    final results of these studies by the end of 2016.
    Other Information and Proactive Actions to Protect Bee Health
      b DPR protects honey bees from the effects of pesticides by working
            with County Agricultural Commissioners, agricultural producers,
            beekeepers and other agencies to develop and implement
            regulatory measures as well as voluntary measures to Protect
            Bee Health (http://www.cdpr.ca.gov/docs/enforce/pollinators/).

      b DPR continues to work closely with the U.S. EPA and PMRA Health
            Canada. To protect bees and other pollinators DPR collaborated
            on making product labels (instructions) much easier to
            understand. The labels clearly explain that the uses of some
            neonicotinoids pesticide products are prohibited where bees are
            present. The updated labels have a bee advisory box and icon
            with information on routes of exposure and spray drift
            precautions. DPR made it a priority to review the amended
            labels in order to get them out into the California
            marketplace. All affected California products contain the
            pollinator protection label language.

      b Reevaluation Timeline (http://www.cdpr.ca.gov/docs/registration/
            reevaluation/chemicals/neonic_timeline.htm)

      b Reevaluation Notice (http://www.cdpr.ca.gov/docs/registration/
            canot/2009/ca2009-02.pdf), PDF (59 kb)

        d Example Letters to Registrants (http://www.cdpr.ca.gov/docs/
                registration/reevaluation/example_letter.pdf), PDF (233 kb)
                (September 15, 2009)

      b List of Products Included in Reevaluation (http://www.cdpr.ca.gov/
            docs/registration/reevaluation/chemicals/
            niclistofproducts.pdf), PDF (110 kb)

        For content questions, contact:

    Denise Alder,
    1001 I Street, P.O. Box 4015,
    Sacramento, CA 95812-4015
    Phone: (916) 324-3522
    E-mail: Denise.Alder@cdpr.ca.gov
                                 [attachment 3]
    EPA Releases the First of Four Preliminary Risk Assessments for
            Insecticides Potentially Harmful to Bees
    https://www.epa.gov/pesticides/epa-releases-first-four-preliminary-
    risk-assessments-insecticides-potentially-harmful

    January 6, 2016

        The U.S. Environmental Protection Agency (EPA) has announced a
    preliminary pollinator risk assessment for the neonicotinoid
    insecticide, imidacloprid, which shows a threat to some pollinators.
    EPA's assessment, prepared in collaboration with California's
    Department of Pesticide Regulation, indicates that imidacloprid
    potentially poses risk to hives when the pesticide comes in contact
    with certain crops that attract pollinators.
        ``Delivering on the President's National Pollinator Strategy means
    EPA is committed not only to protecting bees and reversing bee loss,
    but for the first time assessing the health of the colony for the
    neonicotinoid pesticides,'' said Jim Jones Assistant Administrator of
    the Office of Chemical Safety and Pollution Prevention. ``Using science
    as our guide, this preliminary assessment reflects our collaboration
    with the State of California and Canada to assess the results of the
    most recent testing required by EPA.''
        The preliminary risk assessment identified a residue level for
    imidacloprid of 25 ppb, which sets a threshold above which effects on
    pollinator hives are likely to be seen, and at that level and below
    which effects are unlikely. These effects include decreases in
    pollinators as well as less honey produced.
        For example, data show that citrus and cotton may have residues of
    the pesticide in pollen and nectar above the threshold level. Other
    crops such as corn and leafy vegetables either do not produce nectar or
    have residues below the threshold. Additional data is being generated
    on these and other crops to help EPA evaluate whether imidacloprid
    poses a risk to hives.
        The imidacloprid assessment is the first of four preliminary
    pollinator risk assessments for the neonicotinoid insecticides.
    Preliminary pollinator risk assessments for three other neonicotinoids,
    clothianidin, thiamethoxam, and dinotefuran, are scheduled to be
    released for public comment in December 2016.
        A preliminary risk assessment of all ecological effects for
    imidacloprid, including a revised pollinator assessment and impacts on
    other species such as aquatic and terrestrial animals and plants will
    also be released in December 2016.
        In addition to working with California, EPA coordinated efforts
    with Canada's Pest Management Regulatory Agency. Canada's Imidacloprid
    pollinator-only assessment--also released today--reaches the same
    preliminary conclusions as EPA's report.
        The 60 day public comment period will begin upon publication in the
    Federal Register. After the comment period ends, EPA may revise the
    pollinator assessment based on comments received and, if necessary,
    take action to reduce risks from the insecticide.
        In 2015, EPA proposed to prohibit the use of pesticides that are
    toxic to bees, including the neonicotinoids, when crops are in bloom
    and bees are under contract for pollination services. The Agency
    temporarily halted the approval of new outdoor neonicotinoid pesticide
    uses until new bee data is submitted and pollinator risk assessments
    are complete.
        EPA encourages stakeholders and interested members of the public to
    visit the imidacloprid docket and sign up for e-mail alerts to be
    automatically notified when the agency opens the public comment period
    for the pollinator-only risk assessment. The risk assessment and other
    supporting documents are available in the docket at: https://
    www.regulations.gov/#!docketBrowser;rpp=25;so=DESC;sb=postedDate;po=0;
    dct=SR;D=EPA-HQ-OPP-2008-0844.
        EPA is also planning to hold a webinar on the imidacloprid
    assessment in early February. The times and details will be posted at:
    How We Assess Risk to Pollinators (https://www.epa.gov/pollinator-
    protection/how-we-assess-risks-pollinators).
        Contact Us (https://www.epa.gov/pesticides/forms/contact-us-about-
    pesticides) to ask a question, provide feedback, or report a problem.

        Last updated on April 6, 2016.
                                     ______

       Submitted Letter by Cindy Baker Smith, Senior Vice President and
     Director of Global Regulatory and Product Development, AMVAC Chemical
                                  Corporation
    April 26, 2016

      House Committee on Agriculture.

        Honorable Members of the House Committee on Agriculture:

        AMVAC would like to submit these comments to the record for your
    upcoming ``Hearing on Federal Actions and Policies Affecting Costs of
    Production and Impacting the Rural Economy'', April 27, 2016. AMVAC
    fully supports the comments made by Jay Vroom, President of CropLife
    America.
        Additionally, as a basic manufacturer of crop protection products
    based in California but with additional plants in Alabama, Missouri and
    Idaho, we are quite concerned by the recent changes in the way that EPA
    is making their decisions. The products we develop, register and
    manufacture here in the U.S. are critical in agricultural crops to
    protect corn, cotton, potatoes and other fruits and vegetables from
    pests (insects, weeds and disease) that would otherwise destroy their
    crops. Congress passed FIFRA and FQPA to establish appropriate
    standards to ensure the products registered by EPA can be used without
    harm to people or the environment. There is language in the statutes
    that properly requires that EPA decisions be made use reliable and
    available data. Agriculture and the consumers it feeds deserve science
    based and transparent decisions made by the government that regulates
    their food supply. EPA's proposal to revoke all the tolerances for
    critical products based on use of models that don't reflect actual
    exposure (drinking water models) and epidemiological studies for which
    the raw data has not been received or reviewed and also for which there
    are serious questions about whether any exposure to the products
    actually results in alleged effects does not meet any of the standards.
    The data used are not reliable and available, the process is not
    transparent and sound scientific principles are not being followed.
        AMVAC encourages the House Committee on Agriculture to require EPA
    return to the principles laid out by then Vice President Al Gore after
    the passage of FQPA to have a transparent regulatory process that uses
    the best available science and data.
                Sincerely,
                [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Cindy Baker Smith,
    Senior VP and Director of Global Regulatory and Product Development.
                                     ______

     Submitted Letter by Christopher Valadez, Director, Environmental, and
             Regulatory Affairs, California Fresh Fruit Association
    May 10, 2016

      Hon. Rodney Davis,
      Chairman,
      Subcommittee on Biotechnology, Horticulture, and Research,
      House Committee on Agriculture,
      Washington, D.C.

    Re: April 27th Subcommittee Hearing, Focus on the Farm Economy: Factors
                Impacting the Cost of Production

        Dear Chairman Davis,

        The California Fresh Fruit Association (CFFA) is a voluntary,
    nonprofit agricultural trade association representing California's
    permanent, fresh fruit (except citrus and avocados) industry on
    legislative and regulatory issues at state, Federal and international
    levels. Our membership is comprised of growers, shippers, and marketers
    of the approximate $3 billion fresh grape, blueberry and deciduous tree
    fruit industry. On their behalf I write to provide input on regulatory
    decision-making affecting the continued viability of our farming
    sector.
        As received through testimony before the Subcommittee on
    Biotechnology, Horticulture and Research, the viability of production
    agriculture is dependent upon the availability of new crop protection
    technologies to help growers meet current and future food demands in a
    manner that is both economically and environmentally sustainable.
    Unfortunately, activism on the part of a vocal minority has appeared to
    capture the attention of those responsible for making decisions on the
    use of critically important crop protection tools which has led to
    outcomes jeopardizing their continued use via a shift in decision
    making away from science and risk-based determinations to an
    overreliance upon precaution, particularly in cases where available
    data would suggest otherwise.
        To that point, actions undertaken by the U.S. Environmental
    Protection Agency (EPA) have caused concern due to the appearance of
    politically driven outcomes that fail to adequately factor for the
    economic benefits derived from the continued use of important crop
    protection materials. For instance, the U.S. Department of Agriculture
    has voiced criticism of the EPA's proposed pollinator rule having asked
    the Agency to consider the economic impact of the proposal onto the
    specialty crop sector and onto rural economies.\1\ Following a 5 year
    pollinator risk assessment of imidacloprid, the EPA issued an
    imbalanced press release focusing on risks to pollinators without
    emphasizing the overall finding in the report which found minimal risk
    to bees. In another example, EPA sought to revoke use of the
    insecticide flubendiamide based on theoretical modeling claiming a
    potential risk to certain invertebrates found in farm ponds despite
    evidence supporting its continued use which includes real-world
    monitoring data showing no indication of harm.
    ---------------------------------------------------------------------------
        \1\ August 25, 2015 Comments to Mr. Jack Housenger, Director,
    Office of Pesticide Programs on the EPA proposed rule: Mitigation of
    Exposure to Bees from Acutely Toxic Pesticide Products.
    ---------------------------------------------------------------------------
        Adopting risk-adverse policies over science-based risk assessment
    results in the reduction of critically important crop protection tools,
    which in turn stands to negatively impact both productivity and the
    continued viability of our farm sector. Our growers expect EPA to
    employ a rigorous science and risk based evaluation of crop protection
    tools that balances the benefits derived from their use with credible
    risks. By continuing to explore EPA decision-making processes and
    asking for an accounting of rationale used to support negatively
    impactful decisions, when data and benefits support continuing the use
    of important crop protection materials, your efforts will help to
    ensure we have a regulatory agency that understands and supports the
    needs of the farming community. To discuss further please feel free to
    contact Christopher Valadez (Redacted).
                Regards,
                [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Christopher Valadez,
    Director, Environmental, and Regulatory Affairs,
    California Fresh Fruit Association.
                                     ______

      Submitted Letter by Paul Wenger, President, California Farm Bureau
                                   Federation
    May 11, 2016

    Hon. Rodney Davis,                   Hon. Suzan K. DelBene,
    Chairman,                            Ranking Minority Member,
    Subcommittee on Biotechnology,       Subcommittee on Biotechnology,
     Horticulture, and Research,          Horticulture, and Research,
    House Committee on Agriculture,      House Committee on Agriculture,
    Washington, D.C.;                    Washington, D.C.

        Dear Chairman Davis, Ranking Member DelBene, and Subcommittee
    Members:

        The California Farm Bureau Federation (CFBF) is California's
    largest farm organization, comprised of 53 county Farm Bureaus,
    representing over 53,000 farm families and individual members
    throughout the state's 56 counties. CFBF strives to protect and improve
    the ability of farmers and ranchers engaged in production agriculture
    to provide a reliable supply of food and fiber through responsible
    stewardship of California's resources.
        CFBF appreciates the Subcommittee and Committee as a whole for the
    opportunity to provide input on [Focus on] the Farm Economy: Factors
    Impacting the Cost of Production. Modern agriculture's success depends
    on the availability of new technologies to help farmers grow more food,
    more sustainably, than ever before. Production costs are a key
    component of this success and a major factor affecting a farm
    operation's long-term viability.
        Although there are many factors affecting the cost of farming
    operations, we would like to focus our comments on those associated
    with today's environmental regulations. Unfortunately, the impact of
    higher costs associated with pesticide regulations does not appear to
    be a consideration when it comes to implementing today's Federal
    regulatory policies. If the U.S. Environmental Protection Agency (EPA)
    fails to adequately calculate and/or consider the economic costs of
    these impacts and beneficial uses in its regulatory proposals, the
    consequences could be devastating.
        By almost any measure, American agriculture is a success story.
    Farmers and ranchers are producing more food on less land and using
    more sustainable practices than ever before. In addition to the hard
    work and dedication of today's growers, a key reason for this success
    can be explained in one word: innovation. Agricultural research
    investment from both land-grant universities and science-based
    industries has enabled our productivity to rise to unprecedented
    levels.
        However, modern agriculture's success is not appreciated by
    everyone. There are some who wish to drag our industry backwards, in a
    futile pursuit of a pristine image of farming that never existed. These
    groups represent only a small segment of our society, but they are
    vocal, influential, and frequently challenge the new technologies that
    come to agriculture. Unfortunately, these activists appear to have
    undue influence on EPA, especially when it comes to regulatory
    policies. All too often, this results in senseless registration delays
    and restrictions which threaten the ability of farmers to protect their
    crops.
        While CFBF supports the need for regulatory oversight, we are
    concerned that the EPA is shifting its focus from science-based risk
    assessment to a more troubling precautionary approach. Regulatory
    oversight can only be effective if it is based on sound scientific
    principles. Recent actions taken by the EPA have diverged from these
    principles and threaten the future success of modern agriculture. The
    following are indisputable examples of this dangerous trend:

       Following new guidance regarding pollinator warnings on
            labels, the EPA proposed changing the basis of its long-
            standing policy of scientific risk assessment in favor of a
            ``hazard-based'' approach. This completely ignores the
            importance of exposure when determining risk, breaking a
            fundamental tenet of toxicology.

       As part of its proposed rule regarding pollinators, the EPA
            issued letters to registrants requesting them to withdraw all
            pending applications for new label uses. The EPA is demanding
            that applications be resubmitted only after developing
            additional, costly and time-consuming data not originally
            required--but failed to provide sufficient justification to
            this change in policy.

       The EPA conducted a benefits analysis of insecticide-treated
            seeds on soybeans without consulting farmers or other
            agricultural experts, including USDA economists, resulting in
            the publication of a misleading report that significantly
            undervalued the benefits these products possess.

       After completing a 5 year review of an insecticide's
            potential impact on honey bee health, the EPA misled the public
            by issuing a press release that basically ignored the low risk
            potential found in their review. Instead of taking the
            opportunity to reassure the public, the EPA needlessly took an
            alarmist approach that further diminished our ability to
            educate using science.

       The EPA recently moved to cancel the registration of a new
            insecticide, important to grower integrated pest management
            (IPM) programs, without undergoing a full review process. The
            revocation is based on theoretical modeling which claims
            certain organisms living at the bottom of agricultural ponds
            are at risk, despite 6 years of real-world monitoring showing
            no evidence of harm.

       In a move that defies belief, the EPA asked the 9th Circuit
            Court to revoke an existing herbicide label the agency had
            previously approved--essentially suing itself to nullify
            procedural protections to the registrant that are guaranteed by
            Federal law.

        The common thread in these examples is an agency that appears
    increasingly focused on trivial risks and less interested in the
    important benefits these technologies bring to society. Whether this is
    due to external pressures from activist groups that are vehemently
    opposed to modern agriculture, or a lack of understanding about what it
    takes to grow a crop, the trend is disturbing and dangerous.
        The global economy demands that we be best-in-class in managing our
    production. Investment costs in the seed and chemical technologies we
    use today are expensive, but they have helped us optimize our
    operational capacity to stay one step ahead of our global competitors.
    Moreover, these technologies enable us to avoid costs associated with
    older practices that no longer meet the high standards required by
    today's best management practices.
        Farmers and ranchers depend upon the new technologies that come
    from investment in innovation. Yes, we want the EPA to ensure these
    technologies are safe for humans and the environment, but we also want
    the agency to be responsive to the legitimate concerns of agriculture
    when developing regulatory policy. Modern agriculture has been good for
    farmers and ranchers, the general public, the environment, and our
    nation's economy. Because innovation is the life-blood of not just our
    industry but the nation as a whole, we believe the EPA should support
    safe new technologies instead of finding undue reasons to deny them.
        Thank you again for the opportunity to provide input on the farm
    economy.
                Sincerely,
                [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Paul Wenger,
    President.
                                     ______

      Submitted Statement by Richard Wilkins, President, American Soybean
                                  Association
        Thank you to Chairman Davis and Ranking Member DelBene for holding
    today's hearing. The American Soybean Association (ASA) appreciates the
    opportunity to provide a statement to the Subcommittee. ASA represents
    all U.S. soybean farmers on domestic and international issues of
    importance to the soybean industry. ASA's advocacy efforts are made
    possible through the voluntary membership in ASA by over 22,500 farmers
    in 31 states where soybeans are grown.
        Soybean farmers, like producers of all crops, are especially
    focused this spring on the topic of today's hearing: the factors that
    contribute positively and negatively to their cost of production. With
    commodity prices down by an average of 40 percent since 2013 and land
    rents remaining relatively high, farmers are looking to productivity
    gains through agricultural research and technological innovation as
    ways to reduce per-unit costs. And we know that, if the U.S. is going
    to continue to provide food, feed, fiber and fuel to a world population
    expected to reach 9.7 billion by 2050, it must be done on the same or
    less land and in a sustainable way. Agricultural research and
    technology have been and will continue to provide the tools for
    achieving this goal.
        ASA would like to associate ourselves with testimony provided by
    several of your witnesses. In particular, we support the statement
    offered by Chuck Conner representing the National Council of Farmer
    Cooperatives regarding the vital importance of agricultural research.
    ASA has long supported full funding for USDA's flagship competitive
    research program, the Agriculture and Food Research Initiative (AFRI)
    and that remains our top agricultural appropriations priority for FY
    2017. At the same time, we strongly support the research programs
    carried out by a national network of land-grant universities. The
    fruits of this research positively and directly affect the cost of
    production for America's soybean farmers, and we want to make sure the
    Subcommittee understands how deeply soybean farmers value agricultural
    research and the land-grant system.
        ASA also shares the concern of many of the witnesses about farmers'
    continued access to important crop protection products, and the sense
    that the Environmental Protection Agency is consciously delaying
    decisions to bring and keep products on the market, as well as
    declining to defend its own science-based process and decisions.
        We expressed many of these concerns in a January 2016 letter to the
    House Agriculture Committee. We again highlight these recent decisions:

       The 9th Circuit invalidated the registration of sulfoxaflor;
            EPA has indicated that it will not defend its own decision to
            register sulfoxaflor.

       EPA abruptly withdrew its approval of the Enlist/Duo
            herbicide on corn and soybeans.

       EPA proposed to revoke all tolerances for chlorpyrifos based
            on questionable epidemiology studies that are not publicly
            available.

       EPA moved to cancel registration of flubendiamide without
            notice and comment or weighing grower interests.

       EPA published a paper which concluded that neonicotinoid
            seed treatments ``provide negligible overall benefits to
            soybean production in most situations'' and that ``in most
            cases there is no difference in soybean yield when soybean seed
            was treated with neonicotinoids versus not receiving any insect
            control treatment.'' USDA was not consulted and issued a strong
            response that contradicted EPA's conclusions. ASA also objected
            to the paper, noting that actual experience from soybean
            farmers proved differently.

        The United States has the world's most rigorous pesticide
    registration and review processes. EPA has historically relied on a
    predictable, science-based process for crop protection products--one
    that the public and farmers have trusted to keep air, soil and water
    safe. We urge the Subcommittee to direct the EPA to return to this
    risk-based system so that farmers and consumers again trust in EPA
    decision-making.
        Again, thank you for holding this hearing and for the opportunity
    to provide testimony.
                                     ______

                      Submitted Statement by AmericanHort
        Dear Chairman Davis, Ranking Member DelBene, Subcommittee Members:

        Thank you for this opportunity to submit official testimony for the
    hearing record on this important topic. AmericanHort is the national
    trade organization representing the horticulture industry. AmericanHort
    supports nearly 16,000 member and affiliated businesses that include
    plant breeders, greenhouse and nursery growers, garden retailers,
    distributors, interior and exterior landscape professionals, florists,
    students, educators, researchers, manufacturers, and all of those who
    are part of the industry market chain.
        While the Great Recession had a very negative impact on much of our
    industry, a slow but steady rebound is underway. The production value
    of nursery and greenhouse crops reached $16.7 billion in 2013. The
    horticulture industry's plant production, wholesale, retail, and
    landscape service components have annual sales of $163 billion, and
    sustain over 1,150,000 full- and part-time jobs.
        Nursery and greenhouse plants are produced in all 50 states. At
    farm gate they represent about \1/3\ of the value of all specialty
    crops, and about 15% of the total value of U.S. crop production. This
    places our sector ahead of other major crop sectors such as wheat and
    cotton.
        Our industry also provides a critical linkage between increasingly
    urban consumers and the agricultural sector. ``Seek first to
    understand,'' best-selling author Stephen Covey urges. Getting their
    hands in the soil and learning to grow plants is the best way for many
    consumers to understand in a small way the lives and labors of our
    growers.
        In this hearing statement, we focus on four issues impacting
    production costs and profitability--pest prevention, tools and inputs,
    labor, and research and market development. We then elaborate on how
    some key programs under the jurisdiction of the Subcommittee are
    helping.
    Pest Prevention
        Our industry produces literally thousands of plant species and
    varieties. Nearly every invasive foreign plant pest that is introduced
    into the U.S. as an inadvertent consequence of international trade and
    travel finds suitable host plants somewhere in our industry. Introduced
    pests (including insects, pathogens, and weeds) often cause plant
    damage and loss, and market access can be jeopardized due to Federal or
    state quarantines intended to limit pest spread.
        In the year 2000, Congress modernized and streamlined the
    authorities under which USDA's Animal & Plant Health Inspection Service
    implements its efforts to safeguard American plant agriculture from
    such threats. At that time, AmericanHort (then the American Nursery &
    Landscape Association) co-chaired an external review of the APHIS plant
    safeguarding mission. The resulting report presented several hundred
    recommendations and a blueprint for the implementation program that
    followed.
        Beyond APHIS' historic approach and activities, Section 10007 of
    the Horticulture title of the farm bill features two very important
    components which have improved capacity, collaboration, and efficacy of
    efforts to prevent, detect, contain, and mitigate foreign invasive
    plant pests. The first is the National Clean Plant Network, NCPN, which
    provides high quality asexually propagated plant material free of
    targeted plant pathogens and pests that cause economic loss to protect
    the environment and ensure the global competitiveness of specialty crop
    producers.
        NCPN currently serves an array of high-value crop sectors that are
    vulnerable to high-consequence foreign pathogens. Sectors served
    include apples and pears, stone fruits, citrus, berries, grapevines,
    hops, roses, and sweet potatoes. A network of centers providing
    diagnostics and therapy enables the safe and orderly importation of new
    varieties, which contributes to the competitiveness and success of our
    growers. We attach some background information on the economic
    importance of clean plant programs.
        Sec. 10007 enables other important pest prevention and mitigation
    efforts, many of which involve Federal, state, and industry
    collaboration. For example, a pilot program known as Systems Approach
    to Nursery Certification (SANC) is now underway with the goal of
    modernizing the system for certifying nursery and greenhouse plants for
    interstate shipment by embracing hazard analysis, identification of
    critical control points, and application of management measures to
    mitigate pest and pathogen risk.
        Finally, a large and growing share of our industry's production
    starts overseas as young plants or vegetative cuttings subject to
    further growth and development here in the U.S. They are highly
    perishable and must enter free of regulated pests. An efficient
    inspection and clearance process is critical to our growers' success.
    Tools in the Toolkit
        Effective plant production depends on an array of tools in the
    toolkit for both plant breeding and pest management. With this in mind,
    and as a ``minor use'' crop, we are deeply concerned that decisions
    regarding plant breeding and product availability for pest management
    are made based on sound science. This is true as well for efforts to
    respond to threats to pollinator health. Despite the advancements in
    new breeding technologies in recent years, the greenhouse and nursery
    production industry has benefited little. The fragmented pattern of
    ownership, the sheer number of species and varieties used, intellectual
    property issues, and high regulatory costs of permits have all rendered
    these promising new breeding technologies cost prohibitive and
    inaccessible to our industry. However, some of the newer technologies,
    such as gene editing, are much more economical. In many cases the
    resulting plant product is similar to historically used breeding
    practices but created in far less development time.
        These powerful tools could finally become a reality for our
    industry, provided that the associated regulatory framework does not
    overreach and become too costly. Potential gains are huge with respect
    to traits such as disease resistance and environmental stress
    tolerance. As USDA-APHIS reviews its biotechnology regulatory framework
    especially as it applies to genetically engineered plants, we urge
    restraint, so as to not unduly restrict ongoing nursery and greenhouse
    crop breeding operations and stifle future innovation.
        Horticulture is a major stakeholder in the pollinator health
    debate. On one hand, we are professional producers of trees, shrubs,
    vines, and flowers that are ``critical infrastructure'' for providing
    habitat and forage. Experts across the spectrum agree that improved
    habitat and forage are critical to ensuring healthy and diverse
    pollinator populations.
        On the other hand, our growers must also manage pests, and of
    course systemic insecticides generally--and neonicotinoids in
    particular--are at the center of the debate. The neonics have become
    integral in pest management for many reasons--they are broadly
    effective against invasive and often regulated insect pests, and have
    generally better worker safety and environmental profiles than many
    alternatives. They are also the subject of vigorous debate with respect
    to potential pollinator impacts.
        With a total of 76 active ingredients--including the neonics--
    subject to enhanced data requirements for pollinator impacts, it is
    crucial that the Environmental Protection Agency follows the science.
    It is equally important that USDA's relevant research programs serve up
    solutions with respect to effective invasive pest management that
    ensures pollinator stewardship. We are deeply concerned that hasty or
    unsound regulatory decisions--as well as ``retail regulation''--may
    leave a toolkit that fails to enable our industry to effectively manage
    pest threats, mitigate the development of pesticide resistance, and
    meet quarantine and shipping requirements.
    Labor and the Immigration Reform Imperative
        For many specialty crop producers, hired labor is the single
    biggest production expense. That is certainly true for nursery and
    greenhouse growers, where labor often constitutes 30 to 50 percent of
    production costs. And yet, labor-intensive agricultural sectors are in
    the midst of a worsening labor crisis characterized by the following:

       Aging and attrition of the current workforce;

       Very little workforce replenishment, either by domestic or
            foreign workers;

       Growing reliance on the only legal visa option, H-2A, though
            the program is mired in bureaucracy and dysfunction;

       Little prospect for near-term Congressional action that
            would bring our immigration and agricultural visa system into
            the 21st century.

        While often overlooked by critics, farmers are constantly striving
    to innovate, and to adopt mechanization, automation, and labor-saving
    strategies where possible. With respect to mechanization, the easy work
    has been done, and there are many functions workers perform that are
    not likely amenable to mechanization. That said, mechanization research
    is long-term and speculative and isn't likely to happen without a
    Federal partner. Much USDA research in this space seems to have been
    deemphasized; meanwhile, the Department of Labor spends over $50
    million each year through the Workforce Innovation and Opportunity Act
    to provide farm workers with the training and skills to exit
    agricultural employment!
        While the prospect for legislative reforms is not bright, hope
    springs eternal. After all, even in the narrow context of agriculture,
    legislative reforms are essential to the goals of stabilizing the
    workforce and ensuring a workforce in the future. Studies and reports
    have demonstrated the catastrophic economic lost opportunity to the
    U.S. if current and potential production of high-value specialty crops
    shifts overseas because the U.S. has an unending labor drought and a
    dearth of solutions.
        Members of the Agriculture Committee are well positioned to
    articulate these truths, and to work across the aisle toward enactment
    of badly needed reforms. Our growers and producers need your
    leadership.
    Research and Market Development
        Robust research is key to innovation and progress. With declining
    funding and capacity in many of the traditional institutions conducting
    ag and hort research, targeted programs like the Specialty Crop
    Research Initiative are growing in importance. And, organizations like
    the Horticultural Research Institute, the AmericanHort foundation, are
    creatively raising funds and partnering with others to advance priority
    research.
        A key example of such leveraging can be found in the ``intelligent
    sprayer'' project that was initially funded through the USDA
    Agricultural Research Service's (ARS) Floriculture and Nursery Research
    Initiative (FNRI), with industry support through HRI. Through the FNRI,
    ARS and land-grant university scientists developed and trialed
    innovative pesticide application technology that has delivered
    impressive results: 47% to 70% reduction in pesticide active ingredient
    applied, reductions in drift and off-target spray, and cost savings of
    up to $280 per acre. Please see the attached summary for further
    details.
        This groundbreaking work more recently received support through the
    Specialty Crop Research Initiative. This next phase of the project
    seeks to enable existing spray equipment to be retrofitted with the new
    technology, allowing cost savings and enhanced environmental protection
    without the need to necessarily acquire a major new piece of equipment.
    This is ``partnership in action'' that underscores the importance of
    these programs toward achieving profitable farms and broader societal
    goals.
        Landscape horticulture is in the early stages of a major
    marketplace transition, from the historic use of trees, shrubs,
    flowers, and plants primarily for aesthetic enhancement, to a world
    where plants and landscapes are properly seen as investments that
    deliver tangible returns in the form of ecosystem services, enhanced
    human health and well-being, and economic benefits like increased
    property values.
        For our industry, the Specialty Crop Block Grant program has served
    a key role in engaging consumers to invest in plants and landscaping
    for these reasons, through a unique outreach program called Plant
    Something. However, a new and unrealistic performance measure
    requirement to report actual dollar sales increases, applied to
    marketing proposals only, is problematic. For most specialty crops,
    including nursery and floriculture crops, annual baseline sales data in
    the retail setting do not exist. Individual companies often consider
    sales as proprietary business information. Total sales are influenced
    by many factors, and the impact of marketing efforts is often broader
    than that covered by a grant in any one year.
        To have to build in a major statistical gathering and evaluation
    mechanism as part of each marketing grant proposal would not constitute
    a wise use of limited program resources. Expanding markets for and
    consumption of specialty crops is a key goal of this program, and this
    new performance measure--applied only to marketing proposals--should be
    sidelined.
    Conclusion
        Thank you for the opportunity to share perspectives of the
    horticulture industry with regard to factors impacting the cost of
    production and the success and future potential of our growers. We
    welcome questions and feedback.
                                   attachment
    This Could Change Everything
    Mechanization at Its Finest: Technology that Automatically Adjusts
            Spray Output to the Structure of the Crop
              Controlled spray output that matches plant canopies brings
            many benefits. Using this new sprayer technologies, Nelson has
            experienced the following:
            [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

              The bottom line--effective pest management that is much more
            cost-effective and environmentally friendly than the air-blast
            sprayers it replaces.

        Dan Nelson, of Hans Nelson and Sons Nursery in Boring, Oregon, is
    usually a pretty laid-back fellow-until the conversation turns to spray
    technology and the recent advancements made possible by a unique
    partnership effort involving the Horticultural Research Institute,
    USDA's Agricultural Research Service, and several universities. Then,
    Nelson gets animated.
        His passion for pest management innovation is easy to understand.
    Nelson and Sons has been fortunate to be one of six test sites for the
    new ``intelligent sprayer'' technology developed at the USDA-ARS
    research station in Wooster, Ohio. Dr. Heping Zhu and his staff
    designed and built the first prototypes. Their objective was simple:
    develop an advanced and affordable pest management spray application
    system that employs intelligent technology to automatically match spray
    output to the structure of the crop.
    How It Works
        The technology starts with a variable-rate air assisted sprayer. It
    uses a laser scanning sensor that feeds data into a tractor-mounted
    computer. The computer feeds information to 40 individual solenoids
    each with a tee jet spray nozzle. The data coming from the laser
    computer activates individual nozzles based on what the laser sees.
    When nothing is seen, the nozzles are not activated.
    Our Support
        This remarkable research advancement is a perfect example of
    progress through partnerships. The Horticultural Research Institute,
    AmericanHort's research and development affiliate, believed in the
    potential of this project and its visionary scientist team led by Dr.
    Zhu. HRI provided some of the initial funding to get the project going.
    That demonstration of industry commitment opened the door to further
    funding through our Floriculture and Nursery Research Initiative
    partnership with USDA-ARS. Eventually, additional funding came through
    the Specialty Crop Research Initiative, a program AmericanHort has
    supported through the farm bill. University research and extension
    involvement in Ohio, Oregon, and Tennessee has helped transform a
    research theory into an industry reality.
    What's Next
        The ``smart sprayer'' project is now at the commercialization
    phase. And, the research team led by Dr. Zhu is now working to make the
    technology adaptable to existing equipment, eventually allowing many
    growers to retrofit existing spray equipment to reap the benefits of
    this work. The project showcases what can be achieved when the
    industry's own research dollars, through HRI, are leveraged through
    partnerships to move the industry forward.
                                     ______

             Submitted Statement by American Seed Trade Association
        Innovative, science-based solutions are fundamental to meet our
    growing agricultural needs. Since 1948, total U.S. agricultural output
    has more than doubled. The ability of the farm sector to feed far more
    people today while using less farmland than 6 decades ago is attributed
    to increases in agricultural productivity. The major driver of growth
    in agricultural productivity is innovation, and it will continue to be
    critical as we look for ways to sustainably feed nine billion people in
    the coming years.
        Founded in 1883, ASTA's mission is to enhance the development and
    movement of quality seed worldwide. ASTA's diverse membership consists
    of over 700 companies involved in seed production, distribution, plant
    breeding and related industries in North America. ASTA represents all
    varieties of seeds, including grasses, forages, flowers, vegetables,
    row crops and cereals. Many ASTA members are research-intensive
    companies engaged in the discovery, development and marketing of seed
    varieties with enhanced agronomic and end-use quality characteristics.
        Research programs authorized in the farm bill are critical to
    advancing agriculture, and these programs have shown a high rate of
    return for the dollars invested. The programs outlined below are
    particularly important for the seed industry's mission to provide
    better seed to improve the quality of life for all of us. It is
    important to note, however, that the promise of U.S. research
    investments will not be fully realized if the regulatory burden for
    commercialization of these tools is too great. Congress must ensure
    that Executive branch actions, regulatory and otherwise, foster the
    growth of a strong 21st century farming economy through science-based
    decision making.
    Farm Bill--Research Title
        Agriculture and Food Research Initiative (AFRI) is the premier
    competitive grants program for fundamental and applied research,
    extension, and education to support our nation's food and agricultural
    systems. While the 2014 Farm Bill authorized $700 million for AFRI,
    annual appropriations have not met this authorization target. Failure
    to meet this commitment could deter the next generation of scientists
    from pursuing critical research in agriculture innovations that could
    benefits all Americans.
        Due to limited funding, only a small percentage of NIFA grant
    applications are awarded each year. In light of this situation,
    Congress may wish to refine the review process to maximize impact of
    the sparse research dollars available. For example, the Specialty Crop
    Research Initiative has a two-step review process so that proposals are
    reviewed and ranked by a panel of specialty crop industry
    representatives as well as peer reviewed by research experts.
        Foundation for Food and Agriculture Research provides an innovative
    solution to increase funding and leverage current and future
    investments in research. The Foundation provides a structure for new
    public-private collaborations that will further USDA's research mission
    by addressing knowledge gaps in water use, soil health and plant
    efficiency. While still in the beginning stages of operation, the
    Foundation intends to complement USDA's portfolio of intramural and
    extramural research programs to solve current and future challenges and
    provide a mechanism for rapid response for emerging issues. We support
    its continued authorization and funding in future farm bills.
        National Genetic Resources Program was established to acquire,
    characterize, preserve, document, and distribute germplasm of all
    lifeforms important for food and agricultural production to scientists.
    These materials are the key to increasing genetic diversity to reduce
    vulnerability of crops to pests, diseases, and environmental stress.
    The program is authorized at $1 million in the farm bill. Twenty-six
    National Plant Germplasm System labs are funded with further annual
    appropriations of $44 million. The U.S. germplasm system is enviable
    for its size and scope. However, current funding through the farm bill
    and annual appropriations is insufficient to maintain and distribute
    the collections to U.S. researchers who use those materials to develop
    varieties for all types of cropping systems and landscape uses. Without
    sufficient funding, the collections are deteriorating, and the
    beneficial attributes of the collected materials are going
    undiscovered.
    Farm Bill--Horticulture Title
        The National Seed Health Accreditation Pilot Program (NSHAPP) was
    funded from dollars designated in the Horticulture Title for Plant
    Disease Management and Disaster Prevention Programs (10007)--an
    important funding mechanism for specialty crops. Under the goal of
    enhancing mitigation and rapid response, NSHAPP is developing a model
    for a voluntary system of testing imported seed for pathogens of
    phytosanitary concern that can be continuously adapted to emerging
    pathogens. The USDA-APHIS National Seed Health System has coordinated
    with the seed industry in a unique partnership to screen imported seed
    with diagnostic testing to prevent the introduction of previously
    undetectable and economically damaging seed-transmitted pathogens.
    Continued funding for plant disease management programs in the farm
    bill is important for the horticulture sector to address pressing
    problems.
    Regulatory Oversight
        Thanks to seed improvement, farmers can count on increased
    varieties of crops, consistent and reliable harvests, and greater
    yields. The result is increased quality and quantity of our food
    supply, quality of life, and a more sustainable future.
        Many breeders now have access to newer tools that take advantage of
    a better understanding of plant genetics. Innovative plant breeding
    techniques, such as gene editing, hold enormous promise for improving
    the productivity and environmental sustainability of food, feed, fiber,
    and biofuels. Today, with the capability to sequence plant genomes and
    the ability to link a specific gene(s) to a specific characteristic,
    breeders are able to more precisely make improvements that mimic the
    improvements that happen in nature or through traditional plant
    breeding.
        By applying newer methods, plant breeders can be more efficient and
    precise at making the same desired changes that can be made over a much
    longer period of time through earlier breeding methods. Opportunities
    abound for the use of precise breeding techniques, such as gene editing
    in horticultural crops including: improved disease resistance and
    yield, water and nitrogen-use efficiency, and enhanced nutrition,
    colors, flavors and shelf-life. Because these new methods are efficient
    and economical, they are accessible to public and commercial plant
    breeders and can be used across all agriculturally important crops,
    including field, vegetables, and specialty crops.
        All plant varieties are regulated in the U.S., and plant breeders
    have a phenomenal track record of safety. USDA has a process for
    determining if a plant product will be subject to a pre-market review,
    and they have recently determined that a number of products (e.g., a
    non-browning mushroom) do not pose any risk that would require further
    USDA review. Scientists and breeders are now conducting critical
    performance evaluations of those varieties prior to bringing them to
    market.
        As farmers strive to address production challenges in the 21st
    century, it is important that they have access to the most
    sophisticated tools. It would have significant ramifications for the
    rural economy if the U.S. was no longer a leader in agriculture
    innovation. Recently, USDA's Animal and Plant Health Inspection
    Services (APHIS) began the process of implementing an overhaul of its
    biotechnology pre-market regulations through a Notice of Intent
    published in the Federal Register. In comments to APHIS, the American
    Seed Trade Association (ASTA) and a wide range of agriculture
    organizations have raised concerns that the proposal goes well beyond
    the scope of what the agency reviews today. In particular, APHIS's
    proposals create ambiguity as to what processes and products will
    receive pre-market regulatory scrutiny and to what degree.
        A transparent regulatory system that is based on the risk posed by
    the product and not on the specific process used to develop the product
    will encourage innovation in the U.S. In turn, that innovation will
    benefit growers and all participants in the food and feed value-chain.
    Congress must stay actively engaged to monitor how USDA intends to
    implement proposed changes to the regulatory system. APHIS should be
    encouraged to consult with other Federal agencies, international
    regulatory bodies, and stakeholders so that the sweeping changes they
    have outlined do not have unintended consequences to trade and
    innovation. Other countries are moving towards not regulating newer
    breeding methods under their GMO regulations. This is the approach that
    ASTA supports as it is science-based and presents the best opportunity
    to ensure a promising future for agriculture.
                                     ______

       Submitted Statement by American Society for Horticultural Science
        The American Society for Horticultural Science (ASHS), the
    professional society of horticulture researchers and educators supports
    continuation of USDA's competitive extramural and intramural research
    programs. These programs fall under both the National Institute for
    Food & Agriculture (NIFA), and the Agriculture Research Service (ARS)--
    agencies dedicated to expanding knowledge and innovation for abundant,
    healthy, and safe agricultural products. We believe vibrant innovative
    research programs must remain in place to meet rising domestic and
    global demands for accessible and affordable food and plant sources.
    USDA lists horticulture as comprising 50% of total crop farm-gate
    value. As such, specialty crop research is the essential common
    denominator for basic and applied science that ensures quality growth
    and production of nutritious foods, as well as enabling responsible
    environmental stewardship and harnessing new forms of energy.
        For ASHS members, some of the most commonly used NIFA programs are
    the Specialty Crop Research Initiative (SCRI), the Organic Agriculture
    Research and Education Initiative (OREI), the Specialty Crop Block
    Grant program, and Hatch and Smith-Lever capacity funding for land-
    grant institutions.
        SCRI addresses a host of challenges with fruits, vegetables, and
    ornamentals. Recent projects funded by this successful initiative are
    helping the potato and citrus industries ward off devastating psyllid-
    borne diseases. Each of these $3.5 billion industries is threatened by
    this harmful infestation. Interdisciplinary teams are identifying
    pathogen origins, and implementing effective means to arrest their
    spread and eventual eradication. What has been learned about potato
    zebra chip now informs strategies for halting citrus greening. While
    Texas potato growers have already saved several hundred million
    dollars, the savings in production costs is even greater because the
    spread of zebra chip to California and the Pacific Northwest has been
    stopped. SCRI's model of coordinated management has made many of these
    projects successful on a much greater scale, serving the needs of the
    specialty crop industry, and providing measurable dividends for
    taxpayer investments.
        OREI's dual research and education components make it another
    popular program used by ASHS. One recent OREI success story deals with
    food safety. Specifically, tracking foodborne pathogens in leafy greens
    and other vegetables at production and distribution levels.
    Sanitization techniques, and use of various herbal substances, are part
    of this OREI grant which tests various handling methods for ensuring
    that disease-free specialty crops make it to retail outlets and
    consumers.
        Specialty Crop Block Grants allow states to fund projects having
    state-specific needs. One such Block Grant trained Illinois farmers to
    use high tunnels (unheated greenhouses) to provide top quality
    vegetables for local consumers over a longer growing season.
    Implementation of new techniques and technologies allows more
    productivity and profitability for Illinois' horticulture growers in an
    area known more for corn and soybeans. Block Grants recently helped
    fund a ``Grassroots'' education exhibit at the U.S. National Arboretum
    in Washington, DC. Using both visual and interactive tools, visitors
    learn about turf's history, and its many modern-day uses courtesy of
    horticulture science.
        Capacity funding for land-grant institutions allow ASHS member
    scientists to solve problems not effectively addressed by competitive
    grant models. ASHS supports adjusting appropriations for these programs
    for inflation so that our land-grants maintain adequate research
    capacity to assure the nation's food security needs. A recent capacity-
    funded project, ``Improving Sustainability in Fruit Tree Production
    through Changes in Rootstock Use,'' is the basis of a revolution in
    U.S. apple production. These high-density, disease-resistant orchards
    lower production costs for growers by approximately $250 million per
    year, while reducing environmental impact and improving apple quality.
    Capacity funding also provides critical foundations for all intra- and
    extramural research. These funds provide unique and invaluable
    education, training, and extension opportunities that sustain new
    generations of agriculture scientists.
        As Howard Buffett, a businessman, philanthropist, and farmer
    recently said in an interview with PBS, ``land-grant universities are
    what built our agricultural system into a powerhouse.'' Utilizing
    collaborative partnerships between academia, government, and private
    industry, ASHS views the combination of capacity and competitive
    research--in collaboration with private industry--as maintaining
    America's powerhouse role for horticulture science and all of
    agriculture.
                                     ______

          Submitted Statement by Biotechnology Innovation Organization
        The Biotechnology Innovation Organization (BIO) is pleased to
    submit this testimony to the House Committee on Agriculture,
    Subcommittee on Biotechnology, Horticulture, and Research. BIO is the
    world's largest biotechnology trade association representing 1,000
    companies, academic institutions, state biotechnology centers and
    related organizations across the United States and in more than 30
    other nations. BIO members are involved in the research and development
    of healthcare, agricultural, industrial and environmental biotechnology
    products, and BIO represents the majority of the biotechnology product
    developers in North America.
    Introduction
        Scientific advancements across the American economy are responsible
    for accelerating economic growth through improved productivity. New
    technologies, in agricultural and industrial biotechnology and beyond,
    create new products and processes; stimulate the creation of new
    companies and new industries; improve existing products; and lower
    manufacturing costs. They also provide public- and private-sector
    researchers with the tools and techniques necessary for discovering new
    products that hold tremendous potential for society. Over the past 200
    years, the primary scientific drivers of technology development were
    physics and chemistry. But today, in the 21st Century, society is
    leveraging a deep and rich understanding of the fundamental mechanics
    of life and its molecular components to drive the development of an
    array of biologically-based technologies that fuel innovation,
    stimulate greater economic growth, and transform American lives for the
    better.
        For agriculture, biological breakthroughs are enabling farmers to
    rise to the grand challenge confronting it: doing more with less.
    Throughout history, as human population growth drove ever-increasing
    demand for food, animal feed, fuel and fiber, our agricultural
    production systems kept pace. In the mid-20th century, fears of a
    population-driven food crisis led to research and investment to
    intensify crop production. This ``Green Revolution'' saved one billion
    from famine; halved the global percentage of undernourished people;
    improved rural economies; and protected approximately 2.2 to 3.8
    billion acres of land from being cleared for crop production.
        Society still faces the challenge of feeding an ever-expanding
    population, which will reach nine billion by 2050 and require at least
    a 70 percent increase in food, feed and fuel production. However, this
    time the challenge of increasing agricultural production is exacerbated
    by a confluence of interacting pressures in addition to population
    growth: increased competition for water, land and energy; a dietary
    shift from cereals to animal products; diminishing supplies of fossil
    fuels--the source of most agrochemicals; resources degraded from past
    activities; and the global effects of climate change. The Green
    Revolution allowed society to produce more with more inputs, most of
    which are derived from nonrenewable resources. Our current challenge is
    to produce more with less and to do so in a sustainable fashion.
    Biotechnology provides a set of precise, yet flexible, tools for
    meeting that challenge.
    Creating an Environment in Which Biotechnology Innovation Flourishes
        To meet the challenges of today and tomorrow, Congress must
    consistently promote policies that encourage biotechnology innovation
    and ensure Executive Branch actions, regulatory and otherwise, foster
    the growth of a strong 21st Century farming and biobased economy. BIO
    recommends the House Agriculture Committee and the broader House
    Membership consider the following policies that foster current and
    future innovation:

       Promoting predictable, science and risk based regulatory
            policy at USDA, EPA, and FDA.

       Promoting national consistency regarding the labeling of
            bioengineered food.

       Promoting national consistency regarding the cultivation &
            movement of bioengineered seeds.

       Promoting patent laws that drive critical life science
            discoveries.

       Promoting U.S. Government efforts to avoid trade barriers or
            trade disruptions related to non-harmonious policies and
            practices.

       Promoting investments in public-sector agricultural
            research.

       Promoting public education about agricultural innovation.

       Promoting the development of animal biotechnology products
            that prevent and mitigate major livestock disease outbreaks.

       Promoting policies that nurture innovation and investment in
            advanced biofuels, renewable chemicals, and biobased products.

       Promoting a strong and steady Renewable Fuel Standard (RFS)
    Plant Biotechnology
    Value to Farmers, Productivity, and the Rural Economy
        For the past 2 decades, the products of agricultural biotechnology
    have been commercially available and widely used by farmers around the
    world. In the U.S., more than 90 percent of corn, cotton, canola,
    soybeans, and sugarbeets grown contain at least one biotechnology-
    derived trait to help farmers better manage pests, weeds, disease, and
    harsh weather conditions. Because biotech crops make up such a large
    portion of American production agriculture, they have a major positive
    impact on the overall strength of the rural economy.
        Gains in productivity associated with biotech crops help grow the
    American agricultural trade surplus because so many biotech crop
    harvests are dedicated to foreign markets. In Fiscal Year 2015, U.S.
    agricultural exports totaled more than $143 billion contributing to a
    $27.5 billion agricultural trade surplus. We can thank biotechnology,
    in part, for strong and steady growth in the U.S. agricultural export
    market, particularly for corn and soybeans.
        Additionally, USDA has published reports noting how the adoption of
    biotech crops by farm families is associated with higher off-farm
    household income. Farming efficiencies associated with the use of
    biotech crops allow farmers to save time, which is then used to
    generate income from off-farm employment. One USDA report highlights
    that a ten percent increase in the use of herbicide tolerant soybeans,
    for example, is associated with a 16 percent increase in off-farm
    household income. These statistics illustrate how more efficient
    farming practices, such as the use of biotechnology, generate greater
    economic activity in rural communities.
        It is also noteworthy that, according to the White House National
    Bioeconomy Blueprint, published in 2012, U.S. revenues from biotech
    crops totaled more than $75 billion. The investments by companies in
    research, development and commercialization of these crops has
    generated good jobs all across our country.
        The pattern of rapid and persistent adoption of biotech crops
    occurs in other countries where farmers have access to them. Globally,
    farmers growing biotech crops saw net economic benefits at the farm
    level of more than $20 billion in a single year (2013). When compared
    to non-biotech crops, biotech crops increase farmer profits 68%, on
    average due to increased yields (21.6%) and decreased chemical
    pesticide use (^36.9%). (Figure 1 and Table 1). Yield and profit gains
    are higher in developing countries than in industrialized countries.\1\
    ---------------------------------------------------------------------------
        \1\ Klumper W., Qaim M. (2014) A Meta-Analysis of the Impacts of
    Genetically Modified Crops. PLoS ONE 9(11): e111629. doi:10.1371/
    journal.pone.0111629.
    ---------------------------------------------------------------------------
    Figure 1
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

              Impacts of Biotech Crop Adoption. Average percentage
            differences between biotech and non-biotech crops are shown.
            Results refer to all GM crops, including herbicide-tolerant and
            insect-resistant traits. A total of 147 original studies
            comparing biotech and non-biotech crops were included in the
            analysis. The number of observations varies by outcome
            variable; yield: 451; pesticide quantity: 121; pesticide cost:
            193; total production cost: 115; farmer profit: 136. ***
            indicates statistical significance at the 1% level.
              Klumper W., Qaim M. (2014) A Meta-Analysis of the Impacts of
            Genetically Modified Crops. PLoS ONE 9(11): e111629.
            doi:10.1371/journal.pone.0111629.

                                     Table 1
    ------------------------------------------------------------------------
                                               Insect           Herbicide
     Outcome variable     All GM crops       resistance         tolerance
    ------------------------------------------------------------------------
             Yield           *** 21.57         *** 24.85           ** 9.29
                        (15.65; 27.48)    (18.49; 31.22)     (1.78; 16.80)
               n/m             451/100            353/83             94/25
    Pesticide quantity      *** ^36.93       *** ^41 .67              2.43
                        (^48.01; ^25.86)  (^51.99; ^31.36)  (^20.26; 25.12)
               n/m              121/37            108/31              13/7
    Pesticide cost          *** ^39.15        *** ^43.43        *** ^25.29
                        (^46.96; ^31.33)  (^51.64; ^35.22)  (^33.84; ^16.74)
               n/m              193/57            145/45             48/15
                       -----------------------------------------------------
      Total production            3.25           ** 5.24             ^6.83
       cost...........   (^1.76; 8.25)     (0.25; 10.73)    (^16.43; 2.77)
      n/m.............          115/46             96/38             19/10
                       -----------------------------------------------------
      Farmer profit...       *** 68.21         *** 68.78             64.29
                        (46.31; 90.12)    (46.45; 91.11)    (^24.73; 153.31)
      n/m.............          136/42            119/36              17/9
    ------------------------------------------------------------------------
    Average percentage differences between GM and non-GM crops are shown
      with 95% confidence intervals in parentheses.
    *, **, *** indicate statistical significance at the 10%, 5%, and 1%
      level, respectively.
    n is the number of observations, m the number of different primary
      datasets from which these observations are derived.
    doi:10.1371/journal.pone.0111629.t002.
    Klumper W., Qaim M. (2014) A Meta-Analysis of the Impacts of Genetically
      Modified Crops. PLoS ONE 9(11): e111629. doi:10.1371/
      journal.pone.0111629.

    Predictable, Risk Appropriate Regulation
       U.S. Department of Agriculture (USDA)

          Recently, USDA's Animal and Plant Health Inspection Services
            (APHIS) began the process of implementing an overhaul of its
            biotechnology pre-market regulations. Some of the regulatory
            systems APHIS is considering, which were publicized in the
            Federal Register in February, go well beyond the scope of what
            the agency reviews today.
          While many stakeholders agree with APHIS's goal of making
            improvements to its pre-market regulatory system so the scope
            of regulation better aligns with the actual risk posed by
            biotechnology products, much of what APHIS described in the
            Federal Register raises concerns about how the agency will
            actually achieve its goal.
          APHIS must get this project right. Congress should stay actively
            engaged and monitor what the agency is considering. It will be
            essential that any new APHIS pre-market regulatory structure
            (1) continue to promote innovation that enables American
            farmers to remain competitive while simultaneously confronting
            serious food security and environmental challenges; (2) is
            predictable, transparent, and based on science and actual risk
            of the product; and (3) is developed in close consultation with
            a broad range of scientific experts, stakeholders, and other
            government agencies responsible for biotechnology policy, such
            as the U.S. Food and Drug Administration, the U.S.
            Environmental Protection Agency, and the Office of the U.S.
            Trade Representative.

       U.S. Environmental Protection Agency (EPA)

          Biotech crops are particularly beneficial to the environment,
            which should be noteworthy to the EPA. Widespread adoption of
            these crops since the early 1990s have resulted in significant
            reductions in insecticide use, substitution of less toxic
            herbicides, and significant labor savings for farmers. Their
            use reduces agriculture's energy consumption and facilitates
            the use of no-till agriculture, which prevents soil erosion and
            reduces CO2 emissions. According to peer reviewed
            publications measuring environmental impacts, the use of
            biotech seeds has reduced the environmental footprint of
            agriculture by 18 percent.
          The EPA is responsible for assessing the safety of pesticide--
            like substances, known as Plant Incorporated Protectants
            (PIPs), produced by certain biotech crops. The most common of
            these are the so-called ``Bt'' crops, which produce a protein
            derived from soil bacteria that confers insect resistance to
            the plant. In its own independent analysis, the EPA confirmed
            the environmental safety of the PIPs that it reviews. Not only
            are Bt crops safe for the environment, but they also typically
            result in significantly less insecticide use. The EPA also
            approves new uses of previously registered herbicides on
            biotech plants that are developed to resist those herbicides.
          The EPA's regulatory performance with respect to ag-biotech
            products has declined over the years, as regulatory
            requirements and costs have increased significantly. Even
            though Congress enacted the Pesticide Registration Improvement
            Act (PRIA) to impose very specific time limits for reviews of
            new uses and registration of new PIPs in biotech plants, the
            EPA's Office of Pesticide Products (OPP) routinely extends the
            legally-mandated time limits for biotech products.
            Additionally, the EPA has made several attempts in recent years
            to expand its authority over agricultural biotechnology
            products. BIO urges the Committee to exercise appropriate
            Congressional oversight to ensure OPP is following legally-
            mandated timelines and that the EPA is, more generally, not
            unnecessarily expanding regulatory authority.
    National Uniformity for Labeling, Cultivation, and Seed Movement
        It is essential that policies related to bioengineered food
    labeling and the cultivation and movement of bioengineered seeds and
    plants be nationally uniform to promote the smooth movement of food and
    feed crops and other agricultural products into, out of, and within the
    United States. Avoiding trade barriers and disruptions is vital to
    agricultural commerce and the nation's economy and should be
    facilitated to the greatest extent possible.

       Labeling

          Some consumers are expressing a desire to know, via food product
            labeling, whether they are purchasing or consuming food that
            contains ingredients that were developed through biotechnology,
            and some manufacturers want to respond to this consumer
            interest. Some states and localities are requiring
            bioengineered food product labeling, creating the potential for
            conflicting legal and regulatory requirements, increased costs
            of food for all consumers, and substantial disruptions in, and
            adverse economic effects on, interstate commerce and trade. To
            prevent the negative repercussions associated with state-by-
            state food labeling laws, the Congress should quickly enact
            national bioengineered food labeling legislation.

       Cultivation/Seed Movement

          Some states and localities have attempted to ban or otherwise
            restrict the movement, introduction, development, planting,
            cultivation, harvesting, production, marketing, sale, or other
            use of bioengineered foods, diminishing the beneficial economic
            effects of economies of scale and creating the potential for
            substantial disruptions and adverse economic effects on
            interstate commerce and trade. Indeed, some localities have
            even enacted bans on the cultivation of bioengineered seeds and
            plants, causing distress and harm to farmers and resulting in
            considerable litigation.
          The petition process established for bioengineered plants under
            the U.S. Coordinated Framework for the Regulation of
            Biotechnology and the Plant Protection Act provides seed
            developers with the national clearance they need to
            commercialize bioengineered crops, provides farmers with
            clarity with respect to the crops they can legally grow, and
            provides farmers, agribusinesses, food companies, and consumers
            with confirmation that bioengineered crops are as safe to grow,
            market, and consume as non-bioengineered crops.
          State and local cultivation bans and restrictions, however
            passionately their supporters may favor them, pose a direct
            threat to the reliability of the Federal system of uniform
            science-based regulation that governs agricultural
            biotechnology in the United States. State and local bans and
            other measures result in a patchwork of laws governing farming.
            This is a serious and unnecessary obstacle to interstate
            commerce; local governments lack the expertise and resources to
            second-guess the expert decisions of national regulatory
            agencies.
    Animal Biotechnology
        The budding animal biotechnology industry has potential to solve
    numerous human, animal, and environmental challenges but is at a
    crossroads. Its future in the United States is in danger because
    universities and companies, which have developed numerous innovative
    applications over the past 3 decades, are impeded by costly,
    unpredictable regulations that are not proportionate to the product's
    risk.
        The House Agriculture Committee should be keenly interested in the
    viability of the animal biotechnology sector, because its products can
    prevent or mitigate animal diseases that cause tremendous pain and
    hardship for livestock producers and damage the rural economy.
    Unfortunately development of many of these products has either moved to
    other countries, such as China and Brazil, or been abandoned due to
    unnecessarily burdensome regulations:

       In 1998, researchers at the USDA developed dairy cows that
            required fewer antibiotics due to increased amounts of a
            naturally occurring enzyme, lysostaphin, in their milk. This
            enzyme, which occurs in high amounts in human milk, provided
            resistance to mastitis, the number one reason antibiotics are
            used in dairy cattle. Mastitis costs U.S. farmers $1.7-$2
            billion every year.

       South Dakota scientists have produced beef cattle that are
            capable of resisting ``Mad Cow Disease'' or Bovine Spongiform
            Encephalopathy (BSE). A cow that carried BSE was discovered in
            the U.S. in December 2003. In 2004, the disease cost U.S. beef
            producers $4.7 billion because international markets were
            closed to U.S. beef.

       In 2010, scientists developed chickens that are unable to
            transmit avian influenza. In 2015 alone, almost 50 million
            chickens and turkeys were destroyed in the U.S. due to an
            outbreak of the H5N2 strain of ``bird flu.'' The total economic
            cost to Iowa alone was over $1 billion in 2015.

        Many diseases can jump from animals to humans, as evidenced by the
    137 human cases of H7H9 avian flu with 45 deaths through 2013.
    Therefore, regulations that impede development of disease-resistant
    farm animals threaten the physical health of people in rural
    environments in addition to their economic well-being.
    Industrial Biotechnology
        While feeding and healing the world, biotechnology is also helping
    society to develop and commercialize new feedstocks and biological
    catalysts for production of advanced biofuels, renewable chemicals, and
    biobased products. The biobased industry created four million jobs and
    contributed $369 billion to the U.S. economy in 2013. The jobs
    multiplier for this industry is high, at 2.64, and these jobs benefit
    rural communities.\2\ Because these feedstocks, manufacturing methods,
    and products are based on plants and biological processes, they are
    more efficient, sustainable and environmentally friendly. According to
    a McKinsey report, the production of renewable chemicals, which go into
    products like plastics, textiles, and cosmetics, is expected to grow at
    twice the rate of the overall chemical market, comprising 11 to 13
    percent of total chemical industry revenues by the year 2020.
    Importantly, the development and use of biomass for fuels and chemicals
    in an American biobased economy, by necessity, cannot be outsourced to
    other countries.
    ---------------------------------------------------------------------------
        \2\ An Economic Impact Analysis of the U.S. Biobased Products
    Industry--A Report to the Congress of the United States of America.
    Golden, J.S., et. al 2015. Joint publication of the Duke Center for
    Sustainability and Commerce and the Supply Chain Resource Cooperative
    at North Carolina State University.

    ---------------------------------------------------------------------------
       Farm Bill Energy Title Programs

          Industrial biotechnology is unlocking the potential of
            agriculture and forestry, enabling the production of a new
            generation of advanced biofuels, renewable chemicals, and
            biobased products produced from biomass, to create new
            opportunities for rural economic prosperity and energy
            security. Farm bill energy programs, such as an expanded
            Biorefinery Assistance Program that promotes the development of
            standalone renewable chemicals facilities; the Biomass Crop
            Assistance Program; and the Biobased Markets Program, in
            combination with complementary Federal policies like the
            Renewable Fuel Standard (RFS) and supportive tax policies, are
            speeding technologies to commercial reality. We must continue
            investments in America's energy and agricultural future.

       A Strong, Steady Renewable Fuel Standard (RFS)

          Though not a policy within the jurisdiction of the House
            Agriculture Committee, BIO draws your attention to its support
            for a strong RFS. Because of the incentives created by the RFS,
            and the stability of the program generally, BIO members are
            producing commercial quantities of advanced biofuels. When
            properly administered in accordance with the RFS statute, the
            policy drives investment and ensures a steady and increasing
            market for renewable fuels in the United States, which in turn
            maintains and furthers investment in that market.
    Promoting Patent Laws that Drive Life Science Discoveries
        Agricultural innovation depends upon clear, predictable, and
    enforceable patent rights. Without these patent rights, new products
    used to produce healthful food, protect crops, preserve the
    environment, and improve human & animal health will be more costly to
    develop. Companies and universities expend tremendous resources to
    research and develop economically and environmentally beneficial
    technologies to help feed, fuel, clothe, and heal people and animals.
    But developing new products is a slow, uncertain, and expensive
    process. It can easily take a decade or longer and more than $100
    million to commercialize a single product. Strong patents are critical
    to ensure a return on investments of time and money, which in turn
    supports future investments in the industry that directly benefit
    American agricultural producers. Given the critical role that
    innovation plays in modern farming, we urge Congress to carefully
    consider the impact of any changes to the patent system on the
    agricultural innovation community.
        BIO also urges the Congress to enact the Defend Trade Secrets Act,
    bipartisan legislation that would promote economic growth by enabling
    America's most innovative companies to effectively protect their trade
    secrets from theft. Strong trade secret protection can help retain and
    increase American jobs.
    Defending Science-Based Agency Actions through Public Education
        Regrettably, there is a tremendous amount of misinformation about
    agricultural biotechnology in the public domain. Dedicated educational
    resources will ensure key Federal agencies responsible for the safety
    of our nation's food supply--the U.S. Food and Drug Administration
    (FDA) and the U.S. Department of Agriculture (USDA)--are able to more
    easily convey to the public science- and fact-based information about
    food.
        As has been previously discussed, biotechnology innovation is
    important to all Americans because it enables plant and animal
    producers to increase production of healthful food using less land,
    while conserving soil, water, and on-farm energy. These benefits are
    passed on to consumers who reap the advantage of affordable food
    prices, greater access to nutritious food, an improved environment, a
    strengthened rural economy, and enhanced domestic and international
    food security.
        Embracing modern agriculture is the right thing to do for our
    country, which has a rich history of nurturing science, research, and
    innovation in all areas of the economy, including farming. As President
    Obama stated in December 2011, ``The world is shifting to an innovation
    economy and nobody does innovation better than America.'' This
    Presidential quote is displayed prominently in the National Bioeconomy
    Blueprint, which embraces and promotes the use of biotechnology as a
    significant driver of American economic growth.
        The United States is strong and prosperous because American leaders
    embrace the responsible use of technology and set forth public policies
    to move the nation forward in this regard. Science education plays an
    important role in this forward momentum.
    Trade
        As a member of the broad U.S. agricultural biotechnology value
    chain, BIO supports efforts to improve the domestic and international
    marketability for bioengineered crops, which are critical to U.S.
    farmers and represent the vast majority of corn, soybean, and cotton
    acreage in the United States. We appreciate the work done, to date, by
    the Administration and the Congress to elevate agricultural
    biotechnology trade challenges with global partners and to seek both
    short- and long-term policy solutions. The Office of the Secretary and
    the Foreign Agricultural Service at USDA, along with the Office of the
    U.S. Trade Representative, play a central role in coordinating
    international trade initiatives related to agricultural biotechnology
    for the U.S. Government. BIO asks these entities, and others at USDA
    that play a role in trade policy execution, receive appropriate support
    by the Congress.
    Agricultural Research
        Commitments by the Congress to public-sector agricultural research
    are at the heart of the USDA's core responsibilities. Research drives
    innovative solutions to real-world agronomic challenges. The 2014 Farm
    Bill authorized $700 million for the Agriculture and Food Research
    Initiative (AFRI), which is the premier competitive grants program for
    fundamental and applied research, extension, and education to support
    American agriculture, and created the Foundation for Food and
    Agriculture Research, which is designed to better leverage public- and
    private-sector investments in agricultural research. We urge Members of
    the Agriculture Committee to work with their counterparts on the
    Appropriations Committee to ensure these key research programs are
    fully operational and have the funding necessary to ensure agronomists
    have the ability to solve challenges and rapidly respond to emerging
    threats.
                                   attachment
    Agricultural Biotechnology Innovation
        Overview: The value of science and agricultural innovation cannot
    be underestimated. Between today and the year 2050, farmers will be
    required to grow twice as much food to feed rapidly growing numbers of
    people inhabiting [Earth]. Food will be grown in the face of
    increasingly severe weather and environmental conditions, with greater
    strains on water, soil, and energy resources. To enable American
    farmers to confront serious food security and environmental challenges,
    while still growing enough food to feed hungry people, Congress must
    consistently promote policies that encourage agricultural innovation
    and ensure Executive branch actions, regulatory and otherwise, foster
    the growth of a strong 21st Century farming economy.
        For the past 2 decades, the products of agricultural biotechnology
    have been commercially available and widely used by farmers around the
    world. In the U.S., more than 90 percent of corn, cotton, canola,
    soybeans, and sugar beets grown contain at least one biotechnology-
    derived trait. Because biotech crops make up such a large segment of
    the American production farming sector, they have a big impact on the
    overall strength of the rural economy.
        Globally, farmers growing biotech crops saw net economic benefits
    at the farm level amounting to more than $20 billion in 2013. Of the
    total farm income benefit, 60 percent was due to yield gains. Gains in
    productivity associated with biotech crops help grow the American
    agricultural trade surplus because so many biotech crop harvests are
    dedicated to foreign markets. In Fiscal Year 2015, U.S. agricultural
    exports totaled more than $143 billion contributing to a $27.5 billion
    agricultural trade surplus. We can thank biotechnology, in part, for
    strong and steady growth in the U.S. ag-export market, particularly for
    corn and soybeans. Additionally, USDA has published reports noting how
    the adoption of biotech crops by farm families is associated with
    higher off-farm household income. Farming efficiencies associated with
    the use of biotech crops allow farmers to save time, which is then used
    to generate income from off-farm employment. One USDA report highlights
    that a ten percent increase in the use of herbicide tolerant soybeans,
    for example, is associated with a 16 percent increase in off-farm
    household income. These statistics illustrate how more efficient
    farming practices, such as the use of biotechnology, generate greater
    economic activity in rural communities.
        It is also noteworthy that, according to the White House National
    Bioeconomy Blueprint, published in 2012, U.S. revenues from biotech
    crops totaled more than $75 billion. The investments by companies in
    research, development and commercialization of these crops has
    generated good jobs all across our country.

        Congress can create an environment in which agricultural innovation
    flourishes by:

       Promoting predictable, transparent, science and risk based
            regulatory policy at USDA, EPA, and FDA.

       Promoting national consistency regarding the labeling of
            bioengineered food.

       Promoting national consistency regarding the cultivation &
            movement of bioengineered seeds.

       Promoting patent laws that drive critical life science
            discoveries.

       Promoting U.S. Government efforts to avoid trade barriers or
            trade disruptions related to non-harmonious policies and
            practices.

       Promoting investments in public-sector agricultural
            research.

       Promoting public education about agricultural innovation.

       Promoting policies that foster innovation & investment in
            advanced biofuels, renewable chemicals, and biobased products.
    Messages for Key Issues
    Predictable, Risk Appropriate Regulation
        Recently, USDA's Animal and Plant Health Inspection Services
    (APHIS) began the process of implementing an overhaul of its
    biotechnology pre-market regulations. Some of the regulatory systems
    APHIS is considering, which were publicized in the Federal Register in
    February, go well beyond the scope of what the agency reviews today.
        While many stakeholders agree with APHIS's goal of making
    improvements to its pre-market regulatory system so the scope of
    regulation better aligns with the actual risk posed by biotechnology
    products, much of what APHIS described in the Federal Register raises
    concerns about how the agency will actually achieve its goal.
        APHIS must get this project right. Congress should stay actively
    engaged and monitor what the agency is considering. It will be
    essential that any new APHIS pre-market regulatory structure (1)
    continue to promote innovation that enables American farmers to remain
    competitive while simultaneously confronting serious food security and
    environmental challenges; (2) is predictable, transparent, and based on
    science and actual risk of the product; and (3) is developed in close
    consultation with a broad range of scientific experts, stakeholders,
    and other government agencies responsible for biotechnology policy,
    such as FDA, EPA, and USTR.
    National Uniformity for Labeling, Cultivation, and Seed Movement
        It is essential that policies related to bioengineered food
    labeling and the cultivation and movement of bioengineered seeds be
    nationally uniform to promote the smooth movement of food and feed
    crops and other agricultural products into, out of, and within the
    United States. Avoiding trade barriers and disruptions is vital to
    agricultural commerce and the nation's economy and should be
    facilitated to the greatest extent possible.
    Labeling
        Some consumers are expressing a desire to know, via food product
    labeling, whether they are purchasing or consuming food that contains
    ingredients that were developed through biotechnology, and some
    manufacturers want to respond to this consumer interest. Some states
    and localities are requiring bioengineered food product labeling,
    creating the potential for conflicting legal and regulatory
    requirements, increased costs of food for all consumers, and
    substantial disruptions in, and adverse economic effects on, interstate
    commerce and trade. To prevent the negative repercussions associated
    with state-by-state food labeling laws, the Congress should quickly
    enact national bioengineered food labeling legislation.
    Cultivation/Seed Movement
        Some localities have attempted to ban or otherwise restrict the
    movement, introduction, development, planting, cultivation, harvesting,
    production, marketing, sale, or other use of bioengineered foods,
    diminishing the beneficial economic effects of economies of scale and
    creating the potential for substantial disruptions and adverse economic
    effects on interstate commerce and trade.
        The petition process established for bioengineered plants under the
    U.S. Coordinated Framework for the Regulation of Biotechnology and the
    Plant Protection Act provides seed developers with the national
    clearance they need to commercialize bioengineered crops, provides
    farmers with clarity with respect to the crops they can legally grow,
    and provides farmers, agribusinesses, food companies, and consumers
    with confirmation that bioengineered crops are as safe to grow, market,
    and consume as non-bioengineered crops.
        Local cultivation bans, however passionately their supporters may
    favor them, pose a direct threat to the reliability of the Federal
    system of uniform science-based regulation that governs agricultural
    biotechnology in the United States. Local bans result in a patchwork of
    laws governing farming. This is a serious and unnecessary obstacle to
    interstate commerce; local governments lack the expertise and resources
    to second-guess the expert decisions of national regulatory agencies.
    Biofuels, Renewable Chemicals, and Biobased Products
        Farm bill energy programs (Title IX) generate new revenue streams
    for American manufacturers, high-tech and construction jobs in rural
    America, and additional income streams for farm families.
    Authorizations and funding for farm bill energy programs are critical
    to a strong rural, biobased economy.
        Key provisions of the farm bill energy title important to the
    biotechnology innovation sector include: (1) mandatory, rather than
    discretionary, funding; (2) a robust Section 9003 Biorefinery
    Assistance Program that offers continued eligibility to renewable
    chemicals producers; (3) a strong Biobased Markets Program, Biomass
    Crop Assistance Program, and Biomass Research & Development initiative;
    and (4) a commitment to greater research on other efforts that grow the
    biobased economy.
                                     ______

              Submitted Statement by National Turfgrass Federation
        The National Turfgrass Federation (NTF), a nonprofit organization
    formed in 2007, coordinates and advocates for turfgrass research within
    the Federal Government and private industry. Prior to the 2008 Farm
    Bill, NTF believed a more visible role was needed for the turf industry
    to promote its economic, environmental, and aesthetic values to
    society. Following successful inclusion of ``turf'' and ``sod'' as
    horticulture crops in the 2008 Farm Bill, NTF continues to pursue
    competitive research grants under USDA's National Institute for Food &
    Agriculture (NIFA), and intramural research within USDA's
    [Agricultural] Research Service (ARS). These efforts are augmented by
    our National Turfgrass Evaluation Program (NTEP), designed to conduct
    uniform evaluation of turf varieties, the results of which help
    determine adaptable cultivars for efficient use and low maintenance
    costs. We believe these approaches offer valuable cross-sections of
    experimentation, analysis, and extension outreach to scientists,
    producers, commercial retailers, and consumers. It also benefits
    collaborative research with private industry.
        Turf is ranked as America's fourth largest crop, comprising
    approximately 60 million acres nationwide. It forms the foundation for
    lawns, gardens, commercial and ornamental landscapes, parks, recreation
    fields, golf courses, and medians along our nation's highways. Turf
    also impedes soil erosion and contaminant runoff into streams, bays,
    and waterways. As a result, NTF believes turf research is critical for
    many of America's greenscape initiatives, and for creating
    environmental buffer zones for acreage preservation.
        Three of our most active and successful research areas are the
    following: the Specialty Crop Research Initiative (SCRI), where turf
    science is developing sustainable grasses adaptable to various
    climates, and requiring less water and chemical fertilizer
    applications; Specialty Crop Block Grants, two of which were recently
    utilized to construct ``Grassroots'' education exhibits at the multi-
    field Maryland SoccerPlex & Discovery Sports Center in Montgomery Co.,
    Maryland and the U.S. National Arboretum in Washington, D.C.; and many
    success stories with Smith-Lever Extension, an active education and
    outreach area for turf for over 80 years. A considerable amount of
    turf's extension resources relate to sports fields, commercial
    landscapes, and residential lawns. Extension also conveys discoveries
    from applied research toward sustainable practices lowering maintenance
    costs, and increasing durability of grass types based on usage and
    climate growth factors. Both critical factors in drought-stricken areas
    of the West.
        In the past decade, turf has received a lower percentage of
    research related to other specialty crops. While SCRI, Block Grants,
    Extension, and Hatch/Evans-Allen funding remain vitally important, NTF
    members also utilize research funds from the United States Golf
    Association (USGA), Golf Course Superintendents of America Association,
    and numerous chemical companies. Rather than limit funding sources, NTF
    prefers a balance between USDA grants and private industry. We believe
    this enhances scientific collaboration, and affords more comprehensive
    results for turf producers and consumers. As such, NTF is a strong
    supporter of NIFA's new Foundation for Food & Agriculture Research
    (FFAR). We welcome FFAR's mission to establish ties between government,
    academia, and private industry. This also creates new avenues for
    exchanging ideas, and increasing awareness of budgetary parameters for
    research within each of those entities.
                                     ______

         Submitted Statement by RISE (Responsible Industry for a Sound
                                 Environment)
        Thank you to Chairman Davis and Ranking Member DelBene for holding
    today's hearing and furthering this important dialogue. RISE is the
    national not-for-profit trade association representing close to 200
    manufacturers, formulators and distributors of specialty pesticide and
    fertilizer products to both the professional and consumer markets. Our
    members provide solutions to nursery and greenhouse production,
    vegetation management, lawn and garden customers, sport field managers,
    golf course superintendents, structural pest control operators and to
    public health officials.
        Americans on and off the farm seek the solutions we provide to pest
    problems and to enhance green spaces in and around their home, on the
    sportsfields where their children play, and in the lakes and on the
    golf courses where they recreate. Our role in the protection of the
    public from disease carrying pests, protecting America's waters and
    infrastructure from invasives, and providing healthy green spaces.
        Unfortunately, some EPA actions are restricting our ability to
    create inspiring and healthy places where people live, work and play.
        We highlight today two of our primary concerns, Clean Water Act
    permits National Pollutant Discharge Elimination System (NPDES) and the
    expansion of the Water of the United States Rule, and EPA proposals
    that are contrary to the risk based approach required under the Federal
    Insecticide Fungicide and Rodenticide Act (FIFRA).
    Clean Water Act Permits and the Waters of the United States (WOTUS)
            Rule
        To begin, the courts, not Congress, in October 2011, via National
    Cotton Council v. EPA created the new requirement that National
    Pollutant Discharge Elimination System (NPDES) permits be required for
    pesticide applications ``to, over, or near'' water. Congress and EPA
    never intended to regulate pesticide applications with Clean Water Act
    NPDES permits. Requiring NPDES permits is duplicative of the long-
    standing Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA)-
    based regulatory process and provides no additional protection to water
    beyond those already in place via FIFRA.
        Additionally, these permits are creating significant financial
    strain for small businesses, cities, counties, and states which we will
    highlight further below. We laud this Committee and the U.S. House of
    Representatives for passing the ``The Reducing Regulatory Burdens Act''
    on several occasions since 2011. This legislation would clarify that
    NPDES permits should not be required for the application of EPA-
    approved pesticides. We support the current bill, H.R. 897, and
    encourage Congress to pass the measure. Additionally, the impacts
    associated with NPDES permits are exponentially increased with the
    recent expansion of the Clean Water Act definition of Water of the
    United States (WOTUS) regulation promulgated by EPA and the U.S. Army
    Corps of Engineers. The new rule, will subject additional water bodies
    to NPDES permit requirements including man-made water bodies,
    irrigation canals, and ponds or other water bodies that have a
    ``significant nexus'' to a larger water body. Again, we appreciate the
    efforts of the Agriculture Committee, the House Transportation and the
    U.S. House of Representatives for passing legislation to compel the
    agencies to withdraw this rule.
        Should the rule go into effect, state, county, city, commercial,
    professional and residential businesses and individuals will see an
    immediate impact to their ability to protect public health, safety and
    property. Currently, all applicators providing vector control services
    must acquire NPDES permits to apply larvicides in water defined by the
    CWA. These applications are vital to protecting people and pets from
    mosquito-borne diseases like Zika Virus, West Nile Virus, Dengue Fever,
    heartworm, Eastern and Western Equine Encephalitis, and Chikungunya.
    The rule will require more resources to comply due to the significant
    expansion of regulated waters which will likely lead to a reduction of
    resources available for the actual work of public health protection.
        We are also concerned that the rule will negatively impact our
    national security, power, highway, rail and waterway infrastructure.
    Delays due to the expanded cost and liability of the expanded
    definition of WOTUS may result in clogged waterways and shipping lanes
    from invasive species, improperly maintained utility rights of way,
    transmission and transformer sites, and degradation of species habitat
    and the environment from invasive and noxious species. As just one
    example, Oregon's Department of Environmental Quality had to halt
    invasive species treatments due to permitting costs and liability.
        We encourage Congress to continue to look for opportunities to
    require EPA and the Corps to withdraw the rule.
    EPA Policies Must Uphold FIFRA's Risk Based Standard
        FIFRA establishes a risk-based pesticide regulation standard and is
    the gold standard world-wide. Recent EPA activities appear to undermine
    this standard, which is a concern requiring immediate and ongoing
    attention.
        EPA's proposed mitigation measures for pesticides that are acutely
    toxic to bees are one such example. The agency's approach to pollinator
    mitigation departs from FIFRA's risk-based standard and simply applies
    a hazard-based standard. The proposed hazard classification is an
    indiscriminate trigger and a clear moving away from the statutory risk-
    based standard and Congressional intent. Additionally, we are concerned
    by EPA's proposal to add an additional 10 safety factor to certain
    products, despite previously determining that the additional factor was
    not needed based on data. The inappropriate imposition of these safety
    factors would impact many uses, including mosquito control.
        Finally, we call your attention to the recent habit of the Office
    of Pesticide Program of sending pesticide registrants letters that
    outline new regulatory requirements, which appears to circumvent the
    rulemaking process.
        We ask the Subcommittee to continue to conduct appropriate
    oversight to ensure that EPA does not circumvent the rulemaking process
    or abandon FIFRA's risk-based standard in favor of precautionary
    principle-driven policies.
    Conclusion
        Thank you again for your attention and leadership on the issues
    discussed today. We are committed to work with you and EPA to continue
    to provide the plant health and pest management solutions necessary to
    create inspiring and healthy places where we live, work and play.

              RISE is the national not-for-profit trade association
            representing more than 200 manufacturers, formulators,
            distributors and other industry leaders of specialty pesticide
            and fertilizer products to both the professional and consumer
            markets. RISE member companies manufacture more than 90 percent
            of domestically produced specialty pesticides used in the
            United States, including a wide range of products used on
            lawns, gardens, sport fields, golf courses, and to protect
            public health.
                                     ______

                              Submitted Questions
    Response from Hon. Charles F. Conner, President and Chief Executive
            Officer, National Council of Farmer Cooperatives
    Questions Submitted by Hon. Rodney Davis, a Representative in Congress
            from Illinois
    Market Access Program
        Question 1. Could you offer some examples of how the Market Access
    Program (MAP) has helped your members?
        Answer. Many of our members rely on the Market Access Program (MAP)
    to assist them in marketing products overseas. One example of a co-op
    who has successfully utilized MAP is Blue Diamond Growers. Blue Diamond
    has used funding to support its branded export and promotion activities
    since 1986, the year the MAP program began. In 1986, the cooperative
    marketed 240 million pounds of almonds while today it sells more than 2
    billion pounds. Over the same period, Blue Diamond has seen its exports
    grow to over $750 million in export sales, which represents over 62
    percent of total sales for 2012. In recent years, Blue Diamond has
    supported export expansion in the United Kingdom and Chinese markets by
    utilizing MAP funds for product trials, grass roots consumer marketing,
    and participation at in-country consumer food shows by carefully
    targeting press outlets in the countries of interest.
        In China and Hong Kong particularly, Blue Diamond successfully
    introduced its product to younger consumers. Blue Diamond's marketing
    strategy in this market included a focus on bold flavors and MAP funds
    were used to successfully introduce young Chinese and Hong Kong
    consumers to the brand.
    Biotechnology
        Question 2. How should we improve regulatory efficiency in a way
    that enables genetic innovation so that we, as a nation, are better
    able to meet global food security challenges?
        Answer. NCFC supports policies that enhance the ability of
    producers to use new practices and technologies to produce their crops,
    so long as the practices are based on proven science, are economically
    and environmentally sound and ensure food safety. Additionally, we
    strongly support the safety and science-based risk assessments
    conducted as part of the regulation of biotechnology crops. Farmer
    cooperatives are stakeholders in the development, deregulation, and
    commercialization of biotechnology crops, and the actions taken by
    government agencies on these crops have a direct and indirect impact on
    timely access to future traits now under development.
        Breeders have a long history of developing new crop varieties that
    are more efficient and precise at producing the same desired
    characteristics that would normally occur through traditional breeding
    techniques, which require longer development time. Furthermore, these
    new varieties have a proven track record of health and safety for over
    twenty years. However, unknown costs, approval delays, and ambiguity of
    regulatory scope can stymie investments in agricultural innovation. In
    our modern agriculture system, time is critical to meeting the mounting
    pressures of global food insecurity and an array of environmental
    challenges, while maintaining competitiveness in the global
    marketplace. The U.S. Government must establish a regulatory
    environment that facilitates efficient agricultural innovation to
    enable American farmers to overcome these serious hurdles.
        When considering changes to the regulatory approval process of
    biotechnology products, APHIS should focus its attention within the
    boundaries of its statutory authority. Narrowly, regulatory oversight
    should focus on the specific outcome of a trait, regardless of the
    process used to achieve it, and the level of risk to plant health,
    while maintaining a clear and unambiguous process.

        Question 3. It seems food companies are moving forward in an effort
    to comply with the Vermont GMO food labeling law. In doing so, doesn't
    this state law create a de facto mandatory labeling system for the rest
    of the country? What implications will that have for farm to fork? If
    the Vermont law stands due to inaction by Congress or slow action in
    the courts, what does this mean for your members?
        Answer. If Congress is unable to pass a uniform framework for
    labeling foods containing biotech ingredients, Vermont's labeling law,
    a state with 600 thousand residents, essentially will place mandatory
    labeling requirements and will dictate food labeling policy for the 320
    million people that live in this country. In effect, we have promoted
    the Vermont Attorney General as the most powerful voice dictating food
    policy--over this Committee or its Senate counterpart, over the
    Secretary of Agriculture. Meanwhile, we are denying farmers technology
    that has cut fuel use, reduced erosion, and cut greenhouse gas
    emissions, and adding over $1,000 per year per family in added food
    costs at the grocery store.
        Furthermore, if food companies are forced to comply with Vermont's
    labeling requirements, many of them will likely choose to reformulate
    their products to avoid labeling and stigmatizing their products. As a
    result, food companies would have to rely on foreign imports to fulfill
    production since 90 percent of corn and soybeans in this country are
    grown using biotechnology. It would have a devastating impact on our
    nation's environment and economy.

        Question 4. What are some newer breeding methods, in terms of
    biotechnology? Are they regulated by the government?
        Answer. The fundamental goal of plant breeding is to solve
    problems. Today, with an increased understanding of how plants operate,
    plant breeders are able to more precisely improve a plant's
    characteristics by efficiently focusing on the underlying genetics.
    With processes such as gene editing, breeders are able to make specific
    changes in existing plants in a way that mimics the changes that occur
    in nature. Equally important, breeding improved varieties can be
    accomplished in far less time than ever before enabling plant breeders
    to keep up with rapidly evolving pests and diseases.
        Different from GMOs, the newer methods used by plant breeders focus
    on using a plant's own genes to create a desired trait, such as disease
    resistance or drought tolerance. It is a more precise way of improving
    plants. The improved seed does not have any ``foreign'' DNA.

        Question 5. It has been said that USDA is considering changing
    their biotechnology regulations. Does your organization support this?
        Answer. We feel it is appropriate for USDA to revisit their biotech
    regulations based on the nearly 30 years of experience they have with
    regulating biotech products. These products have been hugely beneficial
    for farmers and are completely safe for consumers and the environment.
        However, USDA is proposing sweeping changes and must do much more
    to consult with impacted stakeholders, other agencies, and
    international regulators before finalizing a proposed rule. They are
    considering completely changing what and how they regulate which would
    have significant unintended consequences both for innovation in U.S.
    agriculture and for U.S. agricultural exports.

        Question 6. What are the opportunities for the next generation of
    innovative tools for farmers?
        Answer. The overriding benefit to plant breeders, farmers and
    consumers is time. For breeders, it is essentially a race against the
    rapid evolution of diseases and pests and dealing with the weather.
        Plant breeders know much more today about how plants function. They
    can use that knowledge to be more efficient and precise at making the
    same desired changes that can be made over a much longer period of time
    using traditional breeding methods. There are terrific opportunities
    for the use of precise breeding techniques, such as gene editing, to
    address the most serious pests and diseases confronting specialty crops
    and also to improve products for consumers with enhanced nutrition,
    colors, flavors, and shelf-life.
        Because new methods like gene editing are efficient and economical,
    they are accessible to public and commercial plant breeders and can be
    used across all agriculturally important crops, including food, feed,
    fiber, and fuel crops.

        Question 7. The headlines of major newspapers and many of the cable
    news shows cast American agriculture in a negative light--though many
    of those stories are rife with inaccuracies. Unfortunately, these
    stories drive policy such as what we see with mandatory biotech warning
    labels. What recommendations do you have for your colleagues in the
    industry to engage the public to counter these negative attacks? What
    is your group doing to avoid repeating history so we don't have the
    consumer distrust with these new technologies like we do with current
    biotech breeding techniques?
        Answer. The food and agriculture industry is embracing the fact
    that today's consumers want to know more about how their food is
    produced. We welcome the opportunity to be the source of that
    information and share all the good things farmers are doing to provide
    safe, affordable food to the American consumer. In fact, several
    members of our coalition have committed to a new initiative giving
    consumers easy, instantaneous access to information about the
    ingredients in the foods they are purchasing through their website and
    other technologies. These are methods of reaching out to those
    consumers who desire the information in a meaningful, informative way--
    ways that an on-package symbol cannot provide.
        Also, just recently the House included a provision in the FY 2017
    USDA/FDA Appropriations act to provide $3 million for FDA and USDA to
    better inform the public about the application of biotechnology to food
    and agricultural production. NCFC applauds the appropriators for
    including the provision that will promote farmers' access to modern
    agricultural tools and advancements in plant and animal agricultural
    applications that are helping society meet current and future food
    production challenges.
    Pesticides
        Question 8. Many people who rely on pesticides to protect their
    health and property have stated that one or more of EPA's recent
    actions have taken away their access to important products needed to
    fight pests. What should EPA be doing to ensure that those producers
    will have the time-proven products and the new, effective products
    available to meet their needs?
        Answer. Our members care about is the ability to defend against
    pest threats to their crops, food, homes, and health. For example, NCFC
    has reminded the Agency of the need for new, effective weed management
    tools. Prominent academics, farm group leaders, and many others have
    said multiple modes of action are the most effective way to deal with
    weed resistance issues while preserving environmentally beneficial
    cropping systems like no-till or conservation tillage. Yet, when it
    comes to crop protection product registrations at EPA, some innovative
    products that can help growers meet these goals have been either
    sitting at the Agency for several years, or in some cases, courts have
    intervened to vacate registrations. If EPA continues to fail to
    adequately calculate and/or consider the economic costs of these
    impacts--and beneficial uses--in its regulatory proposals, the
    consequences could be devastating.

        General Regulatory Impact

        Question 9. Public policy has an enormous impact on the economic
    viability of farms. Can you offer a couple examples of recent
    regulatory actions that have had a negative impact? What about
    legislative actions at the state or national level?
        Answer. We must ensure that our public policy does not hurt the
    economic viability of farm and ranch families across the country. Often
    these issues are outside traditional farm policy and come from corners
    of the Federal Government that may not understand production
    agriculture. Yet, a broad range of regulatory actions--those pending at
    Federal agencies or in the pipeline and coming soon to a farm near
    you--have the potential to increase the costs and reduce the margins of
    cooperatives and their farmer and rancher member-owners. Whether the
    regulations deal with the environment, immigration and labor, food
    safety, or financial reform, they can create an uncertainty that
    threatens to hold back investment and growth across the agricultural
    sector.
        Farmers and ranchers deal with numerous government agencies; their
    regulatory burdens run the gamut. One example of a regulatory challenge
    currently facing farmers is the administration of the H-2A agricultural
    worker program which is creating a growing number of delays in the
    timely processing of applications and visa petitions. This breakdown is
    impacting growers and ranchers who are trying to hire workers in time
    for harvest and threatening millions of dollars in perishable
    agricultural products.
        For instance, the Department of Labor's (DOL) Office of Foreign
    Labor Certification (OFLC) has a policy that is not supported by
    current regulations which requires all workers requested in any single
    petition be brought onto the job on the start date of the petition.
    With the current delays at both the OFLC and U.S. Citizenship and
    Immigration Services (USCIS), farmers and ranchers are unable to
    receive these workers by the date they are actually needed. Growers
    must be given the opportunity to provide a start date that is earlier
    than the actual anticipated start date as a ``grace period'' in an
    effort to combat the administrative delays.
        Furthermore, the Validation Instrument for Business Enterprises
    (VIBE) program, as it is currently administered, is inappropriate for
    the H-2A program. VIBE requires an annual subscription to Dunn &
    Bradstreet which is an additional expense for growers. It is highly
    unusual for family farms to subscribe to Dunn & Bradstreet except to
    comply with the VIBE program.
        Last, numerous employers have been receiving Notices of
    Deficiencies (DOL) or Requests for Further Evidence (USCIS) related to
    proving that agriculture is in fact seasonal in nature. These notices
    create an unnecessary delay in the process which jeopardizes the
    viability of large segments of the agricultural economy.

        Question 10. Does your organization support passage of H.R. 897,
    the Reducing Regulatory Burdens Act of 2015? Do you believe the burden
    and liabilities of obtaining a water permit are limiting or delaying
    mosquito control applications that control viruses like Zika and
    protect human health?
        Answer. Pesticides play an important role in protecting the
    nation's food supply, public health, natural resources, infrastructure,
    and green spaces. They are used not only to protect crops from
    destructive pests, but also to manage mosquitoes and other disease
    carrying pests, invasive weeds and animals that can choke our
    waterways, impede power generation, and damage our forests and
    recreation areas. However, pesticide users must now comply with the
    added requirement that certain pesticide applications--already
    stringently regulated under the FIFRA--obtain a Clean Water Act (CWA)
    National Pollutant Discharge Elimination System (NPDES) permit issued
    by the Environmental Protection Agency (EPA) or delegated states.
    Legislation is needed to clarify that Federal law does not require
    water permits for FIFRA-compliant pesticide applications.
        Americans are at an increasing threat from vector-borne diseases.
    West Nile Virus and encephalitis have been serious problems for the
    last several years, but new diseases such as dengue fever and
    Chikungunya are now an increasing threat to Americans and particularly
    infants. Sadly, new vector-borne threats continue to emerge. In Mexico
    and South America, the mosquito-borne Zika virus is responsible for
    infants being borne with significant birth defects. NCFC strongly
    believes that such duplicative paperwork requirements like that of the
    pesticide NPDES permit stand to take scarce resources away from their
    intended use.
        NCFC seeks legislative action to remedy counterproductive
    regulatory measures, resource burdens, and legal liabilities created by
    the new NPDES general permit for certain pesticide applications.
    Specifically, we urge Congress to pass H.R. 897, the Reducing
    Regulatory Burdens Act of 2015, in order to clarify that NPDES permits
    are not required for FIFRA-registered pesticides when applied according
    to their product label.

        Question 11. What do you believe will happen if H.R. 897 is not
    enacted and President Obama's WOTUS rule goes into effect?
        Answer. This issue now takes on new importance in light of the
    unprecedented overreach by EPA in the recently-finalized regulation
    redefining what qualifies as a `water of the United States'. The number
    and nature of pesticide applications subject to permitting will see a
    significant increase due to the expansion of EPA's definition of what
    is considered a water of the U.S.
        EPA took comments on an Information Collection Request (ICR) on the
    likely costs and burdens associated with the upcoming 2016 revisions to
    EPA's and states' NPDES general permits for pesticides applied into,
    over or near a ``water of the U.S.'' (WOTUS). Comments were filed
    highlighting the broad concurrence of state water agencies that no
    environmental benefits ensue from this double permitting, current
    economic and legal burdens, and the redundant compliance requirements
    of the NPDES permits given EPA regulation of such pesticide use under
    FIFRA.

        Question 12. We've heard a lot about the need for oversight of the
    EPA's pesticide program. What are your organization's top priorities
    for regulatory oversight?
        Answer. Specific to crop protection, Federal laws dictate that the
    U.S. Department of Agriculture (USDA) serve as an important advisor to
    EPA in the regulation of pesticides. Historically, USDA's expertise and
    advice have been evident in the actions EPA has taken to evaluate
    pesticides and their uses. USDA's perspective and knowledge of
    production agriculture is critical since we know that crop protection
    products can increase farm yields as much as 40 percent to even 70
    percent depending on the crop.
        It should concern this Subcommittee to hear the farm community
    expressing increasingly urgent concerns about the lack of seriousness
    with which EPA takes and incorporates USDA expertise, advice, and
    opinions, especially during formal interagency review. In particular,
    it is unclear to what extent USDA expertise was valued and included in
    recent actions, such as Endangered Species consultations, the revised
    Worker Protection Rule, and the recent benefits analysis for seed
    treatments on soybeans.
        NCFC members have heard a lot about what actions EPA has or is
    planning to take that impact the use of pesticides. It would be very
    helpful for this Subcommittee to instruct EPA to develop a
    comprehensive list of all the agency actions (not just rulemakings)
    over the last 8 years and those planned thru the end of this year that
    restricted or have the potential to restrict existing or new uses of
    pesticides.
        One such example occurred October 2015 when EPA proposed to revoke
    all tolerances for the important insecticide, Chlorpyrifos. In a huge
    departure from established scientific protocol and findings, EPA based
    this proposal on a decade's old, previously dismissed epidemiological
    study, known as the Columbia Study, that no one, perhaps even including
    EPA, has ever seen the actual data on to verify its validity. Further,
    EPA went so far as to impanel a special Scientific Advisory Panel to
    assess how to best use the epidemiological study during review.
        Many parts of these actions are scientifically troubling, not least
    of which is the fundamental question of whether this particular study
    should be used at all, rather than figuring out how it should be used
    which is a presumption that runs afoul of previous expert
    recommendations. We are concerned that EPA has not been able to fully
    review all of the collected human epidemiology data because the authors
    of the studies in question have declined to provide the underlying data
    despite repeated Agency requests.
        EPA currently bases its health and safety standards for pesticide
    regulation on robust studies following EPA-approved protocols.
    Exposures in these studies are known, effects are documented, human
    health impacts are determined, results can be replicated, and the
    underlying data are available for EPA evaluation. When data conflicts
    and decisions must be made, higher quality data must be used over data
    of lesser quality. Other data may form a basis for additional
    investigation, but it cannot not be accorded greater weight than high-
    quality guideline studies specifically designed for regulatory use. To
    do so would result in serious damage to the scientific credibility of
    EPA risk assessments.
        Other recent activities by the Office of Pesticide Programs appear
    to circumvent the rulemaking process altogether by creating new
    `internal' policies, `interpretations' and `assumptions,' or sending
    pesticide registrants letters that outline what are effectively new
    regulatory provisions. This ``regulation by letter'' procedure was used
    by EPA to mandate registrants include pollinator statements and a
    graphic on certain pesticide products, as well as for the Agency's
    pyrethroid labeling initiative.
        In short, Congress also should conduct immediate and on-going
    oversight of EPA to ensure it stays within statutory boundaries.
        Question 13. The United States has the world's most rigorous
    pesticide registration and review processes. Yet, when EPA's regulatory
    decisions are challenged in court, the Agency has not enjoyed many
    recent successes in defending its scientific process or decisions. Are
    these actions undermining EPA's credibility with the public?
        Answer. FIFRA is a risk-based standard. Under the law, when
    pesticides are registered with EPA, the Agency determines the hazards
    associated with the product as well as any likely exposure. EPA is also
    supposed to take into account the benefits of a product, such as
    protection of the public health from disease-carrying pests, protection
    of our nation's buildings and infrastructure, protection of the food
    supply, etc. This is something EPA should be confident in and proud to
    defend. As a matter of fact, EPA does a great job defending the merits
    of our risk-based system when commenting on the European Union's
    precaution-based regulatory scheme. But, recently it seems when EPA
    regulatory decisions are challenged in the U.S., you seem reluctant to
    defend or, even more troubling, unable to properly provide evidence of
    the Agency's scientific decisions.
        If the Agency is not robustly defending its regulatory decisions,
    they run the risk of encouraging public mistrust about the products
    that are used to protect public health, our infrastructure and the food
    supply. However, some recent EPA activities appear to focus only on the
    hazard aspect and ignore factors like exposure and benefits. EPA's
    proposed mitigation measures for pesticides that are acutely toxic to
    bees are one such example. We also saw backsliding on this point during
    the public debate on the Worker Protection Standard, where EPA seemed
    to question whether workers were at unreasonable risk even if properly
    trained and applying pesticides according to the label.
    Food Safety Modernization Act
        Question 14. You talk about the farm definition in FDA's produce
    safety rule. Can you explain what this definition is, and why it is
    important? Do you support revising the Farm definition?
        Answer. The Preventive Controls for Human Food final rule contains
    a distinction between two types of farms: a Primary Production Farm and
    a Secondary Activities Farm. These definitions are important because
    operations that fall within these definitions are not covered under
    this rule. However, they may be covered under the Produce Safety final
    rule.
        A Primary Production Farm is ``an operation under one management in
    one general, but not necessarily contiguous, location devoted to the
    growing of crops, the harvesting of crops, the raising of animals
    (including seafood), or any combination of these activities. This kind
    of farm can pack or hold raw agricultural commodities such as fresh
    produce and may conduct certain manufacturing/processing activities,
    such as dehydrating grapes to produce raisins and packaging and
    labeling raisins.'' The definition is expanded to cover packing or
    holding raw agricultural commodities (such as fresh produce) that are
    grown on a farm that is under different ownership.
        A Secondary Activities Farm is ``an operation not located on the
    Primary Production Farm that is devoted to harvesting, packing and/or
    holding raw agricultural commodities. It must be majority owned by the
    Primary Production Farm that supplies the majority of the raw
    agricultural commodities harvested, packed, or held by the Secondary
    Activities Farm.'' This particular definition was included to account
    for farmers involved in off-farm packing to ensure their operations
    would fall under the definition of ``farm.''

        Question 15. What does your group see as the most burdensome aspect
    of FSMA?
        Answer. While it is hard to rank the most burdensome aspect of
    FSMA, many of our members feel like it is death by a thousand cuts. FDA
    recognized many of our complaints and altered the rules; however, there
    are still overly burdensome and duplicative aspects that do not
    actually result in a safer food supply. While not adding much to the
    food safety side, they will drive up costs and require additional staff
    time and record-keeping as operations adapt the way they do business
    and retain records.
        For example, the Sanitary Transportation Rule may cause harm in the
    use of byproducts for cattle feed. Byproducts are the peels, stems,
    etc. that are removed during processing. Currently, working with third
    party dairies or ranchers, some of our members have a workable program
    for cattle feed or soil amendment. These byproducts are often sent off
    for immediate delivery and fed to animals within a short timeframe.
    Additionally, these products are commonly fed to grazing animals that
    regularly feed from the ground. Excessive regulations should not be
    applied during the transportation of an animal feed that is ultimately
    going to be deposited on the ground and exposed to the elements. We do
    not wish to see a sustainable and cost-effective way to manage
    byproducts of processing facilities discontinued because of these
    regulations.
    Research
        Question 16. Can you highlight some specific benefits from USDA
    research that your members have experienced?
        Answer. The Specialty Crop Research Initiative (SCRI) is a great
    example of a robust research program broadly supported by the sector.
    The SCRI program was established to meet the unique needs of the
    specialty crop industry by supplying grants to support research and
    extension. In particular, the SCRI Citrus Disease Research and
    Extension Program (CDRE) are of significant importance to our citrus
    cooperatives. The program was authorized by the 2014 Farm Bill and
    awards funds to conduct research, extension activities, and technical
    assistance to fight citrus diseases and pests, such as Huanglongbing
    (HLB), commonly referred to as citrus greening. Citrus greening is a
    serious concern to our citrus cooperatives with research on how to
    combat the disease remains a top priority. Citrus greening is
    responsible for devastating losses in the citrus industry, threatening
    its future viability. A solution is desperately needed as it has
    already destroyed millions of citrus acres across the U.S. Once a tree
    is infected, there is no cure; research must get out ahead of this
    disease before it is too late. This is just one of the many examples of
    the importance of agricultural research programs and its integral
    relationship to the success of farmer cooperatives and the agricultural
    industry as a whole.
    Farm Bill
        Question 17. What are your top priorities for Congressional
    oversight of programs affecting your members?
        Answer. Given the diversity of NCFC's members, our interest in the
    farm bill go from beginning to end--whether that is examining the
    efficacy of new commodity title programs to the benefit of voluntary,
    locally-led conservation programs to the value of nutrition, trade
    promotion, and research programs.
        Early action and an educational focus by the House Agriculture
    Committee will enhance prospects for completing new farm bill
    legislation when the time comes. Even though every farm bill takes its
    own unique path to final enactment, one fact of the process remains the
    same: it has to start somewhere and the sooner the educational process
    starts, the better.
        As this work begins, it is imperative that Federal policies
    provided by the farm bill promote an economically healthy and
    competitive U.S. agriculture sector. These programs serve a variety of
    purposes, including: meeting the food, fuel, and fiber needs of
    consumers worldwide; strengthening farm income; improving our balance
    of trade; promoting rural development; and creating needed jobs here at
    home.
        In examining the dynamics of the farm economy, we are reminded that
    numerous influences--some of which are out of our control--come into
    play. Extremely volatile weather and global markets result in equally
    volatile farm gate prices, yields, and costs of production. Today's
    margins for most agricultural commodities are tight, and farm income
    has retreated significantly from its highs just a few years ago. Our
    common, ultimate goal--and at the heart of the farm bill--is to
    preserve the productive capacity of our farms by maintaining a
    responsive and equitable safety net, combined with adequate funding,
    for all regions and commodities, as well as comprehensive risk
    management tools, such as a strong crop insurance program.
        Congress must ensure that the marketplace, not the Federal
    Government, determines the cost of production for America's farmers and
    ranchers. If our farms, ranches, and cooperatives are weighed down with
    costs imposed by either regulatory actions or delays in the regulatory
    process, farm income will decrease and market share will be lost to our
    competitors.
    Labor Regulation
        Question 18. What costs will businesses incur as a result of
    overtime regulations?
        Answer. These costs will be crippling for small businesses, such as
    many farmer co-ops. Two examples we can point to within our membership
    are a farm supply and marketing cooperative in Illinois and a
    diversified energy, grain, and food cooperative in Minnesota. Based on
    the Illinois Cooperative's initial calculations, the new threshold test
    could affect approximately 900 employees and add an additional cost of
    $4.5 million to the cooperative. Based on the Minnesota Cooperative's
    initial calculations, the new threshold test could affect approximately
    270 employees and add an additional cost of $1million to the
    cooperative.
        This is certainly a case of one size does not fit all. The average
    salary in many rural areas and small towns outside of major
    metropolitan areas and in certain lower-wage regions of the country is
    substantially lower than the national average. Many, possibly most,
    current salaried managers and supervisors will probably revert from
    being salaried to hourly employees. DOL's aggressive move puts rural
    America at a huge disadvantage.

        Question 19. Are you opposed to raising the salary threshold above
    the poverty level?
        Answer. No, NCFC understands an update is needed since the salary
    threshold has not been updated since 2004, however, we believe that DOL
    should maintain the threshold at the 20th percentile. Maintaining this
    threshold using updated figures would achieve the desired outcome of
    increasing the effectiveness of the salary test, as well as bring the
    salary level above the poverty line.

        Question 20. What are some of the extraneous impacts OSHA's July
    2015 revised interpretation of Process Safety Management standards has
    on the agriculture community?
        Answer. Do to the elevated cost requirements of compliance with PSM
    standards, many of our co-ops have decided to no longer sell anhydrous
    ammonia at their retail facilities. These actions have several
    trickling effects on the farming industry. Fewer locations selling the
    fertilizer means farmers will be forced to travel much further distance
    to purchase it and haul it back to their farms, increasing the amount
    of time the chemical spends on public roadways. Furthermore, if farmers
    don't have access to anhydrous ammonia, they will likely replace it
    with the next best fertilizer, urea, a less effective, more expensive
    dry fertilizer. Farmers would have to purchase new equipment to apply
    the dry fertilizer and they would need to apply more of it to the land
    to achieve the same results they had with anhydrous.

        Question 21. How can this Subcommittee provide oversight on the
    Process Safety Management (PSM) issue?
        Answer. It is clear that OSHA is not going to review its July 2015
    memo or its unintended impacts on agriculture retailers and producers
    unless it is forced to do so by Congress. OSHA's response to Congress's
    directive contained in the report language of the 2016 Omnibus
    Appropriations to carry out a notice and comment rulemaking procedure,
    conduct a third-party cost benefit analysis and to establish a new
    classification at the Census Bureau specifically for farm supply
    retailers, was to delay enforcement through the end of the fiscal year.
    This Subcommittee could be most helpful by encouraging the
    Appropriations Subcommittee on Labor, Health and Human Services,
    Education and Related agencies to include statutory language in the
    2017 Appropriations bill.
    Response from Hon. Jeff M. Witte, Secretary/Director, New Mexico
            Department of Agriculture; Member, Board of Directors, National
            Association of State Departments of Agriculture
    June 2, 2016

    Hon. Rodney Davis,                   Hon. Suzan K. DelBene,
    Chairman,                            Ranking Minority Member,
    Subcommittee on Biotechnology,       Subcommittee on Biotechnology,
     Horticulture, and Research,          Horticulture, and Research,
    House Committee on Agriculture,      House Committee on Agriculture,
    Washington, D.C.;                    Washington, D.C.

    Re: Questions for the Record: House Committee on Agriculture,
                Subcommittee on Biotechnology, Horticulture, and Research
                Public Hearing: Focus on the Farm Economy_Factors Impacting
                the Cost of Production

        Dear Chairman Davis and Ranking Member DelBene:

        The National Association of State Departments of Agriculture
    (NASDA) submits the following responses to the Questions for Record on
    behalf of The Honorable Jeff Witte, Secretary for the New Mexico
    Department of Agriculture, to the House Agriculture's Subcommittee on
    Biotechnology, Horticulture, and Research following the April 27, 2016
    Public Hearing: Focus on the Farm Economy--Factors Impacting the Cost
    of Production.
        NASDA represents the Commissioners, Secretaries, and Directors of
    agriculture in all fifty states and four territories. As elected and
    appointed officials, our members are strong advocates for American
    agriculture and are partners with a number of Federal agencies in
    regulating, marketing, and providing services to the agricultural
    community. NASDA appreciates the Subcommittee extending the invitation
    and opportunity to Secretary Witte to testify on our behalf, and upon
    your request, NASDA is pleased to provide additional information or
    clarification regarding the following responses.
    Questions Submitted by Hon. Rodney Davis, a Representative in Congress
            from Illinois
    Market Access Program
        Question 1. Could you offer some examples of how the Market Access
    Program (MAP) has helped your members?
        Answer. MAP encourages the development, maintenance, and expansion
    of commercial agricultural export markets through public-private
    partnerships. The program especially helps small businesses in urban,
    suburban, and rural areas access foreign markets and increase export
    opportunities.
        For example, NASDA produces the U.S.A. Pavilion at the Americas
    Food & Beverage Show in cooperation with the Foreign Agricultural
    Service (FAS) and with the support of MAP funds. At the 2015 Americas
    show FAS and NASDA supported a U.S.A. Pavilion with 132 U.S.
    exhibitors, mostly small and medium-size companies. Other FAS
    cooperator groups such as U.S.A. Poultry & Egg Export Council, U.S.
    Meat Export Federation, and the Southern U.S. Trade Association are
    regular exhibitors within the U.S.A. Pavilion and host educational
    seminars and receptions. U.S.A. Pavilion exhibitors reported on-site
    export sales of $4.625 million and projected an additional $31.02
    million in sales of U.S. agricultural and food products over the next
    twelve months. 67% of the USA Pavilion exhibitors closed or expected to
    close new business in a new (to them) export market.
        By contrast, foreign countries invest significantly more resources
    into promoting and marketing their respective agricultural products.
    For example, according to a 2013 study (An Analysis of Competitor
    Countries' Market Development Programs, Agralytica Consulting, June
    2013) twelve countries and the European Union spent an estimated $1.8
    billion, including $700 million in public funds, on export promotion
    for agri-food products. For comparison, the same study found in 2011
    the total U.S. export promotion public expenditure was $256 million.
    Compared to agricultural production value, the U.S. public spending on
    export market development is among the lowest relative to these twelve
    nations.
    Biotechnology
        Question 2. How should we improve regulatory efficiency in a way
    that enables genetic innovation so that we, as a nation, are better
    able to meet global food security challenges?
        Answer. NASDA supports our Federal agency partners' in revising and
    improving Federal regulations (consistent with the Coordinated
    Framework for the Regulation of Biotechnology) to better reflect modern
    technologies and to facilitate an informed and efficient regulatory
    framework that enables producers to meet the growing global demand for
    food while helping farmers and ranchers achieve the sustainability
    goals of their land and operations for generations to come.
        NASDA recommends Federal agencies undertake a thorough and robust
    review of the current regulatory structure, in conjunction and
    consultation with partner agencies responsible for regulating products
    of biotechnology and the agricultural community, to enhance continued
    alignment, agency roles and responsibilities, and improve communication
    between the Federal, state, and agricultural stakeholders.
        NASDA stands ready to assist our Federal partners and the
    agricultural community to ensure any improvements reflect and
    incorporate the best available science, provide a consistent regulatory
    framework, facilitate innovation, and enable our producers, growers,
    and other agricultural stakeholders to continue to produce our nation's
    food, fiber, and fuel in a collaborative and productive manner.

        Question 3. It seems food companies are moving forward in an effort
    to comply with the Vermont GMO food labeling law. In doing so, doesn't
    this state law create a de facto mandatory labeling system for the rest
    of the country? What implications will that have for farm to fork? If
    the Vermont law stands due to inaction by Congress or slow action in
    the courts, what does this mean for your members?
        Answer. NASDA is concerned that without a Federal solution, a
    patchwork of state labeling laws will add significant complications for
    food companies and disadvantage agricultural producers. We are already
    seeing food companies implementing national labeling decisions in order
    to comply with one state's law.
        In addition, we are concerned with a patchwork of requirements that
    result in labels approved for use in one state not complying with the
    requirements of another state. In fact, this is already playing out. We
    are aware of at least one company's ``Vermont compliant'' label for a
    flavored dairy product that was rejected by another state's review for
    compliance with that state's dairy labeling requirements. This creates
    a regulatory nightmare for food producers who use flavored dairy
    products in their recipes by creating the need for regionalizing stock
    keeping units (SKUs) or pulling their entire product line from a state.
    Until a national, uniform standard is enacted there will be a patchwork
    of state laws that threaten the prosperity of America's agriculture and
    unnecessarily complicate and frustrate the stream-of-commerce
    throughout the food industry. These costs and challenges will
    ultimately be passed onto the consumer. Congress must act now to avoid
    this economic impact.

        Question 4. It has been said that USDA is considering changing
    their biotechnology regulations. Does your organization support this?
        Answer. Please see response to Question 2 above. In addition, we
    applaud Congressmen Newhouse's and Schrader's leadership in calling for
    a more thorough review of these sweeping regulatory changes to better
    identify any unintended consequences this proposal may bring before
    USDA proceeds further with this rulemaking process.
    Pesticides
        Question 5. Many people who rely on pesticides to protect their
    health and property have stated that one or more of EPA's recent
    actions have taken away their access to important products needed to
    fight pests. What should EPA be doing to ensure that those producers
    will have the time-proven products and the new, effective products
    available to meet their needs?
        Answer. Regardless of the Agency's final registration decision, it
    is essential for EPA to comply with the Federal Insecticide, Fungicide,
    and Rodenticide Act (FIFRA),\1\ which requires these decisions be made
    on a scientifically-sound, risk-benefit basis throughout the Agency's
    registration and reregistration review process. Equally important is
    the need for EPA to ensure adherence to both the spirit and intent of
    the: Regulatory Flexibility Act; \2\ Unfunded Mandates Reform Act; \3\
    Executive Orders 13132 \4\ & 13563 \5\; and develop actuarially sound
    Economic Analysis with all of its proposed rulemakings.
    ---------------------------------------------------------------------------
        \1\ 7 U.S.C.  136, et. seq.
        \2\ 5 U.S.C.  601, et. seq.
        \3\ 2 U.S.C.  1501.
        \4\ Executive Order No. 13132, Federalism, 64 FR 43255 (1999).
        \5\ Executive Order No. 13563, Improving Regulation and Regulatory
    Review, 76 FR 3821 (2011).
    ---------------------------------------------------------------------------
        Regulations must be based on the best available, sound, validated,
    and peer-reviewed science and rely on science-based risk assessments.
    Moreover, regulatory agencies must ensure policymakers do not misuse or
    inappropriately apply invalidated or unrelated scientific findings to
    policy determinations.
        NASDA especially appreciates the work USDA's Office of Pest
    Management Policy (OPMP) executes to ensure policy or regulatory
    initiatives are based on scientifically sound positions. OPMP is an
    invaluable resource and advocate for including sound science in the
    development of regulatory actions impacting agriculture. NASDA
    encourages increased support for OPMP's activities, as well as ensuring
    OPMP's perspectives are advanced in the interagency review process.
        In summary, EPA must adhere to the statutory guidelines and process
    requirements articulated under FIFRA and other controlling statutes as
    the Agency executes its science-based registration and review of these
    critical crop protection tools. NASDA appreciates the work of OPMP and
    the oversight of this Subcommittee to help ensure EPA complies with
    these obligations as it fulfills its mission.

        Question 6. Public policy has an enormous impact on the economic
    viability of farms. Can you offer a couple examples of recent
    regulatory actions that have had a negative impact? What about
    legislative actions at the state or national level?
        Answer. There are a number of regulatory actions negatively
    impacting, complicating, and frustrating agricultural production across
    the county, and to date, the economic impact of these initiatives are
    difficult, if not impossible, to quantify. In addition to the economic
    burden placed on producers, these regulatory policies also result in
    unfunded mandates to the state lead agencies tasked with conducting on
    the ground compliance and enforcement activities.
        Those challenges include, but are not limited to: EPA's
    Agricultural Worker Protection Standards (WPS); EPA's proposed
    Certification of Pesticide Applicator Rule; EPA's Waters of the U.S.
    rule (WOTUS); EPA's National Pollutant Discharge Elimination System
    (NPDES) duplicative regulatory framework; and EPA's proposal to
    Mitigate Exposure to Bees from Acutely Toxic Pesticide Products.
        One specific example illustrating the economic impact regulatory
    initiatives may have on producers and state lead agencies is found in
    EPA's Certification of Pesticide Applicators proposed rule. Under this
    proposal, EPA's Economic Analysis \6\ (EA) claims the rule changes will
    result in an estimated $80.5 million in monetized benefits with
    corresponding estimated costs to be $47.2 million; however, the
    Agency's EA significantly underestimated the costs of the proposed rule
    and overstated the anticipated economic benefits the proposed changes
    may bring. NASDA has urged EPA to republish an updated EA based on
    sound methodology that takes into consideration the numerous factors
    outlined in both the Small Business Advocacy Review Panel's
    (hereinafter ``Panel'') comments and the Texas A&M AgriLife Extension
    Service, Agricultural Economics, Agricultural & Environmental Safety's
    EA.
    ---------------------------------------------------------------------------
        \6\ Pesticides; Certification of Pesticide Applicators, 80 FR 51356
    (Aug. 24, 2015) (to be codified 40 CFR 171).
    ---------------------------------------------------------------------------
        The Texas A&M AgriLife Extension compiled a comprehensive EA tool
    to assist states in determining an accurate depiction of the
    anticipated economic impact to the state lead agencies. This economic
    model demonstrated numerous shortfalls in EPA's EA. Following review
    and application of the Texas A&M model to their individual programs
    under the proposed rule changes, states found the estimated cost to
    their state program will actually increase by multiple factors of ten
    above what EPA's EA stated, and EPA's EA failed to identify the
    significant amount of funding states contribute to their own
    certification programs, which is not accounted for in cooperative
    agreement budgets. In several states, EPA funding contributes only five
    to ten percent of the state's total cost to conduct their certification
    program. In addition, the Agency's EA did not fully account for the
    significant internal administrative costs (including but not limited to
    information technology and tracking programs) state lead agencies will
    be required to absorb in order to implement these proposed rule
    changes. Many of these administrative operations require multi-year
    agreements and obligations, which cannot be unwound or altered without
    significant financial investment and/or penalties.
        In addition to the significantly understated costs to the state
    lead agencies, the Agency's EA failed to account for a number of
    factors impacting the regulated community. For example, the SBA Panel
    noted ``EPA did not estimate travel expenses for applicators to obtain
    training or take exams for certification or recertification,'' which
    will ``. . . impose excessive costs in operating their businesses as a
    result of increased time away from the job, travel expenses to attend
    recertification trainings, and the class fee for attending the CEUs.''
    \7\ The SBA Panel also found ``EPA's proposal will result in decreased
    training and education rather than the Agency's goal of increased
    training and education.'' \8\ The SBA Panel's findings are greatly
    concerning and further demonstrate the significant oversight in the
    actual estimated costs of the proposed rule.
    ---------------------------------------------------------------------------
        \7\ Panel Report of the Small Business Advocacy Review Panel on EPA
    Planned Revisions to Two Related Rules: Worker Protection Standards for
    Agriculture and Certification of Pesticide Applicators.
        \8\ Id.
    ---------------------------------------------------------------------------
        EPA's EA claims the primary economic benefits are monetized
    benefits from avoided acute pesticide incidents, qualitative benefits
    (including reduced latent effects of avoided acute pesticide
    exposures), and reduced chronic effects from lower chronic pesticide
    exposures (chronic diseases). To support this claim, EPA's EA cites
    estimates of poorly reported data and anecdotal evidence from poison
    control centers. EPA acknowledged the lack of economic integrity in
    these numbers, and it is inappropriate for EPA to indicate or imply a
    causal association between these data sources and any estimated
    benefits. EPA is intimately familiar with the routine and robust
    investigations state lead agencies conduct in response to alleged
    pesticide exposure incidents. NASDA is disappointed EPA drew various
    conclusions through unknown and unsubstantiated data to support the
    EA's estimated benefits associated with this proposed rule, and we want
    to contrast this dynamic with the reality that states provide EPA with
    volumes of data showing overwhelming compliance by the regulated
    community. It is disheartening, at best, to see EPA does not discuss or
    incorporate that information into its regulatory decisions.
        The Agency cites a reduction in exposures and associated risks
    under the EA's estimated benefits to the proposed rule, but the Agency
    subsequently notes it is ``not able to quantify the benefits expected
    to accrue from the proposed changes.'' NASDA considers it inappropriate
    to estimate benefits based on possible associations when there is no
    scientific evidence supporting such causal connections. EPA conducts a
    comprehensive and rigorous process for registering and re-evaluating
    pesticides, and EPA devotes significant resources to the regulation of
    pesticides to ensure each pesticide product meets the FIFRA requirement
    to not cause unreasonable adverse effects to the human health and the
    environment. NASDA fully supports EPA's scientifically-based review and
    registration approval process. However, the EA identifies estimated
    benefits based on implied or causal connections not supported by
    scientific data. This is in direct conflict with the Agency's
    registration and reregistration review programs.
        In reviewing the oversights of EPA's EA and applying the sound
    methodology of Texas A&M's model, it is clear the actual estimated cost
    of the proposed rule significantly understates the cost and burden to
    both the state lead agency and the regulated community without
    sufficient or comparable benefits. NASDA has requested EPA work with
    Texas A&M AgriLife Extension, the State Departments of Agriculture, and
    the regulated community to revise and republish an updated EA to better
    quantify the actual estimated costs and benefits, if any, of the
    proposed rule changes before the Agency takes any further action with
    this proposal.

        Question 7. In the National Strategy to Promote the Health of Honey
    Bees and Other Pollinators and the EPA Proposal to Mitigate Exposure to
    Bees from Acutely Toxic Pesticide Products, EPA offered support for
    voluntary stewardship methods to reduce exposures during the planting
    of pesticide treated seed. And, on January 4, 2016, EPA released its
    preliminary pollinator assessment for one pesticide indicating that it
    posed a low-potential risk to bees when used as a seed treatment. Do
    you have any specific concerns with the National Strategy document?
        Answer. NASDA members, individually and collectively, have been
    actively engaged in identifying the various factors impacting
    pollinator health, and more importantly, developing public-private
    partnerships on the state level to bring forward sound solutions to
    protect and promote honeybees and other native pollinators. These
    public-private partnerships are commonly referred to as State Managed
    Pollinator Protection Plans, or ``MP3s.''
        NASDA points to the scientific review of the 2007 National Academy
    of Sciences (NAS) report, Status of Pollinators in North America, and
    the 2013 U.S. Department of Agriculture (USDA)--U.S. Environmental
    Protection Agency (EPA) joint report, National Stakeholders Conference
    on Honey Bee Health,\9\ which found there are numerous and complex
    factors associated with bee health, including: parasites and diseases,
    lack of genetic diversity, need for improved forage and nutrition, need
    for increased collaboration and information sharing, and a need for
    additional research on the potential impacts certain pesticides may
    have on honey bee health. The Report found the parasitic mite, Varroa
    destructor, a known cause for amplified levels of viruses and closely
    associate with overwintering colony declines, to be the single most
    detrimental pest of honeybees.
    ---------------------------------------------------------------------------
        \9\ Report on the National Stakeholders Conference on Honey Bee
    Health (March 2012). Retrieved from: http://www.usda.gov/documents/
    ReportHoneyBeeHealth.pdf.
    ---------------------------------------------------------------------------
        These complex factors do not lend themselves to a single, uniform
    regulatory solution. However, a state-by-state approach utilizing the
    State Departments of Agriculture as the vehicle to unify, discuss, and
    develop MP3s built on robust communication efforts, Best Management
    Plans (BMP), and Integrated Pest Management (IPM) programs specifically
    crafted to serve and support local agricultural practices and producers
    is already a proven formula in a number of states (California,\10\
    Colorado,\11\ Florida,\12\ Mississippi,\13\ and North Dakota \14\). We
    appreciate the support and partnership we have received from our
    partners at EPA, to date, in identifying MP3s as a successful, non-
    regulatory vehicle to achieve risk mitigation and enhance collaboration
    across the agricultural stakeholder community, and we note the White
    House's National Strategy to Promote the Health of Honey Bees and Other
    Pollinators \15\ recognizes the MP3 as a model for success.
    ---------------------------------------------------------------------------
        \10\ California Department of Food and Agriculture. 2014. Bee and
    Beehive Information.
    http://www.cdfa.ca.gov/plant/pollinators/index.html.
        \11\ Colorado Environmental Pesticide Education Program. Pollinator
    Protection 2013. http://www.cepep.colostate.edu/
    Pollinator%20Protection/index.html.
        \12\ Florida Department of Agriculture and Consumer Services. 2014.
    Florida Bee Protection. http://www.freshfromflorida.com/Divisions-
    Offices/Agricultural-Environmental-Services/Consumer-Resources/Florida-
    Bee-Protection.
        \13\ Mississippi Honeybee Stewardship Program. 2014 http://
    www.msfb.org/public_policy/Resource%20pdfs/Bee%20Brochure.pdf.
        \14\ North Dakota Department of Agriculture. 2014. North Dakota
    Pollinator Plant. A North Dakota Department of Agriculture Publication.
    http://www.nd.gov/ndda/files/resource/
    NorthDakotaPollinatorPlan2014.pdf.
        \15\ White House. (2015). National Strategy to Promote the Health
    of Honey Bees and Other Pollinators. Retrieved from: https://
    www.whitehouse.gov/sites/default/files/microsites/ostp/
    Pollinator%20Health%20Strategy%202015.pdf.
    ---------------------------------------------------------------------------
        At the same time, we do have significant concerns with a current
    policy proposal EPA published for public comment that is currently
    under review. In this policy proposal, EPA identified 76 active
    ingredients that will impact over 3,500 crop protection tools as
    potentially ``acutely toxic to honeybees'' and subject these tools and
    uses to enhanced label restrictions. We are concerned with both the
    process and the substance of this proposal; neither of which are FIFRA
    compliant or based on a sound, science-based risk assessment approach.
    So we ask this Subcommittee to help ensure EPA's regulatory proposals
    are compliant with their obligations under FIFRA and consistent with
    their role as regulatory partners with the State Departments of
    Agriculture.
        As previously noted, the state department of agriculture in forty-
    three states and Puerto Rico is the state lead state agency responsible
    for the regulation of pesticide use under FIFRA. NASDA members are well
    versed in the robust scientific review and approval process EPA
    undertakes in reviewing and registering pesticides. EPA registered
    neonicotinoids as ``reduced risk'' alternatives to organophosphates and
    other older classes of chemistry, and EPA is currently undertaking a
    re-evaluation of clothianidin, imidacloprid, and thiamethoxam under its
    registration review program.
        NASDA recommends the continued support and development of state-
    specific MP3s to achieve sound policy initiatives, ensure access to
    appropriate crop protection tools, and to protect and promote
    pollinator health before any further regulatory actions are considered.

        Question 8. Does your organization support passage of H.R. 897, the
    Reducing Regulatory Burdens Act of 2015? Do you believe the burden and
    liabilities of obtaining a water permit are limiting or delaying
    mosquito control applications that control viruses like Zika and
    protect human health?
        Answer. NASDA strongly supported passage of H.R. 897, the Reducing
    Regulatory Burdens Act of 2015, and NASDA supported the passage of H.R.
    897, the Zika Vector Control Act.
        This legislation is necessary to clarify that Federal law does not
    require this redundant permit for already regulated pesticide
    applications. NASDA is concerned the additional permitting burdens
    stemming from the National Cotton Council v. EPA decision have made it
    more expensive and presented increased risk of litigation for mosquito
    control districts and private applicators to conduct control
    activities. This has led to few applications and fewer private
    applicators willing to conduct these control activities.

        Question 9. What do you believe will happen if H.R. 897 is not
    enacted and President Obama's WOTUS rule goes into effect?
        Answer. Taken together, NPDES permitting requirements stemming from
    NCC v. EPA and the WOTUS rule present significant legal vulnerabilities
    for farmers and pesticide applicators. Because many ditches and
    ephemeral or intermittent features in or near farm fields, pastures,
    and woodlots are likely to become newly-jurisdictional under the rule,
    application in or around those features of terrestrial pesticides
    (those products lacking a FIFRA label explicitly allowing application
    into, over, or near ``waters'') might result in CWA violations and
    citizen suit vulnerabilities from inadvertent pesticide contact with
    these types of newly-jurisdictional waters.
        For use of FIFRA-labeled aquatic pesticides, EPA's Pesticide
    General Permit (PGP) covers use patterns for: (1) mosquito and other
    flying insect pest control; (2) weed and algae control; (3) animal pest
    control; and (4) forest canopy pest control. Agricultural use patterns
    of terrestrial pesticides are not covered under the PGP.
        This raises a number of questions and concerns: for example, would
    farmers and ranchers routinely making seasonal treatment of, noxious
    weeds in fields containing dry ephemeral conveyances or manmade ditches
    now also be required to comply with NPDES permit requirements? If so,
    would these producers need to secure individual NPDES permits, since
    terrestrial pesticide use is not covered by the PGP? Most applicators
    using terrestrial pesticides may not be aware that treatment areas they
    are treating may for the first time contain newly-jurisdictional
    ``waters,'' and in addition to FIFRA label requirements, they might now
    also need to comply with NPDES performance requirements for ``aquatic''
    pesticide applications. This would pose an extreme difficulty for
    commercial applicators applying terrestrial pesticides by air, when
    such ephemeral features could well be unmarked, dry or hidden by
    vegetation. These concerns also extend beyond pesticide use, and we are
    also concerned that the application of other agricultural inputs in a
    similar manner, such as fertilizer, would also be problematic under the
    proposed rule.

        Question 10. The public is threatened by insect-borne diseases--
    West Nile Virus is a good example. Some of the critical products used
    to control mosquitoes are also the backbone of Integrated Pest
    Management plans. Can you tell us your thoughts regarding EPA's plans
    for OP's (organophosphates) used to protect public health against very
    dangerous and prolific pests?
        Answer. NASDA notes pesticides (including organophosphates) are an
    important component of Integrated Pest Management (IPM) programs for
    both agriculture production systems and vector control activities to
    protect human health.
        NASDA is intimately familiar with EPA's rigorous and exhaustive
    scientific review under FIFRA, and we support the development,
    approval, and use of various crop protection and vector control tools
    to better protect human health and to assist farmers in continuing to
    produce our nation's food, fiber, and fuel.

        Question 11. We've heard a lot about the need for oversight of the
    EPA's pesticide program. What are your organization's top priorities
    for regulatory oversight?
        Answer. As regulatory partners with EPA and other Federal agencies
    over significant aspects of the U.S. agricultural industry, NASDA has a
    particular interest in EPA's efforts related to reducing regulatory
    burdens, especially with respect to increased flexibility to state
    regulatory partners.
        Last year, NASDA was pleased to participate in a series of meetings
    with other associations representing state and local government hosted
    by Shaun Donovan, Director of the White House Office of Management and
    Budget (OMB) and Howard Shelanksi, Administrator of OMB's Office of
    Information and Regulatory Affairs. These discussions focused on the
    Administration's efforts around improving regulatory processes and
    improving retrospective regulatory review.
        As NASDA articulated in those discussions and reiterates here, the
    Administration should consider the following principles to minimize the
    impact of regulations on both state governments and the regulated
    community:

      1.  Enhance Federalism Consultations: Federal agencies should conduct
                robust federalism consultations early in the regulatory
                process, and include participation of a wide range of state
                regulatory agencies, including State Departments of
                Agriculture.

      2.  Improve economic analyses that more realistically account for
                economic costs to states: Federal agencies should engage
                state regulatory agencies and stakeholders to evaluate
                proposed regulations, availability of required resources,
                and whether expected outcomes merit those expenditures.

      3.  Enhance public participation and greater transparency of the
                regulatory process: Federal agencies should improve public
                participation and increase transparency of the regulatory
                process.

      4.  Incorporate flexibility in state regulatory programs: Federal
                agencies should engage state regulatory partners in
                creating programs that may provide local and state
                flexibility.

      5.  Renew focus on utilization of best available science: OMB should
                ensure agencies consistently and appropriately apply best
                available science to the regulatory system.

      6.  Improve stakeholder outreach, especially to rural communities:
                Federal agencies should enhance educational and outreach
                efforts to rural communities and provide teleconference
                access for oral comments, which can be submitted in the
                docket and become part of the official record.

        In addition to these principles outlined above, it is essential for
    EPA to comply with its obligations under: FIFRA; \16\ the Regulatory
    Flexibility Act; \17\ the Unfunded Mandates Reform Act; \18\ Executive
    Orders 13132 \19\ & 13563 \20\; and develop actuarially sound Economic
    Analysis with all of its proposed rulemakings.
    ---------------------------------------------------------------------------
        \16\ 7 U.S.C.  136, et. seq.
        \17\ 5 U.S.C.  601, et. seq.
        \18\ 2 U.S.C.  1501.
        \19\ Executive Order No. 13132, Federalism, 64 FR 43255 (1999).
        \20\ Executive Order No. 13563, Improving Regulation and Regulatory
    Review, 76 FR 3821 (2011).

        Question 12. In publishing the final worker protection standard
    rule, the EPA included a ``designated representative'' provision that
    had not been previously provided to the Committee as required in law.
    We have some questions about this provision . . .
        Answer. EPA inclusion of the ``designated representative''
    provision was implemented outside of the Federal rulemaking process, in
    conflict with the information and input from EPA's state regulatory
    partners and the regulated community, and in violation of the Agency's
    obligations under FIFRA; \21\ the Administrative Procedures Act (APA);
    \22\ the Unfunded Mandates Reform Act (UMRA); \23\ the Regulatory
    Flexibility Act (RFA); \24\ and Executive Orders 13132 \25\ and 13563
    \26\.
    ---------------------------------------------------------------------------
        \21\ 7 U.S.C.  136, et. seq.
        \22\ 5 U.S.C.  500, et. seq.
        \23\ 2 U.S.C.  1501.
        \24\ 5 U.S.C.  601, et. seq.
        \25\ Executive Order No. 13132, Federalism, 64 FR 43255 (1999).
        \26\ Executive Order No. 13563, Improving Regulation and Regulatory
    Review, 76 FR 3821 (2011).
    ---------------------------------------------------------------------------
        This provision places an extraordinary burden on growers to produce
    a full accounting of 2 years of application records to anyone who
    arrives on their farm with a piece of paper claiming to represent a
    worker who may have been on that establishment at some point over the
    past 2 years. If the agricultural employer does not produce these
    records they subject themselves to enforcement actions. If the
    agricultural employer does produce these records, the individual
    requesting them is free to use them for any purpose, propaganda, anti-
    marketing, litigious or otherwise that he or she sees fit.
        EPA did not include the ``designated representative'' provision in
    the final rule it provided to Congress, as the Agency is required to do
    so under law. We have expressed our strong concern and disappointment
    with EPA's lack of consultation with their state regulatory partners,
    and we want to thank Chairman Conaway and Ranking Member Peterson for
    their attention and on-going engagement on this matter.
        Also concerning is EPA's implementation of the WPS rule with all of
    these enhanced regulatory burdens and record keeping requirements, but
    the Agency has yet to provide educational resources or training
    materials to assist their state partners and the regulated community to
    understand the new requirements and how to comply with them.
        Without a sound and transparent regulatory framework and the
    resources necessary to educate the regulated community on how to
    comply, all EPA has created is another economic burden on the men and
    women who produce our nation's food, fiber, and fuel. It is absolutely
    essential for EPA to correct the oversights in the WPS rule and provide
    their state partners and the regulated community the time and
    educational resources necessary to ``educate before we regulate.''

        Question 13. The President has stressed the importance and value of
    transparency in EPA's action to ensure the use of sound science and
    reliable data. EPA is increasingly reliant on epidemiological and
    modeling data to essentially overrule volumes of actual `hard science'
    laboratory and monitoring data. Was this fundamental change in policy
    put out for public notice and comment so that impacted stakeholders
    like you would have an opportunity to comment?
        Answer. We are not aware of any public notice and comment regarding
    this policy change, but we continue to encourage EPA and all of our
    Federal partners to recognize the considerable expertise of State
    Departments of Agriculture through Federalism consultations early in
    the regulatory process.
        Federalism consultations must be broad-based and include
    representatives from associations representing all relevant state
    agencies. Federalism consultations should occur early in the regulatory
    process and allow significant opportunities for robust participation.
    Throughout this process, it is important to emphasize that state
    regulatory agencies are not simply stakeholders, but are instead
    partners with Federal agencies in the implementation of a host of
    programs. States can--and should--be used more as resources for Federal
    agencies. Often states have a wealth of data, experience, and expertise
    that would help Federal agencies better develop and implement sound
    regulatory programs.
        Unfortunately, the federalism consultations conducted by agencies
    are often perfunctory and do not allow regulator-to-regulator dialogue
    on issues of mutual interest. Additionally, on those occasions when
    consultation does occur, it is often limited to only a handful of
    associations representing state and local governments and does not
    necessarily include the representatives from associations representing
    the state agencies that will be most impacted by the proposed
    regulation. Though some Federal agencies include other state and local
    representatives in their consultation processes, additional focus on
    ensuring federalism consultations include the appropriate parties would
    be very beneficial.
        One striking example of a regulatory initiative that would have
    greatly benefited from Federalism consultations with the states is the
    EPA and Army Corps of Engineers (Corps) Rule to Define ``Water of the
    United States'' Under the Clean Water Act (Docket ID No. EPA-HQ-OW-
    2011-0880) \27\ and the so-called `Interpretive Rule' for Agricultural
    Conservation Practices (EPA-HQ-OW-2013-0820).\28\
    ---------------------------------------------------------------------------
        \27\ National Association of State Departments of Agriculture.
    (2014, November 14). NASDA's Comments Regarding Proposed Regulatory
    Changes to the Definition of ``Water of the United States'' Under the
    Clean Water Act. http://www.nasda.org/Policy/9617/10937/30804.aspx.
        \28\ National Association of State Departments of Agriculture.
    (2014, July 7). NASDA's Comments Regarding Notice of Availability
    Regarding the Exemption From Permitting Under Section 404(f)(1)(A).
    http://www.nasda.org/Policy/9617/10937/28232.aspx.
    ---------------------------------------------------------------------------
        The WOTUS proposal will have tremendous impacts on state agencies,
    yet EPA and the Corps failed to consult with state agencies during the
    development of the proposal. While we appreciated the outreach the
    agencies engaged in following the release of the proposal, many of the
    rule's flaws identified during the post-release outreach could have
    been brought to light earlier, resulting in an improved proposal.
        It is critical for OMB to require EPA (and all Federal agencies) to
    conduct robust federalism consultations early in the regulatory process
    and include participation of a wide range of state regulatory agencies,
    including State Departments of Agriculture.

        Question 14. The United States has the world's most rigorous
    pesticide registration and review processes. Yet, when EPA's regulatory
    decisions are challenged in court, the Agency has not enjoyed many
    recent successes in defending its scientific process or decisions. Are
    these actions undermining EPA's credibility with the public?
        Answer. As regulatory partners with EPA, NASDA members are well
    versed in the robust scientific review and approval process the Agency
    is required to undertake under FIFRA, and NASDA is concerned the
    potential impact and precedent various judicial decisions have had and
    may continue to have on current and future registrations of important
    crop protection tools.
        We have significant concerns with the Judicial Branch's obvious
    lack of deference to the Agency's expertise and execution of its
    responsibilities under FIFRA, and the Courts are not the right vehicle
    to develop and implement policy. We note the importance of defending
    the Agency's robust scientific review process under FIFRA, and we stand
    ready to work with EPA to ensure the Agency's scientifically-sound
    decisions are recognized and defended. Enhanced consultations with the
    State Departments of Agriculture will assist EPA in this effort.

    Food Safety Modernization Act
        Question 15. Can you describe the consultation process that FDA
    engaged in with industry in developing the regulations under the Food
    Safety Modernization Act?
        Answer. The magnitude of the rules needed to implement FSMA (seven
    major rules) has necessitated an enhanced level of engagement and
    dialogue beyond the traditional ``public notice and comment''
    rulemaking process, and we appreciate FDA's Foods & Veterinary Medicine
    Deputy Commissioner Mike Taylor's leadership in identifying and
    facilitating this dialogue between Federal and state agency partners.
        NASDA has encouraged and supported FDA's expanded engagement in
    undertaking a secondary review of several proposals, the supplemental
    publication of four of the major rules, additional ``listening
    sessions,'' and several on-farm site visits within the states. These
    activities have resulted in significant improvements in the rule
    requirements, but there are three remaining areas of concern: (1) the
    magnitude of the rules are still overwhelming; (2) the means FDA
    proposes to regulate agricultural water are burdensome, costly, and go
    beyond the benefit to public health; and (3) the bifurcated regulation
    of packing houses, based on ownership rather than on risk.

        Question 16. Prior to passage of the Food Safety Modernization Act,
    there was a great deal of debate surrounding the question of what
    authority the FDA should have over food production. Many Members
    present at the time raised questions about granting the FDA the power
    to tell farmers how to farm. From the standpoint of food safety, do you
    believe FDA has the resources and expertise, more so than the USDA and
    State Ag Departments, to regulate on farm production practices?
        Answer. FDA has notable expertise in various food safety
    activities, but the Agency has little experience or institutional
    expertise related to agricultural practices. NASDA member agencies
    currently administer feed control programs in 47 states and human food
    safety programs in 19 states. NASDA is actively engaged in FSMA
    implementation, and forty State Departments of Agriculture have
    indicated intent to develop a state produce safety program.
        NASDA submitted over 250 pages of testimony to the docket regarding
    the seven major rules, and after extensive, technical review NASDA has
    identified a minimal need of $100 million annually to implement three
    major rules under FSMA: Human Food Preventive Controls, Animal Food
    Preventive Controls and Produce Safety. This necessary level of Federal
    funding is essential to enable State Departments of Agriculture to
    develop a produce safety program in the states.
        Adequately funding imported food safety programs is of equal
    importance to ensure a balanced playing field for American farmers and
    to provide the necessary educational and training resources to
    facilitate regulatory compliance activities for both the regulatory
    agencies and the regulated community. The State Departments of
    Agriculture are best positioned to facilitate the education of our
    Federal partners on the broad and diverse agricultural practices across
    the country, and we stand ready to continue to assist FDA in this
    process.

        Question 17. There was a great deal of concern when Congress passed
    the Food Safety Modernization Act that FDA's lack of resources and
    expertise would ultimately result in a ``one-size-fits-all'' approach
    to regulation. Do the final rules adequately account for the variation
    between crops, geographical growing locations, and even the associated
    risk profiles of the products produced in the U.S.?
        Answer. The ability of the final rules to adequately account for
    variations between crops, geographical growing locations, and
    associated risk profiles of U.S. products remains an open question.
        FDA has established a fairly flexible position through commitments
    to use alternatives and waivers as a part of the regulatory process.
    These are important means to reach reasonable solutions; however, the
    way in which ``substitute'' means of compliance are shared will make a
    difference in whether all producers may be aware of potentially less
    costly options to achieve compliance. Variances will be submitted by a
    state or foreign government and FDA will approve/deny these options,
    which should be publicly available. Alternatives under the rule are
    options believed by a grower to achieve the same level of public health
    protection as the FDA rule and will remain in a grower's file.
        This is most relevant in the instance of the water standard and
    also potentially related to other issues addressed within the guidance,
    yet to be developed or published. If FDA is willing to remain flexible
    and seek additional ways to be flexible, it seems as though another
    category of flexibility will evolve--that of an alternative that
    becomes a part of guidance or some other mechanism to share
    alternatives between farmers--which farmers can access and choose
    rather than the published rule per se.
        We likely do not yet know the extent of FDA's ability to accept a
    culture change; however, the future of American agriculture may depend
    upon the agency's ability to better understand food production. Farms
    are not factories, nor should--nor can--they become factories. How the
    agency chooses to deal with the variations listed in your questions
    will determine how flexible the rules are once they are implemented
    [including advice made available through guidance development].
        NASDA has developed an implementation framework, which is a roadmap
    for states to consider as they develop a state produce safety program.
    One of the chapters within that document is a ``dispute resolution''
    chapter. Precisely because of the premise of your question, and our own
    experience interacting with FDA (certainly the ``enforcement culture''
    of FDA rather than the prevention/compliance culture of FDA), it is
    imperative state and FDA programs have a mechanism to sort through the
    differences between farming and food manufacturing. Achieving a
    ``prevention culture'' will hinge on achieving a balance between the
    requirements needed to achieve the dual goals of food production and
    food safety, where both public health and food security are important
    goals.

        Question 18. How different are current food safety practices from
    what the Food Safety Modernization Act will require?
        Answer. While moving to a prevention strategy is prudent and noting
    the expansion of those entities covered was anticipated in the passage
    of FSMA, the amount of requirements FDA created to comply with newly
    established standards and requirements is beyond ``a tweak'' in food
    safety policy. In moving to a ``prevention'' statute, FSMA expanded the
    regulated community to include many more entities: farmers that grow
    fruits and vegetables (generally consumed raw); packing houses on-farm
    and owned by farmers; packing houses mentioned above; animal feed
    mills; and pet food establishments, at a minimum, while codifying
    advanced food safety practices for the already regulated manufactured
    food arena.
        Changes to the Human Food Preventive Control rule are consistent
    with the direction the program was progressing prior to the passage of
    FSMA, except more preventive controls are put in place under the new
    rules. Product testing, environmental monitoring and supplier
    verification are all new requirements. Good Manufacturing Practices
    (GMPs) are not new to the major processed food producers; however,
    small to medium sized facilities will likely find these requirements
    will require substantial changes in practices. FDA choosing to define
    packing sheds based on ownership rather than a foodborne risk has
    created another category of ``facilities'' that will now be regulated
    as a manufactured food location that were previously ``farms,'' per se.
        Water testing has been done by farmers under third-party audits,
    but FDA's Water Standards are substantially beyond any previous
    requirements. The other major standards include: use of manure as a
    soil amendment, intrusion of animals, worker sanitation and hygiene. It
    will depend upon what FDA includes in guidance to better understand the
    magnitude of expectation for these additional standards.
        Continuing education is essential to helping producers adopt better
    agricultural practices and stay on top of what is known to have caused
    recent outbreaks and avoid the same practices that resulted in unsafe
    produce. A program initially developed by NASDA to assist in this
    effort is the ``On-Farm Readiness Review,'' which is in the process of
    being pilot tested by NASDA, the states, Cooperative Extension
    (hereinafter ``Extension''), and FDA.

        Question 19. How do requirements under the Food Safety
    Modernization Act compare to existing industry requirements that are
    enforced through third-party audits?
        Answer. There are substantial differences based on the likelihood
    FDA will require compliance with many of the actual requirements
    through guidance to the industry, which have yet to be published. USDA
    is planning to change its Good Agricultural Practices (GAP) program to
    adopt FSMA requirements. It is too early to tell whether FSMA
    implementation will reduce the number of audits/visits; however,
    farmers that produce fruits and vegetables already cite audit fatigue
    and on-farm visit fatigue as an existing burden on their time and
    resources.

        Question 20. You talk about the farm definition in FDA's produce
    safety rule. Can you explain what this definition is, and why it is
    important? Do you support revising the Farm definition?
        Answer. The definition of ``farm'' is important in determining
    which entities will be regulated under the Produce Safety rule and
    which ones may be partially regulated under the Human Food Preventive
    Controls (HFPC) rule. By FDA's definition, some packing sheds are
    regulated as farms; others, although identical in function, may be
    regulated as ``facilities''--based on ownership, not based on risk-
    based practices.
        More requirements exist for those regulated under the HFPC,
    including: registration requirements, product testing, environmental
    monitoring and supplier verification. Also, mixed-type facilities are
    by definition an establishment that engages in both: (1) activities
    that are exempt from registration under section 415 of the Federal
    Food, Drug, and Cosmetic Act; and (2) activities that require the
    establishment to be registered. As a result, mixed-type facilities will
    be regulated under both the HFPC rule and the Produce Safety rule. We
    believe improvements can be made in the definition of farm. Below are
    excerpts from NASDA's comments to the docket regarding definition of
    farm:

        FDA's definition of a ``farm'' is as follows:

        The definition of a `farm' is clarified to cover two types of farm
    operations. Operations defined as farms are not subject to the
    preventive controls rule.

       Primary Production Farm: This is an operation under one
            management in one general, but not necessarily contiguous,
            location devoted to the growing of crops, the harvesting of
            crops, the raising of animals (including seafood), or any
            combination of these activities. This kind of farm can pack or
            hold raw agricultural commodities such as fresh produce and may
            conduct certain manufacturing/processing activities, such as
            dehydrating grapes to produce raisins and packaging and
            labeling raisins.

          The supplemental rule proposed, and the final rule includes, a
            change to expand the definition of ``farm'' to include packing
            or holding raw agricultural commodities (such as fresh produce)
            that are grown on a farm under a different ownership. The final
            rule also includes within the ``farm'' definition companies
            that solely harvest crops from farms.

       Secondary Activities Farm: This is an operation not located
            on the Primary Production Farm that is devoted to harvesting,
            packing and/or holding raw agricultural commodities. It must be
            majority owned by the Primary Production Farm that supplies the
            majority of the raw agricultural commodities harvested, packed,
            or held by the Secondary Activities Farm.

          This definition for a Secondary Activities Farm was provided, in
            part, so that farmers involved in certain formerly off-farm
            packing now fit under the definition of ``farm,'' as the
            packing is still part of the farming operation. In addition to
            off-farm produce packing operations, another example of a
            Secondary Activities Farm could be an operation in which nuts
            are hulled and dehydrated by an operation not located at the
            orchard before going to a processing plant. If the farmer that
            owns the orchards and supplies the majority of the nuts is a
            majority owner of the hulling/dehydrating facility, that
            operation is a Secondary Activities Farm.

       Primary Production and Secondary Activities Farms conducting
            activities on produce covered by the Produce Safety Rule will
            be required to comply with that rule.

        Revise  1.227 to read as follows: The definitions of terms in
    section 201 of the Federal Food, Drug, and Cosmetic Act apply to such
    terms when used in this subpart. In addition, for the purposes of this
    subpart:

              Farm means:

                      1. Primary production farm. A primary production farm
                    is an operation under one management in one general
                    (but not necessarily contiguous) physical location
                    devoted to the growing of crops, the harvesting of
                    crops, the raising of animals (including seafood), or
                    any combination of these activities. The term ``farm''
                    includes operations that, in addition to these
                    activities:

                              i. Pack or hold raw agricultural commodities;

                              ii. Pack or hold processed food, provided
                            that all processed food used in such activities
                            is either consumed on that farm or another farm
                            under the same management, or is processed food
                            identified in paragraph (1)(iii)(B)(1) of this
                            definition; and

                              iii. Manufacture/process food, provided that:

                                      (a) All food used in such activities
                                    is consumed on that farm or another
                                    farm under the same management; or

                                      (b) Any manufacturing/processing of
                                    food that is not consumed on that farm
                                    or another farm under the same
                                    management consists only of:

                                              [I]. Drying/dehydrating raw
                                            agricultural commodities to
                                            create a distinct commodity
                                            (such as drying/dehydrating
                                            grapes to produce raisins), and
                                            packaging and labeling such
                                            commodities, without additional
                                            manufacturing/processing (an
                                            example of additional
                                            manufacturing/processing is
                                            slicing);

                                              [II]. Treatment to manipulate
                                            the ripening of raw
                                            agricultural commodities (such
                                            as by treating produce with
                                            ethylene gas), and packaging
                                            and labeling treated raw
                                            agricultural commodities,
                                            without additional
                                            manufacturing/processing; and

                                              [III]. Packaging and labeling
                                            raw agricultural commodities,
                                            when these activities do not
                                            involve additional
                                            manufacturing/processing (an
                                            example of additional
                                            manufacturing/processing is
                                            irradiation); or

                      2. Secondary activities farm. A secondary activities
                    farm is an operation, not located on a primary
                    production farm, devoted to harvesting (such as hulling
                    or shelling), packing, and/or holding of raw
                    agricultural commodities, provided that the primary
                    production farm(s) that grows, harvests, and/or raises
                    the majority of the raw agricultural commodities
                    harvested, packed, and/or held by the secondary
                    activities farm owns, or jointly owns, a majority
                    interest in the secondary activities farm. A secondary
                    activities farm may also conduct those additional
                    activities allowed on a primary production farm as
                    described in paragraphs (1)(ii) and (iii) of this
                    definition.

        Question 21. Can you talk a bit about the food safety training
    challenges associated with FSMA implementation?
        Answer. Delays: FDA and USDA-AMS cooperated in 2010 to establish a
    Produce Safety Alliance (PSA) at Cornell University. NASDA commended
    this forward-thinking collaboration bringing Federal agencies together
    working towards a common good. The PSA developed train-the-trainer and
    producer training courses with input from a wide array of experts. Two
    of the program's goals have been to: (1) develop a standardized
    education program based on GAPs and co-management; and (2) to include
    the Produce Safety rule requirements, when available. The process for
    developing the entire training program, used by the PSA, has been
    transparent and inclusive.
        Since the rule was published, FDA has requested to modify the
    education program. The PSA initial training program is a basic-level
    FSMA prerequisite requirement, and the desire to perfect this level of
    training misses the importance of the education and value of continuing
    education as a means to safer food. Long-term education is a key
    principle to achieving prevention, and even while the education is
    being postponed the compliance dates remain firm. It is imperative to
    provide state regulatory agencies and the regulated community the time,
    education, and resources necessary to facilitate implementation and
    compliance of these comprehensive regulatory changes.
        Continuing Education: Prevention, as a policy, requires sustained
    opportunities to present ``core and more'' information to producers.
    Prevention will not occur if all that is accomplished is a perfected,
    basic-level enforcement-oriented training course. As time goes by, we
    will learn more about the cause of outbreaks, means to avoid
    contamination, practices that increase or mitigate risk, and more. We
    will not prevent outbreaks if we do not emphasize a long-term
    commitment to provide education to producers. On-Farm Readiness Reviews
    and inspections of farms will provide additional and valuable
    educational information. The guidance document, yet to be published,
    will also require another updated education program. While subsequent
    education programs may not be expressly required under the rule, the
    benefit of these opportunities should assure that producers will
    participate, especially as this relates to compliance with FSMA and
    facilitating market access.
        Lack of guidance: FDA has made it clear that much of the policy
    producers need to comply with is contingent on the guidance the agency
    will publish in the coming months. It is also one of the key points FDA
    has apparently raised with the PSA. Much of the value of the education
    may derive from the requirements found in guidance; however, the
    guidance documents are months away from publication and will require
    additional, continuing education to keep producers abreast of the
    requirements.
        While NASDA supports the education programs being developed by
    Extension for GAP and FSMA, we also recognize some of the GAP program
    audits have established practices that will not ``pass muster'' as food
    safety practices. To get through the transition, NASDA has been working
    on an ``On-Farm Readiness Review'' program. We are concerned farmers
    may have a false sense of security based on the use of audits over the
    past decade as a surrogate for inspections, and USDA and FDA's
    continued pronouncement that if farms are GAP certified, ``they are
    most of the way there'' (in compliance with FSMA). The rule FDA has
    promulgated is quite a bit more restrictive and enforcement oriented
    than the GAP requirements, and we believe farmers deserve an
    opportunity to know what is meant by ``being most the way there.''
        We believe having Extension and state regulatory personnel perform
    a voluntary, non-regulatory review of farms can help assure farmers
    that the practices they are using meet/will meet the standards in FSMA
    and/or what changes need to be made to achieve compliance. This can
    help farmers know which practices they use on the farm are ``FSMA
    compliant.'' The purpose of our collective actions should be to improve
    the likelihood that fruits and vegetables produced by American farmers
    are safe, and there should be an emphasis on ensuring farmers are doing
    it right (not looking to see if we can catch someone doing something
    wrong). The emphasis of training needs to be on helping producers meet
    the standards and providing oversight on farms. The On-Farm Readiness
    Review program should help to focus efforts on compliance and support
    food safety practices.

        Question 22. What are the differences between FDA's Produce Safety
    rule and the Preventive Controls for Human Food rule?
        Answer. The Produce Safety rule spells out what covered farms will
    be required to do (i.e., identify reasonably foreseeable biological
    hazards and take appropriate science-based measures to minimize risks
    associated with growing, harvesting, packing and holding of raw
    agricultural commodities generally consumed raw). The HFPC rule
    regulates the processed food industry and incorporates the general
    requirements found in the pre-FSMA Food, Drug and Cosmetic Act while
    adding Preventive Controls--HACCP, risk-based hazard analysis, product
    testing, environmental monitoring and supplier verification to the
    requirements for most processed foods.
        FDA's definition of ``farm'' and the agency's choice to regulate
    packing operations based on ownership rather than on risk means some
    packing house activities will be regulated under the Preventive
    Controls for Human Food rule while identical activities at other
    locations will be regulated as normal farm activities. Farmers growing
    produce will need to be versed in both rules in order to determine how
    FSMA may apply to their farms. FDA could have chosen to establish one
    rule that governed the newly regulated produce industry.

        Question 23. What does your group see as the most burdensome aspect
    of FSMA?
        Answer. The water standard in the Produce Safety rule is based on a
    standard intended as a guideline for the unintended consumption of
    recreational water when swimming and establishes a frequency of testing
    based on statistical confidence of a scientific testing result rather
    than on a practical basis of: ``do you test your water source(s)?'';
    ``have you ever had a positive result?''; and ``if you have, do you
    have a mitigation strategy?''
        Some farmers have estimated the potential cost for testing to meet
    FDA's rule will be over $100,000. This approach seems more directed at
    assuming all water is contaminated until proven safe--a ``precautionary
    principle'' approach--rather than a preventive strategy, especially for
    those locations that have been testing for years without finding
    contamination. FDA justifies its position based on the flexibility the
    agency provides under alternatives and variances. However, alternatives
    are not pre-approved, so even though farmers believe they have an
    alternative means of assessing/characterizing water sources as safe
    (based on past experiences and the lack of any foodborne incidents),
    they won't know if that ``alternative'' is acceptable until after an
    inspection--an apparent ``Catch 22.''
        Farmers, not wanting to be out of compliance, will likely adhere to
    the FDA's more costly way of showing compliance when other equally
    effective means may be just as available and a great deal more
    practical. Addressing and agreeing to pre-approval of alternatives, at
    least for the water standard, will enable farmers to evaluate
    alternative compliance means due to the projected costs associated with
    meeting FDA's published standard. FDA has indicated a willingness to
    discuss other means of achieving compliance with the water standard;
    perhaps we will see pre-approved ``alternatives'' take shape through
    guidance, continuing education, or some other mechanism.
        Lack of available guidance: FDA has long supplemented its rules by
    providing non-binding guidance documents addressing the agency's
    current thinking on how the industry can comply.
        FDA established a Technical Assistance Network (TAN) where
    ``experts'' respond to individual questions and develop ``Frequently
    Asked Question'' documents and searchable files for general reference.
    The TAN is a welcome advancement, but FDA needs to shorten its response
    time and improve response accuracy to assist the regulated community in
    amending its practices, evaluating costs, and amortizing necessary
    investments. TAN will only be effective if it provides producers enough
    time to understand and execute compliance activities, and this window
    of opportunity is quickly closing.
        Issues with partnerships with Federal agencies: The Federal
    Government frequently seeks assistance from state agencies, and in many
    instances, states have concurrent and/or similar authorities. As
    regulatory partners with our Federal partners, FDA should not
    categorize State Departments of Agriculture as ``stakeholders.''
    Enhanced cooperation is clearly needed, and interactions between
    governmental partners can and should be improved.
        FDA has a confidential information sharing systems requiring
    commissioning and/or credentialing, and no one questions the need for
    the protection of confidential information. Other Federal agencies have
    figured out ways to share information that does not require the same
    level of control and legal documentation FDA requires. FDA has improved
    this process with the use of signed agreements (20.88) for state
    agencies and association staff; however, FDA's procedures still include
    unnecessary bureaucratic processes that provide no enhanced protections
    of confidential information but interfere with ``getting the job
    done.''
        Two rules--not one: FDA organized its Produce Safety rule around
    FDA's organizational structure rather than the regulated industry. This
    approach will make it more difficult for the regulated community to
    understand the regulations and how to comply with them. Rules that are
    clear, concise, and straightforward generally will result in higher
    rates of compliance. Rules that are complex, cumbersome, and difficult
    to find or follow will confuse the regulated community and minimize any
    regulatory benefits. Had FDA crafted one rule for producers of fruits
    and vegetables, the regulated community would have had a better chance
    of finding the rules and reaching a high level of compliance.
        Heretofore unidentified hazards/risks: Compliance with the Produce
    Safety rule will require producers to: ``determine hazards'' within
    their operations, determine how they propose to mitigate them, and show
    they have actually accomplished that goal.
        This sounds reasonable except when it comes to how to deal with
    previously unknown hazards/risks. If a previously unknown,
    unrecognized, unknowable, unrecognizable hazard causes a foodborne
    outbreak, the responsibility for producers to have previously
    identified these and mitigate them creates an unreachable goal and
    establishes an enforceable/enforcement standard. This dynamic does not
    accomplish the ``preventive'' approach Congress passed under FSMA.
        The goal of FSMA might better be realized by creating an incentive
    to identify these kinds of potential problems and focus on determining
    the likelihood of occurrence and the means to avoid them. While the way
    the rules are written allows them to be enforced (hold someone
    accountable), they do not necessarily stress prevention and the need
    for all parties--industry, educators, regulators and the public--to
    become partners in preventing foodborne illnesses. To have written the
    rules differently would have helped to support the culture change we
    believe FSMA envisioned.
        Imported Food Parity: It is essential for FDA to require the same
    level of compliance for foreign producers as required for domestic
    producers. If FDA does not adequately address imposing the standards on
    foreign food imported into the U.S., the burden of FDA's expanded
    regulation of agriculture will adversely affect U.S. farmers and make
    some foods more costly to produce domestically than imported food from
    foreign countries--partially because of a lower cost to comply
    overseas.
        We continue to observe and understand what criteria FDA will use in
    determining if a country's Food Safety System is deemed equivalent to
    the U.S. standard (FSMA compliant). If a country is approved and the
    cost burden (applying Food Safety Standards) is not the same, it will
    create a disadvantage in the market for domestically produced foods.
    This is especially true as it relates to water testing cost for the
    growing of fresh fruits and vegetables.

        See below Appendix for additional information on FSMA.
    Research
        Question 24. Increasing availability of funds for research is a
    common goal. Recognizing fiscal constraints though, are we focusing our
    resources on the correct priorities?
        Answer. NASDA believes increased public research funding is
    especially needed in the areas of positive agricultural economic
    viability, pollinator health, food safety, water quality and other
    emerging priority issues. Competitive research grant programs and
    support of land-grant universities are keys to accelerating this
    research and making it publicly accessible.
        NASDA also believes research could benefit from a more focused
    approach on practical, modern solutions for agriculture that producers
    can use. This prioritization would benefit from increased stakeholder
    input and state outreach to help determine the need for on-the-ground
    solutions.
    Farm Bill
        Question 25. We have heard about the devastating impacts citrus
    greening has had on the citrus industry. Can you elaborate on the
    research being conducted to combat citrus greening?
        Answer. One area for the Subcommittee to provide additional
    oversight is USDA's Specialty Crop Block Grant program (SCBGP). This
    program is a critical area of collaboration between the State
    Departments of Agriculture, the specialty crop industry, and USDA.
    Since 2009, the State Departments of Agriculture have distributed
    nearly $393 million in grants to 5,400 project partners that have
    enhanced the competitiveness of specialty crops in the United States.
    NASDA thanks Congress for the expanded funding of SCBGP and creation of
    the Specialty Crop Multi-State Program (SCMP) in the 2014 Farm Bill.
    These projects are not just increasing consumer access to safe and
    healthy food but are expanding economic opportunities across rural
    America. Unfortunately the program has become increasingly restricted
    by bureaucracy of USDA and the flexibility which has defined this
    program is eroding.
    Citrus Pest/Disease and Pollinators
        Question 26. What practices are in place to ensure that pesticides
    are not applied when pollinators may be present?
        Answer. In addition to EPA's extensive registration review, label
    restrictions, and certified applicator training specific to
    pollinators, NASDA members, individually and collectively, have been
    actively engaged in developing public-private partnerships on the state
    level, known as ``MP3s'' (see response to Question 7 above).
        An MP3 is a set of recommendations and practices that facilitate a
    collaborative approach to implementing risk mitigation practices for
    beekeepers, growers, and applicators while allowing for the appropriate
    and necessary use of crop protection tools. MP3s account for the wide
    variation in regulatory authorities across the states and territories
    by providing each respective jurisdiction the needed flexibility to
    develop plans based on their agricultural systems and regulatory
    authority.
        The primary purpose of the MP3 is to establish a systematic and
    comprehensive method for beekeepers, growers, applicators, landowners,
    and agricultural stakeholders to cooperate and communicate in a timely
    manner allowing all parties to operate successfully, mitigate potential
    pesticide exposure to bees, and allow for the effective management of
    various pest stressors.
        MP3s are tailored to the distinct and diverse agricultural
    operations in each respective state and region, and the plans in place
    have demonstrated success in reducing losses to bee production while
    allowing crop producers to retain and utilize important crop protection
    tools. MP3s bring forward sound solutions to ensure growers,
    applicators, beekeepers, and other agricultural stakeholders are able
    to continue to produce our nation's food, fiber, and fuel in a
    productive and collaborative manner.
    Labor Regulation
        Question 27. What are some of the extraneous impacts OSHA's July
    2015 revised interpretation of Process Safety Management standards has
    on the agriculture community?
        Answer. OSHA's July 2015 policy change that revoked the ``retail
    exemption'' for agricultural retailers drastically expands the number
    of retailers required to comply with Process Safety Management (PSM).
    This will harm agriculture through increased costs, limiting access to
    anhydrous ammonia, and continuing a cycle of regulatory overreach.
        PSM compliance requires increased paperwork and structural business
    changes. Many of these changes would require outside consultants or
    additional staff to gather and create further safety information,
    conduct further analyses of facilities, and pursue new permits. One
    large retailer, who owns large facilities currently regulated under PSM
    has teams of 4-6 people who manage this regulation. This is unfeasible
    for small retailers that many producers in rural America rely on. OSHA
    told attendees during a public meeting at the North Dakota Department
    of Agriculture that they are worried about ``mom and pop retailers''
    who were previously exempt. These are the retailers who will be put out
    of business by these increased burdens.
        Further, OSHA did not conduct a formal economic analysis, so
    retailers are unaware of the estimated cost impacts. The agency
    estimates the cost of compliance is $2,100/facility. Industry estimates
    $30,000 for initial compliance, $12,000 for annual compliance, and
    $18,000 for a 3 year audit, an aggregate of $100 million.
        As a result of increased costs, many agriculture retailers will be
    forced out of business. This will limit farmers' access to this
    necessary fertilizer and cause many farmers to buy their own anhydrous
    nurse (storage) tanks. Anhydrous ammonia is not regulated at the on-
    farm level. OSHA claims they issued the PSM policy change to increase
    safety, but the Agency has not demonstrated any safety impacts of the
    policy change, which will in-fact decrease safety.
        Finally, OSHA issued this policy change with little public input
    and zero prepared guidance for the regulated community. OSHA first gave
    notice of this policy change in a Request for Information (RFI)
    (https://www.osha.gov/pls/oshaweb/
    owadisp.show_document?p_table=FEDERAL_REGISTER&p_id=24053). Only
    thirteen comments addressed the issue and almost no industry
    stakeholders were aware of the change. This regulation will have
    widespread effects across the agriculture industry and exceeds the cost
    threshold of $100 million; thus OSHA should have pursued a formal
    rulemaking. In conjunction with numerous industry groups, NASDA, and
    Members of Congress have asked OSHA specific questions regarding
    implementation. NASDA members have received no formal response from
    OSHA. OSHA needs to pursue a formal rulemaking to provide answers and
    certainty to the regulated community.

        Question 28. How can this Subcommittee provide oversight on the
    Process Safety Management (PSM) issue?
        Answer. OSHA has communicated very little about this memo with the
    regulated agricultural community. We would appreciate any efforts by
    the Subcommittee to help identify what safety impacts OSHA believes
    this policy change will have, urge them to do a comprehensive economic
    analysis, and ultimately urge them to withdraw this poorly conceived
    change. Language was included in the omnibus bill last fall requiring
    OSHA to not enforce the policy change in FY 2016, and as a result, OSHA
    delayed implementation until October 1, 2016. We encourage the
    Committee to work with stakeholders and committees of jurisdiction on a
    permanent solution.
    Questions Submitted by Hon. John R. Moolenaar, a Representative in
            Congress from Michigan
        Question 1. Good morning and thank you for being here to discuss
    the important topic of the farm economy and factors which impact the
    cost of production. Agriculture is a leading industry in Michigan's
    Fourth District, and changes, such as proposed rules by USDA and the
    EPA, can have serious consequences for our producers.
        USDA's Agricultural Marketing Service recently proposed a new rule
    to amend organic livestock and poultry practices, including poultry
    living conditions. After years of established rules under the National
    Organic Program, this rule would eliminate outdoor porches as an option
    for egg farmers. As we focus on the costs of production, I'm interested
    in the potential costs this proposed rule will have on organic egg
    producers. USDA has recognized that producers facing difficulty with
    compliance could choose to surrender their organic certification and
    transition to an alternate label, such as cage-free, which would reduce
    their annual profits.
        In my home state of Michigan, commercial organic egg producers
    provide a strong market for feed from organic corn and soybeans. I've
    met with producers who have expressed how this proposed rule will
    effectively halt their organic farming operations.
        Secretary Witte, with NASDA's work to provide growth for new
    markets, such as organic agriculture, how do you see this rule
    affecting markets for your farmers?
        Answer. A number of NASDA members have expressed concerns with
    USDA's Organic Livestock and Poultry Practices Proposed Rule, and NASDA
    requested a 60 day comment period extension on April 28, 2016 citing
    the significant need to consult with growers, handlers, state
    veterinarians, environmental health officials, and other stakeholders
    in the organic community in order to provide informed comments.
        Promoting our state's agricultural producers--including organic
    farmers, ranchers, and value-added food producers--is a key activity
    for NASDA members, and in fifteen states the NASDA member serve as the
    organic certifying agent under the National Organic Program (NOP).
        We have heard reports of producers needing to reduce stocking rates
    by as much as 50% to meet the outdoor space requirements outlined in
    the proposal, and the proposal will require producers to make
    significant investments to either acquire new lands or replace barns,
    which may or may not be on schedule for replacement.
        The proposal will effectively render almost \1/2\ (45%) of all
    organic eggs in today's grocery store out of compliance with the
    proposed outdoor access requirements. This will cause an extensive
    shift in the marketplace resulting in reduced availability of organic
    eggs which will lead to increased costs to consumers.
        Question 2. The proposed rule also requires organic hens to be
    directly exposed to the outdoors. In light of last year's Avian
    Influenza outbreak and the millions of dollars that State of
    Departments of Agriculture have spent to fight the spread of the
    outbreak, are you concerned that the USDA identifies increased
    mortality from disease as an effect of this proposed rule? Among NASDA
    members, are state veterinarians looking into this?
        I understand this is a relatively new rule, and I would encourage
    NASDA, your members, and state veterinarians to look into some of these
    concerns further.
        Answer. In the proposed rule, USDA acknowledges a 60% increase in
    hen mortality due to ``increased predation, disease and parasites from
    greater outdoor access.'' As written, this proposal significantly
    compromises the biosecurity measures the poultry industry has been
    working to improve since last year's Highly Pathogenic Avian Influenza
    (HPAI) outbreak. Not only would eliminating porches seriously curtail
    the ability of organic egg producers to comply with the USDA-Veterinary
    Services' (VS) request to enhance biosecurity barriers to disease
    introduction from wild birds, but it will also make it difficult for
    producers to comply with the U.S. Food and Drug Administration's (FDA)
    requirements to prevent the introduction of Salmonella enteritis from
    wild birds and other sources. This proposal seems to be in direct
    conflict with other USDA agency requests to enhance biosecurity
    barriers to dampen disease introduction from wild birds. Allowing
    porches to remain as an acceptable organic practice will allow
    producers to maintain appropriate biosecurity measures for the sake of
    both animal health, food safety, and our farm economy.
        NASDA members have engaged our state veterinarians and the National
    Association of State Animal Health Officials, an affiliate of NASDA, to
    conduct a thorough review of the proposal's implications on biosecurity
    and animal health activities, and we will continue to discuss this
    proposal throughout our regional meetings this summer to further
    identify and quantify the proposal's impacts on animal health.
    Additional time is needed to fully review, evaluate, and provide
    meaningful input on this proposed rulemaking.
                                    appendix
        Producers Should Be Able To Find All of the Requirements Regulating
    Their Operation in One Rule

        The goal should be to assure producers that they will find all
    regulations affecting them in one place.

        FSMA is a historic law and the rules implementing the law are
    monumental. It appears that FDA has published the rules so the
    administration of them will fit within FDA's existing organizational
    structure. FDA must make every attempt possible to make complying with
    the law and rules crystal clear and easy to understand--even if that
    entails reorganizing its current organizational structure. In addition,
    producers should not have to hunt through myriad regulations to
    determine what rules cover their operations. If FDA intends to regulate
    producers beyond the requirements found in this rule, FDA should
    redraft these regulations to include those other provisions in this
    rule. This includes the mixed-type facilities regulations in the
    Preventive Controls: Food and Feed rules.

        Redefine ``Farm'' and ``Harvest''

        The current definition of farm first appeared word for word in the
    Federal Register over 10 years ago on October 10, 2003 (68 FR 58961),
    under the definitions promulgated after the Bioterrorism Act of 2002.
    Accordingly, many farms have been operating outside the definition of a
    farm since that definition came into effect. Until now, the FDA has not
    actively pursued enforcement actions against farms that pack or hold
    RACs grown on another farm for a failure to register as a food
    facility. However, under the regulations that will apply to both
    produce growers (proposed Part 112) and to food facilities (proposed
    Part 117), FDA has an obligation to resolve the ambiguity. NASDA
    requests FDA take advantage of this opportunity to redefine ``farm'' in
    a manner that resembles modern agricultural contracting practices to
    permit effective and uniform enforcement of the proposed definitions in
    order to increase public health protection.
        The definition of farm currently has little relationship to farming
    and the marketing of farm products in the modern U.S. agriculture
    industry. The original definition of farm created under the auspices of
    an exemption from the food facility registration requirement of the
    Bioterrorism Act of 2002 did not seek to define farming in a way that
    resembled farming practices for the purposes of food safety. The
    Bioterrorism Act of 2002 only sought to identify farming operations as
    a means to exempt farms from the food facility registration requirement
    under section 415 of the FD&C Act. In order to create an integrated
    food safety system, it is now critical that FDA create a definition
    that describes farming operations as they exist and operate, in order
    to properly regulate farm products under regulations designed for the
    farm.
        Farms that handle farm products in their harvested form are not
    best addressed under the food facility regulation. The FDA should
    address farms handling farm products as farms under the produce rule
    rather than as food facilities. As currently written, the regulatory
    definition of farm in 21 CFR Part 1 places thousands of farms under the
    preventive controls rule on the basis of only minimal pack, hold, and
    harvest activities, none of which change the status of a RAC and that
    do not increase the food safety risk to the RAC.
        The current definition of farm included in 21 CFR 1.227(b)(3)
    remains substantively unchanged from that proposed in the produce rule,
    which only moves the second sentence about washing into the proposed
    definition of harvesting. NASDA agrees with the FDA that this change to
    the definition leaves the definition of farm essentially unchanged.

        Farm definition at present: 21 CFR 1.227:

              ``(3) Farm means a facility in one general physical location
            devoted to the growing and harvesting of crops, the raising of
            animals (including seafood), or both. Washing, trimming of
            outer leaves of, and cooling produce are considered part of
            harvesting. The term `farm' includes:

                      (i) Facilities that pack or hold food, provided that
                    all food used in such activities is grown, raised, or
                    consumed on that farm or another farm under the same
                    ownership; and
                      (ii) Facilities that manufacture/process food,
                    provided that all food used in such activities is
                    consumed on that farm or another farm under the same
                    ownership.'' (emphasis added).

        Consequences Under the Current Definition

        Under both the current and proposed definitions, pack and hold
    activities indicated under subparagraph (1) are considered activities
    of the farm, only if all food used in such activities is grown, raised,
    or consumed on that farm. Thus, if any pack and hold activities are
    performed on produce not grown on the farm, it appears that all pack
    and hold activities are excluded from the definition of farming. NASDA
    seeks clarification from FDA on the application and interpretation of
    subparagraph (1) for packing and holding activities.
        As a result any farm that packs or holds a single RAC grown on
    another farm is outside the definition of a farm for all pack and hold
    activities. Consequently, the farm now changes from a farm to a mixed-
    type facility subject to:

      1.  Section 415 of the FD&C Act, Food Facility Registration;

      2.  Preventive controls regulations and likely the produce
                regulation;

      3.  Traceability requirements under record-keeping in 414(b) of the
                FD&C Act for the immediate prior and immediate subsequent
                source and recipient of food, and;

      4.  Potentially subject to the high-risk record-keeping requirements
                to be promulgated under section 204(d) of FSMA (21 U.S.C.
                2223(d)).

        Under current farming and food industry practices, it is common for
    a farmer to cover a produce contract if a harvest comes up short or is
    otherwise not ready by purchasing RACs from a neighboring farm and
    sending it through a washing system before packing the RAC. This is
    such a commonplace activity that most farmers do not separately track
    such transactions or treat the produce differently than their own RACs.
    In other circumstances, a farm participating in a community supported
    agriculture by aggregating products grown on various farms will be
    considered a mixed-type facility subject to additional regulation. This
    classification can have a devastating impact on community supported
    agriculture programs and other programs that support ``locavore''
    movements.
        Under the current definition, limited packing & holding of others'
    RACs would change the entire pack and hold operation from a farm into a
    food facility. The complexity of these regulations does not facilitate
    recognition of such an activity as one that triggers section 415
    registration and subsequent regulations. In many cases, this activity
    has not been identified by regulators or industry as a mixed-facility
    activity. The current definition of farm does not fit the current farm
    functions.

        Redefine ``Farm'' to Resemble Farm Practices

        More importantly, FDA has the potential to clarify the definition
    of a farm without increasing risks to food safety by aligning farm
    activities with farm regulation. The new definition of farm would
    accomplish several major objectives:

      1.  More effectively separate farms from mixed-farm facilities (as
                farms that perform activities that change the status of a
                RAC) and facilities;

      2.  Maintain ``facility'' status for activities that changes the
                ``status'' of a RAC and maintain the ``farm'' status for
                businesses that perform activities that do not change the
                ``status'' of a RAC (see FR 3679, Table 2, for examples of
                ``status'' activities);

      3.  Extend the coverage of the produce rule over more produce than
                just products grown on an individual's farm or another farm
                under the same ownership; and

      4.  Reduce the ambiguities that mixed-type facilities face related to
                coverage under multiple regulations.

        In order to better define farm, NASDA suggests that FDA change the
    definition of farm and harvest (and thereby expand the produce rule) to
    cover pack and hold activities of a farm to RACs not grown on the farm
    under a few limited conditions: (1) the expanded pack & hold activities
    performed on RACs grown on another farm do not exceed the sales of RACs
    grown on the farm over a 3 year rolling average; (2) RACs handled under
    the expanded pack & hold definition applies only to farms attempting to
    grow RACs in the same scientific genus.

              (3) Farm means a facility in one general physical location
            devoted to the growing and harvesting of crops, the raising of
            animals (including seafood), or both. The term ``farm''
            includes:

                      (i) Facilities that pack or hold food, provided that
                    the primary purpose of the pack and hold activities are
                    to pack and hold food grown, raised, or consumed on
                    that farm or another farm under the same ownership.

                              (A) A farm's primary purpose for packing and
                            holding activities is to pack and hold food
                            grown, raised, or consumed on that farm or
                            another under the same ownership, if the
                            average annual monetary value of sales (during
                            the 3 year period preceding the applicable
                            calendar year) of food packed or held at the
                            facility grown, raised, or consumed on that
                            farm or another under the same ownership
                            exceeds the average annual monetary value of
                            sales of food packed and held not grown,
                            raised, or consumed on that farm or another
                            under the same ownership; and
                              (B) The farm performing pack and hold
                            activities grew or attempted to grow RACs of
                            the same genus as those being packed or held.

                      (ii) Facilities that manufacture/process food,
                    provided that all food used in such activities is
                    consumed on that farm or another farm under the same
                    ownership.

        This definition follows the ``primary function'' limitation in the
    definition of a retail food establishment under 21 CFR 1.227(b)(11).
    The retail food establishment definition permits a retail food
    establishment to remain exempt from the food facility registration
    requirements if a majority of its food sales are directly to customers.
    Following the same reasoning, expanding the definition of farm would
    allow farms to treat RACs as products of their own farm for the purpose
    of pack and hold activities and for these activities to be subject to
    regulation under the produce rule.
        This would be an important change because as the preventive
    controls regulation is currently written, the aforementioned pack and
    hold activities are exempt from subpart C for on-farm VSBs and SBs
    under 117.5(g)(4), (6), and (9). As currently written, the activities
    covered under 117.5(4), (6), and (9) are exempt from Subpart C because
    FDA recognizes they are a low-risk food/activity combination. These
    facilities are already subject to Part 112 for the pack and hold
    activities performed on RACs grown on the farm and have food safety
    processes in place for the facility. Expanding the farm-specific food
    safety processes to these additional RACs will not increase the risk to
    food safety.
        The GMPs at 21 CFR 110.19 exclude establishments engaged solely in
    the harvesting, storage, or distribution of one or more `raw
    agricultural commodities' as defined in section 201(r) of the Act. GMPs
    are not currently applied to farms performing any pack and hold
    activities. As such, no specific regulation currently exists that would
    apply to these activities. By redefining farm to include pack and hold
    activities performed on select RACs not grown on the farm, FDA has an
    opportunity to provide uniform and effective regulation of all farm
    pack and hold activities under farm-specific regulation.

        Redefine ``Harvesting'' to Resemble Farm Practices

        NASDA calls on the FDA to consider redefining ``harvest'' because
    many practices associated with harvesting are performed by third
    parties. The current definition of ``harvesting'' is ``limited to
    activities performed on raw agricultural commodities on the farm on
    which they were grown or raised, or another farm under the same
    ownership.'' At first glance, this requirement is perfectly logical
    because it would follow that ``harvesting'' should only happen on a
    farm where a RAC is grown and harvesting is ``for the purpose of
    removing raw agricultural commodities from the place they are grown or
    raised and preparing them for use as food.'' However, advanced farming
    practices, unique crop harvesting methods, and the incredible expenses
    of such systems make the sole ownership of such equipment not possible
    in all situations. As a result, it is common to perform job-sharing and
    equipment sharing for harvesting functions.
        For example, drying grains for storage can be a necessary part of
    the harvest process in order to prevent mold, but only few farmers have
    the financial means necessary to have an individual grain drying setup.
    As a result, most farms take grain to a co-op or elevator for drying
    and often storage purposes. Another example, the shelling of hazelnuts
    or sunflower seeds is a routine step in the harvest for the purpose of
    storage and for the purpose of processing, but most farmers have
    hazelnuts or sunflower seeds shelled at a separate facility because the
    cost of ownership of a shelling machine is impractical.
        There are over 400 different food products grown in the U.S. For
    climate, growing season and market purposes, these crops are often
    grouped in critical masses and the farms growing them often work
    cooperatively to grow, harvest, and market the products. While the
    farmers each operate independent businesses, their cooperation and
    resource sharing is an important part of cost efficiency. It is not a
    behavior that FDA should discourage, yet, the level of regulation that
    will result from such cooperative farming will do just that.
        NASDA requests the FDA consider removing the sentence
    ``[h]arvesting is limited to activities performed on raw agricultural
    commodities on the farm on which they were grown, raised, or another
    farm under the same ownership'' from the definition of harvest.
    Removing this limitation will allow ``harvesting'' activities to remain
    part of ``farm'' activities. Moreover, NASDA's position is that a
    harvesting activity such as washing, cooling, shelling, drying, and
    husking are harvesting activities wherever performed and by whomever
    performs them and should be treated accordingly.
        The rule does not consider the function of co-ops in performing
    ``harvesting'' activities which are commonly performed by a third party
    facility, not engaged in farming. Shelling and drying are considered
    low-risk food/activity combinations when performed by on-farm mixed-
    type facilities. NASDA's position is that these co-ops should also be
    exempt from regulation under Subpart C, because they also perform low-
    risk food/activity combinations on RACs which do not change their
    status.

        Inconsistency Between Retail Establishment and Farm Definitions

        Because the definition of a retail food establishment turns on the
    ``primary function'' of the facility rather than the strict confines of
    the ``all activities subject to section 415 registration requirement,''
    the FDA creates a double-standard where retail food establishments may
    process 49% of their sales as food not for direct sale to consumers and
    remain exempt from section 415 registration and the preventive control
    regulation. On the other hand, an on-farm mixed-type facility with a
    farm operation that sells blueberries grown on another farm
    constituting 1% of overall food sales would be subject section 415
    registration requirement, the traceability provisions in section 306 of
    the Bioterrorism Act of 2002, and preventive controls currently
    proposed. This creates a significant and unequal burden on mixed-
    facilities which is avoided by retail food establishments selling up to
    49% of food as wholesale. NASDA supports creating a similar safe haven
    that exists for retail establishments, applicable to those farm-mixed
    type facilities performing only limited packing & holding of RACs not
    grown on the farm. In particular, these activities should remain part
    of the farm definition because if the pack and hold activities are
    performed on the farm's own RACs, they would remain under the farming
    definition.
        NASDA's request for redefinition of a farm based on the ``primary
    function'' for packing and holding remains consistent with the values
    of food safety, merely shifting whole produce of farms that perform
    packing and holding activities into the produce safety regulation
    specifically written to address safe produce production.

        Define Crop for the Purposes of the Farm Definition

        The definition of farm refers to, but does not define, crop. Food
    is broadly defined under the FD&C Act and NASDA believes it is also
    important that crop be defined because farming is not solely about the
    production of food. Crops are used in the production of biofuels,
    clothing, biodegradable household products and more. Accordingly, it is
    imperative that FDA distinguish between crops and food.
        NASDA requests that FDA adopt a definition for ``crop,'' and define
    crop as ``edible or inedible cultivated or harvested plants;''
    realizing that FDA does not intend to regulate all crops or parts of
    crops.

        Clarify Terms in Farm and Organization Size

        Clarify ``Same Ownership''

        Under farm activities regulated by the proposed produce rule and
    the preventive controls rule, ownership of RACs is critical to
    determine the extent of regulation. Certain activities performed on a
    product grown on the farm or another under the same ownership is
    covered under the definition of ``farm,'' while the same activity
    performed on a RAC not grown on the farm will be regulated under Part
    117. For example, washing RACs is treated as a harvest activity, but
    only if performed on products grown on the farm.
        For example, if a RAC is grown on the farm or ``another under the
    same ownership,'' it is more likely the action such as washing will be
    covered under the definition of ``farm'' and be exempt from the
    preventive controls rule. On the other hand, the same activity
    performed on a RAC not grown on the farm or ``another under the same
    ownership,'' is no longer an activity of the farm and is regulated
    under Part 117.
        NASDA seeks clarification of how FDA will interpret ``same
    ownership'' and suggests FDA consider streamlining distinctions between
    products of a farm and not of the same farm on the basis of control,
    rather than on a false-distinction of ``same ownership.'' Within the
    agriculture industry, farms are often owned under several different
    names, but operated as a single farm using the same equipment. This is
    commonly the case with multi-generational farms. The farm operation
    will likely consist of several divisions of ownership but all under
    management as a single farm. For example, some properties may be owned
    by one LLC owned by the parents, other property owned by another LLC
    owned by the younger generation, and jointly owned properties. Many
    states have programs geared at supporting young farmers that require
    the property be in the name of the young farmer, even if the property
    is farmed collectively.
        NASDA suggests FDA adopt a more flexible interpretation of farm
    than ``same ownership'' by considering a definition that considers the
    operational function of a farm such as ``common'' ownership or
    ``operational management.''
        NASDA also seeks clarification on how FDA will treat farm
    agreements between farms that are owned by an individual, but are
    jointly farmed and controlled under an agreement based on output
    shares. It is not uncommon for farmers to explore farming a new
    commodity by jointly farming it. For example, farmers may do this by
    using land owned by one farmer, equipment owned by another farmer, and
    labor or resources owned by a third. This arrangement could result in a
    30/30/40 ownership of the RACs produced. NASDA requests that FDA permit
    any farmer in a jointly pursued venture to treat the RACs as the farm's
    ``own RAC'' for the purposes of harvesting, packing and holding.
        In addition, although not considered a joint venture, many produce
    packing operations will use a facility as a shared space either owned
    by one or owned by several farmers. NASDA requests FDA clarify how
    ownership or responsibility for these facilities will be established
    for the purpose of facility registration or whether facility
    registration is unnecessary if all farmers using the facility have
    ownership shares in all of the produce. NASDA requests that FDA develop
    and share guidelines for how these types of determinations will be
    made, as the current proposed definitions leave these businesses
    uncertain as to their status and the appropriate path to compliance.
    Response from Kate Woods, Vice President, Northwest Horticultural
            Council
    Questions Submitted by Hon. Rodney Davis, a Representative in Congress
            from Illinois
    Market Access Program
        Question 1. Could you offer some examples of how the Market Access
    Program (MAP) has helped your members?
        Answer. I will give you three examples of how MAP has helped our
    members. First, the Washington Apple Commission invested $10,000 in MAP
    funds to participate in a Global Shopping Festival with TMall, China's
    largest online shopping platform, last November. This was only 7 months
    after the United States gained access to China's market for all apple
    varieties, and the event led to the sale of approximately 416,000
    pounds of apples. Beyond the actual sales, this event helped expose
    thousands of Chinese consumers to Washington apples, with an estimated
    300,000 click-through hits on our product. It is conservatively
    estimated that 30 consumers were reached for every MAP dollar spent.
        In the sweet cherry realm, Northwest Cherry Growers used $40,775 in
    combined MAP and grower dollars in 2014 to conduct in-store sampling,
    product introduction, and best practices training in Danang and Can Tho
    City in Vietnam. This helped lead to a 39.4 percent increase in sales
    over 2013 in this growing market.
        For pear growers, MAP funds invested in the United Arab Emirates
    (UAE) by Pear Bureau Northwest in 2014 on training seminars, reverse
    trade missions, and trade merchandising have helped enhance importers'
    confidence in handling pear varieties like Green Bartlett and Red
    Anjou, which were previously not prevalent in the UAE market. This
    market has grown exponentially from being only a minor market for
    Pacific Northwest pears to the third largest in only a few years.
    Pesticides
        Question 2. Public policy has an enormous impact on the economic
    viability of farms. Can you offer a couple examples of recent
    regulatory actions that have had a negative impact? What about
    legislative actions at the state or national level?
        Answer. As I noted in my opening statement, government policies and
    regulations have had an increasingly significant--and often negative--
    impact on growers and packers in recent years. My first example would
    be the H-2A program. The regulation underlying this farm-labor program
    makes it very burdensome and costly, to the point of putting it out of
    reach for many small- and medium-size growers. Even worse, the
    Department of Labor is administering the program in a way that makes it
    even more unworkable. Visa applications are often processed far beyond
    the time limit set by the regulation, leading to delays of days or
    weeks in workers arriving in the orchard. As I noted in my testimony,
    even a 1 day delay can mean a significant drop in fruit quality for our
    members.
        My second example is the Food Safety Modernization Act. Through
    FSMA, Congress directed a Federal agency with no experience in farming
    to regulate on-farm practices for the first time for produce ranging
    from apples to cabbage. The agency developed a set of final rules so
    complex that over \1/2\ of our industry's packinghouses are defined as
    farms, while the others must follow a completely different rule, and so
    confusing that, even with implementation dates rapidly approaching, FDA
    has been unable or unwilling to provide even basic guidance on how to
    implement the rules on the farm.
    Food Safety Modernization Act
        Question 3. Can you describe the consultation process that FDA
    engaged in with industry in developing the regulations under the Food
    Safety Modernization Act?
        Answer. I cannot speak to their engagement with other industries,
    but will tell you how they engaged with the Pacific Northwest tree
    fruit industry during this period for the Produce Safety rule. As
    required by law, FDA published its initial draft regulatory proposals
    in the Federal Register for public comment. The Northwest Horticultural
    Council provided comprehensive comments that outlined serious concerns
    with several of the rules, including the Produce Safety rule. FDA
    Deputy Commissioner Michael Taylor and other agency officials then
    visited several Washington state orchards and packinghouses. We
    appreciated the field trip by FDA, and the agency's interest in
    learning more about our industry.
        In September of 2014, FDA released an updated draft of the Produce
    Safety rule for public comment that, while including some improvements
    over the previous version, still did not fully address the industry's
    most serious concerns with the proposed rule--primarily dealing with
    unworkable water testing requirements and what rule packinghouses would
    fall under. The Northwest Horticultural Council provided additional
    comments on this newer version. When the final version was released in
    November of 2015, it again included minor improvements, but still did
    not fully address industry concerns.

        Question 4. Prior to passage of the Food Safety Modernization Act,
    there was a great deal of debate surrounding the question of what
    authority the FDA should have over food production. Many Members
    present at the time raised questions about granting the FDA the power
    to tell farmers how to farm. From the standpoint of food safety, do you
    believe FDA has the resources and expertise, more so than the USDA and
    State Ag Departments, to regulate on farm production practices?
        Answer. With the longtime role of USDA and State Departments of
    Agriculture in working directly with growers on issues ranging from on-
    farm practices to marketing, I believe that the personnel at these
    agencies would have been better equipped than FDA to regulate produce
    safety practices on the farm. Also, FDA Deputy Commissioner Michael
    Taylor has been emphasizing his intent to take an ``educate before
    regulate'' approach to FSMA implementation. With a traditionally
    enforcement-oriented culture at FDA, this will be a much more difficult
    task than it would be at USDA.

        Question 5. There was a great deal of concern when Congress passed
    the Food Safety Modernization Act that FDA's lack of resources and
    expertise would ultimately result in a ``one-size-fits-all'' approach
    to regulation. Do the final rules adequately account for the variation
    between crops, geographical growing locations, and even the associated
    risk profiles of the products produced in the U.S.?
        Answer. When these rules were being drafted, the Northwest
    Horticultural Council advocated for a risk-based, more commodity-
    specific approach to food safety that recognizes the different growing
    practices and risks of, for example, a vegetable grown on the ground
    versus an apple grown on the tree. While the final Produce Safety rule
    is an improvement over previous versions and does attempt to provide
    limited flexibility in the form of variances and alternatives to some
    of the provisions, I do not believe that the rule adequately addresses
    the diversity of crops, growing conditions, or risk, in a grower-
    friendly way.

        Question 6. How different are current food safety practices from
    what the Food Safety Modernization Act will require?
        Answer. The vast majority of Pacific Northwest tree fruit growers
    and packers have been required by their retailer customers for years to
    meet certain food safety standards. These standards are verified by
    audits, such as the Good Agricultural Practices (GAP) program
    administered by the Agricultural Marketing Service or private audit
    schemes such as GlobalGAP and SQF. Some retailers require a particular
    private audit, plus a unique ``add-on'' particular to their company.
        In the case of the Produce Safety rule, the majority of tree fruit
    growers likely already do about 90 percent of what FSMA requires. The
    biggest differences will be the water testing requirements--existing
    audit schemes have water quality requirements, but don't require the
    number of tests and specificity of a standard that the Produce Safety
    rule does.
        In addition, there are changes in how growers will need to prove,
    or report, how Produce Safety rule requirements are met. For example,
    like FSMA, most third party audit schemes require that all employees
    receive hygiene training. However, FSMA requires that growers have
    documentation certifying when this training, required annually, took
    place. This could be challenging when workers travel from farm to farm
    during the harvest season.
        In terms of the Preventive Controls for Human Food rule, most
    packinghouses already have a food safety plan of some sort due to
    current audit requirements. However, because this rule is written for
    processor facilities, it includes requirements and terminology that our
    industry is not familiar with. In my mind, the biggest challenge for
    packers falling under the Preventive Controls for Human Food rule will
    be explaining how current food safety practices achieve what the rule
    requires, and validating and verifying these practices in a way FDA
    will accept.

        Question 7. How do requirements under the Food Safety Modernization
    Act compare to existing industry requirements that are enforced through
    third-party audits?
        Answer. As stated in my previous answer, the vast majority of tree
    fruit growers and packers already must comply with third party food
    safety audits due to retailer customer requirements. In the case of the
    Produce Safety rule, most tree fruit growers likely already do about 90
    percent of what FSMA requires. The biggest differences will be the
    water testing requirements--existing audit schemes have water quality
    requirements, but don't require the number of tests and specificity of
    a standard that the Produce Safety rule does.
        In addition, there are changes in how growers will need to prove,
    or report, how Produce Safety rule requirements are met. For example,
    like FSMA, most third party audit schemes require that all employees
    receive hygiene training. However, FSMA requires that growers have
    documentation certifying when this training, required annually, took
    place. This could be challenging when workers travel from farm to farm
    during the harvest season.
        Also as stated previously, in terms of packinghouses that must
    comply with the Preventive Controls for Human Food rule, most already
    have a food safety plan of some sort due to current audit requirements.
    However, because this rule is written for processor facilities, it
    includes requirements and terminology that our industry is not familiar
    with. In my mind, the biggest challenge for packers falling under the
    Preventive Controls for Human Food rule will be explaining how current
    food safety practices achieve what the rule requires, and validating
    and verifying these practices in a way FDA will accept.
        It is also important to keep in mind that FSMA regulations are now
    Federal law, as opposed to voluntary contractual standards. Growers can
    be fined and imprisoned for violations.

        Question 8. You talk about the farm definition in FDA's produce
    safety rule. Can you explain what this definition is, and why it is
    important? Do you support revising the Farm definition?
        Answer. The Preventive Controls for Human Food rule identifies a
    farm as either a Primary Production Farm or a Secondary Activities
    Farm. A Primary Production Farm is defined as an operation under one
    management in one general, but not necessarily contiguous, location
    devoted to the growing of crops, the harvesting of crops, the raising
    of animals (including seafood), or any combination of these activities.
    This kind of farm can pack or hold raw agricultural commodities, such
    as fresh produce, and may conduct certain manufacturing or processing
    activities, such as packing and labeling fruit. A Secondary Activities
    Farm is an operation not located on the primary production farm that is
    devoted to harvesting, packing and/or holding raw agricultural
    commodities. The main challenge for our industry is the requirement
    that the Secondary Activities Farm must be majority-owned by the
    Primary Production Farm that supplies the majority of the raw
    agricultural commodities harvested, packed, or held by the facility.
        The farm definition is important because a packinghouse or storage
    facility that meets this definition must follow the Produce Safety
    rule, while one that does not must comply with the Preventive Controls
    for Human Food rule. This latter rule was written for food processing
    facilities, and FDA has acknowledged that it should be applied
    differently to fresh, whole produce packinghouses. For example, FDA has
    stated that the Good Manufacturing Practices included in the rule
    should be emphasized and that packers should look to the Produce Safety
    rule requirements when drafting food safety plans. Unfortunately, the
    official guidance has not been released, and the curriculum developed
    by the Food Safety Preventive Controls Alliance and FDA does not
    reflect these differences.
        The Northwest Horticultural Council submitted comments supporting
    placing all tree fruit packing and storage facilities under the Produce
    Safety rule during the public comment period when the rule was in draft
    form, and continues to support that position.

        Question 9. Can you talk a bit about the food safety training
    challenges associated with FSMA implementation?
        Answer. Yes. I will explain our experience in attempting to provide
    applicable training to tree fruit growers, and packinghouse and storage
    facility operators. When the Preventive Controls for Human Food rule
    was released last September, produce groups expressed significant
    concerns with some packinghouses and storage facilities falling under
    this rule while others would be required to follow the Produce Safety
    rule. FDA responded that they acknowledged this problem and assured us
    that they would work to enforce the Preventive Controls rule on
    packinghouses as similarly as possible to what those falling under the
    Produce Safety rule would be required to do. Examples provided by the
    agency included an emphasis on the Good Manufacturing Practices in the
    rule and encouragement for packinghouses to look toward the Produce
    Safety rule requirements in writing their food safety plan.
        However, when the curriculum was released for the training required
    under the rule, it included none of this information. With 6 months
    before the rule is scheduled to be implemented, the Northwest
    Horticultural Council worked with our sister organization, the
    Washington State Tree Fruit Association, as well as a qualified trainer
    from the Washington State Department of Agriculture, to put on what was
    initially intended to be a ``train-the-trainer'' course for some of our
    most highly qualified food safety professionals within the industry.
    The intent of this course was both to identify areas to strengthen the
    curriculum so that fresh produce packinghouse operators would know what
    they will be required to do to be in compliance with the rule, and to
    ensure that we had qualified trainers who actually understand the
    realities of a tree fruit packinghouse.
        Unfortunately, only two out of twelve applicants were approved to
    become lead trainers. Two of those rejected have been handling food
    safety--and providing extensive food safety training--for some of the
    largest and most sophisticated tree fruit firms in the world for
    decades, because they did not have degrees in education or science.
        This is a problem because, not only is the curriculum not effective
    in educating packinghouse operators on what is required of them under
    the rule, but now we can't even gain access to trainers who understand
    tree fruit packinghouse operations.
        We opted to move forward with the training, even though the Food
    Safety Preventive Controls Alliance refused to allow anyone who took
    the course--including the two that were approved as lead trainers--to
    be certified as lead trainers. The group identified several areas
    within the curriculum that need to be strengthened in order to ensure
    that fresh produce packinghouse staff taking the course understand what
    will be required of them. This includes workbook examples for a non-
    processed product without a ``kill'' step, explaining some of the
    terminology that is common for processing facilities but not for
    packinghouses, and explaining how to identify, monitor, and verify
    process controls, versus the critical control points that most of our
    facilities are used to.
        The curriculum for the Produce Safety rule isn't expected to be
    released until at least September of this year. While the Produce
    Safety rule does not begin going into effect until 2018, should growers
    take advantage of the full 4 years provided by the rule to conduct the
    20 water samples on each water source at or near harvest before 2020 (a
    costly process), they would need to begin this year. For Pacific
    Northwest cherry growers, harvest is expected to start in May.
        The Produce Safety rule is vague on the definition of ``each water
    source,'' and when, how, and where on the water system growers are
    required to sample. FDA has responded to questions on this topic by
    saying the agency will address the issues further in guidance. Since
    the curriculum will not be out until after cherry, apple, and pear
    harvest begins this year and we have received no information on when
    guidance is expected, the Washington State Tree Fruit Association has
    brought up three scientists from the Western Center for Food Safety at
    University of California-Davis who have been contracted by FDA to
    conduct research on water sampling, to provide training to industry and
    irrigation districts. The hope is that, since these scientists have
    been funded by FDA to conduct research on water sampling, they will
    have a better understanding than most of what the agency will
    ultimately require.
        However, it is still a guessing game. Growers are left with the
    choice of waiting until further information is provided by FDA on the
    agency's expectations for water sampling and therefore condensing these
    costly tests into a shorter time period, or move forward with sampling
    and risk the agency not accepting the data.

        Question 10. What are the differences between FDA's Produce Safety
    rule and the Preventive Controls for Human Food rule?
        Answer. The rules take completely different approaches to food
    safety. The Produce Safety rule identifies six specific routes to
    contamination and identifies preventive and monitoring actions that
    must be taken. The Preventive Controls for Human Food rule takes a
    process approach, where each facility must identify any possible
    hazard, one or more preventive controls to control that hazard, and
    then steps to validate, verify, and monitor the preventive control, as
    well as corrective actions should something go wrong. While the Produce
    Safety rule encourages a food safety plan and a recall plan, the
    Preventive Controls for Human Food rule requires it.

        Question 11. What does your group see as the most burdensome aspect
    of FSMA?
        Answer. Due to the third party food safety audits that the vast
    majority of growers and packers are required to comply with by their
    retail customers, the tree fruit industry already meets about 90
    percent of FSMA's requirements. I believe that the most burdensome
    aspect of this law for Pacific Northwest tree fruit growers and
    processors will be proving that current food safety practices
    adequately protect public health and meet FSMA standards. This ranges
    from figuring out how FDA expects individual growers to conduct water
    sampling on their unique farms, to determining how to validate that a
    particular water treatment or sanitation practice is an effective
    preventive control for a packer.
    Research
        Question 12. Can you highlight some specific benefits from USDA
    research that your members have experienced?
        Answer. As the Subcommittee is aware, access to an adequate labor
    supply to grow and harvest the crop has become an increasingly
    significant problem. During the first year of the Specialty Crop
    Research Initiative program, a grant was provided to a group led by
    Carnagie-Mellon that developed a machine vision system that is a
    critical component of an automated robotic harvester that is now being
    developed and tested by a California company with support from the
    Washington Tree Fruit Research Commission.
        Another example is the RosBREED program, which is delivering non-
    GMO DNA tools to accelerate the commercialization of tree fruit
    varieties with enhanced disease resistance and superior consumer
    attributes--reducing production costs and increasing returns.
        The Specialty Crop Block Grant program has also allowed for
    collaboration with groups like the Center for Produce Safety to combine
    private and public resources from different states to fund top-priority
    projects to enhance food safety for produce.
    Response from Richard L. Guebert, Jr., President, Illinois Farm Bureau;
            Member, Board of Directors, American Farm Bureau Federation
    Questions Submitted by Hon. Rodney Davis, a Representative in Congress
            from Illinois
    Biotechnology
        Question 1. How should we improve regulatory efficiency in a way
    that enables genetic innovation so that we, as a nation, are better
    able to meet global food security challenges?
        Answer. American Farm Bureau addressed this question in our written
    testimony and in response to this question would refer the Committee to
    our written submission.

        Question 2. Many companies have tens of thousands of stock keeping
    units (SKUs), which are generally used nationwide. How would this
    system be disrupted by a patchwork of state-by-state labeling
    requirements for biotechnology if the Senate minority will not allow a
    vote on national uniformity regarding voluntary marketing labels?
        Answer. In response to obstacles erected in the Senate, several
    major food companies made the decision to label foods nationally to
    comply with Vermont's GMO mandate. Companies are being forced to label
    to comply with Vermont, which ultimately could compel some of these
    companies to reformulate their products and dispense with ingredients
    developed using biotechnology. While larger food companies have been
    very focused on this issue for some time now, thousands of smaller
    companies are now faced with the reality of complying with a very
    costly Vermont law. Small companies have significant compliance
    concerns that are only made worse without a national GMO labeling
    standard in place.
        The Vermont law creates major disruptions in the nationwide food
    supply, a result that is bad for American consumers because GMO
    labeling at its heart is intended to mislead. A substantial portion of
    consumers perceive mandatory on-package label disclosures of GMO use to
    mean that there is a health, safety, or nutrition difference between
    bioengineered food and other food, which scientific reports and our
    regulatory agencies have repeatedly stated is not the case.
        To respond to consumers misled by the pejorative nature of
    mandatory GMO labeling, a growing number of food products will be
    reformulated to avoid GM ingredients, at substantial expense to
    consumers and at the risk of losing innovations that hold enormous
    environmental, nutritional and food security benefits. The trend to
    reformulate away from GM ingredients will be accelerated by the threat
    of another state imposing its own GMO labeling requirement, since the
    differences between the two state laws would require a second set of
    new separate product labeling and distribution systems at substantial
    expense. At the expense of consumers nationwide, Vermont is dictating
    the country's food labeling policy.

        Question 3. Last year, several celebrity chefs were in town to
    lobby for mandatory biotech warning labeling. However, in the same
    breath used to advocate for mandatory warning labels these celebrity
    chefs said they would Not label their menus for biotech because it
    would be difficult to certify and would take up too much space on the
    menu. These chefs were not alone in their hypocrisy. We can find the
    same level of inconsistency in the Vermont statute. Can you comment on
    the various exemptions in the Vermont law, as well as the conflicts
    between Vermont and other state laws?
        Answer. Below are some examples of the inconsistencies between
    state laws:

        Vermont:

       covers ``food.''

       Exemptions:

         animal products and foods bearing USDA labels,

         ``certified'' as non-GE and organic,

         processing aids,

         alcoholic beverages,

         minimal GE content (no more than 0.9%),

         food for immediate consumption (broader than
                restaurants; guidance says this covers all sandwiches, for
                example),

         medical food.

       labels:

         ``produced with genetic engineering.''

         ``partially produced with genetic engineering.''

         ``may be produced with genetic engineering.''

        Maine:

       covers ``food'' and ``seed stock.''

       exemptions/exceptions: ``restaurants,'' alcoholic beverages,
            medical food, food products derived from animals fed GE feed
            (does not address GE drugs);

       law initially exempts minimal GE content (no more than
            0.9%), but exemption expires 7/1/2019;

       label: ``produced with genetic engineering.''

        Connecticut:

       covers food intended for human consumption and seed or seed
            stock that is intended to produce food for human consumption;
            adds ``infant formula'' to the definition of food.

       exemptions:

         alcoholic beverages,

         food intended for human consumption,

         farm products sold by a farmer at a pick-your-own
                farm, roadside stand, on-farm market, or farmers' market,

         food consisting of or derived entirely from a non-GE
                animal, regardless of whether fed or injected with GE food
                or drug that was produced through means of genetic
                engineering,

       label: ``Produced with Genetic Engineering.''

        Question 4. It seems food companies are moving forward in an effort
    to comply with the Vermont GMO food labeling law. In doing so, doesn't
    this state law create a de facto mandatory labeling system for the rest
    of the country? What implications will that have for farm to fork? If
    the Vermont law stands due to inaction by Congress or slow action in
    the courts, what does this mean for your members?
        Answer. It means our members' products will be stigmatized by a
    meaningless label while also stifling future agricultural innovation.

        Question 5. What are some newer breeding methods, in terms of
    biotechnology? Are they regulated by the government?
        Answer. Precision breeding techniques (sometimes referred to as new
    breeding techniques) comprise a collection of tools and methods that
    allow plant breeders to change a specific plant gene (to induce genetic
    variability), to silence (turn down or stop) expression of a specific
    plant gene or to introduce a specific gene from a wild relative or
    older variety into a modern, commercial plant variety. An underlying
    common denominator for these techniques is that they more rapidly and
    precisely achieve the same result that could be achieved through more
    traditional plant breeding methodologies. In other words, breeders are
    utilizing the plant's (or its wild relative's) own genetic makeup to
    create genetic variability, leading to improved or new plant
    characteristics. Most of these techniques, particularly those
    techniques sometimes referred to as ``gene editing,'' result in a plant
    variety that does not contain any ``foreign'' DNA from a non-sexually
    compatible species. They all result in a new plant variety with
    characteristics that could have been achieved, albeit much more slowly,
    through more traditional methodologies.
        Yes, plants and seeds are comprehensively regulated by USDA under
    at least two Federal statutes. The Federal Seed Act (FSA) regulates the
    interstate shipment of agricultural and vegetable seeds. The FSA
    requires that seed shipped in interstate commerce be labeled with
    information that allows seed buyers to make informed choices. Seed
    labeling information and advertisements pertaining to the seed must be
    truthful and cannot be misleading. The FSA helps promote uniformity
    among state laws and fair competition within the seed trade.
        The Plant Protection Act (PPA) provides USDA with sweeping
    authority to regulate the movement of any plant or seed if necessary to
    prevent the introduction or dissemination of a plant pest or noxious
    weed that might harm agriculture, the environment, or the economy of
    the United States. This includes authority to require permits for the
    movement or introduction, including importation, of plants and seed.
    USDA is also given the authority to require and take whatever remedial
    measures, including quarantine, treatment and destruction, that the
    agency determines are necessary to prevent the spread of plant pests
    and noxious weeds. The PPA also includes significant inspection and
    enforcement authorities for violations including the authority to seek
    court injunctions and to impose civil and criminal penalties, with
    fines as high as $250,000 per violation and imprisonment of up to 1
    year.
        Gene editing is fundamentally different from the GMOs we have seen
    so far. Plant breeding techniques such as gene editing are
    indistinguishable from techniques that plant breeders have been using
    for decades--inducing genetic variability utilizing the plant's own
    genome. These techniques are being used by plant breeders at
    universities, in small and medium-sized seed companies and by the
    larger technology companies. They are not only important to row crops
    but are particularly important to the vegetable sector. How products of
    these techniques are characterized will be as important as whether they
    are subject to a premarket approval process. We have asked the relevant
    agencies to regulate only things that science says need close
    examination and leave the rest to the market. If we all stick to the
    science and avoid irrational fear, everyone will benefit.

        Question 6. It has been said that USDA is considering changing
    their biotechnology regulations. Does your organization support this?
        Answer. We are supportive of APHIS's efforts to take a hard look at
    its regulations, to ensure that they are up-to-date with the best-
    available science and utilize the more than 20 years of experience
    APHIS has in reviewing the safety of these crops. However, because the
    options that APHIS is considering include potential major departures
    from the current regulatory framework, it is critically important that
    APHIS not lose sight of the importance of agricultural innovation.
        APHIS will be best able to successfully improve its pre-market
    agricultural biotechnology regulatory system by making, as needed,
    smart, ``surgical'' changes, strategically focused on addressing
    specific issues, rather than by immediately recommending a radical new
    approach. The current regulatory system has operated quite successfully
    for decades and has resulted in no adverse plant health impacts to U.S.
    agriculture. In the end, making targeted, strategic improvements to the
    current regulatory system will engender broader support, prove easier
    to implement, and have a much more immediate impact with fewer
    unintended consequences.
        APHIS should build on the strengths of its current regulatory
    system and propose narrowly tailored modifications that address
    specific shortcomings. There is no need for the agency to replace a
    mature, well-functioning regulatory system with an entirely new one, in
    the absence of a clear justification.
        APHIS's regulatory proposals should narrowly define the scope of
    regulation, limited to only those products for which APHIS has a
    legitimate, science-based justification for oversight. Whether and how
    to regulate products developed through precision breeding tools that
    are similar to or indistinguishable from products resulting from more
    traditional breeding tools should be carefully considered. Just as
    importantly, the government should not stigmatize products through the
    definition of biotechnology.
        As APHIS considers regulatory improvements, it should also examine
    how regulators can achieve the USDA's stated goals of efficiency
    without major regulatory changes. Opportunities exist within the
    current regulatory framework. For example, the agency could make much
    broader use of the extension process to remove from oversight classes
    of products for which the agency has a great deal of familiarity. The
    agency could also publish guidance clarifying which products are, or
    are not, subject to the current regulations.
        APHIS could propose regulatory revisions to incorporate a new,
    efficient and risk-assessment-based mechanism for adding and removing
    new categories of organisms from its current scope of regulation. This
    mechanism should be clear, transparent, predictable and peer reviewed
    by external experts. APHIS could use this new mechanism to identify new
    categories of organisms that do not need pre-market regulatory review
    more efficiently than with current tools. If APHIS has a reason to
    believe that certain products not captured by the current regulations
    do pose a risk to plant health, APHIS could use the same mechanism to
    add specific new categories of organisms to regulatory oversight.
        Throughout the process of considering a new pre-market agricultural
    biotechnology regulatory system, APHIS should work closely with a broad
    range of scientific experts, stakeholders and other government agencies
    to clarify, improve and (as needed) modify and supplement the
    regulatory alternatives the agency is considering before publishing a
    proposed rule, with an eye to improving clarity, transparency,
    predictability and ease of implementation.

        Question 7. What are the opportunities for the next generation of
    innovative tools for farmers?
        Answer. The opportunities are great and with the potential of
    losing agricultural innovation the risk is huge. Without all the
    options on the table for farmers to utilize, our challenges will be
    even greater. Farmers need all the help they can get to tackle the
    variabilities of what Mother Nature throws our way along with meeting
    the moral imperative of feeding over nine billion people in the
    upcoming decades.

        Question 8. The headlines of major newspapers and many of the cable
    news shows cast American agriculture in a negative light--though many
    of those stories are rife with inaccuracies. Unfortunately, these
    stories drive policy such as what we see with mandatory biotech warning
    labels. What recommendations do you have for your colleagues in the
    industry to engage the public to counter these negative attacks? What
    is your group doing to avoid repeating history so we don't have the
    consumer distrust with these new technologies like we do with current
    biotech breeding techniques?
        Answer. We continually encourage our members to speak up and engage
    the public on what we do in agriculture. We have a variety of venues to
    accomplish that, but we must be at the table. As organizations, we will
    continue to work with groups like GMO Answers and the U.S. Farmers and
    Ranchers Alliance. Farm Bureau has more recently been engaged with
    corporate advocacy, where we invest in different companies to provide a
    voice to our members during shareholder opportunities.
    Pesticides
        Question 9. Many people who rely on pesticides to protect their
    health and property have stated that one or more of EPA's recent
    actions have taken away their access to important products needed to
    fight pests. What should EPA be doing to ensure that those producers
    will have the time-proven products and the new, effective products
    available to meet their needs?
        Answer. Protecting crops from diseases and pests is a critical
    component of farming, and Congress has recognized this fact through
    enactment and revisions of the Federal Insecticide, Fungicide, and
    Rodenticide Act (FIFRA). Farmers expect EPA to adhere to the law and to
    Congressional intent: we neither want to use chemicals that do not meet
    the statutory test laid out in FIFRA, nor do we seek to use legal
    chemicals in ways that are prohibited through the label. But it is
    paramount that EPA not undermine the statute or allow a `precautionary
    principle' to creep into its regulation of pesticides. If the agency
    follows the science and the law without prejudging the outcome, we
    believe scientists, regulators, farmers, environmental activists and
    all affected stakeholders can be assured of a safe, reliable outcome.

        Question 10. Public policy has an enormous impact on the economic
    viability of farms. Can you offer a couple examples of recent
    regulatory actions that have had a negative impact? What about
    legislative actions at the state or national level?
        Answer. Certain rulemakings by EPA have had negative impacts on
    farmers and ranchers:

       EPA's WOTUS rule, if implemented, will unquestionably raise
            regulatory costs and burdens for farmers, ranchers and other
            landholders;

       EPA's regulation implementing the Spill Prevention, Control
            and Countermeasures rule has increased costs for farmers and
            ranchers;

       EPA's recent worker protection standards (WPS) rule has
            increased record-keeping and other requirements for farmers
            without any attendant worker benefit;

       We fully anticipate that EPA's Chesapeake bay TMDL will have
            a negative impact on agriculture in that watershed;

       We are greatly concerned that EPA appears to be on a path to
            restricting critical crop protection tools for farmers, most
            notably chlorpyrifos.

        Question 11. In the National Strategy to Promote the Health of
    Honey Bees and Other Pollinators and the EPA Proposal to Mitigate
    Exposure to Bees from Acutely Toxic Pesticide Products, EPA offered
    support for voluntary stewardship methods to reduce exposures during
    the planting of pesticide treated seed. And, on January 4, 2016, EPA
    released its preliminary pollinator assessment for one pesticide
    indicating that it posed a low-potential risk to bees when used as a
    seed treatment. Do you have any specific concerns with the National
    Strategy document?
        Answer. Farm Bureau members include beekeepers and we support
    efforts to promote beekeeping and to ensure that pollinators are not
    unduly vulnerable to pesticides or other environmental challenges. We
    support EPA's initiative on promoting state managed pollinator
    protection plans (MP3s). At the same time, we believe it is critical
    that EPA, when evaluating neonicotinoids, not be swayed by public or
    political pressure and rely instead on sound science in reaching its
    judgments. Neonicotinoids are a valuable tool for farmers as a seed
    treatment, and they are virtually indispensable for citrus growers in
    fighting citrus greening.

        Question 12. Does your organization support passage of H.R. 897,
    the Reducing Regulatory Burdens Act of 2015? Do you believe the burden
    and liabilities of obtaining a water permit are limiting or delaying
    mosquito control applications that control viruses like Zika and
    protect human health?
        Answer. Farm Bureau strongly supports H.R. 897 and is actively
    working for its enactment into law. While we have heard anecdotal
    reports of the negative impact the existing regulatory regime has had
    on mosquito control, we do not have direct evidence to share with the
    Committee.

        Question 13. What do you believe will happen if H.R. 897 is not
    enacted and President Obama's WOTUS rule goes into effect?
        Answer. Farmers are immensely concerned about the impact of WOTUS
    implementation; on top of that, should H.R. 897 not be enacted it could
    have an enormous impact on agricultural activities across the country.
    As long as the threat of a CWA NPDES permit is required for pesticide
    applications, farmers face the possibility of litigation and fines--
    simply for following FIFRA when they manage their crops. This is an
    unacceptable situation and should be rectified by Congress.

        Question 14. The public is threatened by insect-borne diseases--
    West Nile Virus is a good example. Some of the critical products used
    to control mosquitoes are also the backbone of Integrated Pest
    Management plans. Can you tell us your thoughts regarding EPA's plans
    for OP's (organophosphates) used to protect public health against very
    dangerous and prolific pests?
        Answer. In FIFRA, Congress set out a clear standard for EPA to
    follow. The agency is charged with ensuring that when registering a
    pesticide it does not pose `any unreasonable risk to man or the
    environment, taking into account the economic, social and environmental
    costs and benefits of the use of any pesticide.' We are increasingly
    concerned the agency is departing from that standard and imposing its
    own value judgments, tending more toward a precautionary principle
    which could threaten the availability of many products.

        Question 15. We've heard a lot about the need for oversight of the
    EPA's pesticide program. What are your organization's top priorities
    for regulatory oversight?
        Answer. We would like to see the Committee rigorously review EPA's
    implementation of Congressional intent to ensure that it is following
    the standard established in FIFRA; is not using a precautionary
    principle approach; is conducting itself in an open, transparent
    fashion; is using sound and well-established science; and is not
    manipulating the process to restrict farmers' access to critical crop
    protection tools.

        Question 16. In publishing the final worker protection standard
    rule, the EPA included a ``designated representative'' provision that
    had not been previously provided to the Committee as required in law.
    We have some questions about this provision.
        If a designated representative had information related to pesticide
    use on a farm and wanted to use that information publicly to pressure
    the farm to stop using that pesticide, is there anything in the
    regulation to prevent that from happening?
        Answer. In Farm Bureau's reading of the regulation, there is no
    restriction whatsoever on the use a `designated representative' may
    make of farm-specific pesticide data. Thus, a `designated
    representative' would be free to use the information publicly in a
    manner to put pressure on a farmer to halt using a particular
    pesticide.

        Question 16a. Does the provision grant a right for designated
    representatives to obtain certain pesticide information used on a farm
    upon presentation of a written, signed authorization by a worker?
        Answer. Yes.

        Question 16b. Once a farmer is presented with the written, signed
    authorization, does he or she have a legal obligation to provide the
    information?
        Answer. It is our understanding of the regulation that a farmer
    would have a legal obligation to provide information. However, the
    agency has not been able to clarify a farmer's legal responsibility if
    the information provided does not agree with the farmer's records.

        Question 16c. Once the designated representative has the
    information, are there any restrictions on what the designated
    representative can do with the information?
        Answer. Our reading of the regulation is that there are no
    restrictions on what a `designated representative' may do with the
    information.

        Question 16d. Is there any provision in the WPS to require the
    designated representative to share the information with the worker who
    signed the form?
        Answer. We have found no language in the WPS that would require a
    `designated representative' to share the information with the worker on
    whose behalf the information was purportedly sought.

        Question 16e. Are there any restrictions on who may be a designated
    representative (e.g., an anti-pesticide activist group or legal
    services group)?
        Answer. EPA has prepared an ``FAQ'' document which explicitly
    states that a designated representative must be designated in writing
    by the worker or handler, and can be anybody including but not limited
    to a relative, friend, another worker or handler, someone from a
    nonprofit organization, or a legal representative.

        Question 16f. If a designated representative had information
    related to pesticide use on a farm and wished to publish that
    information broadly, is there anything in the WPS to prevent that from
    happening?
        Answer. We do not see any restrictions in the WPS that prevents
    broad public dissemination of farm-specific pesticide data.
    Food Safety Modernization Act
        Question 17. Can you describe the consultation process that FDA
    engaged in with industry in developing the regulations under the Food
    Safety Modernization Act?
        Answer. Over the past 5 years, FDA had numerous avenues for
    stakeholders to engage. Most notably, the agency held multiple public
    meetings and issued proposed and supplemental rulemakings for public
    comment. Farm Bureau also participated in smaller stakeholder meetings
    with FDA where we could discuss varying concerns. We are also aware of
    FDA representatives visiting farms and discussing issues with farmers.
    While the final rules are not perfect and certainly more stakeholder
    involvement can always be done, Farm Bureau does appreciate FDA's
    openness in this process.

        Question 18. Prior to passage of the Food Safety Modernization Act,
    there was a great deal of debate surrounding the question of what
    authority the FDA should have over food production. Many Members
    present at the time raised questions about granting the FDA the power
    to tell farmers how to farm. From the standpoint of food safety, do you
    believe FDA has the resources and expertise, more so than the USDA and
    State Ag Departments, to regulate on farm production practices?
        Answer. Farm Bureau supports USDA being the primary agency
    regulating food safety in America. It is our policy that USDA is better
    equipped to regulate on-farm activities and therefore should have
    jurisdiction over FSMA implementation. In FSMA's current form, Farm
    Bureau supports FDA partnering with the State Ag Departments to assist
    in training and enforcement. While we believe FDA has done outreach,
    there are still grave gaps in its understanding of on-farm practices
    and methods. These gaps could force FDA to have a reactionary response
    to food safety issues and ultimately undermine the Congressional goal
    of a preventative food safety system. Therefore, we are encouraged to
    see that, assuming appropriate funding, most on-farm FSMA
    implementation and enforcement will be performed by the relevant state
    agency.

        Question 19. There was a great deal of concern when Congress passed
    the Food Safety Modernization Act that FDA's lack of resources and
    expertise would ultimately result in a ``one-size-fits-all'' approach
    to regulation. Do the final rules adequately account for the variation
    between crops, geographical growing locations, and even the associated
    risk profiles of the products produced in the U.S.?
        Answer. Farm Bureau supports a science and risk-based approach to
    food safety. The final rules err on the side of inclusivity rather than
    taking a risk-based approach that would have analyzed the risk
    associated with different types of produce and growing conditions. Farm
    Bureau opposes this approach taken by FDA. If FDA had evaluated
    specific raw agricultural products and growing conditions, the
    regulation would better-tailored to meet the objective of public safety
    without unduly burdening farmers.

        Question 20. You talk about the farm definition in FDA's produce
    safety rule. Can you explain what this definition is, and why it is
    important? Do you support revising the Farm definition?
        Answer. The farm definition is perhaps the most critical component
    to the FSMA rules. It dictates what operations are brought under the
    Produce Safety rule and Preventative Controls for Human Food rules, and
    what operations may fall under both. Farm Bureau strongly believes
    farms must be treated as farms, not facilities, and that overlap of the
    rules must be limited to the extent possible.
        In the final rule, FDA created two types of farms. A Primary
    Production Farm is defined as an operation under one management in one
    general, but not necessarily a contiguous, physical location devoted to
    the growing of crops, the harvesting of crops, the raising of animals,
    or any combination of these activities. A primary production farm can
    also pack or hold raw agricultural commodities (regardless of who grew
    or raised them) or manufacture/process, pack, or hold processed foods
    so long as: all such food is consumed on that farm or another farm
    under the same management; or the manufacturing/processing falls into
    limited categories. A Secondary Production Farm is defined as an
    operation not located on a primary production farm devoted to
    harvesting, packing, and/or holding RACs that is owned or jointly owned
    by a Primary Production Farm(s).
        While there have been vast improvements in the farm definition
    throughout the rulemaking process, the arbitrary distinction drawn
    between primary and secondary farms based on ownership is neither
    science- nor risk-based. FDA cannot show any reasonable justification
    related to public safety for drawing this distinction and it places
    many farms that have off-farm packing housing under both the Produce
    Safety and Preventative Controls rules. Farm Bureau would support
    modifying this definition to account for the fact that there is no
    greater risk for RACs packed on-farm versus off-farm.

        Question 21. Can you talk a bit about the food safety training
    challenges associated with FSMA implementation?
        Answer. Pre-compliance training and education is vital to the
    success of FSMA. Currently, farmers are concerned about the rules and
    what they mean for their farms--whether because they have a unique farm
    structure, a variety of crops farmed under a variety of farming
    practices, irrigation water that likely doesn't meet the standards, or
    the distinction between FSMA and GAP, Global GAP, Leafy Green or other
    industry driven standards. FSMA was intended to be a preventative
    systematic approach, Not reactionary enforcement. Currently, Farm
    Bureau is very concerned about the delay in releasing guidance and the
    Produce Safety Alliance curriculum. Large farms will need to be in
    compliance starting in January 2018--a short 20 months away. Farm
    Bureau and other organizations want to assist FDA in this training
    component; however, we need this information to ensure we conduct
    useful and accurate trainings. Farm Bureau urges the Committee to
    engage FDA to expedite this process.

        Question 22. What does your group see as the most burdensome aspect
    of FSMA?
        Answer. FSMA is an incredibly complicated regulatory system. While
    there are numerous parts of the rules that Farm Bureau sees as
    burdensome, the technical water standards, testing, and die off periods
    are likely going to require farmers to hire third party experts to
    assist in conducting testing, determining whether the water meets the
    stringent water standard that FDA failed to show was reasonably
    necessary, and then determining in what ways, when, and for how long
    they can use that water on their farms. Moreover, the increased record
    keeping throughout the supply chain is going to be incredibly expensive
    and time consuming.
    Research
        Question 23. USDA has begun implementing a two stage review process
    for competitive grants under the Specialty Crop Research Initiative.
    These two separate reviews take into account both relevancy to the
    industry and scientific peer review. Though not yet implemented, the
    law makes it clear that the relevancy review process should be applied
    to other competitive grants programs such as the Agricultural and Food
    Research Initiative--particularly for applied research grants. Do you
    think that producer support for these programs would grow if relevancy
    review were a component of the grant awards process?
        Answer. A critical review of the NAREE Board is in order because
    that board is authorized to match producer priorities with scientific
    feasibility to achieve what is termed `relevancy.' If that function is
    failing, a new approach is in order.
        Producer support for USDA research and development has always been
    strong. While relevancy review is one important way for USDA to ensure
    producers' voices are heard throughout the grant making process, there
    are much more significant challenges that must be addressed in order to
    grow support not only among producers, but among the general public as
    well. For example, agency-level collaboration between ARS and NIFA
    could be more systematic to reduce duplicative research and make the
    best use of limited agricultural research resources. In addition, a
    greater emphasis needs to be placed on ensuring that external
    communication conveys results in a simple and easy to understand manner
    that resonates in the mainstream. Emphasis must be placed also on
    improving technology transfer and better educating the public about the
    good work USDA research is doing. A modernized Extension service should
    be equipped to carry out this mission.

        Question 24. Increasing availability of funds for research is a
    common goal. Recognizing fiscal constraints though, are we focusing our
    resources on the correct priorities?
        Answer. Competitive grants are widely recognized as having greater
    innovation potential than grants based on other mechanisms, yet the
    proportion of funding for competitive agricultural research remains far
    below the proportion of funding for competitive research in other
    science agencies. Moreover, we believe streamlining dozens of different
    extramural research programs will dramatically improve resource
    allocation. AFBF President Zippy Duvall highlighted the importance of
    research for our members in an April 2016 op-ed (http://thehill.com/
    blogs/congress-blog/economy-budget/276427-agricultural-research-is-the-
    farmers-ultimate-antacid) [Attachment] published in The Hill.

        Question 25. Can you highlight some specific benefits from USDA
    research that your members have experienced?
        Answer. Since our members represent a broad range of commodities,
    there are numerous examples where USDA-funded research is making a
    difference in the field. Some examples include:

       AFRI-supported research on plant breeding is leading to the
            development of new cultivars for many critical crops. Fifteen
            percent of U.S. wheat acreage is planted using cultivars
            resulting from AFRI investments.

       AFRI-supported research at North Carolina Agricultural &
            Technical University has led to the development of a hypo-
            allergenic peanut. This product will ideally be available in
            the market soon.

        Given that AFRI is a young program, we have only scratched the
    surface of what it can produce for America's farmers.

        Question 26. Is information about research and technology
    advancements readily available and communicated within the agriculture
    community?
        Answer. USDA's Office of Technology Transfer (OTT) is responsible
    for ARS' technology transfer program and is delegated the authority to
    administer the patent and licensing program for all intramural research
    conducted by USDA. The OTT helps move ARS research discoveries to the
    marketplace. However, USDA lacks a similar structure dedicated to
    extramural research and moving NIFA-funded discoveries to the
    marketplace. Doing more for tech transfer also provides opportunities
    to create greater awareness for our members and the public of the
    benefits of federally funded research.

        Question 27. To the extent that there are possible improvements in
    the way research information is disseminated, what suggestions would
    you have for USDA's research agencies to improve communication with
    producers?
        Answer. We believe the Extension Service, at least in part, was
    designed to carry out this task. A modernized Extension Service should
    be empowered to effectively serve as USDA's voice communicating clear
    and understandable results to the producer community and the general
    public at large. A more user friendly grants database would also be a
    great tool for better understanding what projects are being supported
    and in what topic areas. We also think that more could be done to
    spotlight specific research success stories as a means of our members,
    policymakers and the general public.

        Question 27a. Is the money being spent through the Agriculture and
    Food Research Initiative and the Specialty Crop Research Initiative
    going towards industry supported research?
        Answer. To the extent that highly ranked projects are funded, yes.
    Due to inadequate funding, proposals within AFRI have an 11% success
    rate. In spite of this, AFRI-funded research projects are already
    making strides in defending agriculture against climate variability,
    water supply, food safety and major threats to plan and animal health
    such as emerging pests and pathogens. It should be noted that AFRI was
    created to also fund the types of basic research that can create a
    pipeline of innovation to serve the agricultural industry well into the
    future.
        For example:

       A multi-state research team is developing novel nutritional,
            genomic, and genetic improvement technologies to help producers
            use less feed resources to produce beef for human consumption.

       AFRI-supported research is resulting in new tools that
            better monitor, prevent, control and manage future outbreaks of
            avian flu.
    Labor Regulation
        Question 28. What are some of the extraneous impacts OSHA's July
    2015 revised interpretation of Process Safety Management standards has
    on the agriculture community?
        Answer. OSHA's expansion of Process Safety Management standards
    will likely have dramatic downstream impacts on farmers utilizing
    anhydrous ammonia. A joint study done by the Ag Retailers Association
    and The Fertilizer Institute estimates that this change costs a minimum
    $27,500 per facility. If the facility can come into compliance, this
    cost will be passed downstream to farmers. If the facility is forced to
    stop selling anhydrous ammonia due to the increased cost, farmers will
    have limited access to this key nitrogen input.

        Question 29. How can this Subcommittee provide oversight on the
    Process Safety Management (PSM) issue?
        Answer. It would be very helpful for the Subcommittee to engage
    with Labor-HHS appropriators to ensure that the following FY16 report
    language be placed in the FY17 legislative text.

              ``The revised enforcement policy relating to the exemption of
            retail facilities from coverage of the Process Safety
            Management of Highly Hazardous Chemicals standard (29 CFR
            1910.119(a)(2)(i)) issued by the Occupational Safety and Health
            Administration on July 22, 2015, shall not be enforced nor
            deemed by the Department of Labor to be in effect in Fiscal
            Year 2017, or future years, until: the Bureau of the Census
            establishes a new North American Industry Classification System
            code under Sector 44 or 45 Retail Trade for Farm Supply
            Retailers; the Secretary of Labor, acting through the Assistant
            Secretary of Labor for Occupational Safety and Health, has
            carried out all notice and comment rulemaking procedures and
            invited meaningful public participation in the rulemaking; and
            the Secretary, acting through the Assistant Secretary of Labor
            for Occupational Safety and Health, arranges for an independent
            third-party to conduct a cost-benefit analysis of such proposed
            rule, and the Secretary includes such analysis in the
            publication of the proposed rule.''
                                   attachment
    The Hill
    Agricultural Research Is the Farmer's Ultimate Antacid
    April 18, 2016, 11:16 a.m.
    By Vincent ``Zippy'' Duvall

        As a poultry farmer, I was worried when avian flu began popping up
    around the country last year. Almost 50 million birds (https://
    www.aphis.usda.gov/aphis/ourfocus/animalhealth/animal-disease-
    information/avian-influenza-disease/sa_detections_by_states/hpai-2014-
    2015-confirmed-detections) were culled in an effort to limit the
    outbreak, even though only slightly more than 200 birds were actually
    sick.
        Since I also raise cattle on my land, I was concerned in 2014, when
    a single case of mad cow disease was discovered in Texas. The disease
    was isolated and eliminated, however, and our food supply was
    protected.
        That's what it's like to be a farmer. Taking care of our animals is
    our top priority, but we have every-day worries that go beyond
    providing our animals access to feed, water and shelter. While we do
    our best to prepare for what we can control, we also want to be ready
    for the uncertainties that are thrown our way.
        Whether our challenge of the day stems from a new government edict
    that affects how we farm, another nation's decision to ban our products
    or an unforeseen disease outbreak, there is really only one solution on
    which we hang our collective hat--cold, hard science.
        Research has helped us increase yields, decrease inputs, and ward
    off plant and animal diseases. Research has made us more productive on
    fewer acres and has decreased our environmental footprint. This
    supports the fact that U.S. families spend a lower percentage of their
    incomes on food than citizens in any other nation.
        But times are changing. The expiration date for the scientific
    findings that underpin our day-to-day work and boost the quality of
    life for all Americans is fast approaching. And you don't need a Ph.D.
    to see that.
        Take avian flu, which laid havoc to Iowa's egg industry last year.
    Killing tens of millions of birds because several hundred contracted
    the flu may seem like an overreaction, but it was the only way we knew
    how to stop the disease before it reached the ``broiler belt'' in the
    South. We need a more effective and modern way of ending these
    outbreaks.
        Scientists at Ohio State and the University of Cincinnati are
    answering this challenge by analyzing the flu virus and how it jumps
    from poultry to people to pigs. This collaboration, funded by the
    USDA's Agriculture and Food Research Initiative (AFRI), is one of many
    exploring new ways to better identify and control future outbreaks.
        AFRI is a relatively new program. Its grant proposals are developed
    by potential researchers and reviewed and ranked by an expert board.
    The program's current budget, however, sits at $350 million--\1/2\ of
    what Congress authorized in the 2008 Farm Bill--and as a result, only a
    small portion of the best research projects get funded.
        The Administration has proposed doubling AFRI's budget to fund the
    program at the level authorized by Congress. To farmers, this feels
    like a good move. We need to find immediate answers to challenges like
    citrus greening. We also need to make sure researchers can fight the
    bugs that will eat into our yields 10 years from now. And we need
    advanced technologies to keep foodborne bacteria from reaching people's
    plates.
        Agricultural scientists can take on these challenges, but they need
    support. In the past 10 years, (http://www.nsf.gov/statistics/fedfunds/
    ) the total budget for all of the USDA's research programs has grown by
    only 0.2 percent. In the same timeframe, the Department of Energy's
    research budget has grown by 23 percent.
        I am all for keeping the lights on in the dining room, but the
    American people also need a steady supply of safe and healthy food for
    the dinner table.
        Every dollar spent on agricultural research generates $20 for our
    economy, (http://www.apsnet.org/members/outreach/ppb/blog/Lists/Posts/
    Post.aspx?ID=23) and we see those returns in safer, more nutritious and
    more plentiful food. But I also see those returns in a quite personal
    way--in fewer worries for my fellow farmers and me. We're in a
    difficult time right now--prices are down, costs are up--and we need
    all the solutions science can discover. Publicly-supported research
    pays dividends to all Americans, and it is an investment we all must
    embrace.

              Duvall, a third generation farmer from Greene County,
            Georgia, was elected President of the American Farm Bureau
            Federation in January 2016.
    Response from Dale Murden, President, Texas Citrus Mutual
    June 7, 2016

    Hon. Rodney Davis,                   Hon. Suzan K. DelBene
    Chairman,                            Ranking Minority Member,
    Subcommittee on Biotechnology,       Subcommittee on Biotechnology,
     Horticulture, and Research,          Horticulture, and Research,
    House Committee on Agriculture,      House Committee on Agriculture,
    Washington, D.C.;                    Washington, D.C.

    Re: Questions for the Record: House Committee on Agriculture,
                Subcommittee on Biotechnology, Horticulture, and Research
                Public Hearing: Focus on the Farm Economy--Factors
                Impacting the Cost of Production

        Dear Chairman Davis and Ranking Member DelBene:

        Below are my responses, on behalf of Texas Citrus Mutual, to your
    questions for the record from the House Agriculture's Subcommittee on
    Biotechnology, Horticulture, and Research public hearing, ``Focus on
    the Farm Economy--Factors Impacting the Cost of Production,'' held on
    April 27th, 2016. I greatly appreciated the opportunity to testify in
    front of your Committee and share a grower's perspective on these
    issues.
        Again, thank you for the opportunity to participate in the hearing
    and respond to your questions. Please do not hesitate to contact me if
    you have any further questions.
                Sincerely,
                [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Dale Murden,
    President, Texas Citrus Mutual.
    Questions Submitted by Hon. Rodney Davis, a Representative in Congress
            from Illinois
    Biotechnology
        Question 1. How should we improve regulatory efficiency in a way
    that enables genetic innovation so that we, as a nation, are better
    able to meet global food security challenges?
        Answer. U.S. agriculture is innovative and stands willing to adopt
    new developments but negative consumer sentiment and regulatory burdens
    will impede that adoption. The oversight of new plant products derived
    through biotechnology offers us an opportunity to produce more with
    less. It brings the opportunity for increasing yields, reducing inputs,
    and further minimizing food waste all through the development of new
    crop traits. However, if the regulatory burdens are too strict or are
    structure in a way that invites litigation from anti-modern agriculture
    groups, then the vast majority of commodities will be forced to the
    sidelines.

        Question 2. What are some newer breeding methods, in terms of
    biotechnology? Are they regulated by the government?
        Answer. Right now, practices like doubled haploids, cell fusion,
    and embryo rescue are common practices that have been used for decades.
    However, the Part 340 Notice of Intent from USDA-APHIS suggested that
    these techniques could be regulated under a new regulatory approach the
    agency is considering, despite the fact that these techniques have been
    used safely, with tremendous benefits to growers and consumers, and
    without evidence of negative environmental impacts. Some of the new
    techniques like gene editing, CRISPR techniques, and zinc fingers are
    being pursued for new variety development now. Under current
    regulations these plant products would not be regulated unless the
    resulting product was deemed a noxious weed under CFR 360 (USDA-APHIS).
    This is because the plant product would be the result of working within
    the genome of the plant of interest. It is essentially a more direct
    and efficient means of developing a new variety that would otherwise be
    developed using more expensive and time consuming traditionalbreeding.

        Question 3. It has been said that USDA is considering changing
    their biotechnology regulations. Does your organization support this?
        Answer. We support updating the coordinated framework in a manner
    that creates a more transparent and efficient process for the three
    regulatory agencies (EPA, FDA, USDA) engaged in the oversight of
    genetically engineered crops. There is a need for oversight in the
    development of new traits that could not otherwise occur in nature.
    However, we oppose the USDA's interest in expanding their authorities
    to regulate traits that can otherwise be developed using traditional
    breeding or found in nature. This would require the agency to regulate
    based on the process rather than the product, which is antithetical to
    science and not supported by the National Academy of Sciences. It would
    only serve to stigmatize the technology and not add any new safeguards
    to the environment or human health.

        Question 4. What are the opportunities for the next generation of
    innovative tools for farmers?
        Answer. Genetically modified crops (GMOs) have been largely focused
    on pest and herbicide resistance with pretty straightforward
    transformation of a single gene or two into the crop of interest.
    However, these new techniques offer great promise with the potential to
    make multiple small changes or tweaks within gene families that can
    impact things like drought, cold, and heat tolerance, improved
    photosynthetic efficiency, greater fruit durability, etc. The
    opportunities are potentially boundless but what is certain these
    techniques and their ability to do in months what might otherwise take
    decades will allow farmers to grow more with fewer inputs and reduced
    waste. This is the only way we will be able to feed our growing
    population in a sustainable manner.

        Question 5. The headlines of major newspapers and many of the cable
    news shows cast American agriculture in a negative light--though many
    of those stories are rife with inaccuracies. Unfortunately, these
    stories drive policy such as what we see with mandatory biotech warning
    labels. What recommendations do you have for your colleagues in the
    industry to engage the public to counter these negative attacks? What
    is your group doing to avoid repeating history so we don't have the
    consumer distrust with these new technologies like we do with current
    biotech breeding techniques?
        Answer. We must be transparent about the techniques, why they are
    used, and what they accomplish. We must highlight the reports from EPA,
    USDA, FDA, and the most recent National Academy of Sciences report,
    which document the safety and the importance of these new breeding
    techniques.
        In addition, we are in the unfortunate situation where we must more
    regularly counter the false and deceptive claims of other groups. Some
    of these organizations have built up a level of credibility by making
    unsubstantiated, but unchallenged, claims. The agriculture community
    must do our part to reveal them as the charlatans that they are.
    Pesticides
        Question 6. Many people who rely on pesticides to protect their
    health and property have stated that one or more of EPA's recent
    actions have taken away their access to important products needed to
    fight pests. What should EPA be doing to ensure that those producers
    will have the time-proven products and the new, effective products
    available to meet their needs?
        Answer. The must immediately stop the use of their new and untested
    modeling formulas used in water, expected environmental concentrations,
    and safety factor calculations. It is my understanding that in the last
    2 years or so EPA has moved their modeling to a much more conservative
    approach which consistently includes the most extreme of circumstances
    in nearly every instance and is not reflective of what occurs in the
    environment. While there is nothing inherently wrong with using models,
    the inputs and assumptions used have the ability to create results with
    tremendous disparities from what is observed through monitoring. The
    EPA has created and has now deployed the statistical equivalent of the
    precautionary principle. This must be halted and they should return to
    using the previous models until they can show that their new models are
    more reflective of what happens in nature.

        Question 7. In the National Strategy to Promote the Health of Honey
    Bees and Other Pollinators and the EPA Proposal to Mitigate Exposure to
    Bees from Acutely Toxic Pesticide Products, EPA offered support for
    voluntary stewardship methods to reduce exposures during the planting
    of pesticide treated seed. And, on January 4, 2016, EPA released its
    preliminary pollinator assessment for one pesticide indicating that it
    posed a low-potential risk to bees when used as a seed treatment. Do
    you have any specific concerns with the National Strategy document?
        Answer. While I am generally supportive of protecting pollinators
    and doing what we can to improve their habitat and forage
    opportunities, the EPA's ``Proposal to Mitigate Exposure to Bees from
    Acutely Toxic Pesticide Products'' was the antithesis of what is
    supposed to be done under FIFRA. The proposal listed 76 Active
    Ingredients (approximately 3,500 products) that would be banned from
    use when a crop is under pollination contract. They made that proposal
    on a hazard number and not a risk assessment and, certainly, with no
    consideration of benefits. Furthermore, those requirements have caused
    a breakdown in communication and collaboration between beekeepers and
    growers where before they worked out arrangement through their
    customer/provider relationship (pollination services).

        Question 8. We've heard a lot about the need for oversight of the
    EPA's pesticide program. What are your organization's top priorities
    for regulatory oversight?
        Answer. We need Congress to dig in deeper to gain a better
    understanding of the drastic changes EPA has made in its modeling
    approach. It was not done in a transparent manner, it is not science
    based--despite their claims--and has drastically reduced the products
    we will have access to and the new tools that will be developed, unless
    something is done about it.

        Question 9. Did the EPA ignore important facts in expressing
    concern about bees and citrus crops?
        Answer. EPA did in fact ignore two very important facts.

      1.  Citrus does not require managed bees for pollination services. In
                many cases they are a pest in the production process.

      2.  Concentrations of neonicotinoids identified by EPA in the nectar
                could be easily mitigated by making minor changes in the
                timing of the applications. The report provided useful
                information that growers can learn from but EPA decided to
                use the opportunity to paint citrus in a poor light and
                further empower activist organizations.

        Question 10. The President has stressed the importance and value of
    transparency in EPA's action to ensure the use of sound science and
    reliable data. EPA is increasingly reliant on epidemiological and
    modeling data to essentially overrule volumes of actual `hard science'
    laboratory and monitoring data. Was this fundamental change in policy
    put out for public notice and comment so that impacted stakeholders
    like you would have an opportunity to comment?
        Answer. The greater emphasis on modeling and specifically the
    change in model used was not made available, opened for comment, or
    demonstrated to stakeholders. It was an internal decision, which only
    became apparent after it was put in use and resulted in moving the
    agency to a more precautionary position.

        Question 11. The United States has the world's most rigorous
    pesticide registration and review processes. Yet, when EPA's regulatory
    decisions are challenged in court, the Agency has not enjoyed many
    recent successes in defending its scientific process or decisions. Are
    these actions undermining EPA's credibility with the public?
        Answer. Absolutely. However, where did the erosion begin? Some of
    the recent actions taken by EPA have undermined their scientific
    credibility, which is being reflected and reinforced in the courts.

        Question 12. If the tools used to manage weeds and pests continue
    to be restricted, taken away, or prevented from getting to the market
    altogether, how does that benefit the economic and environmental
    viability of your members' operations?
        Answer. These decisions by EPA are a drag on the rural economy and
    will likely drive more individuals of the next generation away from
    agriculture.
    Research
        Question 13. USDA has begun implementing a two stage review process
    for competitive grants under the Specialty Crop Research Initiative.
    These two separate reviews take into account both relevancy to the
    industry and scientific peer review. Though not yet implemented, the
    law makes it clear that the relevancy review process should be applied
    to other competitive grants programs such as the Agricultural and Food
    Research Initiative--particularly for applied research grants. Do you
    think that producer support for these programs would grow if relevancy
    review were a component of the grant awards process?
        Answer. I believe producer support will grow as will a greater
    diversity of academic research participation if the two-stage process
    is adopted more broadly. The two-stage review has helped improve
    stakeholder and academic relations and we believe much stronger
    projects.

        Question 14. Increasing availability of funds for research is a
    common goal. Recognizing fiscal constraints though, are we focusing our
    resources on the correct priorities?
        Answer. The specialty crop programs developed and supported through
    the last farm bill were exactly what we needed and continue to support.

        Question 15. Is the money being spent through the Agriculture and
    Food Research Initiative and the Specialty Crop Research Initiative
    going towards industry supported research?
        Answer. We have great confidence in the funding being spent on
    citrus research, especially with the formation of the CDRE through the
    2014 Farm Bill. Funds supporting research in HLB resistance
    development, marker assisted breeding, and improved rootstocks will
    serve the industry in overcoming HLB, as well as, set us on a course
    for generally improved fruit quality and more robust citrus varieties.
    Farm Bill
        Question 16. What are your top priorities for Congressional
    oversight of programs affecting your members?
        Answer. Our first priority is greater oversight of EPA-OPP. There
    has been a fundamental shift in EPA's risk assessment approach and
    greater light must be shined on their process.
    Citrus Pest/Disease and Pollinators
        Question 17. We have heard about the devastating impacts citrus
    greening has had on the citrus industry. Can you elaborate on the
    research being conducted to combat citrus greening?
        Answer. A tremendous amount of work is currently being done on many
    fronts to battle HLB, which is threatening our industry. Scientists at
    the University of Florida and Washington State University are trying to
    culture HLB, which has never been done before. Part of the difficulty
    in studying the disease and identifying it's weaknesses is our
    inability to isolate the organism in culture. These researchers are
    looking to overcome that.
        Another project at the University of Florida is looking to develop
    bactericides that would reduce the pathogens transmission and,
    potentially, cure infected trees. Research at the University of
    California is using virulence proteins from the pathogen to detect its
    presence before symptoms appear and to develop strategies for creating
    citrus rootstocks that are immune to HLB.
        We have great confidence that this multi-pronged approach will lead
    to effective mitigations and the eventual elimination of HLB as a major
    threat to the U.S. citrus industry.

        Question 18. Do you have any particular recommendations on how to
    expedite the development and implementation of citrus greening control
    technologies and strategies?
        Answer. Limiting the regulatory hurdles in biotechnology and crop
    protection tools will allow us to innovate our way out of this issue if
    we can do it quickly. Unfortunately, the regulatory environment is
    currently working against us.

        Question 18a. Considering the recent revocation of pesticide
    product registrations, has industry's ability to combat the spread of
    citrus greening been affected?
        Answer. The loss of Sulfoxaflor (Closer) has been a tremendous loss
    to the citrus industry and has undoubtedly led to the increased spread
    and impact of HLB and its vector, the Asian Citrus Psyllid. In
    addition, the general messaging from EPA has been one of highlighting
    risk--to pollinators in particular--without recognition of benefits.
    This messaging has made it more difficult for the citrus industry to
    encourage homeowners who have citrus trees in their yards to treat for
    the disease and its insect vector. The result of EPA's tone has been to
    diminish our ability to limit citrus production from exposure to HLB.

        Question 19. Getting and keeping pesticide uses for individual
    specialty crops like citrus is especially challenging for growers and
    manufacturers. Has EPA expressed concern about pesticide residues on
    citrus trees as problem for bees?
        Answer. EPA highlighted their concerns about imidacloprid residue
    in citrus specifically in their January announcement. In fact, they
    highlighted their concerns in the lead statement of the press release,
    despite the fact that the report was largely positive and showed little
    concern in most crops and the mitigation for reducing potential
    imidacloprid exposure to bees was simple and just involved a small
    change in the timing of the application.

        Question 20. Do citrus crops rely on pollinators?
        Answer. Citrus does not rely on contract pollination. In the case
    of our seedless varieties like seedless mandarins, bees are a pest,
    causing the development of unwanted seeds through pollination and
    outcrossing.
    Response from Jay Vroom, President and Chief Executive Officer,
            CropLife America
    Questions Submitted by Hon. Rodney Davis, a Representative in Congress
            from Illinois
    Pesticides
        Question 1. Many people who rely on pesticides to protect their
    health and property have stated that one or more of EPA's recent
    actions have taken away their access to important products needed to
    fight pests. What should EPA be doing to ensure that those producers
    will have the time-proven products and the new, effective products
    available to meet their needs?
        Answer. EPA should return to operating within the legal boundaries
    and Congressional intent of FIFRA, including FQPA. In recent years, EPA
    has shifted away from risk-based assessment toward reliance on hazard-
    only based precaution in taking actions on the review of several crop
    protection products. Pesticides stakeholders ask that Congress conduct
    aggressive oversight of EPA in order to correct the Agency's misguided
    overreach.

        Question 2. Public policy has an enormous impact on the economic
    viability of farms. Can you offer a couple examples of recent
    regulatory actions that have had a negative impact?
        Answer. While CropLife America cannot speak personally for farmers,
    we do know that, in registering pesticides and uses, EPA plays an
    important role in protecting the economic viability of farms and farm
    families. Predictable, transparent process based on risk-based
    assessment is a crucial component to providing the crop protection
    tools needed by American farmers. The balance of the questions that
    follow that will detail several examples of regulatory actions that we
    believe demonstrate a systemic breakdown in EPA's adherence to Federal
    law, established process and sound science.

        Question 2a. What about legislative actions at the state or
    national level?
        Answer. Unfortunately, due to mixed signals from EPA, several
    states are considering, and in some cases have adopted anti-pesticide
    related laws, including product bans, on products reviewed and strictly
    regulated at the Federal level. Some of these state level actions and
    activism are based on EPA's reluctance to defend its own science and
    regulatory process, and nearly all of the actions are founded in
    misinformation and unsound science. Simply banning the use of a
    pesticide product can seem like an easy option to be perceived as doing
    ``something'' on pollinator issues. However, given the multitude of
    stressors affecting pollinators, banning a product that is regulated
    and used according to label language will not solve the problem.
        Question 3. In the National Strategy to Promote the Health of Honey
    Bees and Other Pollinators and the EPA Proposal to Mitigate Exposure to
    Bees from Acutely Toxic Pesticide Products, EPA offered support for
    voluntary stewardship methods to reduce exposures during the planting
    of pesticide treated seed. And, on January 4, 2016, EPA released its
    preliminary pollinator assessment for one pesticide indicating that it
    posed a low-potential risk to bees when used as a seed treatment. Do
    you have any specific concerns with the National Strategy document?
        Answer. In May of 2015, the White House's Pollinator Health Task
    Force issued its, ``National Strategy to Promote the Health of Honey
    Bees and Other Pollinators'' (the National Strategy). The three goals
    of the response are repeated often as a guide about what the multitude
    of Federal agencies are collectively striving for: (1) reduce honey bee
    colony losses, (2) protect monarch butterflies, and (3) increase
    pollinator habitat acreage.
        Dozens of programs in multiple agencies across the Federal
    Government address some aspect of pollinator protection and awareness.
    It is not readily apparent to observers in industry, agriculture and
    the private-sector that these multiple Federal efforts are effective,
    coordinated, financially responsible, and not duplicative. We would
    like to see greater evidence of coordinated, directed research to solve
    the concerns for managed pollinators--protection from parasites,
    predators, diseases; thorough understanding of the effects of
    management practices on hive health; and the basics and intricacies of
    nutritional needs. Other livestock industries (beef, dairy, poultry,
    swine, wool, etc.) generally have a precise understanding of
    nutritional needs, disease protection, and management practices
    necessary to achieve consistent high-level production. Most of this is
    a result of, or has benefited greatly from, Federal research efforts
    and funding. This is what the honey bee industry needs.
        Regarding pesticides specifically, EPA's approach to the possible
    impacts of pesticides and pollinators has been inconsistent with
    established policies for risk assessment and individual product
    evaluation against an established, and scientifically valid, set of
    regulatory criteria. EPA has asked for and received significant volumes
    of additional studies which they have requested from pesticide
    companies but it is not clear how or whether this information has been
    used as the basis for whatever latest policy approach.
        Pollinator policies have been characterized by pronouncements which
    truncate the procedures otherwise required by FIFRA when EPA seeks to
    change label requirements, especially when there may be issues of
    dispute between the registrant and the agency. These pronouncements may
    prevent new products which could reduce risk to pollinators from
    reaching the market, and could impose unnecessary additional
    restrictions on products or uses which will not reduce any current risk
    to pollinators. A hazard based, one-size-fits-all approach is not
    consistent with established policies and past practices of EPA, and the
    regulation-by-letter approach violate procedures in FIFRA where they
    may be a disagreement between EPA and the registrant about a specific
    registration.
        The open-ended nature of EPA's ``uncertainties'' as described in
    ``EPA's Proposal to Mitigate Exposure to Bees from Acutely Toxic
    Pesticide Products'' released shortly after the National Strategy
    raises some concerns that in the name of ``pollinator protection'' EPA
    will continue to expand its reach to products and uses about which the
    underlying data do not support new restrictions.

        Question 4. Does your organization support passage of H.R. 897, the
    Reducing Regulatory Burdens Act of 2015? Do you believe the burden and
    liabilities of obtaining a water permit are limiting or delaying
    mosquito control applications that control viruses like Zika and
    protect human health?
        Answer. Along with over a hundred other organizations, CLA strongly
    supports H.R. 897, the Zika Vector Control Act, and its current
    inclusion in H.R. 2577. We urge conferees to accept the provision as a
    part of the final conference report on the measure, and we also request
    that the sunset provision for H.R. 897 be removed as significant public
    health threats from mosquito-borne diseases are likely to remain well
    beyond 2018.
        Pesticide users, including those protecting public health from
    mosquito-borne diseases, are now subjected to the court created
    requirement that lawful applications over, to or near `waters of the
    U.S.' obtain a Clean Water Act (CWA) National Pollutant Discharge
    Elimination System (NPDES) permit from the Environmental Protection
    Agency (EPA) or delegated states. H.R. 897, which is a provision
    included in the House passed version of H.R. 2577, would clarify that
    Federal law does not require this redundant permit for already
    regulated pesticide applications.

        Question 5. What do you believe will happen if H.R. 897 is not
    enacted and President Obama's WOTUS rule goes into effect?
        Answer. Under the Federal Insecticide, Fungicide, and Rodenticide
    Act (FIFRA), all pesticides are reviewed and regulated for use with
    strict instructions on the EPA approved product label. A thorough
    review and accounting of impacts to water quality and aquatic species
    is included in every EPA review. Requiring water permits for pesticide
    applications is redundant and provides no additional environmental
    benefit.
        Compliance with the NPDES water permit also imposes duplicative
    resource burdens on thousands of small application businesses and
    farms, as well as the municipal, county, state and Federal agencies
    responsible for protecting natural resources and public health.
    Further, and most menacing, the permit exposes all pesticide users--
    regardless of permit eligibility--to the liability of CWA-based citizen
    law suits. In a number of instances, applicators, local and municipal
    governments and homeowner associations can't afford the costs or risk
    of frivolous litigation and have refrained from conducting public
    health applications.
        The water permit threatens the critical role pesticides play in
    protecting human health and the food supply from destructive and
    disease-carrying pests, and for managing invasive weeds to keep open
    waterways and shipping lanes, to maintain rights of way for
    transportation and power generation, and to prevent damage to forests
    and recreation areas. The time and money expended on redundant permit
    compliance drains public and private resources. All this for no
    measurable benefit to the environment. We urge Congress to eliminate
    this unnecessary, expensive, and duplicative regulation by ensuring the
    Zika Vector Control Act, minus any sunset provision, remains in any
    final conference agreement for H.R. 2577.

        Question 6. The public is threatened by insect-borne diseases--West
    Nile Virus is a good example. Some of the critical products used to
    control mosquitoes are also the backbone of Integrated Pest Management
    plans. Can you tell us your thoughts regarding EPA's plans for OP's
    (organophosphates) used to protect public health against very dangerous
    and prolific pests?
        Answer. The Federal Insecticide, Fungicide, and Rodenticide Act is
    a risk-benefit statute. EPA must consider the benefits of pesticides as
    part of its approval and ongoing regulation of pesticides.
    Consideration of product benefits must be integral to its risk
    assessment equation. One example is the intersection of public health
    pesticides and the recently-released Endangered Species Act Draft
    Biological Evaluations the organophosphates diazinon, malathion and
    chlorpyrifos--the latter two being important pesticides in mosquito
    control. The benefits of effective vector control are obvious,
    especially with Zika virus-carrying mosquitos anticipated to enter the
    U.S. this summer.
        EPA must fully consider the intersection of its ESA biological
    evaluation and essential role malathion and chlorpyrifos play in
    effective mosquito control and deliver a risk-benefit based evaluation.
    We are concerned the benefits aspect of the risk-benefit equation has
    been receiving less and less consideration over time as EPA moves
    toward hazard-only risk assessments. The mosquito control tool box is a
    small one with only a handful of products available for adult and
    larval treatments. What we have today works very well and we must
    ensure those few products remain registered for use. If EPA instead
    makes a hazard-only risk assessment in its final biological opinion for
    the three OPs, we run the risk of losing essential products in the
    vector and public health protection tool box.

        Question 7. When evaluating pesticide benefits, is EPA following
    established protocols for consultations with CDC and other Federal
    agencies with public health expertise?
        Answer. EPA follows Food Quality Protection Act-established
    protocols for consultations with Centers for Disease Control and
    Prevention, Department of Defense, and Health and Human Services before
    making product use cancellation decisions relevant to public health
    pesticide uses. Our industry is satisfied with this process. To date,
    we do not see a role for CDC, DOD, or HHS in consultations for new
    products and new uses.

        Question 8. We've heard a lot about the need for oversight of the
    EPA's pesticide program. What are your organization's top priorities
    for regulatory oversight?
        Answer.

        FQPA

        CLA is very troubled by EPA's proposal to apply the additional 10X
    margin of safety to many well studied existing pesticide, including
    many organophosphates used on farms and to protect public health from
    vector borne disease. EPA now using precautionary models and unreliable
    data to suggest that `uncertainty' exists where sound science and
    established process say otherwise.
        In establishing drinking water exposure limits--a component of FQPA
    ``risk cup''--EPA has begun using a new ultra-conservative water
    modeling approach which ignores actual water monitoring data and which
    threatens to severely limit uses of products.

        EPA & `Services' Process for Endangered Species Act Consultations

        In 2013, a panel of the National Academy of Sciences (NAS)
    published a report providing guidance to EPA and the Services on six
    key scientific issues at the heart of the agencies' disagreements
    regarding the ecological risk evaluation of pesticides. Since then, the
    agencies have been working to address the NAS report's recommendations,
    and have begun a process for engaging stakeholders and seeking public
    input. EPA is currently scheduled to complete 744 ``registration review
    cases'', involving 1,166 pesticide active ingredients, by 2023. This
    must include a review of potential impacts to the over 1,500 listed
    threatened and endangered species in the U.S. Over 700 additional
    species could be listed as endangered within the next 2 years. Meeting
    EPA's requirements under FIFRA and the Services' requirements under ESA
    add further work to an already demanding administrative burden.
        A 2013 report by Summit Consulting entitled, ``Analysis of Cost
    Estimates and Additional Resources Required for Timely FIFRA/ESA
    Pesticide Registration Review'', found that providing the Services with
    the additional resources they would need to meet their ESA obligations
    regarding registration review would cost the taxpayers an additional
    $474 million. This would represent a potential 13-fold and 25-fold
    budget increase in the National Marine Fisheries Service and Fish and
    Wildlife Service budgets, respectively, in order to open and review
    these pesticide dockets.
        The government's proposal for addressing the ESA-FIFRA issue has
    not stopped the litigation. New lawsuits challenge new product
    registrations, leading to additional regulatory uncertainty.
    Ironically, and contrary to the views expressed by the activist groups
    bringing these legal challenges, this development may have a chilling
    effect on the introduction of new pesticide products that are being
    developed to reduce potential exposures to threatened and endangered
    species and their habitats. The Services do not have adequate resources
    and EPA faces continued litigation under the ESA as it carries out its
    duties under FIFRA. Further, the ESA litigations have diverted the
    restricted Services' resources away from conservation efforts that
    would be more beneficial to the protection and recovery of threatened
    and endangered species.

        Question 9. In publishing the final worker protection standard
    rule, the EPA included a ``designated representative'' provision that
    had not been previously provided to the Committee as required in law.
    We have some questions about this provision.
        If a designated representative had information related to pesticide
    use on a farm and wanted to use that information publicly to pressure
    the farm to stop using that pesticide, is there anything in the
    regulation to prevent that from happening?
        Answer. No, the designated representative provision opens up
    unlimited intrusion onto private farm properties to anyone self-
    declaring themselves a worker ``designated representative''.

        Question 9a. Does the provision grant a right for designated
    representatives to obtain certain pesticide information used on a farm
    upon presentation of a written, signed authorization by a worker?
        Answer. Yes, the WPS grants the designated representative access to
    all pesticide use and application records to which the employee which
    otherwise be have access.

        Question 9b. Once a farmer is presented with the written, signed
    authorization, does he or she have a legal obligation to provide the
    information?
        Answer. Potential frivolous liability exposure for farmers is
    unlimited. New rule grossly miscalculated estimated cost impacts to
    farm economy--a cost legacy burden farmers will not fully feel for
    months/years after the end of this Administration.

        Question 9c. Once the designated representative has the
    information, are there any restrictions on what the designated
    representative can do with the information?
        Answer. No, the WPS does not state any restrictions on the use of
    such information or prevent the pesticide use and application from
    being made public.

        Question 9d. Is there any provision in the WPS to require the
    designated representative to share the information with the worker who
    signed the form?
        Answer. The WPS is not specific to that detail. There is no actual
    requirement that the information grant be in turn shared back to the
    employee granting the status.

        Question 9e. Are there any restrictions on who may be a designated
    representative (e.g., an anti-pesticide activist group or legal
    services group)?
        Answer. No, the WPS does not restrict who may be designated by an
    employee.

        Question 9f. If a designated representative had information related
    to pesticide use on a farm and wished to publish that information
    broadly, is there anything in the WPS to prevent that from happening?
        Answer. No, the WPS in no way restricts, limits or precludes any
    information accessed from being released publicly or even used against
    the operation by activists.

        Question 10. Did the EPA ignore important facts in expressing
    concern about bees and citrus crops?
        Answer. See responses to Questions 17 to 27, below.

        Question 11. For years, EPA relied on hundreds of high quality
    studies evaluating all aspects of human susceptibility to pesticides.
    These included studies designed to make sure that children would be
    protected. Even though EPA used those high-quality assessments for 20
    years, EPA now relies primarily on epidemiology studies and some
    journal articles. To what extent has EPA sought stakeholder input on
    this policy change?
        Answer. Epidemiology can be useful in identifying associations
    among environmental factors and health conditions (i.e., correlations).
    However, epidemiology cannot establish cause and effect between a given
    factor and a given health condition (i.e., causation). Thus,
    epidemiological data cannot be used at a rational basis for
    establishing regulatory endpoints leading to final decisions.
        For instance, by sheer chance, associations discovered by
    epidemiology may have no practical meaning or effect. The very nature
    of epidemiological research produces results fraught with uncertainty.
    But, the inherent uncertainty of the discipline should not be confused
    with creating regulatory doubt where other more reliable forms of date
    are available (e.g., toxicological and laboratory data), nor does it
    provide sufficient reason to question decisions based on the more
    substantial data. Determining ``cause and effect'' requires objective,
    reliable research (which may include consideration of the correlations
    suggested by epidemiology studies) to establish plausibility,
    mechanisms and endpoints.
        To date, EPA has not welcomed input from stakeholders on what we
    see as a systemic shift in science and process using questionable
    science. We are very trouble by the consequence of EPA's growing
    willingness to allow preliminary results of epidemiology studies to
    redirect fundamental regulatory policies and trump a large body of
    well-established scientific data. It calls into doubt the entire
    pesticide regulatory framework built on systematic toxicity and
    exposure studies, followed by rigorous risk assessment.

        Question 12. Approximately how many new products or product uses
    have been brought onto the market, and, how many products and uses have
    been restricted or effectively lost in the past 7 years?
        Answer. Products are brought onto and taken off the market for many
    reasons: some for business purposes by a manufacturer, and others
    compelled by EPA due to product use concerns.
        Most recently, our industry can point to the following as examples
    of where we believe EPA led or allowed actions that led to the
    inappropriate removal or restriction of a pesticide:

       Sulfoxaflor--litigation led to [temporary] withdrawal of
            registration, shortly after initial approval of the active
            ingredient.

       Enlist Duo--initial registration for use on 2,4-D tolerant
            soybeans in 2014 was limited to just six states, because of
            overly cautions [endangered species and drift] concerns. The
            following year, it was expanded to total of 15 states. That
            still leaves 35 states without access to this technology.

        Additionally, since 2008, EPA has reported all registration actions
    on agricultural active ingredients on the OPP website.

        Question 13. EPA is legally obligated to weigh the benefits of
    pesticide products, such as protection of the public health from
    disease-carrying pests, protection of our nation's buildings and
    infrastructure, and protection of the food supply. However, recent EPA
    activities appear to focus disproportionately on the hazard side of
    that assessment while discounting factors like exposure and benefits.
    What additional data can crop protection companies provide EPA in order
    to better account for pesticide benefits?
        Answer. We are pleased that EPA robustly defended the use of risk
    assessment in the face of the European Commission's hazard-based
    approach to the regulation of endocrine disruptors. There, EPA
    specifically opposed banning products that may pose a theoretical
    hazard, but which, in reality, pose negligible risks because people are
    not exposed to these products at levels that could cause adverse
    impacts.
    http://www.usda-eu.org/wp-content/uploads/2015/01/United-States-
    Submission-Endocrine-Disrupters-2015-01-20.pdf at p. 4. We have also
    seen recent instances where EPA is focusing too heavily on the
    potential hazard of crop protection products, without a meaningful
    discussion of exposure or benefits.
        On the exposure side, members are trying to provide more refined
    information on the location of crops, and therefore crop protection
    uses, in relation to listed species, because early examples of
    pesticide use/listed species co-occurrence are vastly over-estimating
    the potential for pesticide exposure to these species.
        We have seen models that vastly overestimate exposure to our
    products. For example, although we've supplied EPA with real world
    examples of water monitoring data, which has been routinely ignored for
    overly conservative modeling that cannot be validated and does not
    reflect conditions in the real world.
        FIFRA requires that EPA's benefits analysis be undertaken in the
    context of the risk assessment--the registration standard is a balance
    of risk and benefit. But recently, EPA stood that standard on its head
    by publishing a portion of an incomplete benefits assessment for public
    comment before the risk assessment was completed, without first
    requesting, receiving, or reviewing all available relevant data; and
    without incorporating those data into its analysis. This has resulted
    in a tremendous amount of confusion among growers and the public on the
    relative risks and benefits of neonicotinoid seed treatment for
    soybeans. It was unnecessary and counterproductive.
        Growers understand the benefits of pesticide use, and they don't
    buy products that do not need or that will not work--the marketplace is
    an effective regulator of product efficacy. For that reason, EPA has
    long declined to review the efficacy data that the statute requires and
    that pesticide developers produce and maintain. Our members are proud
    of the products they produce and the benefits they provide to farmers.
    We continue to offer to work with EPA to help them develop and
    implement ways that they can help the public better understand the
    benefits these products provide not only to growers, but to the public
    at large, and help put the legitimate risks that pesticides may pose in
    the proper context.

        Question 14. The President has stressed the importance and value of
    transparency in EPA's action to ensure the use of sound science and
    reliable data. EPA is increasingly reliant on epidemiological and
    modeling data to essentially overrule volumes of actual `hard science'
    laboratory and monitoring data. Was this fundamental change in policy
    put out for public notice and comment so that impacted stakeholders
    like you would have an opportunity to comment?
        Answer. EPA's did not clearly vet or seek public/stakeholder input
    prior to make the recently observed shift to reliance on the use of
    epidemiological data (i.e., observational data) over existing, verified
    laboratory and monitoring data.
        We are additionally concerned that the position for an expert and
    senior level epidemiologist within the Office of Pesticides Program
    (OPP) has yet to be filled. In order to fully evaluate the quality and
    most appropriate use of epidemiological data, EPA should ensure OPP has
    the expertise specific to that data's value and usefulness in the
    review of pesticides.

        Question 15. The United States has the world's most rigorous
    pesticide registration and review processes. Yet, when EPA's regulatory
    decisions are challenged in court, the Agency has not enjoyed many
    recent successes in defending its scientific process or decisions. Are
    these actions undermining EPA's credibility with the public?
        Answer. While it is true that there has been at least one court
    decision that has called into question how EPA documents its scientific
    processes in regulatory decisions, court decisions are complicated and
    often nuanced and should not undermine EPA's credibility with the
    public. However, certain environmental activist groups adamantly
    against any pesticide use have misconstrued and sensationalized such
    decisions to an extent that they may negatively affect how the public
    views EPA's credibility when regulating pesticides. Unfortunately, EPA
    has done little to combat these misperceptions and has, in some
    instances, taken actions that could further fuel public misconception.
        For instance, despite determining in a preliminary risk assessment
    that the pesticide imidacloprid poses little risk to bee health, the
    EPA press release on that preliminary risk assessment paints a very
    different picture. See ``EPA Releases the First of Four Preliminary
    Risk Assessments for Insecticides Potentially Harmful to Bees,''
    available at: https://www.epa.gov/pesticides/epa-releases-first-four-
    preliminary-risk-assessments-insecticides-potentially-harmful. The
    title alone makes it seem as though imidacloprid may likely cause harm
    to bees, a conclusion not supported by EPA's own scientific
    conclusions. As another example, on April 29, 2016, EPA posted on its
    website an in-depth 87 page Cancer Assessment Document that concluded
    glyphosate is not likely to be carcinogenic to humans. Without any
    explanation, however, that document was taken down from the website on
    May 2. (See http://monsantoblog.com/2016/05/02/monsanto-statement-once-
    again-epa-concludes-that-glyphosate-does-not-cause-cancer/.) EPA's
    removal of this final document does nothing but cause unnecessary
    speculation on the validity of EPA's decision.
        In sum, while it may be impossible to convince certain activists of
    EPA's credibility in regulating pesticides, EPA must stand behind its
    own scientific review processes and conclusions. EPA's recent failures
    in this respect do more harm to its credibility with the public than
    any recent court decision.

        Question 16. To what extent is EPA working with the regulated
    industry to improve EPA's ability to defend its pesticide registration
    requirements?
        Answer. It is important to note that all pesticides sold and
    distributed in the United States are regulated by the EPA under FIFRA
    and are registered (licensed) for use according to a safety standard
    that precludes any ``. . . unreasonable adverse effect on the
    environment.'' For pesticides that will be used on food or feed crops,
    the Federal Food Drug & Cosmetic Act (FFDCA) requires that EPA
    determine there is a reasonable certainty that no harm from exposure to
    pesticide residues. These standards are the strictest in the world and
    are a benchmark for regulation in other countries.
        To meet these standards, EPA conducts science-based risk
    assessments prior to registration of a pesticide active ingredient. EPA
    requires over 120 tests that examine the toxicity and environmental
    impacts of the pesticide. It then reviews the data for environmental,
    human health, and dietary risk. In addition to approving the use of the
    pesticide, EPA approves the label for the pesticide, which provides
    directions for use of the product to achieve effective pest control and
    to minimize environmental and human exposures. Once registered, a
    pesticide may be used only according to the label directions.
        EPA is required by law to review a pesticide registration every 15
    years, in a process that (1) requires current data using state-of-the
    art protocols and scientific techniques; (2) reviews studies available
    in the published literature; and (3) requires new risk assessments to
    ensure the registered pesticide complies with all modern policies and
    practices.
        All throughout this process, industry and EPA personnel work
    together to ensure that EPA has the information it needs to assess and
    determine whether a pesticide meets both the requirements of FIFRA and
    the FFDCA. Unfortunately, however, OPP has not been immune to EPA
    budget cuts and currently is severely understaffed and without
    necessary resources. Limited OPP resources has resulted not only in
    registration decisions being delayed well beyond Congressionally-
    imposed deadlines, but also in decisions that may not robustly lay out
    the scientific reasoning EPA used in making its decisions.
    Consequently, providing OPP additional resources to timely and robustly
    document registration decisions is the key to EPA's ability to defend
    its decisions. At a minimum, Congress should not cut the resources EPA
    has now, either through appropriations or the renewal of the Pesticide
    Registration Improvement Act, which directly funds OPP's registration
    process.

        Question 17. If the tools used to manage weeds and pests continue
    to be restricted, taken away, or prevented from getting to the market
    altogether, how does that benefit the economic and environmental
    viability of your members' operations?
        Answer. Unless EPA returns to operating within the legal boundaries
    and Congressional intent of FIFRA, including FQPA, pesticide users in
    agriculture, forestry, public health protection and others will lose
    access to existing products and uses, as well as see a decline in the
    number of new technologies coming into the market.
        Without regulatory process predictability and scientific
    transparency, we expect that EPA's shifted away from risk-based
    assessment toward reliance on hazard-only based precaution with compel
    the agency to continue limiting access to existing and new crop
    protection products. For CropLife members, that lack of business
    certainty negatively impacts our industry's ability to bring new,
    improved products to the market to address ever evolving pest threats.
    Research
        Question 18. USDA has begun implementing a two stage review process
    for competitive grants under the Specialty Crop Research Initiative.
    These two separate reviews take into account both relevancy to the
    industry and scientific peer review. Though not yet implemented, the
    law makes it clear that the relevancy review process should be applied
    to other competitive grants programs such as the Agricultural and Food
    Research Initiative--particularly for applied research grants. Do you
    think that producer support for these programs would grow if relevancy
    review were a component of the grant awards process?
        Answer. Yes. However, the SCRI Focus Area Priorities should also
    include improvements in regulatory processes and risk assessment. The
    application of scientific discoveries to agriculture is delayed, and
    often prevented, by overly-complex, unpredictable and often unnecessary
    regulatory requirements. In fact, the current regulatory system is a
    major threat to the ability of producers to access new innovations
    needed to remain competitive in the global market place and feed a
    growing world population. Improvements in regulatory systems for
    agricultural technologies should be a focus area for government
    research.

        Question 19. Increasing availability of funds for research is a
    common goal. Recognizing fiscal constraints though, are we focusing our
    resources on the correct priorities?
        Answer. Much of research funding is allocated based on peer review
    of competitive grants. By design, the process of awarding grants
    focuses more on rewarding novel scientific ideas, including basic
    research, and less on research with direct benefits to agriculture and
    food supply.
        The government should prioritize research funding for improving
    regulatory systems for pesticides and biotech traits. Currently, grower
    access to critically-needed technologies is delayed unnecessarily by
    overly complex and lengthy regulatory requirements.
        The government should increase funding for research that is aimed
    directly at increasing agriculture productivity. Further, we believe
    the return of research funding is maximized when it is focused on a
    defined set of priorities with defined targets and metrics for success.
        The government should increase funding for research aimed at
    providing growers with the broadest possible array of productivity
    tools including seed, traits, and pesticides.

        Question 20. Can you highlight some specific benefits from USDA
    research that your members have experienced?
        Answer. The USDA plant introduction stations have worked to expand
    genetic diversity of priority crops and facilitated their conservation
    and utilization in research and crop improvement.
        The USDA Plant Germplasm Preservation Research Unit conducts
    critical research on the preservation of genetic resources, including
    breeding lines for future generations, and shares its findings with a
    global network of gene-banks. These gene banks, including the
    ``doomsday seed vault'' in Svalbard, Norway, will ensure that genetic
    diversity, in public and private domains, is protected in the event of
    natural and man-made disasters.
        USDA ARS researchers continuously collaborate with their colleagues
    in the seed and pesticide industry to evaluate new product offerings
    for efficacy and value to growers. ARS research has helped understand
    interactions between pests and their host plants, and conducted
    valuable research to help delay pest resistance to pesticides and
    biotech traits.

        Question 21. Is information about research and technology
    advancements readily available and communicated within the agriculture
    community?
        Answer. There is significant room for improvement in this area.
    Much of the research conducted by ARS scientists is published in
    technical scientific journals, following the academic model. For many
    ARS scientists, career advancement is dependent on numbers of
    publications in scientific journals, just like their academic
    counterparts.
        For the most part, the agricultural community, including growers,
    does not seek information from technical articles in scientific
    journals since these tend to be difficult to understand and more
    focused on fundamental or basic research.
        Government scientists should be encouraged and rewarded for
    disseminating information to the agricultural community via face to
    face interactions, radio interviews and practical tools such as
    extension publications.
        The pesticide and seed industries have a tradition of reaching out
    directly to growers with information about new technologies. Examples
    of effective communications include grower winter meetings, summer
    field days, hands-on demonstrations, booths are farm shows and short
    technical bulletins.

        Question 22. To the extent that there are possible improvements in
    the way research information is disseminated, what suggestions would
    you have for USDA's research agencies to improve communication with
    producers?
        Answer. USDA's researchers should leverage existing communication
    channels between industry and producers to increase face to face
    interactions with farmers. The agriculture industry has a long and
    successful tradition of communicating with producers via winter
    meetings, field days and demonstrations. These interactions would
    provide local USDA staff with opportunities to get to know producers
    personally and would go a long way towards reducing the sense of
    mistrust that many producers feel towards government agencies. Also,
    producers have a lot to gain from receiving research information from
    industry, local extension agents and the USDA is one setting.

        Question 22a. Is the money being spent through the Agriculture and
    Food Research Initiative and the Specialty Crop Research Initiative
    going towards industry supported research?
        Answer. Even though for-profit organizations are eligible to
    receive Federal research funding including AFRI and SCRI, as far as we
    know, private companies do not seek such funding. However, many public
    institutions receive major research funding from Federal granting
    agencies. In many instances, university research programs are supported
    by multiple funding sources which may include private industry and
    Federal grants.

        Question 23. Many of the regulatory challenges highlighted in the
    hearing seem to be exacerbated by limitations in public understanding
    of risk. Are there ways Federal agencies and our land-grant
    universities can improve risk communication to consumers?
        Answer. Yes, the disconnect between science and the public's
    understanding of risk is fueling a mistrust of technology and an
    unfounded fear of safe and effective agricultural innovations. Some
    land-grant universities are at the forefront of improving the public's
    understanding of risk and debunking myths about agricultural
    innovations. However, there are too few scientists in universities or
    Federal agencies who are trained in communications or possess the
    needed tools.
        Federal agencies have a key role to play by funding efforts to
    increase public awareness of the safety and nutritional value of
    products of American agriculture. Funding should be targeted at
    educational programs aimed at combining communication and science
    training.
        Agencies and universities should also reach out to consumers via
    social media and respond to the steady barrage lies about the safety of
    our food. Agencies should do more to inform consumers that: (1) our
    food supply is among the safest in the world, (2) U.S. consumers spend
    a lower portion of their income on food than those in most countries,
    (3) U.S. consumers enjoy year-round access to an ever-expanding array
    of diverse and nutritional foods and ingredients, and (4) these
    benefits would not be possible without current and future agricultural
    innovations in pesticides and biotechnology.
    Farm Bill
        Question 24. What are your top priorities for Congressional
    oversight of programs affecting your members?
        Answer. Regulatory burdens on American agriculture have continued
    to grow over the past several years. While pesticide law and regulation
    have not been a traditional component of farm bills past, it is
    nevertheless clear that the regulatory burdens in this space have also
    escalated and numerous recent Agency actions with respect to pesticide
    regulation call into question the Agency's transparency and adherence
    to sound science within the framework of risk-based regulation as
    defined in the Federal Insecticide, Fungicide, and Rodenticide Act
    (FIFRA). Consequently, the prospects for the next farm bill oversight
    and negotiation provide a critical platform for review and debate on
    this specific topic.
        Stakeholder input, Agency transparency, grower impacts and
    consequences, and the very foundations of adhering to current law
    (FIFRA) with respect to risk-based regulation are all ripe for
    Agriculture Committee oversight and engagement within the scope and
    context of the next farm bill. We welcome the opportunity to work
    closely with the Agriculture Committee to ensure that future Agency
    actions protect human health and the environment AND that a predictable
    process for bringing new chemistries to the market is preserved to
    ensure that American agriculture has the critical and necessary tools
    for modern agricultural practices.
    Citrus Pest/Disease and Pollinators
        Question 25. We have heard about the devastating impacts citrus
    greening has had on the citrus industry. Can you elaborate on the
    research being conducted to combat citrus greening?
        Answer. The impact of the Asian citrus psyllid-vectored phloem-
    limited bacteria Candidatus Liberibacter asiaticus (Clas) has been the
    subject of a focused research program managed by the Citrus Research
    and Development Foundation in Florida. This foundation was created in
    response to recommendations of a National Academy of Sciences Study
    commissioned by the Florida industry when this disease was first
    discovered in Florida in 2005. The research program is an
    internationally coordinated and focused process to leave no stone
    unturned as the Industry searches for solutions to management of this
    devastating disease. The industry's production in Florida has decreased
    by almost 50% since the 2007 crop season. (159 Million boxes to less 80
    Million boxes). Coupled with this loss of production has been increased
    costs of management attempts to control the spread of the disease and
    delay of the decline in infected tree. The CRDF Process has been a very
    effective process in developing the targeted lines of research to date.
    The Federal Government has been supportive of this effort through
    targeted funds directed toward several of the lines of research being
    developed.
        The spectrum of research goes from basic production practices to
    maximize production while minimizing the impacts of the disease through
    cutting edge developments in genomics and advanced breeding techniques
    to confer resistance or tolerance to the disease or genetic tools to
    modify the capacity for vectoring the disease. A complete list of
    funded research is available on the CRDF website.
        While this is a Florida based organization it does not limit the
    scope of its programs to Florida. Researchers from all global
    production regions are engaged. A national Citrus Research Coordinating
    Committee is one of the advisory committees involved in the review and
    decision process to assure all bases are covered.
        Since 2005 a biannual international conference on HLB has been held
    in central Florida to bring the global research community together to
    build a networked and coordinated research program to expedite movement
    of solutions from the research lab to the field.

        Question 26. Do you have any particular recommendations on how to
    expedite the development and implementation of citrus greening control
    technologies and strategies?
        Do you see any particular road blocks that are slowing progress in
    combating citrus greening?
        Considering the recent revocation of pesticide product
    registrations, has industry's ability to combat the spread of citrus
    greening been affected?
        Answer. The regulatory agencies in the U.S. have for the most part
    been very supportive of removing barriers to the development
    commercialization of tools to manage the pest vector and the disease.
    There are newly emerging technologies that may provide a measure of
    support in managing or controlling this devastating pest complex. Some
    of these are nanotechnology, RNAi technology, and genomic targeted
    technology based breeding techniques that will need to be sheparded
    through the process of regulatory oversight and regulatory decision
    making.
        The major road blocks that become apparent over the past few years
    have been mainly litigation driven and were not specifically directed
    toward the uses and regulatory approvals associated with use in Citrus.
    These unintended results of policy changes and proposed mitigation
    programs developed in response to litigation have created uncertainties
    over tools that are important in management of the Asian Citrus
    Psyllid.

        Question 27. Getting and keeping pesticide uses for individual
    specialty crops like citrus is especially challenging for growers and
    manufacturers. Has EPA expressed concern about pesticide residues on
    citrus trees as problem for bees?
        Answer. Citrus has been specifically identified by EPA and USDA as
    a Bee attractive crop. This is primarily due to the concentrated bloom
    and ready source of nectar that serves as a source of ``Orange
    Blossom'' honey. This results in many hives of managed honey bees being
    placed in proximity to citrus during this bloom period. With some of
    the proposed mitigation practices associated with EPA's recent
    announcement for mitigation of acutely toxic compounds could have
    significant impacts depending on how these practice mitigation
    proposals are implemented.

        Question 28. Do citrus crops rely on pollinators?
        Answer. No, citrus crops produce abundant fruit without pollination
    by honey bees. For some varieties of tangerines, pollination by honey
    bees is actually undesirable, as it leads to seed production in the
    fruit, which consumers do not want. Honey produced by bees that forage
    in citrus orchards is of high quality and commands a premium price from
    consumers. Thus, beekeepers need the citrus orchards to produce this
    premium honey, but citrus growers do not need the honey bees to produce
    a crop.
        In Florida, there are some indications that for certain specialty
    citrus varieties yield may be enhanced through the presence of managed
    hives in the grove. The relationship between Beekeepers and Citrus
    producer in Florida has traditionally been informal at best. This
    process has come under a more formal process in the past 3 years. Both
    industries have regulatory oversight through the Florida Department of
    Agriculture and Consumer Services.

        Question 29. What practices are in place to ensure that pesticides
    are not applied when pollinators may be present?
        Answer. Where pesticide application to crops while honey bees are
    present would be a problem, the pesticide product label carries the
    appropriate instructions and precautions that the applicator must
    follow to protect the bees. Such instructions take into account the
    time of season when pertinent pest problems occur, relative to
    flowering; the toxicity of the product to bees; the persistence of the
    product on the crop foliage; and other production practices. As
    necessary, application of the pesticide may be prohibited while the
    crop is in flower, or it may be limited to evening and night-time when
    bees are not foraging in the fields.
        For example, a voluntary program was initiated in Florida by FDACS
    in 2015; it is based on the Citrus Health Management Areas implemented
    under the recommendation of the NAS report that encouraged the
    coordinated large area applications of insect control measures for
    Asian citrus psyllid to limit the movement and spread of infected
    psyllids and the registration requirements for managed hives in Florida
    managed under the State Apiarist office within the Division of plant
    industries. It is based on the presence of bloom for attractiveness to
    bees with a process utilized that was recommended by the beekeepers to
    determine the bloom period. It is defined by 10% bloom to 90% petal
    fall and during this period pesticide applications are controlled. The
    voluntary program depends on establishment of a dialogue pathway
    between beekeepers and growers with in the production areas. The
    primary focus of these programs is the prevention of direct
    applications to concentrated of hives in the production areas. It also
    provides recommendations for timings of applications to preclude
    exposure to large numbers of foraging bees.

                           FOCUS ON THE FARM ECONOMY

                         (FOOD PRICES AND THE CONSUMER)

                                  ----------

                            THURSDAY, APRIL 28, 2016

                      House of Representatives,
                                     Subcommittee on Nutrition,
                                      Committee on Agriculture,
                                                       Washington, D.C.
        The Subcommittee met, pursuant to call, at 2:00 p.m., in
    Room 1300 of the Longworth House Office Building, Hon. Jackie
    Walorski [Chairwoman of the Subcommittee] presiding.
        Members present: Representatives Walorski, Gibbs, Hartzler,
    Benishek, Davis, Abraham, Moolenaar, Conaway (ex officio),
    McGovern, Adams, Ashford, and DelBene.
        Staff present: Callie McAdams, Jadi Chapman, Mary Nowak,
    Mollie Wilken, Stephanie Addison, Lisa Shelton, and Nicole
    Scott.

    OPENING STATEMENT OF HON. JACKIE WALORSKI, A REPRESENTATIVE IN
                         CONGRESS FROM INDIANA

        The Chairwoman. Good afternoon, and welcome to today's
    Nutrition Subcommittee hearing. Thank you to everyone today for
    taking the time to be here and a special thanks to our
    witnesses for lending us their expertise. Today's hearing is
    the fourth in a series, held by each Subcommittee, taking a
    look at the state of the farm economy. This Subcommittee is
    focusing, in particular, on food prices and how every consumer
    is impacted by the economic conditions in farm country.
        The United States has the safest, most abundant, most
    affordable food supply in the world. There are many factors
    that contribute to this. We are blessed with a large amount of
    fertile land to farm, innovative minds that have pioneered
    technologies to increase yields, and an infrastructure network
    that gets products to market quickly and efficiently.
        One factor that tends to be overlooked is the role of
    effective farm policies in keeping prices affordable and stable
    for consumers. While the average American spends 9.8 percent of
    their disposable income on food, those with lower incomes, who
    are already estimated to spend 34 percent of their disposable
    income on food, are much more susceptible to swings in food
    prices. For them, an increase in the price of food means
    foregoing other needed purchases.
        So what goes into determining the price of the food we buy?
    From the farm to your plate, what costs are incurred along the
    way? And how much of what you pay at the grocery store for that
    corn from Indiana or rice from Arkansas flows back to the
    farmer?
        Today, we will examine the whole food supply chain from a
    high level. We will look at the role of farm policy in keeping
    prices stable and at factors that are threatening that
    stability. Finally, we will consider the relationship between
    food prices and disposable income, especially as it relates to
    low-income Americans. We are all well aware that the farm bill
    expires next Congress. As we gear up for that process, it is
    crucial to arm ourselves with facts that will help inform our
    decisions in this Committee and educate our colleagues on the
    importance of farm policies when the time comes for a vote in
    the full House.
        I look forward to hearing from our distinguished panel
    today. Before I conclude, I want to extend a warm welcome in
    particular to a fellow Hoosier that will be testifying today,
    Dr. Jason Henderson from Purdue University. Dr. Henderson is an
    Associate Dean at the College of Agriculture and the Director
    of Purdue Extension. He previously served as Vice President at
    the Federal Reserve Bank of Kansas City, where he tracked the
    agricultural and rural economies. He is an asset to Purdue and
    the State of Indiana and I am thrilled you are here as we
    explore this topic.
        [The prepared statement of Mrs. Walorski follows:]

        Prepared Statement of Hon. Jackie Walorski, a Representative in
                             Congress from Indiana
        Good morning and welcome to today's Nutrition Subcommittee hearing.
    Thank you to everyone for taking the time to be here and a special
    thanks to our witnesses for lending their expertise.
        Today's hearing is the fourth in a series, held by each
    Subcommittee, taking a look at the state of the farm economy. This
    Subcommittee is focusing, in particular, on food prices and how every
    consumer is impacted by the economic conditions in farm country.
        The United States has the safest, most abundant, most affordable
    food supply in the world. There are many factors that contribute to
    this. We are blessed with a large amount of fertile land to farm,
    innovative minds that have pioneered technologies to increase yields,
    and an infrastructure network that gets products to market quickly and
    efficiently.
        One factor that tends to be overlooked is the role of effective
    farm policies in keeping prices affordable and stable for consumers.
    While the average American spends 9.8% of their disposable income on
    food, those with lower incomes, who are already estimated to spend 34%
    of their disposable income on food, are much more susceptible to swings
    in food prices. For them, an increase in the price of food means
    foregoing other needed purchases.
        So what goes into determining the price of the food we buy? From
    the farm to your plate, what costs are incurred along the way? And how
    much of what you pay at the grocery store for that corn from Indiana or
    rice from Arkansas flows back to the farmer?
        Today, we will examine the whole food supply chain from a high
    level. We will look at the role of farm policy in keeping prices stable
    and at factors that are threatening that stability. Finally, we will
    consider the relationship between food prices and disposable income,
    especially as it relates to low-income Americans.
        We are all well aware that the farm bill expires next Congress. As
    we gear up for that process, it is crucial to arm ourselves with facts
    that will help inform our decisions in this Committee and educate our
    colleagues on the importance of farm policies when the time comes for a
    vote in the full House.
        I look forward to hearing from our distinguished panel.

        The Chairwoman. I would now like to recognize Ranking
    Member McGovern for his opening statement.

     OPENING STATEMENT OF HON. JAMES P. McGOVERN, A REPRESENTATIVE
                     IN CONGRESS FROM MASSACHUSETTS

        Mr. McGovern. Well thank you very much, Chairwoman
    Walorski, and I want to thank all the witnesses for being here
    today. I am looking forward to hearing from each of you.
        Today's topic, food prices, is an important one, and it is
    one that we really haven't discussed much in previous hearings.
    It is important for us as Members to understand the entirety of
    the food system. It is a complex system, but by and large, it
    is an efficient and effective system. It really is a testament
    to the resiliency and hard work of our farmers and ranchers,
    processors and retailers that we have such a strong farm
    economy, stable and affordable food prices, and such a depth of
    choice and diversity when it comes to the food that we eat.
        But it is important to keep in mind that what many of us
    here often take for granted, easy access to big supermarkets,
    specialty markets, and even farmers' markets is not available
    to everyone in this country, particularly to low-income and
    rural communities. And low-income households are particularly
    sensitive to even minor fluctuations in food prices, as they
    think about how to stretch their food dollar further. During
    the last farm bill, there were attempts to split the nutrition
    title and SNAP from the rest of the farm bill. But I always
    remind people that it is our farmers who grow the food we eat,
    and you can only use SNAP to buy food. So there is a close link
    between our farmers and our Federal food assistance programs.
    It is important that we recognize that relationship.
        So with that, I look forward to your testimony, and I yield
    back my time.
        The Chairwoman. The chair would request that other Members
    submit their opening statements for the record so the witnesses
    may begin their testimony, and to ensure that there is ample
    time for questions.
        The chair would also like to remind Members that they will
    be recognized for questioning in order of seniority for the
    Members who were here at the start of the hearing. After that,
    Members will be recognized in order of arrival. I appreciate
    Members' understanding.
        Witnesses are reminded to limit their oral statements to 5
    minutes. All of the written statements will be included in the
    record. Before I introduce our distinguished panel, I want to
    welcome the Chairman of the Agriculture Committee, Chairman
    Conaway. Thanks for being here today.

    OPENING STATEMENT OF HON. K. MICHAEL CONAWAY, A REPRESENTATIVE
                         IN CONGRESS FROM TEXAS

        Mr. Conaway. I thank you, and I thank our panelists for
    being here. I look forward to their testimony.
        The Chairwoman. I would like to welcome our panel of
    experts to the table.
        Dr. Jason Henderson, as I said before, Associate Dean and
    Director of Purdue Extension, College of Agriculture, West
    Lafayette, Indiana; Dr. Ephraim Leibtag, Assistant
    Administrator, Economic Research Service, U.S. Department of
    Agriculture, Washington, D.C.; and Mr. Andrew Harig, Senior
    Director of Sustainability, Tax, and Trade, Food Marketing
    Institute, Arlington, Virginia.
        Dr. Henderson, please begin when you are ready.

      STATEMENT OF JASON R. HENDERSON, Ph.D., ASSOCIATE DEAN AND
    ASSISTANT VICE PRESIDENT OF ENGAGEMENT, COLLEGE OF AGRICULTURE,
                           PURDUE UNIVERSITY;
       DIRECTOR, COOPERATIVE EXTENSION SERVICE, PURDUE UNIVERSITY

        Dr. Henderson. Chairwoman Walorski, Ranking Member
    McGovern, and Members of the Subcommittee, thank you for this
    opportunity to speak with you today. As a representative of
    Purdue Extension, our ability to provide life enhancing,
    research-based educational opportunities hinges on our Federal,
    state, and local partnerships, and these partnerships are
    delivering positive impacts.
        A recent study finds that cooperative extension through the
    Smith-Lever Act kept almost 140,000, or 28 percent more farmers
    from disappearing in U.S. agriculture over the past 3 decades.
    In addition in Indiana, funding for SNAP-Ed and FNEP has
    allowed Purdue Extension to deliver the Nutrition Education
    Program, which has reduced food insecurity by 25 percent for
    program participants. I thank you for your support of USDA,
    NIFA, land-grant universities, and the cooperative extension
    system, which allows us to partner and to enhance lives and
    livelihoods across the nation.
        My comments today will focus on the farm economy and its
    impact on food prices, consumers, particularly those in rural
    communities.
        The combination of sluggish global export demand, flat
    domestic ethanol consumption, burgeoning global supplies, and
    elevated production costs is a recipe for plummeting farm
    revenues and profits. Although farm cycles are common, each
    cycle is unique, and one of the unique features of this cycle
    is the farm safety net. Past farm support often emerged in the
    form of price-related subsidies and supply management, which
    were often criticized, in part, for their impacts on consumers.
    Today, a more market-oriented strategy based on crop insurance
    is the foundation of the safety net, and although crop
    insurance programs have existed since the 1930s, farm crop
    insurance subsidies have increased sharply, raising questions
    about who benefits. And a recent study indicates that while
    taxpayers pay, U.S. farm consumers benefit and would lose $2.5
    billion in economic value if crop insurance subsidies would
    disappear.
        U.S. consumers could also benefit from more stable food
    prices. Low-income consumers who spend a large portion of their
    income on food could benefit the most. However, the benefits
    could be muted for those households living in food deserts,
    locations with limited access to retail stores, such as grocery
    stores. These households could face higher food costs and have
    additional challenges achieving better health outcomes.
        Educational programs for low-income households do help them
    access food and reduce food insecurity. As previously
    mentioned, the Nutrition Education Program reduced food
    insecurity by teaching people how to stretch their food dollar
    and eat healthier food on a limited budget. The Healthy Food
    Systems, Healthy People Initiative of the APLU is another
    example of how partnerships between Federal, state, and local
    agencies, academia, industry, community organizations, and
    local health practitioners can help people make better food
    choices and deliver better health outcomes.
        Declining farm profits cast a ripple effect on the rural
    consumer. Farm capital spending has plummeted, and farm
    households are spending less on Main Street. If poverty rates
    follow those during the 1980s farm crisis, rural poverty rates
    could rise even further. And what is most alarming to me is
    that even during the current farm bill, rural poverty rates
    rose, even in the Midwest, where child poverty rates reached
    20.4 percent in 2013, the peak of the farm bill. Child poverty
    is a multi-dimensional challenge, often rooted in economic,
    social and family issues. Building local and regional capacity
    for economic development is crucial, and through USDA's
    Strengthening Economies Together program, Purdue Extension is
    partnering to help identify community assets that can be
    leveraged into seizing emerging opportunities in rural
    communities. This is just one example in rural development.
        One social issue that we are tackling at Purdue Extension
    is teen drug abuse. We are addressing it by launching the
    Strengthening Families program for parents and youth 10 to 14
    that have been proven to reduce teen drug abuse by
    strengthening parent/teen relationships. In fact, for every
    dollar spent on this program, communities receive almost $10 in
    benefits in the form of less time and treatment, less jail
    time, and less time off work. And youth programs are
    increasingly focused on career readiness. The partnerships with
    government agencies, industry, and nonprofits, Indiana 4-H has
    increased its focus on science education, healthy living to
    prepare youth for future opportunities. For example, in 2013,
    most of the 4-H youth that graduated high school plan to
    continue their education, and 26 percent of them were first
    generation college students. So when you think about dealing
    with rural economies and rural consumers, it is about the
    economy, it is about social issues, it is about the family.
        So in sum, U.S. farmers are facing substantial declines in
    farm profits and crop insurance is the primary safety net for
    U.S. agriculture, and it also appears to benefit U.S.
    consumers. More stable food prices will benefit consumers,
    especially those in low-income households. Yet, those living in
    food deserts may be at a disadvantage, which makes Nutrition
    Education Programs critical. And finally, plummeting farm
    incomes are going to strain rural poverty rates, which are
    already high. And so these approaches often require
    partnerships between government agencies at all levels,
    academic institutions such as land-grants, nonprofits,
    philanthropic entities, industry.
        And on behalf of Purdue Extension, thank you for allowing
    us to be at the heart of many of these partnerships, and I am
    pleased to address any questions that you may have.
        [The prepared statement of Dr. Henderson follows:]

      Prepared Statement of Jason R. Henderson, Ph.D., Associate Dean and
    Assistant Vice President of Engagement, College of Agriculture, Purdue
     University; Director; Cooperative Extension Service, Purdue University
        Chairwoman Walorski, Ranking Member McGovern, and Members of the
    Subcommittee, thank you for the opportunity to speak with you today. As
    a representative of Purdue Extension, I am privileged to work for an
    institution that provides research-based educational opportunities that
    enhance the lives and livelihoods of farmers and consumers throughout
    Indiana, the U.S. and the world. Our ability to provide life enhancing
    educational opportunities hinges on our Federal, state, and local
    partnerships. I thank you for your support of USDA, NIFA, the land-
    grant university system, and Cooperative Extension. Through your
    support, Cooperative Extension service has been able to provide
    educational opportunities that have kept farmers on the farm \1\ and
    reduced food insecurity in U.S. households.\2\ My comments today will
    focus on the farm economy, food prices, and the consumer.
    ---------------------------------------------------------------------------
        \1\ Goetz, Stephan J. and Meri Davlasheridze. (2016). ``State-Level
    Cooperative Extension Spending and Farmer Exits'' Applied Economic
    Perspectives and Policy, April 19, 2016. Downloaded April 25, 2016.
        \2\ Rivera, R.L., & Eicher-Miller, H. (2015). P115 Food Security
    Among Households With Children Improved Following a Nutrition Education
    Intervention. Journal of Nutrition Education and Behavior, 47(4S).
    ---------------------------------------------------------------------------
    Farm Profitability
        Profitability in the U.S. farm economy has fallen sharply in recent
    years. In 2016, U.S. farm profitability, as measured by net farm income
    is expected to drop to $49 billion, down 57 percent from 2013 highs
    (Chart 1). The Economic Research Service (ERS) at the U.S. Department
    of Agriculture (USDA) projects total U.S. farm income to rise over the
    next decade with net farm income approaching $70 billion by 2025. Yet,
    these income levels will remain 40 percent below the booming profit
    levels farmers enjoyed between 2011 and 2013.
    Chart 1: U.S. Net Farm Income
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

              Calculations based on Net Farm Income data from Economic
            Research Service, U.S. Department of Agriculture and Consumer
            Price Inflation data from the Bureau of Labor Statistics.

        The decline in farm profitability was more severe than expected. In
    February 2015, USDA projected farm profits to decline to $84.2 billion
    in 2015.\3\ By the end of the year, farm profits had fallen to $56
    billion.
    ---------------------------------------------------------------------------
        \3\ Westcott, Paul and Janes Hansen. (2015). ``USDA Agricultural
    Projections to 2024.'' Office of the Chief Economist, World
    Agricultural Outlook Board, U.S. Department of Agriculture. Prepared by
    the Interagency Agricultural Projections Committee. Long-term
    Projections Report OCE-2015-1, 97 pp. Downloaded April 25, 2016.
    www.ers.usda.gov/publications/oce-usda-agricultural-projections/
    oce151.aspx.
    ---------------------------------------------------------------------------
        The unexpected decline in farm profitability was driven by a drop
    in U.S. farm commodity prices. Farm prices received by farmers have
    fallen more than ten percent from 2014 highs, with the sharpest
    declines for crop producers (Chart 2). By the spring of 2015, prices
    received for crop production plummeted more than 25 percent below
    recent highs in 2013, with further declines in the fall of 2015. The
    combination of flat global and domestic demand and burgeoning supplies
    slashed farm revenues and profits. The fall in revenues was driven by
    sluggish demand for U.S. farm exports and ethanol. Simultaneously,
    global agricultural production surged in response to previously high
    agricultural commodity prices.
    Chart 2: Prices Received and Paid by Farmers
    Index 2011=100
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

              Source: National Agricultural Statistics Service, U.S.
            Department of Agriculture.

        At the same time, farm production costs remained historically high.
    The prices paid by farmers remained elevated as input prices paid by
    farmers declined only six percent below 2014 highs (Chart 2), which
    trimmed intermediate product expenses for farmers. However, contract
    labor and factor payments to stakeholders, which includes landlords,
    hired labor, and interest expenses, continued to rise in 2015 with
    further increases expected in 2016. Payments to stakeholders are
    expected to increase by 4.8 percent. Interest expenses are projected to
    jump another 6.8 percent in 2016 after an 18 percent rise the previous
    year. Labor costs are projected to rise 5.0 percent and net rents to
    landlords are expected to rise 2.9 percent after declining in 2015. The
    combination of falling revenues and historically high expenses trimmed
    U.S. farm profits.
        Sharp declines in U.S. farm profitability are not uncommon.
    Historically, farm profitability is cyclical. Since 1900, the U.S. farm
    economy has experienced four farm profit booms: 1910s, 1940s, 1970s,
    and 2010s. Two of those booms ended in farm busts. The 1910s farm boom
    collapsed in the 1920s after World War I with the bust extending
    through the Great Depression. The 1970s farm boom ended with the farm
    financial crisis of the 1980s. One unique feature of the current farm
    boom was the speed by which farm profitability disappeared. The value
    of agricultural production has fallen more sharply in the current farm
    cycle. Three years after its peak, the value of agricultural production
    is down more than 20 percent in the current cycle (Chart 3). In
    contrast, during the 1970/1980s cycle, the value of agricultural
    production declined a more modest ten percent in the first 3 years of
    the farm economy downturn of the 1980s. However, during the 1980s farm
    bust, farm incomes continued to decline 7 years after the farm income
    peak in 1979.
    Chart 3: Value of U.S. Agricultural Production
    Index Peak Year=100
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

              Calculations based on Economic Research Service, U.S.
            Department of Agriculture.
              Note: the Peak year for the 1970/1980s cycle was 1979 and the
            Peak year for the 2000/2010s cycle is 2013.

        Another unique feature of the current farm downturn is the
    structure of the farm safety net. Past farm downturns underpinned farm
    policies that often used price-related subsidies and supply management
    to support U.S. farm profitability. As profitability plummeted in the
    1920s, farm policy incorporated price subsidies for farmers, such as
    the 1922 Grain Futures Act, the 1929 Agricultural Marketing Act, and
    the 1933 Agricultural Adjustment Act. During the farm bust of the
    1980s, various farm policies were enacted that provided more government
    control of agricultural production through set aside acres and price
    related subsidies. In fact, direct government payments to farmers
    jumped to $17.3 billion in 1983, up from $6.7 billion in 1982 and $2.8
    billion in 1980.\4\ These farm subsidy programs were often criticized
    for their adverse impacts on restrictions on international trade and
    for costs for consumers and taxpayers.\5\
    ---------------------------------------------------------------------------
        \4\ Direct government payments are measured in real 2009 dollars.
        \5\ Sumner, Daniel A. (2008). ``Agricultural Subsidy Programs''
    (http://www.econlib.org/library/Enc/AgriculturalSubsidyPrograms.html).
    In David R. Henderson (https://en.wikipedia.org/wiki/
    David_R._Henderson) (ed.). Concise Encyclopedia of Economics (https://
    en.wikipedia.org/wiki/Concise_Encyclopedia_of_Economics) (2nd ed.).
    Indianapolis: Library of Economics and Liberty (https://
    en.wikipedia.org/wiki/Library_of_Economics_and_Liberty). ISBN (https://
    en.wikipedia.org/wiki/International_Standard_Book_Number) 978-
    0865976658 (https://en.wikipedia.org/wiki/Special:BookSources/978-
    0865976658). OCLC (https://en.wikipedia.org/wiki/OCLC) 237794267
    (https://www.worldcat.org/oclc/237794267). Downloaded, April 25, 2016.
    ---------------------------------------------------------------------------
    Chart 4: Direct Government Payments Share of Net Farm Income
    Percent
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

              Calculations based on Economic Research Service, U.S.
            Department of Agriculture.

        By the mid-1990s, U.S. agricultural policy shifted to a more
    market-oriented farm safety net based in large part on crop insurance.
    The FAIR Act of 1996 started this transition \6\ and after twenty years
    and several farm bills, the share of farm income due to director
    government payments has diminished (Chart 4). Although farm incomes
    have fallen more sharply in the current cycle, direct government
    payments are expected to rise less dramatically. For example, direct
    government payments are projected to reach 25 percent of net farm
    income in 2016 compared to a spike of 65 percent in 1983 and an average
    of 40 percent between 1983 and 1988.
    ---------------------------------------------------------------------------
        \6\ Tweeten, Luther and Carl Zulauf. (1997). ``Public Policy for
    Agriculture after Commodity Programs.'' Review of Agricultural
    Economics. (19)2, pp. 263-280.
    ---------------------------------------------------------------------------
        In recent years, crop insurance has emerged as a main safety net
    for U.S. crop producers. Crop insurance programs have existed since the
    Dust Bowl of the 1930s.\7\ Coverage remained limited until the Federal
    Crop Insurance Reform Act of 1994 required crop insurance coverage for
    some other disaster assistance programs. Federal crop insurance
    premiums are subsidized and have increased in recent years. For
    example, government costs for premium subsidies and operating costs
    have increased from $2.8 billion in 2003 to $7.8 billion in 2014 (Chart
    5). The costs of crop insurance are projected to decline further in
    2016 with lower commodity prices.8-9
    ---------------------------------------------------------------------------
        \7\ Shields, Dennis (2015) ``Proposals to Reduce Premium Subsidies
    for Federal Crop Insurance'' Congressional Research Service Report, 7-
    5700, R43951.
        \8\ Congressional Budget Office (2015). ``CBO's March 2015 Baseline
    for Farm Programs'', March 9, 2015. Downloaded April 25, 2016.
    www.cbo.gov/sites/default/files/51317-2015-03-USDA.pdf.
        \9\ Food and Agricultural Policy Research Institute (2015). ``U.S.
    Baseline Briefing Book: Projections for Agricultural and Biofuel
    Markets'' FAPRI-MU Report #02-16, March. Downloaded April 25, 2016.
    www.fapri.missouri.edu/wp-content/uploads/2016/03/FAPRI-MU-Report-02-
    16.pdf.
    ---------------------------------------------------------------------------
    Chart 5: Government Costs for Crop Insurance Premiums
    Billion Dollars
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

              Source: Risk Management Association, Congressional Budget
            Office and Food and Agricultural Policy Research Institute.

        A recent study has shown that the removal of crop insurance would
    hurt U.S. food consumers. Based on 2013 data, eliminating crop
    insurance subsidies would result in lower participation rates and
    reduced food production that would underpin higher food prices.\10\ It
    was estimated that U.S. food consumers would lose $2.5 billion in
    welfare value if crop insurance subsidies would decline with addition
    welfare losses to foreign consumers. In addition, U.S. farmers and
    agricultural producers would lose roughly $8 billion in welfare gains
    through the loss of subsidies. To be sure, U.S. taxpayers would benefit
    from the elimination of crop insurance premium subsidies, yet the net
    general welfare gains would be $932 million. Although, there was
    recognition that the benefits would vary across farm commodity,
    consumer food prices, and U.S. states, the analysis was not able to
    identify the distribution of benefits.
    ---------------------------------------------------------------------------
        \10\ Jayson L. Lusk. 2015 ``Distributional Effects of Selected Farm
    and Food Policies: The Effects of Crop Insurance, SNAP, and Ethanol
    Promotion.'' Mercatus Working Paper, Mercatus Center at George Mason
    University, Arlington, VA, April 2015.
    ---------------------------------------------------------------------------
        With the focus on crop insurance and market-based safety, farmer
    education programs have focused on risk management issues to help
    farmers manage farm margins during this downturn. At Purdue Extension,
    the Center for Commercial Agriculture has partnered with the Indiana
    Soybean Alliance to produce on-line resources to help producers
    understand, evaluate, and manage risk.\11\ In 2015, the Farm Service
    Agency partnered with the Cooperative Extension Services across the
    nation to provide farm bill training and educational opportunities to
    help farmers understand various risk management strategies. These
    partnerships are the continuation of long-standing educational programs
    that support farm profitability. Funding for the state Cooperative
    Extension System through the Smith-Lever Act was found to have kept
    almost 137,700 or 28 percent more farmers from disappearing in U.S.
    agriculture from 1983 to 2010.\12\
    ---------------------------------------------------------------------------
        \11\ Information on the partnership between the Center for
    Commercial Agriculture and Indiana Soybean Alliance is available at
    www.farmriskresources.com.
        \12\ Goetz, Stephan J. and Meri Davlasheridze. (2016). ``State-
    Level Cooperative Extension Spending and Farmer Exits'' Applied
    Economic Perspectives and Policy, April 19, 2016. Downloaded April 25,
    2016.
    ---------------------------------------------------------------------------
    Farm and Consumer Food Prices
        In addition to slashing farm incomes, weaker commodity prices will
    place downward pressure on U.S. consumer food prices. However, consumer
    prices do not fluctuate as widely as farm level prices. As a result,
    falling commodity prices at the farm level are more likely to translate
    into slower growth in consumer food prices, not lower consumer food
    prices.
        Historically, food prices at various stages of the food system tend
    to move together. The correlation between farm prices and producer
    prices remains strong (Chart 6). Using data from 1976 to 2015, the
    correlation between prices received by farmers and crude foodstuffs is
    0.96; and the correlation between farm prices and producer prices for
    intermediate and consumer foods is 0.81 and 0.79, respectively. The
    correlation between farm level prices and consumer price inflation
    (CPI) for food is weaker, 0.39.
        The correlations between farm and producer prices for food have
    strengthened over the past 2 decades. For example, between 1976 and
    1995, the correlation between farm level prices and finished consumer
    foods was 0.71. Between 1995 and 2015, the correlation between farm
    level prices and finished consumer food prices strengthened to 0.93. A
    similar trend emerged between farm level prices and other producer
    prices (unprocessed foods and intermediate foods).
    Chart 6: U.S. Farm Prices and Producer Prices for Food
    Percent Change from Previous Year
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

              Source: Economic Research Service, U.S. Department of
            Agriculture.

        Although farm level and producer prices are highly correlated, farm
    level prices demonstrate more volatility than processed producer and
    consumer prices. Farm level prices and producer prices for unprocessed
    foodstuffs have fluctuated widely over the past decade increasing over
    20 percent in 2007 and 2011 and plummeting almost 20 percent in 2009.
    At the same time, producer prices for finished consumer foods rose less
    than ten percent in 2007 and 2011 and edged down slightly in 2009.
    Consumer prices for food (CPI-food) followed similar patterns as the
    producer prices for finished consumer goods, but instead of falling in
    2009, the CPI-food rose more slowly.
        Consumer food prices tend to have less volatility due to the
    stability in other processing and marketing costs. According to USDA,
    farmers received 14.3 percent of the U.S. food bill, with other
    industry segments such as food services, food processing and wholesale
    and retail trade accounting for larger portions of the consumer food
    bill. Due to less processing, consumer foods, such as fresh fruit and
    vegetables, meats, and dairy, tend to have stronger correlations
    between farm level prices and consumer prices. For example, the
    correlation between farm level beef prices and consumer prices for beef
    and veal is 0.82.
        Slower growth in consumer food prices arising from stable farm
    commodity prices could provide benefits to low-income consumers. For
    low-income households, food accounts for a larger share of their
    incomes and household expenditures. For example, households in the
    lowest fifth quintile by income spend over \1/3\ of their income on
    food (Chart 7). In contrast, households in the highest fifth income
    quintile spend less than ten percent of their income on food. Lower
    food prices should allow food consumers to stretch their food dollar
    and increase the quantity and quality of food purchases.
    Chart 7: Food Spending by U.S. Household Income
    (2014:Q3 to 2015:Q2)
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

              Source: Consumer Expenditure Survey, Bureau of Labor
            Statistics, April 2016.

        However, the benefits of lower food prices for low-income
    households could be muted for those households living in food deserts.
    Food deserts are locations where affordable and nutritious food is
    difficult to obtain. USDA identifies food desert tracts as those with
    at least 33 percent of the tracts population or a minimum of 500 people
    with low access to a supermarket or large grocery store.\13\ In regards
    to consumer food prices, retail food stores, such as grocery stores,
    provide food at lower prices compared to restaurant prices (Chart 8).
    The gap between restaurant and retail food store prices has widened
    over time as restaurant prices relative to manufacturing prices has
    increased from 2.5 to 3.5 since 1975, while retail food prices relative
    to manufacturing prices has fallen from 1.5 to 1.0. Low-income
    households in food deserts with little access to retail food stores,
    but access to restaurants are facing higher food costs and have
    additional challenges achieving better health outcomes.
    ---------------------------------------------------------------------------
        \13\ Economic Research Service, USDA. ``Definition of a Food
    Desert'' Downloaded April 25, 2016. www.ers.usda.gov/dataFiles/
    Food_Access_Research_Atlas/Download_the_Data/Archived_
    Version/archived_documentation.pdf.
    ---------------------------------------------------------------------------
        Educational programs for low-income households help them overcome
    access to food issues and reduce food insecurity. For example, the
    Nutrition Education Program administered by Purdue Extension has
    reduced food insecurity by 25 percent for low-income households
    participating in this program.\14\ In this federally funded program,
    participants learn how to stretch their food dollar and eat healthier
    foods on a limited budget. Participants learn the health benefits of
    the different food groups and understand food safety practices and how
    to conserve limited food resources.
    ---------------------------------------------------------------------------
        \14\ Rivera, R.L., and Eicher-Miller, H. (2015). P115 Food Security
    Among Households With Children Improved Following a Nutrition Education
    Intervention. Journal of Nutrition Education and Behavior, 47(4S).
    ---------------------------------------------------------------------------
    Chart 8: Restaurant and Retail Food Store Prices
    Ratio to Manufacturers' and Shippers' Prices
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

              Source: Economic Research Service, U.S. Department of
            Agriculture.
    Impact on the Rural Economy
        Declining profits in agriculture are also straining consumer
    spending, especially in rural America. According to USDA, agriculture
    and its related industries account for 9.3 percent of U.S. employment.
    According to the Bureau of Economic Analysis (BEA), farm earning
    accounted for roughly six percent of the earnings in nonmetropolitan
    counties in 2014 compared to less than \1/2\ of one percent in
    metropolitan counties. Lower farm incomes spillover into the rest of
    the rural economy by reducing spending on farm inputs and household
    consumption.
        Falling farm incomes have led to broader economic strains in rural
    economic activity. Based on BEA data since 1970, nonmetropolitan county
    farm earnings have a strong correlation with earnings in food and
    kindred product manufacturing and agricultural service industry. For
    example, U.S. tractor and combine sales surged with farm income after
    2006 peaking in 2013 (Chart 9). Since then, the sharp decline in farm
    incomes translated into plummeting tractor and combine sales. In fact,
    tractor and combine sales in 2016 are on pace to fall below sales
    posted prior to the farm income boom. Bankers reporting to Federal
    Reserve agricultural credit surveys indicate that farm capital spending
    is expected to decline further in 2016.\15\
    ---------------------------------------------------------------------------
        \15\ Kauffman, Nathan and Matt Clark (2016) ``Farm Economy Tightens
    Further'' Survey of Agricultural Credit Conditions, Federal Reserve
    Bank of Kansas City, February 11.
    ---------------------------------------------------------------------------
    Chart 9: U.S. Tractor and Combine Sales
    Thousands of Units
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

              Source: Association of Equipment Manufacturers.
              * Estimated based on sales through March 2016.

        In addition to plummeting farm capital spending, farm household
    spending has collapsed with farm incomes. According to bankers in the
    Tenth Federal Reserve District, farm households have cut household
    spending along with capital spending (Chart 10). Reduced household
    spending will place pressure on retail businesses on rural Main
    Streets, rural incomes, and support for charitable organizations in
    rural communities. In total, sharp downturns in agricultural
    profitability often spillover into lower investment, capital spending,
    and household spending in rural communities.
    Chart 10: Tenth Federal Reserve District Farm Income, Farm Capital
            Spending, and Household Spending
    Diffusion Index *
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

              Source: Federal Reserve Bank of Kansas City.
              * Bankers responded to each item by indicating whether
            conditions during the current quarter were higher than, lower
            than, or the same as in the year-earlier period. The index
            numbers are computed by subtracting the percent of bankers that
            responded ``lower'' from the percent that responded ``higher''
            and adding 100.

        Lower farm incomes and reduced spillovers into rural consumer
    spending and ag-related activity could further strain rural poverty
    rates. Since the 1960s, nonmetropolitan poverty rates have been
    substantially higher than poverty rates in metropolitan areas.\16\
    Although poverty rates are much higher in the South, rural poverty
    rates are higher than urban rates even in the Midwest, which enjoyed
    strong income gains during the recent farm boom. Based on U.S. Census
    Bureau data, in the North Central Extension Region, total poverty rates
    rose from 10.4 percent in 2003 to 14.9 percent in 2013. And, child
    poverty rates rose higher, increasing from 14.4 percent in 2003 to 20.4
    percent in 2013. In fact between 2009 and 2013, 44 percent of
    nonmetropolitan counties faced child poverty rates above 20 percent
    compared to 31 percent of metropolitan counties. These increases in
    child poverty occurred during a period of boom farm profitability that
    underpinned economic strength in many rural communities. Shrinking farm
    incomes and spillovers into rural economies could place additional
    pressure on rural poverty rates. For example, during the last major
    farm downturn in the 1980s, rural poverty rates rose from 13.7 percent
    in 1979 to 18.3 percent in 1983.
    ---------------------------------------------------------------------------
        \16\ Poverty data is available from the Economic Research Service,
    USDA. http://www.ers.usda.gov/topics/rural-economy-population/rural-
    poverty-well-being.aspx.
    ---------------------------------------------------------------------------
        Holistic approaches to rural economic development are needed to
    combat rural poverty, especially child poverty. Studies on child
    poverty indicate that it is multi-dimensional and programs focused on
    the intergenerational mobility into new economic status tend to target
    family issues, such as parenting or structure that affect investments
    in children, or community issues, such as education, safety and jobs,
    that provide opportunity for economic advancement. For example, the
    National Advisory Committee on Rural Health and Human Services
    recommended action steps to assist rural children and families in
    poverty that encouraged holistic approaches focused on local
    coordination of community health clinics, community agencies, family
    support organizations, and rural community development efforts.\17\ At
    Purdue Extension, the focus on child poverty is increasingly focused on
    a holistic approach that addresses economic opportunities in
    communities and regions and families and their investments in children/
    youth. To strengthen local economies, Purdue Extension is partnering
    with Federal and state government agencies to build capacity the local/
    regional level. Through the Strengthening Economies Together program,
    Purdue Extension is partnering with USDA to identify community assets
    that can be leveraged into seizing emerging opportunities in rural
    communities. Through the Hometown Collaboration Initiative, Purdue
    Extension is partnering with the Office of Community and Rural Affairs
    in the Indiana State Government to build local capacity in communities
    with less than 25,000 people.
    ---------------------------------------------------------------------------
        \17\ Child Poverty in Rural America. (2015) National Advisory
    Committee on Rural Health and Human Services, Policy Brief, December.
    http://www.hrsa.gov/advisorycommittees/rural/publications/
    childpoverty1215.pdf.
    ---------------------------------------------------------------------------
        Reducing child poverty also means that programs need to assist
    families as they make investments in their children. With the high
    incidence of teen drug abuse in many rural communities, Purdue
    Extension has launched new parenting programs to strengthen teen-parent
    relationships that are often found to reduce teen drug use. In fact,
    the World Health Organization identified the Strengthening Families
    Program: For Parents and Youth 10-14 created by Iowa State University
    as the premier program reducing substance abuse among teens. For every
    dollar spent on this program, communities receive $9.60 in benefits in
    the form of less time in treatment, less jail time, and less time off
    work. In addition, child and youth programs are increasingly focusing
    on education, career readiness and the development of leadership and
    life skills. Through partnerships with USDA, state and local
    governments and nonprofit philanthropy, Indiana 4-H has increased its
    focus on science education and healthy living to prepare youth for
    future opportunities. In 2013, 91 percent of the 4-H youth that
    graduated high school planned to continue their education at a college,
    university, trade or technical school and 26 percent of them were
    first-generation college students.\18\
    ---------------------------------------------------------------------------
        \18\ Wilson, Tyler and Renee McKee (2013) Assessing Life Skills
    Developed Through Participation in Indiana 4-H Program--2013. https://
    extension.purdue.edu/4h/Pages/impact.aspx.
    ---------------------------------------------------------------------------
    Conclusion
        U.S. farmers are facing substantial declines in farm profits,
    driven by lower commodity prices. With crop insurance as the primary
    safety net for U.S. agriculture, the learning and implementation of
    various risk management techniques are the key to helping farmers
    manage margins in these difficult times. In addition to benefiting
    farmers, crop insurance payments provide economic welfare benefits to
    food consumers.
        Food consumers could also benefit from lower food prices. However,
    consumer food prices are less volatile than farm prices, suggesting
    that consumer prices will not fall with farm prices, but rise at a
    slower pace in 2016. Low-income households spending a larger share of
    their income on food could benefit the most from more stable food
    prices. Yet, low-income households living in food deserts without
    access to larger grocery stores may not be able to take advantage of
    these opportunities as food prices at restaurants have risen more
    sharply that food prices at retail stores. Thus, nutrition education
    programs that teach low-income households how to stretch their food
    dollar are critical to reducing food insecurity.
        Finally, plummeting farm incomes will strain rural economies. Farm
    capital spending on items such as tractors and combines has fallen with
    farm incomes straining non-farm income and employment in agricultural
    input companies. At the same time, farm households have reduced
    household spending which also limits opportunities for consumer
    spending on rural Main Streets. These ripple effects in the rural
    economy pose a challenge to reducing poverty rates, which tend to be
    higher in rural communities. If communities are going to address
    poverty, especially child poverty, holistic approaches that focus on
    leveraging local assets to seize emerging economic opportunities and
    address more social issues such as family health and wellness to
    strengthen the investments in children appear to offer the best
    opportunities. These approaches often require partnerships between
    government agencies at all levels, academic institutions such as land
    grant universities, nonprofit organizations and philanthropic entities
    to enhance the lives and livelihoods of people across the country.

        The Chairwoman. Thank you, Dr. Henderson.
        Dr. Leibtag, you may proceed.

             STATEMENT OF EPHRAIM LEIBTAG, Ph.D., ASSISTANT
             ADMINISTRATOR, ECONOMIC RESEARCH SERVICE, U.S.
              DEPARTMENT OF AGRICULTURE, WASHINGTON, D.C.

        Dr. Leibtag. Chairwoman Walorski, Ranking Member McGovern,
    and Members of the Subcommittee, I appreciate this opportunity
    to present information on trends in retail food prices, the
    share of U.S. consumer budget spent on food, and the farm share
    of money that consumers spend on food.
        My remarks are based on the most recent data available from
    USDA's Economic Research Service, as well as other Federal
    statistical agencies, such as the Department of Labor's Bureau
    of Labor Statistics, Department of Commerce's Bureau of
    Economic Analysis, the BEA.
        At ERS, our mission is to inform and enhance public and
    private decision-making on a broad range of economic and policy
    issues related to agriculture, food, the environment, and rural
    development. This afternoon, I will discuss the ERS data on
    retail food prices, consumer spending, and how food spending
    and prices can be linked to the food supply chain.
        These sets of data impact programs and policies affecting
    consumers who plan their diets and food budgets based on which
    foods are available, their associated prices, and other
    factors. The dynamics of retail food markets are driven by
    changing trends in both what and how food companies produce,
    and what consumers choose to eat. A major factor during the
    past 30 years has been the rise in the food away from home
    share of total consumer food spending. Consumers are eating
    more outside the home and paying for the added services and
    convenience. Changes in diet and preferences also influence
    which foods are available and consumed, as do changes in where
    food is produced around the world.
        In order to track and forecast food price changes, the ERS
    uses the Bureau of Labor Statistics Consumer Price Index, the
    CPI, for food and its subcomponents. There are separate food
    indexes for food at home, grocery stores and supermarket-
    sourced, as well as food away from home, prepared foods for
    eating and drinking establishments, as well as non-commercial
    food service outlets.
        Looking at our recent trends, overall food prices in 2015
    rose 1.9 percent. Grocery store prices were up 1.2 percent,
    while restaurant prices rose 2.9 percent. Food price inflation
    varies across categories, though. For example, the loss of
    laying hens due to avian influenza led to a spike in egg
    prices, while drought in the Southwest and California
    contributed to higher prices for some fruits, vegetables, and
    dairy products. For 2016, ERS currently predicts grocery store
    prices to rise one to two percent, a rate of inflation that
    would fall below the 20 year average of 2\1/2\ percent across
    the U.S. We update our food price forecast monthly and revise
    estimates if conditions, such as the crop outlook or weather-
    related conditions, change significantly.
        To get a better understanding of these food price dynamics,
    we also track producer prices within the food supply chain.
    This uses the BLS Producer Price Index, which provides
    estimates of the price change in food products by food stores
    and restaurants. For many commodities, these prices change in
    greater rate than at the retail level. How much of a change
    depends on retailing costs beyond the raw food ingredients, as
    well as the competition level in the retail market.
        Even when rising production and ingredient costs result in
    increasing retail food prices, impacts might be small relative
    to those underlying costs. For example, in 2011, corn, wheat,
    and soybean prices were up by about 40 percent, while grocery
    store prices rose 4.8 percent.
        One of the reasons for this relative stability of retail
    food prices is the number of industries that contribute to the
    food on the shelves of supermarkets. ERS's Food Dollar series
    details the components of the retail food dollar by industry
    and allows us to understand the factors that impact food
    changes. Data are presented in the Food Dollar series in three
    ways to shed light on different aspects of the food supply
    chain. Based on these estimates, as of 2014, the farm share of
    the U.S. food dollar is estimated to be 17.2 percent.
        Turning now to consumer budgets, ERS estimates that food
    expenditures by families and individuals as a share of
    disposable personal income can be calculated using data from
    the Bureau of Labor Statistics. Broadly speaking, consumers in
    the U.S. and many developed countries spend less than 15
    percent of their income on food, while in developing countries
    consumers may spend upwards of 40 or 50 percent. Within the
    U.S. between 1960 and 2002, the average share of disposable
    income fell from 17\1/2\ to 9.6 percent. This was mostly due to
    rising incomes for consumers overall. But since 2002, the
    average has stabilized between 9\1/2\ and ten percent. Breaking
    this down by income group, ERS analyses show that while
    households spend more money on food at higher income levels, it
    represents a smaller portion of income as these households
    spend money on other goods. The middle income level within the
    U.S. have household spending around 13.4 percent of income on
    food, while the lowest income group spends roughly 34 percent,
    as was mentioned earlier.
        To conclude, our data shows that retail food prices in the
    U.S. are relatively stable. Consumers are therefore able to
    spend a relatively small share of income on food, and devote
    larger amounts of their budget to other goods and services, but
    the extent to which this is the case does depend on the income
    level of a given household.
        Madam Chairwoman, this concludes my statement. I would be
    happy to answer questions.
        [The prepared statement of Dr. Leibtag follows:]

    Prepared Statement of Ephraim Leibtag, Ph.D., Assistant Administrator,
    Economic Research Service, U.S. Department of Agriculture, Washington,
                                      D.C.
        Chairwoman Walorski and Members of the Subcommittee, I appreciate
    this opportunity to present information on trends in retail food
    prices, the share of the average U.S. consumer budget spent on food,
    and the farm share of money spent by consumers on food. My remarks are
    based on the most recent data available from USDA's Economic Research
    Service (ERS) and other Federal Statistical Agencies.
        The mission of ERS is to inform and enhance public and private
    decision-making on a broad range of economic and policy issues related
    to agriculture, food, the environment, and rural development. ERS is a
    trusted resource for objective information, data, and unique economic
    and social science analysis on these topics.
        This afternoon I would like to discuss ERS data on retail food
    prices, consumer spending, and how food spending and prices can be
    linked to the food supply chain. These sets of data impact programs and
    policies affecting individual citizens who plan their diets and food
    budgets based on what foods are available, their associated prices, and
    other factors.
    Measuring Retail Food Price Change
        The dynamics of retail food markets are driven by changing trends
    in both what and how companies produce food and what consumers prefer
    to eat. A major factor in the food market during the past 30 years has
    been the rise in food away from home's share of total food spending.
    This increase means consumers are eating more outside of the home and
    paying for added services and convenience when buying food. Changes in
    diets and preferences also impact what foods are available and consumed
    as do changes in where food is produced around the world. In order to
    understand food price dynamics, ERS uses Consumer Price Index (CPI)
    data from the Department of Labor's Bureau of Labor Statistics (BLS).
    BLS publishes food price changes through the monthly collection of
    prices from a representative group of food-stores and foodservice
    establishments.
        The CPI compares prices in a base year to prices in the current
    year. For products purchased by consumers, the All-Items CPI is used to
    represent average increases or decreases in prices paid for retail
    goods and services. The All-Items CPI is composed of a number of sub-
    indexes, including the Food CPI.
        There are separate food indexes reported for food-at-home, which
    consists of food sold in retail outlets, and food-away-from-home, which
    consists of meals, entrees, and other prepared foods sold in eating and
    drinking establishments, and non-commercial (institutional) foodservice
    outlets. To obtain the Food CPI, the separate indices of the at-home
    and away-from-home segments are combined, using their respective
    expenditure shares. Expenditure shares are determined based on average
    American consumer purchasing behavior from the Bureau of Labor
    Statistics' Consumer Expenditure survey and updated on an annual basis.
        Looking back at last year, supermarket (food-at-home) prices rose
    1.2 percent overall in 2015, but food price inflation varied across
    food categories. The loss of laying hens due to Highly Pathogenic Avian
    Influenza (HPAI) led to a spike in egg prices, while drought in the
    Southwest and California contributed to higher prices for fruits and
    vegetables and dairy products.
        ERS currently predicts 2016 food-at-home (supermarket) prices to
    rise 1.0 to 2.0 percent--a rate of inflation that would fall below the
    20 year historical average of 2.5 percent. These forecasts are based on
    an assumption of normal weather conditions; however, severe weather or
    other unforeseen events such as unexpected surges in commodity prices
    could potentially drive up food prices beyond the current forecasts.
    The ongoing drought in California is likely to have an impact on the
    state's agricultural production, but because of the prevalence of
    irrigation systems there, the impact on specific commodities will vary.
    Long-term moisture deficits across most of the state remain at near-
    record levels. Because California is a major producer of fruits,
    vegetables, tree nuts, and dairy, the drought has potential
    implications for U.S. supplies and prices of affected products this
    year and beyond. Conversely, increases in the strength of the U.S.
    dollar, already up substantially from a year ago, make the sale of
    domestic food products overseas more difficult. This would increase the
    supply of foods on the domestic market, potentially placing downward
    pressure on domestic retail food prices.
        ERS updates its food price forecasts monthly and revises estimates
    if the conditions such as the feed grain crop outlook or weather-
    related crop conditions on which they are based change significantly.
        In order to gain insight into factors that influence consumer price
    changes, it is useful to track producer prices within the food supply
    chain. BLS' Producer Price Index (PPI), measures prices received by
    processors, suppliers, and wholesalers, in the food industry and more
    broadly in the economy. Both farm and processed products are included
    in the PPI. Similar to the CPI, the indexes are reported monthly and
    annually. The PPI more closely represents the price change in food
    products purchased by food stores and restaurants. For many food
    commodities, the PPI is more volatile as compared to consumer prices.
        Food service operators purchase both products with a high farm
    value component, such as milk or apple juice, as well as more highly
    processed foods having lower commodity/farm value shares, such as
    cereal or pizza. Suppliers to the food-away-from-home segment offer
    both traditional foods requiring additional preparation, as well as
    highly processed, value-added foods such as heat-and-serve entrees.
        In general, retail food prices are much less volatile than farm-
    level prices and tend to rise by a fraction of the change in farm
    prices. The magnitude of response depends on both the retailing costs
    beyond the raw food ingredients and the nature of competition in retail
    food markets.
        Several key factors influence how a cost increase affects the
    prices of food under conditions of competition. For a given increase in
    an input's cost, the larger will be an increase in the food product's
    price when:

       The share of the input in the total cost of producing food
            products is larger.

       The input has fewer good substitutes in the food production
            process--that is, few other inputs or processes could be used
            to produce the food product.

       Consumers have few good substitutes for the food product, in
            which case consumers do not decrease purchases substantially
            when the price is higher.

       Prices are expected to remain high for a long period of
            time.

        Retail prices for fresh fruits, vegetables, and eggs have a
    relatively high farm value share compared to other commodities. Changes
    in farm-level prices of these products have a larger and earlier impact
    on retail prices as a result. There are also seasonality factors
    contributing to volatility of produce (fresh fruits and vegetables)
    prices. Produce supply and price variation are also influenced by
    extremes of weather and growing conditions, such as droughts, floods,
    freezes, and pests. Because most produce commodities are highly
    perishable, supply and prices are highly sensitive to adverse growing
    conditions.
    How Changes in Input Costs Affect Retail Food Prices
        When food manufacturers and retailers face increased costs, they
    can respond by:

      1.  absorbing the higher costs by keeping prices steady and accepting
                a lower profit level,

      2.  passing on at least some of the higher costs by raising the price
                of products, or

      3.  adjusting the production process and employing fewer units of the
                higher cost input by substituting one or more other inputs.

        If input costs decrease, companies have the opposite options--
    higher profits, lower output prices, or expanded input use. Of the
    three options, the last two can directly affect food prices either by
    raising or lowering the price of food products or by food production
    adjustments that influence the amount of food available and thus
    prices.
        Economic research has shown that retail prices are typically more
    responsive to input cost increases than to decreases. This pattern is
    evident in the U.S. CPI, as retail food prices have, on average,
    increased by two to three percent per year, while commodity prices have
    been more volatile.
        Despite the fact that rising input costs are almost certain to
    result in increasing retail food prices, there are a number of reasons
    to expect that this impact will often be small relative to the changes
    in input costs. For example, the 2012 severe drought in the Midwest
    resulted in sharp increases in the farm prices of corn, soybeans, and a
    number of other commodities important to the food supply chain.
    However, this resulted in only a modest increases in overall retail
    food prices--in 2012, food prices rose 2.6 percent (consistent with the
    historical average).
        Historically, dramatic changes in input costs typically result in
    small changes in the CPI for food and for grocery prices in general.
    For example, in 2011, the average weighted price of corn, wheat, and
    soybeans in the U.S.--important U.S. agricultural inputs into the U.S.
    food supply--increased by nearly 40 percent over 2010 levels. In
    contrast, food-at-home prices rose 4.8 percent between 2010 and 2011.
    Very much in line with this disparity, commodity prices, in general,
    are about ten times more volatile than retail food prices over time.
        One of the most important reasons for the relative stability of
    retail food prices is that a number of industries contribute to food on
    the shelves of supermarkets, and the cost components from each industry
    serve to mitigate much of the volatility seen in commodity prices and
    wholesale food prices. ERS's Food Dollar Series details the cost
    components of the retail food dollar by industry and allows us to
    better understand the factors behind changes in the costs of food.
    Food Dollar
        ERS uses data from the Department of Commerce's Bureau of Economic
    Analysis to calculate its Food Dollar series. This Series measures
    annual expenditures by U.S. consumers on domestically produced food. It
    provides an overview of the distribution of shares of the average
    dollar spent on food for each underlying industry or factor, including
    estimates of the farm share of the average dollar spent by consumers on
    food. Data are presented in three primary series--the marketing bill
    series, the industry group series, and the primary factor series--that
    shed light on different aspects of the food supply chain. The three
    series show different ways to split up the same food dollar and I will
    discuss each in turn.
        The farm share of the food dollar is the share received by farmers
    from sales of basic food commodities. The most recent version of this
    data spans from 1993-2014 and the farm share has ranged from slightly
    above 15 percent to as much as 18 percent during the past 20 years. Our
    latest estimates, using 2014 data, show the farm share to be 17.2
    percent of every dollar spent in the U.S. on domestically produced
    food.
        Within the data, we are able to calculate a farm share for both at-
    home- and away-from-home foods, with the food-at-home farm share
    currently at 26.2 percent and having ranged from the low to mid 20s for
    the past 20 years. The food-away-from-home farm share is 5.8 percent as
    of 2014 and has ranged from five to ten percent during the past 20
    years. These estimates imply that a variety of other costs also
    comprise the food prices consumers pay and variation in those costs and
    changes over time may influence the prices for consumer food products.
        The second food dollar series, the industry group dollar, breaks
    down the cost of food into 12 major industry groups involved in the
    food production and supply system. Whereas the marketing bill series
    measures proceeds from sales, the industry group series measures value
    added (or costs contributions) across 12 industry groups. For example,
    farmers received 17.2 per food dollar in sales proceeds (farm share),
    but after paying their suppliers such as seed, fertilizer, energy
    inputs, financial services, and agribusiness such as veterinarians and
    equipment suppliers, the farm value added in 2014 amounted to 10.4.
        For a typical dollar spent in 2014 by U.S. consumers on
    domestically produced food, including both grocery store and eating out
    purchases, 32.7 went to pay for services provided by foodservice
    establishments, 15.3 to food processors, and 12.9 to food retailers.
    At 5.1, energy costs per food dollar are up 16 percent since 2009, but
    still below the 6.8 that energy costs contributed in 2008.
        Finally, the primary factors dollar identifies the distribution of
    the food dollar in terms of U.S. worker salaries, rents to food-
    industry property owners, output taxes and imports.
        For calendar year 2014, the primary factor series shows that 48.7
    of every food dollar expenditure goes to the salary and benefits of
    domestic workers, 36.6 is dispensed as property income, and the
    remainder is split between output taxes (primarily state and local
    sales taxes) and imported commodities embedded in U.S. produced foods,
    such as imported petroleum products.
    Food Spending as a Share of Income and Overall Consumer Spending
        Food expenditures by families and individuals as a share of
    disposable personal income are reported annually by ERS. The annual
    disposable personal income data are reported by the Department of
    Commerce's Bureau of Economic Analysis and used in the ERS analysis.
        ERS' data on share of income spent on food has been tracked for
    over 85 years as the share of income spent on food has fallen steadily
    from around 25 percent to its current 9.7 percent level. Looking at
    trends for the past 50+ years, between 1960 and 2002, the average share
    of disposable personal income spent on total food by Americans fell
    from 17.5 to 9.6 percent. This downward trend was driven by increasing
    income for U.S. consumers during most of those 42 years allowing for
    increased purchases of non-food items.
        Since 2002, the share of disposable income spent on food has
    stabilized and ranged between 9.6 and 10 percent each year. As of 2014
    (the most recent data available), the 9.7 percent of disposable income
    spent on food includes roughly 5.4 percent spent on food at home and
    4.3 percent spent on food away from home. The food-at-home share of
    disposable income has fallen from over 20 percent to its current 5.4
    percent, while the share of income spent on food away from home rose
    from just over three percent to its current 4.3 percent.
        Looking at similar data by income group, ERS analysis shows that
    households spend more money on food at higher income levels, although
    food represents a smaller portion of income as households allocate
    additional funds to other goods. In 2014, for example, U.S. households
    in the middle income quintile spent an average of $5,992 on food,
    representing 13.4 percent of income, while the lowest income households
    spent $3,667 on food, representing 34.1 percent of income.
        Along similar lines, consumers in the U.S. and many developed
    countries spend a relatively small share of their budget on food,
    usually less than 15 percent, while consumers in many other countries
    spend 15 to 30 percent on food. Consumers in developing countries with
    lower average incomes and fewer non-food consumables available may
    spend 40 to 50 percent of their budget on food. These differences are
    driven by overall economic conditions, average household income, food
    market dynamics, and overall food availability in each country.
        To conclude, our data show that retail food prices in the U.S. are
    relatively stable, consumers are therefore able to spend a relatively
    small share of income on food and devote larger amounts of their budget
    to other goods and services.
        Madam Chair, this concludes my statement. I will be happy to answer
    any questions that the Subcommittee may have.

        The Chairwoman. Thank you, Dr. Leibtag.
        Mr. Harig, you can proceed.

             STATEMENT OF ANDREW HARIG, SENIOR DIRECTOR OF
             SUSTAINABILITY, TAX, AND TRADE, FOOD MARKETING
                        INSTITUTE, ARLINGTON, VA

        Mr. Harig. Chairwoman Walorski, Ranking Member McGovern,
    and distinguished Members of the Committee. Thank you for the
    opportunity to testify before the Subcommittee today on food
    prices and the consumer. I am Andrew Harig, Senior Director of
    Sustainability, Tax, and Trade of the Food Marketing Institute,
    which represents food wholesalers and retailers in each
    Congressional district in the U.S.
        Americans of all income levels are intensely price
    conscious when deciding what foods to purchase. In survey after
    survey, low prices remains the single most important attribute
    that consumers seek in deciding where to shop.
        Food retailing is an intensely competitive business that
    averages about a one percent profit margin annually. While
    FMI's members compete on service, quality, and selection, the
    role of prices in driving decision making plays a dominant role
    in how the industry operates. Put simply, we focus so intensely
    on food prices because our consumers demand that we do.
        As the final link in the supply chain, food retail plays a
    crucial role in connecting the American public with farmers and
    ranchers. FMI and our industry feel a strong responsibility to
    create a better understanding of the role that agricultural
    policy and the health of the farm sector play in making sure
    that the United States has the world's safest and most
    affordable food supply.
        A number of our members have launched initiatives over the
    past few years to make this link explicit. These programs range
    from Meet your Farmer sessions at the store level, to expanding
    local purchasing agricultural programs.
        Despite this, we believe the relationship between farm
    level issues and their impact on food prices is not always as
    clear to consumers as it could be, in part due to the shared
    complexity of our industry's pricing model. As the other
    witnesses have made clear, there often dozens, if not hundreds
    of factors that go into the price of a product by the time it
    reaches retailer's shelves. When you consider that the average
    store carries about 40,000 unique items, the number of
    different variables shaping retail prices blend into an
    extremely complex algorithm.
        Admittedly, certain occurrences, including drought and
    crises like the avian influenza, tend to have an obvious link
    to changes in the cost of food. Other factors could be more
    confusing. When huge energy cost increases drove up the price
    of food in 2007 and 2008, many consumers were caught off guard
    by how energy intensive farming, manufacturing, and food
    retailing can be. The disconnect between what is going on at
    the farm level and how it translates into price increases
    raises long-term concerns that the entire supply chain needs to
    address. As the demands on U.S. agriculture increase, it is
    important that consumers understand the changes so that they
    can continue to make the best use of their food dollar.
        One of the most important factors for improving outreach
    across the supply chain is recognizing that many consumers take
    a holistic approach to food prices. They focus less on the cost
    of any single component of their store visit and more on the
    total cost of building and preparing a meal. As a result,
    consumers have become particularly adept, particularly at lower
    income levels, at addressing price increases by scaling back
    the purchase of expensive items and substituting in less
    expensive alternative foods. This has been especially true of
    the protein category. Drought, avian influenza, PEDv, and a
    number of other factors have all contributed to large changes
    in price that consumers have had to adapt to. As these changes
    occurred, consumers adjusted their own purchases to maintain
    their overall quality of their diets.
        Retailers have responded to this by adopting a variety of
    strategies to help the American public in these efforts. A
    number of FMI members, for example, have limited the cost
    increases they pass along to consumers on an extensive list of
    staple products. The last few years have also seen a much
    broader use of private labeled brands that are often lower
    priced than national brands. Retailers have found that as they
    respect and promote a focus on total food costs and the total
    food bill, they are often rewarded with shoppers' loyalty.
        When we talk about food prices, however, it is also
    important to acknowledge the role that regulatory changes play
    in driving the prices paid by consumers. The industry is
    currently in the process of implementing the Food Safety
    Modernization Act, the most significant change to food safety
    laws in over 70 years. FMI supported many of the changes
    proposed in FSMA, but the sheer scope of the law is almost
    certainly going to impact consumers. Similarly, the FDA's Chain
    Restaurant Menu Labeling Regulation could have broad impacts on
    supermarket buy local programs, food waste, and the cost of
    prepared foods at the store level. Even state level laws, such
    as Vermont's GMO labeling requirement, can expand to have
    national implications.
        That being said, the flexibility and resilience shown by
    the American consumer should be heartening to everyone in the
    food supply chain. Despite sometimes sharp and occasionally
    unexpected changes to price in a number of different categories
    over the past few years, consumers continue to adapt their
    purchasing strategies. Moving forward, as new demands are
    placed on the supply chain, producers, manufacturers, and
    retailers are going to be called on to be equally as adaptable.
        Thank you for the opportunity to testify this afternoon. I
    look forward to answering any questions you might have.
        [The prepared statement of Mr. Harig follows:]

    Prepared Statement of Andrew Harig, Senior Director of Sustainability,
            Tax, and Trade, Food Marketing Institute, Arlington, VA
        Chairwoman Walorski, Ranking Member McGovern, and distinguished
    Members of the Subcommittee:

        Thank you for the opportunity to testify before the Subcommittee on
    Nutrition on the issue of food prices and the consumer. My name is
    Andrew Harig and I am Senior Director for Sustainability, Tax and Trade
    at the Food Marketing Institute, which represents food wholesalers and
    retailers in each Congressional district in the U.S.\1\
    ---------------------------------------------------------------------------
        \1\ Food Marketing Institute proudly advocates on behalf of the
    food retail industry. FMI's U.S. members operate nearly 40,000 retail
    food stores and 25,000 pharmacies, representing a combined annual sales
    volume of almost $770 billion. Through programs in public affairs, food
    safety, research, education and industry relations, FMI offers
    resources and provides valuable benefits to more than 1,225 food retail
    and wholesale member companies in the United States and around the
    world. FMI membership covers the spectrum of diverse venues where food
    is sold, including single owner grocery stores, large multi-store
    supermarket chains and mixed retail stores. For more information, visit
    www.fmi.org and for information regarding the FMI foundation, visit
    www.fmifoundation.org.
    ---------------------------------------------------------------------------
    The Role of Price in Food Retailing
        Over the past fifty years, one of the great--and often unheralded--
    success stories of the United States' economy has been that Americans
    devote less of their income to feeding their families today than they
    have at any other point in our history. In 1964, families and
    individuals spent over 15 percent of their disposable income on food;
    by 2014, this number had dropped to under ten percent (see chart
    below). This decrease has been a boon for the overall economy, since it
    freed up disposable income to be diverted into new and productive
    areas.
    Percentage of Disposable Income Spent on Food in the United States,
            1964-2014
            [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

              Source: USDA's Economic Research Service, Data Series: ``Food
            expenditures by families and individuals as a share of
            disposable personal income''.

        Despite this long downward trend, however, consumers continue to be
    intensely price conscious in making decisions about the food they
    purchase. For example, \3/4\ of all consumers take price into
    consideration when deciding whether to purchase a product for the first
    time.

          Decision Factors Contributing to the Purchase of New Products
    ------------------------------------------------------------------------
                                                                    Almost
                             Never     Hardly Ever   Sometimes      Always
    ------------------------------------------------------------------------
    Price                          1%           3%          21%          75%
    Nutrition Label                5%          10%          38%          46%
    Brand Name                     3%          14%          50%          33%
    Health Claims                 13%          20%          47%          21%
    Organic Claims                22%          27%          34%          17%
    ------------------------------------------------------------------------
    Food Marketing Institute, U.S. Grocery Shopper Trends 2015.

        Once the decision to purchase a product is made, and the consumer
    integrates it into their shopping, they become more flexible on price.
    But sudden changes to the price remain a factor of concern even for
    products for which a consumer expresses a deep loyalty.
        Similarly, ``low prices'' remains the single most important
    attribute that consumers seek in deciding at which store to shop.
    Top Store Attributes Rated as ``Very Important'' to Consumers
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

              Food Marketing Institute, U.S. Grocery Shopper Trends 2015.

        The recession that began in 2008 certainly drove many consumers to
    focus more on what they were paying for groceries, but these impacts
    persist even in 2016. This is true for people at all income levels, not
    just lower-earning households. Overall more than \1/2\ of all consumers
    maintained that they paid about the same for groceries in 2015 than
    they did in 2014, and most are looking to continue holding that line.

                      Changes to Spending Behavior in 2015
    ------------------------------------------------------------------------
                                      Income       Income of     Income over
                         Total      under $35K  $35,000-$99,999     $100k
    ------------------------------------------------------------------------
    I am spending             52%          50%            54%            52%
     about the same
     on groceries
    I am spending             31%          31%            31%            36%
     more on
     groceries
    I am spending             16%          19%            15%            12%
     less on
     groceries
    ------------------------------------------------------------------------
    Food Marketing Institute, U.S. Grocery Shopper Trends 2015.

        Food retailing is an intensely competitive industry which averages
    about a one percent profit margin annually. In an industry of our size
    and scope, successful companies cannot afford to ignore even a single
    factor that brings consumers into the store. While FMI's members
    compete on service, quality and selection, the role of prices in
    driving consumer decision making plays a dominant role in the way the
    industry operates. Put simply, we focus so intensely on food prices
    because our consumers demand that we do.
    Communicating the Factors that Make-up Food Prices
        As the final link in the supply chain, food retail plays a crucial
    role in connecting consumers with farmers and ranchers. FMI and our
    industry feel a strong sense of responsibility to create a better
    understanding of the role that agricultural policy and the health of
    the farm sector play in making sure that the United States has the
    safest, most wholesome and most affordable food supply in the world. A
    number of our members have launched initiatives over the past few years
    to make this link explicit; these programs range from ``Meet your
    farmer'' sessions at the store level to expanding local agriculture
    programs.
        Despite this, we believe the link between farm-level issues and
    their impact on food prices are not always clear to consumers. In large
    part, this disconnect can probably be traced to the sheer complexity of
    the pricing model in our industry. As the other witnesses have made
    clear, there are often dozens--if not hundreds--of factors that go into
    the price of a product by the time it makes it to FMI members' retail
    shelves. When you consider that the average store carries about 40,000
    unique items, the number of different variables shaping retail prices
    blend into an extremely complex algorithm.
        Admittedly, certain occurrences--including drought and crises like
    avian influenza--tend to have a direct and obvious link to the cost of
    food that most people understand. Other changes can be more confusing,
    however. For example, when huge energy cost increases drove up the
    price of food in 2007 and 2008, many consumers were not necessarily
    focused on just how energy intensive farming, manufacturing and
    retailing food can be. During this period, our members received many
    more calls asking about the reasons behind price increases than we have
    received about the California drought.
        The disconnect between what is going on at the farm-level and how
    it translates into price increases raises long-term concerns that the
    entire supply chain needs to address. For example, as the demands
    placed on U.S. agriculture to feed an ever-expanding population
    increase, it is important that consumers understand these changes so
    that they can continue to make the best use of their food dollar. But
    it is just as important that farmers and ranchers understand the
    changing face of the American consumer so that they can begin planning
    for the changes that are going to be asked of them.
    The Understanding of Why Costs Increase May Be Imperfect, But Consumers
            are Becoming Increasingly Expert at Responding to Them
        As previously noted, the factors underlying cost increases for
    individual commodities or products may not be completely understood at
    the consumer level at certain times. However, many consumers tend to
    take a more holistic approach to how they view food prices. These
    shoppers tend to focus less on the cost of any one component of their
    store visit, and more on the total cost of building and preparing a
    meal.
        As a result, consumers have become particularly adept over the past
    decade at addressing price increases through both scaling back the
    purchase of expensive items and substituting in less expensive
    alternate foods. This has been especially true of proteins, a number of
    which have faced significant challenges in recent years that have led
    to price changes. Drought, avian influenza, PEDv and a number of other
    factors have all contributed to large and unexpected changes in price
    to which consumers have had to adapt. We have seen that as these
    changes occur, consumers make adjustments to their own purchases to
    make sure that the overall quality of their diets is not impacted.
        For instance, over 40 percent of consumers surveyed in FMI's and
    the North American Meat Institute's 2015 Power of Meat Survey admitted
    that price increases changed the way they bought meat and poultry. But
    the strategies they used to address these price increases were
    extremely broad:

    Buy the same kinds of meat, but less of it.................        33%
    Buy what's on promotion....................................        19%
    Buy less expensive items...................................        16%
    Volume-based discounts.....................................        13%
    Change stores..............................................         5%
    Buy premium; eat-out less..................................       * 3%

    * Food Marketing Institute & the North American Meat Institute, Power of
      Meat 2015.

        Retailers have adopted a number of strategies to aid consumers in
    their efforts to address changes in food prices. A number of FMI's
    members have limited the cost increases they pass along to consumers on
    an extensive list of staple products. The last few years have also seen
    a much broader use of private label brands that are often lower-priced
    than national brands.
        The flexibility and resilience shown by American consumers should
    be heartening to everyone in the food supply chain. Despite sometimes
    sharp (and unexpected) changes to prices in a number of different
    sectors over the past few years, they have continued to adapt their
    purchasing strategies.
    A Quick Word on Regulatory Impacts
        When we talk about food prices, it is also important to acknowledge
    the role that regulatory changes play in driving costs paid by
    consumers. The industry is currently in the process of implementing the
    Food Safety Modernization Act (FSMA), the most significant change to
    food safety laws in over thirty years. FMI supported many of the
    changes proposed in FSMA, but the sheer scope of the law is almost
    certainly going to impact consumers. Each of the new FDA rules facing
    retailers are more than 275 pages long, so retailers and wholesalers
    are working hard to understand, interpret and implement all the
    changes. Similarly, the FDA's chain restaurant menu labeling regulation
    could have broad impacts on supermarket ``buy local'' programs, food
    waste and the cost of prepared foods at store level, forcing retailers
    to move from local and produce department sourcing to a more
    standardized food service sourcing--similar to restaurants. Even state
    level laws, such as Vermont's GMO labeling requirement, can expand to
    have national implications that impact consumer prices. For example, if
    companies attempt to reformulate to non-GMO ingredients due to consumer
    concern resulting from a lack of information, we are anticipating a 25%
    increase in cost in the reformulated private brand product (not
    including labeling and distribution costs)--with an almost certain
    impact on low-income customers and local farmers.
        Each of these new regulatory requirements is going to impose costs
    on the system, and with a 1% retail margin, these added costs will
    impact consumer prices. Before Congress considers legislation or an
    agency moves to finalize a regulation, we would urge you to consider
    the broad implications of any new proposal--not only its impact on
    farmers, ranchers, manufacturers and retailers, but also its impact on
    consumers.
    Conclusion
        Despite the best efforts of many on this Committee, the challenges
    of the past decade have forced Americans to become incredibly creative
    in how they feed their families and spend their food dollars. This is
    going to have long-term impacts on how Americans shop for food.
    However, FMI's research shows that a new consumer is emerging--one who
    is going to demand both value and broader engagement on the part of
    food companies at every level of the supply chain. This is going to
    mean not only a commitment to greater transparency, but also the
    forging of new partnerships focused on health and wellness. As we begin
    to prepare for the next farm bill, FMI looks forward to continuing to
    work with the Committee to share our research and work to keep the U.S.
    food supply the safest, healthiest, and most affordable in the world.
        Thank you.

        The Chairwoman. Thank you, Mr. Harig.
        Dr. Henderson, and to all of you, thank you for your
    expertise, and we have been focusing at the Subcommittee level
    on the hearing series, The Past, Present, and Future of SNAP.
    And we have heard from a diverse group of witnesses over the
    past several months about the array of challenges that low-
    income families face, whether it be access to healthy,
    nutritious food, arranging childcare, transportation, or
    learning the adequate skills for gainful employment. We also
    know, as you all have just alluded to, that the low-income
    individuals have less disposable income to spend on food
    compared to the average American.
        Dr. Henderson, can you just talk a little bit more about
    what role does the consumers' income play in their
    responsiveness to food prices, and then what other factors
    contribute to low-income individuals as they choose to purchase
    different types of things at the grocery store, just to give us
    a little bit more insight? Thanks.
        Dr. Henderson. Thank you. From my perspective, the low-
    income consumer when they have a limited food budget and
    limited food dollar, they have to stretch it across many
    different items. When you have higher food prices, they first
    will go through there and start adjusting their allocation of
    what they buy. First of all, I oftentimes think that they look
    at a different component. So instead of buying steaks, they buy
    hamburger. And if they bought one hamburger and it becomes
    really expensive, they look at different types of meats or
    different types of products that are in the grocery store in
    doing those allocations.
        The other challenge that we have, though, with low-income
    households is about in terms of access to foods, those that are
    living in food deserts. Do they have access to grocery stores
    and other types of markets that allow them the variety of food
    choices that they are able to make?
        And then the third part of it is how do we help them
    through education to have a better understanding of the
    nutrition of the product and the choices that they make from a
    nutritional standpoint, and how to stretch their food dollar to
    make those choices when they into a grocery store or a retail
    store to make those personal choices.
        And so when I think about consumers, they have a lot of
    different stages and a lot of different components on making
    that food choice of how to stretch their dollar, let alone how
    do they get to the store in the first place.
        The Chairwoman. And just a follow up question: in Indiana,
    we have a very diverse agricultural economy. We obviously have
    row crops, corn, soybeans, very diverse, though, with other
    things that we grow. And understanding some of the policies
    here, especially because we have all mentioned crop insurance
    and how it helps farmers through difficult times. Can you help
    us make the connection between how those policies work and the
    connection to the abundant and affordable food supply in the
    U.S.? Help us understand what role that farm policy plays and
    how important it is as we look to the future.
        Dr. Henderson. Farm policy and crop insurance, it provides
    the protection against the downside risks of short crop,
    extremely low prices and the risks that you have on the revenue
    generation. What it does is then because it protects against
    the downside risk, it stabilizes production.
        The Chairwoman. Yes.
        Dr. Henderson. And through that, it helps then mitigate and
    stabilize prices that are then pushed through the system. And
    that is where the impact of where the farm policy will impact
    the consumer and provide the benefits that the consumer would
    have.
        And so that is the general mechanism through it is
    stabilizing, potentially increasing crop production in certain
    places, and providing coverage and reducing crisis for the
    consumer at the retail event through increased supplies and
    stable supplies.
        The Chairwoman. And one other thing you mentioned earlier
    was the Nutrition Education Program. Can you talk about some
    examples of how that directly impacts folks and how they are
    able to stretch SNAP dollars, how the programs work together?
        Dr. Henderson. Yes, the Nutrition Education Program in
    Indiana is administered by Purdue Extension. We have staff in
    every county, and so part of what we do in the Nutrition
    Education Program is direct education. We will have our staff,
    program assistants go out and meet individually with families,
    talk to them about their situation, talk to them about
    budgeting, talk to them about food safety, how to reduce food
    waste, but also talk to them about nutritional aspects of food,
    which foods provide the most nutritional benefits. About how
    you think about your shopping experience to maximize your
    dollar and stretch your food dollar, and all these different
    things. It is about a seven-step process. It goes through quite
    a bit of time, over a few months to go through that process.
    But we have seen tremendous benefits when we followed up with
    them about how they have changed their spending patterns, how
    they have been able to stretch their food dollar, they have
    been able to get more nutritional components into their diets,
    and ultimately better health outcomes. So we have been pleased
    with that in terms of a broad measure of food insecurity of 30
    different components that go into it, it has been a real
    benefit.
        The Chairwoman. Thank you. I appreciate it.
        The chair recognizes Mr. McGovern, for 5 minutes.
        Mr. McGovern. Thank you. All of you have highlighted the
    relative stability and affordability of food in this country,
    but there are important distinctions to be made among income
    groups. Billionaires, for example, face no price constraints on
    food, so presumably, their demand is shaped by prices the same
    way it is for you or me. And at the other end of the income
    distribution, very poor households are extremely resource
    constrained. An extra dollar on milk might mean no bus fare to
    work. So for the poor and very poor, their response to minor
    price fluctuations or transportation costs to get to food
    stores would be very, very different.
        Fortunately, we have Federal food assistance programs like
    SNAP that provide assistance with purchasing food to help
    stabilize demand among very poor households. SNAP has important
    short-term benefits, reducing hunger and poverty, increasing
    demand for food, as well as important long-term benefits.
    Families with young children who participate in the program
    were shown to have long-term positive health and education
    outcomes. And we know that SNAP recipients are also consumers.
    Households spend their SNAP dollars quickly in their local
    communities. SNAP has an important economic multiplier effect.
    Every SNAP dollar spent generates about $1.75 in economic
    activity.
        Mr. Harig, can you talk about the economic impact of SNAP
    for food retailers and their communities? And related to that,
    after the stimulus package's boost to SNAP was cut in 2013, I
    heard from supermarkets in my district that they were seeing an
    uptick in SNAP recipients abandoning carts full of food or
    having to put items back because they didn't realize their
    benefit had been cut. I was wondering whether you heard any
    such stories like that? And the other thing is recent proposals
    here in Congress have proposed block granting SNAP, which would
    result in about $150 billion in cuts to the program. Others
    have proposed even more Draconian cuts. Can you talk about the
    impact that such a cut would have on your industry?
        Mr. Harig. Sure. Thank you, Congressman McGovern.
        In terms of the role that SNAP plays with the industry, the
    average SNAP recipient is on the program for a relatively short
    period of time. The last number I saw was about 9 months is the
    average. And certainly during that period, we believe it is
    better both in terms from a business aspect, but also for the
    consumer to continue to be a consumer, to continue to shop in
    stores as opposed to maybe necessarily being reliant on a food
    kitchen or a food pantry. So it does play an important role.
        We can see huge swings in different areas. There are some
    districts in the country where up to 20 percent of consumers
    are on SNAP. Obviously, if you take that out of the grocery
    store, it not only has a dollar impact, but it puts a huge
    strain on the hunger services in the community as well. So SNAP
    plays an important role in helping create a level playing field
    in that, making sure that resources aren't too strained.
        After the change to the program, we always see a period of
    time where there is an adjustment where the information takes a
    while to get down to the consumer level. That is always a
    concern for us. One of the great success stories of it has been
    over the years a switch to EBT, because it has helped take a
    lot of the stigma away from SNAP and people are able to use it
    in a much more discreet way where they don't always have to
    feel like there is a spotlight on them. And so when we start to
    see people having to put staff back or cashiers having to say
    this is no longer eligible, or you have exceeded your amount,
    that is a problem for us, so that is a long-term concern for us
    on the program, too, that we always have time as these changes
    are made to communicate it to the participants and spread the
    word.
        Mr. McGovern. All right, but as it stands right now, the
    benefit for most families doesn't allow them to be able to
    afford groceries for an entire month. Oftentimes they buy
    groceries and they end up at a food bank or a soup kitchen or
    at a church trying to get additional food. I don't know whether
    you want to answer this or not but if we were to do something
    here to further restrict that benefit, to further cut so that
    the benefit would be even less than it is now, what do you
    anticipate the impact would be on the consumers, and also on
    your industry?
        Mr. Harig. Oh, well sure. I mean, we would expect to see
    that those hunger resources would be strained. A lot of us now,
    because our supply chains are very efficient within the
    industry, a lot of the food waste we used to have that went to
    donation doesn't occur, so that has tightened that up. So a lot
    of the donations now are straight donations that our members
    make.
        Mr. McGovern. Right.
        Mr. Harig. Clearly there is going to be more demand for
    that. But, again, it is always a concern for us that people
    have the information available, they know it is coming, so they
    can plan for it to make sure.
        Mr. McGovern. Thank you.
        The Chairwoman. Thank you. The chair recognizes Chairman
    Conaway, for 5 minutes.
        Mr. Conaway. Well thank you, ma'am, and I appreciate that.
        That drop in food stamp benefits in 2013 was scheduled by
    the stimulus bill from 2009, and it was structural to that
    stimulus bill which was done when my colleague on the other
    side was in charge.
        Dr. Leibtag, you mentioned that in the lower quintile, 34
    percent, middle quintile was 13 percent. Let me make sure I
    understand the mechanics. The other three quintiles then, I
    assume that fourth quintile from the first to the bottom would
    be between 34 and 13. How do we get to 9.8 percent overall? The
    top two quintiles, that distorting of the average. How do we
    understand that?
        Dr. Leibtag. So yes, the consumer income in the country, of
    course, varies and the highest income groups are spending quite
    a bit below ten percent of their income.
        Mr. Conaway. Right, I understand that, but how are the
    quintiles broken, where are the breaks on income, I guess for
    the top two quintiles.
        Dr. Leibtag. The way that the break works is that we take
    the entire survey of households' consumer expenditures, and all
    the households report income, and we take \1/5\ of the
    households and that is the first 20 percent, in order of
    income, lowest to highest, second, third, fourth, and fifth. So
    it is dividing the population into five groups.
        Mr. Conaway. Okay, I got you.
        Well as we look at policies here, the top two quintiles are
    never really concerned about increases in food prices. And so
    as we look at policy changes, whatever they might be, I hope
    our team collectively can focus on the bottom two quintiles,
    because those are the folks who have the least flexibility to
    be able to adjust to price changes, and are the most conscious
    about that. So whether it is a farm bill change or a SNAP
    change or whatever it might be, that is the group that I hope
    all of us have in our mind's eye when we discuss food prices.
        For either you or Dr. Henderson, 17.2 percent goes to the
    farmer, the other 82+ percent, where does that go? How is that
    broken up between the other folks in the food chain?
        Dr. Leibtag. So the 17.2 percent is what we call the farm
    share.
        Mr. Conaway. Okay.
        Dr. Leibtag. The remainder is what is known as----
        Mr. Conaway. That is specifically the farm, that is the
    farmer piece?
        Dr. Leibtag. Yes.
        Mr. Conaway. No middle man between him and that 17 percent?
        Dr. Leibtag. The 17 percent is the value of the sales for
    each dollar that goes back to the farmer.
        Mr. Conaway. Okay.
        Dr. Leibtag. Now the farmer has to pay out of that, so
    there are two parts there.
        Mr. Conaway. Right, he has input costs.
        Dr. Leibtag. Yes.
        Mr. Conaway. That is not----
        Dr. Leibtag. But the other 82, 83 percent distributed
    across the other industries in the food supply chain.
        Mr. Conaway. Yes, can you break that up for us between
    distributors and however you break that up?
        Dr. Leibtag. Yes, so there, of course, is wholesale retail
    and food service kind of at the further end the chain. There is
    also transportation, packaging, energy--I am looking down at my
    notes here. We have about 12 categories of industry----
        Mr. Conaway. You said 12?
        Dr. Leibtag. Yes, there are 12 industry groups that
    contribute significantly to the food supply.
        Mr. Conaway. Okay.
        Dr. Leibtag. And that other 82+ percent----
        Mr. Conaway. Which of the 12 gets the most of that? Who is
    the highest?
        Dr. Leibtag. The largest industry share is for food
    service, which is the final----
        Mr. Conaway. Away from home.
        Dr. Leibtag. Away from home.
        Mr. Conaway. All right, and that is what? And that is how
    much?
        Dr. Leibtag. About 32, 33
        Mr. Conaway. It is 33, okay.
        Dr. Leibtag. Yes.
        Mr. Conaway. And the next largest would be?
        Dr. Leibtag. The next--I am looking at my numbers here. The
    next largest in the industry group is food processing at 15,
    retail at 13, and then going down from there.
        Mr. Conaway. All right, I appreciate it. Anything is
    helpful for folks from time to time when they see these--and
    they can be some sizable numbers--either food stamps or support
    programs. Somehow that number is out of context with the 17
    gross that our farmers get. Any sense of what the net is for
    farmers?
        Dr. Leibtag. For our industry series, it is about 10\1/2\
    percent, or about 10, so they have the 17, then they pay for
    their input costs, like you said.
        Mr. Conaway. All right, but that doesn't count anything to
    them? That is pre-compensation to the farmer?
        Dr. Leibtag. That is right. That takes it back to the farm
    for----
        Mr. Conaway. All the farm inputs, the fertilizer cost, seed
    cost?
        Dr. Leibtag. That has been accounted for from the 17----
        Chairman Conaway. To get down to 10?
        Dr. Leibtag. Yes.
        Mr. Conaway. So that is what he or she then has to feed his
    family or her family off of?
        Dr. Leibtag. That is right.
        Mr. Conaway. I appreciate that. We have some other
    questions, but I yield back to the team. Thank you all for
    being here this morning. I appreciate it.
        The Chairwoman. Thank you. The chair recognizes
    Congresswoman DelBene, for 5 minutes.
        Ms. DelBene. Thank you, Madam Chair, and thanks to all of
    you for being here with us today.
        Dr. Leibtag, in your testimony, you talk about the
    volatility of commodity prices and how higher inputs are
    certain to increase food prices. But what about when prices go
    down? It is particularly relevant in the dairy sector and milk
    prices, when prices go down for the farmer, it seems like
    consumers rarely see lower milk prices. In fact, there is one
    study by the National Farmers Union that showed that if the
    retail price for milk is $3.89, the farmer nets $1.35. So who
    benefits from these lower inputs but higher prices?
        Dr. Leibtag. There has been a good amount of research on
    how the food industry responds to higher and lower costs, and
    there is a good amount of evidence to what you are referring to
    in terms of different responses on the way up versus on the way
    down. And part of the understanding of that difference in
    response is a function of the various parts of the supply chain
    and the decision those producers are able to make.
        We will talk about retail as an example. Retailers
    obviously face uncertainty in terms of the supplies that they
    are going to have to purchase and how much those are going to
    cost. When things fall in the short-term, they may have the
    option to not pass on all of that savings immediately, and part
    of that can be because of the uncertainty. And we do see that
    in a lot of the grocery stores. There are many instances over
    the last 10 or 15 years where there is a quick spike run up and
    you see that pretty quickly at the grocery store throughout the
    supply chain, but then when things drop back down they are
    probably slower to adjust. And I am not a retailer myself, but
    I would venture to say that part of that is the uncertainty.
    They don't know how long it is going to stay low, and if they
    drop too fast, they may come out short. But maybe Mr. Harig who
    is representing retailers may have----
        Mr. Harig. Thank you. Yes, certainly Dr. Leibtag makes a
    good point. It is the uncertainty that drives that a lot, too.
    It can also be if other inputs that aren't necessarily that
    direct input go up at the same time. Energy costs, cost of
    insurance, those other kind of non-food related costs that
    businesses have, those can also go up in the meantime. As I
    said, the algorithm that goes into saying how prices go, there
    are so many elements of it, and sometimes the direct
    relationship always doesn't play out at the store level.
        Ms. DelBene. Based on both of your comments then, would you
    think that it is crucial to ensure that any changes, for
    example, in the dairy safety net if we are talking about milk,
    that any changes in the dairy safety net in the future include
    a mechanism that stabilizes the milk supply so that we avoid
    flooding the market? Also, eliminating price spikes and keeping
    milk pries stable are important so that farmers obviously are
    not impacted when prices go down and consumers aren't being
    charged a higher price, even when inputs go down? Dr. Leibtag,
    I don't know if you have----
        Dr. Henderson. In terms of the stabilizing prices on the
    milk, there has been a lot of different policies that have been
    enacted in there. The determination for policy is, again, going
    to be what is the goal on that role, on those different aspects
    of it in there. What we have seen over the last couple of years
    and just looking at the data is that farm prices and producer
    prices, that would be kind of the wholesale aspect of it, have
    a much stronger correlation. And so what I was seeing is that
    when they are going up and they are coming down, they are a
    much tighter relationship than what has been over the last few
    years than what it was maybe 20 years ago. And so what we have
    seen is much, much stronger correlation which would suggest
    that they are moving together more.
        One of the challenges with the dairy policy is going to be,
    what is the goal? How do you tie it with those fluctuations?
    And it is one of the challenges that farmers traditionally have
    of balancing the inputs and the output costs. And on the crop
    side, that is why you do have the crop insurance program.
        Ms. DelBene. And then quickly, if I can, Dr. Leibtag, the
    maximum SNAP benefit is based on a market model called the
    Thrifty Food Plan, the TFP. I wondered if you could talk about
    how long this has been the basis for SNAP, and has it kept up
    with the needs of recipients?
        Dr. Leibtag. The Thrifty Food Plan is calculated and
    updated on a monthly basis by the Department of Agriculture,
    and it is a food basket based on two objectives, have a
    nutritionally balanced set of foods available, and fit within a
    constraint of costs. You want to have nutritional balance, get
    as close to recommendations as possible, and at the same time,
    have costs not be too high based on affordability. This gets
    updated based on changes in prices on an annual basis, and one
    issue interesting to explore in terms of research is the
    changing behavior in how consumers get their food and what they
    choose to buy, and where. The Thrifty Food Plan is based on
    mostly buying more basic ingredients, purchasing mostly at
    grocery stores, and then going home and making the food. And we
    know, as I mentioned a few minutes ago, that people's behaviors
    change, and so people are making the tradeoff between making
    less at home and buying more either at restaurants, but
    certainly prepared foods.
        The Chairwoman. Dr. Leibtag, I am sorry. I have to cut you
    off. I want to make sure our Members get their votes cast.
        Ms. DelBene. My time has expired.
        The Chairwoman. Thank you. The chair recognizes Mr.
    Benishek.
        Mr. Benishek. Thank you, Madam Chair.
        Well thanks for your testimony. I have heard a lot of
    things that were very interesting.
        Dr. Leibtag, you mentioned noncommercial food outlets in
    your testimony. What is that?
        Dr. Leibtag. You said noncommercial food output?
        Mr. Benishek. I think that was something you mentioned in
    your testimony. What does that mean?
        Dr. Leibtag. I believe you are referring to the factors in
    the food dollar, and let me check on the wording.
        Mr. Benishek. Okay, and I had another question, a follow up
    with the Chairman's. Is 32 percent one of the inputs in the
    non-farm pricing? That was the largest one, and I didn't
    understand what that was. Was that eating out?
        Dr. Leibtag. The overall U.S. food dollar can be broken
    down by the industries that contribute to the food supply
    chain, and so we talked about the ten percent and the 17
    percent for the farm.
        Mr. Benishek. So 32 percent of the food consumed in this
    country is consumed outside the home, is that what that means?
        Dr. Leibtag. Thirty-two percent of the costs of buying food
    are from the food service part of the process. So at the end,
    the food is produced from the farm all the way through the
    chain, and then it gets to the back door of the restaurant, for
    example. Those added 32 percent are the costs of the people
    preparing the foods for you at a restaurant or at a store,
    serving it, et cetera.
        Mr. Benishek. So it includes stores too then?
        Dr. Leibtag. Yes, it is industry-wide. Whatever we would
    consider or define as food service, which is kind of the
    finishing touches, that is what that piece of the dollar goes
    to.
        Mr. Benishek. Well, I heard in your testimony, and you
    talked a little bit about, the change in the nature of
    consumers and I went to the grocery store over the weekend and
    I was surprised by the percentage of the grocery store that was
    dedicated to already prepared foods. I mean, the deli--at least
    in my hometown, there was a little deli, like a counter. At
    this store, the deli was like \1/2\ the store, and it was all
    $9.99 a pound, no matter what it was. It was unbelievable to
    me. It was in D.C., so people must go in there and buy food
    prepared that way, but it was amazing to me coming from a small
    rural area. I couldn't find any Heinz vinegar. It was all
    specialty vinegars, you know what I mean? It was just amazing
    because I was looking for some apple cider vinegar that I use
    to put in my eggs when I poach eggs. But anyway, I didn't want
    to pay a premium price for vinegar. It just was weird going to
    the store. I go to the store at home a lot, but I don't really
    shop here in D.C. that often at the grocery store, so it was
    kind of weird.
        Dr. Henderson, I would like to ask you about this extension
    teaching that you do for consumers. You talked about teaching
    people how to shop and buy food in your testimony, how do you
    identify the people that get that teaching and tell me more
    about what you do. Tell me more about that, because it is
    really interesting. This is a state-funded program from the
    Purdue University Extension Service, right, like Michigan
    State? I am from Michigan, we have a pretty good extension
    service in Michigan State. But you are in every county in
    Indiana, I would imagine?
        Dr. Henderson. Right. The cooperative extension service is
    in all 50 states, and Puerto Rico. At Purdue, we have different
    organizational types of structures, but we are present in
    pretty much every county across the country. In Indiana, we
    have county-based offices which we have had traditionally. Part
    of them is delivering educational programs on health and human
    sciences, and our focus has been health and nutrition.
        Mr. Benishek. How do you identify the people that you are
    teaching?
        Dr. Henderson. How we do that is through our connections in
    local communities, just like many other different educational
    programs. We do----
        Mr. Benishek. So if somebody goes to social services, they
    get referred to you if they get on food stamps or they get
    referred to you, or----
        Dr. Henderson. We will have some partnerships and we give
    them brochures, distributions of our programs to help them. It
    is not required that people on food stamps go through our
    programs. That is not the thing, but we give them the
    educational brochures to help them, how do you help them
    stretch the food dollars.
        Mr. Benishek. Is there some kind of a holistic educational
    program to see what people are--for their situation? In other
    words, they have a situation going on in their home that they
    are getting food stamps, they need some assistance. So are
    there other things beside the food education that you do?
        Dr. Henderson. Yes. In addition to food education, we also
    do family resource management. That is budgeting components is
    the primary example of them. And then we will come in and also
    offer to do other types of budgeting programs to help them
    learn how to stretch their dollar, not just for food, but for
    other areas and how to----
        Mr. Benishek. All right, thank you. Five minutes goes by
    real fast.
        The Chairwoman. But your vinegar story was intriguing.
        The chair recognizes Congresswoman Adams, for 5 minutes.
        Ms. Adams. Thank you, Chairwoman Walorski and Ranking
    Member McGovern, and thank you for your testimony, gentlemen.
        Next month I am introducing the Close the Meal Gap Act of
    2016, which will address one of the most important points of
    today's hearing, that low-income households are spending more
    of their money on food than the national average. This bill
    would permanently authorize a standard medical deduction for
    seniors and disabled individuals applying for SNAP benefits. It
    would incorporate the Low Cost Food Plan into SNAP, and to the
    SNAP formula to take into account how much working people,
    including SNAP recipients, spend on food. It would eliminate
    the cap on the excess shelter deduction in the SNAP formula. It
    would raise the minimum SNAP benefit from $16 to $25. And
    finally, it would allow able-bodied adults to be exempt from
    SNAP work requirements if their state could not provide them
    with a slot in the SNAP Employment and Training Program. It has
    been endorsed by Feeding America, the Food Research and Action
    Center, the National Council on Aging, and others. I certainly
    welcome Members of Congress to support it, sign on to it, and I
    want to thank Congressman McGovern and those on the Committee
    who have done so.
        But Dr. Leibtag, the way we consume food is at the heart of
    why SNAP benefits just aren't enough. USDA Thrifty Food Plan is
    used to estimate how much a minimally nutritious meal should
    cost an individual participating in the program. We expect a
    participant in the program to work, but the benefit amount they
    receive expects them to spend hours each week cooking and
    preparing meals from scratch. A mother, for example, who works
    two and three jobs does not have the time to prepare the food
    that SNAP benefits can pay from one month to another. Does the
    basket of products in the Thrifty Food Plan take into account
    that many SNAP participants purchase more prepared foods, that
    these foods cost more to purchase with their limited SNAP
    benefits? Dr. Leibtag?
        Dr. Leibtag. Thank you for the question. It raises an
    important issue to think about when we look at consumer food
    choices, especially low-income households and how that changes
    over time.
        As I mentioned earlier, as consumer behavior has shifted,
    we have observed the way that people shop, what they find in
    the store changes. The Thrifty Food Plan has a basket, as I
    mentioned, that has a nutritionally balanced group of foods at
    a minimum cost. It does assume most shopping of more basic
    ingredients in the store. So as more prepared foods become the
    norm with their associated higher costs, the Thrifty Food Plan
    may not be covering those types of foods. So at least to a
    question about tradeoffs between time and coverage and between
    time spent working, perhaps, or time spent shopping and
    preparing food versus benefits or the affordability of food.
        Ms. Adams. Does it seem fair and accurate for SNAP benefit
    calculation to assume that households use 30 percent of their
    non-SNAP income for food?
        Dr. Leibtag. I think the 30 percent number is a pretty good
    estimate. From what we mentioned a little earlier, the 20
    percent lowest income households spend about 34 percent of
    their income on food, and so that is, of course, just one
    number, but I would say on average somewhere between 25 and 35
    percent is probably the norm for many households in that group.
        Ms. Adams. Do you know if purchases at these smaller stores
    vary from purchases at larger, traditional grocery stores?
        Dr. Leibtag. What people buy at stores does vary. It does
    vary for the consumer. It also varies based on what is on the
    shelves. One concern about food choice is the types of stores
    people choose to shop at, which could be a function of food
    access. What stores are closest to their homes or to their
    places of work? And so that can be a factor in the choices of
    foods people choose to buy and consume.
        Ms. Adams. Thank you, Madam Chair. I yield back.
        The Chairwoman. Thank you. I just want to update our
    Members really quickly. They are going to be calling votes in a
    couple minutes, but I want to go ahead and recognize
    Congressman Abraham. We will get through his questions and see
    where we are at. Congressman Abraham, for 5 minutes.
        Mr. Abraham. Thank you, Madam Chair. I will be quick.
        Dr. Henderson, I do farming on my property in Louisiana and
    so your comment about farming being very cyclical and very up
    and down is very true. Help us explain that we have the ARC, we
    have the PLC, we have the crop insurance that helps us when we
    have really bad years. Help us make the jump from that
    connection as to how it helps America have the most affordable
    and abundant food, and where does the farm policy play in here?
        Dr. Henderson. Right. The role of farm policy on many of
    these different programs, from crop insurance to ARC and all
    these other different things, the primary benefit of what it
    does is it tries to mitigate the downside risk. It tries to
    take away the uncertainty for the farmer so they can plan long-
    term in the fluctuations from year to year. It provides a more
    stable food system. In many ways, it also provides
    opportunities for farmers to plant additional food, and so it
    expands agricultural production. And that translates to the
    consumer a more stable food system than what naturally would
    be, to more stable consumer prices, and ultimately then lower
    prices as you reduce and extract uncertainty out of the system.
        Mr. Abraham. Okay. Madam Chair, I yield back. I just had
    that one question.
        The Chairwoman. The chair recognizes Congressman Ashford,
    for 5 minutes.
        Mr. Ashford. Thank you, Madam Chair, and I just have one
    question because we don't have much time.
        First of all, Dr. Henderson, your work is significant
    because it applies to a lot of what we are dealing with in
    Nebraska with rural poverty and so forth. At the University of
    Nebraska the Buffett Foundation has funded a $50 million early
    childhood program for our state, and actually a global early
    childhood initiative. You are probably aware of it in some
    ways. But how do you see those initiatives, early childhood
    initiatives and the food issue going forward? There is a nexus
    there and food is a big part of it, and healthy food for early
    childhood individuals and families.
        Dr. Henderson. Yes, there is a major nexus between food and
    children.
        Mr. Ashford. Right.
        Dr. Henderson. I think about it----
        Mr. Ashford. Maybe it was a vague question.
    Programmatically, how do we set up or do you have experience in
    dealing with early childhood programs and how we connect that
    to healthy food and healthy start, that sort of thing?
        Dr. Henderson. Yes. One of the different programs that we
    go through with children, we have also been focusing with them
    on how do you prepare healthy meals, and what does a healthy
    meal look like? It is kind of interesting and a longstanding
    tradition of extension is that if you want to teach parents,
    sometimes you teach the children. And so we have been working
    with the children and helping with schools with different types
    of programs of how do you bring in healthy meals, how do you
    teach healthy meals, how do you teach healthy snacks. We have
    been focusing a lot on snacks and doing many different things.
    There is a wide variety of programs that are out there, but
    that is where the focus is, is how do you get them to eat
    healthy? It is giving them opportunities to do that.
        And the other thing that we have been doing is how do you
    teach them to grow food? Because what we are also finding is
    that when they grow food like tomatoes and peppers, they are
    more likely to try it and eat it, and then enjoy it because
    they actually grew it. And so there are some other things in
    terms of that nexus between food and food consumption of how do
    we bring agriculture and consumers together in order to help
    them understand healthy choices?
        Mr. Ashford. Thanks, I ran the Housing Authority in Omaha
    and we initiated some of those programs for Housing Authority
    residents for young people, for children to grow food. And that
    actually has been expanded very successfully in the urban
    areas, so that is good. That is good work.
        Thank you, Madam Chair.
        The Chairwoman. Thank you. The chair recognizes
    Congresswoman Hartzler, for 5 minutes.
        Mrs. Hartzler. Thank you.
        Dr. Henderson, your words strike my heart as a former home
    economics teacher and someone who has taught nutrition for many
    years. I do believe in that and think everybody should take
    family and consumer sciences, and that would help.
        But I would like afterwards more information on your
    program that you referenced with anti-drug program, so I will
    get with you on that, but my question for the panel has to deal
    with GM soybeans, corn, cotton, and different studies that have
    been done that shows that biotechnology has increased crop
    yields by 22 percent, reduced pesticide use by 37 percent, and
    increased farm profits by 68 percent.
        Now even with these large benefits to farmers and the
    environment, there is a vocal portion of Americans that have
    expressed concerns with the use of GM crops. So will each of
    you elaborate on how GM crops affect consumer prices, and
    provide any insight into the rewards and risks of consuming
    GMOs. Do you want to start, Dr. Henderson?
        Dr. Henderson. GM crops have, as you mentioned, done a lot
    of different things to enhance farm profitability, and from the
    consumer standpoint, they have also expanded production,
    allowed us to grow many different crops and increasing yields
    in many different ways. The benefits flow from that directly
    into food prices on those types of consumption aspects of it.
        The other aspect of it, in terms of when you think about
    crops that are somewhat related to GMOs, but not a GMO, per se,
    is that we have been focusing at Purdue Extension on a lot of
    different new technologies that are looking at how do you
    maximize nutrients, and so you don't want all the runoff. How
    do you use sensors in terms of plants to identify those plants
    that grow faster and better than other plants. I am 64", my
    brother is 59". Because plants are different in different
    places, and so how do you identify those plants that are going
    to have the most and best breeding potential and doing
    different things?
        For us at Purdue, we have a huge plant sciences move.
    Looking at those things and how do you adopt technology that
    works in there? We are also, us and colleagues across the
    country, are looking at food for health, identifying plants,
    their traits that enhance health, becoming nutrient-based and
    figuring out how can that help food consumption patterns and
    help identify those foods that can help nutrition and health
    that way as well.
        There are a lot of different technologies that are being
    brought out to support the consumer.
        Mrs. Hartzler. Thank you. Dr. Leibtag?
        Dr. Leibtag. Broadly, as this relates to work on food
    prices, it is correct that as crop yields improve, there are
    ways in which costs can be lowered and they have been lowered,
    and as costs of production are falling or stabilized, that
    certainly has a stabilizing effect on food prices. In terms of
    the various methods of production, what is interesting to track
    and follow is the influence of consumer demand or consumer
    preferences on the way we produce our food and what we produce.
        So what I have seen in the last 10 or 20 years is that
    producers, companies, industry, the ag sector adjust to what
    people want. From an economics perspective, if people want
    different attributes and traits, you would imagine that supply
    and production would meet those and it is just a matter of what
    people want and where they want. And I think that remains to be
    seen in terms of demand for various types of characteristics.
        Mrs. Hartzler. Thank you. Mr. Harig?
        Mr. Harig. Thank you. We are enormously concerned about how
    we are going to continue to feed a growing population. It is
    not just in the United States, it is a global population, and
    we believe that GMOs or genetically engineered products are an
    essential part of that, making sure that there is enough food
    to feed the population. And as we have seen more of an anti-GMO
    effort in place, you can Google GMO and you can find good
    science, but you can also find a lot of junk science that comes
    at the same time. And so our biggest concern is we have always
    said as an industry, if people want to know something, we will
    disclose that to them. We are happy to do that, but we are very
    concerned about the sort of misinformation around it, and the
    possibility that that information is going to drive consumer
    trends and ultimately hurt the ability of the U.S. agriculture
    industry and the U.S. retail industry to feed people in an
    affordable way.
        Mrs. Hartzler. Thank you very much. I yield back.
        The Chairwoman. The chair recognizes Congressman Davis, for
    5 minutes.
        Mr. Davis. Thank you, Madam Chair, and thank you to my
    colleague, Mrs. Hartzler, for bringing up the biotech issue.
    Obviously, as Federal policy-makers, we are here in this
    Committee hearing room talking about how we in America can
    better feed those who are hungry.
        Mr. Harig, you just mentioned feeding the world. I don't
    know how we continue to feed the world with the projected
    increases in population over the next 20 years, billions more--
    a billion more individuals. How do we do that without
    genetically modified products and without being able to grow
    more on less land? Can you give me your response on that, sir?
        Mr. Harig. Yes, I don't have an answer for you on that. As
    I said, we think that it is an essential part, and again, some
    of this misinformation is already having an impact, if you can
    look at Africa right now.
        Mr. Davis. All you have to do is look at the Senate.
        Mr. Harig. Yes. No comment on that, but yes.
        Mr. Davis. Feel free to.
        Mr. Harig. No, again, our position has always been if
    people want to know if this is in there, we are happy to
    disclose that. We are happy to let people know what is in their
    food. But this sort of misinformation surrounding it is a big
    concern for us. This idea that people are walking away thinking
    these products are dangerous when there is no science to
    support that right now.
        Mr. Davis. I am going to come back to you, but Dr.
    Henderson looked like he was ready to respond to this, too.
        Dr. Henderson. GMOs are part of the solution, they also
    obviously are not the whole solution. There are a lot of
    different technologies that are emerging. At Purdue University
    and our other land-grants across the whole country that----
        Mr. Davis. Including the University of Illinois, the land-
    grant university.
        Dr. Henderson. And so doing many different things of
    looking at traits and figuring out all this is driven by
    customer and customer demand, and how do you provide choices
    for customers and deliver the products that they want to
    receive, which is ultimately what we are here to satisfy is
    customers.
        Mr. Davis. Well Mr. Harig, one quick question. In your
    testimony, you talked about when consumers decide what products
    to buy, like nutrition, biotech labeling and other claims on a
    food label. In your testimony though it indicates that 75
    percent of consumers almost always use price in deciding to
    purchase these new products, far more than they consider any
    other factors. What should this tell us as policy makers about
    what matters to consumers with their purchasing decisions?
        Mr. Harig. Well, I think it is pretty straightforward. I
    mean, price is still the driving factor and will be. We do see
    periods of time in 2004 and 2005, people listed selection and
    quality as higher ranking attributes than price, but since 2008
    and continuing through 2016, price is the main factor they look
    for in both the ability of the store to offer that and the
    products themselves.
        Mr. Davis. Is that due to family economics?
        Mr. Harig. Yes, I mean, it is, and that is actually across
    the board too. If you are at the higher income level, obviously
    you are a little bit less price sensitive, but we still see in
    a lot of our surveys, those shoppers don't necessarily go out
    and say, ``Well, we are going to blow the bank on this just
    because we can.'' They are still value shoppers.
        Mr. Davis. Okay, I guess the last question is for everyone.
    Dr. Leibtag, we will start with you. Do you think science backs
    up the safety of genetically modified products?
        Dr. Leibtag. I don't think that my research background can
    answer that question. So I wouldn't have an opinion at this
    point.
        Mr. Davis. Dr. Henderson?
        Dr. Henderson. I think that with these GMO technologies and
    other technologies out there that we have the safest, most
    abundant food system in the world.
        Mr. Davis. Mr. Harig?
        Mr. Harig. Yes, at FMI we go by what the FDA tells us, and
    they say the products are safe.
        Mr. Davis. Well, and I have a few seconds left and I am
    sorry, Madam Chair, I know we are voting but I am going to use
    them.
        Right now, when we walk into a store and when you are
    teaching families how to shop, you can buy products that say
    non-GMO on the label. Frankly, does anybody really know what
    that means? Is there a set of standards that are in place right
    now?
        Dr. Henderson. From my perspective, that is one of the
    biggest challenges that we have right now. What is GMO?
        And you talk to various different people and they have
    various different answers of what GMO would be, and then we are
    also coming up with all these new different technologies that
    are emerging that push the boundaries of science, and some of
    them are traditional, more programs in doing different things.
    So the definition of GMO is a bit uncertain.
        Mr. Davis. So we are trying to feed people who are hungry.
    We are trying to give them access to food, and at the same
    time, because we don't have a set of standards, we are
    confusing them as to what may be scientifically safe. We have a
    66 percent consensus here on this panel that they are safe, but
    we are telling them this might be bad for you because of
    misinformation.
        So with that, my time has expired.
        The Chairwoman. Gentlemen, I have to cut you off there.
    Thank you, Congressman Davis.
        Mr. McGovern. I was going to ask him to yield, but----
        The Chairwoman. He can't yield now. He is done.
        I appreciate the panel's help in understanding how the farm
    economy affects the prices consumers find at the grocery store.
    Making the connection from farm to fork provides a great
    opportunity for people in both urban and rural areas to better
    understand our food system. Thank you so much to the panel for
    providing the context for our overall look at the farm economy,
    and we thank you for your time.
        Under the Rules of the Committee, the record of today's
    hearing will remain open for 10 calendar days to receive
    additional information and supplementary written responses from
    our witnesses to any question posed by a Member.
        This hearing of the Subcommittee on Nutrition is adjourned.
        [Whereupon, at 3:08 p.m., the Subcommittee was adjourned.]

                           FOCUS ON THE FARM ECONOMY

       (IMPACTS OF ENVIRONMENTAL REGULATIONS AND VOLUNTARY CONSERVATION
                                   SOLUTIONS)

                                  ----------

                             TUESDAY, MAY 17, 2016

                      House of Representatives,
                     Subcommittee on Conservation and Forestry,
                                      Committee on Agriculture,
                                                       Washington, D.C.
        The Subcommittee met, pursuant to call, at 10:01 a.m., in
    Room 1300 of the Longworth House Office Building, Hon. Glenn
    Thompson [Chairman of the Subcommittee] presiding.
        Members present: Representatives Thompson, Lucas, King,
    DesJarlais, Gibson, Allen, Conaway (ex officio), Lujan Grisham,
    Kuster, DelBene, Kirkpatrick, and Peterson (ex officio).
        Staff present: Callie McAdams, Haley Graves, John Weber,
    Josh Maxwell, Patricia Straughn, Stephanie Addison, Faisal
    Siddiqui, John Konya, Anne Simmons, Evan Jurkovich, Liz
    Friedlander, and Nicole Scott.

     OPENING STATEMENT OF HON. GLENN THOMPSON, A REPRESENTATIVE IN
                       CONGRESS FROM PENNSYLVANIA

        The Chairman. This hearing of the Subcommittee on
    Conservation and Forestry, entitled, Focus on the Farm Economy:
    Impacts of Environmental Regulations and Voluntary Conservation
    Solutions, will come to order.
        Welcome everyone. Good morning. Each Subcommittee of the
    Committee on Agriculture has been tasked with highlighting
    issues within their respective jurisdictions that impact the
    economic well-being of rural America. Through this series of
    hearings on the farm economy, one of the consistent themes has
    been that government rules and regulations are overly
    burdensome and negatively impact the bottom line and long-term
    success of our farmers and ranchers.
        In a hearing more than 2 months ago with EPA Administrator
    McCarthy, Members engaged in extensive questioning regarding
    actions her agency had taken which impose considerable costs
    with questionable, if any, benefits.
        It seems that every day brings a new regulation, new
    litigation, or another case of unelected bureaucrats running
    wild across America's farms and ranches. The Administration's
    extreme environmental agenda, with its blatant disregard for
    the impact it will have on rural America, has increased the
    cost of doing business for America's farmers and ranchers at a
    time when producers are already experiencing a 56 percent drop
    in net farm income over the past 3 years.
        It has become increasingly clear that some government
    agencies and environmental activist organizations ignore or
    otherwise discount the commitment that our farmers and
    ranchers, our foresters make to environmental stewardship.
    Every day, the Administration seems to demonstrate how vastly
    disconnected it is from the folks who provide our food, our
    fiber, and our energy. They do not seem to realize that rural
    America's economy is dependent on agriculture. A thriving
    agriculture sector breeds a healthy rural economy.
        The path the Administration has chosen forces farmers and
    ranchers to spend more and more time complying with
    regulations. Now, I believe that both the environment and those
    who work the land are all better served when our time and
    resources are directed to what really works: locally-led and
    incentive-based approaches that help restore and protect our
    natural resources while encouraging a healthy rural economy.
        The critics forget that farmers and ranchers are the best
    and the original stewards of the land. They continually find
    new and innovative ways to reduce energy usage, reduce
    emissions, and sequester carbon, while still providing America
    with an abundant and affordable food and fiber supply. All of
    us share a common goal: the continued health and vitality of
    our natural resources.
        To me, the path is clear: voluntary conservation programs
    work. If we want a real solution to cleaner natural resources
    then we should continue to focus on incentives, innovation, and
    research that stimulate the rural economy; not backdoor energy
    taxes, mandates and more burdensome regulations.
        Today, our first panel will discuss many of the regulatory
    challenges that impact production on our nation's farmers and
    ranchers. While the farm bill conservation programs somewhat
    mitigate these impacts, our nation's farmers continue to
    operate on very thin, and in some cases negative, margins.
        Our second panel will more broadly discuss the locally-led
    solutions to addressing natural resource concerns. No two
    producers face the same natural resource concerns, and there is
    no shortage of reasons why we must continue to innovate when it
    comes to preserving our natural resources.
        The record that is created today will be extremely
    beneficial. And I want to thank you all for being here.
        [The prepared statement of Mr. Thompson follows:]

    Prepared Statement of Hon. Glenn Thompson, a Representative in Congress
                               from Pennsylvania
        Good morning.
        Each Subcommittee has been tasked with highlighting issues within
    their respective jurisdictions that impact the economic well-being of
    rural America.
        Throughout this series of hearings on the farm economy, one of the
    consistent themes has been that government rules and regulations are
    overly burdensome and negatively impact the bottom line and long-term
    success of our farmers and ranchers.
        In a hearing more than 2 months ago with EPA Administrator
    McCarthy, Members engaged in extensive questioning regarding actions
    her agency has taken which impose considerable costs with questionable,
    if any, benefits.
        It seems that every day brings a new regulation, new litigation, or
    another case of unelected bureaucrats running wild across America's
    farms and ranches. The Administration's extreme environmental agenda,
    with its blatant disregard for the impact it will have on rural
    America, has increased the cost of doing business for America's farmers
    and ranchers at a time when producers are already experiencing a 56
    percent drop in net farm income over the past 3 years.
        It has become increasingly clear that some government agencies and
    environmental activist organizations ignore or otherwise discount the
    commitment our farmers, ranchers and foresters make to environmental
    stewardship.
        Every day the Administration seems to demonstrate how vastly
    disconnected it is from the folks who provide our food, fiber and
    energy. They do not seem to realize that rural America's economy is
    dependent on agriculture. A thriving agriculture sector breeds a
    healthy rural economy.
        The path the Administration has chosen forces farmers and ranchers
    to spend more and more time complying with regulations. I believe that
    both the environment and those who work the land are all better served
    when our time and resources are directed to what really works: locally-
    led and incentive-based approaches that help restore and protect our
    natural resources while encouraging a healthy rural economy.
        The critics forget that farmers and ranchers are the best and
    original stewards of the land. They continually find new and innovative
    ways to reduce energy usage, reduce emissions, and sequester carbon
    while still providing America with an abundant and affordable food and
    fiber supply.
        All of us share a common goal: the continued health and vitality of
    our natural resources. To me, the path is clear: voluntary conservation
    programs work. If we want a real solution to cleaner natural resources
    then we should continue to focus on incentives, innovation, and
    research that stimulate the rural economy; not backdoor energy taxes,
    mandates and more burdensome regulations.
        Today, our first panel will discuss many of the regulatory
    challenges that impact production on our nation's farmers and ranchers.
    While the farm bill conservation programs somewhat mitigate these
    impacts, our nation's farmers continue to operate on very thin--and in
    some cases negative--margins.
        Our second panel will more broadly discuss the locally-led
    solutions to addressing natural resource concerns. No two producers
    face the same natural resource concerns, and there is no shortage of
    reasons why we must continue to innovate when it comes to preserving
    our natural resources.
        The record that is created today will be extremely beneficial.
    Thank you all for being here.
        I now yield to the distinguished Ranking Member, Rep. Lujan Grisham
    for any comments she wishes to make.

        The Chairman. I now yield to the distinguished Ranking
    Member, Representative Lujan Grisham, for any comments she
    wishes to make.

          OPENING STATEMENT OF HON. MICHELLE LUJAN GRISHAM, A
               REPRESENTATIVE IN CONGRESS FROM NEW MEXICO

        Ms. Lujan Grisham. Thank you very much, Mr. Chairman. And
    thank you very much to the panel, and for this hearing.
        Having a hearing on the impacts of environmental
    regulations and voluntary conservation solutions is an
    important opportunity for the entire Committee to better
    understand the challenges that our farmers and ranchers and
    foresters face each and every day on their land. And I would
    agree, actually, that the current regulatory environment can,
    in fact, be very difficult, and at times, extremely costly for
    producers to comply with. However, the genesis of the Federal
    regulations, I hope, are critical in ensuring and are directed
    at having clean and safe water and air. Access to clean and
    safe water and air is not only paramount for the producers that
    rely on these resources for their livelihood, it is also
    critical for protecting the public's health and the
    environment.
        I have heard from many New Mexico producers that compliance
    with Federal regulations can be very challenging, especially
    for small producers that do not have the time or the resources
    to interpret regulations. It is important that Federal
    regulations be clear, concise, uncomplicated, and to make the
    necessary regulatory compliance as easy and affordable as
    possible. Compliance should not be a ``gotcha'' or a profit
    game for anyone.
        I know there are concerns about how some of the more recent
    regulations have been developed and proposed, and quite
    frankly, Mr. Chairman, I share many of those concerns. It is
    clear to me that government can and should be doing a better
    job, especially when it comes to engaging the agricultural
    communities. And while issues of clean air, water, and
    regulatory uncertainty persist, farmers, ranchers, and
    foresters, in my opinion, are doing what they do best; using
    proven and innovative conservation practices that protect our
    resources. An example is one in New Mexico at the State
    University where a researcher, David C. Johnson is working with
    New Mexico ranchers and farmers. Dr. Johnson has been working
    with ranchers and farmers to help improve the health of their
    soils. Minimal changes in land management not only benefitted
    farming and ranching operations, but also helped sequester
    large quantities of carbon into their soils. This conservation
    practice could help reduce greenhouse gases and help states
    meet carbon dioxide reduction requirements under the Clean
    Power Plan 111(d) rule.
        It is also clear to me that promoting conservation efforts
    like these are the key to addressing many of the regulatory
    issues, while preserving our natural resources, bolstering the
    economy and restoring our environment.
        I am looking forward to hearing from all the witnesses
    today. I am especially interested in hearing about how they are
    using the farm bill conservation programs, along with other
    innovative approaches to conservation that we should be
    considering and discussing as we move toward the next farm
    bill.
        Thank you, Mr. Chairman, and I yield back.
        The Chairman. I thank the gentlelady.
        The chair would request that other Members submit their
    opening statements for the record so that the witnesses may
    begin their testimony, and to ensure there is ample time for
    questions. The chair would like to remind Members that they
    will be recognized for questioning in order of seniority for
    Members who were present at the start of the hearing. After
    that, Members will be recognized in the order of their arrival.
    And I appreciate the Members' understanding.
        I would like to welcome our first panel of witnesses this
    morning. First, we have Mr. Richard R. Ebert, President of the
    Pennsylvania Farm Bureau, from Blairsville, Pennsylvania; Ms.
    Kate English, Partner, English Family Partnership, Fort Myers,
    Florida; and Mr. Patrick O'Toole, President of Family Farm
    Alliance, Savery, Wyoming.
        Witnesses are reminded to limit their oral presentations to
    5 minutes. All written statements will be included in the
    record.
        And so, Mr. Ebert, please begin when you are ready.

               STATEMENT OF RICHARD R. EBERT, PRESIDENT,
               PENNSYLVANIA FARM BUREAU; MEMBER, BOARD OF
      DIRECTORS, AMERICAN FARM BUREAU FEDERATION, BLAIRSVILLE, PA

        Mr. Ebert. Good morning, Chairman Thompson, Ranking Member,
    and Members of the Subcommittee.
        Thank you for this invitation. I am Rick Ebert. I have an
    80 head dairy farm in Westmoreland County, Pennsylvania. We
    grow alfalfa, corn, and soybeans. I am the President of
    Pennsylvania Farm Bureau, and serve on the American Farm Bureau
    Board of Directors.
        EPA's Chesapeake Bay regulation gives us a good look at how
    environmental regulations impact farmers. Today, I will
    highlight three things of the Bay regulations: inflexibility,
    bureaucracy, and uncertainty.
        The bottom line, it is difficult for farmers to function in
    this regulatory environment, especially when facing the
    economic challenges described in my testimony.
        Bureaucracy: A massive bureaucracy has cropped up around
    the Bay regulations. How massive? Nearly 60 public bodies have
    been created, a web which farmers are supposed to provide
    input. These meetings produce pages of academic analyses based
    on a model world, but looks nothing like how I farm in the real
    world. I have a degree in animal science and decades of farming
    experience, yet I can't understand EPA science. How does this
    make me part of the process?
        Inflexibility: In farming, one size doesn't fit all. EPA's
    Chesapeake Bay model is inflexible and based upon assumptions
    that are just plain wrong. The model fails to capture and
    credit best management practices, BMPs, unless they are funded
    or verified by the government. For years, EPA has rejected our
    attempts to change this. We are working with state officials
    and Penn State to capture these non-cost-shared BMPs through a
    survey. So far, we have received over 7,000 survey responses.
    But will EPA use this data in their model? Also, NRCS data says
    no-till and conservation tillage are used on nearly 80 percent
    of the cropland in the Bay, while only six percent are under
    continuous till. Yet, EPA's model assumes 50 percent
    conventional tillage, and 50 percent conservation tillage. The
    science just doesn't add up.
        Uncertainty: Last year, EPA withheld $3 million from
    Pennsylvania because they believe we weren't doing enough. Our
    state officials had to guess what changes were needed to
    restore EPA's favor and funding. What is to stop EPA from
    demanding more? Is it fair for farmers to be caught in a tug-
    of-war between EPA and state regulations? And even if EPA's
    model is fully implemented, 20 percent of the cropland in the
    watershed will need to be set aside to meet EPA's goals. Who
    will decide what land is fallowed? EPA? We made major progress
    in reducing pollution in the watershed, but EPA still points
    fingers; painting agriculture, farmers just like me, as a
    villain. To EPA I ask, do you really think I am trying to
    pollute? I no-till, I plant cover crops, I have implemented
    nutrient management plans voluntarily, without Federal funding.
    However, in the eyes of EPA's model, it doesn't matter. Does
    that make sense?
        Regulators must understand real-life agriculture. I am a
    small business owner. There is no compliance officer, just me
    and my three sons trying to farm, balancing daily tasks while
    complying with a list of growing regulations, while EPA ignores
    the beneficial practices we employ.
        I consider myself a typical American farmer. I operate a
    small family farm. Our milk goes to a small family business
    where it is processed and used around Pittsburgh. We try to do
    the right thing. We are good stewards. We take excellent care
    of our cows, and we go the extra mile to take care of our land
    and our water, not only because it is the right thing to do,
    but it is my family, my children and grandchildren, who eat
    here, play here, and hopefully one day will work here.
        Thank you.
        [The prepared statement of Mr. Ebert follows:]

      Prepared Statement of Richard R. Ebert, President, Pennsylvania Farm
     Bureau; Member, Board of Directors, American Farm Bureau Federation,
                                Blairsville, PA
        Chairman Thompson, Ranking Member Grisham, and Members of the
    Subcommittee, thank you for the invitation to appear today to testify
    on ``Focus on the Farm Economy: Impacts of Environmental Regulations
    and Voluntary Conservation Solutions.'' I am Rick Ebert. I operate a
    dairy farm in Blairsville, Westmoreland County. We milk 80 Holstein
    cows and grow alfalfa, corn and soybeans. I am working to bring my
    three sons into the family business.
        I have the privilege of serving as the elected President of
    Pennsylvania Farm Bureau and I was recently elected to serve on the
    American Farm Bureau Federation's Board of Directors. Farm Bureau
    represents farms of all sizes, spanning virtually all commodities grown
    and sold in our great nation. I am pleased to offer this testimony on
    behalf of the American Farm Bureau, the largest farm organization in
    the U.S.
        In Pennsylvania, farming remains an integral and critical component
    of our state's economy. Agricultural production in Pennsylvania
    generated an estimated $7.5 billion in cash receipts in 2014, providing
    $75 billion in total annual economic impact to the Commonwealth.
    However, the same forces that can provide economic benefit to
    Pennsylvania's agricultural industry also have the potential to
    seriously cripple it. While some may consider Pennsylvania agriculture
    to be ``big business'' in the aggregate, the typical business structure
    of individual farm businesses is predominantly those of small business
    operations--family-owned proprietorships and partnerships. As with
    others owning and managing small businesses, Pennsylvania's farm
    families have practically no means to individually control the sharp
    changes in commodity prices and other national and international
    economic forces that can plague profit margins. As I will discuss a bit
    later in my testimony, current trends in national and international
    markets are seriously threatening farm businesses in Pennsylvania,
    including my family's business.
        Many outside of agriculture fail to appreciate the real
    significance of either of these aspects. Agriculture does play a
    pivotal role in the economic vitality of many states and the overall
    vitality of our national economy. And yet, the viability of agriculture
    and the economies that agriculture supports are especially vulnerable
    to volatile economic forces because of the small scale in which
    individual farm businesses operate and their practical inability to
    control those forces.
        Because farmers are likely to regularly experience volatile and
    unpredictable commodity prices, it is critically important for
    individual farm businesses to control their operation costs, especially
    when sharp drops in prices for their products occur. But farmers can't
    be effective in managing costs unless they are very certain of what
    those costs are likely to be for both the short-term and a more long-
    term span of several years.
        Compliance with the legal obligations associated with commercial
    business operations is becoming a significant aspect of farmers'
    management of costs. Often, actions by government to increase
    regulatory standards have the effect of increasing a business' costs of
    operation. Some businesses have the economic ability to pass the
    additional costs of increased regulatory standards onto their customers
    merely by increasing the prices of their products. Increasing their
    prices doesn't impact the marketability or consumer demand for their
    products. Individual farm businesses, however, do not the power in the
    market to increase prices. The farm business will have to employ some
    other means--usually reduce or control some other area of cost--to
    offset any increased costs resulting from more stringent regulatory
    standards.
        In order to come close to making sound cost-management decisions,
    farmers must have a thorough understanding of what their operational
    costs will likely be. We can't make good decisions if regulatory
    officials are unable or unwilling to identify the boundaries of
    regulatory standards that will be imposed in the near future or the
    standards that are likely to be imposed for years to come.
        Farmers in Pennsylvania and around our nation are seriously
    frustrated by the two-pronged approach being taken by both Federal and
    state officials, especially in the area of environmental regulation.
    EPA's administrative approach under the current Administration seems to
    be both a pervasive assertion of regulatory authority over virtually
    every aspect of land use and function and a serious lack of effort to
    specifically identify the type of conduct that gives a person any
    confidence of compliance with his or her legal obligations.
        The posture and attitude of Federal officials seem to be that any
    land activity performed may be subject to Federal regulation and that
    the agency make no commitment to defining the extent and limitation of
    regulatory standards unless the individual first seeks a permit or
    other approval from the agency. Farm Bureau and individual farmers have
    raised numerous legitimate questions and have tried to gain specific
    answers from EPA officials about how existing and proposed regulations
    are to be interpreted and applied in the context of specific situations
    that commonly occur on farms. EPA's response has been evasive and
    rhetorical, with no meaningful answer provided. And what may be
    determined today as acceptable conduct may not be acceptable tomorrow
    because of changes in modeling or evaluation of environmental impacts.
        Small businesses owners, especially farmers, cannot sensibly
    function or viably operate their businesses in such a regulatory
    climate and culture.
        Congress has heard from several agricultural sources about the
    impacts of EPA's regulatory posture and strategy in the Chesapeake Bay
    Watershed. I also wish to focus much of the remainder of my testimony
    on EPA's posture in the Bay, because it is a clear example of the real
    challenges that agriculture has faced and will likely face under the
    Federal Government's current exercise of regulatory power.
        EPA's regulatory and administrative oversight in the Bay Watershed
    has consistently been one of inflexibility and bureaucracy. And the
    pervasive efforts and nebulous standards being established or evolving
    through EPA's oversight are leaving farmers in the Bay Watershed with a
    high level of uncertainty about whether their farm production practices
    are legal now or will be legal tomorrow. I'll highlight these themes as
    I discuss the real-life farm- and community-level implications for
    farmers like me.
        I have an average-sized dairy herd and I try to grow as much feed
    as possible for them on the farm. In that way, I look a lot like my
    fellow dairy farmers in Pennsylvania. And, I suspect my farm
    structure--me and my three boys--looks a lot like what farmers across
    Pennsylvania typically have, including those farmers operating farms in
    the Bay Watershed. So when I discuss the potential impacts of Federal
    regulatory oversight to my farm, you can assume there are a lot of
    other farmers who would be similarly impacted.
        In addition, while I live western Pennsylvania and not in the
    Chesapeake Bay Watershed, I am very much impacted by the rules and
    regulations that the Environmental Protection Agency--and our state
    Department of Environmental Protection--have developed as a result of
    their targeted efforts in the region.
        As we talk about environmental regulations and their impact, we
    cannot ignore the challenging situation farmers across the nation are
    facing in terms of commodity prices. As I said earlier in my testimony,
    in the real world of agriculture, individual farming businesses cannot
    make up for the increased costs of regulation by increasing their
    commodity prices. We must adjust other aspects of our businesses and
    financing activities to balance those increased costs.
        Farmers have been experiencing very low prices on the major
    commodities for more than a year now. USDA's Economic Research Service
    (ERS) estimates that total cash income for farm businesses in the
    United States for 2015 is more than 27 percent below that of 2014--
    again, more than 27 percent below what farmers received in 2014. 2015's
    income figure is below what farmers received in 2010--the ``recovery
    year'' from the previous serious economic downturn in agriculture's
    economy. And ERS projects another significant drop in cash income for
    the U.S. agricultural sector in 2016--nearly 2.5 percent below what
    farmers received in 2015.
        Since I'm a dairy farmer, I'll highlight how my sector has been
    impacted by price volatility. For example, 2009 and 2010 were
    financially devastating years for the dairy industry. In fact, in 2009
    client dairy farms of PFB's MSC Business Services \1\ lost an average
    of $2.53 per hundredweight. After 2 rough years, milk prices began to
    climb again, reaching all-time highs in 2014, helping farms recover
    from the low prices of previous years. Regardless, for the 6 year
    period of 2008 through 2013, the net profit margin realized on MSC-
    client dairy farms only averaged 6 per hundredweight, meaning that
    dairy farmers overall had little to show for 6 years of operation.
    ---------------------------------------------------------------------------
        \1\ PFB's MSC Business Services provides every aspect of farm and
    agribusiness management. A staff of 40 trained accountants conduct tax
    planning/preparation and business consulting services in farm homes and
    offices across the state. MSC Business Services publishes nearly 900
    individual Dairy Profitability Comparisons annually for clients, giving
    in depth analysis allowing for comparison to similar sized farms and
    the most financially successful farms in the program. See Appendix 1
    for corresponding data.
    ---------------------------------------------------------------------------
        Costs of production--how much it costs to produce 100 pounds of
    milk--have also increased for Pennsylvania's dairy farmers. Annual
    costs of production have increased significantly from 2009's average of
    $19.50 per hundredweight, jumping to over $23.00 per hundredweight in
    2011, 2012 and 2013, and in 2014, the average rose to $25.14. While we
    don't have the final analysis yet for 2015, based upon my own
    experiences, cost of production in 2015 is likely to be at least as
    much as it was in 2014. Unfortunately, while we had record milk prices
    to offset 2014 production expenses, the picture was very different for
    2015 and, for this year as well, so far.
        Why is this important? For farmers already facing significant
    challenges from volatility in their net operating income, anything that
    adds stress to already tight margins is a bad thing. For farmers like
    myself, who are already treading carefully on a razor's edge of
    profitability, the danger of uncertainty that comes from a growing
    patchwork of environmental regulations--particularly those of us in and
    around the Chesapeake Bay Watershed--is unbelievably frightening and
    potentially debilitating when we need to make decisions about farming,
    expansion and even bringing on the next generation.
        Perhaps the best illustration of uncertainty comes from estimates
    of consequences to agricultural production in the Bay Watershed if the
    nutrient and sediment reduction goals under EPA's Total Maximum Daily
    Load (TMDL) are fully implemented. Those estimates project that some 20
    percent of all cropland--roughly 630,000 acres--in the watershed will
    need to sit idle in order to meet nutrient reduction goals. Not
    surprisingly, EPA has neither confirmed nor denied the accuracy or
    likelihood of these estimates. But EPA has conceded that even if
    Pennsylvania farmers fully comply with all of the legal requirements
    that are ``normally'' imposed under Federal and state regulations,
    Pennsylvania will still fall substantially below the reduction goals
    that EPA has imposed for the Commonwealth.
        When we're talking about privately-owned cropland, who will
    determine what land gets fallowed? Certainly, EPA officials don't
    intend to make individual, local land use decisions. or do they?
        That's the looming uncertainty that I'm talking about.
        And it is in this context that I ask you to place my testimony
    today.
    Bureaucracy
        As the EPA's Chesapeake Bay regulations have evolved over the
    years, so too has the massive bureaucracy surrounding this effort.
    There has been a continuous and overbearing stream of Chesapeake Bay
    meetings held by dozens of teams, task forces, working groups, expert
    panels and committees since 2010, when the Chesapeake Bay TMDL was
    first imposed by EPA. And the overwhelming majority of these meetings
    have been held directly or indirectly under the auspices of EPA and its
    exercise of regulatory control in the Bay.
        I suspect that EPA is attempting through its stream of meetings to
    create the image that the agency is working ``in partnership with''
    affected ``stakeholders'' in the Bay region and is making a serious
    effort with stakeholders to reach ``solutions'' for reducing pollution
    that landowners and local communities can readily and practically do. A
    closer review of these meetings, however, should clearly show you that
    activities performed and work products resulting from these meetings
    are merely an exercise in academics, without any serious consideration
    of how realistic those academic analyses can be attained or feasibly
    implemented by landowners and communities subject to TMDL regulation.
        The driving force behind this host of Bay meetings remains a model
    that attempts to ``project'' outcomes from land use activities based on
    numerous assumptions. Even those who have the technical ability to
    understand EPA's Chesapeake Bay model and the factors that affect
    outcomes in the model will commonly remark there is a significant
    difference between the ``model world'' and the ``real world.''
        I'll just quickly mention that this same EPA model, which drives
    the requirements and limitations imposed on farmers, landowners and
    communities in the Bay watershed, and which measures the environmental
    achievements of Pennsylvania and other Bay states, has been
    significantly modified several times since 2010. And it will be
    significantly changed in the near future, once again moving the target
    of regulatory requirements that EPA will impose on farmers, businesses
    and local communities and the measure of environmental achievement that
    these sectors have attained in the Bay Watershed.
        EPA can attempt to claim that its system of Chesapeake Bay meetings
    is an open and public process and that I--as a farmer--have the
    opportunity to weigh in. Yes, there are token farmer representatives on
    these meeting bodies. But despite my 4 year degree in animal science
    from a well-known and respected university and 34 years of farming
    while implementing modern technologies, I don't understand EPA's
    science. And no farmer can legitimately comprehend and respond to the
    reams of academic analyses that have been produced through these
    meetings and continue to perform the tasks needed to run his or her
    farm business.
        There should be little doubt that EPA's bureaucratic imprint and
    extensive nature of influence and oversight of outcomes in the Bay has
    continued even in the creation and function of ``public input'' bodies
    currently existing in the Bay Watershed.
        The Chesapeake Bay Program is described on its website as ``a
    regional partnership'' that leads and directs the restoration and
    protection of the Chesapeake Bay. Yet all of the members of the
    Program's leadership team are EPA officials. And EPA officials comprise
    a significant presence on numerous input bodies.
        I have attached (Appendix 2) to my testimony a list of nearly 60
    public bodies that have been created under the auspices of Chesapeake
    Bay Program. This is the organizational web through which EPA expects
    individual farmers to engage and provide input.
        As a farmer, I consider myself a practical guy. My inputs are
    measurable. My outputs are measurable. Each year, I have a profit or
    loss statement. My farm's--and my family's--financial future is
    measured by real, tangible things: bushels of corn, tons of silage,
    pounds of milk . . . dollars. Meanwhile, EPA seeks to measure
    environmental impact through complex computer modeling, even though
    several state, interstate and Federal agencies have accurate and
    reliable water quality monitoring stations in rivers, streams and the
    Bay itself.
    Inflexibility
        While simple for regulators, one size doesn't usually fit all. It
    especially doesn't work in agriculture--where farms are most certainly
    not alike and where land dynamics change significantly from one part of
    the state to the other. In fact, more recent studies by Penn State
    University and others are showing that not only is EPA's one-size-fits-
    all regulatory approach in the Bay Watershed unworkable, it is also
    very inefficient in both managing the costs of environmental
    improvement projects and utilizing public funds in a manner that
    provides the greatest environmental improvement for each dollar of
    public funds spent.
        EPA's Chesapeake Bay model is inflexible. For example, it makes
    assumptions of no-till that conflict with what we know to be true. The
    Conservation Effects Assessment Project (CEAP), undertaken by USDA's
    Natural Resources Conservation Service (NRCS), determined that no-till
    and conservation tillage are used on nearly 80 percent of the
    cultivated cropland in the Bay watershed.
        Furthermore, continuous conventional tillage is used on only six
    percent of the cropland. In fact, the report demonstrates there has
    been substantial adoption of conservation practices between the 2003-
    2006 and 2011 reports. Despite NRCS' findings, EPA's model makes the
    assumption that 50 percent of all cultivated crops used conventional
    tillage, with the other half planted using only conservation tillage.
    What amazes me is that when we have reliable data, produced by another
    Federal agency, EPA still refuses to credit farmers for the good work
    we're doing.
        One of the major challenges we continue to face regarding the
    Chesapeake Bay regulations and the resulting Bay Model is the failure
    to capture and credit a multitude of best management practices (BMPs)
    that farmers voluntarily use, without the use of government funds.
    While these are practices have been proven to provide measurable
    impacts in improving water quality, EPA has consistently refused to
    recognize them, unless those practices are administered through
    government cost-share or are personally verified by state or Federal
    regulatory officials. It just doesn't make sense to me.
        For years, EPA officials have flatly rejected attempts by the
    agricultural sector to provide a feasible methodology for recognition
    and crediting of these reported agricultural non-cost-share BMPs that
    would allow verification by persons other than a ``qualified''
    government official or allow a crediting of pollution reduction for
    reported BMPs on any acre of farmland in which the ``qualified''
    official has not personally inspected and verified the practice is
    actually performed.
        In Pennsylvania, the departments of Environmental Protection and
    Agriculture have teamed up with Penn State University and agricultural
    organizations--including Farm Bureau--to develop a program to capture
    and verify these BMPs. As part of the effort, farmers in the Bay
    Watershed were asked participate in a survey where they have the
    opportunity to report recognized BMPs and do so in a way that protects
    them from adverse consequences such as enforcement activity. The
    results will be reported and statistically verified, and hopefully
    credited in EPA's Bay Model. Unfortunately, EPA has previously rejected
    similar plans hoping to utilize statistically reliable data collection
    and validation in order to credit Pennsylvania's farmers with nutrient
    and sediment reduction activities. So far, I understand that
    approximately 7,000 surveys have been returned. We are optimistic that
    this survey will help us better capture the practices that farmers are
    using, but in order for this endeavor to be successful, we will need
    the full, continued support of state and Federal officials to convince
    EPA to include this statistically valid data into the Chesapeake Bay
    computer model.
    Uncertainty
        In the fall of 2015, EPA summarily decided to withhold $3 million
    in funding because they believed Pennsylvania was not doing enough to
    reduce nutrient and sediment pollution from nonpoint sources. This is
    money that the state could ill-afford to lose considering that Penn
    State University's Environmental and Natural Resources Institute found
    that to fully comply with EPA's pollution reduction mandates by 2025,
    the state would need to incur $3.6 billion in total costs or
    approximately $240 million per year just for initial implementation of
    nonpoint BMPs and infrastructure. In order to both implement and
    maintain such practices and infrastructure, that number rises to $378.3
    million per year. In FY 2014, total state and Federal funding available
    to the state for nitrogen, phosphorus and sediment pollution reduction
    programs statewide, not just for the Bay Watershed, amounted to just
    $146.6 million. In short, while comparatively speaking that $3 million
    withheld by EPA is a small amount, it is absolutely needed.
        EPA failed to provide to either Pennsylvania officials or to
    Pennsylvania citizens specific detail of the supporting reasons or
    bases behind its determination to withhold Federal funding. Similar to
    Pennsylvania's regulated community, officials from Pennsylvania's
    Department of Environmental Protection (DEP) were left trying to guess
    the type and degree of change the agency needed in administrating its
    nonpoint program to restore favor with EPA and finally receive the $3
    million that EPA was withholding from Pennsylvania.
        DEP's administrative response to EPA's decision to withhold Federal
    funds, which DEP has characterized as its ``reboot strategy,'' did
    result in the release of the $3 million being withheld. But similar to
    its initial decision to withhold funds, EPA provided no specific detail
    on which previously deficient components of Pennsylvania's nonpoint
    program were sufficiently remedied under DEP's reboot strategy.
        While I'm glad that Pennsylvania did finally receive needed Federal
    monies for use in Pennsylvania's Bay Watershed, the lack of due process
    shown by EPA in both its initial decision to withhold Federal funds and
    its subsequent decision to release funds to the Commonwealth is very
    disturbing. EPA's manipulation of Federal funding for Pennsylvania was
    arbitrary, at least in appearance if not in reality. What is to stop
    EPA in the future from making greater demands of Pennsylvania and
    imposing more stringent demands of state regulatory programs purely for
    political or ideological purposes? Is it fair for state regulators to
    be forced to play a guessing game with EPA? And more importantly, is it
    fair for farmers to be caught in this tug of war between EPA and state
    regulators? Finally, is it fair for those 33,600 Pennsylvania farmers
    in the Bay watershed to wonder if--despite their best practices--one
    day they will be forced to shutter or significantly reconfigure their
    farms in order for Pennsylvania to meet EPA's arbitrary threat of
    Federal withholding?
        As a farmer, I do several things to satisfy state regulators, but
    as I established earlier, I'm also dealing with tanking milk prices
    while trying to make my farm financially sustainable to bring my sons
    into the family business. I believe I've demonstrated my willingness to
    undertake practices that are better for the environment, but I want to
    do things that make sense for my farm and improves water quality in my
    local community, rather than a water body that is several hundred miles
    away.
        Both state and Federal officials have noted and documented the
    significant progress that Pennsylvania has made in reducing nitrogen
    and phosphorus pollution in the Bay Watershed, including pollution from
    nonpoint sources over the past several decades and more recently during
    the time period that President Obama's Chesapeake Bay Executive Order
    has been in effect.
        At the same time EPA and its cohorts point fingers and paint
    agriculture--farmers just like me--as a villain that impairs water
    quality in the Bay. But their accusations are in direct conflict with
    U.S. Geological Survey data--which showed pretty positive gains on
    water quality in tributaries throughout the Bay Watershed. These gains
    are not because of our revised Bay strategy or EPA's model. It merely
    demonstrates what agriculture has been doing for decades through
    increased knowledge, additional opportunities, technology and time.
        Here's my question for EPA: Do you really think I'm trying to
    pollute?
        I want to do the right thing. On my farm, I've been no-tilling for
    20 years and, for the last 4 to 5 years, I've planted cover crops. I
    maintain a farm conservation plan and a nutrient management plan
    specifically designed for my farm. All of these practices were done
    voluntarily and without Federal dollars. The only time I've used
    Federal dollars for conservation was for help in laying out our contour
    strips on our farm in the 1980s. I know there are many farmers in
    Pennsylvania and in the U.S. who have implemented voluntary practices
    without any Federal funding. Yet, in the eyes of the EPA--and in terms
    of the Bay Model--we don't count.
        Tell me, does that makes sense?
    Conclusion
        Bureaucracy. Inflexibility. Uncertainty. These three words
    certainly capture the theme of EPA's Chesapeake Bay regulations and how
    they impact farmers, not just in the watershed, but across
    Pennsylvania, the region and even the nation.
        There's no question that farmers can reap financial benefits from
    implementing best management practices. I've certainly seen that using
    no-till practices on my farm. But there are also can be significant
    costs as well. As much as I--and other farmers--would like to implement
    more practices, I don't have the money to do more without--or even
    sometimes with--state or Federal assistance. As farmers, we are
    dependent on the agricultural economy and right now, that definitely
    adds a major challenge. As I mentioned earlier, there's been a great
    ebb and flow of farm income and margins for nearly 10 years.
        Regulators must be aware of the realities of agriculture. I'm a
    small business owner. I don't have a compliance officer--or a large
    staff--available to dance when the EPA says dance. At the end of the
    day, it's just me and my three sons trying to make a living on the
    farm--trying to balance the day-to-day tasks while complying with an
    ever-growing list of environmental regulations put forth by Federal
    agencies willingly ignoring the beneficial practices we employ.
        I consider myself a typical American farmer. I operate a small
    family farm. Our milk goes to a small family business, where it is
    processed and used in schools and hospitals in and around Pittsburgh,
    Pennsylvania. On our farm, we're trying to do the right thing. We're
    good stewards. We take excellent care of our cows and we go the extra
    mile to take care of our land and our water, not only because it's the
    right thing to do, but because it's my family--my children and
    grandchildren--who eat here, play here and hopefully one day will work
    here.
        Again, thank you for the opportunity to provide testimony to the
    Subcommittee today.
                                   Appendix 1

                                                  MSC Business Services
                                              Key Dairy Benchmarks per CWT
    ----------------------------------------------------------------------------------------------------------------
                         2008        2009        2010        2011        2012        2013        2014        Avg.
    ----------------------------------------------------------------------------------------------------------------
    Income
      Milk..........    $19.84      $13.91      $18.05      $21.87      $19.77      $21.40      $25.57      $20.06
      Livestock          $0.93       $0.92       $1.11       $1.20       $1.50       $1.48       $1.87       $1.29
       Income *.....
      Other.........     $1.28       $2.14       $1.36       $1.35       $2.06       $1.59       $1.28       $1.58
                     -----------------------------------------------------------------------------------------------
        Total Income    $22.05      $16.97      $20.52      $24.42      $23.33      $24.47      $28.72      $22.93
                     -----------------------------------------------------------------------------------------------
    Expenses
      Management         $2.24       $2.17       $2.14       $2.22       $2.20       $2.10       $2.19       $2.18
       Labor........
      Feed *........     $5.53       $5.13       $5.72       $7.07       $6.60       $6.20       $6.97       $6.17
      Hired Labor...     $1.64       $1.54       $1.56       $1.70       $1.84       $1.97       $2.06       $1.76
      Interest......     $0.85       $0.78       $0.77       $0.79       $0.69       $0.63       $0.63       $0.73
      Rent..........     $0.54       $0.53       $0.56       $0.59       $0.69       $0.77       $0.84       $0.65
      Milk Marketing     $1.00       $1.01       $1.02       $1.06       $1.09       $1.11       $1.14       $1.06
      Dairy Expenses     $2.21       $1.98       $2.05       $2.21       $2.30       $2.23       $2.47       $2.21
      Crops (Seed,       $2.45       $1.89       $1.97       $2.43       $2.85       $2.74       $2.89       $2.46
       Chem., Fert.,
       Fuel)........
      Depreciation..     $1.43       $2.17       $1.49       $1.53       $1.63       $1.55       $1.62       $1.63
      Other.........     $3.62       $2.30       $3.36       $3.78       $3.43       $3.77       $4.33       $3.51
                     -----------------------------------------------------------------------------------------------
        Total           $21.51      $19.50      $20.64      $23.38      $23.32      $23.07      $25.14      $22.37
         Expenses...
                     ===============================================================================================
          Net Margin     $0.54      ^$2.53      ^$0.12       $1.04       $0.01       $1.41       $3.58       $0.56
    ----------------------------------------------------------------------------------------------------------------
    Avg. No. Cows          124         119         127         132         134         149         164
    Milk Sold per       20,113      19,750      20,061      19,992      20,036      20,466      20,909
               Cow
    ----------------------------------------------------------------------------------------------------------------
    * Adjusted for Inventory Change (Livestock Inventory for Livestock Income and Crop Inventory for Feed).

                                   Appendix 2

         Public Bodies Created Under Auspices of Chesapeake Bay Program

    Agricultural Ditch BMPs Expert       Integrated Trends Analysis Team
     Panel
    Agricultural Modeling Subcommittee   Land Use Workgroup
    Agricultural storm water and         Local Area Targets Task Force
     Tailwater Expert Panel
    Agriculture Workgroup                Local Government Advisory Committee
    Animal Waste Management Systems      Local Leadership Workgroup
     Phase 6 BMP Expert Panel            Maintain Healthy Watersheds Goal
    Best Management Practices             Implementation Team
     Verification Committee
    Biosolids Ad Hoc Taskforce           Manure Injection and Incorporation
    BMP Verification Review Panel         Phase 6.0 Expert Panel
    Boat Pump-Out Expert Review Panel    Manure Treatment Technologies
                                          Expert Panel
    Budget and Finance Workgroup         Milestones Workgroup
    Citizen Stewardship Team             Modeling Workgroup
    Citizen Stewardship Subgroup         Nutrient Management Phase 6.0
                                          Expert Panel
    Climate Resiliency Workgroup         Nutrient Management Task Force
    Communications Workgroup             Onsite Wastewater Treatment Systems
                                          Expert Panel
    Conservation Tillage Phase 6.0       Oyster BMP Expert Panel
     Expert Panel
    Cover Crop Phase 6.0 Expert Panel    Scientific and Technical Advisory
                                          Committee
    Criteria Assessment Protocol         Scientific Technical Assessment and
     Workgroup (through 2015)             Reporting Team
                                         Shallow Water Modeling Workgroup
    Crop Irrigation Management Expert    Status and Trends Workgroup
     Panel                               Stream Health Workgroup
    Data Integrity Workgroup
    Diversity Action Team                Street and Storm Drain Cleaning BMP
    Education Workgroup                   Expert Panel (final report filed
                                          in 2015)
    Enhancing, Partnership, Leadership   Submerged Aquatic Vegetation
     and Management Goal Implementation   Workgroup
     Team                                Sustainable Fisheries Goal
                                          Implementation Team
    Federal Facilities Workgroup         Toxic Contaminants Workgroup
    Fish Habitat Action Team             Trading and Offsets Workgroup
    Fish Passage Workgroup               Urban Stormwater Workgroup
    Floating Wetlands Expert Panel       Urban Tree Canopy BMP Expert Panel
    Forestry Workgroup                   Wastewater Treatment Workgroup
    Fostering Chesapeake Stewardship     Water Quality Goal Implementation
     Goal Implementation Team             Team
                                         Watershed Technical Workgroup
    Habitat Goal Implementation Team     Wetland Workgroup
    Impervious Cover Disconnection       Wetlands Expert Panel
     Expert Panel
    Independent Evaluator Workgroup
    Integrated Monitoring Networks
     Workgroup

        The Chairman. Thank you, Mr. Ebert.
        Ms. English, go ahead and proceed with your 5 minutes of
    oral testimony whenever you are ready.

       STATEMENT OF KATHERINE R. ENGLISH, J.D., PARTNER, ENGLISH
     FAMILY LIMITED PARTNERSHIP, LLC, FORT MYERS, FL; ON BEHALF OF
                          FLORIDA FARM BUREAU
              FEDERATION; AMERICAN FARM BUREAU FEDERATION

        Ms. English. Thank you. I would like to thank Chairman
    Thompson, Ranking Member Lujan Grisham, and the fellow Members
    of the House Committee on Agriculture for the opportunity to
    speak with you today about the cost of conservation compliance.
        My name is Kate English. I grow citrus and raise cattle in
    southwest Florida with my family, under the business name of
    the English Family Limited Partnership. I am here today on
    behalf of my family, as well as the Florida Farm Bureau
    Federation, and American Farm Bureau Federation.
        There is a growing gap between farmers' abilities to meet
    the demands imposed upon them by regulatory compliance, and our
    ability to meet these obligations while remaining profitable.
    Rather than try to explain to you in terms of the regulations,
    I thought I would share with you a couple of stories from our
    family farming operation that would help you understand this.
        The first is, our family farm has been in our family since
    1870. Portions of the property were granted to us under the
    Federal Homestead Act, and we have had a pump in the
    Caloosahatchee River, which is now known as C43, as part of an
    Army Corps of Engineers project, since 1890, using low-volume
    irrigation techniques more than 60 years before the first
    literature in the universities covered it.
        The first story I want to tell you is about our water use
    permits. In 1977, a Soil Conservation Service scientist came to
    my grandfather's house and said there is a new program, and you
    are going to need a water use permit. You are going to need to
    have a permit for every well, pump, and surface water
    management structure that you have on your property. And he
    helped him fill out the paperwork, and we sent it in to the
    South Florida Water Management District, which is the local
    partner for the Federal drainage project. In about 3 weeks, we
    had a permit. In 1988, that permit expired and my father and my
    uncles timely applied for a renewal. What they didn't get in
    the mail was a permit. What they got was a request for
    additional information, which they didn't know what to do with.
    And it sat there for 8 years until I was licensed to practice
    law, and was actually working on an application for another
    client. When the reviewer said, do you know anything about
    English Brothers, and I said, yes, it is my fathers and my
    uncles. And he said, well, do you want to finish this water use
    permit? It took me about 3 months, but I got it done.
        The last time I renewed this permit was 5 years ago. I am
    an environmental permitting attorney. It took me 3\1/2\ years,
    and I had to hire the former acting General Counsel of the
    South Florida Water Management District, and the former head of
    the regulatory division in order to successfully complete it,
    for an allocation that was less than the allocation we
    requested in 1977, for a pump my family has had in the river
    since 1890.
        The second story I want to tell you is about citrus
    greening. And we are struggling to survive. Eighty percent of
    the trees in 90 percent of the groves in the State of Florida
    are dying of citrus greening. Congress has been incredibly
    generous to us in terms of research dollars. We just need to
    hold on until the research money works.
        Unfortunately, our friends at EPA are considering de-
    listing the very insecticide that we need to control the one
    insect that vectors this disease, the Asian Citrus Psyllid,
    which is an invasive species to Florida. It is not native here.
    We can't survive without controlling this psyllid population.
    We struggle to understand the investment that Congress has
    made, at the same time the EPA is considering de-listing that
    tool that we need.
        The final story I have for you is to tell you the skills my
    family brings to the table. I am an environmental permitting
    lawyer. My sister is the Bureau Chief for Pest and Disease for
    the Florida Department of Agriculture. My father is a
    recognized citrus expert in the Citrus Hall of Fame and the
    Florida Agricultural Hall of Fame. I have an uncle who is a
    CPA, and I have two cousins who are licensed engineers; one of
    whom works on our surface water management system, the other of
    whom spends his summer vacations trying to develop robotic
    technology to harvest our citrus crops, since labor is a
    challenge for us.
        I wonder what families that don't have this level of skill
    in their family farm do. You shouldn't need a lawyer and an
    engineer in order to farm.
        Thank you.
        [The prepared statement of Ms. English follows:]

      Prepared Statement of Katherine R. English, J.D., Partner, English
     Family Limited Partnership, LLC, Fort Myers, FL; on Behalf of Florida
                                      Farm
               Bureau Federation; American Farm Bureau Federation
        Good morning, my name is Kate English. I grow citrus in southwest
    Florida with my family under the business name of English Family
    Limited Partnership, LLC. I am here representing my family, as well as
    Florida Farm Bureau Federation and American Farm Bureau Federation.
        I want to thank Chairman Thompson, Ranking Member Lujan Grisham,
    and fellow Members of the House Committee on Agriculture for the
    opportunity to speak with you today about the costs of conservation
    compliance in accordance with the farm bill, and the myriad Federal
    environmental regulations imposed upon Florida agriculture. There
    exists a widening chasm between the demands imposed on farmers by
    regulatory compliance, supplier and consumer requirements, and our
    ability to meet these obligations while remaining profitable enough to
    continue producing the fresh, nutritious food that we all take for
    granted. I am focusing my comments today on the issues of increasing
    complexity, expense of compliance, lack of science-based decision-
    making, and lack of partnership with the Federal Government. The point
    of my comments today is that a farmer shouldn't have to have a lawyer
    and an engineer on staff to grow food.
    Complexity and Lack of Science
    U.S. Environmental Protection Agency's Actions on Nutrients
        Florida farmers work hard to implement effective strategies for
    resource conservation, but they're continually confronted with the
    sentiment that their extensive science-based efforts are never
    sufficient to protect the resource. New regulations expand the
    jurisdiction of agencies far beyond the regulatory space previously
    occupied. A prime example of this is the recent ``waters of the United
    States'' rule. The rule not only expands the regulatory footprint for
    farming and increases the uncertainty we battle daily, but it also
    lacks peer-reviewed sound science. These regulations appear instead to
    be based on public opinion and social media trends rather than facts
    and science. The result is a highly unpredictable regulatory
    environment and uncontrolled costs when faced with compliance based on
    a moving target rather than a rational, science-based goal.
        We are doing more than ever to protect the environment--much of it
    at our own expense--while facing increasingly expensive inputs,
    skyrocketing regulatory compliance costs, and stronger competition in a
    global marketplace in which we are price takers, not price makers. Our
    profit margins are slim at best and these factors are not a recipe for
    long-term success.
        Florida and its farmers have worked hard to address the impacts of
    agriculture on the state's natural systems. We have worked hand-in-hand
    with the State of Florida and other stakeholders to develop programs to
    effectively and responsibly use nutrients and water. Using sound, peer-
    reviewed science developed by the University of Florida/Institute of
    Food and Agricultural Sciences, best management practices (BMPs) were
    developed for Florida soils and climate conditions minimizing the use
    of nutrients and managing water use. Florida farmers were quick to
    recognize the benefits of BMPs and readily adopted them, utilizing the
    cost- and time-efficiencies found in better nutrient and irrigation
    management.
        The Florida Department of Environmental Protection reviewed and
    approved these practices, noting their effectiveness in reducing
    nutrients and runoff while protecting the environment.
        At the same time, we have struggled with litigation filed by
    special interest groups against the U.S. Environmental Protection
    Agency (EPA) claiming that Florida's efforts to protect its water
    supply were insufficient to comply with the Clean Water Act. Extensive
    litigation and negotiations at taxpayers' expense finally resulted in a
    settlement that provided for the adoption of Florida's proposed numeric
    nutrient criteria. The settlement recognizes Florida's ability to
    enforce its water quality standards.
        The Florida Department of Environmental Protection's work on Basin
    Management Action Plans (BMAPs) is collaborative and intensive. These
    BMAPs are developed in a joint effort with stakeholders to address
    Total Maximum Daily Load (TMDL) exceedance. For a farm located within a
    BMAP, the Best Management Practices program empowers farmers to avoid
    the significant expense of water quality monitoring (which does not
    include any land management component) and instead address concerns
    about their operation by filing a Notice of Intent to comply with the
    best management practices and then working with the Florida Department
    of Agriculture and Consumer Services to ensure those practices are
    used. The other benefit of the Best Management Practices program is it
    allows farmers to choose from a range of management tools for their
    commodities. The options allow each farmer to customize environmental
    protections based on his or her particular operation.
        Many decades of development created the conditions that we have
    today (though some science is now noting that naturally occurring
    nutrient levels may have been higher than first believed), but special
    interest groups are using litigation against EPA to drive policy
    decisions, including a demand to immediately improve water quality to
    standards that will realistically require decades and billions of
    dollars to achieve. At worst, this strategy could result in removing
    farming from the landscape entirely. The most extreme groups seem to
    seek that result based on my experiences in working with stakeholder
    groups. Members of these most extreme groups slander best management
    practices as mere ``window dressing'' and claim the farmers are not
    performing the practices or the practices do not work because immediate
    results downstream are not apparent. Claims like these drove the
    Florida Legislature to require the Florida Department of Agriculture
    and Consumer Services to begin development on an Implementation
    Assurance Manual, creating yet one more unnecessary level of
    bureaucracy at an additional cost to the farmer.
        In response to these claims, I would instead cite the success of
    farmers in the Everglades Agricultural Area using best management
    practices who have managed to reduce phosphorus discharges from their
    drainage basin by more than 56 percent over the last 20 years. For a
    milestone 20th year, water flowing from farmlands in the Everglades
    Agricultural Area achieved phosphorus reductions that significantly
    exceed those required by Florida's Everglades Forever Act. This
    improvement is the result of farmers implementing improved farming
    techniques under the South Florida Water Management District's Source
    Control Permitting Program. This program has an overall average annual
    phosphorus reduction of 56 percent--more than twice the 25 percent
    required by law.
        We have tools that will work which do not require pyramiding local,
    state and Federal regulation on farmers who are working hard to protect
    their most basic tool and greatest investment, their land. We must use
    reasonable, economically feasible approaches and allow those approaches
    time to work. We cannot survive ever-mounting regulation and ever
    mounting costs of compliance when the benefits of those regulations and
    costs do not result in meaningful improvement.
    Removing Products Due to Public Perceptions
        Citrus Greening (Huanglongbing or HLB) disease is spread by a
    single vector, the Asian Citrus Psyllid, first detected on the east
    coast of Florida in June 1998. By September 2000, this pest had spread
    to 31 Florida counties. Currently, 90 percent of all groves and 80
    percent of all citrus trees in Florida are infected with greening
    disease. Once a thriving industry producing more than 250 million
    boxes, this past season Florida citrus growers produced less than 80
    million boxes (90 pound equivalent), the lowest production in more than
    50 years. We are perilously close to falling below the volume of fruit
    required to maintain the industry's infrastructure for processing,
    packing and marketing our crop. We will not long survive if we cannot
    maintain our infrastructure and our markets.
        Congress has been incredibly generous and responsive during this
    time. It has authorized and allocated millions of dollars for research
    in the hopes of finding a cure to this economically devastating
    disease. At the same time, EPA is actively working to remove some of
    the few crop protection products that can control populations of the
    Asian Citrus Psyllid.
        Public sentiment has risen against neonicotinoid chemical use due
    to one-sided media reports and social media campaigns claiming that
    these materials are responsible for the honey bee population decline.
    The research is ongoing, but there are a number of factors that may
    contribute to honey bee population changes. Studies note that
    decreasing population in some locales may be climatic in nature or a
    result of Colony Collapse Disorder (CCD), of which no scientific cause
    has been proven.
        Florida growers have worked with beekeepers to develop schedules to
    time the use of neonicotinoid sprays so that honey bee populations are
    not present when these products are applied or when the ingredients are
    active. Honey bees in Florida citrus groves are transient, as
    beekeepers bring the hives in for the citrus bloom then move the hives
    on to other crops. The pesticides' labels clearly indicate how to use
    the product to minimize the impact to beneficial insects and citrus
    farmers are well aware of the potential harm caused by improper use.
        We have very few options when combating the psyllid and EPA needs
    to make decisions based on sound, peer-reviewed science rather than
    fears and rumors.
    Complexity and Conflict
    Permitting at All Levels of Government
        The cost of compliance continues to rise due to the volume and
    complexity of information required to obtain and maintain compliance
    with a permit at all levels of government--local, state and Federal.
    Land activities such as leveling, clearing or routine water management
    that used to be allowed, either without a permit or with a minimal
    permit that denoted the activity on the land, now require more complex
    technical information and the fulfillment of ongoing reporting. Permit
    applications that initially could be completed by the farmer in a few
    hours now require many months of preparation and expert assistance from
    legal and engineering professionals to navigate the agencies' review of
    the application, which can take more than a year. These changes have
    exponentially increased the cost of farming and the costs are not
    prorated to the size of the farm, disproportionately impacting small
    and mid-sized farms.
        Much of the information generated for the permitting process
    becomes public information. This information is used to both challenge
    the permits being sought and as fodder for litigation challenging
    existing operations. The statutory provisions that allow third parties
    to sue farmers under the citizen suit provisions of a number of
    environmental laws can create significant financial roadblocks and push
    smaller farmers to consider other options for their land, particularly
    as development presses closer to farms. While a cow or a farm field may
    be aesthetically appealing in concept, the reality of living next door
    to even a small commercial farming operation is most usually perceived
    by a home owner as a nuisance. Right-to-Farm laws found in most states
    do not protect against environmental litigation. Challenging the farm's
    compliance with environmental regulations is typically a very
    successful tool to force a farmer out, especially as he contemplates
    the possibility of having to pay his own attorney's fees along with the
    fees incurred by the people suing him. The result is frequently a sale
    of the property for development.
    USDA NRCS Conservation Programs
        USDA's Natural Resources Conservation Service (NRCS) has an 80 year
    history of helping farmers and others ``maintain healthy and productive
    working landscapes.'' The keyword in the above quote from NRCS is
    ``working,'' which should be interpreted as a landscape that combines
    commodity production (i.e., agriculture) with ecosystem protection.
        In recent years, the process NRCS uses to help farmers has become
    increasingly complex and difficult to navigate. At the same time,
    staffing challenges at the agency are increasing as experienced
    staffers retire, taking their institutional knowledge with them. Though
    cost-share opportunities exist for the implementation of conservation
    measures, many farmers in Florida avoid these programs due to their
    complexity and lack of transparency. Besides the time and intricate
    detail required to complete the paperwork, under the most recent farm
    bill, NRCS programs can now require the farmer to provide an affidavit
    signed under penalty of perjury that certain practices impacting
    sensitive lands have never occurred on the property. Farmers are often
    unable to obtain the corresponding back-up documentation for the
    affidavit to ensure they are prepared for future audits or compliance
    reviews, so they choose to avoid this program in its entirety.
        To many Florida farmers today, USDA's NRCS is a regulatory entity.
    Contrast that with the view of farmers in the 1970s who welcomed the
    NRCS' ancestor, the Soil Conservation Service, whose scientists
    tirelessly worked to get Florida farms permitted when a new Water
    Resources Act required that every well, pump and surface water
    management system be accounted for and permitted. My grandfather's farm
    in Lee County has those permits that I now work so hard to maintain
    because a Soil Conservation Service scientist came out to the farm and
    educated him about the requirements and helped him with the paperwork.
    Citrus Crop and Tree Insurance
        Farmers appreciate the Federal Government's recognition that food
    security is vital to our nation. Congress' crop insurance program helps
    farmers recover from catastrophic crop failures that occur from weather
    and other events. In citrus, we have the distinct benefit of having
    both crop insurance and tree insurance. While the loss of a crop can be
    devastating, the loss of our trees can destroy, and is destroying, our
    industry. This program is quite complex with distinctions being drawn
    about what entity can hold which kind of policy. In addition, to obtain
    any insurance, a grower must provide sworn testimony by affidavit that
    all of his farming operations are in strict compliance with the Food
    Security Act's Swampbuster provisions. Curiously, citrus is not defined
    as one of the commodity crops that must comply with the Swampbuster
    provisions.
    Threatened/Endangered Species
        Farmlands frequently provide habitat for threatened and endangered
    species for a number of reasons, such as the availability of prey and
    forage, cover for nesting and denning, and protection from people.
    Farmlands in southwest Florida are providing habitat for the Florida
    panther, the Florida bonneted bat, the crested caracara and the gopher
    tortoise, among other species. Unfortunately, very little recognition
    is given to farmers for the habitat that they're providing. Instead, we
    face the imposition of additional regulations that limit or eliminate
    the farming practices which created the habitat benefitting the species
    in residence. This is particularly apparent when farmers sell the
    development rights over a property and finds, to their surprise that
    they now have a partner in their farm who has no knowledge,
    understanding of the land or farming practices and no economic risk,
    but imposes its management practices all the same. Often these
    management practices are based on the current fashions of wildlife
    management rather than knowledge of the land and the creatures that
    live there.
        Farmers are intimately involved with the land they farm. They have
    a culture of stewardship to protect and maintain the most significant
    asset they have, the land. They know what lives on their land and why.
    For many of us, it is matter of pride that we coexist with these
    animals and have the luxury of observing them. And yet, frequently this
    approach leads to even greater regulatory pressure. For example, when
    we construct a surface water management impoundment to manage water
    quality in accordance with Section 401 of the Clean Water Act, we may
    be creating an area that will subject us to additional regulation and
    the threat of enforcement by the U.S. Fish and Wildlife Service when a
    listed species uses that area. The rules prohibiting habitat
    modification can prevent farmers from effectively using the impoundment
    or changing the system to accommodate future needs and changing
    regulatory requirements.
    Recognition/Lack of Partnership
    Slow Progress on the Comprehensive Everglades Restoration Plan
        South Florida has been the recipient of heavy rainfall events in
    the past year, leading to local and regional flooding. Winter vegetable
    crops that feed much of the nation were destroyed this past winter due
    to flooded fields.
        Lake Okeechobee is over 700 miles\2\. It receives the water that
    falls on a 4,600 mile\2\ basin stretching from Orlando south to the
    lake. The outfalls of the lake flow south into the remnant Everglades,
    east to the St. Lucie Canal and west to the Caloosahatchee River. The
    towns and farmlands around Lake Okeechobee received flooding rains this
    past winter. The flood control efforts to protect those farms and
    communities, as well as the discharges from the lake into the
    Caloosahatchee and Saint Lucie to prevent a breach to the aging dike
    surrounding the lake, resulted in outcries from people living on both
    the east and west coasts of Florida regarding impacts to their
    estuaries.
        Environmental activists claim that agriculture is ultimately to
    blame for degradation in the Indian River Lagoon and the Caloosahatchee
    Estuary after the U.S. Army Corps of Engineers authorized releases from
    Lake Okeechobee to lower lake levels and protect those living around
    the lake. False claims abound that water was not moved south because
    the sugar industry did not want the water. Water from the lake was
    moved south to the extent possible but this year's rains had left the
    water conservation areas full and the amount of water that could be
    drained through that system was very limited. With Lake Okeechobee
    continuing to rise, alternative actions had to be taken by the Corps to
    protect lives and property.
        Just as Hurricane Katrina devastated New Orleans, Florida was swept
    by two category 4 hurricanes, one striking Broward and Dade Counties in
    1926 and the second bringing destruction to the people, livestock and
    lands around Lake Okeechobee in 1928. The 1928 hurricane pushed water
    out of Lake Okeechobee and destroyed the towns of Belle Glade, Canal
    Point, Chosen, Pahokee and South Bay. The loss of life for humans and
    animals was unimaginable. My grandfather told the story of going to the
    area after the hurricane to help bury the dead, afraid of the disease
    that the Caloosahatchee River could transport to our family farm. My
    grandmother told the story of being left to shovel the mud from the
    ground floor of their flooded home while taking care of her husband's
    aged and infirmed parents. While the exact number of people killed will
    never be known, the death toll ranges from 1,836 to more than 2,500.
    When we discuss the need to protect the integrity of the dike around
    Lake Okeechobee by controlling the lake's water elevation, we can never
    forget what prompted the decision to build the dike.
        These losses along with the impacts of the Fort Lauderdale
    Hurricane of 1947 that caused flooding and significant crops in Fort
    Lauderdale and threatened to breach the dike around Lake Okeechobee
    again prompted Congress to pass the Flood Control Act of 1948,
    authorizing the first phase of the Central and South Florida Project
    which completely replumbed south Florida.
        Remember that our culture at that time supported the concept that
    nature should be controlled and lands should be converted to human use.
    The extensive levee, canal and gate system of the Central and Southern
    Florida Flood Control Project is very efficient at moving water and
    protecting life and property, just as it was designed. The project's
    environmental impacts, while extensive, were not considered until the
    project was very near completion in the late 1960s. Environmental
    awareness and scientific research has driven us to reconsider the
    Central and Southern Florida Flood Control Project and develop plans to
    restore portions of the system to reduce the environmental impact and
    protect precious natural resources. Florida has worked hard to develop
    a restoration plan that balances the needs of the environment with
    society's needs to protect a population of 8.1 million people and an
    agricultural industry that generates billions dollars of economic
    activity each year by feeding our citizens throughout the winter
    months.
        Those demanding immediate restoration of the system refuse to take
    into account that it took decades to implement the original plan and it
    will take a significant investment in time and money to implement the
    works needed to improve the environmental health of the system,
    including improving water quality.
        We can take actions to implement this plan more quickly, including
    moving more water south toward the Everglades, if the Comprehensive
    Everglades Restoration Plan (CERP) was sufficiently funded. CERP
    includes a suite of projects needed to restore South Florida's
    ecosystem and we can accelerate the construction of a number of key
    projects that address those needs. The state of Florida and the Federal
    Government agreed to a 50/50 joint effort to fund CERP, but we have
    struggled to obtain appropriations from our Federal partner even as the
    state has allocated more funds for project construction.
        We need our Federal partner to meet its fiscal commitment to
    support these vital restoration efforts, while also understanding the
    need for the measures alleviating flooding and protecting human lives
    in the interim.
    County Alliance for Responsible Environmental Stewardship
        The County Alliance for Responsible Environmental Stewardship
    (CARES) is an award and recognition program that was established in
    2001 by Florida Farm Bureau Federation to recognize farmers who have
    voluntarily implemented best management practices on their farms and
    promoted environmentally sound and economically viable farming
    practices. The CARES program also serves as a tool to educate and
    demonstrate to the public that Florida agriculture is actively involved
    in protecting our resources by implementing sound environmental
    management and nutrient stewardship practices.
        The CARES program is a cooperative effort between Florida Farm
    Bureau Federation, Federal agencies, county governments, businesses,
    other organizations and state officials. Independent experts review the
    farming practices and approve the farms to be recognized. Starting in
    the Suwannee basin of north Florida, the U.S. Environmental Protection
    Agency was an early participant with the Suwannee River Partnership to
    promote best management practices in the region. Not long after the
    creation of the CARES program and the partnership, EPA discontinued
    their participation, even though the programs promote a joint vision of
    environmental improvement.
        Florida Farm Bureau Federation invited Ms. Allison Wiedeman, then
    EPA Agricultural Counselor to the Administrator, to attend a CARES
    recognition event in the summer of 2014. Ms. Wiedeman was quite
    impressed and noted that this is the type of proactive work that the
    EPA should support.
        EPA and other Federal agencies struggle to partner with the
    private-sector. The agencies focus on using regulatory action to
    address its concerns with small and medium farming operations, rather
    than working to address compliance issues in an effective way.
    Voluminous paperwork and unattainable compliance goals make it hard for
    the farming community to work with Federal agencies. Further, the
    limited options for challenging the decision of a Federal agency in an
    enforcement action drive many farmers to settle rather than face the
    prospect of litigation with an entity that pays its lawyers an annual
    salary rather than a billable hour. The threat of mounting fines and
    the expense of litigation drive decisions to settle, and sometimes
    agree to impossible standards simply to avoid the threat of
    astronomical fines and attorney fees.
    Closing
        Our society has grave misunderstandings about conventional
    agriculture and as farmers we have not effectively countered the
    campaign to paint us as abusers, rather than stewards, of the land we
    farm, the resources we need, and the creatures we care for. I have
    heard agriculture described as a form of ``violence on the landscape.''
    Most people in the United States are several generations removed from
    the farm and have no functional understanding of agriculture as the
    provider of their food and fiber. Without personal knowledge, they have
    great difficulty finding reliable sources of information and even
    greater difficulty resisting emotionally charged words and downright
    horrifying misrepresentations. Even for those of us who farm, it is
    difficult to avoid the lure of social media and the 24/7 news cycle. We
    must support the development of, and encourage the effective use of,
    peer-reviewed science. As farmers, we must do a better job of telling
    our story.
        An outgrowth of this misunderstanding is the abuse of litigation by
    particular interest groups to drive the development of unworkable
    regulatory programs at the Federal level. The pressure for ever-lower
    compliance numbers that are elusive at best and unattainable at worst
    is never ending. Further, this approach to developing regulation
    exacerbates the difficulty for state agencies required to comply with
    Federal regulations. Only the largest and most sophisticated farmers
    can afford to retain the services of engineers and lawyers to help them
    navigate this challenging landscape. Those who do have one or both on
    staff or retainer can only do so by vastly increasing in size, despite
    the interminable cry of the same special interest groups against
    ``industrial agriculture.''
        To my family, growing citrus is not a hobby or a game. It is who we
    are. We define ourselves by our connection to the land we have farmed
    for more than 130 years. This is what sustainable agriculture means to
    me. I am charged with a stewardship to farm the land in a responsible
    way and hand it down intact so that my children, my nephew and my
    cousins' children can enjoy this legacy.
        We have faced the challenges of farming for more than a century. We
    have faced uncertainty and existential threats brought about by
    economic collapse, social change and pestilence in our time on this
    farm. We continue to grow citrus in an uncertain environment and
    challenging conditions. We do not control the inputs of sunlight,
    rainfall and temperature. We do not control the price of the goods we
    produce to sell. We do not control the pests and diseases that find
    their way to our farm. We face the challenges of a deadly disease which
    is, as yet, without a cure, and race to find ways to continue to
    produce citrus until one can be found. We live in a state which is
    ground zero for imported pests and diseases.
        I am here today to ask that you keep these things in mind as you
    work to develop programs in support of conservation of our landscape
    and recognize that agriculture is working hard to do the same thing
    while we feed and clothe you. I ask that you recognize that clear and
    predictable regulations can be met, but regulations based on
    unreasonable demands, emotion or litigation put our ability to do our
    job in jeopardy.
        Without the support of Congress to rein in the actions of Federal
    agencies, much of Florida agriculture is at a crossroads where the next
    step may be the growth of a terminal crop of residential, commercial or
    industrial developments. Disease pressure, increasing regulations,
    stagnant prices and a weary farmer are a recipe for disaster when it
    comes to the food security for the people of the United States.

        The Chairman. Thank you, Ms. English.
        Mr. O'Toole, go ahead and proceed with your 5 minutes of
    testimony when you are ready.

    STATEMENT OF PATRICK O'TOOLE, PRESIDENT, FAMILY FARM ALLIANCE,
                               SAVERY, WY

        Mr. O'Toole. Good morning, Mr. Thompson, Ranking Member
    Lujan Grisham, and the Members of the Committee.
        I really appreciate the opportunity to be here. I am
    thinking about this testimony and how inadequate I will be to
    plumb the depths of the issue.
        Our family started ranching in 1881. We are cattle and
    sheep ranchers, and raise hay on the Colorado-Wyoming border. I
    am also President of the Family Farm Alliance. And the mission
    of the Family Farm Alliance is to provide adequate, affordable
    water for irrigators. We represent irrigators that raise every
    crop, every type of livestock in the country, in the 17 western
    states.
        And I have a schizophrenic, I guess, testimony. My written
    testimony goes into quite a lot of detail that I obviously
    can't go into today. But I have a great story to tell. My
    family has been very fortunate. We live in a watershed that has
    been celebrated at the White House in the last couple of
    months, about how you do a watershed. My family has won several
    environmental awards for stewardship. We are a pilot for how
    you integrate irrigation and fishery. That is all good stuff.
    And I have partnerships that I have formed with people in this
    Administration, or any Administration. But as you all know,
    agriculture is bipartisan, and we have to figure a way to work
    together. And when I see the panoply of rules and regulations
    that have been coming out on everything, it is overwhelming,
    and it is overwhelming to my neighbors.
        We have a tradition of livestock grazing in our community.
    Three century-old sheep ranches are going out of business this
    year because they can't get labor. The H-2A process, which is
    for legal labor, is broken. It is broken in a way that is
    terrifying for us to figure out. And I have had the opportunity
    to come back here occasionally and meet with various people in
    the Administration and on the committees, and with my best
    efforts, I only have \1/3\ of them in.
        This year, I can tell you stories about $750,000 worth of
    blueberries plowed under, $1 million of the strawberries plowed
    under, livestock dead, my livestock. I shouldn't be here, I
    should be at home tending my livestock, but we can't get any
    people. It is a nationwide program, and problem, and we have to
    address is.
        I attended all of the Western Governors Endangered Species
    meetings, except for the one in Hawaii, which I couldn't
    afford, but there was a great message that came out of those
    meetings. And they were a real cross-section of people from
    conservation groups to oil and gas, to agriculture. The message
    is local, local, local. The answers are going to be done at the
    local level. My community is one of the ones showing the way
    that we do that, but the overwhelming regulatory stuff that is
    coming out, particularly from the EPA. When this Administration
    decided that the EPA would replace Department of Agriculture,
    Department of the Interior, it is a whole new world. And one of
    the things you learn from the Family Farm Alliance is, if you
    understand what is going on in the West, in my ranch, at the
    head waters of the Colorado River, the water is going off so
    fast we know that we have to have storage. I guarantee you that
    the regulatory systems that are being implemented right now
    will eliminate the ability to permit. It is difficult now. It
    will be virtually impossible. That is why your role is so
    critically important right now.
        You have probably all heard this. I spent this weekend with
    the American Farmland Trust. My son is on that Board, and they
    allowed me to sit in. One of the most chilling descriptions of
    American agriculture right now is the fastest growing category
    of farmers in America is 70 and above. The fastest losing
    category is 35 and below. And if you ask me, I have spent a
    year on a thing called AGree in this town. Probably some of you
    are aware of it. How do we feed ten billion people sustainably.
    And so I have had access to all of the information that is
    being presented. We have to double the food supply, and yet we
    have now--Federal agencies are looking at paying farmers not to
    irrigate. Federal agencies that are coming up with criteria on
    the sage-grouse that are impossible, impossible to fulfill.
        And what we have to do is get our arms around--I say the
    revolution has already happened. People are doing wonderful
    things on the land, but what we are doing now is we are
    implementing so quickly, pages and pages and pages of
    regulatory gibberish.
        I have shared some things on the mitigation strategy of the
    Fish and Wildlife Service. Both people on the left and the
    right read them and they can't understand them because it is
    not quality, it is not interconnectedness of the committees and
    the parties, it is an agenda being driven. And I would just ask
    you with all my heart to think about how important it is to
    keep this American agricultural structure together.
        Thank you very much.
        [The prepared statement of Mr. O'Toole follows:]

    Prepared Statement of Patrick O'Toole, President, Family Farm Alliance,
                                   Savery, WY
        Good morning, Chairman Thompson, Ranking Member Lujan Grisham, and
    Members of the Subcommittee.
        My name is Patrick O'Toole, and on behalf of the Family Farm
    Alliance (Alliance), I thank you for this opportunity to present this
    testimony on the impacts to western irrigated agriculture of Federal
    environmental regulations and the potential for voluntary conservation
    solutions. The Alliance is a grassroots organization of family farmers,
    ranchers, irrigation districts, and allied industries in 16 western
    states. The Alliance is focused on one mission: To ensure the
    availability of reliable, affordable irrigation water supplies to
    western farmers and ranchers. We are also committed to the fundamental
    proposition that western irrigated agriculture must be preserved and
    protected for a host of economic, sociological, environmental, and
    national security reasons--many of which are often overlooked in the
    context of other national policy decisions.
        Our family prides itself on incorporating conservation practices
    within our ranching operation. Our ranch, the Ladder Ranch, was the
    2014 Wyoming Stock Growers/Sand County Foundation Leopold Award winner
    in recognition of the importance we place upon maintaining and
    improving natural resources, all the while operating a viable ranching
    business. Our family, like many, are descendants of folks who headed
    West in response to President Lincoln's charge and the Homestead Act.
        There are many critical issues that the western family farmers and
    ranchers we represent are confronted with at this time. At the top of
    the list is the daunting number of Federal regulatory policy
    initiatives that are facing western agricultural producers. These types
    of Federal water resources actions and regulatory practices could
    potentially undermine the economic foundations of rural communities in
    the arid West by making farming and ranching increasingly more
    difficult. American family farmers and ranchers for generations have
    grown food and fiber for the world, and we will have to muster even
    more innovation to meet this critical challenge. That innovation must
    be encouraged rather than stifled with new Federal regulations and
    uncertainty over the water supplies and basic operations for irrigated
    farms and ranches in the rural West.
        My testimony will provide some background describing the unique
    nature of western agriculture and water, and will summarize key
    concerns we have with just a small sampling of the administrative
    regulatory proposals we are grappling with. Since the mission of the
    Family Farm Alliance is water-focused, our emphasis in this testimony
    will similarly place more attention on those regulations that can
    impact water use for western farmers and ranchers. However, this
    testimony is also intended to demonstrate the conservation and open-
    space benefits provided by western farms and ranches, and also to
    investigate the unique opportunities to advance further voluntary,
    grassroots-driven conservation efforts in those areas.
    I. The Unique Nature of Western Agriculture
        It is critical to understand the wide variety of types of western
    agriculture (defined as those activities occurring west of the 100th
    meridian \1\ where rainfall is generally below 20" per year) and the
    unique nature of western agricultural challenges. Vast differences
    exist between the circumstances faced by western producers and their
    counterparts in the eastern, southern and midwestern regions. These
    primarily derive from three drivers that have tremendous impacts on
    western farmers and ranchers: (1) the large amount of federally-owned
    lands in the West; (2) explosive population growth in recent decades
    (expected to continue into the future); and (3) the recent rapid and
    proposed development of energy resources.
    ---------------------------------------------------------------------------
        \1\ Source: Intermountain West Joint Venture. 2013 Implementation
    Plan--Strengthening Science and Partnerships. Intermountain West Joint
    Venture, Missoula, MT
    ---------------------------------------------------------------------------
        The unique nature of the West presents challenges and opportunities
    to find creative solutions. western food and fiber producers face many
    core challenges today, including:

       Attempting to align agricultural and food production with
            improved environmental outcomes;

       Seeking ways to find common ground with the urban public;
            and

       Water scarcity and competition with other demands, including
            growing water needs for expanding energy development.
            Regulatory challenges, climate change and an aging water
            infrastructure complicate efforts to find meaningful long-term
            solutions.

        This testimony seeks to provide perspective on these matters and
    offers specific recommendations in several areas important to western
    agriculture: water supply, conservation of biological diversity and
    nature resources, and immigration policy. It also offers reflections on
    the future role of the Federal Government. One of the defining
    principles underscored in this testimony is that policymakers need to
    change the model from ``top-down'' Federal management to an emphasis on
    partnerships among private, public and non-governmental interests in
    order to take care of landscapes and produce food.
        The recommendations proposed here can help keep western agriculture
    productive and profitable, which promotes sound communities, viable
    economies and healthy landscapes in the West. Good policies will drive
    the programs and activities that lead to great public investments.
    These will pay for themselves over and over and demonstrate positive
    long-term impacts.
    II. Western Water Regulatory Concerns
    A. Overview
        Water is the key to economic, social and environmental prosperity
    in the American West. Food security is as vital to our homeland
    security as other national security concerns, and the certainty and
    stability of the production of food and fiber on western irrigated
    lands is critical to our nation's and the world's ability to feed a
    growing human population. As the West's population has grown, water
    issues have become increasingly important--and polarized. Growing
    urbanization has led to increased public demand for available water
    supplies to provide recreational and environmental benefits. This
    places heavy demands on western water supplies, which were historically
    developed and continue to be relied upon for the production of
    agricultural goods.
        Contributing to the loss of productive agricultural land in the
    western United States is growing competition to secure agricultural
    water rights--some of the most senior water rights in the West--to meet
    growing municipal, energy and environmental demands. In essence,
    agricultural water has become the default water supply for meeting
    other demands in the modern West. Unfortunately, the only large
    potential for moving agricultural water to other uses will come from
    fallowing great swaths of farmland and transferring that water to meet
    other demands, which has grave implications for our country's ability
    to produce food for a growing world population. This factor alone could
    significantly threaten the luxury Americans currently enjoy--spending a
    very low percentage of their disposable income on food. These issues
    and other growing domestic and global food security and scarcity
    concerns must be considered as Federal water policies are developed and
    implemented.
    B. Regulatory Challenges and Recommended Solutions
        The very significant Federal presence in the West presents unique
    challenges that producers may not face in other parts of the United
    States, particularly with respect to the reach of the Endangered
    Species Act (ESA). Federal agency implementation of this law can have
    very significant impacts on how producers manage land and water.
    Importantly, once-certain Federal water supplies that were originally
    developed by the Bureau of Reclamation (Reclamation) primarily to
    support new irrigation projects in recent years have been targeted and
    redirected to other uses. So, in the West, once certain water
    supplies--one of the few certainties in western irrigated agriculture--
    have now been added to the long list of existing ``uncertainties.'' The
    ESA and Clean Water Act (CWA) are not working in the West.
    Environmental pioneers dealt well with the issues of their day, but the
    water supply and delivery ``tools'' they built only got us so far. We
    need to develop the next generation of tools that build on our
    successes but also recognize our limitations. Today, more than a third
    of the 3.6 million stream miles in this country are designated as
    impaired under the CWA. Under the ESA, 28 types of salmon have been
    listed and none have recovered. Though listing of waters as impaired
    and species as endangered might be perceived by some as victories, they
    have by and large not translated to real improvements to the species on
    the ground.
        It is very clear to those who work the land that the ESA and CWA
    need to be addressed using a performance-based approach. We need to
    empower those who can actually implement substantive benefits to their
    environment; and we believe private landowners are the key here. Of
    course, these improvements cannot be done mostly out of their own
    pockets and without appropriate assurances (these activities provide
    societal benefits and thus should be societal expenses). Second, there
    needs to be regulatory and statutory changes made to these major acts
    to empower environmental markets and to establish proven approaches and
    data considerations for decision making. The constructive scientists
    working for Federal and state fish and wildlife agencies are becoming
    increasingly hamstrung with paperwork and legal deadlines driven by
    lawsuits from a handful of activist groups. For example, a legal
    settlement reached between these groups and the Obama Administration
    could potentially add hundreds more western species to the ESA list.
        A prime factor concerning western irrigators is the employment of
    the ESA by Federal agencies as a means of protecting single endangered
    or threatened aquatic species under the ESA by focusing on one narrow
    stressor to fish: water diversions. For the second time in a decade,
    Congress in 2010 directed that the National Academy of Sciences (NAS)
    convene a high-level, independent scientific review of Federal
    restrictions on water deliveries affecting thousands of western farmers
    and ranchers. In 2009, those restrictions--based in large part on ESA
    biological opinions in California's Sacramento-San Joaquin River Delta
    (Delta)--were a primary cause for the water cutbacks and rationing
    afflicting hundreds of communities throughout the state and the
    resulting economic devastation in the San Joaquin Valley. The NAS
    report stated, in part, that the large number of stressors, their
    effects and interactions in the Delta lead to the conclusion that
    efforts to eliminate any one stressor (such as water diversions) are
    unlikely to reverse declines in listed species. Opportunities exist to
    mitigate or reverse the effects of many stressors. Continued effects
    analyses, modeling and monitoring are necessary to ensure actions taken
    to rehabilitate the ecosystem are cost-effective.\2\
    ---------------------------------------------------------------------------
        \2\ Sustainable Water and Environmental Management in the
    California Bay-Delta (2012), NAS Water Science and Technology Board
    (http://dels.nas.edu/Report/Sustainable-Water-Environmental-Management/
    13394).
    ---------------------------------------------------------------------------
        A similar decision to focus exclusively on one stressor--a Federal
    irrigation project--was made by Federal agencies in the Klamath Basin
    in 2001, and that decision and the science used by Federal fish
    agencies to support the decision, was criticized later in a review
    conducted by the NAS.
        The California and Klamath stories are very similar. The NAS
    stepped in after Klamath Irrigation Project supplies from Upper Klamath
    Lake were cut off by Federal biological opinions under the ESA in 2001.
    The NAS' objective scientific review \3\ concluded that there was
    insufficient evidence to support these biological opinions in
    restricting agricultural diversions from the Klamath system, which had
    led to the near collapse of the local agricultural community. In
    Klamath, the Federal regulators looked at only one of the stressors
    contributing to the fisheries' decline and they focused on only one
    solution--cutting off water supplies to agriculture.
    ---------------------------------------------------------------------------
        \3\ Scientific Evaluation of Biological Opinions on Endangered and
    Threatened Fishes in the Klamath River Basin: Interim Report (2002),
    NAS Board on Environmental Studies and Toxicology (http://dels.nas.edu/
    Report/Scientific-Evaluation-Biological-Opinions/10296).
    ---------------------------------------------------------------------------
        Not surprisingly, the listed species apparently are no better off
    today than they were in 2001, yet the agricultural community struggles
    with operating capital, input suppliers and sales contracts for
    agricultural products, due to the lack of a reliable water supply that
    has been redirected with uncertain benefits to ESA-listed fish.
    Likewise, in California today, the same Federal agencies have refused
    to assess the impacts of the many stressors affecting the health of the
    Delta. And, for more than 15 years they have been restricting or
    cutting off water deliveries, even though their experience during those
    15 years have conclusively demonstrated that long-term agricultural
    water restrictions have not prevented fisheries from declining in the
    Delta.
        As in California, the effects of the Klamath restrictions were
    immediate and far-reaching, creating losses not just to the economy,
    but also to wildlife resources as water was diverted away from farms
    and ranches (and two Federal wildlife refuges). And yet, the Federal
    regulators failed to perform any environmental impact analysis before
    they ordered irrigation water cutbacks in California and Klamath.
    Clearly, ESA implementation by several biased scientists within Federal
    agencies must also be addressed, primarily with improved peer review
    and adherence to laws like the Information Quality Act. Best available
    science is not simply a slogan for Federal agencies to trumpet; such
    science must truly be used in natural resource decision-making.
        Boots-on-the-ground efforts and actual recovery of species should
    define success under the ESA, not endless litigation and what appears
    to be the opportunistic pursuit of attorney's fees by certain
    environmental groups. According to a recent Government Accountability
    Office (GAO) report,\4\ in just 4 years, litigating environmental
    groups raked in more than $15 million from taxpayers, with some of
    these groups' attorneys being paid as much as $500 per hour from the
    public treasury. These environmentalist lawsuits are the poster child
    for what has become an environmental litigation industry. While others
    are busy fixing the problems outside the courtroom, including
    implementation of the historic Nez Perce Water Rights Agreement (IDAHO)
    and collaborative efforts by ranchers to prevent listing of the western
    sage-grouse, litigious groups continue to drain resources and time,
    distracting everyone from the real goals of the ESA.
    ---------------------------------------------------------------------------
        \4\ Information on Cases against EPA and FWS and on Deadline Suits
    on EPA Rulemaking. GAO-15-803T: Published: Aug. 4, 2015. Publicly
    Released: Aug. 4, 2015.
    ---------------------------------------------------------------------------
        The goals of the ESA, CWA, National Environmental Protection Act
    (NEPA) and other Federal environmental laws are laudable. However,
    these decades-old laws are in need of some targeted reforms, including
    commonsense changes to make them work better, encourage incentive-
    driven recovery efforts, and discourage litigation:

       Agencies should focus on applying the ESA in a way that
            fosters collaboration and efficiency of program delivery and is
            incentive-driven.

       Standards for scientific and commercial data that are used
            to make decisions under the ESA must be established.

       Peer review of ESA listing decisions and ESA Section 7
            consultations should be provided by a disinterested panel.
            Administrative guidelines and/or legislation can be crafted to
            create procedures for that process.

       For ESA litigation settlements involving Federal
            environmental agencies, the Federal Government can provide
            better oversight on how (and how much) attorney fees are
            distributed.

       Incorporate ideas for improved ``Safe Harbor'' for
            landowners, neighboring landowners and water districts.
            Programmatic safe harbor (ESA Sec. 9 ``take'' protections)
            should be provided for anyone conducting normal operations
            within a certain radius (probably species dependent) of
            proposed projects.

       Implement recommendations of the NEPA Task Force \5\ (Report
            to the Council on Environmental Quality on Modernizing NEPA
            Implementation 2003).
    ---------------------------------------------------------------------------
        \5\ https://ceq.doe.gov/ntf/report/finalreport.pdf.

       Implement the recommendations of the 2014 ESA Congressional
            Working Group.\6\ These are incremental measures that help
            change the paradigm in western resource management so that we
            end up limiting dollars spent on litigation instead of habitat
            protection and food production.
    ---------------------------------------------------------------------------
        \6\ http://lummis.house.gov/uploadedfiles/
    esaworkinggroupreportandrecommendations.pdf.
    ---------------------------------------------------------------------------
    C. Concerns with Recent Federal Agency Administrative Actions
        For generations, American family farmers and ranchers have grown
    food and fiber for the world, and these farmers will have to muster
    more innovation to meet the critical challenge of producing even more
    to meet projected future increases in world (and U.S.) demand for these
    commodities. Such innovation in agriculture must be encouraged by the
    Federal Government, rather than stifled with new, top-down Federal
    policies and regulations that create uncertainty over the very water
    supplies originally developed for irrigated farms and ranches in the
    rural West. A handful of some of the more troubling administrative
    developments is further described below.
    1. Principles and Requirements for Federal Investments in Water
            Resources
        Western farmers and ranchers in the past 7 years throughout the
    western U.S. have feared that new guidelines intended to clarify
    Environmental Protection Agency (EPA) and Corps of Engineers (Corps)
    administration of the CWA and the White House Council on Environmental
    Quality (CEQ) efforts to create new criteria to guide planning efforts
    for Federal water investments could, in fact, actually bring water
    project development to a halt. Those fears remain. The process
    originally proposed by CEQ to implement Principles and Requirements for
    Federal Investments in Water Resources is daunting, subjective and
    uncertain, and the costs and delays it would impose could preclude many
    planning and development efforts. We do not want to see a program that
    becomes mired in a process that ultimately delays implementation of
    critical projects. Those projects--especially those that enhance water
    supplies--already are very time-intensive and costly, and any
    additional delay for planning and studies will only add to the time
    frame for providing water supply relief.
    2. Waters of the U.S.
        I have similar concerns regarding the new ``Waters of the U.S.''
    (WOTUS) rule adopted by EPA and the Corps. The WOTUS rule was intended
    to clarify administration of the CWA jurisdictional issues, but is very
    uncertain, particularly in areas where western farmers and ranchers
    store, move and apply water for irrigation. This uncertainty brings
    with it the risk of additional regulations, time-consuming and
    potentially expensive procedures, expanded opportunities for litigation
    and a shift from local and state water management towards increased
    Federal agency regulation and oversight. I do appreciate that the new
    CWA rule would theoretically preserve current CWA exemptions enjoyed by
    the agricultural community such as the agricultural return flow
    exemption and the agricultural ditch and drain operations exemption.
    However, I fear that the new rule's approach to defining other water
    features is so expansive and vague that it will be used by opponents of
    new storage projects to halt further water development in the West. Our
    farmers and ranchers simply do not need another layer of difficulty
    added to a profession that is already saddled with significant
    challenges.
    3. EPA's Aquatic Life Hydrologic Alteration Report
        Earlier this year, EPA and the U.S. Geological Survey (USGS) issued
    a draft aquatic life hydrologic alteration report that was developed to
    serve as a source of information for states, tribes and territories on
    (1) the natural flow regime and potential effects of flow alteration on
    aquatic life; (2) CWA programs that can be used to support the natural
    flow regime and maintain the health of aquatic biota; and (3) a
    flexible, nonprescriptive framework to quantify targets for flow regime
    components that are protective of aquatic life.
        From the day of its public release, Family Farm Alliance members
    have raised concerns with this report. For example, the report notes
    that ``Clean Water Act programs can incorporate strategies to protect
    water quality and aquatic life from the potentially harmful effects of
    flow alteration . . .'' and ``efforts to implement strategies to
    protect aquatic life from flow alteration will be most effective if
    numeric targets are identified for flow-regime components that equate
    to intact and healthy aquatic communities''. It appears that EPA is
    stating that any that results in altering the ``natural'' landscape is
    ``bad'' and shouldn't be done. This is an area that has always been
    left to the purview of the individual states based upon state
    constitutional mandates. Because a state-based water right is a private
    property right, this amounts to a serious threat to state sovereignty
    and private property rights and is a direct affront to state water
    laws. Our initial suspicions have been confirmed by others in the
    agricultural community; please see the commentary prepared by Budd-
    Falen law firm, of Cheyenne, WY, which I've included as an attachment
    to this testimony.
    D. Concluding Remarks on Western Water Challenges
        Western water users face continued challenges on the ground. The
    destructive tactics of the environmental litigation industry, which
    drives and legitimizes the biased implementation of Federal
    environmental laws by agencies, have eroded once-certain water
    deliveries to western producers. However, western taxpayers strongly
    support \7\ water for farmers, and elected officials should be
    bolstered by that fact as they stand up and provide the strong
    leadership that is needed to protect family farms and ranches.
    ---------------------------------------------------------------------------
        \7\ A 2009 survey released by Colorado State University (Bright
    Pritchett, et al., ``Public Perceptions, Preferences, and Values for
    Water in the West--A Survey of Western and Colorado Residents,''
    Colorado State University Water Institute Special Report No. 17,
    February 2009) is remarkable for the strong support average citizens
    from the American West give agriculture, especially in times of
    drought. The report provides very interesting findings that underscore
    western householders support for water storage projects and irrigation
    over environmental and recreational water needs in times of shortage.
    Respondents were keenly aware of the potential for long-term water
    scarcity and how that could impact farmers and ranchers. For example,
    among western respondents to the CSU poll, the most popular strategies
    for meeting long-term needs were to build reservoirs and reuse water,
    whether it is on private lawns or public landscapes. The least popular
    alternative was to buy water from farmers. The survey demonstrated
    broad support in the western United States for keeping water in
    agriculture.
    ---------------------------------------------------------------------------
        Our goal is to find solutions to western water conflicts that
    protect our ability to feed ourselves, export food to others and
    continue to lead the world in agricultural production while finding
    ways to accommodate the water supply needs of growing urban areas,
    energy development, recreation, and environmental preservation. Fair,
    balanced and long-lasting solutions will not come easily. They will
    require visionary leadership and a firm commitment to sensible,
    workable policies.
    III. Conservation Opportunities in Western Irrigation Agriculture
    A. Importance of Irrigated Agriculture to Western Waterfowl Habitat
        When something is devalued--or worse, demonized--it becomes easy,
    even desirable to cast it aside. We believe that the current regulatory
    regime under-values western agriculture, and some, not all,
    environmentalists would have the public and policy-makers believe that
    growing food is scourge upon the land that should be minimized if not
    eliminated altogether. Part of the Alliance's mission is to emphasize
    the economic, cultural and environmental value of farming and ranching
    in the West, and to have those values recognized by Federal laws,
    regulations and policies. Such an approach to policy making would be
    in-step with the public appreciation for open space, land trusts,
    farmer's markets, and the rapidly growing interest in local,
    sustainable, organic foods.
        Rather than focus exclusively on the alleged depredations of
    western agriculture, Federal regulators need to recognize that many of
    our wetlands are sustained by irrigated agriculture, and that much of
    the private farm and ranch lands adjacent to public lands a provide
    important buffers from developed areas. We run the risk of losing those
    wetlands, buffer areas and open spaces when agriculture is devalued and
    demonized by regulatory policies reflecting the agendas of single-
    purpose interests groups. Instead, Congress and the Federal agencies
    that it oversees should support and advance payment for ecosystem
    services (PES) programs that create opportunities for partnerships with
    landowners, businesses, non-governmental organizations (NGO), and
    agencies that can significantly improve the environment, business
    climate and quality of life within western watersheds. I will expand on
    the PES program a bit further on in my testimony.
        Irrigation has increased agricultural productivity in the arid
    American West, but media coverage often focuses only on how it has
    altered the natural landscape. However, irrigation projects also
    provide important benefits to wetlands. In California's Sacramento
    Valley, rice production provides vitally important surrogate habitat
    and food for waterfowl and other species. In northern Colorado, a study
    \8\ by Colorado State University (CSU) researchers found that 92
    percent of wetlands were visually connected to the irrigation
    infrastructure. Though land conversion and water diversions have led to
    dramatic reductions in historic wetland acreage in some places, it is
    clear from the CSU study that current agricultural landscapes create
    wetlands that rely on irrigation water.
    ---------------------------------------------------------------------------
        \8\ Sueltenfuss, Cooper, Knight, and Waskom, ``The creation and
    maintenance of wetland ecosystems from irrigation canal and reservoir
    seepage in a semi-arid landscape,'' Colorado State University, 2012.
    ---------------------------------------------------------------------------
        The Intermountain West Joint Venture (IWJV), a public-private
    partnership with a mission to conserve priority bird habitats through
    partnership-driven, science-based projects and programs, has determined
    that agricultural producers that flood-irrigate working wet meadows in
    certain landscapes play a key role in sustaining Pacific Flyway
    waterfowl populations during spring migration.
        For example, the Southern Oregon and Northeastern California
    (SONEC) region is one of the most important spring migration stopover
    areas in North America, supporting more than 4.9 million dabbling ducks
    at North American Waterfowl Management Plan (NAWMP) goal levels. The
    IWJV's 2013 Implementation Plan states:

              ``Most spring-flooded wetland habitat in the SONEC Region
            occurs on working ranches where flood irrigation of wet meadows
            is used for hay production and grazing. The timing of flooding
            and the annual vegetation management practices conducted on
            these privately managed ranchlands fits well with the needs of
            spring-migrating waterfowl. These wet meadows are typically
            flood irrigated from March through July, hayed in late summer,
            and grazed during the winter. This productive form of wetland
            habitat management capitalizes on the snowmelt-driven hydrology
            of the largely closed-basin SONEC landscape. Used in this way,
            the wet meadows provide spring migrating waterfowl with
            abundant food resources and desired shallow, open-water wetland
            conditions.'' \9\
    ---------------------------------------------------------------------------
        \9\ Source: Intermountain West Joint Venture. 2013 Implementation
    Plan--Strengthening Science and Partnerships. Intermountain West Joint
    Venture, Missoula, MT. http://iwjv.org/2013-implementation-plan.

        The IWJV's bioenergetics modeling revealed that 64,700 acres of
    flood-irrigated wetland habitat must be provided annually on private
    working wet meadows in SONEC during spring migration to support
    waterfowl populations at NAWMP goal levels. Clearly, agricultural
    irrigators play an integral role in sustaining migratory bird
    populations in the intermountain West. This example, which plays out to
    varying extents for waterfowl and other wetland-dependent birds each
    spring in other intermountain valleys, is a win-win for achieving
    wildlife conservation and agricultural production objectives on the
    same land with the same water.\10\
    ---------------------------------------------------------------------------
        \10\ Ibid.
    ---------------------------------------------------------------------------
    B. Open Space Values Provided by Western Farming and Ranching
        Americans should appreciate the fact that western farming and
    ranching operations provide valuable open space. In the Southern
    Rockies, for example, 43 percent of the private land that is located
    adjacent to public lands is associated with a Federal grazing
    lease.\11\ The approximately 31,000 grazing permits on BLM and Forest
    Service lands are connected to more than 100 million acres of private
    land that ranchers utilize for sheep and cattle grazing during the rest
    of the year.\12\ What would happen to wildlife and open space if public
    land grazing were to end and the private lands were developed? Private
    lands provide most winter and riparian habitat for many wildlife
    species. Public lands, being less productive, cannot sustain healthy
    wildlife populations once the interspersed private lands are developed
    and reappear as housing subdivisions.
    ---------------------------------------------------------------------------
        \11\ Richard L. Knight, ``The Public-Land Grazing Debate is Over
    (and we won!),'' Working Ranch Magazine, Spring 2009.
        \12\ Ibid.
    ---------------------------------------------------------------------------
        Conservation that works is conservation that works not only for
    natural communities, but for human communities as well. Actions that
    benefit one at the expense of the other are not truly conservation.
    City people want rural landowners to protect wildlife habitat, open
    space and provide ecosystem services, yet many landowners feel that
    city people take for granted these societal benefits, without so much
    as a thankful nod. Meanwhile, the economic reality is that our efforts
    to produce food and fiber are increasingly placed at risk by our global
    economy, by increasing regulation, and by cheap--and questionably
    safe--food from offshore. The rift between the West's rural and urban
    societies can be overcome only when we appreciate what each contributes
    to our collective quality of life and the natural interdependencies
    that bind us.
    C. Working Landscapes and the Protection of Biodiversity
        Alongside water, and in many cases directly related to it, western
    agriculture also confronts the challenges of increased pressure to
    maintain biodiversity in working landscapes. Recent analyses and
    regional case studies \13\ suggest that formally-designated protected
    areas are not sufficient in size, heterogeneity or location to capture
    the bulk of North America's wild biodiversity within their boundaries.
    In the West, many elements of this biodiversity are better represented
    and safeguarded on private and tribal lands than on the highly-
    protected, specially designated public lands managed by Federal
    agencies. A mosaic of private and public forests and rangelands that
    include protected areas, but are not limited to them, contributes more
    to maintaining biodiversity than protected areas alone. Ranch lands
    already serve as a buffer for public lands against invasive plants,
    domestic cats and dogs, and the danger of wildfires. We can encourage
    all appropriate land uses, but importantly, only to the degree that the
    land can sustainably accommodate those uses.
    ---------------------------------------------------------------------------
        \13\ Gary P. Nabhan, Richard L. Knight, and Susan Charnley, ``The
    Biodiversity that Nature Reserves Can't Capture: How Western Ranches,
    Tribal Grazing Lands and Private Forests Sustain Ecosystems and Their
    Diverse Species'' in Saving the Wide Open Spaces, 2011.
    ---------------------------------------------------------------------------
        We do not have to sacrifice production for conservation--we can
    achieve both objectives. However, we need time to make this happen, and
    a critical step that could be taken to help would be to place a 10 year
    moratorium on the loss of grazing Animal Unit Months (AUMs) in order to
    come up with a long-term balanced plan to integrate food production
    with conservation practices. We cannot afford to lose any more
    producers while this process takes place, through which we can:

       Work across administrative boundaries rather than staying
            within them;

       Integrate social capital with ecological and economic
            dimensions;

       Encourage bottom-up participation rather than top down
            initiatives;

       Increase success, reduce expense and eliminate working at
            cross-purposes through improved interagency cooperation, which
            would, for example, complement the role of the Natural
            Resources Conservation Service (NRCS) in regards to water
            quality. The Interior Department Partners for Fish and Wildlife
            Program demonstrates a workable process to reconcile inherent
            conflicts brought about by multiple demands and;

       Explore the nexus where the Federal Government owns the land
            and the states control the water.

        Above all, we need to empower local watersheds to provide
    leadership, and problem-solve in a unique, locally-driven manner.
    D. Support for the ``Partners'' Approach
        The Alliance supports the efforts of a group within the U.S. Fish
    and Wildlife Service (USFWS) called ``Partners for Fish and Wildlife''
    that helps to fund habitat work on private lands. This program already
    has the infrastructure and relationships with landowners to get
    effective habitat work done for endangered species. They have projects
    on the ground all over the country and are doing yeoman's work to
    preserve habitat for toads in Nevada, Sage-Grouse in Wyoming, and the
    Mountain Plover in Colorado, to name just a few success stories.
        The Partners program is successful because it employs experts who
    are on the ground, working with landowners, instead of crafting
    mandates via biological opinions from far-removed government offices.
    These Federal officials recognize that if a species exists and thrives
    on a property--public or private--the practices that currently occur on
    that property will not harm and could possibly protect that species.
    So--they learn to recognize, for example, that sage-grouse are
    vulnerable to predators, and that areas where ranchers run sheep tend
    to have heavy predator control. They take the time to respect the
    observations of local landowners, who every day see thriving sage-
    grouse populations on their lambing areas. Working with landowners,
    they gain an understanding and shared belief that the predator control
    that takes place on private lambing grounds has helped to keep the
    sage-grouse in those areas healthy.
        The Partners for Fish and Wildlife is uniquely positioned to
    fulfill the direction of the ESA for the USFWS to manage threatened and
    endangered species. The funding for USFWS should be fundamentally re-
    prioritized to move dollars away from the ``regulatory hammer''
    approach used by some ESA regulators within the agency and towards the
    Partners program.
    E. Payment for Ecosystems Services (PES)
        Western farmers and ranchers can also play a key role in using
    their lands, water and management practices as tools to engage in
    payment for PES projects. A PES scheme creates opportunities for
    partnerships with landowners, business, NGOs, and agencies that can
    significantly improve the environment, business climate, and quality of
    life within western watersheds. A voluntary system of payments may be
    more socially acceptable and effective than extensive additional
    regulation. Critical discussion and reflection in the western farm and
    rangelands community about PES and market-based approaches more
    generally is essential. A well-designed PES program can make a ranching
    or farming operation even more viable.
        We need to determine the role for PES. As experimentation with PES
    expands in farming communities and rangeland systems across the United
    States, it will be important for ranchers, practitioners, researchers,
    companies, public agencies, and other stakeholders to investigate,
    collaborate and critically reflect upon PES design, implementation and
    evaluation. Existing programs can inform and expedite the development
    of new programs. Similarly, pilot tests of new approaches are likely to
    help existing programs become stronger and identify opportunities for
    expansion. The adjacent sidebar highlights some specific models.
        Alongside PES experimentation, it will be necessary to document and
    evaluate desirable and undesirable outcomes to determine whether the
    approach is advancing or compromising rangeland sustainability. For
    everyone involved, questions must be addressed. Will PES programs
    actually help society better manage ecosystem services that are
    integral to human well-being? Is it appropriate to ``commodify'' and
    price rangeland ecosystem services in the marketplace? What happens if
    technological substitutes for ecosystem services become cheaper, and
    therefore the economic argument for ecosystem service protection is
    removed? Is there a solid scientific basis justifying the ecosystem
    service benefits that are being paid for? Are landowners in a position
    to adopt new management practices that will deliver enhanced ecosystem
    services, and will PES payments lead to more diversified and robust
    ranch business models?
    F. Concerns with U.S. Fish and Wildlife Service Mitigation Policy
        On November 3, 2015, the President issued a Memorandum entitled
    ``Mitigating Impacts on Natural Resources from Development and
    Encouraging Related Private Investment.'' Within our membership, there
    have been growing concerns that the Memorandum's standards exceed
    statutory standards set in law by Congress and will result in further
    regulatory confusion and burdens. There are very polarizing views on
    the issue; reminiscent of the WOTUS rule. The Memorandum directed all
    Federal agencies that manage natural resources to avoid and minimize
    damage to natural resources and to effectively offset remaining
    impacts, consistent with the principles declared in the Memorandum and
    existing statutory authority. Under the Memorandum, all Federal
    mitigation policies are directed to clearly set a net benefit goal or,
    at minimum, a no net-loss goal for natural resources, wherever doing so
    is allowed by existing statutory authority and is consistent with
    agency mission and established natural resource objectives.
        In response to the Memorandum, on March 8, the USFWS announced
    proposed revisions to its Mitigation Policy that has guided USFWS
    recommendations on mitigating the adverse impacts of development on
    fish, wildlife, plants, and their habitats since 1981. The revised
    policy provides a framework for applying a landscape-scale approach to
    achieve, through application of the mitigation hierarchy, a net gain in
    conservation outcomes, or at a minimum, no net loss of resources and
    their values, services and functions resulting from proposed actions.
        The goal of providing a mitigation framework for conservation using
    the mitigation hierarchy is laudable. What is particularly noteworthy
    here is the new broad scope of public and private activities USFWS is
    seeking to reach through the policy. According to the proposal, ``the
    Service is authorized to recommend or require mitigation [for those
    resources] that contribute broadly to ecological functions that sustain
    species.'' For example, the Fish and Wildlife Coordination Act covers
    all classes of wild animals, and all types of aquatic and land
    vegetation upon which wildlife is dependent. The proposed policy also
    cites NEPA for authorizing protection of habitat and landscapes. Even
    though this broad assertion of authority ``may overlap with that of the
    States'', the USFWS proposes no mode of accommodation between these
    coordinate levels of Federal Government.
        Section 10 of the ESA authorizes USFWS to regulate private ``take''
    of species, including the authority to mitigate the take. As discussed
    above, the current proposal reaches far beyond threatened and
    endangered species to authorize ``recommendations and/or requirements''
    for all private actions affecting habitat. No comment is offered on how
    USFWS will discharge this large new workload when Congress has not
    provided the financial resources for executing the current portfolio of
    responsibilities. Nor is any comment offered on how USFWS will
    coordinate its new responsibilities with similar duties carried out by
    other Federal agencies. Additionally, the proposal suggests no
    mechanism for how USFWS will engage and encourage landowners to
    participate in this new, significant Federal requirement for land use.
    As the proposal explains: ``The Service will provide mitigation
    recommendations under an explicit expectation that the action proponent
    . . . is fully responsible for implementing or enforcing the
    recommendations.''
        We are currently working with other western resource interests to
    develop comments on this proposed policy, which I urge your Committee
    to monitor closely and engage on, as necessary.
    G. Concerns with Other Administrative Proposals
        There are numerous other threatening non-water related regulations
    and actions that have demanded our attention recently.
        I will not discuss these in detail, but here are just a few of the
    more troubling examples:

       BLM/U.S. Forest Service (USFS) Plan Amendments addressing
            sage-grouse impose unrealistic vegetative standards which
            cannot be met. In most areas, these standards will lead to
            reduced livestock grazing or changes in season of use.

       BLM Planning Rule 2.0. envisions planning on a broader scale
            with reduced emphasis on analysis of local socioeconomic
            impacts.

       Proposed Grizzly Bear de-listing for Wyoming expands grizzly
            bear protections into areas previously determined to be
            ``socially unacceptable''. This proposal is troubling to the
            grazing industry because it emphasizes reduction of livestock
            conflicts through ``voluntary'' permit relinquishments.

       USFS Big Horn Sheep Risk of Assessment evaluates the risk of
            big horn/domestic sheep interaction based solely on a
            questionable analysis of recorded forays of individual big horn
            rams.

       Livestock grazing reductions to accommodate excessive wild
            horse populations. This is happening today in Nevada.

        Other proposals that will impact western farming and ranching
    operations are Department of Transportation regulations impacting the
    transportation of livestock, the USFWS listing of the wolverine, and
    rules and regulations proposed by the Department of Labor on the H-2A
    program and the need for employees to tend sheep, bees and other
    livestock. I would be happy to provide further information on any of
    these troubling developments following today's hearing.
    H. Future Role of the Government
        We are proud of our organization's track record and of the
    relationship we have with the Department of Interior, Reclamation,
    Congress, and other proactive NGOs. I believe we are seen as credible
    leaders in the western water arena on both sides of the aisle, as
    evidenced by more than 50 invitations to appear before Congressional
    committees since 2005.
        The Alliance worked hard to create the Western Agriculture and
    Conservation Coalition, a collaborative effort intended to find ways to
    improve the environment, protect western irrigated agriculture, and
    keep farmers and ranchers in business. Other members of our coalition
    include The Nature Conservancy, California Farm Bureau Federation,
    Environmental Defense, Wyoming Stockgrowers, Trout Unlimited, and the
    Irrigation Association, to name a few. I also represent the Alliance on
    the advisory committee of the AGree process, a long term, collaborative
    initiative that seeks to transform U.S. policy affecting the food and
    agriculture system at home and abroad.
        It is critical to assess what the future role of government will
    be. There is tremendous uncertainty as to the effects of Federal budget
    restraints. Right now, government programs and Federal laws are also
    creating winners and losers. For example, Federal ethanol policy works
    for midwestern corn growers, but hurts the livestock industry which
    relies on corn for feed. Laws and regulations like those imposed by the
    ESA are being implemented differently in different parts of the country
    depending on judicial circuit rulings. Producers in the eastern United
    States have not experienced the regulatory hammer approach employed by
    ESA administrators in the West. Also, opportunities are likely to arise
    for an expanded future role for NGO partners, since government can only
    afford to do less, at least in the near-term. This is one reason why
    the aforementioned Western Agriculture and Conservation Coalition was
    formed. Policymakers and resource managers need to assess those
    opportunities.
    IV. Conclusions
        Western irrigated agriculture is a strategic and irreplaceable
    national resource. It must be protected by the Federal Government in
    the 21st Century. Properly managing Federal watersheds and encouraging
    Federal agencies to work with the agricultural community to solve local
    water challenges are imperative. Ranchers like me and others in the
    regulated community see increased Federal top-down regulations and
    controls being proposed and put in place, while proven, collaborative
    partnership-driven approaches to find lasting solutions to vexing water
    and natural resource problems appear to have been put on the back
    burner. I find it difficult to understand why agricultural production
    finds itself continually under attack when farmers and ranchers
    continue to provide the affordable food and fiber to feed and clothe
    the nation and the world. I am troubled why Federal agencies appear to
    be ``biting the hand'' that produces the food.
        I thank you for the opportunity to elevate our concerns regarding
    the USFWS mitigation policy and the draft EPA flow study.
    Unfortunately, these are just the latest examples in a sweeping range
    of processes and actions that can, individually or collectively, have
    very real negative impacts to western irrigated agriculture, including
    the potential for disruption in water supplies and increased production
    costs.
        We appreciate your support in seeking to compel Federal agencies to
    seriously reconsider the cumulative impacts of the resulting regulatory
    measures before adding additional chapters to what farmers and ranchers
    already see as a very large rulebook.

        The Chairman. Thank you Mr. O'Toole.
        We will proceed with questioning now by the Members. Each
    Member will have 5 minutes for questioning. I will take the
    liberty of going first.
        And since Mr. O'Toole, your remarks were the freshest, I am
    going to start with you. You had described your written
    testimony as being a bit schizophrenic, I connect well with
    that, because you really come from a different perspective with
    your testimony, and certainly with your oral testimony. And we
    are here really looking at the impact of existing regulations
    on the farm economy, but sometimes it is the inaction by
    Congress as well. So I would like to really address the point
    you made with at least three century old sheep farms, I believe
    you said that are out of business now, largely not because of
    market demand conditions, but available workforce. And we know
    on this Committee, we are very aware that making sure our
    farmers and ranchers have access to a reliable workforce is so
    important for us to be able to have food security and fiber
    security, food, fiber, energy, all those things.
        So just real briefly, what recommendations as it relates to
    workforce, what do you need and what recommendations would you
    make?
        Mr. O'Toole. Yes. Well, what is so curious about H-2A is it
    was a program that worked for our family and for our industry
    for 40 years. And it is not only the fact that we can't get the
    sheep herders and the workers, it is the shearers that come
    mostly from overseas, and they can't get their visas as well.
        And so what I understand, and I have been in communication
    with H-2A and, frankly, the State Department, because it is an
    international issue of how these men get allowed to come into
    the country in a very regulated way. They are overwhelmed by
    need.
        I spoke at the Farm Foundation recently, which is not the
    West, and talked about the fact that these lack of workers in
    every state of the Union. And when I mentioned blueberries and
    strawberries, those are East Coast events that have happened.
    The Family Farm Alliance represents the entire western United
    States and Central Valley, California, and we could be in the
    H-2A discussion business. We are doing water, but every single
    member is 22 people short, 100 people short, ten people short.
        So, some of it is budget. I absolutely do believe it is
    related to budget, because they are receiving a lot more
    applications for people, but I think that there is a real need
    to streamline, and I try not to be cynical, but the way that it
    has worked in the last year, something that worked for 40
    years, it feels like there is a contrived dissonance where it
    was designed to not work this year.
        So streamlining and some budget issues, I would say.
        The Chairman. Thank you.
        Mr. Ebert, in your written testimony you draw a clear
    picture of the challenges of increasing environmental
    regulations in a volatile agriculture economy. Can you give us
    a brief overview?
        Mr. Ebert. Yes. The challenges that we are facing is of
    more regulations and the uncertainty of those regulations, and
    also along with the economic challenges. Being a dairy farmer,
    this past year I have lost over \1/3\ of my income from milk.
    The biggest challenge is how do we comply with these
    regulations, or the requests from EPA to implement more
    practices and not have the funds available. There may be some
    Federal funding available as a cost-share, but, I don't have
    the funds to do the other half of it.
        So that is a great challenge, and it is the great unknown,
    it is tough times out there on the farm, of balancing, keeping
    the farm viable, controlling my costs and then trying to meet
    all these environmental regulations that we see coming down the
    road.
        The Chairman. Very good, thank you.
        Ms. English, you mentioned the success of the University of
    Florida's best management practices that were widely adopted by
    local producers. Why do you feel that the EPA felt the need to
    choose a burdensome regulatory route when the local solution
    was proven to be successful?
        Ms. English. That is a wonderful question.
        One of the challenges with water quality law in Florida, it
    is very much driven by litigation. We have very active
    environmental groups who are extremely sophisticated in the way
    that they use litigation to drive agency policy. One of the
    things that happened was that we had a group of environmental
    activists who sued EPA over water quality in the State of
    Florida. In order to resolve the litigation, EPA entered into
    negotiations with them, and came up with a solution without
    necessarily bringing all of the stakeholders to the table to
    resolve those issues.
        The environmental community strongly disagrees with the BMP
    Program, regardless of what we have evidenced. And in a further
    attempt to satisfy them, not only do we have a BMP Program that
    has been wonderfully successful, looking at the Everglades'
    agricultural area, they have far exceeded the goals for the
    reductions of phosphorus that they were required to meet, using
    best management practices, good soil practices, good water
    management practices.
        But this year, in addition to the carrot of the Best
    Management Practices Program, we now have the stick of the
    compliance manual that is being developed even now. And the
    gentleman who is developing it for the State of Florida
    actually comes from a regulatory program. And one of the
    challenges he has had in coming up with a compliance manual is
    we have discussed the history of the program and that it is a
    very cooperative one, and typically when we see a Department of
    Agriculture person at our farm gate, we are happy to have them
    come in and tell us what we are doing right, and, frankly, what
    we are not doing right. But once this manual is in place, it
    will be a matter of a compliance and a noncompliance, and a
    notice of violation, as opposed to a program where we are
    working hard to improve the water quality for the people of the
    State of Florida.
        The Chairman. Thank you very much.
        Now I am pleased to recognize the Ranking Member for 5
    minutes.
        Ms. Lujan Grisham. Thank you, Mr. Chairman.
        Actually, I don't think I have a question for you, Ms.
    English, but I certainly appreciated and can empathize with
    your remarks about the level of expertise it takes in your
    family to navigate and respond and work to comply with the
    regulatory burden. I am a lawyer, although I only practiced for
    10 minutes, so I don't have nearly your expertise, although I
    did win all my cases, so it is a better record than Perry
    Mason. I know, 10 minutes. Do what you can. But my background
    is in health care, and I feel the same way. You shouldn't have
    to have a healthcare legal background in order to read your
    explanation of benefits, or to try to navigate my bill, let
    alone deal with the decisions for consent in the healthcare
    system. We can create an environment where it is just too
    complicated. So people unwittingly, even if it is something
    that you would want to comply with, can't. And I really
    appreciate you highlighting those challenges.
        My question really is, again, for Mr. O'Toole. And I am
    looking for the right balances. I understand unequivocally that
    when we work too hard to create a regulatory environment that
    is just really focused on the rule of law, or the letter, that
    we don't encourage or incentivize or create innovation, or work
    to create partnerships that really do make a difference. And I
    was struck by your statement that USDA, now that their role has
    been minimized by EPA, particularly in water quality, but I
    understand how that happens. So in my state, and I have two
    issues; first, we are a drought-ridden state, and if we don't
    figure out different management practices, including
    irrigation, which I support as a water system. I mean it is a
    400+ year, probably older than that, system in New Mexico. But
    we are in one of the mega drought states, so we are going to
    have to figure out what we do about that. But in that context,
    you have local jurisdictions who do well permitting
    unilaterally, who do septic permitting unilaterally without
    testing, then you have the State Environmental Department
    trying to figure it out, we have all sorts of problems. I am
    struck by what is happening in Flint, Michigan, where we still
    have these issues. So I can see how you want to centralize, but
    not at the expense of best management practices and ideas.
        How do we get more stakeholders at the table, and how do we
    create the balances that you were starting to talk about, as
    this Committee really works to talk to our partners about
    making sure that we are investing in your expertise, not moving
    away from it?
        Mr. O'Toole. Ms. Lujan Grisham, I really appreciate the
    question because I happen to live in one of those places where
    it works. We have leadership, we have a conservation district
    that works, our NRCS works. I live on the state line, so we
    have BLM and Forest Service in two states. I have double the
    regulators of most people, what you have to do first is you
    build trust. It is all based on trust. And my leader says
    people support what they help create. That is the key to
    everything in the future because of the need to work on local
    watershed levels where you use the tools that we have.
        I was on two Congressionally mandated NRCS oversight
    groups. Only 17 percent of farmers are using NRCS. We have to
    figure a way to build that trust. And, frankly, when I ask my
    members of the Family Farm Alliance, or my neighbors that don't
    use it, they just feel like the system is just so disjointed
    from their lives and so much paperwork, and I can tell you I do
    it, I am 25 miles from town, I can't tell you how many times I
    have run back and forth to sign papers, that people in the
    office say please get me out of the office. And I have the
    greatest respect for Jason Weller, the head of NRCS. What he
    has done with the sage-grouse and integrating USDA and Interior
    is a model for the future. But somehow, we have to get these
    people that are on the ground, on the ground with ranchers and
    farmers to come up with solutions.
        What I learned in one interesting conversation, my leader
    and myself were asked to go to another place and talk about our
    successes in birds and fish and irrigation. And everything we
    do has a balance. We do both production and conservation. Our
    rule is we don't trade off one for the other. And we had 70
    people there at that meeting, and we thought, boy, it really
    went well. And we asked where were the private landowners and
    there were none. And 5 years later, they haven't done anything.
    And so you have to trust the private landowners, especially in
    the West where you have the mixed ownership.
        And one quick example. The Partners for Fish and Wildlife
    Service is a small part of the Fish and Wildlife Service that
    is incredibly successful. They will be at the Kissimmee River
    in Florida this year for Partners Day. The ecological service
    part of the Fish and Wildlife Service are listers, and they are
    looking to list. And unfortunately, there is too much attention
    paid to the litigators, and what I call the hatefuls. There are
    two kinds of conservation going on in America: the hopefuls and
    the hatefuls. And we have to find a way to empower the
    hopefuls. That is how we are going to be successful.
        Ms. Lujan Grisham. Mr. Chairman, I yield back. I really
    appreciate that. This Committee is really working hard to
    figure out a way to invoke more of that partnering, and to
    create a way that incentivizes it and/or mandates it inside the
    bureaucracies that exist.
        Thank you very much.
        The Chairman. I thank the gentlelady.
        Okay. I am pleased to recognize the gentleman from Oklahoma
    for 5 minutes of questioning.
        Mr. Lucas. Thank you, Mr. Chairman, and thank you, Mr.
    Chairman, both, for the opportunity to be here.
        I guess my first observation of the panel would be this.
    Not many months ago, at this very table, in one of the very
    chairs you are sitting in, we had the Administrator of the
    Environmental Protection Agency to visit with us, who stood and
    attempted to defend the Waters of the U.S. rule, a regulation
    basically designed to assert Federal jurisdiction, in my
    opinion, over all waters, including those dry creek beds that
    may flow only once a year. And thank goodness, the courts have
    slowed that process down for a time, but that is not certainty.
        Could you take a moment to discuss, in the context of what
    you have just described to us, if the Waters of the U.S. rule
    is fully implemented, what kind of an effect is that going to
    have on your operations, ladies and gentlemen, as you
    understand the rule in its present construction?
        Ms. English. If you gentlemen don't mind.
        Mr. Ebert. Go ahead.
        Ms. English. I have spent a fair amount of time on this
    issue, and in reading the rule, and It was with a great deal of
    relief that I saw that the Sixth Circuit imposed a stay. We
    have citrus groves that are all within the distance limitations
    outlined in the rule to existing water bodies. Those trees are
    going to have to be replaced once we have a citrus variety that
    is resistant to citrus greening. We are planning for it. We are
    investing for it. The one thing that we are discussing as a
    family is what we do with a core permitting process if, when we
    remove those trees, we have to go back and get a Section 404
    permit to replant citrus trees in that space.
        In southwest Florida, a core permit takes between 3 and 5
    years to obtain. We don't have the kind of money that will
    allow us not to produce citrus for 3 to 5 years while we wait
    for a Federal agency to make a decision. Our grove is where it
    has been since 1870. The fact that it has now magically become
    a matter for the Army Corps of Engineers, the United States
    Fish and Wildlife Service, and EPA to review is a little bit
    disconcerting.
        I am not sure how we would deal with that if the rule is
    approved as it is written, in my opinion, we may be unable to
    replant our groves.
        Mr. Lucas. Which ultimately means the consumer that has
    enjoyed the most consistent, awesome citrus products from the
    southern United States for generations, ultimately, the
    consumer will pay a price too, correct? But, with the
    availability of those products going away. So it is not just
    the effect on farmers, it is the consumer too who will
    ultimately pay a price.
        Ms. English. It is a terrible price to the consumer, and it
    is a terrible price to the industry that has always embraced a
    wide diversity of interests, from very small farmers to very
    large farmers. And in the Florida citrus industry, we have
    large corporations, but they are owned by families typically
    who are farming citrus. We are now the second largest producer
    of citrus in Lee County, Florida. I can remember when we were
    one of the smallest. The larger ones are gone. The smaller ones
    are gone. And it is because of these changes.
        Mr. Lucas. Mr. Ebert, Mr. O'Toole, any observations?
        Ms. English. Thank you.
        Mr. O'Toole. Yes, sir, I had mentioned in my testimony and
    in my written testimony the effect on storage. Our valley built
    a 23,000 acre foot reservoir within the last 10 years. I worked
    pretty darn hard on it. It took 14 years to permit. And when
    you look at the combination of Waters of the United States and
    the further use of the rule of EPA to use the Clean Water Act
    in a much broader fashion than it is being used now, it will be
    virtually impossible to do. And what I have learned in the
    attempt to get along with a whole lot of bureaucrats, we have,
    as I said, almost double the bureaucrats of most people because
    of the state line issue, it is so office-driven and it is
    personality-driven. The interpretation of the rule, as I read
    it, is so broad that there are an awful lot of good people, but
    there are some that aren't. And when those people have the
    opportunity to use those rules in the way that they are
    written, I can see that anybody would be vulnerable in the
    irrigation world to challenge.
        And you may have read the fellow in western Wyoming that
    just had a settlement. He built a little pond on his ranch, and
    they threatened millions and millions and millions of dollars
    in fines. It was finally settled because it was so ridiculous.
    But when you have the written language that gives those kind of
    people the ability to do that level of regulation, at a time
    when we need to be more flexible--and let me just say, the
    Family Farm Alliance wrote a paper in 2007 about climate in
    agriculture, and it is about adaptability. We are at a time
    when we need to be more adaptable, have more flexibility. This
    rule will do the exact opposite.
        Mr. Lucas. Mr. O'Toole, as an old farmer, we are all
    concerned about water quality. Ultimately, if you don't use
    that resource, no matter where you are at in the lower 48
    states, it is going to wind up in the Atlantic or the Pacific,
    correct?
        Mr. O'Toole. Yes, sir.
        Mr. Lucas. If it is not utilized.
        Mr. Ebert, any thoughts, sir?
        If the Chairman will indulge me for another few seconds.
        The Chairman. Please.
        Mr. Ebert. Yes, Congressman, I appreciate the question
    because, actually, I am going to give a little different
    perspective on that. I am a small farmer. I don't run thousands
    of acres or hundreds of head of cattle, and I certainly
    represent Pennsylvania agriculture. This rule would be
    devastating to the small farmer. I am along the Connemara
    River, so I have some river bottom in that, and if EPA would
    come in, I mean most of my farm would be, say, within the
    1,500 setback that they would regulate, that would pretty much
    take out my whole farm. I won't be able to use the crop
    production products for my crops, because none of them are
    labeled for use over water. So that is there, that is facing me
    and my family right now, that they could, if they ruled my
    whole farm as a Water of the U.S., I would be out of business.
    And that would put a lot of other small family farms in
    Pennsylvania out of business also.
        Mr. Lucas. Thank you, Mr. Ebert.
        Thank you, Mr. Chairman.
        The Chairman. Thank you.
        Just an interesting observation, talking about the same
    egregious impact of this regulation, but we are looking at
    impacts from Wyoming to Florida to Pennsylvania. Pretty much
    covers the span.
        I am pleased to recognize the gentlelady from Arizona, Mrs.
    Kirkpatrick, for 5 minutes.
        Mrs. Kirkpatrick. Thank you, Mr. Chairman.
        Mr. O'Toole, I really appreciate your testimony. I
    represent a huge rural district in Arizona, half the state, and
    my mother's family were ranchers in my district. And water has
    always been an issue that we have had to deal with, and so many
    complexities, and something I have spent a lot of time thinking
    about. But I just have to tell you, a couple of years ago I was
    driving from Flagstaff, where I live, to the eastern edge of my
    district with my legislative director, and we crossed the
    Little Colorado River, and she said, what was that? And I said,
    that is the Little Colorado River. And she said, that is not
    navigable. And I am sure you have had that situation in Wyoming
    where waterways have been labeled as navigable, and they just
    aren't. And I just want your thoughts on where do we start with
    this issue? There seems to me to be a disconnect between what
    works maybe in Florida and the water you have in Pennsylvania,
    and what we don't have out West. You seem very commonsense and
    pragmatic, I would just like your thoughts about where do we
    start here?
        Mr. O'Toole. Well, the thing that I have a lot of trouble
    with is who defines interconnectedness. We are in a state that
    has 12", 14" of precipitation. And so when you look at how a
    wetland in a National Forest is connected to private land here,
    that is where we get ourselves into trouble. And it is where I
    go back, and I just can't say enough about how great it is to
    have leadership at the conservation district level, which we
    have. We have had a lot of young people involved from the
    beginning, so we have a mixture of old and young, and I think
    it is putting your finger on exactly what happens in that
    watershed. And we are going to come up with solutions, and we
    have those solutions now, and in my perfect world I would like
    to see a world where once a diverse watershed group comes up
    with a strategy on water, whether it be storage or irrigation
    or wetlands which we have developed, the largest wetland in
    Wyoming was in the Pacific, it is on the Continental Divide, so
    it is now part of the Atlantic and Pacific Flyway. It went from
    29 species to 140. That was done locally with people who
    actually fought EPA over doing it at the first part. Now it is
    3,600 acres that includes a tremendous amount of grazing land
    with it.
        So I just keep going back to, if we are going to do
    solutions, we have to have local people who will come up with
    how those watersheds work, with a vision for the future.
        Mrs. Kirkpatrick. Is the USDA helpful to you or not?
        Mr. O'Toole. When it works, it is great. When it works, it
    is great. Unfortunately, my testimony about experience with the
    numbers, that is what is challenging. Because Conservation
    Districts cross the entire United States, everybody is under a
    conservation district. When the system is working and
    empowering, and people feel comfortable with it, it really is
    great. But when it doesn't exist at all, and the frustration,
    like even the best ones of getting out of the office, I think
    that is something that we can focus on.
        Mrs. Kirkpatrick. That has been one of our pushes in
    Arizona to actually get the regulators out in those towns that
    are really having struggles with their water sources, and
    actually seeing, having conversations with the local people
    about what is going on, rather than just sitting in a remote
    office somewhere, conjuring up what they think is a solution,
    but really doesn't work.
        In Arizona, we are doing a lot of aquifer replenishment,
    which has been successful. In fact, I was just meeting with a
    Tribal leader this morning who said that they can actually see
    now the grass coming back in these areas, and it really gives
    the local people hope to know that that water is underground.
        Now, do you use that in Wyoming?
        Mr. O'Toole. No. In fact, the underground storage that we
    are looking at is some CO2-type stuff. But not so
    much, but in California where we have a lot of members, it is a
    huge tool, and it is a very appropriate the issue, as I keep
    saying, is that you go to the local area of Central Valley,
    California, or San Joaquin, in some places it is storage. And I
    just saw where 1 million acre feet went out to the ocean that
    would have been in the site's reservoir. A million acre feet
    this year that went out. Everybody has their own kinds of
    solutions, but the Family Farm Alliance is very familiar with
    and supportive of underground storage.
        Mrs. Kirkpatrick. Well, thank you. My time is running out
    but I really appreciate your thoughts about that. And you are
    right; one size doesn't fit all, and it is the local
    communities that know best what is going to work.
        Mr. O'Toole. Right.
        Mrs. Kirkpatrick. So thank you very much. I yield back, Mr.
    Chairman.
        The Chairman. The gentlelady yields back.
        Now I am pleased to recognize the gentleman from Tennessee,
    Mr. DesJarlais, for 5 minutes.
        Mr. DesJarlais. Thank you, Mr. Chairman. And I thank the
    panel for being here today.
        Approximately 2 years ago, the EPA sent a shockwave through
    the ag community and the business community when they
    introduced their Waters of the U.S. rule. It has been a major
    concern and a major topic of discussion whenever I reach out to
    our Farm Bureau, which I would like to announce is the largest
    Farm Bureau in the country, located in my district in Columbia.
    Where it was former President, Lacy Upchurch, or our current
    President, Jeff Aiken, rarely do I have a conversation when
    this doesn't come up as a major concern to the farmers and
    ranchers there in Tennessee, and obviously, across the country.
    The impact of this broad expansion of Federal jurisdiction,
    well beyond the limits approved by Congress, would have
    enormous impact, as you all know. The rule defines terms like
    tributary and adjacent in ways that make it nearly impossible
    for a typical farmer or rancher to know what a specific ditch
    is, ephemeral drains or low areas at his or her farm will be
    deemed Waters of the U.S. To date, 31 states and many
    agricultural organizations, including the American Farm Bureau
    Federation, have filed law suits against the WOTUS rule. And
    thankfully, in October, the Sixth Circuit Court of Appeals
    issued a temporary stay on this rule, citing that the burden of
    the WOTUS Rule outweighed any harm to the agencies in keeping
    the status quo. I, along with many of my colleagues on this
    Committee, have joined these groups in calling for the EPA
    Administrator McCarthy to scrap this regulation, and require
    any similar proposals to be developed only after significant
    consultation and input from states and local stakeholders, such
    as you who are here with us today.
        Before developing any such rule, what does EPA need to do
    better to reach out to farmers and to understand their
    practices? And I will just go down the panel, starting with Mr.
    Ebert.
        Mr. Ebert. Okay. Thank you for the question. EPA does have
    to sit down with the farmers, and instead of looking at
    enforcement, let's work together at solving the problems of
    water quality and water issues. I think that would be the main
    focus of what we would look at EPA to do, instead of coming out
    with a heavy-handed proposal with so much uncertainty of where
    we are going to farm, how we are going to farm, and the
    uncertainty of the heavy hammer coming down at the farm level,
    let's go back and rework and discuss the issues, and work
    forward from there.
        Mr. DesJarlais. Just before we move on, as the President of
    the Pennsylvania Farm Bureau, what steps are you taking to
    educate farmers and ranchers about the rule and how to prepare
    for its impacts?
        Mr. Ebert. We have put a lot of information out to our
    members. Luckily, the stay is in place right now, but there is
    so much uncertainty of how the rule is going to affect us. So
    as I stated before, if EPA came in and ruled my farm a Waters
    of the U.S., I would be left in the dark of what to do next.
        Mr. DesJarlais. Thank you, Mr. Ebert.
        Ms. English?
        Ms. English. Thank you for this question. It is helpful to
    hear what happened when my state President, John Hoblick, and I
    met with the EPA ag liaison a year and a half ago when we were
    in Washington for a Farm Bureau meeting, and we had
    specifically requested a meeting to discuss the Waters of the
    United States rule, which, at the time, was in development, and
    what it would mean for Florida agriculture. What specifically
    we were interested in understanding, what EPA wanted to protect
    and what they felt was not already being protected by the rule.
    We got into a room that had not just the ag liaison, but a
    virtual panoply of Agency people who demanded to know why we
    were there, and then explained to us that they had nothing to
    explain to us, and that we needed to just leave.
        Florida is a real challenge from a water perspective. We
    are a wet desert. We go through periods of time where we have
    40" of rain in 3 months, but we may also go through a period of
    time of 4 or 5 months where we get a negligible amount of rain.
    We have a tremendously managed system. Using the language that
    EPA had published, from our perspective, virtually all of the
    state became jurisdictional for purposes of Army Corps of
    Engineering's permitting under Section 404. And given the
    endangered species issues that the State of Florida also has,
    requires that every single Corps permit, even a nationwide
    permit, go to consultation with the Fish and Wildlife Service
    for the protection of these species. Case in point, the Florida
    Bonneted Bat, which is newly listed, we don't know what to do
    to protect it. We don't even know where it likes to live or
    breed or feed, but we are responsible for generating the data
    that will help them understand how to develop a mitigation
    program for it.
        Right now, if I send a file to the Corps and they put a
    public notice out, if that has a Florida Bonneted Bat issue,
    the earliest a staff person can get to opening the file, not
    reaching a decision, opening the file and looking at it and
    asking me if there is additional information, is 360 days.
        Mr. DesJarlais. Thank you.
        My time has expired. Mr. O'Toole, perhaps you will get a
    chance to respond in a later questioning.
        The Chairman. Sure. I now recognize the gentlelady from New
    Hampshire for 5 minutes of questioning.
        Ms. Kuster. Thank you very much.
        I have sympathy for the issue about the bats. In New
    Hampshire, it is called the Long-Eared Bat, and I am working
    with my loggers right now to protect the Long-Eared Bats. I am
    learning all kinds of new words about bat colonies, et cetera.
        I am actually going to yield to the chair, who has a little
    bit more testimony or questions. I will save my questions for
    the second panel, but thanks for being with us.
        I yield back.
        The Chairman. To me. Thank you. The gentlelady yields. I
    appreciate that.
        Mr. Ebert, we have heard, obviously, the universal issues
    with WOTUS, but I know from a Pennsylvania perspective, we have
    been dealing with water-related regulations long before the
    Corps of Engineers and the EPA imagined this single largest
    taking of private property rights with WOTUS, and that came in
    the form of the Chesapeake Bay regulations. And so my question
    for you is: you spoke about a few key challenges of the EPA's
    Chesapeake Bay regulations. Which do you think is the biggest
    problem for agriculture?
        Mr. Ebert. Well, it is both inflexibility and uncertainty,
    but the biggest problem lies with the model. There are so many
    false assumptions with the model. It doesn't deal with the real
    world. And it is such a moving target already. I think they may
    be on version 7 now with this model. So we may hit one target
    at one point in time, and then they do a revamp of the model,
    and we have missed that target but we might have hit something
    else. It has such uncertainty to it. And there again, with EPA
    withholding $3 million to the Department of Environmental
    Protection, and they really never gave us an answer why. So we
    had to do a reboot strategy to try to re-get those dollars. And
    even along with those lines of the major impacts, the bad
    numbers that they are using, NRCS, again, says we are doing 80
    percent no-till, where EPA's model is only saying we are only
    doing 50 percent conservation. So nothing adds up there.
        And also along those lines is EPA's model states that
    nearly 20 percent of farm ground needs to be fallowed to meet
    the requirements of a reduction in nutrients. Who is going to
    tell us what ground we can use or can't use? Sort of an example
    there is everyone owns a home or an apartment. How would you
    like a Federal agency to come in and say you can't use 20
    percent of your home anymore, but you still have to maintain it
    and pay taxes on it?
        So that is a huge problem for the Chesapeake Bay region
    right now for us.
        The Chairman. Given all the challenges, what you said up to
    model 7, that version, all the hoops, all the costs, all the
    compliance issues, has any of that made a difference in water
    quality?
        Mr. Ebert. Well, I think just the decades of us learning
    how to farm better with technology, conservation, new practices
    that we have put in, I am sure it has made a large difference
    in water quality. We see it in water quality monitoring and
    that, but the model hasn't accepted those changes. We are doing
    all the BMPs without Federal funding, and that is why we put
    that survey together through Penn State and the Department of
    Environmental Protection, is to try to capture a true picture
    of what farmers are doing without Federal funds, and hopefully
    EPA will put that in their model and show what agriculture is
    actually doing to improve water quality, instead of always
    being pointed to as the villain here.
        The Chairman. Very good. Thank you, sir.
        I thank the gentlelady for yielding. Now I am pleased to
    recognize the gentleman from the land of corn and soybeans and
    eggs, and much more in Iowa, Mr. King, for 5 minutes.
        Mr. King. Thank you, Mr. Chairman. I thank all the
    witnesses for your testimony.
        A number of questions come to mind. I turn first to Mr.
    Ebert.
        In Pennsylvania, do you have what you consider to be a
    water quality monitoring system out there that gives an idea on
    what is a point source, what isn't, and what you are getting
    leached into your streams?
        Mr. Ebert. Yes, DEP actually does do a lot of water quality
    monitoring. I can probably get you more information on that.
        Mr. King. Well, I would just ask you, are you confident
    that the records are good enough now that the science is there
    to make recommendations, let alone regulations on applications
    of safe fertilizer?
        Mr. Ebert. I think it is always evolving. As we become more
    attuned to how nutrients move, there is science there, but, it
    can always be improved upon. And some of that science can be
    plugged into that model.
        Mr. King. And typical soil in Pennsylvania, would you have
    a sense on about how long it would take for applied nitrogen to
    leach through and out of the soil?
        Mr. Ebert. I am not attuned to that knowledge. It is there.
    I can always find out that information.
        Mr. King. Yes. And I ask you this question because it seems
    to me that you have people in the EPA that are trying to
    regulate this without being able to answer that question. And
    if we don't have a sense on; let's just say, what is the
    baseline, do you have a sense of what the baseline is? Where I
    come from, we say what was the water quality when the buffalo
    were roaming someplace other than upstream.
        Mr. Ebert. That is it, how far back do you want to go until
    you consider the water quality that you want to achieve?
        Mr. King. But isn't that what the environmentalists are
    after? They want to get back to the time when the buffalo
    roamed, because they say that is when the ecology was as
    perfectly balanced as we can imagine? And so anything that you
    would apply that would result in a leaching into the water,
    into the stream, that would be in excess of that, they would
    consider should be regulated before you apply it? Am I close to
    what you are seeing?
        Mr. Ebert. Yes. I mean they want to control all aspects of
    the farming operation.
        Mr. King. Yes. And I am just submitting that they don't
    know what it was then. There was no water quality tests then.
    And they can only imagine, but they also imagine that your
    application is too much. We have a law suit going on in Iowa.
    It is the Des Moines Water Works. I am glad to see that nod,
    Ms. English. The Des Moines Water Works says, ``because they
    have nitrate records that show there has been an increase over
    the last 40 years, a 60 percent increase over the last 40
    years,'' and by the way, those records are a little bit dated.
    They went into my head and stuck there. That they know that it
    is coming out of our feedlots and off of our farmland because
    they are taking the tests right out in the river outside the
    Des Moines Water Works. So they are suing three counties,
    including mine, in an attempt to establish a precedent case so
    they can regulate crop inputs all across this nation. And I
    wanted to just put that into the record.
        And I ask Ms. English, you are faced with the acuteness of
    it in phosphorus down there in Florida. I hopefully can help
    you with that. And I am quite impressed that the family farm
    goes back that far, and that your family linkage goes back that
    far. I want to see that continue.
        Do you see solutions coming for the phosphorus problem?
        Ms. English. Yes, I do. I think that in the State of
    Florida, and to Mr. O'Toole's point, the local, local, local
    focus is absolutely key. We are working together, and Florida
    has numeric nutrient criteria which was imposed upon us through
    the litigation process, and ultimately when I asked a question
    of one of my counterparts with one of the environmental groups
    who filed the litigation, I said, ``Why Florida? We have more
    data than anybody else. We have more systems in place to try to
    improve water quality than anybody else. Why us?'' And he said,
    ``Well, because I had the data.'' Okay. That was an interesting
    approach. But from this point, when we are using best
    management practices, when we see what has happened in the
    Everglades agricultural area, and they have so far exceeded the
    goals for phosphorus reduction, and the response from the
    environmental community was not, that is great, what terrific
    land management, the answer was, ``Well, we didn't reduce
    phosphorus enough.''
        Mr. King. Yes.
        Ms. English. What is enough? Is it enough when we can no
    longer biologically meet the reduction standard? And that
    appears to be the answer.
        Mr. King. And so we are chasing a mirage here with an
    environmentalist approach and an EPA approach that, well, they
    have a mission, and that mission is continuing to tighten down
    regulations. There is no goal for them. Would you agree that
    that is the sense of it, that they haven't articulated where
    this would ever stop? There will always be another level and
    that is the history, would you agree?
        Ms. English. That would be my experience in the last 22
    years of practicing law in the State of Florida. I have nothing
    that would indicate otherwise.
        Mr. King. They have gone through a lot. That was quite an
    impressive testimony. I thank you, Ms. English, and all the
    witnesses here this morning.
        Mr. Chairman, I yield back the balance of my time.
        The Chairman. The gentleman yields back.
        Now I am pleased to recognize the Chairman of the full
    Agriculture Committee, Mr. Conaway, for 5 minutes.

    OPENING STATEMENT OF HON. K. MICHAEL CONAWAY, A REPRESENTATIVE
                         IN CONGRESS FROM TEXAS

        Mr. Conaway. Thank you, Mr. Chairman.
        There is always a next farm bill on the horizon,
    particularly for the current Chairman of the Agriculture
    Committee. Can you talk to us, any of you, about ways that we
    can prioritize in that farm bill things that would strengthen
    these locally-led volunteer conservation programs, or
    incentive-based programs, what can we do to put that in the
    farm bill that actually helps do what Mr. O'Toole, you, and
    others have talked about this morning of, like you said, the
    local folks have as much control about what is going on as
    possible?
        Mr. O'Toole. I have mentioned the Partners for
    Conservation, part of the Fish and Wildlife Service. That is an
    Interior issue. But, going back to Mr. Weller and his vision of
    combining USDA and the Interior on this, I think that is an
    important set of relationships that when you base them on
    agricultural production, and we all know we are supposed to
    double the food supply, we don't have enough young people
    coming in, you understand that the relationships of the cross-
    section of agencies. What we have allowed ourselves to do, as I
    mentioned earlier with the EPA, is take the relationships that
    farmers trust and turn them into relationships that farmers
    don't trust. I know the NRCS refused to be the policemen for
    the EPA recently because it would undermine all that trust that
    we have built over all the years. So, make sure that we
    understand that establishing trust and realizing nothing
    happens tomorrow. It took 10 years in our valley, 30 years ago,
    to begin a process of trust. And I would say to that, how do
    you legislate trust? I don't know.
        Mr. Conaway. Anyone else?
        Mr. Ebert. No, you go ahead.
        Ms. English. Go ahead.
        Mr. Ebert. Just one point I would like to make is with the
    Conservation Districts. In Pennsylvania, they are actually
    being forced to become enforcers now. And there still needs to
    be a lot of conservation plans written, so they are trying to
    force the hand of the Conservation Districts.
        Mr. Conaway. Who is they?
        Mr. Ebert. Excuse me?
        Mr. Conaway. Who is they?
        Mr. Ebert. DEP and the EPA. Before, it used to be the
    Conservation Districts----
        Mr. Conaway. So how are they doing that? How is the EPA
    strong-arming the NRCS?
        Mr. Ebert. By withholding funding. Like I said, they
    withheld funding for Pennsylvania DEP because we weren't
    meeting the targets and goals. But we need the funding at the
    conservation district level to get these plans written and in
    place and on the ground. And some of the trust for the
    Conservation Districts are going to be lost because they are
    becoming enforcers now, instead of actually being boots-on-the-
    ground to help the farmer.
        Mr. Conaway. Right. Talk to us a little bit real quickly, I
    am a CPA, and you guys need to make money to stay in business,
    and so how does conservation projects that fold into your
    bottom line, are there ways that you can do them so that it has
    a positive on your bottom line, or are these things just are
    costs on top of what you would otherwise do? In general.
        Mr. Ebert. Like the conservation plans help develop a plan
    for me to rotate crops from a no-till, do better with cover
    cropping in that. That does help my bottom line. It actually
    improves my soil quality so I have better yields.
        Mr. Conaway. Ms. English, are you doing anything from a
    conservation standpoint that actually helps your farm?
        Ms. English. The EQIP Program has been wonderful,
    particularly for farmers who are struggling to implement
    structural improvements that can aid water quality, the way
    that they hold water on their property, the term for which they
    hold it. The EQIP Program has been very helpful for that,
    especially for small farmers, who I work with. The other
    program that has been helpful is the Conservation Reserve
    Stewardship. It has kind of gotten into an interesting space in
    the new farm bill. But that program that provides funding to
    help them implement good management practices, and learn those
    management practices, has been hugely helpful to me
    particularly with my smaller farmers, and by those I mean
    people who are producing very small quantities, but very
    important to the diversity of our farming community.
        Mr. Conaway. Mr. O'Toole, anything quickly?
        Mr. O'Toole. Well, I would just say that the mill * levy
    capability that is used. We use it in our district.
    Conservation Districts have that authority. When that is used,
    and in my case, with a real good leadership, leveraging those
    funds 5 to 1, coming from different places, that has been one
    of the reasons we have been able to be effective.
    ---------------------------------------------------------------------------
        * Editor's note: A mill levy is the number of dollars in taxes that
    a property owner must pay for every $1,000 of assessed value. . . . one
    mill is $.001 (1/1,000 of a
    dollar). Source: Wyoming Taxpayers Association http://www.wyotax.org/
    property_tax.aspx.
    ---------------------------------------------------------------------------
        Mr. Conaway. Okay. Mr. Chairman, I yield back. Thank you.
        The Chairman. The gentleman yields back.
        I would like to thank our first panel for all of your
    experience, your time, your expertise. All of us found your
    testimony very, very helpful.
        And so I will dismiss the first panel of witnesses today,
    and I would like to welcome to the table, and as they are
    getting set up, I will introduce our next panel of witnesses.
    Our next panel, we are going to be joined by Ms. Celia Gould,
    who is Director of the Idaho State Department of Agriculture,
    out of Boise, Idaho; Mr. Lee McDaniel who is President of the
    National Association of Conservation Districts, an organization
    whose members were referenced many times by the previous panel;
    Mr. Terry McClure, President of McClure Farms LLC, Grover Hill,
    Ohio; and Mr. Tom Buman, CEO of Agren, of Carroll, Iowa.
        Looks like the panel has been seated. Welcome everyone.
    Thank you so much for accepting our invitation, coming such
    long distances to be here today, to be able to share your
    thoughts, your experience, your testimony as regards to the
    impact of regulations, specifically on agriculture in the rural
    economy.
        And so, Ms. Gould, please being when you are ready.

     STATEMENT OF CELIA R. GOULD, DIRECTOR, IDAHO STATE DEPARTMENT
    OF AGRICULTURE, BOISE, ID; ON BEHALF OF NATIONAL ASSOCIATION OF
                          STATE DEPARTMENTS OF
                              AGRICULTURE

        Ms. Gould. Thank you, and good morning and thank you for
    the invitation to testify on the subject of the farm economy:
    impacts of environmental regulations and voluntary conservation
    solutions. I have submitted written testimony for the record.
        I am Celia Gould, Director of the Idaho State Department of
    Agriculture, and I also represent NASDA, the National
    Association of State Departments of Agriculture. My department
    is tasked with implementing the majority of regulatory programs
    affecting Idaho agriculture.
        Over 60 percent of Idaho land is managed by a Federal
    agency. That land ownership and divergent management strategies
    present unique challenges to our growers. This scenario often
    makes my department the middle ground between Federal land
    management and the needs of agriculture on the ground. We need
    to have officials who make sure that everyone plays by the
    rules, but just as importantly, we must support an environment
    where citizens can seize opportunities for voluntary
    conservation without bureaucratic roadblocks.
        I would like to highlight just a couple of examples.
    Idaho's ranchers are on the frontline when it comes to managing
    that careful balance. While grazing on Federal lands is a
    critical component to our strong livestock industry, just as
    important is what our producers are giving back to that
    equation. Consider this. Before 2012, ranchers legally were not
    allowed to fight a wildfire on public land. At stake wasn't
    simply a public resource, but also private land. A few years
    ago, Idaho ranchers were the first responders to a small
    lightning-ignited fire that broke out on public land. Local
    ranchers were told to leave the scene. That 5 acre fire later
    turned into a 40,000 acre fire. Ranchers throughout Idaho felt
    the BLM policy was unacceptable. So a coalition of producers
    began negotiating a public-private partnership, which became
    the genesis of the Rangeland Fire Protection Associations. Led
    primarily by Idaho ranchers, our RFPAs are often now the first
    to provide the initial attack on wildfires. Their efforts have
    resulted in fewer catastrophic, large-scale rangeland wildfires
    in Idaho. The ranching community set an example for us. We make
    a good team when Federal agencies see us as partners, not
    adversaries.
        I feel strongly that the states are best poised to
    coordinate and amplify the voice of stakeholders. To further
    voluntary conservation, states must serve a more prominent role
    in the early development and implementation of Federal
    programs. Take Idaho's lauded Sage-Grouse Plan which initially
    appeared to be on a good track. Idaho built a plan based on
    broad input from industry groups, conservation organizations,
    as well as county, state, and Federal agencies. The outcome was
    a locally derived, scientifically defensible management plan
    that was eventually selected as a co-preferred alternative in
    the BLM and Forest Service's EIS. Months of collaborating with
    the Idaho BLM Office and the key stakeholders led Idaho to
    genuinely believe the state-Federal collaboration was going to
    be a success. However, the plan was changed in the eleventh
    hour. What began as collaboration ended with the unilateral
    decision from a Federal agency that fundamentally changed the
    plan, and turned supporters to adversaries. Idaho is now
    embroiled in litigation with the Federal Government over its
    handling of the sage-grouse listing decision.
        I have voiced some of my concerns, now I would like to
    highlight some possible solutions.
        Increased productivity, stewardship, and conservation and
    agriculture are a result of voluntary efforts, as well as
    public and private investment in research and innovation. But
    who among us will take on these challenges if our hard work is
    met with intransigence or flat refusal by Federal agencies
    which seem to prefer top-down management directives contrived
    in offices instead of on the ground. This pattern has to
    change. We need Federal partners to consider doing more of the
    following. First, engage the states. Second, improve economic
    analyses to account for real costs. Third, incorporate
    flexibility and regulatory programs. And finally, renew focus
    on best available science. An example of this model is the NRCS
    Regional Conservation Partnership Program which unites partners
    toward targeted conservation goals.
        Federal agencies play an important role in the day-to-day
    lives of Idahoans, but they don't have the greatest stake in
    the future of Idaho. The people closest to the land do. Farmers
    and ranchers are thoughtful stewards. I will look to them and
    their love of the land as our best chance of meeting growers'
    demands for resources, while protecting the careful balance
    which makes Idaho one of the greatest natural landscapes in the
    world.
        Thank you today. I appreciate your attention.
        [The prepared statement of Ms. Gould follows:]

    Prepared Statement of Celia R. Gould, Director, Idaho State Department
     of Agriculture, Boise, ID; on Behalf of National Association of State
                           Departments of Agriculture
    Introduction
        Chairman Glenn `G.T.' Thompson, Ranking Member Lujan Grisham, and
    distinguished Members of the Subcommittee on Conservation and Forestry:
    good morning and thank you for the invitation to testify on the subject
    of The Farm Economy: Impacts of Environmental Regulations and Voluntary
    Conservation Solutions.
        My name is Celia Gould, and I am the Director of the Idaho State
    Department of Agriculture and a lifelong cattle rancher. I also Chair
    the Natural Resources and Environment Committee for the National
    Association of State Departments of Agriculture (NASDA). NASDA
    represents the commissioners, secretaries, and directors of the state
    departments of agriculture in all fifty states and four territories.
    State departments of agriculture serve as the ``boots-on-the-ground''
    for a wide variety of important agricultural programs including, animal
    disease and pest detection and prevention, environmental protection and
    conservation as well as promoting agricultural products locally,
    nationally and throughout the world. For many states agriculture is a
    key economic driver. Idaho is one of those states. In addition to the
    famous Idaho potato, our farmers and ranchers produce over 185
    different commodities, with over 27 of those commodities ranking in the
    top ten in the nation. We cannot grow or prosper without a thriving
    agricultural economy.
        In Idaho, over 60% of the land mass is managed by the Federal
    Government. In fact, Idaho has a greater percentage of land managed by
    the U.S. Forest Service than any other state in the union. Accordingly,
    the State of Idaho must interact with Federal land management agencies
    frequently. We are also co-regulators and partners to some degree with
    many other Federal agencies, not just those that manage land. As a
    result we have developed relationships with the Federal Government,
    some positive and productive, and others that need improvement. Today's
    hearing is timely for certain issues we are dealing with in Idaho and
    throughout the inter-mountain west. I appreciate the opportunity to
    testify in front of this Committee.
        The selection and subsequent management of endangered species,
    wildfire suppression and mitigation, and public lands grazing are a few
    important issues for western states. The programs that deal with these
    issues are primarily the responsibility of one or more Federal
    agencies. States have, or should have, a critical voice in the
    direction these Federal programs are headed. More often than not state
    leaders are left frustrated with the lack of meaningful participation
    and collaboration on these topics and others that impact, sometimes
    severely, our agricultural industries in the West. My goal here today
    is to showcase some of the examples representative of the vast efforts
    going into voluntary conservation in the West. These efforts are most
    effective and poignant when Federal regulations encourage the role of
    the states in land management, conservation, and regulatory decisions.
    I will be focusing on issues most relevant to the West; however, the
    basic principles contained within my remarks can be applied throughout
    the country.
    Successes, Challenges & Solutions
        In my remarks below, I have highlighted some key conservation
    initiatives that have been developed at the state level in Idaho.
    Additionally, I discuss how those conservation initiatives correlate
    with Federal land management agency core missions and how Idaho has
    interacted with its Federal partners. Those interactions have not been
    entirely positive. I also discuss some challenging issues that have
    left me, my counterparts in other western states and other state level
    directors frustrated. From my perspective, the relationships between
    state and Federal agencies do not need to be strained and adversarial.
    More can and should be done collaboratively. Accordingly, I offer up a
    few observations for potential solutions going forward. Ultimately, the
    objective is to provide a regulatory and support structure for our
    farmers and ranchers to continue the tradition of supplying our nation
    and the world with an affordable, safe and abundant supply of food and
    fiber: a goal in which we all have a stake.
    Successes
        Rangeland Fire Protection Associations (RFPAs) are a major asset in
    suppressing rangeland wildfires, especially in key sage-grouse habitat.
    However, local involvement on range fires has not always been accepted
    or welcomed. Federal policy prohibited ranchers from fighting fires on
    public lands. Recently that policy came to a head in Idaho when a BLM
    fire crew showed up on a fire that appeared to be under control and
    asked two local ranchers who responded to the lightning ignited blaze
    to leave the scene. A 5 acre fire later turned into a 40,000 acre fire.
    Ranchers throughout Idaho felt the BLM policy was unacceptable. During
    the winter of 2012, Idaho ranchers contacted the Idaho Department of
    Lands and the BLM to begin building a public-private partnership, which
    became the genesis for Rangeland Fire Protection Associations. See
    generally, Mountain Home Ranchers Form Idaho's First Rangeland Fire
    Protection Assoc. With Idaho Dept. of Lands, BLM, Steve Stuebner,
    www.lifeontherange.org. RFPAs are nonprofit organizations established
    to prevent or suppress range fires and keep them to more manageable
    sizes. Led by trained local volunteers, primarily Idaho ranchers, RFPAs
    are often the first to respond and provide initial attack on wildfires
    until Federal and state fire crews and resources arrive on the scene.
    Local ranchers are first responders to rangeland fires due in large
    part to their knowledge of the land and proximity to the fire when it
    starts. Before 2012, Idaho ranchers were not allowed to fight rangeland
    fires on public land because of safety concerns raised by Federal fire
    managers. However, the State of Idaho developed a training program and
    found equipment and resources to help address those safety concerns.
    Today our local ranchers are volunteering their time to become
    professionally trained and are utilizing interagency fire suppression
    resources to lead the attack on rangeland wildfires. Their efforts have
    resulted in fewer catastrophic, large-scale rangeland wildfires in
    Idaho.
        This past fire season local RFPAs in Idaho trained 230 members in
    six different regions protecting nearly 6 million acres of Idaho
    rangeland, with nearly 1 million of those acres are private rangelands
    that were previously unprotected. RFPAs often times use ranch equipment
    but are also acquiring equipment through the Federal Excess Personal
    Property program and other state programs. Training is provided by the
    BLM in cooperation with the Idaho Department of Lands. USDA NRCS is
    also valuable partner with wildfire recovery, especially their EQIP
    program. We appreciate NRCS's partnership model and the special EQIP
    dollars they made available for fire recovery last fall.
        RFPAs provide Federal and state land managers a quick first
    response by trained volunteers. With this new opportunity, ranchers are
    no longer required to watch from the sidelines as forage on private
    pasture, public grazing allotments and wildlife habitat burn up as a
    fire grows in size and intensity. Key sage-grouse habitat is better
    protected from large scale catastrophic wildfire, the number one threat
    to the survival of sage-grouse in Idaho. The cooperation between these
    private, nonprofit associations, the State of Idaho and the BLM have
    made important in-roads towards public-private partnerships that serve
    as a successful model for future projects. This grassroots initiative
    borne from a desire and motivation to protect the landscape came from
    ranchers taking the initiative to work with their Federal and state
    agency partners. The ISDA does not play a significant role in fire
    prevention programs. However, things can get extremely busy for our
    agency when a catastrophic fire has displaced multiple producers that
    need forage or pasture for their cattle. Producers are typically not
    allowed back on their allotment for at least 2 years following a fire.
    I am hopeful that this partnership leads to fewer producers being
    displaced as a result of wildfires.
        The Idaho Range Program was codified by the Idaho Legislature in
    2009, directing my department, the Idaho State Department of
    Agriculture (ISDA) to provide ``support, coordination and expertise''
    to livestock producers and land and wildlife management agencies. See
    Idaho Code  22-103(23). This new legislative support provides a
    framework for the ISDA to build a robust and collaborative Range
    Program. The ISDA Range Program is modeled after our neighboring State
    of Wyoming's program. The Wyoming Department of Agriculture has been an
    invaluable partner in building the concept for our program in Idaho.
    Other western states are looking at the work and value these programs
    are providing and developing similar programs suited to the needs of
    their individual states. This is the best plan for building programs
    that have the most potential to serve local needs well. We are
    committed to sharing our knowledge and experience, much like our
    friends in Wyoming have done for us, to help build productive state-
    based range programs throughout the West. Cross-border cooperation with
    neighboring states builds consistency and predictability in issues we
    have in common.
        The ISDA Range Program has a significant role to play in
    cooperating with and amplifying the voluntary conservation and
    stewardship of Idaho ranchers. With the help of partners from the
    University of Idaho, the Idaho Rangeland Resource Commission and the
    Idaho Cattle Association, range monitoring in Idaho is taking off. One
    important goal of the ISDA Range Program is to engage, advise and train
    permittees in monitoring their grazing allotments on an annual basis.
    Those objectives come to fruition in ISDA's Range Photo Monitoring
    Program, which relies heavily on the voluntary efforts of ranchers. The
    information collected as part of this program helps determine if
    progress is being made toward established rangeland health objectives
    and goals. The program emphasizes a more coordinated and cooperative
    monitoring process that increases the level of participation between
    Federal land managing agencies, state agencies and permittees when
    performing rangeland health assessments and other monitoring
    activities. Cooperative rangeland monitoring is an important tool to
    help manage livestock grazing on public lands administered by Federal
    and state agencies and to maintain or achieve desired range conditions.
    BLM has agreed to accept and consider the data submitted by permittees
    when making allotment level decisions. This important data is gathered
    pursuant to agreed upon photo monitoring protocols to ensure that it
    meets BLM standards for data collection. This effort is significant
    because the data represent current conditions on each allotment,
    whereas before the BLM was relying on old, out of date photo-point
    monitoring data or none at all.
        The Governor's Sage-Grouse Management Plan was developed by a task
    force convened by Governor Otter in March 2012. The stakeholders
    participating represented industry, sportsmen, conservation groups and
    elected officials charged with developing a state plan designed to
    protect the Greater sage-grouse and preclude its listing as an
    Endangered Species while maintaining working landscapes. This group
    developed a plan following eight different meetings and emphasized
    finding collaborative solutions to address the primary threats to the
    survival of the bird in Idaho, namely wildfire exacerbated by the
    spread of invasive species. The group's work culminated into an
    alternative for amending multiple Federal land-use plans in Idaho that
    balanced conservation of the species (through addressing the primary
    threats) with the continuation of traditional land use activities. The
    Governor's Alternative was later selected as a co-preferred alternative
    within the planning effort for Federal lands in Idaho. In September
    2015, the U.S. Fish and Wildlife Service determined that ongoing
    conservation efforts had significantly reduced the threats to the point
    where sage-grouse were no longer warranted for protection under the
    Endangered Species Act across its entire 11 western state range.
    Collaborative efforts from state and Federal agencies, private
    landowners, and conservation groups are credited for the decision to
    not list the species. The Idaho Statesman described the effort as an ``
    `all lands' conservation strategy across the West that officials
    describe as the biggest land-planning effort ever undertaken for a
    single species.'' See Unprecedented Collaboration Leads to Sage-Grouse
    Decision, Idaho Statesman, Rocky Barker, September 22, 2015.
        Subsequent to the work of the task force described above, Idaho
    continues to invest in sage-grouse conservation efforts on state and
    private lands with willing landowners. State agencies have been
    implementing the Governor's Sage-Grouse Conservation Strategy which
    demonstrates Idaho's commitment to preserving sage-grouse. In state
    Fiscal Year 2016, the State of Idaho was able to leverage $2 for every
    state dollar spent on conservation actions. To date, these efforts have
    resulted in almost $2 million for on-the-ground conservation projects
    and wildfire prevention and suppression actions. At the Idaho State
    Department of Agriculture, we focus on providing technical advice to
    decision makers on rangeland health issues, particularly on how
    correctly managed grazing can be used to reduce fine fuels.
        In May 2015, Idaho formed a Sage-Grouse Actions Team, which
    includes key state and Federal agency partners. This team is charged
    with identifying projects and funding sources for sage-grouse that can
    be implemented on the ground quickly. This group has placed a great
    emphasis on those projects that can aid in ameliorating the threats of
    wildfire and invasive species on sage-grouse. In fact, a large portion
    of the state funding available for sage-grouse in FY16 has been
    allocated towards those types of projects. This included equipping
    RFPAs, implementing strategic fuel breaks to slow the spread of
    wildfire, restoring key sage-grouse habitat areas, and monitoring sage-
    grouse activity and conservation practices.
        Unfortunately, actions at the Federal level threaten much of the
    voluntary conservation and collaborative efforts being undertaken to
    protect Greater sage-grouse in Idaho. The details of some of those
    actions are laid out in the next section below.
    Challenges
        I have highlighted a few success stories that Idaho has achieved by
    leveraging voluntary conservation strategies and the goodwill that
    Idaho citizens are willing to contribute to preserve our western
    heritage and the values that are important to all of us. However, in
    detailing these accomplishments I have foreshadowed a few frustrations
    as well. A consistent and pervasive policy within many Federal agencies
    that can only be described as an overly pejorative and draconian
    Federal bureaucracy is all too common. Oftentimes, Federal agencies do
    not view states and their respective agencies as co-managers or co-
    regulators, but instead minimize the state's role and often ignore or
    overrule state plans, policies or priorities. If voluntary grassroots
    and on-the-ground efforts are to have success or continue to be
    negotiated, the states, which are closest to these efforts, should
    serve a more prominent role than they currently are in the development
    and implementation of Federal programs and their attendant regulations
    within the borders of their states.
        The BLM Planning Rule 2.0 is now out for public comment. The
    fundamental shift in the BLM's planning process is a good illustration
    of the problem outlined. The rule claims to enhance state and local
    government opportunity to participate in the process, however, a more
    detailed review of the rule does not support that conclusion. The
    development of the proposed rule itself presented a perfect opportunity
    for the BLM to engage its state and local partners to identify areas of
    needed improvement, craft a process that takes full advantage of the
    important perspectives and priorities that states can provide and roll
    out the proposal to the public in lock-step with the states. Instead,
    the rule was developed, like is all too common today, by Washington,
    D.C. officials, only engaging state partners in the same process it
    engages the general public. A process that is sure to ignore the
    important priorities or policies of the individual states and further
    erode the principles of federalism that are embedded within our history
    and national charter.
        This process of minimizing the states participation is
    inappropriate given the clear Congressional direction codified in BLM's
    organic statute. The Federal Land Policy and Management Act (FLPMA)
    directs BLM, to ``establish procedures . . . to give Federal, state,
    and local governments and the public, adequate notice and opportunity
    to comment upon and participate in the formulation of plans and
    programs relating to the management of the public lands.'' See 43
    U.S.C. 1712(f). It is evident from the language of the statute Congress
    perceived the role of state and local governments to be separate from
    and in addition to the general public's participation. In addition,
    Congress has stated that land use planning should

              consider[] the policies of approved state and Tribal land
            resource management programs. In implementing this directive,
            the Secretary shall, to the extent he finds practical, keep
            apprised of state, local, and Tribal plans that are germane in
            the development of land use plans for public lands; assist in
            resolving, to the extent practical, inconsistencies between
            Federal and non-Federal Government plans, and shall provide for
            meaningful public involvement of state and local government
            officials, both elected and appointed, in the development of
            land use programs, land use regulations, and land use decisions
            for public lands, including early public notice of proposed
            decisions which may have a significant impact on non-Federal
            lands.

    43 U.S.C. 1712(a) sec. 202 (emphasis added). I am here today, in part,
    because the Congressional mandates contained throughout FLPMA with
    respect to engaging state and local governments in a meaningful and
    early way are not being followed adequately.
        The Intermountain Region Bighorn Sheep Risk Assessment currently
    being developed by the USFS is another area of concern for Idaho and
    other western states. In February 2014, the USFS released a briefing
    paper which outlined its plan to implement a bighorn sheep and domestic
    sheep management framework within USFS Region 4. Idaho responded by
    outlining its concerns with the proposed framework. Chief among the
    concerns described and communicated to the USFS is the lack of any role
    for the State of Idaho in the construction of the proposed management
    framework. This is a deeply concerning trend, especially given the
    state's responsibility to manage wildlife within its borders. Nowhere
    within the National Forest Management Act does it empower the USFS to
    supersede the state's role in managing bighorn sheep. It is hard to
    understand why the USFS would silo themselves into developing a
    unilateral management framework where it is clearly within the purview
    of the state to manage bighorn sheep populations. Idaho's stated policy
    is to maintain bighorn sheep populations without causing undue economic
    hardship on the domestic sheep industry or individual sheep producers.
    A viable bighorn sheep population and a viable domestic sheep industry
    are important components to the state's economy and history. The
    multiple-use mandate that governs the USFS cannot be fully understood
    or correctly implemented without the input and participation of state
    agencies and Idaho stakeholders. The proposed management framework as
    of today's hearing is yet to be completed for Idaho. We are working to
    improve state and stakeholder engagement at this time. It simply begs
    the question why the State of Idaho must fight for a seat at the table?
    This kind of inward-looking process by Federal agencies is yet another
    example of a trend which contradicts and disincentivizes stakeholder
    investment into voluntary initiatives, including those that promote
    conservation.
        The Idaho and Southwestern Montana Greater Sage-Grouse Final
    Approved Resource Management Plan Amendment was released in September
    2015, determining the Greater sage-grouse did not warrant endangered
    species protection. Coinciding with this release, the BLM added an
    additional regulatory layer described as Sage-Grouse Focal Areas. This
    new plan superseded and fundamentally changed Idaho's local,
    scientifically-based collaborative plan. Most incongruent and
    concerning to our ranch families in Idaho is the elevation of livestock
    grazing as a primary threat to greater sage-grouse. The decision to add
    an additional layer of regulation, including misclassifying livestock
    grazing, ignores the science, data and collaborative work that so many
    interest groups contributed to and agreed upon. Importantly, it
    prevents using proper grazing as a tool to remove fine fuels in and
    around greater sage-grouse habitat. Moreover, it is an affront to the
    notion that local collaboration, local ideas, and local efforts garner
    the greatest results.
        In contrast to the Federal plan, Idaho focused the majority of its
    conservation planning efforts on addressing the primary threats to
    greater sage-grouse, wildfire and invasive species. The Idaho plan
    centers on an innovative approach to addressing primary threats through
    the application of a three-tiered habitat conservation system and an
    associated adaptive management strategy. This approach allows the state
    to elevate the level of conservation on certain sage-grouse habitat if
    an adaptive regulatory mechanism is triggered in Core habitat,
    regardless of land ownership. The Idaho plan also implements proactive
    actions that aim to protect key sage-grouse habitat through a greater
    emphasis on wildfire prevention, suppression and restoration. The
    creation of Rangeland Fire Protection Associations, for example, has
    already proven to be an effective tool in decreasing the response time
    to wildfires in remote areas of sage-grouse habitat and thus helping to
    prevent large scale wildfires.
        Months of collaborating with the local Idaho BLM Office and key
    stakeholders over the refinements of the co-preferred alternatives led
    Idaho to genuinely believe that the state-Federal collaboration was
    going to be a success. The type of collaboration employed for the
    development of the sage-grouse plan in Idaho mirrored that of the Idaho
    Roadless Rule collaborative, where industry groups, conservation
    organizations, counties, and state and Federal agencies came together
    to craft a locally-derived solution that is preferred to a top-down
    one-size-fits-all approach. However, the decision by the Washington BLM
    office to fundamentally change the sage-grouse plan for Idaho at the
    eleventh hour has undermined the fragile coalition built through the
    collaborative process. The outcome of all of the above described
    efforts is now uncertain as a result of litigation.
    Solutions
        These few examples highlight the fundamental need to seriously re-
    assess how Federal agencies work and cooperate with state agency
    partners. Federal agency personnel will never fully understand the
    unique socioeconomic, cultural and conservation needs unique to the
    individual states. The standard practice that has increasingly
    frustrated states, local governments and the regulated community is a
    top-down, one size fits all decision process. This undermines
    collaborative, local solutions and deflates enthusiasm for conservation
    initiatives. State and local leaders are closely connected to the
    citizens that are affected most by the regulatory framework we are
    discussing. A more meaningful engagement with state and local
    governments improves the regulated community's opportunity to interact
    with its government on all levels and provides a perspective that is
    otherwise missed. It must be remembered and emphasized, however, that
    this process should not replace the engagement of the general public,
    but should bolster and enhance it.
        There are several specific actions that officials at all Federal
    levels should consider, designed to improve collaboration, support
    voluntary conservation initiatives, develop strong inter-governmental
    relationships and minimize the threat of costly, protracted litigation.
    Those actions include:

      1.  Engage the States in a Meaningful Way: Federal agencies should
                conduct robust federalism consultations early in the
                regulatory process, and include participation of a wide
                range of state regulatory agencies, including state
                departments of agriculture. These consultations should
                occur prior to publication of a proposed rule. Throughout
                this process, it is important to emphasize state regulatory
                agencies are not simply stakeholders, but are instead
                partners with Federal agencies in the implementation of a
                host of programs. States can--and should--be used more as
                resources for Federal agencies. Often states have a wealth
                of data, experience, and expertise that would help Federal
                agencies better develop and implement regulatory programs.

      2.  Improve economic analyses that more realistically account for
                economic costs to states: Federal agencies should engage
                state regulatory agencies and stakeholders to evaluate
                proposed regulations, availability of required resources,
                and whether expected outcomes merit those expenditures.

      3.  Incorporate flexibility in regulatory programs: Federal agencies
                should engage state regulatory partners in creating
                programs that may provide local and state flexibility. We
                continue to encourage our Federal partners to look for ways
                to engage state agencies in creating programs to provide
                additional flexibility--especially when the alternative may
                be an undue regulatory burden on the regulated community.
                Such consultation and robust outreach will facilitate
                recognition of state equivalency regulatory programs and
                prevent duplicative regulatory layers. Additionally,
                Federal agencies should look to state and regional
                directors within their own agencies to help craft local
                solutions. States interact frequently with local Federal
                leaders and have more confidence in their ability to
                understand local issues.

      4.  Renew focus on utilization of best available science: Regulations
                must be based on the best available, sound, validated, and
                peer-reviewed science and rely on science-based risk
                assessments. Moreover, regulatory agencies must ensure
                policymakers do not misuse or inappropriately apply
                invalidated or unrelated scientific findings to policy
                determinations. We especially appreciate the work the
                Office of Pest Management Policy (OPMP) executes to ensure
                policy or regulatory initiatives are based on
                scientifically sound positions. OPMP is an invaluable
                resource and advocate for including sound science in the
                development of regulatory actions impacting agriculture,
                and we encourage increased support for OPMP's activities,
                as well as ensuring OPMP's perspectives are advanced in the
                interagency review process.

      5.  Congress Should Hold Federal Agencies Accountable: Federal
                statutes commonly provide clear direction to Federal
                agencies to engage stakeholders, especially states, under
                the partnership model. For example, the National Forest
                Management Act provides:

                      inasmuch as the majority of the nation's forests and
                    rangeland is under private, state, and local
                    governmental management and the nation's major capacity
                    to produce goods and services is based on these non-
                    federally managed renewable resources, the Federal
                    Government should be a catalyst to encourage and assist
                    these owners in the efficient long-term use and
                    improvement of these lands and their renewable
                    resources consistent with the principles of sustained
                    yield and multiple use;

        National Forest Management Act of 1976, 16 U.S.C. 1600, Sec. 2(5).
    Conclusion
        Federal agencies play a significant role in the day to day lives of
    Idaho citizens, especially those engaged in agriculture. These
    agencies, in order to achieve a higher level of success and public
    acceptance, must not ignore an important responsibility to engage state
    agencies in a meaningful and productive way. This is not a trivial
    matter. The examples of success I have included in my testimony have
    the common denominator of being inclusive and collaborative. There is
    no reason this model cannot be successfully implemented at the Federal
    level.

        The Chairman. Ms. Gould, thank you so much.
        Mr. McDaniel, go ahead and proceed with your 5 minutes of
    testimony when you are ready.

             STATEMENT OF LEE McDANIEL, PRESIDENT, NATIONAL
        ASSOCIATION OF CONSERVATION DISTRICTS, WASHINGTON, D.C.

        Mr. McDaniel. Good morning. Good morning, Chairman
    Thompson, Ranking Member Lujan Grisham, and Members of the
    Subcommittee. Thank you for the opportunity to testify this
    morning on the impacts of environmental regulations and
    voluntary conservation solutions.
        I am Lee McDaniel, President of the National Association of
    Conservation Districts, and I currently operate a corn,
    soybean, and alfalfa farm in Darlington, Maryland, where I
    implement a variety of conservation practices, including grass
    and wooded buffers, grass waterways, strip cropping, and no-
    till farming. I have been involved with Conservation Districts
    since 1997, when I first served on my local district board.
        NACD represents America's 3,000 Conservation Districts, and
    the 17,000 men and women who serve on their governing boards,
    as well as their respective state and territory associations.
    Conservation Districts work with cooperating landowners and
    operators in all 50 states to help manage and protect land and
    water resources on private and public working lands.
        NACD passionately believes in the locally-led voluntary,
    incentive-based conservation model. We believe a collaborative
    approach focused on sound conservation planning and technical
    assistance for landowners at the local level, coupled with farm
    bill conservation financial assistance is critical for long-
    term environmental and economic stability. We believe this
    approach can help producers avoid the need for unnecessary and
    burdensome regulations.
        If voluntary, incentive-based conservation is going to be
    the first line of defense against the need for regulations,
    then we need to prioritize funding for it. While the
    conservation community agreed to cuts in the last farm bill, we
    must admit that every conservation dollar taken from the hands
    of farmers makes regulation more of a possibility. We must see
    the conservation titles are tooled to mitigate risk of
    environmental concerns and costly regulatory approaches.
        Environmental regulations many times do not take into the
    account that every acre of land needs its own prescriptive
    conservation plan to meet that land's needs. Under a locally-
    driven, voluntary conservation system, landowners can work with
    conservation professionals to tailor a conservation plan to the
    specific needs of their land. Under a regulatory approach, the
    most critical resource concerns on a particular operation may
    be ignored or may not pertain to that piece of land.
        Time and again, the collaborative, locally-led conservation
    approach has shown to work well, addressing a variety of
    resource concerns. A great example of this can be found in
    Conservation Districts' works on addressing water bodies that
    are on a state's section 303(d) list of impaired watersheds.
    Whether it is using EPA Section 319 grants or farm bill
    programs, districts in partnership with other local, state, and
    Federal stakeholders work together to improve quality and
    remove these rivers and streams from the impaired list.
        In Delaware, the Sussex County Conservation District
    improved the water quality of the Gravelly Branch sub-watershed
    by working with NRCS to create conservation plans, provide
    technical assistance, and develop EQIP contracts for local
    producers. Additionally, section 319 funds were used to assist
    in developing and implementing the Conservation Reserve
    Enhancement Program in the area.
        The Huntingdon County Conservation District, located in
    Chairman Thompson's district, partnered with local stakeholders
    and the EPA's Section 319 Grant Program to restore Miller Run
    after it was added to the state's section 303(d) list. This
    Conservation District worked to implement abatement and
    treatment systems that resulted in a significant improvement in
    water quality, and can now support a healthy Brook Trout
    population.
        Local management of habitat and species preservation,
    rather than top-down approaches have also shown success with
    the Endangered Species Act. In 2006, the New England Cottontail
    was identified as a candidate species for ESA protection. Since
    then, Conservation Districts as well as a host of other
    partners have worked collaboratively to rebuild its habitat. As
    a result of these efforts, the population of the New England
    Cottontail increased dramatically, and in 2015 it was removed
    as a candidate species.
        A new addition to the last farm bill is the Regional
    Conservation Partnership Program, which provides a unique way
    to promote coordination between NRCS and regional partners to
    address resource concerns. In Minnesota, the State's Department
    of Agriculture received funding through RCPP to implement a
    statewide agriculture water quality certification plan,
    utilizing Conservation Districts to provide site-specific
    solutions. By becoming certified, producers can receive
    regulatory certainty that their operation meets all state
    regulatory requirements for the next 10 years. Working with the
    districts has provided landowners a level of trust and
    familiarity that has allowed this program to be successful in a
    short period of time, and proof of this success can be seen in
    the reduced sediment load, nutrient runoff, and soil erosion.
        None of these examples would have been successful without
    consistent funding for technical and financial assistance to
    landowners. Sound conservation plans developed on the local
    level, and coordination with landowners and Conservation
    Districts, coupled with strong financial assistance has proven
    to provide longer-lasting solutions to our nation's
    environmental problems.
        I am proud of the continued successes achieved by the men
    and women involved in our nation's Conservation Districts, and
    I look forward to answering any questions that you may have.
        [The prepared statement of Mr. McDaniel follows:]

    Prepared Statement of Lee McDaniel, President, National Association of
                    Conservation Districts, Washington, D.C.
        Good morning, Chairman Thompson, Ranking Member Lujan Grisham, and
    Members of the Subcommittee. Thank you for the opportunity to testify
    this morning on the impacts of environmental regulations and voluntary
    conservation solutions.
        I am Lee McDaniel, President of the National Association of
    Conservation Districts (NACD), and I currently operate a corn, soybean,
    and alfalfa hay farm in Darlington, Maryland. I have been involved with
    conservation districts since 1997 when I first served on my local
    district board. On my own land, I implement a variety of conservation
    practices, including grassed and wooded buffers, grassed waterways,
    strip cropping, and no-till farming.
        NACD represents America's 3,000 conservation districts and the
    17,000 men and women who serve on their governing boards, as well as
    their respective state and territory associations. Conservation
    districts are local units of government established under state law to
    carry out natural resource management programs at the local level.
    Conservation districts work with cooperating landowners and operators
    in all fifty states as well as the territories to help manage and
    protect land and water resources on private working lands and many
    public lands in the United States.
        NACD passionately believes in the locally-led, voluntary,
    incentive-based conservation model. We believe a collaborative approach
    focused on sound conservation planning and technical assistance for
    landowners at the local level coupled with farm bill conservation
    financial assistance is critical for long-term environmental and
    economic stability. Federal programs aimed at supporting these efforts,
    including many in the 2014 Farm Bill, have a vital role in supporting
    clean air, clean water and productive soils. They also help producers
    avoid the need for unnecessary and burdensome regulations.
        Part of the voluntary conservation model's purpose, just like the
    farm bill's Environmental Quality Incentives Program's (EQIP) purpose,
    is to help producers comply with local, state, and national regulatory
    requirements and even more importantly, avoid the need for those
    regulations in the first place. Chairman Conaway put it best in a
    recent op-ed when he stated that a better alternative to regulation is
    the Federal Government ``sharing in the cost of both time-tested and
    cutting edge conservation practices.''
        If voluntary, incentive-based conservation is going to be the first
    line of defense against the need for regulation, then we need to
    prioritize funding for it. While the conservation community agreed to
    cuts in the Agricultural Act of 2014, we must admit that every
    conservation dollar taken from the hands of farmers makes regulation
    more of a possibility. Similar to how commodity and crop insurance
    programs provide a safety net and mitigate against yield and revenue
    loss, we must see conservation as mitigating risk of environmental
    concerns and more costly regulatory approaches.
        Environmental regulations many times do not take into account that
    every acre of land is different and single, uniform regulatory
    requirements often do not solve resource concerns. Each piece of land
    needs its own prescriptive conservation plan to meet that land's needs.
    Under a locally-driven voluntary conservation system, landowners can
    work with conservation professionals to tailor a conservation plan to
    the specific needs of their land. Under a regulatory approach, the most
    critical resource concerns on a particular operation may be ignored or
    may not pertain to that specific piece of land.
        Conservation districts throughout the country, in cooperation with
    the Natural Resources Conservation Service (NRCS), are instrumental in
    supporting quality soil health through technical assistance for
    different production techniques from no-till farming to the inclusion
    of cover crops into a producer's operation. These practices not only
    help with a host of environmental issues, such as soil erosion, root
    depth, and moisture control, but in the end can improve yields for
    producers and help limit input costs, which helps with an operation's
    bottom line. Unfortunately, many producers, especially beginning and
    under-served producers, are not aware that such assistance is available
    to them. Conservation districts take great responsibility with outreach
    to landowners to ensure that they can take advantage of the
    opportunities that are available.
        Time and time again, the collaborative, locally-led conservation
    approach is shown to work well addressing a variety of resource
    concerns, including water quality, air quality, and wildlife habitat
    protection. NACD has many success stories where regulations were
    mitigated or avoided because of the work of voluntary conservation
    efforts.
        A great example of success stories can be found in local
    conservation districts' work on addressing water bodies that are on a
    state's [section] 303(d) list of impaired watersheds. Whether it is
    using Environmental Protection Agency (EPA) section 319 grants or farm
    bill programs like EQIP and the Conservation Reserve Enhancement
    Program (CREP), districts in partnership with other local, state, and
    Federal stakeholders worked together to improve water quality.
        In Delaware, the Sussex County Conservation District improved the
    water quality of the Gravelly Branch sub-watershed by working with NRCS
    to create conservation plans, provide technical assistance, and develop
    EQIP contracts for local producers. [Section] 319 grant funding was
    also used to hire a full time CREP coordinator to assist in developing
    and implementing CREP in the area.
        The Peter Francisco Soil and Water Conservation District in
    Virginia also leveraged [section] 319 dollars with EQIP and CREP to
    install best management practices on agricultural land in the Willis
    River watershed which significantly reduced nonpoint source pollution
    loads reaching the river.
        The Huntingdon County Conservation District in Chairman Thompson's
    district partnered with local stakeholders and the EPA's section 319
    grant program to restore Miller Run after it was added to the state's
    [section] 303(d) list. This conservation district used section 319
    grant funding to implement abatement and treatment systems that
    resulted in a significant improvement in water quality and can now
    support a healthy brook trout population. All of these success stories
    prove that working together in a collaborative manner while using
    incentive-based conservation programs we can solve natural resource
    concerns.
        Local management of habitat and species preservation, rather than
    top-down approaches, have also shown success with the Endangered
    Species Act (ESA). Through voluntary locally-led conservation
    practices, stakeholders have collaborated to enhance both the health of
    the land and the recovery of species. In 2006, the New England
    Cottontail was identified as a candidate species for ESA protection due
    to habitat loss, increased human development, and competition from
    nonnative species that threatened the cottontail's existence. Since
    then, conservation districts, as well as a host of other state and
    Federal agencies, wildlife organizations, and private land owners, have
    worked collaboratively to rebuild its habitat. As a result of these
    efforts, the population of the New England Cottontail increased
    dramatically and in 2015, it was removed as a candidate species by the
    U.S. Fish and Wildlife Service (FWS).
        For the Lesser Prairie-Chicken, successful efforts by conservation
    districts and other regional stakeholders increased the bird's
    population by 25% from 2014 to 2015. These efforts were so successful
    that a U.S. District Court overturned the FWS's listing as threatened,
    directly crediting this locally-led effort in the decision. This
    innovative plan proves that locally-driven conservation solutions can
    succeed and should be used as a model for future wildlife habitat
    protections.
        A new addition to the last farm bill is the Regional Conservation
    Partnership Program (RCPP), which provides a unique way to promote
    coordination between the Natural Resources Conservation Service and
    regional partners to improve soil quality, water quality, water
    quantity, and wildlife habitat. Conservation districts, whether taking
    the lead on the application or participating in delivery, have been
    instrumental in the successes that have already been achieved.
        In Minnesota, the state's Department of Agriculture received
    funding through RCPP to implement a statewide agriculture water quality
    certification plan utilizing local conservation districts to provide
    site-specific solutions and technical assistance to producers in order
    to reduce risks to water quality. By becoming certified, producers can
    receive regulatory certainty that their operation meets all state
    regulatory requirements for the next 10 years, helping them better plan
    their for their own operation's needs without worrying about future
    regulatory actions. Working with the local conservation districts has
    provided landowners a level of trust and familiarity that has allowed
    this program to be successful in a short period of time and proof of
    this success can be seen in the estimated 8.5 million pounds of soil
    saved, over 6 million pounds of sediment reduced, and the prevention of
    almost 4 million pounds of phosphorus from entering the state's waters.
        While each of the abovementioned programs have far more success
    stories than have been noted here, none would have been as successful
    as they were without consistent funding for technical and financial
    assistance to landowners. Sound conservation plans developed on the
    local level in coordination with landowners and conservation districts,
    coupled with strong financial assistance, has proven time and again to
    provide longer-lasting solutions to our nation's environmental
    problems. I am proud of the continued successes achieved by the men and
    women involved in our nation's conservation districts and I look
    forward to answering any questions you may have.

        The Chairman. Thank you, Mr. McDaniel.
        Mr. McClure, go ahead and proceed with your 5 minutes of
    testimony.

     STATEMENT OF TERRY W. McCLURE, PRESIDENT, McCLURE FARMS LLC,
                            GROVER HILL, OH

        Mr. McClure. Good morning, Chairman Thompson, Ranking
    Member Grisham, and Members of the Subcommittee. I appreciate
    the opportunity to come before you today and discuss the
    important issue of voluntary conservation practices in Ohio.
        My name is Terry McClure. I am a fifth generation farmer,
    and along with my son and my father, I operate McClure Farms, a
    corn, soybean, wheat, cattle, and swine operation in Paulding
    County, Ohio.
        Our farm and our residence is located on the Maumee River
    watershed of the Western Lake Erie Basin. I am very proud to
    say that along with multiple other farmers, I have voluntarily
    allowed edge-of-field water quality testing equipment on my
    farm for 3 years, providing research on both surface and
    subsurface drainage. The Ohio Farm Bureau, the Corn Checkoff,
    Wheat Checkoff, and the Ohio Soybean Council, Ohio Agribusiness
    Association, and others, joined together to fund this project
    at a cost of over $2 million, and it is providing baseline
    settings, measures, practices, and results.
        The information being collected is invaluable, and will be
    used to modify Ohio's phosphorus risk index, as well as help
    identify good management practices. In the past, we had to
    depend on modeling, and even though our universities and our
    professionals did their best, the only thing even they could
    tell you for sure is that modeling wasn't accurate. And we know
    in the future, if we are going to make changes and do a better
    job farming, we need to know exactly what comes off our farms.
    So now we know 24/7, 365, with real tests.
        While these findings are still being finalized, preliminary
    results indicate that controlling erosion continues to be
    important. Particulate-bound phosphate makes up over 73 percent
    of the total phosphorus in surface runoff. Timing and placement
    of fertilizer application is important, and, in fact,
    paramount. Incorporation of fertilizer during and after
    application can result in more than a 90 percent reduction in
    phosphorus runoff.
        Using this data, the Farm Bureau and NRCS Demonstration
    Farms Project is located in the Blanchard River. There are
    three farms researching voluntary models for new innovations
    that reduce and prevent agricultural runoff. With me today,
    Anthony Statler from Statler Family Farms, who is one of the
    farm owner-operators. He operates 243 acres of corn, soybeans,
    and wheat, and 7,200 head wean-to-finish swine operation, and
    is further studying conservation practices. They share the
    results with farmers across the watershed region, land
    management agencies, policymakers, the media, and the public.
        There are numerous other conservation measures by
    individual farmers and farm organizations, and a much more
    extensive list is in my testimony, but farmers have invested
    tens of millions of dollars of their own money in establishing
    conservation practices on their farm. In 2012, 20 of Ohio's ag
    commodity organizations wrote a letter to their membership
    saying we must be proactive to address water quality, and we
    must embrace the 4R Nutrient Stewardship. The right fertilizer
    source, at the right time, at the right rate, and the right way
    of placement.
        We started the Healthy Water Ohio to deliver a diverse and
    voluntary partnership to address water holistically. The 4R
    Nutrient Stewardship Certification Program was created. Ohio
    agriculture and conservation organizations committed resources
    to partner with the Farm Bill Regional Conservation Partner
    Program. We have provided grants from local initiatives like
    Knox County and the creation of ONMRK, the Ohio Nutrient
    Management Record Keeping smartphone app.
        Voluntary conservation is making significant headway in
    reducing nutrient and sediment loss from our farms. The USDA
    NRCS recently released report on the Western Lake Erie Basin
    finds between 2006 and 2012, farmers voluntarily reduced
    phosphorus applications in the Western Lake Erie Basin by more
    than 13 million pounds. Ninety-nine percent of the cropland
    acres are managed with at least one conservation practice.
    Seventy percent of the nitrogen applied is removed by crop
    harvest. The cost of conservation practices in place represents
    $277 million, or $56.98 per acre.
        As a farmer in the Western Lake Erie Basin, I know these
    important findings reflect the sentiment of those who work
    every day to make sure that our land and our water are the
    healthiest they can be. We have taken extensive measures to
    become aware of soil health, and we take great pride in being
    good stewards of both Ohio's land and water. We are committed
    to implementing voluntary measures that are science-based and
    will yield results.
        Thank you, Mr. Chairman.
        [The prepared statement of Mr. McClure follows:]

     Prepared Statement of Terry W. McClure, President, McClure Farms LLC,
                                Grover Hill, OH
        Chairman Thompson, Ranking Member Grisham, and Members of the
    Subcommittee, I appreciate the opportunity to come before you today to
    discuss the important issue of voluntary conservation practices in
    Ohio. My name is Terry McClure and along with my family, I operate
    McClure Farms--a corn, soybean, wheat and swine and cattle operation--
    in Paulding County, in Northwest Ohio. Our farm and our residence is in
    the Western Lake Erie Basin (WLEB) watershed. We are a fifth generation
    farm.
        I am proud of the measures that my fellow farmers have been taking
    to address nutrient run-off and I appreciate the opportunity to share
    with you the studies and practices that have been taking place on my
    farm. From what I share with you today, I hope that one key component
    you take away is that Ohio is unique and successful because our
    conservation efforts have been an amazing demonstration of all sectors
    and entities working together as one for the collective good. The
    measures taken have been no less than an ``all hands on deck''
    approach.
        So, while I could provide you with a history of how farmers have
    responded to environmental challenges, starting with the Dust Bowl of
    the 1930s or soil erosion in the 1980s and 1990s, instead, I will begin
    with a letter written in 2012 that was signed onto by 20 agricultural
    groups that was a commitment to lawmakers and the public that
    agriculture would do its part to create healthy water in Ohio.
        In a demonstration of unprecedented collaboration, Ohio's
    traditional and organic commodity organizations, the Federation of Soil
    & Water Conservation Districts, and The Ohio State University sent a
    joint letter to all of our organizations' members stating that farmers
    must proactively solve the issue of nutrient run-off. The letter
    launched the agriculture community's immediate ``4R'' effort while we
    supported and sought out further research for long-term solutions.
    Education, training and advice began in earnest on ``4R'' nutrient
    stewardship--using the right fertilizer source, at the right time, at
    the right rate and with the right placement.
        Farmers began implementing these voluntary 4R measures on their
    farms as a win-win proposition of reducing fertilizer costs while
    continuing to be good stewards of the environment.
        Soon thereafter was the launch of Healthy Water Ohio. An initiative
    led by the agricultural community that included a voluntary and diverse
    partnership of stakeholders charged with developing a 20 to 30 year
    water resource management strategy for Ohio. I had the privilege of
    serving on the steering committee of this partnership along with
    representatives from business and industry, conservation and
    environment, finance, food and farming, lawn and horticulture,
    municipal water systems, public health, recreation and tourism and
    research, education and outreach.
        The group conducted multiple information gathering sessions
    throughout the state and conducted meetings with water quality experts
    and public officials. The final report from Healthy Water Ohio provides
    a roadmap of innovative research, policy, education and infrastructure
    proposals along with an implementation schedule. Voluntary
    implementation of components of the report has begun including the
    pursuit of a Water Trust that can fund a variety of water-related needs
    such as research, monitoring and improvement of gray and green
    infrastructure.
        The agricultural community has committed to address water quality
    through numerous combined and individual measures. Beyond the study on
    my farm, there is extensive research being conducted both in the lab
    and in the field. Farmers have invested tens of millions of dollars of
    their own money in establishing conservation practices on their farms.
    Between 2006 and 2012, they have voluntarily reduced phosphorous
    applications in the Western Lake Erie Basin by more than 13 million
    pounds.* As farmers are stepping up to implement conservation practices
    now, they are committed to finding additional solutions in the future.
    ---------------------------------------------------------------------------
        * USDA-NRCS Special Study Report titled ``Effects of Conservation
    Practice Adoption on Cultivated Cropland Acres in Western Lake Erie
    Basin, 2003-06 and 2012''. (March 2016).
    ---------------------------------------------------------------------------
        Ohio Farm Bureau, Ohio Corn and Wheat Growers Association, Ohio
    Soybean Association, Ohio Agribusiness Association and others joined
    together with United States Department of Agriculture (USDA) Natural
    Resources Conservation Service (NRCS) to fund a project of over $2
    million to conduct edge of field research throughout the state to
    better learn how to prevent nutrients from escaping from fields. I am
    proud to say that edge-of-field water quality testing research, on both
    surface and subsurface drainage, has been conducted on my farm for 3
    years. The combined efforts of Ohio's agriculture community with the
    Ohio State University and USDA researchers now have important baseline
    data, measures, practices and results. The information being collected
    is invaluable and will be used to modify Ohio's Phosphorus Risk Index
    as well as help identify good management practices.
        While the findings are still being finalized, preliminary results
    about how phosphorous leaves the field include:

       Controlling erosion continues to be important. Particulate
            bound phosphorus makes up over 73% of the total phosphorus in
            surface runoff and over 52% of the total phosphorus in tile
            flow.

       There is a strong relationship between soil test phosphorus
            levels and the amount of particulate bound phosphorus
            transported off site in surface runoff.

       Fertilizer application is a high risk practice--timing and
            placement is important.

       Incorporation of fertilizer during or after application can
            result in more than a 90% reduction in phosphorus runoff.

        Building upon the foundation of these findings will be a critical
    component to our continued success in reducing run-off. To that end,
    Ohio Farm Bureau is collaborating with USDA National Resources
    Conservation Service along with other partners in creating only the
    second in the nation Demonstration Farms project. This project is
    located in the heart of the WLEB along the Blanchard River. The farm
    organizations involved with this endeavor have voluntarily taken on
    this project as have the three farmers--two row crop and one swine--
    whose acreage will be used. Here with me today is Anthony Statelier
    from Statelier Family Farms who is one of the farm owner/operators. We
    appreciate that Anthony's family is allowing the use of their 243 acres
    of corn, soybeans, and wheat and 7,200 head wean to finish swine
    operation to further study conservation practices.
        These demonstration farms will serve as models for new innovations
    that reduce and prevent agricultural runoff and those discoveries will
    be shared with farmers across the watershed and the region, land
    management agencies, policymakers, the media and the public. It is my
    hope that some of the conservation measures deemed successful due to
    the research on my farm will be put into practice on these
    demonstration farms.
        In addition to the Edge of Field Study, farmers are also committed
    to coordinating water research and programming through our land grant's
    ``Field to Faucet'' initiative as well as through increased educational
    opportunities. Ohio Farm Bureau, Ohio Soybean Council and other
    agricultural organizations have funded three new OSU staff to work with
    farmers to develop Nutrient Management Plans in the WLEB and one new
    staff to work with retailer 4R certification.
        I would be remiss if I did not note that advisors to farmers are
    also contributing significantly to conservation efforts. Over 1.5
    million acres in the WLEB are now under guidance of Agriculture
    Retailers and Nutrient Service Providers that have voluntarily earned
    certification from the 4R Nutrient Stewardship Certification Program.
        Ohio's agriculture and conservation organizations also took an
    active role in supporting the Farm Bill's Regional Conservation
    Partnership Program and committed resources to this public-private
    partnership. Farmers have been eager to participate in this voluntary
    program that allows them to implement on-ground conservation practices
    for sediment and nutrient management. The Environmental Quality
    Incentive Program is the perfect marriage of allowing farmers to keep
    land in production while practicing effective conservation programs.
    The projects being funded with RCPP dollars are making a significant
    difference with over $17.5 million committed to the Great Lakes Region.
    We appreciate that Congress, and this Committee specifically, saw the
    importance of these programs. In Ohio in 2015 alone, there were 81
    contracts signed totaling over $3.5 million. These dollars were used
    for critical on-farm needs including animal waste systems and storages,
    lot covers and roofs, controlled drainage structures, cover crop
    contracts, drainage water management, nutrient management plans,
    waterways, crop rotations and multi-year cover crops.
        Ohio farmers and our membership organizations have been diligent in
    pursuing unique grassroots opportunities for connecting with all
    Ohioans and making them aware of our efforts to protect Ohio's waters.
    Through educational displays at fairs, radio and print outlets, in our
    classrooms and local water grant projects, we have spread the word that
    farmers want to be part of the solution. Farmers recognize their role
    and are working hard to be proactive for water quality. We appreciate
    the recognition that we are not the only cause of phosphorus loading.
    We are also committed to work with those who are addressing municipal
    water and sewer systems, septic systems, and urban run-off as well as
    other contributors.
        In addition to the voluntary measures being taken by farmers across
    Ohio, two important pieces of legislation have also been passed and are
    being implemented. Ohio Senate Bill 150 was fully supported by the
    agricultural community and requires farmers to obtain a commercial
    fertilizer certification. The materials in the course provide the
    latest information on the 4Rs I discussed earlier and provide an
    understanding of how a nutrient management plan can be used on the
    farm. Ohio was the first state in the nation to require certification
    for commercial fertilizer application. Farmers have worked hard to be
    compliant and though certification was not required until 3 years after
    passage, farmers immediately began filling classrooms and to date over
    10,000 farmers have already received their certification.
        The second bill, Senate Bill 1, places restrictions in the WLEB on
    the application of manure and commercial fertilizer on frozen or snow
    covered ground or under certain weather conditions. This bill was also
    supported by agriculture because it had a scientific foundation and was
    based on conservation methods that had been proven effective in
    reducing run-off. While farmers overwhelmingly prefer voluntary
    measures, they are not adverse to policies that have been fully
    researched and allow for input from scientific experts as well as
    farmers that are working the ground every day.
        Farmers also have begun to think creatively on how to best comply
    with the nutrient application laws with the Knox County Farm Bureau and
    Soil and Water Conservation District teaming together to create ONMRK
    (Ohio Nutrient Management Record Keeping), a record keeping smartphone
    and tablet app that allows farmers to easily record their manure and
    nutrient applications while they are in the field. The app is a great
    tool for farmers to comply with both record keeping requirements and
    weather and soil condition guidelines on when nutrients can be applied
    in the WLEB.
        With nearly 1,000 downloads and nearly 800 nutrient applications
    logged in the first several months of use, ONMRK is off to a great
    start in providing a useful tool for not only compliance with laws but
    improving farming's impact on water quality. ONMRK is currently an Ohio
    based app with plans to expand nationally by the end of 2016. While
    ONMRK is one great example, there have also been multiple county Farm
    Bureau grants leading to local projects such as much needed farm
    equipment purchases, soil analysis courses and demonstrations,
    watershed education, rain garden installations and the Ohio Manure
    Science Review.
        With any issue, funding is always a concern. As such, Ohio
    agriculture has supported state funding that continues water quality
    research and conservation efforts by lobbying for and obtaining budget
    increases for OARDC, OSU Extension and the Sea Grant program.
    Agriculture also won support for additional dollars for the Healthy
    Lake Erie Program and for dollars to be set aside for Soil and Water
    Conservation Districts in the WLEB, specifically to provide technical
    assistance to farmers for S.B. 1 compliance. Ohio agriculture also
    worked with lawmakers and Ohio's State Treasurer, Josh Mandel, to
    establish a loan interest rate reduction program to serve farmers
    making capital improvements needed to comply with S.B. 1. Our efforts
    also prevented a reduction in funding for the Heidelberg University
    Water Quality Lab.
        For many Ohioans, the Toledo water crisis brought our state's water
    quality issues home. In its aftermath, Ohio Farm Bureau and the Ohio
    Soybean Council organized and sponsored a special ``Food Dialogues''
    through a grant from the U.S. Farmers and Ranchers Alliance. The Food
    Dialogues was a media and community event that brought together
    farmers, environmentalists, researchers and officials in charge of
    Toledo's drinking water system to focus on water quality.
        Our state's farmers were interested in learning more about the
    algae blooms in Lake Erie and so Ohio Farm Bureau organized a ``Farmer
    Road Trip'' taking 100 farmers from across the state to Lake Erie. Once
    there, they headed out in research boats to pull water samples and see
    first hand the challenges facing our Great Lake.
        While the results of the edge of field study conducted on my farm
    are beginning to show us solutions, we also know that the measures
    farmers are taking to reduce run-off voluntarily are also showing
    success. USDA-NRCS recently released (end of March 2016) a Special
    Study Report titled ``Effects of Conservation Practice Adoption on
    Cultivated Cropland Acres in Western Lake Erie Basin, 2003-06 and
    2012''. This study was designed to quantify the environmental benefits
    that farmers and conservation programs in the WLEB provide to society.
    The report, based on farmer survey data in the Basin, shows that
    voluntary conservation is making significant headway in reducing
    nutrient and sediment loss from farms. Even so, there is opportunity to
    improve conservation management across the basin and no single
    conservation solution will meet the needs of each field and farm. Let
    me emphasize that there are no silver bullets or no single conservation
    practice or solution that will meet the needs of each field or farm.
        Key findings of the survey on conservation practices in the WLEB
    include:

       99% of the cropland acres are managed with at least one
            conservation practice.

       96% of the cropland acres are managed to prevent average
            annual sediment losses of more than 2 tons per acre.

       70% of the nitrogen applied is removed by crop harvest.

       58% of the cropland acres are managed with phosphorus
            application rates at or below crop removal rates.

       The cost of conservation practices in place represents a
            significant annual investment. Regardless of funding source
            (Federal, state, local or private) the annual regional
            investment in conservation is $277 million or $56.98 per acre.

       No single conservation solution will meet the needs of each
            field and farm. WLEB croplands are diverse in terms of soils,
            farm fields, farming operations, and management, which creates
            differences in conservation needs and potential solutions.
            Field-scale conservation planning and conservation systems are
            needed to accommodate different treatment needs within and
            across farm fields, while maintaining productivity.

       Additional progress in nutrient and erosion control will
            depend on advanced precision technologies directed to unique
            zones or soils within field boundaries.

        As a farmer in the Western Lake Erie Basin, I know these important
    findings reflect the sentiment of those that work every day to make
    sure that our land and our water are the healthiest they can be. I have
    been a farmer my entire life and I have seen many changes in the way we
    grow our country's food. We have become more efficient, increasing
    yields while decreasing inputs. We have taken extensive measures to
    become aware of soil health and we take great pride in being good
    stewards of both Ohio's land and water. We are committed to
    implementing voluntary measures that are science-based and that will
    yield results. No-till farming is a widely adopted practice across
    Ohio. The same is true of growing cover crops, creating filter strips
    and windbreaks and conducting variable rate application of nutrients.
    Farmers stand ready and willing to implement voluntary measures that
    address water quality and food production simultaneously.
        I appreciate the opportunity to address you today and provide just
    a brief overview of the efforts Ohio's farmers are making to ensure a
    long future of clean water in our state. If you want to learn more
    about our numerous efforts go to www.farmersforwater.com.

        The Chairman. Thank you, Mr. McClure.
        Mr. Buman, did I pronounce that correct?
        Mr. Buman. That is right.
        The Chairman. All right. Well, Mr. Buman, please proceed
    with your 5 minutes of testimony when you are ready.

        STATEMENT OF TOM BUMAN, CHIEF EXECUTIVE OFFICER, AGREN,
                              CARROLL, IA

        Mr. Buman. Mr. Chairman, Ranking Member, and Members of the
    Subcommittee, thank you for this opportunity.
        I have worked 34 years in soil and water conservation. My
    first 14 years, I worked with the Natural Resources
    Conservation Service, and the last 20 years I have been the CEO
    of Agren, a small consulting firm in western Iowa.
        In that time, farming has become much more complicated.
    First there was the Chesapeake Bay, then hypoxia in the Gulf of
    Mexico, then the algae blooms in Lake Erie, and now the law
    suit from the Des Moines Water Works. All sides agree that we
    in agriculture are responsible for a portion of this water
    quality issue and we need to do more, but doing more isn't good
    enough. We need to do more of the right thing.
        For farmers to make a significant impact on soil erosion
    and water quality, conservation practices need to be targeted.
    And that is the challenge facing today's farmers: putting the
    right practice in the right place. To do this, farmers need
    access to two things. First, they need significantly more
    technical assistance, and second, they need better technology.
        If we look at the technical assistance trend, I don't think
    help is coming from conservation agencies. In the past 30
    years, NRCS has lost 30 percent of their FTEs. Even if this
    downward trend could be reversed, it simply is not enough.
        In analyzing the situation, I have come to the conclusion
    that technical assistance must come from the private-sector.
    Specifically, the ag retailer. So why the ag retailer? Because
    farmers trust them. In a 2012 survey, 5,000 farmers in the Corn
    Belt were asked who influences their decisions about
    agricultural practices and strategies the most. The survey
    results were crystal clear: not the government, not NGOs, not
    extension service. By a strong margin, ag retailers were at the
    top of the list. Yes, farmers trust their ag retailers.
    Further, in a 2015 study, Iowa State found that 60 percent of
    all farmers agree that their ag retailer should do more to help
    them address nutrient losses.
        Technical assistance through ag retailers is step one, and
    I am happy to say that several ag retailers, specifically,
    United Suppliers of Ames, Iowa, and Land O'Lakes of Minnesota,
    are getting involved, but they need more encouragement and they
    need more financial assistance.
        Step two in providing farmers with better technology for
    decision making. At Agren, we are developing state-of-the-art
    software technology. Using a CIG from NRCS, we got our start by
    developing two programs; one originally designed to design
    ponds, and the other to design sediment basins. This technology
    is quite amazing. What used to take me 6 to 20 hours, I can now
    do in 15 to 20 minutes.
        We have also developed a software tool with our own money
    for designing wetlands and grassed waterways, and we have
    developed one tool for writing proscribed fire plans. Most
    recently, Agren has worked with the Agricultural Research
    Service in Oxford, Mississippi, to commercialize some of their
    research. Most people would refer to this as technology
    transfer. I call it unlocking Pandora's Box.
        Our software calculates soil erosion at 72,000 points in
    160 acres. It identifies the erosion hotspots in a field, and
    it models sediment transport and delivery. Armed with
    SoilCalculator, ag retailers can now correlate erosion with
    yields, and recommend appropriate precision conservation
    methods.
        I wish I had 5 minutes just to tell you about the value of
    this program for precision conservation. This is powerful
    technology. When you can look at a field and determine those
    areas that are delivering the most sediment to our waters,
    decision-making evolves quickly.
        At Agren, it is just not about our technology; we are
    integrating other emerging technology into our precision
    software, including machine control, auto-steer, and collection
    of survey by drones, which is very exciting.
        Public pressure on agriculture is at an all-time high. We
    in the ag community need to up our game. We need to help
    farmers speed the adoption of conservation. We know that
    farmers want to receive conservation information from their ag
    retailers. We know ag retailers are interested in offering this
    service. However, to integrate precision conservation into
    their sales cycles, retailers need motivating incentives. The
    conservation effort can be accelerated by ag retailers who are
    equipped with state-of-the-art precision conservation
    technology.
        Thank you for your time.
        [The prepared statement of Mr. Buman follows:]

       Prepared Statement of Tom Buman, Chief Executive Officer, Agren,
                                  Carroll, IA
    Solutions through Voluntary and/or Locally-Led Conservation Efforts
        Chairman Thompson, Ranking Member Lujan Grisham, and Members of the
    Subcommittee, thank you for the opportunity to appear before the
    Subcommittee on Conservation and Forestry and to provide testimony
    regarding innovative solutions for conservation.
        My name is Tom Buman. I was raised on a farm in western Iowa, where
    my parents instilled in me a deep conviction for agriculture and the
    environment. Today, I am still connected to my family farm, which my
    brother operates.
        For the past 20 years, I have been the CEO of Agren, where I have
    married my love of agriculture and the environment to my passion for
    pioneering innovative solutions to environmental problems. At Agren, I
    drive concept development and continuously challenge scientists,
    programmers and subject matter experts to achieve a higher level of
    innovation. I am also responsible for leading business development and
    strategic partnerships.
        Prior to founding Agren in 1996, I spent 14 years with the Natural
    Resources Conservation Service in Iowa, first as a Soil Conservationist
    and later as a District Conservationist. I have a Bachelor of Science
    degree in Agronomy (1982) and a Masters in Business Administration
    (1995), both from Iowa State University.
        I am proud to say that Agren's suite of precision conservation
    software is revolutionizing soil and water management. Our online
    conservation planning tools enable users to get done in minutes what
    farmers have traditionally waited on for weeks and months. Our
    customers can now offer practical, value-added soil and water
    management solutions, empowering farmers and land managers to make
    profitable decisions that ultimately enhance agricultural productivity
    and sustainability.
        Let's just get it out there. We, in the farming community need to
    do more conservation. We need to up our game. What we are doing is
    simply not enough. But just as importantly as doing more, is doing more
    of the right thing. Yes, doing more and doing more of the right thing
    are completely different. It's no longer good enough for farmers to
    place a terrace or waterway, wherever they think it's needed. For
    farmers to make a significant impact on soil erosion and water quality,
    the conservation practice needs to be targeted for a specific purpose.
    And that is the challenge facing today's farmers; putting the right
    practice in the right place.
        I'd like to use a simple health analogy to demonstrate my point.
    What if your doctor tells you that you have a high risk--1 in 5
    chances--of having a heart attack in the next 10 years? What would you
    do? You're now challenged with making some critical decisions. The
    research tells you that modifying certain risk factors can improve your
    odds. You probably have an idea what those risk factors are. Some are
    simple strategies, while others are more complex. You could exercise.
    You could cut saturated fat from your diet. You could lose weight. You
    could take daily baby aspirin or medication to lower cholesterol. You
    might even envision the need for surgery. A combination of life style
    change strategies might make a bigger difference, but you want to be
    sure. You want the best course of action for the best outcome, based on
    your current health and lifestyle. So you turn to an expert, your
    doctor, to distill the information and help you develop an
    individualized plan.
        Farmers also want what works best for the health of their soil and
    the cleanliness of their water, as well as for their pocketbook. But
    they lack critical decision-making tools. Just as health decisions are
    driven by individual health information, today's conservation decisions
    should be based on individualized, site-specific resource concerns; an
    individualized plan to put the right practice, in the right place, for
    the right purpose. This precision conservation, like the practice of
    medicine, is an art and a science. With recent advances in innovative
    technology, combined with site-specific information and accessible
    technical assistance, farmers can do more to achieve the most
    environmental protection, for the lowest cost, while meeting the goals
    of their operation.
        Let's examine the current status of accessible technical
    assistance. If we agree that farmers need technical assistance to
    interpret information, implement conservation and do more of the
    ``right thing,'' we should ask ourselves, where do farmers get this
    help? Government? Probably not. Conservation agencies are tapped out.
    Funding for staff resources at both state and Federal conservation
    planning agencies has been on a steady decline over the past 30 years.
    An astonishing 5000 full-time employees, approximately 33% of the total
    workforce, were cut from the NRCS budget between 1980 and 2016 (Helms,
    2010) (Lawrence, 2015). But even if these numbers were restored, it
    will not make an appreciable difference to reaching enough farmers.
        In the spring of 1981, I was a junior at Iowa State University
    studying agronomy. My dad had one of the first outbreaks of black
    cutworm in the neighborhood. What did he do? He did what every farmer
    did at that time. He called the Extension Service. The County Extension
    Agent came out to the farm, diagnosed the problem, held a field day for
    Dad and his neighbors, and helped Dad solve the problem. Today, unlike
    1981, farmers take their agronomy questions straight to their ag
    retailer because farmers trust their ag retailer to give them sound
    advice.
        The scale of solving the soil conservation and water quality issue
    is enormous and farmers should have the option to seek technical advice
    from professionals, whom they most trust. Given the magnitude of the
    need for technical assistance, the private-sector is the only resource
    that can scale to the challenge.
    Conservation Through the Private-Sector
        Because the traditional stream of information and technical
    assistance has been constrained and because the private-sector has
    improved their capacity, farmers turn to the private-sector more often
    for information and advice. In their trusted role, ag retailers are
    positioned to be a farmer's first line of information on conservation
    issues. Furthermore, ag retailers are the only entity with the
    opportunity to deliver field scale agronomy, including conservation
    planning, to U.S. farmers.
        Several studies demonstrate that farmers implicitly trust their ag
    retailer and have an appetite for their retailers to do more to protect
    natural resources. For example, a 2012 survey of 5,000 Midwestern corn
    producers reported their most trusted advisor, when making decisions
    about agricultural practices and strategies, was their chemical or seed
    dealer. As depicted in Figure 1, crop advisors came in a distant
    second, with conservation agencies, university extension, and non-
    governmental organizations trailing even further (Arbuckle J., 2013).
    Further, a 2015 study of over 1,000 Iowa farmers found 60% agreeing
    that their fertilizer or ag chemical dealer ``should do more to help
    farmers address nutrient losses into waterways.'' Only 9% of the
    farmers reported they did not think their ag retailer should provide
    conservation services (Arbuckle & Bates, 2015).
    Figure 1
    Influence of Selected Entities on Ag Decisions (Percent Moderate or
            Strong Influence)
            [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

              Chemical dealers top the list of ag's most trusted advisors.

        Throughout the past 2 years, my colleagues and I have communicated
    with several of the largest precision agriculture providers. They have
    expressed an interest in, and in some cases excitement about,
    delivering conservation technical assistance.
    An Example of a Private-Sector Offering
        In an effort to get more conservation on the ground, United
    Suppliers, a customer-owned wholesale supplier of crop nutrients, crop
    protection inputs and seed, with headquarters in Ames, Iowa has stepped
    forward. United Suppliers is making a significant investment into
    developing a conservation planning service through the private-sector.
    They have named their conservation platform SUSTAINTM. To my
    knowledge, this offering by United Suppliers is the single largest,
    private-sector investment in soil conservation planning services
    offered to farmers.
        The SUSTAINTM service platform includes soil loss
    estimates and initial planning of conservation structures, including
    grassed waterways, water and sediment control basins, ponds, and
    wetlands. ``The new conservation planning service will provide growers
    assistance in exploring conservation alternatives that best meet their
    needs,'' said United Suppliers President & CEO Brad Oelmann.
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        What a change. Even 5 years ago, it was difficult to imagine a
    major ag fertilizer/chemical dealer developing a platform with such a
    bold Vision Statement, ``improve the capabilities and competitiveness
    of United Suppliers' Owners by positioning them as leaders of the
    environmentally sustainable agriculture movement, both in the
    agriculture industry and in the communities they serve.'' And following
    up with a Mission Statement of ``offering a leading-edge, economically
    sound and forward-thinking pathway through which Owners can deliver
    significant benefits for growers, and do so in ways that are good for
    the environment and meet the demands of the supply chain for fertilizer
    optimization and soil health.''
        To add to this excitement, in October of 2015, United Suppliers
    entered into a joint venture with WinField Solutions, the crop input
    business unit of Land O'Lakes, creating WinField U.S. A full merger of
    the two organizations will be completed in October of 2017. Precision
    soil and water management has emerged as a high-priority and best fit
    for the WinField U.S. sustainability platform. WinField U.S. believes
    that helping their growers conserve soil resources is essential for
    their productivity and profitability, as well as for the expanding
    global population. As a major first step, the organization's leadership
    is working to partner with the Minnesota Department of Agriculture to
    support farmer participation in the Minnesota Agricultural Water
    Quality Certification Program via the WinField U.S. cooperative retail
    network.
    Technology and Precision Conservation
        Just like technology revolutionized precision agriculture,
    precision conservation will be accelerated with new, innovative
    technologies and approaches.
        In 2006, Agren entered into the world of high tech software. With a
    Conservation Innovation Grant from NRCS we developed two software
    programs; one to design ponds and one to design sediment basins. The
    technology is amazing. What used to take me 6 to 20 hours, I could now
    do in 15 to 20 minutes.
        However, we didn't stop there. We developed more software. We
    developed tools for wetlands, prescribed fire, and then one for grassed
    waterways.
        Most recently, Agren worked with USDA's Agricultural Research
    Service (ARS) to commercialize some of their science and technology.
    Most people would refer to this as technology transfer; I call it
    unlocking Pandora's Box.
        ARS is the lead agency for developing the RUSLE2 (Revised Universal
    Soil Loss Equation version2), a computer model that predicts rill and
    inter-rill erosion caused by rainfall and runoff. Since its inception,
    this model has been used by conservation agencies to model soil erosion
    at one point in a field. Through a team effort, Agren developed the
    same modeling engine (RUSLE2) to calculate soil erosion at 72,000
    points in 160 acres with Agren' SoilCalculator. Armed with
    the outputs of SoilCalculator, ag retailers can help farmers correlate
    soil erosion (Figure 3) to yields (Figure 4). Furthermore, ag retailers
    can begin to help farmers understand if soil erosion is causing a yield
    drag and recommend appropriate conservation practices.
    Figure 2
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

              Pond design generated by Agren' PondBuilder.
    Figure 3
    ' SoilCalculator.
    Figure 4
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

              Farmer yield map.

        The outputs of SoilCalculator are powerful and can be used to drive
    several other important environmental models. Agren has collaborated
    with researchers at the ARS Sedimentation Laboratory and the University
    of Tennessee to develop two GIS-based soil loss modeling tools,
    referred to as the Revised Universal Soil Loss Equation 2-Raster
    (RUSLER) and the Ephemeral Gully Erosion Estimator (EphGEE).
        Once sheet and rill erosion could be modeled in a distributed
    fashion, Agren worked with ARS researchers Dr. Seth Dabney and Dr.
    Dalmo Vieira, to also develop a physically-based ephemeral gully model.
    Conceptually, the new model is based on the assumptions and methods
    similar to those used in the Chemicals, Runoff and Erosion model from
    Agricultural Management Systems (CREAMS) (Knisel, 1980) and the Water
    Erosion Prediction Project model (WEPP) (Ascough, Baffaut, Nearing, &
    Liu, 1997), but with a number of modifications to remove technical
    limitations of those older models.
        By integrating with RUSLER, the integrated application provides a
    mechanism for the estimation of runoff and sediment loads that control
    the development of ephemeral gullies. EphGEE simulates ephemeral gully
    erosion on complex in-field dendritic channel networks, with outputs
    for channel erosion and sediment transport, deposition, and delivery to
    a watershed outlet (Vieira, 2014).
        This ability to determine the transport and deposition of soil will
    allow ag retailer to target practices, such as water and sediment
    control basins, to sensitive areas resulting in significant, positive,
    environmental impact. With technology like SoilCalculator, ag retailers
    can effectively and efficiently implement precision conservation.
    Figure 5
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

              Using SoilCalculator in combination with EphGEE, conservation
            planners can model the sediment that is transported and
            delivered to waterways. The number in the oval represents the
            annual delivery of sediment from a sub-watershed (measured in
            tons).
    Agren's Sustainability Solution Platform
        Agren developed the Sustainability Solution platform to allow ag
    retailers to introduce soil and water management solutions alongside
    their precision ag offering. The three-tiered platform supports
    delivery, sales, and documentation of soil and water management
    services through field agronomists. As farmer response and the market
    for these services grow over time, the Sustainability Solution allows
    retailers to provide a full-suite of precision conservation planning
    services.
    Figure 6
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

              Agren's 3-tiered Sustainability Solution.

        Agren's three-step model leverages the farm-gate relationship and
    service-orientation of the agronomy network. It minimizes both the
    level of effort and specialized skillset required for the retail
    agronomist to engage with farmers on soil and water management. By
    utilizing ag retailers' precision ag platform, the delivery process is
    streamlined into a consultative sales process familiar to the
    agronomist. Using these tools, the retail agronomist is not
    overburdened by ``one more thing'' to sell. Incorporating an
    experienced and well-trained conservation agronomist into the process
    ensures quality conservation planning assistance that builds on core
    conservation principles and engineering standards. Also, because the
    retail agronomist is generating and qualifying leads, the conservation
    agronomist is able to service farmers across many locations.
    Other Technologies for Conservation
        The use of new technology in agriculture should extend well beyond
    biofuels, crop protection, automated machine control, and seed
    varieties. Advancements in agriculture technology should be applied to
    soil and water conservation, as well. Soil and water conservationists
    must harness existing technology to reduce the cost of precision
    conservation and encourage more effective technology and knowledge
    transfer. Agren is integrating existing technologies, such as auto-
    steer, machine control, LiDAR and UAVs (un-manned aerial vehicles),
    into its conservation platform, to improve efficiencies and farmer/ag
    retailer adoption.
        Auto-steer is a computerized guidance system used on tractors.
    Auto-steer automatically steers the tractor on a specific path with
    high precision. If the vehicle moves offline, auto-steer adjusts the
    tractor position to follow the prescribed path.
        Conservation application of auto-steer: In years past, field
    contour lines were flagged manually; farmers would follow the staked
    line when planting. Today, very few contour lines are staked for
    farmers. Contouring is still effective, but other priorities have moved
    contour assistance to the bottom of the priority list. However, the
    newest precision technology allows ag retailers to draw contour lines
    on a aerial map and electronically feed that information into a
    tractor's auto-steer system. Likewise, auto-steer could be used to
    layout and design contour grass strips for the Conservation Reserve
    Program (CRP).
    Figure 7
    Contouring Made Simple
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

              Automated system to design and layout contour and contour
            grass strip systems.

        Machine control is a 3D grade-control system integrated into
    construction equipment such as a motor grader (or bulldozer). The
    grader's antenna receives a GPS location signal. The internal GPS
    technology compares the grader blade position to a pre-defined three-
    dimensional computerized model. The system automatically controls the
    hydraulics of the grader and raises or lowers the blade to achieve the
    grade design requirements. The automatic blade control allows the
    operator to reach grade in shorter time, translating to higher
    contractor productivity.
        Conservation application of machine control: Imagine a
    conservationist designing a structure like a grass waterway using LiDAR
    data. Once designed, the conservationist can easily create a 3D machine
    control file and e-mail it to the contractor. The contractor then
    uploads the file into the machine control unit and builds the
    structure. This could all happen within 1 day, with the elimination of
    field layout work.
    Figure 8
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

              Motor grader with machine control.

        In some locations and for some conservation practices, contractors
    already can obtain a 3D machine control. Given the increased accuracy
    and productivity, machine control files should be made available to all
    contractors who build conservation practices.
        Currently, Agren can output machine control files for waterways. By
    the end of this year, Agren intends to output machine control files for
    all structural practices. Developers (companies like Trimble, Topcon,
    and Leica) are poised and waiting to expand the use of machine control
    for soil and water conservation. Machine control technology will
    fundamentally change how conservation structures are designed, staked,
    and constructed.
        Testimonial from a contractor using machine control to build a
    grass waterway: https://www.agrentools.com/construction-marketplace/
    testimonials/.
        LiDAR is an emerging technology that is changing conservation
    planning practices from coast to coast. An acronym for Light Detection
    and Ranging, this term is used in mapping to describe how location and
    elevation data is collected, using laser beams. To obtain the data, a
    small aircraft flies over a land mass and sends out thousands of light
    beams to define the surface of the earth and the heights of above
    ground features.
        The data initially gathered by a LiDAR system is raw X, Y and Z
    coordinates. Processing of the data points can result in a highly
    accurate GIS-based digital elevation model; essentially a plaster
    relief of the landform made from light. Field verification trials in
    Iowa, document 8" or better vertical accuracy under leaf-off
    conditions.
    Figure 9
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

              Collecting LiDAR data (Fancher, 2012).

        LiDAR has been used for road and culvert design, fire fuel mapping
    and to visualize the Grand Canyon.
        Conservation application of LiDAR: When LiDAR data is combined with
    tools like the Agren engineering tools, the information can be used to
    more quickly and accurately determine optimum locations for
    conservation solutions like ponds, waterways and basins. Additionally,
    the opportunity to almost instantaneously provide farmers with a visual
    representation of how their fields might look with different
    conservation practices applied is tremendous.
        While there is some consensus at a Federal level supporting a
    national database of LiDAR, this effort has encountered snags. While
    these snags are being sorted out, cities and states are moving ahead
    with their own statewide LIDAR collection. Significant regions of the
    Eastern United States now have LiDAR coverage. Although LiDAR is
    available in many areas, it unfortunately varies in quality. In some
    cases, LiDAR is accurate enough for actually engineering practices, but
    it is always good enough for planning conservation practices.
        NRCS is researching the use of LiDAR. According to USDA, NRCS,
    ``LiDAR suitability for conservation engineering work is determined by
    data quality, such as the accuracy and precision of the LiDAR dataset.
    Data quality is impacted by aerial flight precision, type and execution
    of elevational ground control, the rate and density of sampling, and
    the level of post processing.'' (USDA, NRCS, 2015).
        Unmanned Aerial Vehicle (UAV): Where LiDAR data is accurate enough
    only for planning soil and water conservation practices, alternative
    collection methods can be used. Using UAVs is an emerging way to
    collect low cost topographic data.
    Figure 10
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

              UAV used to collect high quality topographic data.

        In the spring of 2016, Dr. Rob Wells, USDA Agricultural Research
    Service, compared photogrammetry measurements, of several data
    collection methods, to determine the accuracy of UAV-collected
    topographic data. Dr. Wells found that the UAV methodology provided a
    highly accurate substitute for more labor intensive ground collection
    of topographic data. Dr. Wells reported, using a UAV, topographic data
    with a vertical accuracy 1 cm to 2 cm can easily exceeds the survey
    quality specified by NRCS for engineering practices.
        Conservation application of Unmanned Aerial Vehicle (UAV): Using a
    UAV can vastly reduce the time spent collecting accurate topographic
    data for conservation practice design. Additionally, UAVs can collect
    survey data when soil conditions prevent traditional survey crews from
    working. In 2016, Agren contracted with Top Intelligence, a regional
    provider of drone related technology to fly seven different sites at
    two different times, for a total cost of $7,500, or an individual cost
    of $530/site which includes process and cleaning the data. The cost of
    collecting data with UAV in this case, is certainly less expensive than
    sending a crew to the field to collect survey data.
    Conclusion
        Public pressure on agriculture is at an all-time high. The public
    want foods grown more sustainably and improved water quality. We, in
    the ag community, need to up our game. We need to speed up conservation
    practice adoption. We know farmers want to receive conservation
    information from their ag retailers. And, we know ag retailers are
    interested in providing this service, but they need encouragement and
    motivation to integrate precision conservation with their precision ag
    platform. The conservation effort can be accelerated by ag retailers
    who are equipped with state-of-the-art technology. It all starts with
    giving farmers the information they need to make a decision and
    providing fast and efficient technical assistance for implementation.
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        Arbuckle, J. (2013, April 16). Staff: Arbuckle: Iowa State
    University. Retrieved May 6, 2016, from Iowa State University
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    Climate%20change%20beliefs_concerns_atti-
    tudes_toward_adaptation_mitigation.pdf.
        Arbuckle, J., & Bates, H. (2015). Iowa Farm and Rural Life Poll--
    Farmer Perspectives on Iowa's Nutrient Reduction Strategy. Ames: Iowa
    State University.
        Ascough, J., Baffaut, C., Nearing, M., & Liu, B. (1997). The WEPP
    Watershed Model: I. Hydrology and Erosion. Transactions of the ASAE,
    404(4), 921-933.
        Fancher, Z. (2012, December 15). Using ArcGIS 10.0 to develop a
    LiDAR to Digital Elevation Model workflow for the U.S. Army Corps of
    Engineers, Sacramento District Regulatory Division. Retrieved May 13,
    2016, from American River College Los Rios: https://ic.arc.losrios.edu/
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        Helms, D. (2010, February 19). National Historian. (T. Buman,
    Interviewer).
        Knisel, W. (1980). CREAMS: A Field Scale Model for Chemicals,
    Runoff, and Erosion from Agricultural Management Systems. Washington,
    D.C.: U.S. Department of Agriculture.
        Lawrence, P. (2015, March 19). Chief of Staff, USDA NRCS. (T.
    Buman, Interviewer)
        USDA, NRCS. (2015, January). Using LiDAR for Planning and Designing
    Engineering Practices. Retrieved May 12, 2016, from USDA, NRCS
    eDirectives: http://directives.sc.egov.usda.gov/
    OpenNonWebContent.aspx?content=36637.wba.
        Vieira, D.A. (2014, December 11-14). Distributed soil loss
    estimation system including ephemeral gully development and tillage
    erosion. (D.A. Vieira, Performer) Sediment Dynamics from the Summit to
    the Sea; ICCE/IAHS International Symposium, New Orleans, LA.
                                  Presentation
    Agren'
    Revolutionizing Conservation Delivery
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    PondBuilder
     55 percent of the 20 dairy farms are projected to end the
            baseline period in marginal or poor condition.

       Nine of the 11 cattle ranches are projected to end the
            period in marginal condition.

       While pressured by falling milk prices, the dairies are
            aided by low feed costs. Milk prices have declined further
            since the baseline was developed.

       Record calf prices boosted returns early in the baseline
            period, but falling prices as national herd expansion occurs
            quickly pressures their financial position using up any cash
            balances. The ranches relying on public grazing face increasing
            pressure from lost grazing access.
    An Overall View of the Livestock Industry
       Cattle prices remain historically high, but well below the
            record high levels of a year ago. For example, 500-600 pound
            steer calves at Oklahoma City have averaged $188 per cwt to
            date this year compared to $277 over the same period a year ago
            (a decline of 32%). Fed cattle have averaged $134 per cwt this
            year compared to $162 per cwt last year (down 18%).

       Farrow to Finish hog operation returns have remained largely
            profitable over the last year following unprecedented returns
            in 2014 (based on the data published by Iowa State University).
            Barrow and gilt slaughter and pork production have remained
            close to year ago levels so far through 2016.

       Chicken producers have been buoyed by recent increases in
            wholesale cut prices, even though prices remain below a year
            ago and the 5 year average. Even with less expensive feed, low
            meat prices will likely constrain production growth.

       Dairy profitability continues to be pressured by falling
            prices as production has not yet declined significantly as a
            response to lower returns.

       The lamb market remains under pressure from record levels of
            imports.

       Across the livestock sector of agriculture, producer returns
            have been aided by dramatically lower feed costs. Even with
            lower feed costs, producer margins will likely remain lower in
            the next few years when compared to the rather good year of
            2014.
    The Farm Bill and Livestock
        While often focusing on Title I commodities, the farm bill has
    direct impacts on the livestock industry as well. In particular the
    Livestock Indemnity Program (LIP), Livestock Forage Disaster Program
    (LFP), and the Emergency Assistance for Livestock, Honeybees and Farm
    Raised Fish program (ELAP) have been important programs for livestock
    producers. These programs have been successful and popular with
    producers. These have provided financial assistance to producers trying
    to survive unique, catastrophic weather events like the 2010-2013
    Southern Plains Drought and Winter Storm ``Goliath.'' The drought's
    impact on Texas livestock producers was an estimated $3 billion in 2011
    alone.
        Crop Insurance is not just a crop product. There are livestock
    related products like Livestock Risk Protection (LRP) for feeder and
    fed cattle, hogs, and lamb. Livestock Gross Margin-Dairy (LGM) has also
    been available for dairy producers. Pasture, Rangeland, and Forage
    insurance products have been available for consideration in risk
    management for livestock producers. In many cases, these products use
    has been limited in part due to limited funding for the products, but
    also due to some lack of opportunity or practicality.
        Many of these farm bill and other policy issues are related.
    Insurance products often rely on futures market prices, for example
    LGM-Dairy and LRP for cattle and hogs. Questions about the efficacy of
    the futures market may have important impacts on other mainstays of the
    producer safety net.
        Price reporting and information is related, as well. Mandatory
    price reporting has gone a long way to maintain publicly reported
    prices aiding the function of competitive markets. The absence of
    reported prices can affect settlement of futures contracts and reduce
    information available to aid participants of futures markets.
    Interpretation and implementation of prices reporting has become a
    critical issue in some markets. Defining producer or packer ownership
    in the case of cooperatives may likely become a more important problem.
    Markets and products do change over time making flexibility in
    implementation on important consideration, including evaluating
    confidentiality rules.
    Other Issues
    Futures Market and Price Reporting
        The operation of the live cattle and feeder cattle futures
    contracts has been the subject of much concern in the cattle industry.
    Areas of concern include volatility, the speed of transactions, the
    role of high frequency trading, outright cheating, and whether or not
    the futures market is broken and no longer works as an effective price
    risk management tool. There is some needed research on these issues. In
    addition, some deferred futures contracts suffer from a lack of
    liquidity limiting their use.
    Declining Cattle Prices
        Cattle prices have certainly declined from their record peak in
    late 2014 and early 2015. It's worth remembering that markets and
    incentives work. Record high prices (and drought recovery) have
    provided the profit incentive to increase production; of cows, calves,
    and beef. Increased production leads to lower prices. Fed cattle prices
    broke lower late in 2015 with falling fed cattle prices. Several
    important factors contributed to lower prices. Beef production
    increased, year over year, largely due to record high cattle weights.
    Increasing beef imports and reduced exports had the net effect of
    adding about 750 million pounds of beef to our market. Large financial
    losses by cattle feeders forced them to finally bid lower prices for
    feeder cattle.
        The decline in cattle numbers to multi-decade lows by 2014 (due to
    poor financial conditions and drought) meant that the industry had an
    over capacity problem in cattle feeding and meat packing. Packers and
    feeders bid higher prices to try to keep their operations running at
    their most efficient levels, but eventually the financial losses led to
    closing packing plants and feedlots. Beyond just closing packing plants
    the transition to more closely align capacity with cattle numbers led
    to changing shifts, changing employee hours, and fitting operations to
    fewer numbers. As cattle numbers increase there are more cattle chasing
    a smaller capacity and that also pressures cattle prices lower.
    Importance of Trade
        Trade is of more importance to all of our livestock, poultry, and
    dairy sectors than ever. The beef, pork, poultry, and dairy industries
    export anywhere from about ten percent of our domestic production
    (beef) to over 20 percent of our domestic production (pork, chicken).
    Events that reduce exports, often out of the control of producers, like
    economic slowdowns in major markets, drought in our competitor
    countries, a strong dollar, and policy changes in other countries
    reduce our exports leaving us with lower prices. Imports are also
    important. The lamb industry is dealing with record imports of lamb
    from Australia and New Zealand. Australian beef played a major role in
    larger U.S. beef imports in 2015.
        Opening new markets and re-opening old markets are critically
    important to our livestock and dairy industries.
    Livestock-Crop Interactions
        Our domestic livestock sector is the main customer for most of our
    crops. Difficult times in the crop side due to low prices means that
    livestock producers are paying low prices for feed. As meat production
    surges due to lower production costs (lower feed costs) meat and
    livestock prices are going to decline.
        The farm bill safety net that aids crop farmers is also aiding the
    suppliers of feed for all of our livestock. It was not long ago that
    record high feed costs created huge financial losses across livestock
    agriculture forcing bankruptcies and many to go out of business. The
    health of crop and livestock producers are intertwined. Low and falling
    prices for meat and dairy products have been cushioned by low feed
    costs. Many livestock producers are also crop farmers, whether it's a
    dairy producing feed for their herd or a farmer with cows on
    pastureland as part of the total farm operation. Many contract poultry
    producers also have a cow herd on pastures surrounding the farm
    buildings. The farm bill safety net also applies to those livestock
    producers.
    Future Challenges
        Future challenges will surely abound in the livestock industry.
    Whether its trade related, animal diseases, low prices, or regulatory
    in nature. All of those mentioned above will be in play.
        I would echo past participants in this series of hearings by saying
    that some criticism of farm policies is often by parties with little
    idea and/or care about conditions in agriculture. Regardless of these
    challenges, even though some of the farm policies may differ for the
    livestock industry, these programs do matter for livestock producers.
        Mr. Chairman, that completes my statement.

        The Chairman. Thank you, Dr. Anderson.
        Dr. Brown.

    STATEMENT OF SCOTT BROWN, Ph.D., EXTENSION ASSISTANT PROFESSOR,
                     DEPARTMENT OF AGRICULTURAL AND
            APPLIED ECONOMICS, UNIVERSITY OF MISSOURI; STATE
              AGRICULTURAL ECONOMICS EXTENSION SPECIALIST,
             UNIVERSITY OF MISSOURI EXTENSION, COLUMBIA, MO

        Dr. Brown. Chairman Rouzer, Ranking Member Costa, and
    Members of the Subcommittee, thank you for the opportunity to
    testify regarding the current financial situation for livestock
    producers. I am an agricultural economist at the University of
    Missouri, and I have worked extensively on livestock and dairy
    policy issues.
        The previous decade has resulted in the best and worst of
    times for the livestock sector: 2006 livestock cash receipts
    totaled $118 billion and nearly doubled to over $212 billion in
    2014. Feed costs skyrocketed over the last decade, as weather
    and other factors drove tight feed supplies. Purchase feed
    expenses doubled from $31 billion in 2006 to $64 billion in
    2014. USDA currently estimates both will move lower this year.
        Feed costs, weather, and disease issues place meat
    availability at a 23 year low in 2014. Meat consumption peaked
    at 220 pounds in 2007, and fell below 200 pounds in 2014. CY
    2016 per capita meat consumption will show that \1/2\ of the 20
    pound decline has been recovered, which has led to lower
    livestock prices.
        The extremes of 2009 and 2014 have shown the highest to be
    breathtakingly high, while the lows have been desperately low,
    making risk management important. Droughts in major cow/calf
    regions contributed to record cattle prices in 2014 and 2015.
    Markets have fallen substantially from the records, yet 2016
    will still have positive returns for cow/calf producers. The
    one million head annual growth in cows this year was the
    largest in over 2 decades. Beef production expansion will
    likely lead to even lower cattle prices.
        CY 2014 hog returns hit record levels as feed costs eased
    and disease dramatically cut pigs per litter. As the sector
    recovered, production has grown and hog prices have declined by
    more than 30 percent.
        All-milk prices hit a record of $25.70 a hundredweight in
    2014, but recently fell to $15.30 with the March information, a
    level we haven't seen since 2010. Current price information
    shows further declines will occur. Two factors have driven
    those lower milk prices. Reduced U.S. dairy exports have meant
    increased dairy product supplies on domestic markets. Second,
    milk production expansion has continued despite lower returns.
    April milk production is up 1.2 percent over a year ago, and
    the cow herd has expanded by over 22,000 heads since the
    beginning of this year.
        Why has milk output grown when milk returns suggest
    contraction? During the 1980s and 1990s, there were more
    farmers with higher costs that exited during tough times.
    Today's operations have larger fixed costs, which makes their
    exit difficult. Since 2000, annual milk production has only
    declined twice, while it declined five times over the 1986 to
    1999 period.
        If true, the only way out of low returns is for demand
    growth. There has been much discussion that the Margin
    Protection Program is not providing a strong enough safety net.
    Before examining the MPP, it is important to understand that it
    is extremely difficult to construct a stronger safety net for
    dairy farmers while reducing Federal spending remains a
    priority. CBO estimates Fiscal Year 2016 Federal outlays at $42
    million, and USDA estimates 2016 dairy cash receipts will total
    $33.2 billion, a drop of over $16 billion from 2014.
        Identifying a safety net program that can moderate a $16
    billion drop in cash receipts, yet only costs the government
    $42 million is a large challenge. Lower feed costs have
    resulted in the MPP margin falling far less than the milk price
    decline. A comparison between the cost of corn production and
    the decline in corn prices is instructive. AMS reports
    Minneapolis corn prices fell from $7.15 to $3.23 per bushel
    over the March 2013 to March 2016 period. The large decline in
    corn prices is helpful to dairy producers, yet this direct
    comparison of corn prices may mask some effects. The Economic
    Research Service estimates that 63 percent of Wisconsin dairy
    feed costs are homegrown harvested feed, compared to 26 percent
    in California. ERS corn production costs have changed little
    over the 2013 to 2016 crop seasons. The difference in the cost
    of growing feed needs and the decline in crop prices may be one
    of the reasons why producers have struggled with MPP.
        The feed costs coefficients used in the formula were
    reduced by ten percent during the farm bill debate. Record crop
    prices and high crop price projections drove the change. This
    change lessened the effect of feed prices on the MPP formula
    and reduced Federal outlays. Without this adjustment, the feed
    cost decline would have offset more of the milk price decline.
        More work is needed to help producers think through the
    risk management versus program return maximization facets of
    policy. CY 2016 MPP participation has moved to lower levels of
    margin coverage when producers may be better served to
    participate at higher levels.
        Mr. Chairman, thanks for the opportunity to discuss the
    many issues facing the livestock and dairy industries today.
        [The prepared statement of Dr. Brown follows:]

         Prepared Statement of Scott Brown, Ph.D., Extension Assistant
    Professor, Department of Agricultural and Applied Economics, University
                                       of
    Missouri; State Agricultural Economics Extension Specialist, University
                      of Missouri Extension, Columbia, MO
        Chairman Rouzer, Ranking Member Costa, and Members of the
    Subcommittee, thank you for the opportunity to testify regarding the
    current financial situation for livestock producers in this country. I
    am an agricultural extension economist at the University of Missouri
    and for the last 3 decades have worked extensively on livestock policy
    issues with a specific focus on dairy policy issues.
        The previous decade has resulted in some of the best and worst
    economic times the livestock sector has ever faced. In 2006, USDA
    reports that livestock cash receipts totaled $118 billion. By 2014,
    livestock cash receipts had soared to over $212 billion. USDA currently
    estimates that livestock cash receipts will decline to below $178
    billion in 2016.
    U.S. Livestock Cash Receipts
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

              Source: USDA-Economic Research Service.
              * 2016 USDA-ERS forecast.

        Feed costs, the major input for all livestock industries,
    skyrocketed over the last decade as weather and other factors drove
    tight feed supplies. In 2006, USDA reported purchased feed expenses at
    $31 billion. They rose to $64 billion by 2014. With larger crop
    supplies, purchased feed costs are currently estimated by USDA to total
    $56 billion in 2016.
    U.S. Production Expenses, Purchased Feed
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

              Source: USDA-Economic Research Service.
              * 2016 USDA-ERS forecast.

        The combination of high feed costs, weather and disease issues
    placed U.S. meat availability at a 23 year low in 2014. U.S. per capita
    beef, pork and poultry consumption peaked at nearly 220 pounds per
    person in 2007 before falling to slightly less than 200 pounds in 2014.
    2016 meat per capita consumption will show that at least \1/2\ of the
    20 pound decline has been recovered in just 2 years. This additional
    quantity of meat in the U.S. marketplace relative to 2014 has driven
    down prices for livestock products.
        One thing is clear when looking at the financial picture of the
    livestock sector, the highs have been breathtakingly high while the
    lows have been desperately low. While 2009, with its high feed costs
    and general global economic meltdown, can represent the lowest of lows,
    2014 surely will remain in the record books for many years to come for
    the record shattering high. Although either of these years could be
    duplicated again, the probability of either of these years occurring
    again soon is low.
        Extreme livestock market volatility has become expected by all.
    Long-term survival may depend critically on risk management plans
    adopted by individual operations. Marketing livestock or milk using a
    cash market strategy is a risk management strategy that works well in
    rising markets but provides little help in declining markets.
        Cattle markets have seen the droughts of 2011 and 2012 in major
    areas of cow/calf production in the United States contribute to the
    record cattle prices in late 2014 and early 2015. Although cattle
    markets have fallen substantially from the record highs, 2016 will
    still be another year of positive returns.
    Oklahoma City, 600-700 lbs, Weekly, Feeder Steer Price
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Beef cow expansion that began during 2014 and accelerated during
    2015 continues in 2016. The decline in current economic incentives will
    likely slow future growth in beef cow inventory. The one million head
    annual growth in beef cows that was reported by USDA for January 1,
    2016 was the largest increase experienced in over 2 decades.
        As beef production continues to expand, cattle prices are likely to
    come under further pressure over the next few years. For Missouri
    combined auctions, 450 to 500 pound feeder steers which reached over $3
    per pound in early 2015 but have recently fallen to $1.80 per pound.
    However, that remains above the $1.25 per pound level seen in early
    2010.
        Hog producers saw farrow to finish returns hit record levels in
    2014 as feed costs eased and PEDv dramatically cut the number of pigs
    saved per litter. As the sector recovers from disease events, pork
    production has grown and hog prices have moved lower. Pork production
    grew by over seven percent in 2015 relative to 2014 and hog prices
    declined by more than 30 percent.
    Hog Price, National Base
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        The recent growth in barrow and gilt slaughter does highlight the
    need for additional processing capacity to come on board soon. Current
    pork processing expansion plans will help handle the flow of additional
    hogs that will come to market in late 2017. By the fourth quarter of
    2016, current processing capacity may be stretched to the limit.
        Farrow to finish returns have remained slightly above breakeven in
    the first quarter of 2016. The return picture for the remainder of this
    year will depend on the strength of domestic and international demand
    as well as the size of the U.S. crop currently being planted. If any of
    these factors raise feed costs or further erode hog prices, the last
    half of 2016 could be financially challenging.
        Dairy producers have seen a similar milk price picture unfold as
    has been experienced in the other livestock sectors. In September 2014,
    the U.S. all milk price hit an all-time record at $25.70 per
    hundredweight. The latest USDA Agricultural Prices report showed that
    the March 2016 U.S. all milk prices fell to $15.30 per hundredweight.
    Given current dairy product prices and advanced Federal Order prices,
    further declines will occur. This level of milk prices has not been
    experienced since early 2010.
        Two factors have been at play in the decline in milk prices seen by
    U.S. dairy producers. First, a decline in U.S. dairy product exports
    has meant increased milk and dairy product supplies on domestic
    markets. After annual U.S. dairy product exports reached a record of
    over $6.5 billion in 2014, they fell below $5 billion in 2015. U.S.
    dairy exports have declined another $0.3 billion in the first quarter
    of 2016 relative to a year ago. A stronger U.S. dollar and growing
    supplies in Europe have hindered U.S. dairy exports. Although many in
    the industry continue to call for a turnaround in U.S. dairy export
    demand, it has yet to occur. If U.S. dairy exports do not begin to
    increase in the remaining months of 2016, the financial strain on U.S.
    dairy producers is going to increase even further.
        Second, the expansion in U.S. milk supplies has continued despite
    the economic stress being felt in the dairy industry. The latest USDA
    milk production report shows that April milk production growth slowed
    but it was still 1.2 percent higher than a year ago. The report shows
    U.S. dairy cow inventories have expanded by 22 thousand head since the
    start of 2016. The growth in milk supplies is expected to continue into
    2017 highlighting the need for U.S. dairy export growth.
        The dairy industry needs to carefully consider the inability to
    turn the spigot off when milk returns suggest contraction is needed.
    During the 1980s and 1990s, there were more dairy farmers with
    relatively higher production costs to exit the industry during tough
    times. By the 2000s, the remaining operations tend to have larger fixed
    costs, which makes their exit more difficult.
        Historical data on U.S. milk production highlights past
    difficulties in reducing milk supplies when producer returns are low.
    Since 2000, annual milk production has only declined in 2001 and 2009.
    Milk production even expanded during the drought-induced record feed
    prices of 2012/2013. In comparison, annual milk production fell five
    times over the 1986 to 1999 period.
        If the assumption of less supply response to poor returns is
    correct, there are implications that dairy producers must prepare for.
    Most importantly, the only way out of low returns is for demand growth
    to catch up to excess milk supplies.
        With the current economic downturn in the dairy industry, there has
    been an abundance of discussion about the new dairy safety net program
    contained in the 2014 Farm Bill. There has been growing concern that
    the Margin Protection Program (MPP) is not providing a strong enough
    safety net for U.S. dairy producers.
        Before examining detailed MPP features, it is important to
    understand the large task of building a solid safety net program with a
    tight Federal budget. It is extremely difficult to construct a stronger
    safety net program for dairy farmers while reducing Federal spending
    remains a priority.
        The Congressional Budget Office estimates FY 2016 dairy CCC
    expenditures at $42 million and USDA estimates that dairy cash receipts
    will total $33.2 billion in 2016, a drop of over $16 billion from the
    2014 level. Identifying a safety net program for dairy producers that
    can moderate a $16 billion drop in cash receipts yet only cost $42
    million to the Federal Government is a large challenge.
        The MPP has come under scrutiny as milk prices and dairy farmer
    returns fall. One of criticisms of the MPP is that the current level of
    the MPP margin, which measures the U.S. all milk price less feed cost,
    is not representative of what dairy producers face today. For March,
    the MPP margin was measured at $7.47 per hundredweight which would only
    provide a payment to those producers that bought coverage at some of
    the highest levels.
        The reduction in feed costs as represented by national corn,
    soybean meal and alfalfa prices has resulted in the MPP margin falling
    far less than the decline in national milk prices. Many producers have
    reported their financial situation has eroded much faster than the MPP
    margin has declined. It has led to much speculation on the reasons why.
    A comparison between the costs of corn production and the decline in
    corn prices is instructive as to some of the issues that are at play
    for dairy producers.
        In late March 2013 the USDA Agricultural Marketing Service (AMS)
    reported single car unit Chino Valley California corn prices at $8.76
    per bushel. By the same period in 2016 they fell to $4.82 per bushel.
    AMS reported Minneapolis corn prices fell from $7.15 per bushel to
    $3.23. Larger corn supplies and cheaper transportation allowed for a 45
    percent decline in Chino Valley corn prices while Minneapolis corn
    prices fell by 55 percent. The large declines in corn prices are
    helpful to dairy producers, yet this direct comparison of corn prices
    may mask some of the regional effects of dairy feed costs.
        The USDA Economic Research Service (ERS) estimates that 63 percent
    of Wisconsin dairy farmers' feed costs come from homegrown harvested
    feed compared to 26 percent in California. Dairy producers that buy a
    majority of their dairy feed may be in a better financial position
    today than those that grow more of their feedstuffs, as the total corn
    production cost reported by ERS has changed little over the 2013 to
    2016 crop seasons. ERS reported 2013 total corn production costs at
    $676.66 per acre while they estimate 2016 at $679.72 per acre. The
    situation has changed rapidly relative to a few years ago when those
    growing their own feed were in a better position to manage historically
    high corn prices.
        The difference in the cost of growing feed needs for the dairy and
    the decline in crop prices may be one of the reasons dairy producers
    have struggled with the safety net provided by the MPP. There has also
    been discussion around the coefficients that derive the national feed
    cost used in the MPP formula. The National Milk Producers Federation
    (NMPF) had a taskforce of industry experts construct rations
    representative of the dairy industry back during their development of
    the Foundation for the Future program development. This work
    constructed rations made up of corn, corn silage, soybean meal and
    alfalfa. Corn silage was converted to a corn equivalent by valuing a
    ton of corn silage at 10.1 multiplied by the price of corn per bushel.
        These original coefficients were modified by reducing them by ten
    percent to reduce the MPP program cost during debate on the Farm Bill
    in 2013. This was a period of time with very high crop prices and many
    baselines kept crop prices at much higher levels than we are
    experiencing today. The effect of this change was to lessen the effect
    of feed prices on the overall MPP formula. If these coefficients had
    not been adjusted lower, the criticisms of the formula would only grow
    as feed would have a larger effect and the decline in feed costs would
    even offset a larger proportion of the milk price decline.
        The MPP was a major change in dairy policy relative to the past
    safety provided to the dairy industry. The move to policy focused on
    providing margin risk management from one that provided a floor on milk
    prices has required moving from an attitude of program return
    maximization to risk management. More work is needed to help producers
    think through the risk management aspect of the MPP. [CY] 2016 MPP
    participation has moved to the lower levels of margin coverage when
    producers may be better served to participate at higher levels.
    Margin Protection Program Participation
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        There is a fine line that must be traversed in setting parameters
    of Federal dairy policy. We have had experience with programs that
    provided too much support to the industry and resulted in large milk
    surpluses and chronically low milk prices or large government
    expenditures. Everyone in the dairy industry did not like these
    periods. However, setting support too low means it may never trigger in
    those periods of times that it is most needed. This tradeoff will
    always require modifications as future farm bills are debated and
    passed.
        In summary, it remains clear that U.S. meat and milk supplies are
    going to continue to increase perhaps well into 2017. Global demand and
    strengthening U.S. meat and dairy exports will be needed to move
    livestock and dairy market prices higher. Strong domestic demand must
    continue as well. Federal livestock and dairy policies must address the
    added volatility that comes as a result of more emphasis on global
    markets. Weather will remain another big risk for livestock producers
    and the support provided by Federal programs like the Livestock Forage
    Program (LFP) are a much needed help against catastrophic weather
    events.
        Mr. Chairman, thanks for the opportunity to discuss the many issues
    facing the livestock and dairy industries today.

        The Chairman. Thank you, Dr. Brown.
        Mr. Zimmerman?

             STATEMENT OF JOHN ZIMMERMAN, MEMBER, BOARD OF
         DIRECTORS, NATIONAL TURKEY FEDERATION, NORTHFIELD, MN

        Mr. Zimmerman. Good morning, Chairman Rouzer, Ranking
    Member Costa, and Members of the Subcommittee. My name is John
    Zimmerman, and I am a turkey farmer from Northfield, Minnesota,
    raising approximately 4 million pounds per year. I am the past
    President of the Minnesota Turkey Growers Association, as well
    as a board member of the National Turkey Federation. I
    appreciate the opportunity to testify today on behalf of the
    63,000 men and women that put their boots on every day to keep
    the turkey industry working.
        Our industry raises approximately 238 million turkeys
    annually, and USDA's latest forecast puts 2016 turkey
    production at an all-time record of 6.4 billion pounds, 14
    percent above 2015.
        This year, the turkey industry has made significant strides
    and learned a lot in recovering from high path avian influenza,
    after suffering through the worst animal disease outbreak in
    U.S. history last year. However, our preparation was tested
    earlier this year in Indiana when a small outbreak occurred in
    a commercial turkey flock. This outbreak was small precisely
    because of the lessons we have learned, the most important of
    which is that immediate action needs to be taken at the local
    level to limit virus spread. No matter how good the intentions
    are at the state and Federal level, industry must be given
    clear permission to act within minutes, not hours or days, to
    protect other farms from becoming infected. I must emphasize
    the need for rapid stamping out procedures and methods that
    ensure humane treatment, while eliminating virus spread.
    Currently, there is no one method that achieves perfect results
    in all circumstances.
        NTF is deeply appreciative of the indemnification program
    implemented by USDA APHIS and strongly supported by Congress
    that helped us manage through this crisis. I would be remiss if
    I did not take a moment to personally thank my fellow
    Minnesotan, Congressman Collin Peterson, on behalf of myself,
    NTF, and the entire turkey industry for all you did for us last
    year. Thank you.
        Finally the billion dollars in losses are well-documented.
    In order to prevent future outbreaks, the U.S. needs to adopt a
    forward looking mandatory animal pest and disease prevention
    program designed to limit the impacts of foreign zoonotic
    diseases on livestock and poultry producers. We look forward to
    working with Congress to accomplish this.
        All poultry exports were severely damaged by the trade
    restrictions that resulted from the 2015 high-path outbreak.
    Specifically, last year turkey exports declined 34 percent and
    over 33 countries enacted some form of a ban on U.S. poultry.
    Without the hard work of APHIS, it could have been a lot worse.
    They reopened closed markets, as well as continued to establish
    protocols that will limit bans to regional levels in the
    future.
        We also continue to see high-path outbreaks in Europe,
    Asia, and South America, and now is the time to reengage with
    our trade partners to discuss how HPAI can be treated, moving
    forward. This is a global disease, and working with the
    government we can develop a plan that minimizes export
    disruptions now.
        With regards to non-scientific trade barriers, it is
    important that USDA's FAS continue to work with both APHIS and
    the turkey industry to fully understand how we differ from
    chicken and livestock production. For example, while never
    covered under the U.S. COOL regulations, turkey has now become
    subjected to COOL-like regulations by both Korea and South
    Africa, who banned U.S. turkey raised and processed in the U.S.
    just because it was hatched outside the U.S. This is not
    science-based and is a problem for many companies that hope to
    expand sales into these promising growth markets. Finally, we
    support TPP as an important step forward in reducing trade
    barriers and opening new markets to the turkey industry, and we
    encourage Congress to approve this agreement as soon as
    possible.
        Recently, USDA proposed a rule to amend the organic
    livestock and poultry production requirements based on
    recommendations by the National Organic Standards Board. NTF is
    concerned about the potential disruptions to existing organic
    producers and their supply chains, as well as the impacts this
    proposed rule may have in ensuring that animal health is fully
    protected. Before moving forward with the rule, the turkey
    industry feels that USDA should conduct a thorough assessment
    of the cost of compliance, increased animal health and welfare
    risks, and alternatives for existing organic growers,
    producers, and supply chains to ensure minimal impact. Six
    years ago, USDA proposed sweeping rule changes on farmer
    contracting. With the expiration of a Congressional prohibition
    on implementing these changes, USDA is once again threatening
    to fundamentally change the rules by which our members operate.
    We believe that the changes would increase costs, reduce
    productivity, and possibly lead to increased live production
    ownership by integrated poultry companies, to the detriment of
    independent farmers like myself. We support the continued
    prohibition of USDA's implementation of these proposed changes.
        A recent report by the National Academy of Sciences found
    that food made from genetically engineered crops are as safe to
    eat as those made from conventional crops. Regarding food
    labeling, NTF actively supports two critical components of any
    GMO bill that comes out of Congress. First, that the bill
    maintains Federal preemption for meat and poultry labeling,
    which is already regulated by USDA FSIS; and second, that it
    ensures that animals fed GE feed should not have to be labeled
    GE. We look forward to a bill that prevents a patchwork of
    state rules that create a labeling nightmare for food
    producers, but these two conditions must be met.
        Finally, we have a worker shortage all across this country,
    and meat and poultry producers are no different in feeling the
    pain of this shortage. The turkey industry supports immigration
    reform that addresses the needs of year round meat and poultry
    producers and processors. Our members need access to a pool of
    legal, general labor immigrant workers and a visa program that
    could address these needs. However politically difficult it
    seems, we must get this done.
        Once again, thank you for the opportunity to testify today
    on behalf of the U.S. turkey industry and the issues impacting
    our businesses, and I would be happy to answer any questions.
        [The prepared statement of Mr. Zimmerman follows:]

       Prepared Statement of John Zimmerman, Member, Board of Directors,
                   National Turkey Federation, Northfield, MN
        Good morning, Chairman Rouzer, Ranking Member Costa, and Members of
    the Subcommittee. My name is John Zimmerman, and I am a turkey farmer
    from Northfield, Minnesota and past President of the Minnesota Turkey
    Growers Association (MTGA). My family and I raise about 4 million
    pounds of turkeys annually on our farm as well as grow about 500 acres
    of corn and soybeans. I am also a board member of the National Turkey
    Federation, which represents the $32 billion U.S. turkey industry. I
    appreciate the opportunity to testify before you today on the state of
    the turkey industry. The turkey industry raises approximately 238
    million turkeys annually, and provides employment to over 63,000 people
    nationwide, directly associated with breeding, hatching, raising and
    processing turkeys. USDA's latest forecast puts 2017 turkey production
    at an all-time record of 6.4 billion pounds, 14% higher than 2015. As
    an industry, we continue to be challenged with a multitude of issues
    that impact those of us in the turkey business and we look forward to
    working with each of you to address these issues.
    Avian Influenza
        In 2016, the turkey industry has made significant strides in
    recovering from highly pathogenic avian influenza (HPAI), after
    suffering through the worst animal disease outbreak in U.S. history in
    2015. The losses from HPAI were personal and weighed heavily upon the
    shoulders of farmers, rural communities, and companies from the West
    coast to the Midwest.
        As an industry, we continue to learn new lessons from the outbreak
    and guard against the potential return of the deadly virus. Our
    preparation was tested earlier this year in Indiana when a small
    outbreak occurred in a commercial turkey flock. This outbreak was so
    small precisely because of the lessons we've learned. The most
    important lesson is that immediate action needs to be taken at the
    local level to limit virus spread. No matter how good the intentions
    are at the state and Federal level, industry must be given clear
    permission to act within minutes, not hours or days, to protect other
    nearby farms from becoming infected. I must emphasize the need for
    rapid ``stamping out'' procedures and methods that ensure humane
    treatment while eliminating virus spread. Currently there is no one
    method that achieves perfect results in all circumstances.
        NTF is deeply appreciative of the indemnification program
    implemented by USDA and the Animal Plant Health Inspection Service
    (APHIS) along with the strong Congressional support for the turkey
    industry as we managed through the crisis. I would be remiss at this
    time if I did not take a moment to personally thank my fellow
    Minnesotan, Ranking Member Collin Peterson, on behalf of myself, NTF
    and the entire turkey industry for all you did to help last year.
        Our industry continues to work with Federal and state officials on
    key areas such as: biosecurity, depopulation strategy, disposal,
    repopulation, vaccine usage and future research. However, the road
    ahead remains long and as an industry we will need continued support
    from Congress to assist USDA-APHIS on the avian influenza front. The
    2016 Indiana incident is a stark reminder that HPAI is still out there
    looking for an opportunity to strike again. The 2015 damage to the
    poultry industry exceeded $1 billion, with much of that cost borne by
    consumers in the form of higher turkey and egg prices.
        In order to prevent future outbreaks, the U.S. needs to adopt a
    forward-looking, mandatory animal pest and disease prevention program
    designed to limit the impacts of foreign zoonotic diseases on livestock
    and poultry producers. We look forward to working with Congress to get
    this accomplished. As the saying goes, ``an ounce of prevention is
    worth a pound of cure''.
    Exports
        All poultry exports--turkey, eggs and broilers--were severely
    damaged by the trade restrictions that resulted from the 2015 HPAI
    outbreak. Specifically, 2015 turkey exports declined to only 533
    million pounds, a 34% drop from 805 million in 2014. Over 33 countries
    enacted some form of ban on U.S. poultry during the height of the HPAI
    crisis, and I want to make sure to thank the staff of USDA's APHIS for
    their work in reopening closed markets as well as establishing
    protocols that will limit bans to regional levels in any future cases
    of avian influenza. We have seen this hard work pay off in the very
    limited bans enacted after the two cases in 2016.
        However, we continue to see HPAI outbreaks in Europe, Asia and
    South America. Now is the time, to re-engage with our trade partners to
    discuss how HPAI can be treated, moving forward. This is a global
    disease and working with the government we can develop a plan that
    minimizes export disruptions during future outbreaks.
        Additionally, as APHIS knows, there is much more work to be done on
    the international front to protect all sectors from non-scientific
    trade barriers enacted in the name of protecting animal health. It is
    important that USDA's Foreign Agriculture Service (FAS) continue its
    work with both APHIS and the turkey industry to fully understand how
    our industry differs from chicken and livestock production. For
    example, while never covered under the U.S. COOL regulations, turkey
    has unfortunately seen restrictions in response to COOL, with both
    Korea and South Africa banning U.S. turkey ``hatched'' outside the U.S.
    This causes significant problems for many companies that hope to expand
    sales in these promising, growth markets.
        Finally, we support the Trans-Pacific Partnership Agreement (TPP)
    as an important step forward in reducing trade barriers and opening new
    markets for the turkey industry. We encourage Congress to approve the
    agreement as soon as possible.
    Organic Rule
        Recently, USDA proposed a rule to amend the organic livestock and
    poultry production requirements based on recommendations by the
    National Organic Standards Board. NTF is concerned about the potential
    disruption to existing organic producers and their supply chains, as
    well as the impacts this proposed rule may have on ensuring that animal
    health is fully protected. Before moving forward with the rule, the
    turkey industry feels that USDA should conduct a thorough assessment of
    the costs of compliance, increased animal health and welfare risks, and
    alternatives for existing organic growers so that producers and supply
    chains directly impacted by these changes will be minimally impacted.
    USDA's Grain Inspection, Packers and Stockyards Administration (GIPSA)
        Six years ago, USDA proposed sweeping rules changes on farmer
    contracting. With the expiration of a Congressional prohibition on
    implementing those changes, USDA is once again threatening to
    fundamentally change the rules by which our members operate. We
    continue to believe that the changes would increase costs, reduce
    productivity, and possibly lead to increased live production ownership
    by integrated poultry companies, to the detriment of independent
    farmers. We support the continued prohibition of USDA's implementation
    of the proposed changes for the simple fact that the unintended
    consequences would outweigh any purported benefits.
    Food Labeling
        A recent report by the National Research Council--the working arm
    of the National Academy of Sciences, Engineering and Medicine--found
    that foods made from genetically engineered crops are as safe to eat as
    those made from conventional crops, and that GMOs generally improve
    farmers' yields by controlling pests and weeds. With regards to food
    labeling, NTF continues to actively support the two critical components
    of any GMO bill that comes out of Congress: (1) That the bill maintains
    Federal preemption for meat and poultry labeling, which is already
    regulated by USDA-FSIS and (2) that it ensures that animals fed GE feed
    should not have to be labeled GE. We look forward to having a bill that
    prevents a patchwork of state rules that create a labeling nightmare
    for food producers. The U.S. needs a single set of labeling rules that
    are common-sense and based on the most respected science known.
    Immigration
        We have a worker shortage all across the country, and meat and
    poultry producers are no different in feeling the pain of this
    shortage. The turkey industry supports immigration reform that include
    policies and provisions that will maximize benefits to the turkey
    industry and ensure a strong and durable immigration system that meets
    the needs of the U.S. economy. Most turkey plants are located in rural,
    low-unemployment areas. To fully staff these plants, producers must
    recruit from outside of their local areas and in many instances must
    rely on first-generation Americans. There are very few permanent visas
    for less skilled workers and the existing temporary programs only apply
    to seasonal labor. This effectively leaves year-round meat and poultry
    manufacturers with no good options. Our members need access to a pool
    of legal, general labor immigrant workers, and we support a visa
    program that addresses the needs of the meat and poultry industry.
    There is currently no one bill that provides a ``silver bullet,'' but
    it is time to resolve the immigration debate for the good of the
    country.
        Once again, thank you for the opportunity to testify today on the
    state of the U.S. turkey industry and the issue impacting our
    businesses. I will be happy to answer any questions at this time.

        The Chairman. Thank you, Mr. Zimmerman.
        Mr. Mooney?

     STATEMENT OF RANDY MOONEY, CHAIRMAN, NATIONAL MILK PRODUCERS
                    FEDERATION AND DAIRY FARMERS OF
                        AMERICA, ROGERSVILLE, MO

        Mr. Mooney. Thank you, Chairman Rouzer, Ranking Member
    Costa, and distinguished Members. Thank you for the opportunity
    to testify before the Subcommittee, and I want to thank
    Congresswoman Hartzler for the kind introduction.
        To be clear, times are tough on America's dairy farms. For
    the second year in a row, USDA projections indicate that
    revenues from milk sales will drop this year to $31.5 billion,
    the second lowest level in the last decade, and more than a $20
    billion plunge from 2014's high. As U.S. milk production has
    grown and we have had to rely more heavily on world markets,
    our fortunes are now more closely tied to the extreme
    volatility that are a feature of global commodity markets.
        Because of volatility in both milk and feed, we must
    continue to reassess our risk management tools. For most of the
    8 years that I have been Chairman of the National Milk, I have
    worked with our member cooperatives and dairy producers to
    build a better safety net. Our request to Congress after the
    economic disaster our industry suffered in 2009 was to create a
    risk management tool that would provide protection against the
    prolonged and catastrophic cost price squeeze we had
    experienced. In the 2014 Farm Bill, Congress created the Margin
    Protection Program. Approximately 23,000 dairy producers are in
    the program, representing 80 percent of the milk supply. In
    2015, U.S. dairy producers paid $73 million in premiums and
    fees to USDA, while USDA only paid out $700,000 under the
    program. This year, dairy farmers have paid in another $23
    million. I firmly believe MPP is the right dairy program for
    the future. That said, our experience today is that MPP is not
    completely fulfilling its intended objective as an effective
    safety net, but we remain confident that the improvements can
    be made by the Congress for this still evolving program.
        For many farmers, the current program is simply not enough
    to protect them in this economic environment. Since the farm
    bill was signed into law, MPP margins have fallen 52 percent,
    with further declines expected. While MPP is similar to the
    initial proposal put forward with National Milk, the plan was
    altered during the farm bill process. One change reduced the
    feed cost component of the margin so the current formula no
    longer reflects the true cost of feeding the herd. Second,
    while the feed cost component was changed, farmers' premiums
    were not, when they should have been reduced to accommodate the
    reduced feed component. MPP has been less effective as a
    result. I have heard from many dairy farmers that their
    financial challenges will only increase if the prices do not
    improve before 2017. We continue to discuss ways forward with
    our member cooperatives, USDA, and the Congress.
        Clearly, adjustments to the feed cost calculation and the
    farmer paid premiums would improve MPP's effectiveness as a
    safety net for all dairy producers. The feasibility and timing
    of such adjustments are issues we want to explore with the
    Committee.
        Our industry is also impacted by numerous other policy
    issues that are described more fully in my submitted comments,
    but I want to highlight two of them today. First is the
    critical importance of Congress acting immediately to pass
    legislation to ensure that a single Federal standard is
    established on labeling of a genetically modified food. I
    cannot emphasize enough how important it is that Congress
    resolve this matter before July 1, when the Vermont law takes
    effect. Failure of Congress to address this issue threatens the
    viability not only of my farm, but also the 30,000 farmers I
    represent. It also threatens our ability to feed the world's
    growing population.
        Trade is another area of importance to dairy farmers. Our
    nation has gone from exporting less than $1 billion worth of
    products in 2000 to more than $5.2 billion of exports in 2015,
    an increase of 435 percent. This enormous growth can be largely
    attributed to the market opening free trade agreements
    negotiated by our government. We support the TPP agreement
    because it can help U.S. dairy exports continue to grow in key
    world markets, but in order for farmers to realize any benefit,
    important implementation and enforcement issues must be
    addressed as Congress prepares to consider TPP.
        Separately and finally, any trade agreement with the
    European Union must first prioritize how to tackle our trade
    deficit with Europe, while also addressing the non-tariff
    barriers, like geographic indicators and sanitary barriers the
    EU uses to limit our access. The EU has not demonstrated a good
    faith commitment to open agricultural trade. The U.S. must
    proceed cautiously by securing clear commitments from the EU to
    guard against the imposition of future trade barriers.
        Mr. Chairman, I want to thank you for holding this
    important hearing. America's dairy farm families stand ready to
    help this Committee as you review current policies and consider
    new legislation that impacts our industry. Thank you.
        [The prepared statement of Mr. Mooney follows:]

     Prepared Statement of Randy Mooney, Chairman, National Milk Producers
            Federation and Dairy Farmers of America, Rogersville, MO
    About Randy Mooney
        My wife, Jan, and I operate Mooney Dairy in Rogersville, Missouri.
    I serve as Chairman of the National Milk Producers Federation (NMPF)
    and Chairman of Dairy Farmers of America (DFA), the nation's largest
    dairy cooperative. In addition to my duties as chairman of NMPF and
    DFA, I serve on the boards of several dairy organizations, including
    Missouri State Milk Board, Dairy Management Inc., Hiland Dairy and the
    Innovation Center for U.S. Dairy.
    About NMPF
        National Milk Producers Federation develops and carries out
    policies that advance the well-being of dairy producers and the
    cooperatives they own. The members of NMPF's cooperatives produce the
    majority of the U.S. milk supply, making NMPF the voice of more than
    30,000 dairy farmers on national issues.
    Opening Statement
        Chairman Rouzer, Ranking Member Costa, and distinguished Members,
    thank you for this opportunity to testify before the Subcommittee.
        I am here today as Chairman of the National Milk Producers
    Federation, the voice of America's dairy cooperatives and their 30,000
    farmer-members. For 100 years, National Milk has advocated on behalf of
    our nation's dairy farmers. I also serve as Chairman of Dairy Farmers
    of America, the nation's largest dairy cooperative.
    Dairy Market Situation
        To be clear, times are tough on America's dairy farms for the
    second year in a row. USDA's projections indicate that farm revenue
    from milk sales will drop this year to $31.5 billion--the second-lowest
    level in the last decade and. That's more than a $20 billion plunge
    from 2014 highs. Unfortunately, the value of the fresh milk I produce
    today is worth 22 percent less than it was 10 years ago, and nearly 40
    percent less than only a few years ago.
        The difficult economic conditions and tighter operating margins
    over the last 10 years have resulted in the loss of more than 18,000
    dairy farms in the United States. I fear the present environment of
    depressed market prices could result in even more farm closures. USDA
    projects the 2016 U.S. all-milk price to average $14.85 per
    hundredweight. If realized, this price would represent a milk price
    decline of nearly 40 percent from 2014 and is second only to 2009 in
    terms of low milk prices over the last decade. For a small family farm
    milking 100 cows, this price decline equates to a farm revenue decline
    of approximately $200,000.
        In my home State of Missouri, the situation is even worse. Over the
    last 10 years, I've seen more than 600 of my home state dairy farmers
    quit the business. We always knew dairy was a boom and bust industry,
    but the recent swing of the pendulum back toward low prices is taking a
    lot of farmers with it. Unlike other parts of the country where dairy
    cows are absorbed by other operations, in Missouri we are producing
    less milk year after year, and we are being paid less than the U.S.
    all-milk price for that milk. USDA's mailbox milk prices for northern
    and southern Missouri during 2015 indicated that the price Missouri
    dairy farmers actually received was 14 to 22 per hundredweight less
    than the U.S. average. The value of dairy to our state's economy has
    also been diminished. The value of milk produced on the farm, and paid
    to the farmer, has declined by more than $100 million over the past 18
    months. The upstream effect is that dairy farmers in Missouri have less
    money to reinvest in the local economy and less money to hire workers.
    But it doesn't end there; a weaker dairy economy results in fewer jobs
    supported by the industry in the processing and retail channels.
    Milk Prices, Feed Costs, and MPP Margin
        I'd like to provide some economic context to the dramatic situation
    in the dairy industry I just described. The USDA monthly all-milk price
    reached a monthly record high of $25.70 in September 2014, and averaged
    a record high of $24 for the year. Following this record, the monthly
    all-milk price declined in 13 of the next 18 consecutive months. In
    2015, the average all-milk price was $17.10, down 30 percent from
    2014.Through the first 3 months of 2016, the all-milk price has
    averaged $15.70 per hundredweight. USDA currently projects the annual
    average 2016 price to range from $14.60 to $15.10 per hundredweight.
        The decline in milk prices can be traced directly back to sharp
    declines in the price of nonfat dry milk, dry whey, and cheese since
    late-2014. Nonfat dry milk prices reached a high of $2.09 per pound in
    March 2014, and for the year averaged $1.77 per pound. By 2015, the
    nonfat dry milk price average had dropped $0.90 per pound. As recently
    as April 2016, the nonfat dry milk price dropped to $0.73 per pound.
    This most recent price is the lowest nonfat dry milk price reported
    since Federal Order reform was instituted in 2000 and, importantly, is
    below the $0.80 per pound price previously supported under the dairy
    price support program. Similarly, in 2015 the average cheese price was
    down 51 percent to $1.65 per pound; and the dry whey price was down 27
    percent to $0.38 per pound.
        Butter prices have been the bright spot in terms of dairy commodity
    prices. The monthly USDA price reported for butter reached a record
    high in September 2014 of $2.85 per pound. For 2014, the average butter
    price was $2.14 per pound. During 2015 the annual average butter price
    declined only slightly to $2.07 per pound and was as high as $2.80 per
    pound in November 2015. This strength in the butter price resulted in
    the value of milkfat contributing as much as 52 percent to the value of
    Class III milk--up 13 percentage points from the 2000 to 2014 average.
    Without this support in butter prices, dairy farmer milk checks would
    have been substantially lower in 2015 and 2016.
        Average feed costs during 2014, based on USDA's MPP dairy ration,
    were $10.67 per hundredweight. This price dropped in 2015 to an annual
    average of $8.77 per hundredweight. While these prices are well below
    the $13 per hundredweight average during 2012 and 2013, they continue
    to pressure income-over-feed-costs as milk prices move lower. During
    2014 the MPP margin, defined as the all-milk price minus the MPP
    ration, averaged $13.29 per hundredweight and reached a record high of
    $15.62 in October 2014. Since this time, weaker milk prices and
    stronger feed prices pushed the MPP margin to a low of $7.50 per
    hundredweight in April 2015 before increasing to $10.01 by November
    2015. Since November 2015, MPP margins have deteriorated by $2.55 per
    hundredweight, approximately 25 percent, to $7.47 per hundredweight in
    March 2016. This March 2016 MPP margin is the lowest since the program
    was introduced in September 2014.
    Supply of Milk and Dairy Products
        Following the record high prices and margins of 2014, the industry
    expanded by approximately 58,000 milking cows to accommodate the
    growing export demand for dairy products. The total number of milking
    cows in the U.S. now stands at 9.3 million head as of March 2016. In
    addition to an increase in the population of the milking herd, average
    milk per cow also increased from the 2014 total of 22,258 pounds per
    year, to 22,383 pounds per year in 2015--up 125 pounds per cow. USDA
    data on milk per cow through March 2016 indicates this pattern will
    continue. As a result of the additional milking cows and improved
    productivity, milk production in the U.S. grew by 2.6 billion pounds
    between 2014 and 2015, reaching 208.6 billion pounds last year. Current
    USDA projections call for 212.4 billion pounds of milk to be produced
    this year. This total would represent an increase of 3.8 billion pounds
    of milk over last year's levels.
        The additional milk that has come online flowed into additional
    cheese, butter, and milk powder production. During 2014, American-type
    cheese production totaled 4.59 billion pounds. Production increased by
    107 million pounds in 2015 to 4.7 billion pounds, an increase of two
    percent. This expansion is in line with recent growth rates of one to
    four percent per year. For other cheese categories, total production in
    2014 was 6.9 billion pounds, rising by nearly 220 million pounds in
    2015 to 7.1 billion pounds--an increase of three percent. Additional
    milk produced in 2015 also made it into butter churns, up only slightly
    from prior year levels. During 2014, butter production totaled 1.855
    billion pounds, increasing marginally by 2.7 million pounds in 2015 to
    1.858 billion pounds. Finally, similar to cheeses and butter,
    additional milk powders were also produced in 2015. Nonfat dry milk and
    skim milk powder production were 1.82 billion pounds in 2015, a bump up
    of 58 million pounds, or three percent, from 2014 levels. Similarly,
    dry whey production in 2015 totaled 975 million pounds and was up 105
    million pounds, or 12 percent, from 2014.
        With milk production in 2016 also expected to rise compared to last
    year, production of cheese and butter are also expected to increase.
    Non-leap year adjusted U.S. production of all cheese is up 1.8 percent
    year-to-date through March, and butter production is up 5.9 percent
    through March.
    Domestic Demand and Dairy Trade
        Consumption of dairy products produced in the U.S. is broken down
    into the domestic market and the export market. Domestic consumption of
    cheese, butter, nonfat dry milk, and dry whey are all up in 2015
    compared to 2014 levels. Domestic consumption of cheese was up 385
    million pounds to 11.4 billion pounds during 2015. Domestic butter
    consumption in 2015 was up 54 million pounds to 1.8 billion pounds.
    Domestic consumption of nonfat dry milk in 2015 was up 65 million
    pounds to 1.1 billion pounds. Finally, domestic consumption of dry whey
    was up 216 million pounds to 579 million pounds.
        With respect to dairy trade, all products except for nonfat dry
    milk have seen their export volumes erode from the record high levels
    of 2013 and 2014. Butter product exports reached a high of 178 million
    pounds in 2013, before falling to a 7 year low of 37 million pounds in
    2015. Year-over-year, the decline in butter exports during 2015 was
    down 93 percent from 2014 levels. Total cheese exported reached a
    record high in 2014 at 812 million pounds. However, in 2015 total
    cheese exported from the U.S. declined 14 percent to 698 million
    pounds. Nonfat dry milk and skim milk powders were one of the few
    bright spots for dairy exports in 2015. Record low powder prices
    resulted in record high export volumes in 2015. In 2015, nonfat dry
    milk exports were up three percent over 2014 levels and totaled 1.2
    billion pounds. Combined, the value of dairy product exports in 2014
    was $7.1 billion. The decline in dairy product prices and the export
    volume resulted in the value of U.S. exports in 2015 totaling $5.2
    billion--a decline of $1.9 billion.
        As U.S. prices rose in 2014 to record highs, it created a pricing
    opportunity for dairy exporters around the world to access the U.S.
    market. Imports of dairy products, especially in the higher fat cheese
    and butter product categories, have contributed to weaker U.S. domestic
    prices. For example, in 2013 the U.S. imported approximately 36.5
    million pounds of butter and butter products. By 2014 that total had
    surged 28 percent to 47 million pounds, and then again in 2015 it
    increased another 22 percent to 57 million pounds. The net effect: over
    a period of 2 years, butter product imports into the U.S. have
    increased 229 percent. For cheese a similar pattern was observed.
    Cheese imports into the U.S. totaled 288 million pounds in 2013, and
    since then have grown by more than 90 million pounds, 32 percent, to
    reach 379 million pounds in 2015. On a value basis, dairy product
    imports into the U.S. have never been higher--reaching $3.4 billion in
    both 2014 and 2015.
    Stock Levels
        The preceding set of numbers is manifesting itself in the real
    world as a logjam of dairy products, resulting from slower exports,
    increasing milk production, and imports displacing domestically
    produced products. These conditions create larger dairy product
    inventories. A variety of news sources including Bloomberg and the Wall
    Street Journal are now reporting on the record volumes of cheese in
    inventory. In addition to cheese, butter inventories are well above
    prior year levels.
        Stocks of cheese at the end of 2014 were slightly higher than 1
    billion pounds. By the end of 2015 this total had increased 13 percent
    to 1.15 billion pounds. Now, at the end of March 2016 total cheese in
    inventory reached 1.19 billion pounds. This is the highest level of
    cheese held in cold storage since the early 1980's, and is the second
    highest total in March going back to 1917.
        Stocks of butter at the end of 2014 were 105 million pounds--and
    were at the lowest levels for December since 2010. Tightness in the
    butter market provided support to domestic prices and also incentives
    to import butter or butter alternatives. As a result, by the end of
    2015 butter in cold storage increased 48 percent to 155 million pounds.
    Now, at the end of March 2016, a point in time when butter inventories
    reach a seasonal peak, butter in cold storage has reached 243.6 million
    pounds. This is far from a record, but remains well above butter
    storage levels of recent years.
    Perspective on the Margin Protection Program
        Because of the volatility in both milk and feed prices, we must
    continue to reassess our risk management tools. And by we, I mean both
    farmers as well as the Congress. For most of the 8 years I've been
    Chairman of National Milk, I've worked with our member cooperatives,
    and dairy producers across the country, to build a better safety net.
    The previous elements of dairy policy had failed to evolve with the
    industry. Our request to Congress after the economic disaster our
    industry suffered in 2009 was to create a risk management tool that
    would offer protection against prolonged and catastrophic income-over-
    feed-cost margin declines like we experienced in 2009. In the 2014 Farm
    Bill, Congress created the Margin Protection Program. Approximately
    23,000 dairy producers are in the program, representing 80 percent of
    our milk supply.
        MPP is a voluntary program to provide support when the difference
    between the milk price and feed costs falls below certain thresholds.
    Every fall, dairy farmers must decide on coverage options for the
    following year. In 2015, U.S. dairy producers paid $73 million dollars
    in premiums and fees to USDA, while USDA only paid out $700,000 under
    the program. This year, dairy farmers have paid in another $23 million.
        I firmly believe that MPP is the right program for our industry for
    the future. That said, our experience to date is that MPP is not
    completely fulfilling its intended objective as an effective safety
    net. We remain confident that improvements can be made by the Congress
    to this still-evolving program. Since the farm bill was signed into
    law, MPP margins have fallen 52 percent. The MPP margin is already at
    its lowest level since the program was enacted, with further declines
    expected. Specifically, USDA's MPP decision tool now projects the
    margin to drop below $6 per hundredweight by June. If realized, this
    would be the lowest margin since 2013, and already the MPP margin is at
    its lowest level since the program was introduced in 2014. In this
    environment, farmers naturally expect that the farm safety net would
    provide some minimum level of support.
        So why is the program not operating as expected? While MPP is
    similar to the initial proposal put forward by National Milk, the plan
    was altered as Congress finalized the Farm Bill in 2014. One change
    reduced the feed cost component of the margin so the current formula no
    longer reflects the true cost of feeding a herd. Second, while the feed
    cost component was changed, farmer premiums did not (and some were even
    adjusted upward), when they should have been changed to accommodate the
    reduced feed component. MPP has been less effective as a result.
        Let me describe this situation in greater detail. During the farm
    bill negotiations Congress reduced the MPP feed ration by ten percent.
    While this may not seem material, it had significant financial
    implications for those farms participating in MPP. During 2015, the
    average MPP margin was $8.30 and ranged from a low of $7.50 in the
    spring to $8.65 by the end of the year. These margins triggered MPP at
    only the highest coverage level of $8 per hundredweight and only 264
    farmers received payments. Had Congress not reduced the feed ration
    calculation, MPP margins would have been approximately $1 per
    hundredweight lower and more than 8,500 dairy farmers would have
    received a benefit from MPP. At a time when margins are depressed,
    missing out on these important safety net benefits due to budgetary
    concerns resulted in tens of million dollars of lost dairy farmer
    revenue.
        It is clear that while the effectiveness of the program was
    reduced, the premiums remain at the original level, which at this time
    should have been changed to accommodate forecasted risk environment.
    The ten percent reduction to the feed ration hurt program performance
    and also farmers' perception of the program. Many farmers saw that the
    MPP didn't pay out much, even at the highest levels, in 2015. So, in
    2016 they opted for the least expensive level of coverage required by
    law. Approximately 77 percent of the farmers and 88 percent of the milk
    enrolled in MPP during 2016 were are at only this $4 coverage only. Had
    Congress not reduced the feed ration, more farmers would have seen
    benefits in 2015 and participated at higher levels this year. More
    participation means protection in this current high risk environment.
    However, given the current feed ration, even with margins expected to
    reach the lowest levels in years, total program payments are not
    expected to exceed premiums for the second consecutive year.
        In addition, U.S. dairy farmers simply could not have anticipated
    the impact a highly-subsidized European dairy industry would have on
    U.S. dairy prices following the April 2015 expiration of the EU milk
    quota system. Since April 2015, EU dairy farmers have increased milk
    output by more than 12 billion pounds over prior year levels. The
    additional milk being produced by EU farmers is equivalent to 30
    percent of California's annual output, 42 percent of Wisconsin's annual
    output, and is 800 percent higher than production from dairy farmers in
    my home state of Missouri. This milk is not staying in the EU. Instead,
    it is being absorbed in the global market at extremely low prices. It
    is finding its way into EU public stockholding programs and delaying
    global price recovery. And, finally, this milk is displacing U.S.-
    produced dairy products domestically and abroad through additional
    imports and increased market share in competitive export regions.
    Actions in the EU are having a very real impact in rural America. The
    net effect is larger inventories here at home, and U.S. producers
    enduring a longer period of depressed dairy market prices. MPP is not
    designed to provide support against highly subsidized EU dairy
    producers oversupplying and undercutting us in the global market.
        In my role as NMPF Chairman I've toured the country talking to
    dairy farmers about MPP. The overwhelming concern has been the feed
    ration and the premium rates. Congress also adjusted the premiums rates
    higher (the wrong way) due to budgetary concerns. During 2014 and 2015
    Congress did provide a 25 percent discount to the lower tier premiums
    under $8 per hundredweight. This made MPP more affordable to small
    family farms like my own, as we explored risk management for the very
    first time. However, this past year the premium discounts were removed
    and MPP premiums increased substantially. With balance sheets already
    thin due to the depressed price environment of 2015, and MPP under-
    performing relative to expectations, many farmers could not justify
    buy-up MPP coverage in 2016, even though it was sorely needed. The
    expected benefits of MPP did not outweigh the costs and is likely to
    result in 2 consecutive years of premium payments without a measurable
    return. At the end of the day, dairy farmers just want consistent
    access to affordable risk management tools.
        We appreciate all of the recent improvements made by USDA,
    including monthly premium payments, decoupling $4 coverage from the
    buy-up provisions, and providing additional time to make coverage
    decisions. But the program remains a work in progress. For many
    farmers, the program is simply not enough to protect them in the
    current economic environment.
        I have heard from many dairy farmers that their financial
    challenges will only increase if prices do not improve before 2017.
    Lower commodity prices and slow-adjusting input costs are impacting the
    ability of dairy farmers repay loans and forcing many farmers to
    finance operating losses. These difficulties will have ramifications
    throughout the dairy economy, and unfortunately USDA economists and
    dairy industry experts all seem to be in agreement that dairy prices
    may be very slow to recover. That's why it is important, now more than
    ever, to ensure that problems with MPP are addressed head-on and the
    program is improved in such a way that makes it a valuable risk
    management tool to all dairy farmers in the U.S.
        We continue to discuss ways to improve MPP with our dairy farmer,
    USDA and the Congress. Clearly, adjustments to the feed cost
    calculations and the supplemental coverage costs would improve its
    effectiveness as a safety net for all dairy producers. The feasibility
    and timing of adjustments to the program are an issue we want to
    explore with the Agriculture Committee.
    Biotechnology
        NMPF has long supported the right of consumers to know how their
    food is produced, and where it comes from. In fact, few industries have
    been more transparent than we in the dairy industry have. We are proud
    of the standards that guide our farmers and the care they put into
    their cows and the milk and dairy products that they produce. That is
    why we supported legislation introduced by Congressman Mike Pompeo of
    Kansas, known as the Safe and Accurate Food Labeling Act (H.R. 1599).
    On that note, I want to thank this Committee and those Members who
    helped advance this legislation last year.
        It is of critical importance that Congress act immediately to pass
    legislation to ensure that a single, Federal standard is established on
    the labeling of bioengineered foods. I cannot emphasize enough how
    important it is that Congress resolve this matter, before July 1st when
    the Vermont law takes effect. Failure by Congress to address this issue
    threatens the viability of not only my farm, but also 3,000 farmers I
    represent. It also threatens our ability to feed the world's growing
    population I than this Committee for its previous work on this issue
    and urge immediate action to bring this matter to final resolution.
    Trade Policy
        Our nation has gone from exporting less than $1 billion in dairy
    products in 2000, to more than $5.2 billion of exports in 2015, an
    increase of 435 percent. (Sales in 2014 were even greater at over $7
    billion, before retrenching during a global dairy recession last year,
    as noted previously). This enormous growth can be largely attributed to
    the market-opening free trade agreements negotiated by our government,
    including the Uruguay Round which took steps to reduce export subsidies
    and implement the first SPS agreement. These agreements lowered and
    ultimately removed tariffs and in many cases they gave our products a
    preferential advantage over other supplying countries. They also helped
    remove technical and regulatory barriers to our trade. Over that
    period, our exports of dairy products to free trade agreement (FTA)
    partner nations grew by 489 percent as compared to 384 percent to non-
    FTA countries.
        We must acknowledge that dairy exports last year dropped from the
    record $7.1 billion achieved in 2014. This was due in large part to a
    significant drop in global prices for milk powders and cheeses. In
    addition, the increased value of the dollar and the strong global milk
    supply have contributed to the decline in prices. But it is also worth
    noting that, while our exports to non-FTA countries contracted by 32
    percent, they fell by only 20 percent to our FTA partner countries.
        Our FTAs have created important new market access opportunities for
    us and we have worked very hard through our market development efforts
    to ensure that we are taking full advantage of them. It is not a
    foregone conclusion, however, that all trade agreements will be
    beneficial. Their terms matter extensively, as does the level of
    follow-through to ensure we secure the full scope of the benefits for
    which the U.S. negotiated.
        We support the Trans-Pacific Partnership agreement because it can
    help U.S. dairy exports continue to grow in key world markets. But, in
    order for farmers to realize any benefit, important implementation and
    enforcement issues must be address as Congress prepares to consider
    TPP.
        Diligent implementation of U.S. free trade agreements is a vital
    component to ensuring their effectiveness. Past experience in the dairy
    industry has demonstrated to us the clear value in strong engagement
    with our trading partners to foster compliance with their obligations
    to the U.S. It has also demonstrated just how important the terms of an
    agreement are. Past negotiations with the EU have led to trading terms
    and regulatory conditions that drive the current $1.4B dairy trade
    deficit with the EU.
        Any future agreement with the EU must first and foremost prioritize
    how to tackle this tremendous trade deficit and attack the non-tariff
    barriers, such as the Geographical Indicators as well as sanitary
    barriers that the EU uses to limit our access. Critically, fully
    addressing those barriers requires not just a focus on today's problems
    but a clear commitment through the trade agreement that new
    requirements will not be laid on top of any resolutions reached on the
    current range of issues. The EU has not demonstrated a good-faith
    commitment to open agricultural trade; the U.S. must proceed cautiously
    by securing specific and clear commitments from the EU to guard against
    the imposition of future trade barriers.
    Immigration Reform
        Our current immigration system is failing America's dairy farmers.
    When dairy farmers seek employees, they often find that Americans are
    unwilling to do the difficult job of dairying. However, unlike other
    industries which have codified access to foreign workers, dairy does
    not. This is due to the year round nature of our industry which makes
    us ineligible to participate even in the deeply flawed, though well-
    intentioned, H-2A program. As such, the current labor situation we are
    experiencing now threatens the livelihoods of dairy farmers in every
    region of this country.
        According to a University of Texas A&M report released in August
    2015 (and conducted in coordination with NMPF), 51% of all dairy farm
    workers are immigrants, and the farms that employ them account for 79%
    of the milk produced in the United States. Without access to a steady
    and reliable workforce, our industry will not be able to thrive, let
    alone survive, in the future. That is why NMPF has led the way to urge
    this Congress to pass immigration reform addressing the needs of
    American agriculture. While I recognize the delicate balance you must
    strike politically regarding this issue, America's dairy farmers cannot
    wait any longer for real reform.
    Environmental Sustainability
        Dairy farmers are the original environmentalists, and care deeply
    about the land, air, and water that they manage on and around their
    farms. In recent years, however, Federal and state regulators have
    applied significant pressure on the dairy sector to reduce nutrient
    output to improve water quality in dairy producing regions from the
    Chesapeake Bay Watershed to northern Wisconsin all the way to central
    Washington.
        We as an industry have invested significant resources to
    proactively respond to this challenge, and we continue to work to
    embrace the best possible environmental practices. In 2008, the dairy
    industry voluntarily set a goal of reducing greenhouse gas (GHG)
    emissions from fluid milk by 25 percent by 2020, and has since
    undertaken several projects intended to help meet that goal.
    Importantly, since 1944, GHG emissions per pound of milk produced have
    decreased by 63 percent and total GHG emissions from dairy production
    have decreased by 41 percent.
        Like other sectors of the economy, dairy farmers are impacted by
    the current climate of political, legal, and regulatory uncertainty. To
    help us stand on a stronger footing, we have begun to advocate for
    proactive policy solutions that will help us turn an environmental
    liability such as manure into a valuable asset. The dairy industry is
    working with bipartisan Members of the tax-writing Ways and Means
    Committee to propose an Investment Tax Credit to cover the up-front
    capital costs of biogas systems and nutrient recovery technologies,
    which can play an important role in reducing the environmental impacts
    of dairy farming.
    Closing Statement
        Mr. Chairman, I want to thank you for holding this important
    hearing today. America's dairy farm families stand ready to help this
    Committee as you review current policies and consider new legislation
    that impacts our industry.

        The Chairman. Thank you, Mr. Mooney.
        Mr. Herring?

              STATEMENT OF DAVID HERRING, MEMBER, BOARD OF
              DIRECTORS, NATIONAL PORK PRODUCERS COUNCIL,
                            NEWTON GROVE, NC

        Mr. Herring. Good morning, Mr. Chairman, Ranking Member
    Costa, and Members of the Subcommittee. I am David Herring, a
    Member of the Board of Directors at the National Pork Producers
    Council from North Carolina and Vice President of TDM Farms, a
    sow farrow-to-finish operation, incorporated out of North
    Carolina.
        The U.S. pork industry is in good economic shape after a
    couple years of dealing with disease issues and weather-related
    high feed grain prices. It now appears to be moving into a
    period of cautious, calculated expansion. Pork production is
    forecast by USDA to increase this year by two percent to almost
    25 billion pounds, and in 2017 by 2.6 percent, to more than
    25\1/2\ billion pounds. Of course, producers' fortunes can be
    affected for good or for ill by any number of factors, some
    controllable, some not so controllable such as disease and
    weather.
        I was going to first address an opportunity that would be
    very positive for hog farmers like me, and that Congress can
    control, the Trans-Pacific Partnership, or TPP. But another
    issue recently has come up that if not addressed would wipe out
    any benefits we gain from TPP. Pork producers are very
    concerned about the so-called GIPSA rules. As many of you know,
    the rule was born out of the 2008 Farm Bill, which included
    five specific issues, mostly related to the poultry industry,
    Congress wanted USDA to address. But the Grain Inspection,
    Packers and Stockyards Administration in 2010 proposed an
    expansive rule that would have had a significant negative
    effect on the livestock industry. A November 2010 Informa
    Economics study of the rule found it would have cost the pork
    industry more than $330 million annually. Tens of thousands of
    comments, including 16,000 from pork producers, were filed in
    opposition to the rule, and Congress several times included
    riders in USDA's annual appropriations bill to prevent it from
    finalizing the regulation. Such an amendment was not included
    in the USDA's Fiscal Year 2016 bill. Now the agency is moving
    forward with the rule, and we have grave concerns it will
    mirror the 2010 proposal. If it does, the livestock industry
    will be fundamentally and negatively changed and the increased
    exports and jobs created from TPP will or could be negated.
        Additionally, the fact that we have to deal with this GIPSA
    rule issue is diverting valuable resources away from the pork
    industry's top priority, approval of TPP.
        TPP, the benefits of which will exceed all past free trade
    agreements, represents a great opportunity for U.S. pork
    producers and for the entire U.S. economy. TPP includes the
    United States and 11 Pacific Rim countries. Those nations
    include nearly \1/2\ billion consumers and represent 40 percent
    of the world's GDP.
        The agreement has become the de facto global trade vehicle
    and other countries in the region are already lining up to get
    on it. Because other Asian Pacific trade agreements are being
    negotiated without the United States we can't afford either
    economically or geopolitically to walk away from the fastest
    growing region in the world.
        To give you an idea of the importance of free trade
    agreements to the U.S. pork producers, the United States now
    exports more pork to 20 countries with which it has FTAs than
    to the rest of the whole world. Congress must pass the TPP, and
    it must be done soon.
        Finally, a challenge that would be out of everyone's
    control but that could be tempered by preparedness is a foreign
    animal disease outbreak. Specifically, an outbreak of foot-and-
    mouth disease. An FMD outbreak in this country would be
    economically devastating to U.S. pork producers and other food
    producers. USDA and the livestock industry have been working on
    a plan to combat an outbreak, but the only practical way is
    through vaccination. Unfortunately, we currently don't have the
    ability to produce the number of doses needed for an initial
    outbreak with the capacity to produce more. The U.S. pork
    industry believes consistent with Homeland Security
    Presidential Directive 9 that an adequate FMD vaccine bank must
    be established. This will require an offshore vendor-maintained
    bank that would have available antigen concentrate to protect
    against all of the 23 most common FMD types currently
    circulating in the world. A vendor-managed inventory of ten
    million doses, which is the estimated need for just the first 2
    weeks of an outbreak, and a contract with an international
    manufacturer or manufacturers with a reserve capacity to
    produce at least 40 million additional doses.
        Given the cost of dealing with an FMD outbreak and the
    economic impact on the livestock industry, and indeed on the
    entire U.S. economy, Congress should appropriate enough money
    to set up such a vaccine bank. Those are just a few of the
    opportunities and challenges that pork producers face. I thank
    you for your time and I would be happy to answer any questions.
        [The prepared statement of Mr. Herring follows:]

       Prepared Statement of David Herring, Member, Board of Directors,
               National Pork Producers Council, Newton Grove, NC
    A Review of the U.S. Livestock and Poultry Sectors: Marketplace
            Opportunities and Challenges
    Introduction
        The National Pork Producers Council (NPPC) is an association of 43
    state pork producer organizations that serves as the global voice for
    the nation's pork producers. The U.S. pork industry represents a
    significant value-added activity in the agricultural economy and the
    overall U.S. economy. Nationwide, more than 68,000 pork producers
    marketed more than 115 million hogs in 2015, and those animals provided
    total gross income of nearly $24 billion. Overall, an estimated $23
    billion of personal income and $39 billion of gross national product
    are supported by the U.S. pork industry.
        Economists Daniel Otto, Lee Schulz and Mark Imerman at Iowa State
    University estimate that the U.S. pork industry is directly responsible
    for the creation of more than 37,000 full-time equivalent pork
    producing jobs and generates about 128,000 jobs in the rest of
    agriculture. It is responsible for approximately 102,000 jobs in the
    manufacturing sector, mostly in the packing industry, and 65,000 jobs
    in professional services such as veterinarians, real estate agents and
    bankers. All told, the U.S. pork industry is responsible for nearly
    550,000 mostly rural jobs in the United States. The U.S. pork producers
    today provide 25 billion pounds of safe, wholesome and nutritious meat
    protein to consumers worldwide.
        Exports add significantly to the bottom line of each U.S. pork
    producer. U.S. exports of pork and pork products totaled 2.13 million
    metric tons in 2015, representing more than 24 percent of U.S.
    production, and those exports added more than $48 to the value of each
    hog marketed. Exports supported approximately 110,000 jobs in the U.S.
    pork and allied industries.
    Cautious Expansion, Continued Focus on International Markets
        The state of the U.S. pork industry has been shaped in recent years
    by disease: recall the H1N1 flu in 2009 and the Porcine Epidemic
    Diarrhea virus (PEDv). The latter first was documented in the United
    States during the spring of 2013, and over the next 18+ months killed
    between eight million and ten million piglets. The dramatic reduction
    in the supply of available market hogs led to record hog prices
    throughout 2014 after 4 straight years of economic losses primarily
    because of record-high feed costs.
        Pig mortality since then has fallen dramatically, with the U.S.
    Department of Agriculture's Quarterly Hogs and Pigs report for the
    fourth quarter of 2015 showing the highest level of live births per
    litter in history at 10.53 pigs.
        Seemingly recovered from the worst of PEDv's catastrophic effect on
    production, the U.S. pork industry appears to be moving into a period
    of cautious, calculated expansion. Pork production in 2015 increased
    year-on-year by a whopping 7.3 percent, albeit from the PEDv-ravaged
    calendar year 2014. Pork production this year is forecast by USDA to
    increase by two percent to 24.99 billion pounds, and 2017 production is
    forecast to increase 2.6 percent to 25.64 billion pounds. The total hog
    herd in the United States today is 67.6 million head, up slightly from
    2015.
        The typical cycle of barrow and gilt prices peaking in the summer
    and bottoming out in the November-December timeframe was essentially
    abandoned in 2014 and 2015 but is expected to return this year. The
    annual average for barrow and gilt prices received by producers, at
    $50.23 per carcass weight hundred (cwt.), fell dramatically in 2015
    from its 2014 high of $76.03/cwt. Prices are expected to remain in the
    $46-$48/cwt. range for the remainder of the calendar year and lose
    another six percent throughout 2017. Estimated returns for farrow-to-
    finish producers continue to be positive for the year as a whole, with
    fourth quarter 2016 forecast at or below breakeven price levels.
        There is currently a tremendous amount of red meat and poultry in
    the marketplace and coming down the pipeline. Per capita consumption of
    pork registered at just under 50 pounds in 2015, and pork retail prices
    have been historically low relative to beef retail prices over the past
    18 months. Moving into grilling season (roughly Memorial Day through
    Labor Day), it will be interesting to see what happens to consumer
    demand and how it plays out in the marketplace.
        Per capita consumption of pork is forecast to remain nearly even in
    2016 before increasing by 1.8 percent in 2017. That marginal increase,
    coupled with the growing production expected throughout this year and
    next, highlight the importance of being able to send pork products to
    consumers outside the U.S. borders.
        But economic growth in importing countries has been lackluster, and
    the value of the U.S. dollar has served as a headwind to growing
    exports of U.S. pork products, particularly in 2015. The Russian import
    ban on Western products and other global geopolitical events also have
    served as barriers to export growth. Total U.S. pork exports fell in
    2015 on a value basis by 16.4 percent and on a volume basis by 2.1
    percent. The top four markets for U.S. pork products on a value basis
    (Japan, Mexico, Canada and China/Hong Kong) all imported less in 2015
    than they did in 2014. U.S. pork producers lost a tremendous amount of
    market share in the Chinese market to European producers, particularly
    from Germany, Denmark and Spain.
        Through the first quarter of 2016, U.S. pork exports were down nine
    percent year-to-date on a value basis and up 2.5 percent on a volume
    basis. In particular, the volume of exports to China/Hong Kong were up
    83 percent year-on-year, marking the largest first quarter pork
    shipments the United States ever has made to that market.
        World economic conditions are expected to improve some, especially
    in Asian countries. The Chinese hog market, for example, currently is
    in flux, with red hot demand for imported pork and Chinese hog farming
    profits larger than ever. Rapid pork inflation potentially presents an
    opportunity for larger shipments of U.S. product into the Southeast
    Asian nation, but economics does not always drive reality in China.
        USDA forecasts pork export volume to grow 5.2 percent in 2016 and
    two percent in 2017, but geopolitical events, the strength of the
    dollar and removal of non-tariff trade barriers will play an important
    role in realizing those export gains.
        Looking forward, there is no shortage of both opportunities and
    challenges for the U.S. pork industry. As the world becomes more
    globalized, so too do grain and livestock markets. A flood in Argentina
    or a drought in Brazil are felt locally and have an impact on U.S.
    producers' bottom line. Since each finished hog consumes approximately
    150 pounds of soybean meal and 10-11 bushels of corn, feed price levels
    and volatility are of the utmost importance to pork producers. The
    recent run-up in soybean meal prices has caught many by surprise, as
    did the initial estimate of prospective corn plantings.
        Total U.S. red meat and poultry production is projected to be above
    2016 levels. Hog supplies will be adequate over the summer and will be
    plentiful in the fall. Strong competition for slaughter hogs by packers
    could support hog prices, and the prospect of at least four new packing
    plants coming on line in the next couple of years could help boost
    producers' bottom line, moving forward. The pace at which these new
    plants come on line and begin processing hogs will be an interesting
    storyline to watch and will have significant implications for both
    domestic pork supplies and the availability and competitiveness of
    exports overseas.
        While the vagaries of Mother Nature--diseases affecting production
    and weather affecting feed grains--are out of anyone's control, the
    pork industry's fortunes can be affected, for good or for ill, by what
    passes through the halls of Congress; government policies can and do
    offer opportunities or pose challenges for pork producers.
    Trade and the TPP Benefit Agriculture
        One of the policies that could have a positive effect on the U.S.
    pork industry--and indeed on all of U.S. agriculture--is trade,
    specifically expanded trade.
        Through free trade agreements (FTAs) and bilateral and multilateral
    trade initiatives, the United States has been very successful in
    removing barriers to U.S. exports and increasing trade in U.S. goods
    and services.
        U.S. exports of pork, for example, have increased by 1,550 percent
    in value and nearly 1,300 percent in volume since 1989, the year the
    United States implemented the FTA with Canada and started opening
    international markets for value-added agricultural products. The
    importance of trade deals is evident given that the United States now
    exports more pork to the 20 countries with which it has FTAs than to
    all other nations combined.
        Exports add to the bottom line of producers, spur economic growth
    and create tens of thousands of U.S. jobs. Last year, U.S. pork
    producers shipped 2.13 million metric tons of pork worth $5.6 billion
    to foreign destinations. Those exports added more than $48 to the price
    producers received for each hog marketed, and they supported more than
    110,000 pork industry jobs. (USDA's Economic Research Service
    calculates that every $1 billion in U.S. agricultural exports generates
    more than 7,500 jobs across the U.S. economy.)
        The United States has been, on average, the top global exporter of
    pork over the past 10 years, and given continued economic growth in the
    world and rising per capita incomes, U.S. pork producers stand to
    benefit significantly from new FTAs that eliminate tariff and non-
    tariff barriers to U.S. exports.
        The importance of FTAs is evident by the fact that the U.S. pork
    industry now exports more product to the 20 countries with which the
    United States has FTAs than to the rest of the world combined.
        That's why the U.S. pork industry has been among the most
    aggressive pro-trade voices in the U.S. private-sector and why it is a
    strong supporter of the Trans-Pacific Partnership Agreement (TPP).
        NPPC was among the biggest cheerleaders for the U.S.-lead Asia-
    Pacific regional FTA negotiations from the beginning of the Obama
    Administration. It was instrumental in getting Japan included in the
    TPP talks, which were concluded last October after nearly 6 years of
    negotiations.
        The organization also led agriculture's efforts to gain
    Congressional approval for Trade Promotion Authority to permit the
    Administration to carry through with the TPP negotiations and conclude
    an agreement.
        The TPP, which includes the United States, Australia, Brunei,
    Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore
    and Vietnam, presents an opportunity to open and expand markets to U.S.
    pork that include \1/2\ billion consumers and nearly 40 percent of the
    world's GDP.
        The three key markets for U.S. pork producers in the TPP are
    Australia, Japan and Vietnam. Those countries account for the
    overwhelming majority of economic benefits that will accrue to the U.S.
    pork industry. While NPPC continues to have TPP implementation
    concerns, it is confident that the issues will be resolved. Here's a
    look at the benefits U.S. pork would gain from the TPP countries:

       Australia--Tariffs on pork were eliminated under the U.S.-
            Australia FTA. But while pork is the top U.S. agricultural
            export to Australia, it is not eligible to be sold at retail in
            that country because of non-science-based sanitary-
            phytosanitary barriers. NPPC is working with the U.S.
            Government to facilitate a review of the matter in Australia.
            While the issue is not technically part of the TPP
            negotiations, NPPC is working closely with the U.S. Government
            to facilitate a review of the matter in Australia. There is no
            credible scientific reason to prohibit the sale of U.S. pork at
            retail in Australia.

       Chile--Tariffs on U.S. pork are zero under the U.S.-Chile
            FTA.

       Japan--The largest value and second largest volume market in
            the world for U.S. pork exports, Japan will eliminate tariffs
            on all pork products, including its Gate Price--a complex
            system of protection--on processed pork, in 6 to 11 years from
            entry into force of the agreement. For processed products not
            subject to the Gate Price such as seasoned ground pork and
            sausages (the United States shipped more than $400 million of
            these products in 2014), tariffs will be eliminated in year 6.
            Japan also immediately will reduce the impact of the Gate Price
            on chilled and frozen pork upon entry into force of TPP. The
            Gate Price will remain at 524 Yen per kilogram indefinitely.
            However, the specific duty that is assessed when products do
            not meet the Gate Price will phase down to 50 Yen per kilogram
            in year 10. There will be one safeguard on processed product
            and two safeguards on chilled/frozen pork. These safeguards
            disappear in year 11.

       Malaysia--Nearly all of Malaysia's tariffs on pork and pork
            products will be eliminated upon entry into force of the
            agreement. In addition, Malaysia dropped its non-tariff-
            barriers on U.S. pork in December 2014.

       New Zealand--Currently, pork exports from Australia, Canada
            and China enter New Zealand duty-free, but the United States
            must pay an import tariff. Under TPP, New Zealand will
            eliminate all pork tariffs for the United States and other TPP
            nations upon entry into force of the agreement except on hams
            and shoulders, which will go to zero in year 3.

       Peru--Tariffs on U.S. pork either now are zero or will be
            within 3 years under the U.S.-Peru FTA.

       Singapore--Tariffs already are zero on U.S. pork as a result
            of the U.S.-Singapore FTA. Separately, NPPC is working with the
            U.S. Government to facilitate a review of certain non-tariff
            measures in Singapore.

       Vietnam--Despite being a larger consumer of pork than Mexico
            (the largest volume destination for U.S. pork), pork imports
            represent less than two percent of Vietnam's pork consumption.
            U.S. pork exports have been limited by tariffs and a series of
            non-tariff barriers. Under the TPP, Vietnam will eliminate
            tariffs on pork and pork products, currently as high as 30
            percent, in 5 to 10 years. It will eliminate tariffs on frozen
            cuts and shoulders in 8 years and on preserved pork, fresh pork
            cuts and shoulders in 10 years. Additionally, Vietnam's non-
            tariff barriers, which are being eliminated, are the subject of
            a side letter.

        The TPP represents for the U.S. pork industry the biggest
    commercial opportunity ever negotiated. Economist Dermot Hayes, with
    Iowa State University, estimates that if the deal that was concluded
    last October is implemented--that is, if all tariff and non-tariff
    barriers are eliminated on pork in each TPP nation--U.S. pork exports
    to those countries will increase exponentially and more than 10,000 new
    U.S. jobs tied to those exports will be created.
        But the reality is that if Congress does not expeditiously pass
    TPP, there will be no implementation, and that means the U.S. pork
    industry and the rest of American agriculture not only won't get the
    benefits of expanded trade but will lose market share in the fastest
    growing economic region in the world. The European Union and other
    nations are negotiating FTAs with Japan and other TPP countries. Of
    even greater concern is that if TPP fails, a much bigger regional trade
    agreement is likely to fill the void. The Regional Comprehensive
    Economic Partnership (RCEP) is comprised of 16 countries, including
    Australia, China, India, Japan, Korea and New Zealand as well as the
    ten countries of the Association of Southeast Asian Nations (ASEAN). It
    does not include the United States. Make no mistake, U.S. exporters
    will be significantly prejudiced if TPP is not soon passed by the
    Congress.
        NPPC urges Congress to quickly pass the Trans-Pacific Partnership
    Agreement.
    Vaccine Bank Needed To Address FMD
        On the disease front, while PEDv is still an issue for the pork
    industry, producers seem to have the disease in check. But other
    bacterial and viral diseases are lurking around the world. The pork
    industry has devoted significant resources to endemic and foreign
    animal diseases, funding more than 120 research projects and spending
    more than $5 million for studying, monitoring and addressing swine
    diseases over the past 10 years.
        And while there have been significant improvements in the systems
    for safeguarding U.S. agriculture and the nation's food supply, there
    are still significant vulnerabilities and challenges that must be
    addressed.
        The House Agriculture Committee Nov. 4, 2015, held a hearing on
    ``American Agriculture and National Security'' that highlighted the
    vulnerability of the U.S. food supply to the potential for a foreign
    animal disease (FAD) to be introduced by terrorists or by accident.
        Additionally, the bipartisan Report of the Blue Ribbon Study Panel
    on Biodefense--the panel was co-chaired by former Department of
    Homeland Security Secretary Tom Ridge and former Sen. Joe Lieberman--
    released Oct. 28, 2015, concluded that improvements are needed to the
    U.S. system for protecting the U.S. livestock herd and the nation's
    food supply from FADs.
        Foot-and-Mouth Disease (FMD) is one of the most economically
    devastating FADs affecting animal agriculture. It is highly contagious
    and spreads easily through livestock movement, by wind currents, on
    vehicles that have traveled to and from infected farms and even on
    inanimate objects that have come in contact with the virus. It affects
    all cloven hoofed species, including wildlife such as deer and elk.
        FMD is endemic in Africa, Asia, South America and the Middle East.
    The FMD virus has seven viral serotypes and more than 60 subtypes, with
    wide strain variability. Managing and ultimately eradicating FMD
    requires strain-specific vaccines, making vaccination challenging and
    very expensive. Sporadic outbreaks with different types continue to pop
    up in countries around the world.
        Because North America is free of FMD, an outbreak of the disease in
    the United States would immediately shut off all exports of U.S.
    livestock, meat and dairy products, creating a precipitous drop in
    livestock markets. Since U.S. consumers have little knowledge of the
    disease, there also likely would be serious disruptions in the domestic
    market because of decreased demand for those products. According to one
    recent study, prevention of FMD is estimated to be worth $137 million a
    year to the U.S. pork industry.
        With support from the livestock industry, USDA's Animal and Plant
    Health Inspection Service (APHIS) changed its policy on managing an FMD
    outbreak from culling all infected and exposed animals to one of
    vaccination in all but the smallest of outbreaks. Based on experience
    with outbreaks in the United Kingdom and South Korea, the United States
    simply cannot euthanize its way out of an outbreak; vaccination is the
    only realistic alternative. When discussing how this policy would be
    implemented, it became apparent that to deal with an outbreak there was
    not enough vaccine available nor could a sufficient quantity be
    obtained in time to implement an effective control program.
        The United States is the only country in the world that maintains
    its own vaccine antigen bank, and it serves all of North America. The
    bank is maintained at the Plum Island Animal Disease Center (PIADC) on
    Plum Island, N.Y., and has a limited number of antigens. Under the
    current manufacturer(s)' contract, antigen is shipped to Europe where
    it is made into finished vaccine that then is shipped back to the
    United States. After 3 weeks, this process would produce only 2.5
    million doses of vaccine. Dr. James Roth, professor and researcher at
    Iowa State University, estimates that at least ten million doses would
    be needed during the first 2 weeks of an outbreak. Currently, there is
    no surge capacity to produce additional doses of vaccine. All the
    vaccine production capacity in the world is currently in use by other
    countries.
        The Subcommittee on Livestock and Foreign Agriculture held a
    hearing Feb. 11, 2016, on the FMD vaccine shortage at which the
    livestock industry made clear that a solution to the shortage must
    include a contract for an offshore, vendor-maintained bank that
    includes antigen for all 23 FMD types that are currently circulating in
    the world and that a contract be awarded for surge capacity to produce
    sufficient quantities of vaccine for an outbreak in the U.S. livestock
    herd. But there are factors that make this difficult.
        The U.S. FMD vaccine bank is currently funded at just $1.9 million,
    and there have been no requests for a substantial increase in the
    President's budget despite the fact that Homeland Security Presidential
    Directive 9 (HSPD9) requires an adequate vaccine stockpile to be
    maintained.
        Another factor complicating upgrades to the vaccine bank is that it
    also serves as the North American Bank and thus includes Canada and
    Mexico. NPPC believes it is appropriate to include those neighboring
    countries, but the United States should not wait for negotiations with
    those countries to be completed before making necessary improvements,
    which are critical to the U.S. livestock industry.
        NPPC knows that fixing the vaccine shortage will require a
    significant increase in budget outlays. However, that cost pales in
    comparison to the cost of an FMD outbreak. Iowa State University
    economist Dermot Hayes estimates revenue losses to just the U.S. pork
    and beef industries from an FMD outbreak at nearly $13 billion per year
    over a 10 year period; the corn and soybean industries are estimated to
    lose $44 billion and almost $25 billion, respectively. A recent study
    by Kansas State University estimates cumulative losses to consumers and
    livestock producers at $188 billion, with an added cost to the
    government of $11 billion for eradication efforts if vaccination is not
    employed. If vaccination is employed, the study estimates--depending on
    the strategy used--the losses to consumers and producers could be cut
    by 48 percent.
        The history of government involvement in disasters like an FMD
    outbreak is that, once an outbreak occurs, unlimited resources are
    committed to getting control of the situation. In the case of FMD,
    there is a clear opportunity to invest in a robust vaccine bank that
    would limit the economic impact on producers, feed suppliers and
    consumers and reduce the government's cost for control and eradication
    of the disease.
        NPPC urges Congress to work with the Administration to address the
    alarming gap in the preparedness for an FMD outbreak. Whether the
    disease introduction is the result of terrorism, careless travelers or
    carried on traded commodities, the calamitous result is the same:
    devastation to the U.S. livestock industry and a significant hit to the
    U.S. economy.
    Legislation and Regulation
        Finally, the U.S. pork industry is, or can be, greatly affected by
    Federal legislation and regulation.
        NPPC works on behalf of America's pork producers to ensure that
    laws and rules don't impose unnecessary costs on the U.S. pork
    industry, restrict it from meeting consumer demands in an economical
    manner or prevent market-based solutions to issues. The structure of
    the pork production and packing sectors should be allowed to change
    with the demands of the growing global marketplace. This includes
    allowing producers and packers to adopt new technologies and pricing
    and marketing mechanisms that enable the former to reduce their risks
    and the latter to capture economies of scale.
        The U.S. pork-packing sector is the envy of the world in terms of
    efficiency and food safety, and legislation and regulation should not
    take away or hamper that source of international advantage. Allowing
    producers and packers the freedom to develop new ways of doing business
    will only enhance the value of U.S. pork products, at home and abroad,
    and reduce costs and risks.
        Today, the U.S. pork industry has developed a variety of marketing
    and pricing methods, including contracts, to meet the changing needs of
    a diverse marketplace. U.S. pork producers will not be well served if
    certain contracting mechanisms are eliminated, a move that only would
    force livestock markets to revert to a system used more than half a
    century ago in which animals were traded in small lots and at prices
    determined in an open-market bid system. Such a system was inefficient
    and makes no economic sense in today's economy.
        That is why NPPC is very concerned about the revival of USDA
    regulations to amend the Packers and Stockyards Act, which is
    administered by the Grain Inspection, Packers and Stockyards
    Administration (GIPSA). The regulations, collectively known as the
    GIPSA rule and first proposed in 2010, would regulate the buying and
    selling of livestock and poultry. Congress in the 2008 Farm Bill asked
    USDA to address five specific issues related to production contracts:

       Criteria for determining whether an undue or unreasonable
            preference or advantage has been given to any producer.

       Whether a poultry dealer or swine contractor has provided
            sufficient time for a grower to remedy a breach of contract
            that could result in contract termination.

       Whether a poultry dealer has given reasonable notice of any
            suspension of delivery of birds to a grower under a contract.

       When a requirement of additional capital investment during
            the life of a contract constitutes a violation of the Packers
            and Stockyards Act as an unfair practice.

       The factors that comprise a fair usage of arbitration,
            including notification and the option for producers to opt out
            of automatic arbitration to resolve disputes.

        U.S. pork producers were stunned in June 2010 when USDA proposed a
    rule that not only went well beyond the five issues Congress asked it
    to address but included provisions considered and rejected by
    Congressional lawmakers during the 2008 Farm Bill debate.
        One provision included in the rule, for example, would have
    required meat packers to justify and document, including with revenue
    and cost analyses, price differences paid for livestock, making it
    difficult for producers to negotiate premiums based on certain
    production practices, or accept lower prices for livestock of lesser
    quality. Such a ``justification'' provision was considered and rejected
    by the Senate.
        The rule would have had a devastating impact on livestock
    producers. According to an analysis of the regulation conducted by
    Informa Economics, it would have cost the U.S. pork industry more than
    $350 million annually. Industry analysis of the rule concluded that it
    likely would have had a chilling effect on innovation and flexibility,
    leading to a race toward mediocrity. It would have created legal
    uncertainty, driving costs higher and causing an increase in vertical
    integration in the livestock sector, forcing producers out of business
    and possibly affecting meat supplies. All of those effects would have
    harmed the U.S. pork industry's international competitiveness, costing
    U.S. on-farm and pork-processing jobs as well as negatively affecting
    the U.S. balance of trade.
        While there was overwhelming opposition to the GIPSA rule,
    including more than 16,000 public comments from pork producers, it took
    yearly action by Congress to prevent its implementation. Unfortunately,
    no such action--in the form of language in USDA's annual
    appropriation--was forthcoming for fiscal 2016.
        In March, at a meeting of the National Farmers Union, which
    supported the 2010 GIPSA rule, Agriculture Sec. Vilsack indicated that
    his agency will move forward with implementing the regulation, and NPPC
    confirmed last week that several of the regulations are with the White
    House Office of Information and Regulatory Affairs, the last step
    before rules are proposed final or become final.
        Pork producers again are very concerned that USDA's GIPSA rule will
    be too expansive, limiting farmers' ability to sell animals, dictating
    the terms of private contracts, making it harder to get farm financing,
    raising consumer prices and reducing choices, stifling innovation and
    leading to more vertical integration in the livestock industry.
        The U.S. pork industry opposes any legislation or regulation that
    restricts marketing opportunities and interventions into hog markets
    unless such actions address a clear, unequivocal instance of market
    failure or abuse of market power. To date, USDA has not presented any
    evidence that either is taking place.
        NPPC urges Congress to ensure that any USDA rule to amend the
    Packers and Stockyards Act not restrict producers' ability to sell or
    packers' ability to buy animals and not limit their ability to use
    technologies and pricing and marketing mechanisms that work for their
    mutual benefit.
        Another regulation that could have a profound negative effect on
    U.S. pork producers is the Waters of the United States (WOTUS) rule
    issued last year by the U.S. Environmental Protection Agency and the
    U.S. Army Corps of Engineers.
        The rule was promulgated ostensibly to clarify the agencies'
    jurisdiction under the Clean Water Act (CWA) over various waters.
    Historically and based on several U.S. Supreme Court decisions, those
    waters were limited to navigable waters, their tributaries and adjacent
    water bodies that are hydrologically connected or that otherwise affect
    navigable waters.
        Certainly, pork producers are concerned about water quality, and
    they take a broad view of what it means to be environmentally
    responsible farmers and business people and have embraced the fact that
    their operations must protect and conserve the environment and the
    resources they use and effect. Producers have made major commitments to
    environmental conservation, including meeting EPA's stringent zero-
    discharge standard that is part of the 2008 CAFO (Concentrated Animal
    Feeding Operation) rule and participating in a historic study of air
    emissions from farms.
        But the WOTUS rule issued by EPA--over some objections from the
    Corps of Engineers--is overbroad, vague and fails to let regulated
    parties know what conduct violates the law. It includes, among other
    water bodies, upstream waters and intermittent and ephemeral streams
    such as the kind farmers use for drainage and irrigation. It also
    encompasses lands adjacent to such waters.
        The rule, for example, would cover any discernable feature that
    possesses (or previously possessed) a bed, bank and high water mark.
    This would create uncertainty, confusion and significant legal
    liability for farmers. In short, the regulation as written could affect
    farmers' ability to use their land. Moreover, under the CWA, there is
    an absolute prohibition on discharging any pollutant--whether manure, a
    chemical pesticide or fertilizer or even a seed of corn--into a WOTUS
    without a Federal permit. Violations of the prohibition are subject to
    significant criminal penalties as well as civil fines of up to $37,500
    per day per discharge, with the power to enforce the penalties open to
    private citizens.
        It's not so much EPA enforcement but the threat of activist groups
    suing--using the CWA's private right of action--over alleged WOTUS
    violations that will have a chilling effect on farmers.
        A number of lawsuits brought at the U.S. District Court level were
    filed against the regulation, which took effect Aug. 28, 2015. (The
    North Dakota-based District Court in September 2015 issued a temporary
    injunction against EPA implementing the regulation in the 13 states
    that brought suit against the rule in that court.) The government wants
    the District Court cases to be consolidated in the U.S. Court of
    Appeals for the 6th Circuit in Cincinnati, which in October 2015 issued
    a stay of the rule until disposition of the cases before it.
        In reaching its decision to stay the rule, the 6th Circuit found
    that there's a substantial likelihood that the WOTUS regulation fails
    to comply with the U.S. Supreme Court's instructions in previous Clean
    Water Act cases and that the actions of EPA in the rulemaking process,
    to which NPPC objected at the outset, are ``facially suspect.''
        Despite its hints about the outcome of the consolidated cases, the
    possibility exists that the appeals court will find that the EPA and
    the Corps of Engineers were within their discretion in promulgating the
    WOTUS rule.
        So NPPC continues to urge the agencies to withdraw the rule and to
    work with all affected stakeholders, including the agricultural
    community, to develop a rule that clarifies what waters are and are not
    jurisdictional in a manner consistent with the Supreme Court's rulings
    and that is workable and cost effective for the regulated community.
    Conclusion
        The U.S. pork industry is the lowest-cost producer and No. 1
    exporter of pork in the world, and U.S. pork producers continue to
    produce the most abundant, safest, most nutritious pork in the world.
    They have proved very resilient, weathering financial crises and
    diseases as well as the vagaries of a supposedly free-market economy
    pushed and pulled in various directions by government intervention and
    regulation while investing in and adopting new technologies that have
    promoted animal health, protected the environment and added thousands
    of jobs and billions in national income to the American economy.
        For America's pork producers to continue as leaders in the
    international and domestic economies, for them to take advantage of the
    opportunities and meet the challenges presented to them, Congress and
    the Administration must pursue Federal policies and regulations that
    support U.S. pork production rather than hinder its ability to continue
    to produce safe, lean and nutritious pork and pork products for the
    global marketplace.

        The Chairman. Thank you, Mr. Herring.
        Mr. Brunner?

      STATEMENT OF TRACY BRUNNER, PRESIDENT, NATIONAL CATTLEMEN'S
          BEEF ASSOCIATION; COW CAMP FEEDYARD INC., RAMONA, KS

        Mr. Brunner. Thank you, Mr. Chairman, Members of the
    Committee. Good morning to everyone.
        Always at the mercy of Mother Nature, our industry is
    rapidly recovering from extensive drought. Herd rebuilding and
    expansion are taking place at a rate where U.S. cattle numbers
    will soon be equal to 2012. Additionally, American beef
    producers continue to be more efficient in producing beef.
    Today, we can produce the same amount of beef that we produced
    in 1977, with only \1/3\ of the land and cattle.
        The beef value supply chain is always focused on the
    consumer. Cow/calf ranchers tell their seedstock suppliers what
    they need, and also ask their stocker and feeder calf buyers
    what they will pay the most for. Cattle feeders likewise look
    to packer processors for signals of greatest value, who in turn
    have an ear for retail and food service needs.
        Cattle prices have been the topic of focus for NCBA and our
    members. In 2015, we saw record high cattle prices, but soon
    those started back down. One factor was the overall increase in
    overall protein supplies. In 2015, U.S. per capita red meat and
    poultry supplies increased by nearly 10 pounds per person. In
    addition, the strong U.S. dollar impacted our ability to ship
    beef to our international customers. All this additional supply
    puts downward pressure on the markets, but we are used to the
    ups and downs of the cattle cycle.
        In order to manage this cycle, we need risk management
    tools that work. We currently rely on market forums like CME
    Group's cattle futures contracts, and adding transparency to
    our price discovery process. Changing technologies and a
    transition to automated trading and commodity futures have
    increased market volatility, making interpretation of those
    price signals different than what we are accustomed to in the
    past. The integrity of our market forums is very important, for
    without futures contract integrity, our industry will abandon
    their use.
        We have recognized this volatility and are working directly
    with the CME Group to find ways to address it. We have a joint
    NCBA CME working group which is analyzing potential changes
    such as slowing down the market to help ensure a level playing
    field for producers who are using these tools to manage their
    price risks.
        Today, we ask for no direct action from our government in
    our cattle marketing systems and forums. In fact, I am
    concerned at some of the action that we have seen from USDA and
    the Senate.
        Secretary Vilsack has announced that he is going to dust
    off the proposed GIPSA marketing rule that resulted from
    language included in the 2008 Farm Bill. This is concerning to
    us because bipartisan efforts already resulted in
    appropriations language, which defunded any additional work or
    implementation of the ideas that were included in that draft
    rule. The proposed GIPSA rule would have made USDA the ultimate
    arbiter of how cattle are marketed. We urge USDA to enforce the
    Packers and Stockyards Act. We do not need them dictating how
    we can or cannot market our cattle.
        Our industry has worked for years in developing new and
    innovative ways to market cattle. Alternative marketing
    arrangements have been studied by USDA and independent groups,
    and the results show that these alternatives benefit producers
    and consumers alike. Any Congressional or Executive Branch
    action to interfere will only add to our price problems, not
    solve them.
        Solving our price problems relies on addressing the true
    issues of consequence in our industry. We have capitalized on
    the growing demand for U.S. beef overseas, and Japan has become
    our leading export market. But Australia now has a ten percent
    tariff advantage over us, resulting in a $300 million loss to
    our industry. The tariff advantage for Australia will continue
    to grow until we pass TPP.
        In closing, I would say you could also help our bottom like
    by easing the regulatory burden our industry is under, taking
    action to reform the Endangered Species Act, and helping us
    keep EPA at bay will go a long way in easing the pressures on
    our industry.
        Again, thank you very much for this opportunity to be with
    you today, and I will be happy to answer any questions.
        [The prepared statement of Mr. Brunner follows:]

     Prepared Statement of Tracy Brunner, President, National Cattlemen's
              Beef Association; Cow Camp Feedyard Inc., Ramona, KS
        Mr. Chairman, Ranking Member Costa, and Members of the
    Subcommittee, my name is Tracy Brunner and I am the President of the
    National Cattlemen's Beef Association. I am a fourth generation rancher
    and cattle feeder from the Flint Hills area of Kansas, and our nearest
    Post Office is at Ramona. Our family operation includes three brothers
    and three sons. We are involved in cattle genetics, seed stock,
    grazing, and finishing cattle. I surely appreciate the Committee's
    interest in cattle marketing issues, and it is an honor for me to be
    asked to share our viewpoints.
        The National Cattlemen's Beef Association (NCBA) has for nearly 120
    years represented America's beef cattle industry. We have over 30,000
    direct and 170,000 affiliated members nationwide. America's cattle
    industry is extensive and constitutes the largest segment of American
    agriculture. Always at the mercy of Mother Nature, our industry is
    recovering rapidly from extensive drought. Herd rebuilding and
    expansion are taking place at a pace where U.S. cattle numbers will
    soon be equal to 2012. Additionally, American cattle producers continue
    to be more efficient in producing beef. We can produce the same amount
    of beef that we produced in 1977 with 30% fewer cattle, 18% less feed,
    12% less water, and 33% less land. However, we need to continue our
    efforts to be more efficient as we strive to do our part in providing
    70% more food to meet the expected population of nine billion people in
    2050.
        Our industry requires extensive tracts of land to run cattle
    allowing us to preserve the ability for family cattle farms and ranches
    to stay viable. The beef industry is diverse in structure, yet the
    drive to stay competitive with other proteins has shown us the need to
    coordinate among all the stakeholders from field to fork. Cow/calf
    ranchers tell their seed stock suppliers what they need, and also ask
    their stocker and feeder calf buyers what they will pay most for.
    Cattle feeders likewise look to packer-processors for signals of
    greatest value, who in turn have an ear for retail and foodservice
    needs. As a complete beef supply chain, we have learned that without
    ultimate consumer focus, we can soon blindly produce our way into
    irrelevancy.
        Due to the diverse and broad-based nature of the cattle industry
    operating in an environment of increasing need for coordination and
    cooperation, we have market needs more unique than other animal
    proteins and commodities. We rely on clear and accurate price signals
    to be passed up and down the beef value chain. A cow/calf producer must
    have not only precipitation, but also market confidence that his
    decision to mate a bull and heifer today will be rewarded beyond costs
    by the time it heads to market nearly 2 years later. Cattle grazers and
    feeders that purchase those calves need a clear view of future prices
    in order to determine if there is a return on their investment. In
    addition, packer-processors use price discovery and analysis in order
    to price beef in a way for consumers to be assured of a constant supply
    of the highest quality beef anywhere on Earth.
        Cattle prices have been a topic of focus for NCBA and our members.
    [CY] 2015 saw a record high for cattle prices, but those soon started
    back down due to several reasons. One factor was the increase in
    overall protein supplies. In 2015, U.S. per capita red meat and poultry
    supplies increased by nearly 10 pounds per person. In addition, the
    strong U.S. dollar impacted our ability to ship beef to our
    international customers. All of this additional supply puts downward
    pressure on the markets. This has been compounded by the break in the
    drought throughout most of the cattle producing areas of this country
    which has resulted in more abundant and cheaper feed, and the resulting
    decision by many producers to increase the size of their herds. Larger
    supplies always lead to lower prices, but we are used to the ups and
    downs of the cattle cycle. In order to manage this cycle, we need risk
    management tools that work.
        Price discovery is ultimately driven by supply and demand. The
    fundamentals of markets are universal. The cattle industry today relies
    on transparency of price discovery to send clear signals up and down
    the beef chain. Cattle and beef are a wonderful but perishable
    creation. We are not grain that can be stored for great lengths waiting
    on fundamentals to steady an uncertain market. We currently rely on
    market forums like CME Group's cattle futures contracts as solid
    information in our price discovery process. Changing technologies and a
    transition to automated trading in commodity futures trading have
    increased market volatility, making interpretation of those price
    signals different than what we were accustomed to in the past. The
    integrity of our market forums is very important, for without futures
    contract integrity our industry will abandon their use.
        We have recognized the volatility and are working directly with the
    CME Group to find ways to address it. We have a joint NCBA/CME working
    group which is analyzing potential changes which could slow the market
    down and ensure a level playing field for producers who are using these
    tools to manage their price risks. Today we ask for no direct action
    from our government in our cattle marketing systems and forums. In
    fact, I am concerned at some of the action we have seen from USDA and
    the Senate.
        Secretary Vilsack has announced that he is going to dust off the
    proposed GIPSA marketing rule that resulted from language included in
    the 2008 Farm Bill. This is concerning to us because bipartisan efforts
    resulted in appropriations language which defunded any additional work
    on, or implementation of, the ideas included in the draft rule. The
    provisions in the draft rule would have taken away our ability to
    market cattle the way we want to. The proposed GIPSA rule would have
    made USDA the ultimate arbiter of how cattle are marketed. We urge USDA
    to enforce the Packers and Stockyards Act as it exists now. We do not
    need them dictating how we can or can't market our cattle.
        I am also aware of the introduction of Senator Grassley's bill to
    ban packer ownership of cattle. This is another solution in search of a
    problem which has been tried, and defeated, many times before. Over the
    past decade, USDA's Mandatory Price Reporting has shown that only five
    to six percent of cattle are packer owned. This is not the source for
    the downward market. We only wish that same tenacity was used to help
    us address the real problems we have with our Federal Government.
        We have worked for years to find new and innovative ways to market
    cattle. Alternative marketing arrangements have been studied by USDA
    and independent groups, and the results show that these alternatives
    benefit producers and consumers alike. Any Congressional or Executive
    action to interfere will only add to our price problems, not solve
    them.
        Solving our price problems relies on addressing the true issues of
    consequence to our industry. Beef trade is one of those issues.
    Globalization is not feared by the American beef industry, but
    embraced. In fact we continue to export an increasing volume and value
    of American beef to destinations worldwide. Last year we exported over
    14% of all finished cattle value, that's worth over $300 extra for
    every calf in America. Many of you can likely attest that NCBA is
    always talking about more market access for the ability to sell more
    beef. Our beef does compete on the global market, however our industry
    is not easily replicated globally.
        If Congress passes TPP this year, the U.S. beef industry will be
    one of the biggest winners in agriculture. At the same time, if
    Congress fails to pass TPP or delays action on TPP, the U.S. beef
    industry will be one of the biggest losers in agriculture, and here's
    why that is the case.
        Roughly 80 to 85 percent of the beef we produce is for the American
    market. American consumers love the ribeyes, tenderloins, and briskets
    from our cattle, but not all cuts of the carcass can be sold
    domestically at a premium. The small percentage of beef that we export
    are cuts like tongues and short plates that are not desirable to the
    American consumer. Rather than send these cuts to a landfill or process
    them into pet food, we have found that Asia has proven to be a great
    destination for these cuts.
        As a result, we have capitalized on the growing demand for U.S.
    beef overseas and Japan has become our leading export market. In 2015
    the Japanese purchased $1.3 billion of U.S. beef and was one of the
    leading export markets for beef tongue. Even with a 38.5 percent tariff
    rate on our beef, we have seen a tremendous growth in export sales to
    Japan over the past 4 years and we have been able to gain significant
    market share because of the quality and price of our beef.
        Our leading competitor in the Japanese beef market is Australia. In
    January 2015 the Japan-Australia Economic Partnership Agreement took
    effect and gave our leading competitors a ten percent tariff advantage
    over us in our leading export market. In other words, the Japanese
    tariff on U.S. beef is 38.5 percent and the Japanese tariff on
    Australian beef is less than 28 percent. This disadvantage for U.S.
    beef in Japan resulted in nearly $300 million in lost sales to Japan in
    2015. The tariff rate advantage for Australia will continue to grow for
    the next decade unless something is done to level the playing field in
    Japan. The good news is TPP will level the playing field for U.S. beef
    in Japan by lowering the tariff rate on U.S. beef to match Australia's
    tariff rate upon implementation of TPP and will continue to decrease to
    nine percent over 16 years. This the greatest beef market access ever
    negotiated into Japan.
        Japan market access is not the only highlight of TPP. TPP
    eliminates tariffs on U.S. beef exports to other countries including
    Vietnam and Malaysia, and also includes a strong set of rules that
    prevent governments from putting in place non-science based barriers
    and technical barriers to trade. TPP also gives us leverage over
    countries like Indonesia, Taiwan, the Philippines--all countries who
    want to join TPP and all are countries where U.S. beef has outstanding
    issues with market access.
        The benefits of TPP are great, but so are the costs of inaction. If
    the United States fails to enact TPP, then we will send a strong
    message to our allies in the Pacific Rim that we are no longer willing
    to lead in the Pacific and the United States will simply resign our
    position of leadership to China regarding international trade and the
    geopolitical affairs of the Pacific Rim.
        Unfortunately China already has leverage over the United States in
    terms of beef market access and has exerted that leverage since it
    banned U.S. beef in 2003 following the classical BSE case involving a
    Canadian-born cow in the state of Washington. In 2006, China
    unilaterally re-opened its market to de-boned beef from cattle under 30
    months of age with the stipulation that U.S. beef imports meet 22
    requirements that included traceability of the animal to place of birth
    and the exclusion of meat from cattle that were of Mexican-origin. A
    year later, in 2007, China expanded access for U.S. beef to include
    bone-in beef from cattle under 30 months of age, subject to the same 22
    conditions they introduced in 2006. The U.S. beef industry did not
    agree to meet these non-science based and commercially restrictive
    terms and worked to educate the Chinese Government on how these
    unnecessary requirements did nothing to address food safety or animal
    health concerns. In 2012, the United States received negligible risk
    status for BSE from the World Organization for Animal Health (OIE);
    this is one of the highest levels of safety awarded by the OIE. Even
    with our negligible risk designation, China has not modified its BSE
    restrictions on U.S. beef and we are still prohibited from the Chinese
    market.
        Regaining market access to the large and growing Chinese beef
    market is essential to the future health of the U.S. beef industry. For
    several years the U.S. Government has been meeting with Chinese
    officials to discuss re-opening the Chinese market to U.S. beef.
    Unfortunately whatever progress has been made in these meetings has
    simply led to further questions and delays. Despite the frustrating
    process, NCBA remains strongly committed to working with the U.S.
    Government to address China's concerns. With the guidance and direction
    of our volunteer leaders we will continue to provide the necessary
    advice that our government needs to arrive at an agreement that will
    address China's concerns and help us regain access for beef. One of the
    points of concern for China is the U.S. capacity to identify at the
    slaughter plant the birth premise of every animal from which beef is
    certified for export to China. The U.S. beef industry and the U.S.
    Government have worked extensively to find a solution that does not
    place mandatory production requirements on producers regarding
    traceability. We believe there are existing voluntary marketing
    programs that address China's concerns and look forward to our
    negotiators being able to find a common-sense solution and restore
    access to China. Even if there is a consensus position to address
    China's concerns, China may bring up other potential roadblocks that
    will have to be addressed at that time. A healthy dose of caution is
    needed in working with China.
        Other actions can also be taken to help our industry recover from
    downward prices. We continue to be hit with over burdensome regulations
    which hamper our ability to be as efficient as possible. One such over
    burdensome regulation is the Endangered Species Act. Despite being
    essential to protecting habitat for wildlife everywhere, cattle
    producers throughout the country continue to suffer the brunt of
    regulatory and economic uncertainty as a result of the U.S. Fish &
    Wildlife's implementation of the Endangered Species Act.
        Simply put, the ESA is broken. Years of abusive litigation by
    radical environmental groups have taken a toll, and the result is a
    system badly in need of reform. Today more than two thousand species
    are listed as either Threatened or Endangered, with new petitions
    stacking up by the hundreds due to groups that have set up ``petition
    assembly lines'' to churn out new filings by the dozen. When the Fish
    and Wildlife Service fails to respond to this avalanche of procedural
    paperwork, the groups sue, tying up the court system and sapping the
    agency of money that should be used for species recovery and de-listing
    efforts.
        If we want to fix the Endangered Species Act we are going to have
    to get serious about ending this taxpayer-funded litigation abuse. The
    Equal Access to Justice Act and the ESA Judgement Fund were not created
    to serve as bank accounts for activist groups, yet that's how they are
    being used. Every time the FWS settles a lawsuit or enters a settlement
    agreement like the infamous 2011 ``mega-settlement'' with the Center
    for Biological Diversity and WildEarth Guardians, these ``factory
    litigants'' receive a windfall profit, which only reinforces their
    action and encourages more abuse.
        The result of this cycle of abuse is a dismal 1.4% recovery rate
    for listed species--a failure by any standard. Since all available
    resources are devoted to listing petitions and litigation, virtually
    nothing remains for recovery and de-listing efforts. Some species have
    been listed for 15 years or more without a valid recovery plan or
    recovery benchmarks in place. For cattle producers operating in the
    range of a listed species, that means playing a game we can't win using
    rules we're not allow to see.
        After 40 years, Congress must step in to reform this broken law. We
    need to restore balance to the ESA by making recovery plans and de-
    listing benchmarks a requirement to list a new species. Certainly if
    the Service has enough information to determine that a species is
    threatened, it should also have enough information to determine what
    ``recovered'' looks like. Congress must also ensure that effective
    conservation tools like Candidate Conservation Agreements with
    Assurances (CCAAs) aren't marginalized through the rulemaking process.
    The assurances provided to producers through such instruments are
    critical to effective preemptive conservation efforts on the ground.
    With clear guidance, realistic recovery goals, and a focus on truly
    threatened species, cattle producers stand ready to continue their work
    on the front lines of species conservation. It is my hope that Congress
    will act to provide the Fish and Wildlife Service that badly needed
    guidance.
        When we talk of over burdensome regulations, we always need to talk
    about the Environmental Protection Agency (EPA). Cattle producers rely
    on clean water, clean air, and clean land to run successful businesses.
    We pride ourselves on being good stewards of our country's natural
    resources. Since our livelihood is made on the land, through the
    utilization of our natural resources, being good stewards of the land
    not only makes good environmental sense; it is fundamental for our
    industry to remain strong. We maintain open spaces, healthy rangelands,
    provide wildlife habitat, and feed the world, but to provide all these
    important functions, we must be able to operate without excessive
    Federal burdens. Unfortunately, the livestock industry is threatened
    daily by urban encroachment and natural disasters, and the last thing
    we need is additional regulatory burden and government overreach.
        The Waters of the U.S. (or ``WOTUS'') rule continues to be a top
    concern for cattle producers, despite the temporary court-ordered stay.
    I am extremely concerned about the devastating impact this rule could
    have on me and other ranchers and farmers. As a livestock producer, I
    can tell you that the rule has the potential to impact every aspect of
    my operation and others like it by regulating every tributary, stream,
    pond, and dry streambed on my land. What's worse is the ambiguity in
    the rule that makes it difficult to determine just how much of my
    operation will be affected.
        WOTUS is just the tip of the iceberg for incoming environmental
    rules that impact beef producers. Another pending regulation is the
    Spill Prevention, Control, and Countermeasure (or ``SPCC'') rule for
    farms, which requires farmers to develop and certify a control plan and
    install secondary containment structures for oil storage. There's also
    the new ozone standard which can impact a rancher's ability to conduct
    a prescribed burn, which is an environmentally beneficial practice for
    burn-dependent ecosystems. I'll also mention the Resource, Conservation
    & Recovery Act--a law designed by Congress to regulate landfills--which
    for the first time ever was determined by a Federal court judge to
    apply to agricultural operations. Ironically, these regulatory and
    enforcement regimes ultimately disenfranchise agricultural producers
    instead of incentivizing conservation efforts.
        As I explained earlier, our industry is quite diverse and
    independent by nature, but by necessity we come together to solve our
    challenges. I sincerely appreciate your invitation and attention for
    these few minutes today. We want to work with you to ensure that
    legislation passed and regulations promulgated are ones which help
    producers, not hinder us.

        The Chairman. Thank you, Mr. Brunner. The chair would like
    to remind Members that they will be recognized for questioning
    in order of seniority for Members who were here at the start of
    the hearing. After that, Members will be recognized in order of
    arrival. I appreciate the Members' understanding.
        Understanding that Ranking Member Collin Peterson has
    another commitment he has got to get to, I would be happy to
    yield at this time.
        Mr. Peterson?
        Mr. Peterson. Well thank you, Mr. Chairman. I appreciate
    that.
        Mr. Zimmerman, you mentioned in your testimony that USDA
    proposed rules on organic poultry gives you concern. Could you
    talk a bit more about the risks associated with this rule, your
    concerns, and do you feel this rule will work counter to USDA's
    efforts to prevent another high-path outbreak?
        Mr. Zimmerman. Our primary concerns do have to deal with
    another high-path outbreak. Here we are working with APHIS
    trying to limit our exposure to water fowl, rodents, other
    possibilities of bringing HPAI into our farms, and then AMS
    comes up with these new proposals that want us to increase the
    outside space required for organic production. It just doesn't
    make any sense that one part of USDA is telling us to keep our
    birds as safe as possible, inside our barns and the other group
    is saying well one segment of the industry needs this much
    greater space outside. So that is the greatest concern.
        And they are also admitting that this will increase
    mortality, some of these organic rules, and that is
    counterintuitive to what we are tying to do.
        Mr. Peterson. Are they listening?
        Mr. Zimmerman. We hope so. I guess that is part of the
    reason we are here today.
        Mr. Peterson. All right.
        Dr. Brown, you have done a lot of analysis on milk and MPP.
    What would you say to some of the producers that think that
    they were better off under MILC, first. And second, in your
    analysis there has been talk about this feed cost adjuster
    issue. It just looks to me like there is a bigger discrepancy
    between whether somebody grows their feed and buys their feed
    versus what region of the country they are in.
        So would you agree with those two issues?
        Dr. Brown. Yes, first, when you look at the old MILC
    program versus MPP, I have said all along that for those
    producers that would have signed up at the $600 or $650 range
    for MPP, I believe the return to them is larger than what they
    would have experienced under MILC. Getting them to sign up for
    that level has been somewhat the challenge that we face. I
    looked, and in 2016, almost 130 billion pounds of our milk
    signed up at $4. That is a safety net about as firm as this
    table top. It doesn't provide much help. So we have done a poor
    job of educating on this idea of insurance versus program
    maximization, and it is an area we need to work on. But I also
    hear from producers who have felt like MILC was a better tool.
    Sometimes I will say it might have paid sooner, but it only
    offset 45 percent of the price decline. I don't know of any
    producer that would like to receive only a 45 percent offset
    once we get to the trigger.
        When you look at MPP, and there has been a lot of
    discussion about feed costs, and we all know from the debate on
    the farm bill we had feed costs discussion all the way back in
    the 2014 Farm Bill debate. It does seem like we have a lot of
    differences in terms of feed cost by operation. Those that are
    growing a lot of their own feed, frankly, did better in a high
    feed price environment because they were able to use their own
    harvested feed stuffs. However, those that were buying a lot of
    their feed saw more of the full impact of the record corn
    prices that we saw during the very dry weather of 2012 and
    2013. So perhaps there is some ability to think about ways to
    modify the formula, depending on whether you grow a lot of feed
    or you don't grow a lot of feed. I am not so certain that it is
    a regional issue as much as it is how that farm actually looks,
    in terms of the amount of feed it has grown versus what it buys
    from the marketplace.
        Mr. Peterson. Thank you.
        Mr. Mooney, why are bankers not requiring dairy farmers to
    buy up insurance? Crop farmers would never get by with that. Is
    that going to change now that we are going to a tighter margin
    situation, or do you know anything about that?
        Mr. Mooney. Well, I think it will change, and I haven't
    spoken to a banker directly, but coming off of 2014 when
    margins were really good, you went into 2015 with strong
    balance sheets, and then disaster hit in 2015 and the results
    of 2014 on our bottom line masked some of the problems we had
    in 2015. And if you go back and you look at the results of the
    Margin Protection Program, there were 263 farms that were paid
    out, and if the feed cost adjuster had been the way National
    Milk had presented it, there would have been 8,500 producers
    receiving a payment. And farmers look at those things when they
    look at whether to get involved next year. They see very few
    farmers received money in 2015, so they take that into
    consideration when they are looking.
        And I do think to your specific question, once it is more
    of a proven program and we go through some of these low down
    cycles like we are going through now, I think that will be
    required by banks.
        Mr. Peterson. Thank you. Thank you, Mr. Chairman. I
    appreciate your accommodating me.
        The Chairman. Thank you, Mr. Peterson. I will now yield
    myself 5 minutes.
        Mr. Brunner, my line of questioning is going to focus on
    this proposed GIPSA rule that we have on the table. The cattle
    industry has put into place the alternative marketing
    arrangements, or what is known as AMAs. Would the proposed
    GIPSA rules make AMAs obsolete? I would love to get your
    thoughts on that.
        Mr. Brunner. Well thank you, Mr. Chairman. The proposed
    GIPSA rule would extremely complicate and outlaw many of the
    alternative marketing arrangements. Our industry believes that
    these value-based marketing arrangements that we have, have
    done much to improve the overall quality and demand for beef
    over the years.
        I can relate personally from our family's operation that we
    rely on a value-based marketing arrangement with our packer
    processor that has helped us over time achieve premiums to the
    cash market of $30 to $50 a head consistently. We believe that
    is responding to consumer demand and we rely very much on this
    marketing arrangement. So the alternative marketing
    arrangements are very beneficial to our industry. The GIPSA
    marketing rule would threaten those.
        The Chairman. Mr. Herring, in your written testimony you
    mention the industry has plans to add four pork packing plants
    in the United States in the next couple years. Obviously, these
    are huge job creators and economic stimulators, and although we
    don't know exactly what the final GIPSA rule is going to look
    like, would the possible decrease in marketing agreements have
    an impact on whether or not the industry goes forth with
    building these plants?
        Mr. Herring. Congressman, there is no doubt that these
    proposed new GIPSA rules could delay or even stop some of these
    potential plants. There are three plants under construction
    today. There is one plant that is trying to get located. Maybe
    there are four under construction today.
        But, the better question is we need to ask why are new
    plants getting built? New plants are getting built because U.S.
    pork producers produce the safest, highest quality product in
    the world. We are the best at what we do in the world. We
    produce pork four times cheaper than Japan, 2\1/2\ times
    cheaper than China. It is a very innovative industry.
        These GIPSA rules are very concerning because they are so
    vague. It is almost a trial lawyer's playground.
        I work for a family business, Congressman, that designs and
    builds swine production facilities all over the world.
    Countries like Russia, China, Mexico, Poland, Chile, all these
    countries are striving to be like our industry, and through our
    current rules and regulations, our industry has been able to
    grow. So I don't see why we need to change anything we are
    doing today.
        Thank you, Mr. Chairman.
        The Chairman. I yield back my time.
        Let's see, Ms. Plaskett?
        Ms. Plaskett. Thank you, Mr. Chairman. Good morning,
    gentlemen.
        I have a general question that I am hoping that anyone in
    the group can answer, give us their thoughts on, and this is
    related to EPA regulations. As livestock producers, can you
    explain the regulatory challenges that you face within each
    part of the operations that you have? And with that, I am
    really trying to understand what EPA could be doing better to
    recognize the challenges that you have in your industry and in
    the operations, and understanding those practices in their own
    regulatory framework and how they put regulations forward that
    may make it more difficult and more challenging for you in your
    own industry.
        Mr. Brunner. Well, I will take the first try at that.
        Ms. Plaskett. Okay.
        Mr. Brunner. The Waters of the U.S. rules is foremost in
    mind as an initiative from EPA that would be very damaging to
    the cattle and beef industry. America's farmers and ranchers
    pride themselves as stewards of not only the land, but all of
    the resources on that land. We believe that the best way to
    manage and preserve that land is best managed at the ranch and
    the local level. The Waters of the U.S. rule would be a massive
    Federal overreach, and would be very damaging to our industry.
        Ms. Plaskett. My understanding is that it goes as far as to
    reaching into dry creek beds and others, and that that is
    really going to be detrimental to the work of some of the
    livestock owners.
        Mr. Brunner. Absolutely. It would go far beyond navigable
    waters of the U.S., and jurisdictionally include intermittent
    streams and even dry----
        Ms. Plaskett. Well how can EPA strike that balance? Are you
    meeting regularly with them? Are people from different
    associations having discussions with them? Do you feel that
    they are understanding and hearing what your concerns are in a
    market that is already very, very tight for you all?
        Mr. Brunner. We believe our organization is taking
    initiatives and outreach to work with EPA. To date, we don't
    believe they have been as receptive to our arguments and our
    information as we necessarily would like them to be.
        Ms. Plaskett. Mr. Mooney, did you have something to add on
    that?
        Mr. Mooney. Yes. We have sat down with EPA and we have what
    you call in the dairy industry innovation center where you
    bring together farmer organizations and processor
    organizations, and we have sat down with EPA to talk to them
    about things like Waters of the U.S. and what effect it would
    have on us. We have actually come up with a plan to reduce
    greenhouse gases by 25 percent by 2020. So we are trying to get
    ahead of some of this stuff and going in and having a
    conversation with EPA to see if what we are doing fits what
    they would--rather than work at it from a regulatory
    standpoint, work with them when they tell us what is coming
    down the road, how we can fit what we are doing into what they
    are going to recommend.
        We also have started a group, Nutrient is the name of the
    company, to where several co-ops have financed this new company
    to come together to try to find innovative ways to use animal
    waste and animal manure in ways that we haven't ever thought
    about before. So it is going to cost quite a bit of money to do
    it, but cooperatives and farmers are putting resources into
    this so we can find ways to get ahead of some of the EPA rules.
        Ms. Plaskett. Thank you. I have noticed, and I am very
    aware of the drought for the farmers and particularly livestock
    owners in the Virgin Islands where we have the--as well as our
    pork, there have been a huge, huge issues that they have had
    related to drought. And I know that when we talk about the TPP,
    that that as well is something that some of you all are really
    concerned about and if Congress doesn't act to pass it, will
    that be ceding marketshare that some of you may have in a
    market already dealing with disease and drought and some of the
    other areas.
        Do any of you have any thoughts about, particularly Mr.
    Herring, Mr. Mooney, about how passage of TPP or not passing
    that would affect your industry?
        Mr. Herring. Thank you. Currently today, there is about $48
    per head of value added to every hog marketed in the United
    States because of exports. If we are not able to pass the TPP,
    other countries are working with Asian countries, and our
    industry will start to decline and we will not be able to
    increase the value of the animals that we are producing today.
        The 20 countries we have free trade agreements today, we
    sell them more pork than we sell the rest of the world. So
    anywhere the U.S. pork industry has a free trade agreement, we
    have been super successful, and they have created a tremendous
    demand for our product.
        Ms. Plaskett. Okay, thank you. Thank you, Mr. Chairman.
        The Chairman. Mrs. Hartzler.
        Mrs. Hartzler. Thank you. I really enjoyed the testimony
    today. It seems like we have had a recurring theme of the TPP
    and GIPSA, and some of the regulations, GMO labeling. I have
    been a lifelong cattle producer, but I didn't know that we were
    producing \1/3\ more cattle or beef product than we are with
    \1/3\ less land and \1/3\ cattle, since 1977, so that was
    impressive there. I am concerned to hear that you project lower
    cattle prices, Dr. Brown. That doesn't look good for our cows
    at home.
        But my question today is about the Veterinary Feed
    Directive, and this final rule scheduled to take effect in
    December of this year. Producers in my district are concerned
    with how these new regulations will be effecting their
    operations and I have had several conversations with several
    cattlemen, specifically at home.
        So specifically, I have heard the regulatory burdens in the
    VFD will force farm supply stores to stop selling products like
    medicated milk replacer, which is used on calves during certain
    times to protect the baby animals against illnesses like
    pneumonia. So as I understand the VFD, a 1,000 cow dairy and
    little Johnny with one show steer will be regulated under the
    same rules, and the VFD will make it extremely costly and
    difficult for small farmers and young kids with FFA and 4-H
    projects to access critical feed products like medicated milk
    replacer. Randy, I would like to hear your thoughts on this
    rule first, and I would like to learn more about how the
    Veterinary Feed Directive will be applied to products like
    medicated milk replacer. And then I would like to open this up
    to the whole panel to talk about other concerns you may or may
    not have with the VFD, and any specific provisions or concern
    in the directive that can be tweaked to improve the
    implementation. Randy?
        Mr. Mooney. Well as you might expect, any extra regulations
    are very concerning for dairy producers, and probably all
    livestock producers. And this probably affects dairy less than
    it does maybe other livestock groups, because as you are well
    aware of, our feed that goes into the dairy cow doesn't have
    antibiotics in it anyway. We test our milk daily for
    antibiotics so there are no antibiotics in dairy feed. It will
    affect the milk replacer that we feed our calves if it has
    antibiotics in it, and what you will have to do then is work
    with a veterinarian to get a veterinarian prescription to use
    that.
        Now one of the things the dairy industry has done is we
    came up with what we call the FARM Program, Farmers are Sharing
    Responsible Management, and that is our new animal care program
    that has been in existence about the last 3 or 4 years. And in
    that program, you have to have a veterinary client/patient
    relationship, so that relationship through this program will
    actually be easier for dairy producers to deal with because we
    have that relationship ongoing, and it is something that we
    have to have resigned every year. But it is just another layer
    of regulations that we are going to have to deal with, but I
    don't see in the dairy industry it being as big a deal maybe as
    in the livestock or poultry industry.
        Mrs. Hartzler. Let me ask Mr. Brunner this. How often would
    a beef producer, or even Mr. Herring, pork producer, have to
    get that prescription from the veterinarian? Can you get a
    blanket one for 1 year, or is this every time you want to give
    the medicated feed you have to go back to your local
    veterinarian?
        Mr. Herring. The short answer to that would be I believe 6
    months is what is commonly being said today would be the length
    of a prescription.
        Our organization on behalf of our industry has been working
    with FDA and the development of the Veterinary Feed Directive.
    We want to be part of the solution. We understand the
    discussion on antimicrobial resistance that is taking place. We
    also understand the very great need that all livestock industry
    has in the availability of all the technologies in the tool
    chest, if you will, to ensure the safety and the availability
    of the global food supply. And all that said, there are
    specific technologies that come under scrutiny of the
    Veterinary Feed Directive that are ionophores. These are
    classified as antibiotics. They have no use in human medicine,
    but they are very important technologies in the efficiency of
    production of beef, and we are currently working with FDA to
    try and identify some ways to continue the use of them and
    availability of those technologies.
        Mrs. Hartzler. Ten seconds, Mr. Herring. Do you want to add
    anything?
        Mr. Herring. The pork industry is in concert with the
    guidance 209 and the guidance 213 rules that are coming in
    January. I am sure there will be some hiccups, just because
    there are employees, there are people working. Somebody will
    miss something. But first and foremost, we are trying to raise
    safe, healthy pork, and the antibiotics are a tool that we
    definitely need to be able to ensure that happens.
        Mrs. Hartzler. Okay, thank you very much. Thank you, Mr.
    Chairman.
        The Chairman. Mr. Costa?
        Mr. Costa. thank you very much, Mr. Chairman. I have a
    couple questions.
        First to Mr. Mooney and Dr. Scott Brown. When we worked
    together on the farm bill on the MPP program, the economic
    analysis reflected an assumption that the so-called sweet spot
    as it has been discussed before where about $6 to $6.50 range,
    and the premiums were therefore optimized at that level. Of
    course, my friend and colleague Congressman Peterson said, ``.
    . . it is not a good idea to write farm programs when prices
    are high,'' but I would like to ask, in your view, is that
    still the case? Because our California situation, and it was
    noted about differences in regional production and the size of
    dairies. I looked it up and we have had 38 dairies out of
    almost 1,500 dairies in California that have purchased the
    additional protection. So 38 out of almost 1,500 dairies is a
    small number, I would argue. Mr. Mooney, Dr. Brown, would you
    care to comment?
        Mr. Mooney. Well, I will let Scott clean me up.
        The cost of a sweet spot, and I agree that I even said that
    up in front of talking with some groups, that was the sweet
    spot, but when I was talking about that, that was in relation
    to probably what National Milk at the time was talking about as
    the feed cost that was prior to the ten percent reduction in
    feed costs.
        Mr. Costa. Which has changed.
        Mr. Mooney. Yes, that is right. So, it probably should have
    changed the rates when you changed the feed costs, because the
    two are correlated. And I think when you----
        Mr. Costa. But some argue that that may not do much.
        Mr. Mooney. Yes, but when you get under $6.50 and you look
    at ten percent in feed costs, you look at $10 feed costs, it is
    $1 hundredweight. So if you are down at that level, it makes a
    big difference.
        Mr. Costa. Because of my time, Dr. Brown?
        Dr. Brown. Also, when we debated the farm bill we certainly
    didn't expect feed costs to go as low as they have today. So
    first, I think that probably has some effect relative to where
    we were in terms of the so-called sweet spot. I do think we
    have to be extremely careful about what level of protection we
    want to provide. Too high of protection creates a lot of excess
    supplies for us to deal with, and we have had programs like
    that in the past and we weren't very happy with those either.
    So finding that in between has been very difficult. The
    knowledge that we have today of how feed markets have moved
    might suggest slightly higher protection is needed than where
    we were when we debated this farm bill.
        Mr. Costa. And maybe take another look at it then
        Dr. Brown. Absolutely.
        Mr. Costa. Yes. I want to switch here, Mr. Zimmerman, to
    some of our issues dealing with the poultry industry. You
    mentioned in your testimony the result of last year's high-path
    avian influenza that created havoc in different parts of the
    country that several countries, South Korea, South Africa have
    placed new restrictions on poultry imported from this country
    that is not born, raised, and slaughtered in the United States.
    What is the impact of these adverse regulations?
        Mr. Zimmerman. Well, the South African one is the most--
    forgive my bluntness--silly. We receive a lot of poults or baby
    turkeys that are hatched in Canada and transported across the
    border at a day of age, and then we raise them and grow them
    out and process them in the United States. Those birds cannot
    be sold to South Africa, whereas the same poult or baby turkey
    hatched in Canada and stays in Canada can be sold to South
    Africa. These poults that come across the border from Canada
    are a lot of times mixed in the processing plants and they
    can't be kept separate, so anything that has this tint of
    Canadian-ness in it can no longer be marketed to South Africa.
    So it is just a silly trade barrier that affects the whole
    industry because----
        Mr. Costa. This is a non-tariff trade barrier that and in
    effect is made for economic reasons as it relates to a
    particular country?
        Mr. Zimmerman. Correct. And it was thrown in at the last
    minute, and if NTF had been consulted heavier with the people
    negotiating the trade deal, we could have nipped this in the
    bud before it happened.
        Mr. Costa. So what remedy are you offering or suggesting
    that the Subcommittee look at to try address this issue?
        Mr. Zimmerman. Make sure NTF is involved and understanding
    the difference the turkey industry faces compared to the
    chicken and other livestock industries, and work with us to
    hopefully change that rule.
        Mr. Costa. All right. I want to thank you, Mr. Chairman. I
    have to go back to my other Subcommittee, and I will yield back
    the balance of my time.
        The Chairman. Mr. Newhouse.
        Mr. Newhouse. Thank you, Mr. Chairman. Gentlemen, I
    appreciate very much all your testimony this morning. It has
    been very informative and very important issues that impact
    agriculture and its ability to be successful, so thank you very
    much.
        I am really looking forward to this opportunity today,
    because I have a burning question that has been raised by some
    of my cattle producers, so I was hoping that a couple of you
    could address this issue, maybe Mr. Brunner and Dr. Anderson,
    or whoever would like to, maybe Dr. Brown.
        After the repeal of COOL, which as you know in the cattle
    industry, there are some people for and some against that. Some
    folks have brought the concern to me that now Canadian and
    Mexican cattle can come into the United States for a certain
    period of time, be slaughtered, and be sold as U.S. beef, and
    that any benefit from TPP would then be a more direct benefit
    to Canada and Mexico, not U.S. producers. And they have already
    seen a price decrease, they think, because of this situation.
    In your estimation, is this the right conclusion to come to?
    Was the cause and effect correct, when you get rid of COOL,
    then that automatically is not a benefit to U.S. producers?
    Does that make sense?
        Mr. Brunner. What I think you are asking is has the
    importation of cattle increased since Country-of-Origin
    Labeling is no longer the law of the land, and the North
    American beef industry is highly integrated. On the U.S. side
    of the border, we utilize feeder cattle from Mexico, it
    averages about one million head a year that come in from
    Mexico, and are part of our industry, that help with the feeder
    supply. From Canada, depending on seasonally and also, the
    situation of moisture, live cattle, feeder cattle, and also
    slaughter cattle can come down from Canada. The North American
    industry is highly integrated, and so we have not seen any
    increase since the dismissal of COOL, and I am not sure exactly
    how that would tie into TPP. TPP, although Canada and Mexico
    are signatories to that agreement, would be a far greater
    benefit for our industry in helping us level the playing field
    of the tariff rate duty that we are paying into Japan.
    Currently we are paying 38 percent. Australia, only 27 percent,
    and that disparity will continue to escalate until we sign TPP.
        Mr. Newhouse. Yes. Anybody else care to comment?
        Dr. Anderson. I will probably just make one comment too
    along with that. We have been importing fewer cattle, and it
    relates to drought, weather conditions, grazing conditions up
    there, and also changes in their own infrastructure within
    their own industries. As they build more packing plants in
    Mexico, we think that is going to continue to keep more cattle
    down there and reduce that supply that could come here of the
    live cattle.
        Mr. Newhouse. Well that helps. I appreciate that. There are
    a lot of moving pieces, a lot of things that can impact cattle
    prices, and certainly, it is an integrated industry in all of
    North America.
        Just real quickly, Mr. Mooney, you talked a little bit
    about the MPP. We talked a lot about the feed provisions in
    that, but you also had some other suggestions for improvement,
    and in the short time allotted, you mentioned farmer paid
    premiums as one thing. Are there any other ideas that you might
    have to improve the MPP?
        Mr. Mooney. Well I think those are the two major ones is
    making sure the feed cost adjustments, there is discussion out
    there on regional feed cost adjusters. I don't think that is
    the right way to go, personally, because you get into all kinds
    of regional differences. If you do go with a regional feed cost
    adjuster, you would almost have to go with regional milk
    prices, because milk prices are different all over the country.
        But, probably the other one is looking at the different
    size of producers. If you are talking about getting more people
    involved and Congressman Peterson said this, some of the
    smaller producers aren't involved in this. The rates have
    actually gone up on the smaller producers because there was a
    deduction the first year, and if there was a way of having
    lower rates for smaller producers to get them more incentivized
    to be part of it, that might help there.
        Mr. Newhouse. Thank you very much. Again, I appreciate all
    your testimony. It has been great, and thank you very much, Mr.
    Chairman.
        The Chairman. Mr. Yoho?
        Mr. Yoho. Thank you, Mr. Chairman. I appreciate everybody
    being here, and I have so many questions and so little time.
        TPP: I know we all need trade and we all want fair and
    balanced trade. We want good trade, and it is so important that
    we have that. Mr. Brunner, congratulations on your new post
    with the NCBA.
        Mr. Brunner. Thank you.
        Mr. Yoho. Is anybody in the cattle industry, or Mr.
    Herring, in the pork industry, or Mr. Zimmerman, in the turkey,
    and Mr. Mooney, in the dairy industry, while we are waiting for
    TPP to come across and get approved, as you brought up,
    Australia was ahead of the curve. They went ahead and
    negotiated with Japan. Is anybody in our industries doing that
    today while we are waiting on TPP, because I felt like we sat
    and just kind of watched the world go by, and Australia jumped
    the gun and they did good for their country. Is anybody doing
    that?
        Mr. Brunner. Well the Canadians are working to get a
    unilateral or bilateral agreement with Japan in our absence.
        Mr. Yoho. What about us with our trade negotiators?
        Mr. Brunner. Our trade negotiators negotiated the best
    trade access we have ever been able to achieve with TPP.
        Mr. Yoho. Right.
        Mr. Brunner. Our current tariff rate of 38 percent would
    level with Australia and all the other member nations, and it
    would decline to nine percent in the 16 years of phase in over
    that. So that is by far the----
        Mr. Yoho. But, instead of waiting for that to pass, was
    anybody being proactive and trying to get the trade agreement,
    just a bilateral one so that we could be--I don't want to say
    like Australia--benefitting our producers in this country
    instead of waiting on this big multi-national trade agreement?
        Mr. Brunner. We had a bilateral that was signed with Japan,
    I believe, back in the 1990s in the early part of my career. It
    was hard to get the Japanese market open, and when it did open,
    we had to pay that high tariff rate and have been paying it
    ever since.
        Mr. Yoho. Right. Okay. I just feel like we could have, our
    negotiators could have been a little bit more proactive, kind
    of like Australia did or like you are saying Canada is doing it
    now.
        In lieu of that, thinking about that, we heard about foot-
    and-mouth disease as you guys brought up, and we know the
    threat of that. Is there any need to import beef from any
    country that might have FMD, because we know if that got into
    this country, it would shut down our export industry 100
    percent. Right now, tomorrow, it would shut it down. Is there
    any need to import it, and if you could, give me an economic
    impact on this country's ag sector when you look at pork, beef,
    sheep, goats, all the livestock sectors that would be impacted.
    Any idea, Mr. Brunner?
        Mr. Brunner. Well the Brazil/Argentina rule that is
    proposed by USDA raises great concerns within our industry. We
    don't believe an adequate risk assessment has been made of the
    ability of those countries to certify their product coming into
    this country as fresh or fresh frozen product. We believe that
    that risk assessment needs to be made. And in direct answer to
    your question of an economic analysis of the damage that that
    would create, we have not seen that study from USDA and are not
    sure that it has ever been made.
        Mr. Yoho. The reports I have read is between $100 and $150
    billion economic impact to this country.
        Mr. Herring, do you have any thoughts on that?
        Mr. Herring. Well, the ability or the devastation of a farm
    animal disease in this country is, without a doubt, the 800
    pound gorilla in the room, and it is the one thing that when I
    meet with the bankers every year I think I just need to get out
    of this business. It scares me to death. So we really need to
    keep pushing and get prepared.
        Mr. Yoho. All right, and bringing that up but going back to
    TPP, if we know that were to come into this country and we're
    struggling to get that trade negotiation, we need to stop any
    country that maybe has that in their country to come here.
        And we talked about GIPSA, the Food Modernization Safety
    Act, EPA, all the regulations that come from these different
    agencies and the FDA, and recently, the USDA noticed a grant to
    help address a shortage of large animal veterinarians in rural
    areas, and this continues to be a common problem from report
    after report evaluating the veterinary profession. With
    additional regulations like I mentioned from the FDA on the VFD
    coming into effect early next year, the shortage for rural
    areas could become more problematic. From your perspective as
    the President of the NCBA, do you hear this concern from your
    membership being concerned about current or future access to
    veterinarians in their rural areas?
        Mr. Brunner. Well our industry certainly relies on the
    services of veterinarians, and beyond that I can say that they
    are an integral part of the support service to our industry. We
    want to make sure that there is adequate numbers of educated
    and trained large animal veterinarians to support our industry.
        Mr. Yoho. Thank you. Thank you, Mr. Chairman.
        The Chairman. Thank you, Mr. Yoho.
        I would like to thank all the members of the panel for your
    testimony today. This has been very, very helpful, great input
    for the record. I might add, to sum all this up, the Federal
    Government just needs to get out of your way and help open up
    your markets. Thank you again.
        Under the rules of the Committee, the record of today's
    hearing will remain open for 10 calendar days to receive
    additional material and supplementary written responses from
    the witnesses to any question posed by a Member. This hearing
    of the Subcommittee on Livestock and Foreign Agriculture is
    adjourned.
        [Whereupon, at 11:31 a.m., the Subcommittee was adjourned.]
        [Material submitted for inclusion in the record follows:]
             Submitted Statement by Livestock Marketing Association
        Subcommittee Chairman Rouzer and Members of the House Committee on
    Agriculture Subcommittee on Livestock and Foreign Agriculture:

        These comments are provided on behalf of the Livestock Marketing
    Association (LMA), which is the leading national trade organization for
    more than 800 livestock marketing businesses located throughout the
    United States. LMA represents more than 75 percent of the regularly
    selling local livestock auction markets in the U.S. Livestock auction
    markets serve two important purposes: (1) they sell livestock for
    producers in a competitive bidding environment and (2) they stimulate
    the economies in local communities.
        According to U.S. Department of Agriculture Grain Inspection,
    Packers and Stockyards Administration (GIPSA) annual reports, livestock
    auction markets each year sell more than 33,000,000 cattle, 8,000,000
    hogs, and 2,800,000 sheep. This amounts to $30 billion in gross sales
    of livestock sold in auction markets each year. In talking about the
    opportunities and challenges for the livestock sector, we'll focus on
    auction market businesses but also touch on some important topics for
    the industry as a whole.

        Key points:

       The future holds both opportunities and challenges for
            animal agriculture.

       The Packers and Stockyards Act needs to be changed.

         The structure of the livestock marketing industry has
                changed; but the P&S Act has not. Some needed changes can
                be made on a consensus basis in the short term. Other
                changes will require more in depth analysis.

       Market volatility is a serious issue that needs to be
            studied.
    Opportunities and Challenges Exist for Animal Agriculture
        First, the good news is we see great opportunity for animal
    agriculture. The United States is the premier producer of livestock and
    livestock products, particularly grain-fed beef. We are excited about
    the opportunities to expand as an industry, especially as the middle
    class populations in many key countries grow. Factors such as lower
    feed costs and much needed moisture in many parts of the country have
    contributed positively to the livestock sector. This positive response
    is especially evident in the cattle sector by the decision of many
    cattle producers to take part in a rebuilding of numbers in the U.S.
    beef herd.
        From a marketing sector perspective, livestock auction markets see
    opportunities to continue our proud tradition of serving our customers.
    Markets help producers receive the highest price possible for their
    animals through competitive bidding, sorting, and offering livestock in
    volume. In addition, markets are often where producers receive the help
    and information they need to ensure they are complying with state and
    national requirements particularly those relating to animal health,
    such as health certificates or disease testing requirements.
        We also see growth opportunities that come with technology. Many
    markets have expanded their services to include online or video sales.
    Additionally, our members continue to look for innovative ways to help
    producers realize additional premiums for their livestock, such as
    desirable animal health programs.
        However, we have some challenges to overcome as well. One of the
    greatest challenges for the livestock marketing sector is figuring out
    how to operate under an outdated and cumbersome regulatory structure.
    Last summer, LMA hosted a nine stop listening tour to hear from market
    owners, managers, and professional livestock buyers. From Valdosta,
    Georgia to Modesto, California, and everywhere in between, the message
    we heard was consistent. First, the laws and regulations governing the
    livestock marketing industry have not kept up with the times. Second,
    the greatest concern for livestock markets is making sure they receive
    payment for livestock they sell.
    The Livestock Marketing Industry Has Changed, But the P&S Act Has Not
        Our industry has changed greatly over the last 100 years. When the
    Packers and Stockyards (P&S) Act was passed in 1921, livestock were
    being transported by rail cars to a handful of large terminal
    stockyards in places such as Chicago, St. Louis, Kansas City, and Omaha
    where they were sold by commission firms housed at the stockyards. The
    stockyards often had close ties (or were controlled by) the packers
    that bought the livestock and the railroads on whose lines the
    livestock had to be shipped.
        Today, approximately 1,000 regularly selling local livestock
    auctions are spread out across the United States, and their connections
    to the railroad and packing industries are completely different from
    what existed 100 years ago. These auctions have greater transparency
    than the terminal stockyards of years gone by, due to both the nature
    of the auction environment and immediate information sharing. Today, in
    a community of buyers and sellers connected by computers and cell
    phones used by the markets and our customers, the flow of information
    is almost instantaneous. It is common today for livestock markets to
    broadcast their sales online. Finally, many livestock marketers have
    also added an Internet or video sale component to their businesses.
        While the marketing industry has adapted to structural changes in
    the industry, to changes in the banking industry, and to changes in the
    communications industry, the statutory authority of the Packers and
    Stockyards Act has remained stagnant. It has been decades since a
    wholesale review led to significant statutory or regulatory reform. For
    livestock market owners, this results in GIPSA interpreting and
    applying laws and regulations designed for the terminal stockyards to
    the business structure that we have today. The combination of
    antiquated statutory and regulatory authority coupled with a field
    staff spread out across the U.S. has lead to differing interpretations
    between regions and even individuals within a region. We heard on our
    listening tour that this leaves many market owners and operators
    feeling like GIPSA compliance is a moving target.
        We will readily admit that there has been, and continues to be,
    significant controversy surrounding proposed GIPSA regulations in
    recent years. We share the concerns of many in the livestock industry
    surrounding recent news that GIPSA is again considering regulatory
    changes similar to those proposed in their 2010 proposed competition
    rule. Any changes along these lines must be thoroughly vetted with
    industry input to ensure that changes intended to increase competition
    do not unintentionally reduce competition instead. This requires
    significant debate and analysis.
        However, at the same time, common sense, consensus-based changes
    should be made to begin the process of bringing the law into the 21st
    century. The regulated community needs action now in areas completely
    unrelated to the controversial topics.
    Short-Term, Targeted Changes to the P&S Act Are Needed
        Language has been drafted and shared with legislative offices and
    industry stakeholders that would make two targeted changes.
        First, Section 301 should be revised to make it clear that online
    and video auctions fall under the Act. More and more livestock are
    being sold through online and video sales. As the Act is written, it is
    not entirely clear whether, or to what extent, those online and video
    sales are covered and must comply with the Act. Although LMA members
    who conduct business online already follow the law's requirements when
    doing so, the lack of clear authority of GIPSA to regulate these sales
    is concerning. Clarifying Section 301 would ensure that people selling
    through online and video markets receive the same protections as those
    who sell at fixed-facility livestock markets, including a custodial
    account, prompt payment, and bonding. Section 301 should be narrowly
    revised so that it only applies to those online and video businesses
    that are charging a commission or other fee and handling, or providing
    a means to handle, funds due to sellers.
        Second, Section 409 should be revised to make it clear that modern
    electronic payment methods are permissible under the Act. Currently,
    Section 409 refers to only two forms of payment to meet the prompt
    payment requirement of payment within the next business day of the
    sale: checks in the mail and wire transfers. Modern banking practices
    use many different forms of payment, such as Automated Clearing House
    (ACH) and credit and debit cards. Revising Section 409 to make it clear
    that modern electronic forms of payment are permissible will allow for
    quicker payment, which will reduce the risk of defaults. This is
    especially important because it is taking longer and longer to receive
    checks through the mail. Changing the P&S Act in this way would not
    exclude any current payment options; it would simply allow buyers and
    sellers flexibility by adding modern options.
        These changes should be addressed this year, both to make needed
    updates to the law and also to prove that, working together, Congress
    and industry can address problems in a consensus-based manner.
    More Long-Term, In-Depth Changes to the P&S Act Should Be Considered
        A more in-depth review of the P&S Act is needed on two levels.
    First, Congress needs to determine if the Act is fulfilling its
    purpose. Second, there are specific changes that could provide much
    needed financial protection to sellers of livestock.
        Another issue often raised during LMA's listening sessions was the
    amount of devastating risk sellers of livestock and markets under the
    P&S Act are exposed to when a buyer fails to pay.
        In 2010, Eastern Livestock, the largest livestock dealer in the
    U.S., defaulted on payment to hundreds of livestock producers, markets,
    and other dealers. The Eastern Livestock default is not a one-time,
    isolated occurrence in the industry. Since 2010, there have been
    several instances of dealer defaults. As recent as this past Fall, a
    major dealer failed to pay two livestock markets (owing $980,000 to a
    market in Kansas and $2.9 million to a market in Nebraska), as well as
    several producers who sold to the dealer directly.
        Producers who sell through a livestock auction market are protected
    by both the market's surety bond and by the market's custodial account
    (trust account). Producers who sell directly to packers are protected
    by both the packer's surety bond and by the Packer Statutory Trust
    under 7 U.S.C. 196. Producers who sell directly to dealers are provided
    little protection. Under the current law, dealers do not have a
    custodial account or a trust.
        Markets are placed in a highly vulnerable position when it comes to
    payment. Pursuant to 7 U.S.C. 228b, markets are required to pay sellers
    of livestock by no later than the close of the next business day after
    the sale, even if the markets are not paid by the buyer of those
    livestock. When livestock markets are not paid, they are usually left
    with no feasible way to collect. If the dealer has resold the livestock
    to a good faith purchaser, that second purchaser has clear title to the
    livestock, even if the dealer has not paid for them. In addition, a
    dealer's bank usually will have a blanket security interest on all of
    the dealer's livestock inventory, which, under current law, will give
    the bank a perfected security interest in the livestock even though the
    dealer never paid for them and the bank never loaned the dealer any
    money for those specific livestock. A producer selling directly to a
    dealer is in a similar poor position when the dealer fails to pay.
        When a dealer mails a check, as the law allows, it may be several
    days before the seller (whether livestock market or producer) even gets
    the check or discovers that a check is not coming. In many parts of the
    country, mail has slowed down significantly, further stretching this
    critical time period. In some cases, a buyer may buy multiple times
    before a payment problem is discovered.
        Although the P&S law attempts to provide financial protection for
    sellers of livestock by requiring dealers to maintain surety bonds,
    bond claims rarely make up for any significant loss. P&S dealer bond
    claims return, on average, about 15 for every dollar claimed (1999-
    2013 data). This does not include Eastern Livestock claims where payout
    was 4.37 on the dollar.
        Additional protection is needed for markets and producers selling
    to dealers. Financial protection already exists for those dealing with
    packers (Packer Statutory Trust) and markets (custodial account) and in
    other agriculture sectors (statutory trust under the Perishable
    Agricultural Commodities Act). Simply raising bond amounts is not an
    acceptable alternative because it would push legitimate buyers out of
    the marketplace due to the significant assets needed to obtain this
    type of bond, particularly young and beginning market participants.
    Instead, the Packers and Stockyards Act should be amended to establish
    a dealer statutory trust to provide livestock producers and markets
    financial protection in the event of a dealer default. This would give
    unpaid sellers of livestock first priority to receive livestock and
    accounts receivable.
        A dealer statutory trust could be modeled after the existing Packer
    Statutory Trust that Congress added in 1976 to address packer defaults.
    The trust requires packers to hold all livestock purchased from cash
    sellers, and all inventories of, or receivables or proceeds from meat,
    meat food products or livestock products derived from such livestock,
    in a trust fund for the benefit of unpaid sellers. No separate account
    would be needed. Instead this simply would give unpaid sellers priority
    in livestock and accounts receivable for livestock. The need for this
    protection is more important than ever with slowing mail service
    delivering checks, increased value of livestock at times, and
    volatility within the market.
    Market Volatility Is a Serious Issue that Needs Attention
        The final concern we will raise is that of volatility within the
    futures and, subsequently, live cattle markets. Futures contracts
    offered by the Chicago Mercantile Exchange (CME) can be an important
    risk management tool for livestock producers to hedge against changes
    in the market. In fact, many lenders require farmers and ranchers they
    work with to hedge their livestock. However, in recent months, the
    amount of volatility in the CME has turned it from a risk management
    tool to a liability in some situations.
        We understand that due to seasonal supply and demand there will be
    ups and downs in the market; but what is difficult to understand is the
    amount of volatility within the futures market that does not correspond
    to the fundamentals of the cattle industry that traditionally drive
    market change. Numerous times in recent months news that should
    logically and historically move the market in one direction was met
    with a move by the futures in the opposite direction. This has raised
    some serious questions about high frequency trading of futures and
    other trading practices.
        For a market operator, it is devastating to watch our customers
    experience a significant drop in prices received for quality calves
    simply because the board is down the limit for the day or multiple days
    in a row, with no fundamental reason driving the drop, and cash market
    participants are reacting. It is important to remember that a trip to
    town to market their calves is a producer's main paycheck for the year
    and, with a perishable commodity like cattle, waiting a week to sell is
    not always a good alternative.
        While there is no specific Congressional ask on the topic of market
    volatility at this time, we appreciate the shared concern on this
    topic. LMA supports Congressional oversight as a support to industry
    discussions on this issue in the hope it is one that may be
    appropriately addressed in the near future.
    Conclusion
        In closing, we appreciate this opportunity to provide written
    testimony and thank the Committee for its ongoing interest in helping
    the livestock industry succeed, whether this be through working
    together to address challenges such as nonpayment and market volatility
    or allowing businesses to thrive without unnecessary government
    intervention by modernizing antiquated requirements, such as those that
    exist under the Packers and Stockyards Act today.

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