[Senate Hearing 114-715]
[From the U.S. Government Publishing Office]
S. Hrg. 114-715
FROM CROP TO CRAFT BEER:
FEDERAL REGULATION'S IMPACT ON AMERICA'S FOOD AND AGRICULTURE
=======================================================================
FIELD HEARING
BEFORE THE
COMMITTEE ON
HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS
UNITED STATES SENATE
ONE HUNDRED FOURTEENTH CONGRESS
SECOND SESSION
__________
AUGUST 17, 2016
__________
Available via the World Wide Web: http://www.fdsys.gov/
Printed for the use of the
Committee on Homeland Security and Governmental Affairs
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
U.S. GOVERNMENT PUBLISHING OFFICE
25-158 PDF WASHINGTON : 2017
----------------------------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Publishing Office,
http://bookstore.gpo.gov. For more information, contact the GPO Customer Contact Center,
U.S. Government Publishing Office. Phone 202-512-1800, or 866-512-1800 (toll-free).
E-mail, [email protected].
COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS
RON JOHNSON, Wisconsin Chairman
JOHN McCAIN, Arizona THOMAS R. CARPER, Delaware
ROB PORTMAN, Ohio CLAIRE McCASKILL, Missouri
RAND PAUL, Kentucky JON TESTER, Montana
JAMES LANKFORD, Oklahoma TAMMY BALDWIN, Wisconsin
MICHAEL B. ENZI, Wyoming HEIDI HEITKAMP, North Dakota
KELLY AYOTTE, New Hampshire CORY A. BOOKER, New Jersey
JONI ERNST, Iowa GARY C. PETERS, Michigan
BEN SASSE, Nebraska
Christopher R. Hixon, Staff Director
Satya P. Thallam, Chief Economist
Devin Mogler, Legislative Assistant, Office of Senator Ernst
Gabrielle A. Batkin, Minority Staff Director
John P. Kilvington, Minority Deputy Staff Director
Laura W. Kilbride, Chief Clerk
C O N T E N T S
------
Opening statements:
Page
Senator Johnson.............................................. 1
Senator Ernst................................................ 3
Prepared statements:
Senator Johnson.............................................. 27
Senator Ernst................................................ 28
WITNESS
Wednesday, August 17, 2016
Jim Zimmerman, Farmer, Rosendale, Wisconsin...................... 6
Rick Vaughn, Chief Executive Officer, Innovative Ag Services..... 7
David Fritz, President and Volunteer Director, Potosi Foundation,
Inc............................................................ 9
Richard Williams, Ph.D., Director, Regulatory Studies Program,
Mercatus Center, George Mason University....................... 11
Alphabetical List of Witnesses
Fritz, David:
Testimony.................................................... 9
Prepared statement........................................... 38
Vaughn, Rick:
Testimony.................................................... 7
Prepared statement........................................... 32
Williams, Ph.D., Richard:
Testimony.................................................... 11
Prepared statement........................................... 41
Zimmerman, Jim:
Testimony.................................................... 6
Prepared statement........................................... 30
APPENDIX
Statements submitted for the Record from:
Consumer Federation of America (CFA)......................... 48
National Resources Defense Council (NRDC).................... 51
FROM CROP TO CRAFT BEER:
FEDERAL REGULATION'S IMPACT ON AMERICA'S FOOD AND AGRICULTURE
----------
WEDNESDAY, AUGUST 17, 2016
U.S. Senate,
Committee on Homeland Security
and Governmental Affairs,
Dubuque, IA.
The Committee met, pursuant to notice, at 12:00 p.m., in
Grand River Center, 500 Bell Street, Dubuque, Iowa, Senator
Johnson, Chairman of the Committee, presiding.
Present: Senators Johnson and Ernst.
OPENING STATEMENT OF CHAIRMAN JOHNSON
Chairman Johnson. This hearing of the Senate Homeland
Security and Governmental Affairs Committee (HSGAC) will come
to order.
I want to welcome all of our guests for attending. I
appreciate your interest in the subject.
I want to thank all of our witnesses. I know a couple of
you have traveled a fair amount. I drove farther than he did,
but I really appreciate your thoughtful testimonies. We
reviewed them and look forward to your oral testimonies as well
as your answers to our questions.
Today's hearing is titled, ``From Crop to Craft Beer:
Federal Regulation's Impact On America's Food And
Agriculture.''
Before I kind of make some brief opening comments, I would
ask unanimous consent to enter my written statement into the
record.\1\
We also want to just describe a little bit about what this
Committee does. It is kind of a big name--the Homeland Security
and Governmental Affairs Committee. It is really two Committees
in one--compared to the House. We have the homeland security
side of the Committee and then we have the governmental affairs
side, which is really the Senate's Committee on oversight, with
broad jurisdiction over providing the necessary oversight of
the Federal Government.
---------------------------------------------------------------------------
\1\ The prepared statement of Senator Johnson appears in the
Appendix on page 27.
---------------------------------------------------------------------------
The first thing I did when I became Chairman is, I reached
out to Ranking Member Carper and other Committee Members and
suggested that we develop a mission statement. And, we did.
And, it is pretty simple. It is: to enhance the economic and
national security of America. Those two things are inextricably
linked. If you are going to have national security, you have to
have economic security. You have to have a strong economy.
Then, on the homeland security side, we established four basic
priorities: border security, cyber security, protecting our
critical infrastructure--including our electrical grid--and
countering Islamic terrorists.
And, we have concentrated like a laser beam on those four
priorities on the homeland security side.
On the oversight--the governmental affairs part of that--of
our assignment--we established two Subcommittees. One on
regulatory reforms, chaired by James Lankford, with Ranking
Member Heidi Heitkamp from North Dakota. And, we have really
been delving into regulatory performance, which is the subject
of this hearing. And, the other Subcommittee is chaired by
Senator Rand Paul. It is really about identifying duplicative
programs and waste, fraud, and abuse (WFA) in Federal spending.
And so, that pretty well lays out what this Committee is all
about.
And so, today's hearing really is focusing on the
governmental affairs side--the oversight responsibility we
have, which both Senator Ernst and I take very seriously. The
focus is drilling down in on regulatory overburden,
particularly, as it relates to food processing and agriculture.
And, before I turn it over to Senator Ernst, who, by the way, I
just have to say--I do not know if you keep records of the
hours spent in Committee, but I would say Senator Ernst has,
probably, the highest level of attendance--just below the
Chairman, because I always have to be there--but she has been
such a faithful Member of this Committee and such a valuable
Member. And, I just give her great kudos and I just really
enjoy her participation. And, I am glad you chose this
Committee.
Let me just lay out the massive cost of Federal
regulations.
In testimony and in different studies, it has been shown
that it costs about 2 trillion dollars, per year, to comply
with Federal regulations. Now, I know we are getting immune to
these massive numbers--these trillions of dollars--so let me
make that a little more relatable.
If you divide that 2 trillion dollars by the number of
households in America, it translates to $14,800 per year, per
household. That is the cost of complying with Federal
regulations. And, of course, people do not realize it, because
the cost is hidden in the price of products. For example, a
water heater costs $450, because of Federal regulations tacked
onto the normal cost.
I was talking to a Wisconsin paper manufacturer, who said
that just four regulations--just four issued under this
Administration--are costing his business the equivalent of
$12,000 per year, per employee.
And, the question I am asking is--certainly, folks in
Wisconsin--would you rather have that $12,000--or that
$14,800--feeding a big, bloated government bureaucracy or would
you rather have that $12,000 to $14,800 in your paycheck,
feeding and providing for your family?
To me, I think--and Senator Ernst--it is pretty obvious.
Now, we need some regulations--no doubt about it--but they have
to be reasonable.
Today, we are going to be talking about the cost-benefit
analysis (CBA) of regulations and I just want to concentrate on
just one of the ideas we are going to be talking about:
atrazine. And, Mr. Zimmerman is going to be speaking to that.
But, the Environmental Protection Agency (EPA) is trying to
reduce the allowable amount of atrazine in water flow, right?
From 10 parts per billion (ppb) to 3.4 parts per billion. Now,
that seems like a massive reduction, right? From 10 ppb to 3.4
ppb?
Let me actually make that a little more relatable. We are
in the midst of the Olympics, right? We are watching our
American heroes win gold in the pool. Well, an Olympic-size
pool holds 660,000 gallons. Ten parts per billion, in a 660,000
gallon pool, is the equivalent of about 5 teaspoons (tsp). If
you reduce that down to 3.4 ppb, you are reducing it down to
1.7 teaspoons. So, we have to look at the reasonableness of
these regulations. We have to put them in context and we always
have to compare the benefit to the enormous cost, because, I
believe, in your testimony, you are going to say that it could
cost us--the American economy--almost 2.5 billion dollars to
reduce the level of atrazine from--to use our example--5
teaspoons, in an Olympic-size pool, down to 1.7 teaspoons. We
have to get reasonable and we need some common sense.
And, with that, I will turn it over to Senator Ernst.
OPENING STATEMENT OF SENATOR ERNST
Senator Ernst. Thank you, Senator Johnson. Thank you for
coming to the beautiful State of Iowa.
Chairman Johnson. It is beautiful.
Senator Ernst. And, I want to thank you for your kind
comments as well. I do participate, regularly, on the Homeland
Security and Governmental Affairs Committee, because it is such
an important Committee on two fronts. I have several different
passions. Of course, the first is protecting our homeland. We
all have a vested interest in that. But, rules and regulations
are also a huge part of our everyday lives--and many times they
do not seem to make common sense or be based on science. And,
we want to do things right, here, in the United States. But, we
want to do them right, as far as making sure that they make
common sense and they are science-based.
So, with that, I do have a statement that I would like to
enter into the record.\1\ And then, we will proceed with our
witnesses.
---------------------------------------------------------------------------
\1\ The prepared statement of Senator Ernst appears in the Appendix
on page 28.
---------------------------------------------------------------------------
Thank you, gentleman, for being here today. It is a
pleasure to meet with you and to have visited with you to talk
about some of these issues. I am anxious for our public to hear
your personal stories as well. So, again, thank you for being
here.
And, again, we are holding this field hearing here in
Dubuque, Iowa. We are glad to have our audience with us and I
know that our witnesses did have to take time away from their
busy schedules. So, thank you for joining us, today.
Today, we will be exploring a few specific regulatory
issues, but, as we do this, please keep in mind that they are
symptoms of a broader problem.
This Administration has made a habit of acting
unilaterally--skirting the rulemaking process, ignoring
Congressional intent, and taking broad liberties with the
regulations they put forward.
This is a large part of why the Administration has lost the
trust of the American people. Too often, I hear from Iowans
that they feel like the government is out to get them. I have
heard that at nearly every stop that I have made on my 99-
county tour, across the State of Iowa.
This is a refrain I hear, especially, from farmers,
ranchers and landowners. Today, I want to focus on some
regulations that unfairly impact these particular groups.
The memorandum on Retail Exemptions--Process Safety
Management (PSM) of Highly Hazardous Chemicals and Application
of the Retail Exemption, issued by the Department of Labor
(DOL), specifically, the Occupational Safety and Health
Administration (OSHA), in July of 2015, reclassified the
majority of traditional farmer cooperatives (co-ops) in Iowa
and Wisconsin.
These farmer-owned businesses warehouse and distribute crop
nutrients, including anhydrous ammonia, at thousands of sites
across the Midwest.
In fact, Iowa uses more anhydrous ammonia as a crop
nutrient than any other State, as it is the most cost effective
form of nitrogen for farmers to utilize in producing affordable
food and fuel for our growing world population.
The changes OSHA has made will be difficult for the
companies to implement and will yield little--if any--safety
benefits. Further, they will cost these retailers tens of
thousands of dollars per site. Per site. These are costs that
will, ultimately, be passed onto the family farms they serve.
Unfortunately, since the Department of Labor did not go
through the formal rulemaking process, these key stakeholders
were not afforded the opportunity to comment on the impact
these changes in regulations will have on their livelihoods.
When Congress passed an annual spending bill last December,
we spelled out that OSHA could not enforce their memo until
they went through the proper notice and comment rulemaking
process. But, a week later, OSHA, ignoring Congressional
intent,
simply stated that it would delay enforcement until the
spending bill expired--this coming October 1. All of the while,
this issue is tied up in the D.C. Court of Appeals. So, in May,
OSHA informed the Court and sent a letter to every member of
Congress, stating that they intended to go through the
rulemaking process after
all--but they would not rescind the memo while the multi-year
rulemaking process takes place.
This is the kind of logic that can exist only inside the
D.C. bubble. It only exists there. The Agency expects all
farmer co-ops to be in compliance this October, while they
belatedly go through the process to create the rule and gather
feedback from the stakeholders that will bear the brunt of this
misguided guidance.
Another imprudent move from this overzealous Administration
came this past June, when the Environmental Protection Agency
released its 520-page draft ecological risk assessment report
of the herbicide atrazine. Much like their 297-page ``Waters of
the United States'' (WOTUS) rule, this too threatens to
increase costs for the men and women who are the bedrock of our
safe and affordable food system.
The EPA's report indicates that the routine use of atrazine
could be harmful to animals and our ecosystem. The report seems
to ignore the nearly 7,000 scientific studies, over the past 50
years, which show the safety of atrazine--which is used by over
400,000 corn, sorghum, and sugar cane growers across the United
States.
A primary concern I have with this report is that it is
based, in large part, on studies that the EPA's own Federal
Insecticide, Fundicide, and Rodenticide Act (FIFRA) Scientific
Advisory Panel (SAP) called flawed just 4 years ago. It appears
the Administration may, once again, be cherry-picking the data
they find most convenient to support their overreach.
A 2012 University of Chicago study concluded that banning
atrazine could cost corn growers an additional $59 per acre in
input costs. The EPA has even estimated that not having access
to this herbicide will cost corn growers $28 per acre in
reduced yields. All of this is at a time when producers are
looking at a $3.00 or lower price of corn--well below the cost
of production.
I also wanted to mention that, just last week, a
manufacturer in Cedar Rapids, Iowa announced that it was
cutting jobs due to regulations. McLanahan Universal of Cedar
Rapids, a maker of heavy equipment for mining, said that it is
eliminating 15 jobs. And, according to their president and
Chief Executive Officer (CEO), it is a direct result of the
Obama Administration and the regulations that it has put in
place, which have crippled the industries we serve.
All of these regulations follow a similar theme. One of
bigger government, a disregard for common sense, and a
``Washington-knows-best'' mentality. It is the responsibility
of this Committee to keep an eye on an Administration run amok
and to push back where we can.
Thank you, Mr. Chairman. I will yield back to you.
Chairman Johnson. Thank you, Senator Ernst.
It is the tradition of this Committee to swear in
witnesses, so if you will all rise and raise your right hand.
Do you swear the testimony you will give before this Committee
will be the truth, the whole truth and nothing but the truth,
so help you, God?
Mr. Zimmerman. I do.
Mr. Vaughn. I do.
Mr. Fritz. I do.
Dr. Williams. I do.
Chairman Johnson. Thank you. You may be seated.
Our first witness is Jim Zimmerman. Mr. Zimmerman is a corn
grower near Rosendale, Wisconsin. He is a board member of the
National Corn Growers Association (NCGA). He is also a director
of the Wisconsin Corn Promotion Program and an advisor to the
Integrated Pest and Crop Management Program. He was previously
the president of the Wisconsin Corn Growers Association (WCGA).
Mr. Zimmerman.
TESTIMONY OF JIM ZIMMERMAN,\1\ FARMER, ROSENDALE, WISCONSIN
Mr. Zimmerman. Chairman Johnson and Senator Ernst, good
afternoon.
---------------------------------------------------------------------------
\1\ The prepared statement of Mr. Zimmerman appears in the Appendix
on page 30.
---------------------------------------------------------------------------
My name is Jim Zimmerman and I am a board member for the
National Corn Growers Association. And, I also serve as a
director for the Wisconsin Corn Promotion Board. I thank the
Committee for inviting me to testify at this hearing on the
regulations affecting U.S. agriculture.
I would like to begin my testimony by telling you a little
bit about myself and my operation. I am a Wisconsin grower with
2,700 acres of corn, soybeans, and wheat, which are grown using
conservation tillage methods of no till and strip till--
depending on the crop. I am a third generation farmer and I
plan for my son, Aaron, to take over the farm one day. Every
farming decision I make is motivated by what is best for the
long-term viability of the farm. From the crops we grow to
choices in tillage practices, everything is done with an eye on
the future.
A key consideration for every farmer is which crop
protection tools to use to ensure we raise a successful and
healthy crop. One of the most important tools I use on my farm
is the herbicide atrazine. And, I am far from alone in this
regard. Atrazine is one of the most widely used herbicides in
the United States. Used on well over half of corn and sorghum
acres and on as much as 90 percent of sugar cane acres. Many
specialty crops rely on the herbicide as well. Applying
atrazine to control weeds allows farmers to use conservation
tillage, a farming method that leaves the residue from the
previous crop to cover the soil surface after planting.
According to the United States Department of Agriculture
(USDA), by leaving the crop residue and reducing or eliminating
tillage trips, farmers are able to protect the soil from water
and wind erosion, conserve moisture, reduce runoff, improve
wildlife habitat, and limit the output of labor, fuel, and
machinery. In fact, conservation tillage reduces soil erosion
by as much as 90 percent.
Atrazine is the most widely used herbicide in conservation
tillage systems. Without atrazine, farmers would have to use
higher quantities of other herbicides that are less effective,
while increasing tillage and threatening the soils health and
nutrients.
Atrazine has been used in this country for more than 50
years. More than 7,000 scientific studies have been conducted
on the safety of this herbicide to both the environment and to
humans. The evidence, overwhelmingly, confirms atrazine is
safe. The World Health Organization (WHO) and regulatory
agencies in Australia, Canada, and the European Union (E.U.)
have all come to the same conclusion. That is why NCGA was
shocked to learn of the EPA's findings in the preliminary
ecological risk assessment that was released this past June.
Through the use of highly questionable studies, the EPA arrived
at an aquatic Level of Concern (LOC) of 3.4 parts per billion--
a two-thirds reduction from the current level of 10 ppb.
Scientific evidence points to a safe aquatic life Level of
Concern at 25 parts per billion or greater. A Level of Concern
of 3.4 is, practically, unachievable and would represent a de
facto ban on the use of atrazine, were it to become the
standard.
The EPA's conclusions rest on serious scientific errors and
flawed interpretations--and are inconsistent with many of the
Agency's previous conclusions. Several rigorous, high-quality
scientific studies were discounted by the draft ecological risk
assessment, in favor of studies found flawed by the EPA's own
2012 SAP.
By the EPA's own estimate, farming without atrazine would
cost farmers an additional $28 per acre. A 2012 University of
Chicago study puts that number closer to $60 per acre. A loss
of atrazine would have an additional negative consequence in
controlling weed resistance. NCGA has advocated for farmers to
implement multiple modes of action as a key part of weed
resistance management. Atrazine is one of these essential modes
that make this best management practice possible.
If atrazine--one of the most studied herbicides with a
proven track record of over 50 years of safe use--is
experiencing such difficulty in re-registration, the future
does not bode well for other crop protection tools. The
cornerstone of our regulatory process must continue to be
reliant on the best science and data. Flawed risk assessments,
like the one at hand, threaten the integrity of the review and
the regulatory process as well as farmers' ability to maintain
high crop yields and to reduce soil runoff through the use of
atrazine. NCGA and our farmer members are submitting comments
to the EPA on this document, and we remain hopeful that the EPA
will return to a review process that is based on sound science.
The credibility of the Agency and the long-term sustainability
of U.S. agriculture depend on it.
Again, I thank the Committee for this opportunity to
testify and for holding this hearing on a topic that is
critically importantly to this nation's farmers.
Chairman Johnson. Thank you, Mr. Zimmerman.
Our next witness is Rick Vaughan. Mr. Vaughan is the CEO of
Innovative Ag Services (IAG), a 4,845 farmer-member-owned
retail farm supply co-op in Iowa and Wisconsin. He oversees 33
locations, 340 full-time employees, and up to an additional 165
seasonal employees. He was previously the CEO of Prairie Land
Cooperative and the CEO and controller of Avon Grain Company.
Mr. Vaughan.
TESTIMONY OF RICK VAUGHAN,\1\ CHIEF EXECUTIVE OFFICER OF
INNOVATIVE AG SERVICES
Mr. Vaughan. Thank you, Senator Johnson and Senator Ernst.
Everything I listened to, from Senator Ernst--I appreciate your
knowledge on this. You hit every point I was going to try and
make, so thank you for that.
---------------------------------------------------------------------------
\1\ The prepared statement of Mr. Vaughan appears in the Appendix
on page 32.
---------------------------------------------------------------------------
Let me summarize my submitted information for you, please.
We currently spend 593 hours per year, which equates to
about 64 cents per ton, training our employees on how to safely
handle anhydrous ammonia.
I have been in this business for 35 years. I have worked at
the ammonia plant, loading ammonia for our farmer customers. I
have delivered ammonia to their farms and have also worked on
the equipment at the ammonia plant. In that 35 years, I have
not been involved in any anhydrous ammonia fatalities. None,
whatsoever.
Our PSM compliance cost estimates are outlined 1 through
Document 6, which I included in my prepared statement.
Document 1 provides the written detail that I am currently
summarizing.
Document 2 provides the up-front cost estimates to bring an
anhydrous ammonia location into PSM compliance. You will note
that amounts to 177 hours of time and $26,000 per location. You
have, probably, read there are estimates out there for more
hours and more dollars and also for fewer hours and fewer
dollars. This information was compiled by our safety consulting
firm, which we have contractually hired, and by Thatcher Block,
the safety director in our organization, along with some of our
operations people.
The location we use has 92,000 gallons of anhydrous ammonia
capacity: one 26,000 gallon fixed tank, one 12,000 gallon fixed
tank, and 55 small tanks that are used to transport product to
the farm.
Document 3 and Document 4 provide detail of the up-front
cost segments that make up this 177 hours. If you look through
that detail and those technical points, you can see information
that our industry has not needed over the many safe years that
anhydrous ammonia has been used to produce corn in the United
States.
Document 5 provides an annual estimate to keep PSM program
materials updated, along with additional time for training, as
is being mandated by PSM.
Document 6 provides a summary of the up-front costs, plus
the annual cost, along with an illustration of the PSM cost per
ton, per location at Innovative Ag Services.
I think what is important is that this table illustrates
the magnitude of the cost of PSM compliance and identifies
which locations will be subject to close due to PSM.
Our research tells us that we could spend up to $725,000 to
comply, if we elect to become PSM compliant at all 27
locations. This annual cost amounts to $10.31 for all ammonia
tons that we sold in fiscal year (FY) 2016 for our year, ending
in August of 2016.
We do not believe this cost per ton to be economically
feasible, so we are left with deciding what choices we are
going to make. If we choose $10 as a threshold and cut it off
there, we are going to be forced to close 59 percent of our
facilities, or 16 locations. Why $10 a ton? Well, today, I can
tell you that we can get sold out, by our customers, for the
$10 number--really quickly.
So, one real question is, how many of our competitors and
other users of ammonia are going to comply? And, if we set out
to do this, immediately, what kind of cost advantage--
disadvantage, excuse me--are we going to put ourselves in?
But, I think it is extremely important to move from--to
think about the fact that 64 cents a ton is what we are
spending, now, on training. There have not been any fatalities
in the 35 years I have been in business. And, we are going to
be asked to spend $10.31. So, what is the value of that almost
20-fold increase in cost?
Another thing that is important--65 percent of our total
tons of ammonia are picked up by our farmer customers. We
deliver the other, approximately, one-third of our total tons.
So, the closure of any number of these facilities is going to
cause customer dissatisfaction.
Remember, these are the farmer-customer owners of our
organization. We are going to put more anhydrous loaded miles
on the road, if we have to do this. If we convert all of that
tonnage to urea-ammonium nitrate (UAN), which is a liquid form,
it is a 2.6-factor increase in the amount of nitrogen. You are
going to put another 1,500 trucks on the road in the 2 week to
3 week spring planting season. You have to stay ahead of the
planters if you are going to get the levels of nitrogen down.
There are other choices, but not to the magnitude that we are
currently doing it, today.
Our facilities operate--our ammonia facilities operate 2
weeks to 3 weeks in the spring, ahead of the corn planters.
They operate 2 weeks to 3 weeks in the fall--after the
combines, after the temperatures drop, and before Thanksgiving,
primarily. There is another approximately 2 weeks in the spring
season--or ahead of the spring season and ahead of the fall
season--that we are filling those facilities and those tanks to
be prepared for those busy seasons. That amounts to 20 percent
of the year. These anhydrous ammonia facilities are sitting
idle for 80 percent of the year.
So, thank you for your time this afternoon. I hope this
information can help you to understand the challenges this PSM
regulation is causing and also the economic burden it will
place on our farmers, who are committed and who will produce
the food supply that we have.
Chairman Johnson. Thank you, Mr. Vaughan.
Our next witness is David Fritz. Mr. Fritz is the volunteer
president of the Potosi Foundation and volunteer director and
general manager of the Potosi Brewing Company. The Foundation
is the sole shareholder and owner of the Potosi Brewing
Company. He is also president and CEO of TRICOR Insurance an
independent insurance agency in Wisconsin, Iowa and Minnesota.
Mr. Fritz.
TESTIMONY OF DAVID FRITZ,\1\ PRESIDENT AND VOLUNTEER DIRECTOR,
POTOSI FOUNDATION, INC.
Mr. Fritz. Thank you, Chairman Johnson and Senator Ernst.
---------------------------------------------------------------------------
\1\ The prepared statement of Mr. Fritz appears in the Appendix on
page 38.
---------------------------------------------------------------------------
The Potosi Foundation was organized, in 2000, to save the
original building that housed the Potosi Brewing Company that
was built in 1852 and shut down in 1972. After a $7.5 million
renovation, the Potosi Brewing Company opened in 2008 and is
the home of the National Brewing Museum, an interpretive center
for the Great River Road, and an operating brewery and brew
pub. In 2010, we took beer to retail and, because of the
increasing beer sales, we needed to move the brewing operations
and the restaurant to an outside company we call the Potosi
Brewing Company. And, the sole shareholder and owner of that
company is the Potosi Foundation.
From 2010 to early 2015, we worked with an outside brewery
and contracted the production of most of our beer that went to
retail. Early in 2015, we opened a new $6 million production
facility and that facility includes bottling, kegging, and
canning capabilities. We are also beginning to contract, brew,
and package for other smaller breweries around the Midwest. We
wanted to get the manufacturing jobs in southwest Wisconsin
back and we also wanted to maintain 100 percent of our own
quality, which was the reason for moving ahead with our own
production facility.
Potosi produces 6 styles of beer year-round and over 10
seasonal, limited edition, and barrel-aged products. We also
produce and sell draft and bottled root beer. We distribute in
Wisconsin, the eastern half of Iowa, and the northern tier of
Illinois, through 13 independent beer wholesalers.
The craft beer industry, in Wisconsin and countrywide, has
experienced remarkable growth in recent years. At the end of
2015, there were 4,269 breweries in the United States,
representing a 15-percent growth over 2014. In November 2015,
the number of breweries exceeded the peak, which was 4,131
breweries, in 1873. In 1978, the number of breweries dropped to
89 operating breweries in the United States. The rate of growth
is slowing a little bit in 2016.
The economic impact created by the craft brewing industry
is significant.
Craft breweries are a rare manufacturing success story and
this is fueled by the farmers providing quality ingredients.
Sixty-five percent of the U.S. barley crop is used by the
brewing industry. And, of that number, 35 percent to 38 percent
is used by craft breweries. The number of hops acres planted in
the United States, in 2016, is at 51,000. That is up from
43,000, in 2015. Family farms are providing the highest quality
ingredients in the world, allowing the craft breweries to
produce the highest quality beer in the world.
Potosi uses Wisconsin honey in our root beer. We use pure
lemon juice in our ``Steamboat Shandy'' and we use pure
tangerine juice in our Tangerine India Pale Ale (IPA). The
farmer-produced products used by the craft beer industry are
very broad.
For the craft beer industry to continue to thrive, it is
important that we are not subjected to regulations that drive
up our costs of doing business. The consumers have shown they
are willing to pay more for quality beer, produced in small
batches, by private business owners.
Some of the issues that we are facing today--the Food and
Drug Administration (FDA) menu-labeling issue, which stems from
the Food Modernization and Safety Act (FSMA) will be very
costly to brewers. Restaurants with more than 20 locations are
required to provide the nutritional information of beer and
other spirits--and the cost would likely fall on the brewery to
provide this. So, if Potosi wanted to continue to provide beer
to craft restaurants--or to chain restaurants--we would need to
spend an estimated $1,000 to bring that data to the chain
restaurant, per style of beer.
Transparency in labeling allows consumers to make informed
choices when purchasing beer. Consumers have an interest in
knowing the name of the brewery company or parent corporation
that, ultimately, owns the beer brand. Encouraging all brewers
to disclose to consumers their ownership of beer brands,
including the name and the parent brewery that owns the brand,
on the brand's label, enables consumers to make informed buying
choices.
Recently, the FDA attempted to restrict the spent grain--
and that is the by-product after the grain--after the brewing
process is completed--from being used for animal feed.
Following a lot of discussion, the FDA exempted brewers grain,
so that it can be used for animal feed. I believe this is an
excellent example of an unintended consequence in the new
regulations. This is also a good example of how government
worked together to solve the problem and eliminate what would
have been a very expensive cost.
The craft brewers pay $7, per barrel of beer produced, in
an excise tax. Consideration should be given to reduce the
expense to the craft industry. Reducing the Federal excise tax
to $3.50 per barrel, in the example of Potosi, would have saved
us $20,000 in 2015. Based on production forecasts, it would
have saved us $40,000 in 2016 and $63,000 in 2017.
What would the money be used for? It would be used to hire
new employees and expand our operations.
The Craft Beverage Modernization and Tax Reform Act of 2017
is working its way through Congress. Craft brewing is an
innovative industry--growing quickly, hiring people, and being
built by entrepreneurship. These are small business owners, who
love what they do and use the craft beer industry to make a
living for their families.
The margins are small and there is a lot of competition.
Brewers want to make the highest quality product for the
consumers and the consumers are very informed and willing to
pay for quality. It has thrived, because of a light regulatory
touch. We are ``risk swamping'' that success, if we hit the
regulatory throttle too hard.
Thank you for allowing me to testify before your group this
morning.
Chairman Johnson. Thank you, Mr. Fritz.
Our final witness is Dr. Richard Williams. Dr. Williams is
the Director of the Regulatory Studies Program and a senior
research fellow at the Mercatus Center at George Mason
University (GMU). He is a 30-year veteran of the Food and Drug
Administration. He was previously a director for social
services at the FDA Center For Food Safety and Applied
Nutrition (CFSAN). He is also an advisor to the Harvard Center
for Risk Analysis (HCRA) and is a U.S. Army veteran. Thank you
for your service and thank you for your testimony. Dr.
Williams.
TESTIMONY OF RICHARD WILLIAMS, PH.D.\1\, DIRECTOR, REGULATORY
STUDIES PROGRAM, MERCATUS CENTER, GEORGE MASON UNIVERSITY
Dr. Williams. Thank you. Chairman Johnson and Senator
Ernst, thank you for inviting me to testify today on the impact
of Federal regulations on American food manufacturing and
agriculture.
---------------------------------------------------------------------------
\1\ The prepared statement of Dr. Williams appears in the Appendix
on page 41.
---------------------------------------------------------------------------
As a long-time employee of the Center for Food Safety and
Applied Nutrition in the Food and Drug Administration, I
believe we are in a position, if we choose, to embrace the
changes that have occurred in the last several decades in
society and in the food industry to make real progress in food
safety.
First, we have better technology. These new technologies
can help us locate the sources of food safety outbreaks as well
as create safer foods and packaging.
Second, because of increased interest in food safety, by
the public, we can give stakeholders more of a role in creating
new regulations by allowing them to challenge Agencies, in
court, when they fail to properly analyze their rules. With
better technology and better information, we can finally pledge
down the number of cases of foodborne disease that repeat
themselves year after year.
On the other hand, if we stick with the same old policies
that continue to fail us, we will continue to hear that 48
million Americans get sick every single year from foodborne
disease.
As a public health researcher, this is depressing. Is there
ever going to be an end to this? Are we ever to going to take
public health seriously and insist on results, rather than on
just more costly rules? For those in the food business,
particularly, those who are far too busy to play in the complex
process of the Federal regulation, the shame is that they live
in a state of constant uncertainty about what to plan or
produce and how much regulations are going to cost them this
year. And then, they end up paying for regulations that do not
work.
Let me give you a few examples of our regulatory failures.
After decades of using their own creative system of process
controls, known as the Hazardous Analysis Criminal Control
Point (HACCP), the industry stood helplessly by as the Federal
Government commandeered it to turn it around and required its
regulations--particularly, where it was not needed. Where
before it was a targeted, flexible system, now it is a
universal, static bureaucratic system.
The first three mandated HACCP regulations were for
seafood, raw fruit juices, and the USDA meat and poultry rule.
As an example of the failures of this approach, the benefits of
the seafood rule relied, primarily, on solving the problem of
contaminated oysters from the Gulf of Mexico. But, 15 years
after the rule became final, the cases of foodborne disease
from raw oysters from the Gulf had doubled.
Now comes the glut of new rules directing the rest of
industry to use HACCP.
One of the more extensive rules directs the entire packaged
food industry to start using a ramped-up version of HACCP--even
though the FDA acknowledges that most foodborne disease comes
from homes and retail establishments.
The FDA estimated the cost at about one billion dollars.
The industry replied, using a Mercatus tool, that it will more
likely cost in excess of 18 billion dollars. It fails the
``benefit-cost'' test.
Next, as mentioned, there is the animal feed rule.
Originally proposed to cover both pet food and farm animal
feed, the FDA's analysis--which the FDA ignored--demonstrated
that the vast majority of the problem was with pet food.
Mercatus research demonstrated that including farm animal feed
added approximately 120 million dollars to this rule. Whereas
before, to cover pet food, it would have only cost $10 million.
Then, there is the produce rule, where some of the most
tortured logic is employed, to cover all fruits and vegetables
that might be eaten raw. I would like to say that this logic is
rare, but, throughout my entire FDA career, I heard it often.
So, rather than just limiting the rule to produce that had
been associated with outbreaks, the FDA explains that all
commodities must be covered, because they have the potential to
be contaminated. This means that, for the FDA, the problem is
not food safety. It is a lack of regulation.
Why can we not have better outcomes? It is not for lack of
money. The FDA's budget has increased by 116 percent since
2007. Not to mention the hundreds of millions of dollars spent
by industry to comply. I actually included a chart\1\ in my
testimony that shows how little we have gotten for the money
that we have spent.
---------------------------------------------------------------------------
\1\ The chart referenced by Dr. Williams appears in the Appendix on
page 46.
---------------------------------------------------------------------------
Maybe the problem is that we hire experts and we ask them
to write multiple rules every year. For the FDA, this is now
going on 110 years.
Lately, this does not seem to be getting us new and
workable solutions.
So, here are some new directions for Congress to consider.
First, we have tools that did not exist 20 years ago. A few
decades ago, if you produced a contaminated food, the odds were
that no one would ever find out it was your food. We now have
better tools, in government, to identify specific
pathogenstrains in sick patients. We also have new private
technology, like Radio Frequency Identification (RFID) tags and
deoxyribonucleic acide (DNA) spray-on technology, which can be
attached to foods to help trace them back to the source of
contamination.
So, if we pursue these tools more vigorously, we will be
able to go, much more frequently, from a sick person back to
the
source--and to positively identify that source. Once regulators
know the source, an investigation can be conducted to determine
the cause of the problem.
Posting problems and solutions on the Internet can identify
these firms, because of the intense consumer interest. It will
drive the millions of private food contracts, which now include
food safety provisions as well as private inspections, up and
down the food chain. Posting the results of outbreak
investigations can get rapid results by creating strong
incentives to exercise due diligence. No one wants to incur the
massive costs associated with an outbreak.
The changes that I have just described, as a result of such
a system by the private sector, can be particularly effective,
relative to regulations that take an average of 4 years to
create--and many more years of inspection to get results.
So, rather than trying to get all firms to use HACCP--where
there is either no problem or it does not work--let us focus on
what is actually wrong and move quickly to address the
problems.
Second, let us give stakeholders much more of an equal role
in food safety regulations by giving them the right to sue an
Agency when its regulatory analysis is missing, poorly done, or
ignored.
Mercatus has demonstrated these problems time and time
again.
Finally, let us embrace technology--the way we finally did
when pasteurization was invented. We did not embrace
irradiation--even though it would have prevented hundreds of
thousands of cases of foodborne disease. Both genetic
modification and nanotechnology hold a great deal of promise
for food safety. If we start doing things differently, we can
avoid the same annual announcements of the same number of
foodborne illnesses. We can also save our farmers, producers,
and consumers for overspending on regulations that do not work.
Thank you.
Chairman Johnson. Thank you, Dr. Williams.
Again, I want to thank all of our witnesses for their
testimonies.
I will start with Mr. Zimmerman and ask the basic question
I will probably ask all of you. In terms of results, as it
relates to atrazine and the EPA, do you know why they are
trying to do this? I mean--and, again, I laid out the Olympic
pool example--5 teaspoons to 1.7 teaspoons. Why?
Mr. Zimmerman. Well, that is a good question and I would be
kind of speculating if I were to say.
Chairman Johnson. Go ahead and speculate.
Mr. Zimmerman. But, the point is, if you can take a product
that has been proven safe and has been used for over 50 years,
and you can greatly minimize it, then you can do anything. You
have then--pretty much everything is at risk.
I mean, you have now done something that would be
limitless, as far as what their--their reach would be. So, that
would be the issue there.
Chairman Johnson. In your testimony, you talked about the
fact that your farm is multigenerational.
Mr. Zimmerman. Yes.
Chairman Johnson. That everything you do is really for the
long-term viability of the farm. I come from the private
sector. It is bad for business to hurt your customers. It is
bad for business to expose your--keep the work with you--to
endanger--lack of safety. I, certainly, believe that the vast
majority of farmers are really concerned about their own animal
husbandry and about keeping their--the sustainable type of
farming. You talked about conservation and tillage. Can you go
into that in a little bit of greater detail, in terms of how
seriously you take the long-term viability of your farm and why
you really do not need a lot of these regulations to make sure
that you maintain a clean environment on your farm?
Mr. Zimmerman. Thank you. Yes. It is about preserving the
future for the next generation and understanding that we really
do not own the land. We use the land and we want to be able to
have it in better shape than when we received it. So, it is a
tremendous resource for us, in that regard.
Every now and again in every lifetime you have certain
circumstances that occur--events--like a 50-year event that
will happen while you are farming--and we had one in 2008. We
had, approximately, 14 inches of rain, in about 10 days--late
June or early July. The crop was well established and what not.
And, some of the farms in the township--where they were not
necessarily, practicing conservation tillage--they had to get
out the snow plow to remove the soil off of the road to make it
passable. And, next--the roads next to our farm--we were busy
with the backhoe, getting the residue out of the culverts, so
the water could flow through.
Now, what that means is, it is really evident that
preserving--not only the soil, but also the water quality--in
regards to making sure that phosphorus does not move off and
that we have good water quality. We all want that.
But, that is, primarily, what is key, here, with
conservation tillage. And, it is maintaining our resource--that
soil, which we generate our livelihoods from.
Chairman Johnson. So, again, if you are not able to use
that herbicide--that atrazine--you will, probably, be less
likely to use conservation tillage and you really do more harm
than potential good--that is, basically, your point?
Mr. Zimmerman. Yes. One of the things about conservation
tillage--and atrazine--in that regard, is the fact that it
takes more management to deal with the residue on the surface--
and we do this because of the improved benefits that go along
with conservation tillage. And so, atrazine is just--is one
part of the tools that we need. And, we need all of them.
The fact is that they are not making new products. And, we
have a limited source of products from which to utilize. And,
by having multiple modes, we talk about weed resistance
management--the point is that, in order to keep all of these
products durable--and prevent weed resistance--management--we
need all of them. And, atrazine is key for us.
We use it at a rate that is--in conjunction with another
product--between the two of them, we use less than, maybe, what
the label rate is--or nearly. That is within--on the label--and
we have found that we are using less active ingredients per
acre, because we are adding those--that combination of
products.
Chairman Johnson. Mr. Vaughan, as I was listening to your
testimony, a thought was going through my mind--which always
goes through my mind as I am looking at these regulations--it
is a solution looking for a problem. Let me ask you that
question. Why is OSHA doing this?
Mr. Vaughan. I do not know that I have a good answer for
you.
Chairman Johnson. Again, you can speculate.
Mr. Vaughan. It is my understanding that it started as a
result of the West, Texas explosion that happened and that
involved ammonium nitrate. It is my understanding that the only
thing--or one of the main things that survived that explosion
was the anhydrous ammonia tank--intact with the product still
in it.
So, how it was extrapolated to central Iowa, with our
ammonia facilities that operate 20 percent of the year, I do
not know. Some of Senator Ernst's comments caught my
attention--about overreach and someone trying to solve problems
with a wide, sweeping pen. And, I do not understand all of the
rules and regulations.
I heard Dr. Williams talk about--and we are involved in
some HACCP, too--but it just feels like someone is, with a
stroke of a pen, thinking they are going to solve something.
And, they do not have a full understanding of the magnitude of
the challenges that they are creating and the economic burden
it places on people.
Chairman Johnson. Well, coming from the private sector,
where, let us face it, every business is motivated by growth
and profitability--one thing I found about our government is,
it has the same motivation. It wants to grow. And, I guess I
would put that down as one of the concerns.
Can you describe what the difference is, in your locations,
because, obviously, some of these locations are going to be
able to bear the burden of this increased cost if you have to--
if this regulation gets implemented and others cannot. Can you
describe why that is?
Mr. Vaughan. We see PSM as a fixed cost per location--that
$27,000. And then, on an ongoing basis, 10--so if you want to
ammortize that fixed cost that is the cost over 5 years--I do
not know if that 5 years is a good number. Tell me how much
more regulation is coming--or not coming--at us, so that, if
you have a fixed cost of operating--against a different size of
tonnages.
One of our challenges out here in rural Iowa is, if we were
going to settle Iowa today with the current technology we have,
we would not drop a city in every 10 miles. We did that because
of the technology 150 years ago. So, consequently, our
customer-producers are used to that service, in that geography,
and the only way you can drive that cost is to run more tons
through that fixed cost.
Chairman Johnson. So, in other words, it is volume related?
Mr. Vaughan. Yes.
Chairman Johnson. And, this is the point I wanted to make,
because it is extremely important. Every politician is always
talking about supporting small business, right? And yet, every
last one of these regulations harms small business, relative to
large businesses--because large businesses can afford the cost
of compliance.
It actually ends up being a barrier to entry in a lot of
businesses. So, even in your own operation, you have larger
locations. Higher volume locations can actually support--or can
survive with that added cost--and smaller ones cannot. So, I
guess the point I am making is, if you want smaller businesses
to survive--which, by the way, that is what competition is--
those are the people that create jobs and that is the
innovation in our economy--you have to be really concerned
about overregulation.
I will yield to Senator Ernst.
Senator Ernst. Thank you very much.
And, just on that topic, too, I had a quote--and I am not
going to say who I am quoting. I do not want to put him under
the gun, but he gave a quote--and it is a co-op from the
central part of Iowa--and they have 70 retail locations serving
their farmer-owners all across the State of Iowa. And, this
gentleman--and I am going to quote this. He says, ``At this
point, this co-op has committed to going forward with
compliance, so that we are ready by October 1. We are spending
about $20,000 to $30,000 per site, to be ready. I have had
other agriculture retailers inquire about our intentions.
Several, with only one or two locations, are, probably, going
to exit the business. Since this particular co-op is all in, I
guess it is best, for us, if the PSM eliminates competitors. I
doubt that farmers or Senator Ernst will agree, but that is
what government regulations do--sort out free competition.''
And, that is what we see. And, some of the larger retailers
will be able to make it through--at significant cost--but the
smaller retailers simply do not have that kind of capital to
put into these types of regulations. And so, they will be
eliminated and they will be forced out of the business.
And, that means, as you said, additional traffic on the
roadways, as farmers have to go farther to get their products
and--and so on and so forth. It is endless.
So, you have made some really great points, Mr. Vaughan.
I am going to go back to the explosion at West, Texas,
because you did bring that up--and you are correct that this
new rule, by OSHA, is a result of that--and OSHA has stated
that. They used this tragic explosion as an excuse. And, when
they narrowed
down the definition of retailers of anhydrous ammonia to force
farmers--cooperatives to comply with the PSM regulation--they
did that, even though they are simply storing--we know our
retailers are just simply storing--as you stated--the product.
They are not producing it. So, it was just exposing them to
onerous regulation.
And, I thought it was very funny. And, I go back to, again,
science-based, factually-based rule and regulation making. The
explosion was not due to anhydrous ammonia. It was due to an
entirely different product. And, later on, as it was
discovered, the explosion was the result of arson. It was not
due to these products. And yet, we now have a new regulation
that is subjecting our American agricultural industry to a
significant expense.
But, I have stated that I think it is going to lead to
reduced competition. Mr. Vaughan, what do you think this rule
will do? Do you have other examples of businesses that have
come to you and, maybe, stated that they would get out of the
business?
Mr. Vaughan. Yes. We are currently visiting with a company,
today, that is independent--a single location business. It is
considering transferring ownership, because of the age of the
father and the son's lack of interest in it--devoting as much
capital to the business. And, when I asked him about this--if
they had started on it--they did not know anything about it.
And, they did not plan to do it. So, I think that is a perfect
example of what is going to happen.
And, I think the numbers we have compiled are a good
example of--we are a larger company, but we cannot afford to do
that everywhere--when you look at some of those tons that are
being considered. And, the reason is, because, at location X,
if it is extremely expensive--because of low tonnage--can you
expect location Z farmers to pay for that over time, if it is
not a sound investment of the capital?
Senator Ernst. And, you brought up a great point as well.
You stated that that retailer did not know about these changes,
correct--or, the rules and regulations and the improvements
necessary?
Mr. Vaughan. That was the son's answer to me, when I asked
the question.
Senator Ernst. And, I think that is a problem with this
specific rule as well--that stakeholders were not involved in
the rulemaking process. So, I would not be surprised if there
are others that are out there who are not aware--and, maybe,
they are aware now, because we have talked a lot about it, but,
as far as actual notifications coming up from OSHA--and then,
actually, being able to participate in a rulemaking process--
they were simply disregarded.
Mr. Vaughan. I believe that to be true, yes.
Senator Ernst. Well, I would like to ask all of you for
your thoughts from--we have talked about a number of issues. We
talked about atrazine. We have talked about anhydrous ammonia.
We talked about some of the issues with PSM. But, from some of
the regulations that we have talked about, today--apart from
those, can you think of any other regulations that we should be
highlighting, today? And, what are those regulations doing, as
far as interfering with you being able to grow your business--
expand your businesses? Are there things that you can think of,
off of the top of your heads? And, actually, I am going to
start down here, with Dr. Williams. Could you think of other
regulations that you have seen, during your time in
governmental Agencies?
Dr. Williams. Well, certainly, the one you mentioned. As
far as in the United States, I think, this is the huge one.
If I may, I would just like to go back to the atrazine
example, because you asked what the problem is. The Department
of Energy (DOE) has just opened up a very interesting question,
which is: should we continue to use the linear-to-log model?
And, what that model says is that, if you feed animals very
high doses of something and they get ill, you extrapolate all
of the way down to the amount that humans would actually be
exposed to--and all of the way down to zero, which is,
somewhat, biologically implausible.
The Department of Energy has now asked whether we should
continue to use that model. That is the model that is
responsible for these kinds of results.
In my time, at the FDA, for example--at one time, we banned
saccharin, which later proved not to be a carcinogen. We did
it, because we fed rats the equivalent of 800 cans of soda a
day. And, we said, ``Well, if you drink one or two cans of
soda, then you just get that much less.'' It is the equivalent
of saying, ``If I jump down ten flights of stairs, I will be
killed. So, if I jump down one stair, maybe, I won't be hurt
that badly.''
It is time to reconsider that model and I think that is one
of the main issues with atrazine.
Senator Ernst. Great. Thank you. Mr. Fritz.
Mr. Fritz. I will go with that and add just a couple of
things that, maybe, are a little bit broader in scope--and,
certainly, the increasing costs of healthcare and the insurance
premiums, as
a result of increasing costs, which are affecting all small
businesses--and that is my day job. We do a lot of that type of
work. And, whether it is the Potosi Brewing Company or any
other small business out there, that is an incredible cost that
is being put upon them and a burden. And, hopefully, we can see
some resolutions to that going forward.
The other thing, in the brewing industry, we have a lot of
part-time jobs. Now, we have some really high-quality
professional people working in the industry. Our head brewer
and the director of brewing operations is a microbiologist. We
have another biologist running our lab. The equipment that our
staff and people are running is highly automated, and they get
paid very well. We have our sales staff.
But, on the flip side of that, a lot of small craft
breweries do a lot of hand packaging. People come. They recruit
part-time people to come in. They enjoy the experience.
And, if you see a--driving up of, for example, the minimum
wage, to a level that makes it very difficult for the small
brewer--now the large brewers, they have all the automated
packaging equipment in the world. Good for them. We hope to be
there at some point.
We, recently, priced out an automated packaging line, on
the back-end of our bottling line. And, it was like $250,000.
We are fairly close to starting to pull the trigger on some of
those components, but, right now, we are utilizing other
resources to do that. We use the local sheltered workshop,
actually, near where we are, to open our other cases, which are
boxes that hold the four six-packs. They open the six-packs.
They put them in the box and they ship them to us. It is 19
cents a piece. That is a nice--they
need the work. It is good for us. And then, our volunteers,
sometimes--but a lot of times we are paying these people. And,
you drive the cost of that--I mentioned that, in 1873, there
were over 4,000 breweries. When Potosi shut down, in 1972, they
were one of the last ones to be able to sustain themselves.
And, there were less than a hundred breweries--operating
breweries.
It has completely turned around. And, you have seen a
significant impact on local foods. People want to know where
their products are being made and we are, probably, approaching
4,400 to 4,500 breweries. This thing will reverse itself, and
we will start going back in the other direction--unless there
is reasonableness put into any of the legislative initiatives
that are out there. And, the consumer will, ultimately, decide
whether a product is good or bad. If you are producing a good
product and if you try to regulate a good product, you are only
going to drive out the competition.
Senator Ernst. We are getting a little upside-down on rules
and regulations. Mr. Vaughan, do you have any additional
comments on any rules that we have not touched on, today?
Mr. Vaughan. I would like to have some regulation and some
funding to get us back to holding the individual accountable
for their own actions, disciplines, and all of the things that
made this country great. I believe we still are a great
company, but, every time I turn around, I am adding additional
company resources to try to get things done. If the individuals
could be held accountable through all of the systems, there
would be a lot less overhead.
Does that make sense?
Senator Ernst. It does make sense.
Mr. Vaughan. It just seems like I spend an inordinate
amount of time--compared to 20 years ago--on those kind of
subjects.
I just went through an unemployment hearing. The gentleman,
unfortunately, was not doing what we asked him to. After the
third time, we terminated him. We lost the unemployment,
because there was some policy that we did not have in place
that we, supposedly, were supposed to have in place--over and
above the current handbook we have. And so, he got through the
system one more time and was afforded economic benefits at the
expense of society--specifically, businesses. And, that just
does not seem right.
Senator Ernst. I think that the outside compliance is also
a great point. There are so many rules and regulations out
there, whether it is through the human resources (HR) channels,
whether it is through PSM, or whatever it might happen to be,
that a lot of companies have a very difficult time even keeping
up with
compliance, as far as what is out there and what must be done
by--whether it is codified in law or whether it is, actually, a
rule or a regulation, through a specific Agency. That is a
really great point.
And, I will close with you, Mr. Zimmerman.
Mr. Zimmerman. Yes. Thank you. And, Dr. Williams hit on the
one that I want to highlight a little bit more. And, that would
be WOTUS. The thing that, as I look at it--as it would come
back to Wisconsin, it would be up to the interpretation of the
local officials--and it is very difficult to find uniformity in
it.
And, the other issue that it touches on is that the
overreach of WOTUS would amount to--if they used a 1,500-foot
setback from every ``waters of the United States,'' it would
take 65 percent of the land. It would include 65 percent of the
land that we are farming, now, in the State of Wisconsin. And,
if they did the 4,500-foot setback, it would be, like, 93
percent, so it would be--they could then do with that what they
pleased, for whatever reason, and we would lose control.
You might as well ask, ``What private property rights do we
have?'', if that is allowed to continue. And so, that is a true
threat to what I see as having the room to be able to enjoy our
way of life.
Senator Ernst. And, thank you for that, Mr. Zimmerman. And,
here in Iowa, with the expanded definition of WOTUS, it would
cover 97 percent of the land mass in Iowa. In Missouri, I know
Senator Blunt has stated that it would cover 99.8 percent of
Missouri--where you would have to go through Federal Agencies
to get permits to do work on your own property.
So, thank you for that.
Chairman Johnson. Of course, some of those permits can take
more than 2 years to obtain and can cost over $200,000 to
obtain as well. We talk about trying to be globally
competitive. Why are we losing our manufacturing base? You take
2 trillion dollars, divided by an 18 trillion dollar economy--
that is an 11-percent cost on all of our products. That makes
us globally uncompetitive.
Mr. Fritz, I grew up underneath--just right below the
Mankato Brewing Company. My dad was the general manager. I had
my own beer stein and hospitality. So, I grew up in sort of the
heyday--at least in modern times--of smaller breweries. There
are all kinds of them. And, we watched that. My dad ended up
becoming Treasurer of the Missouri Synod Lutheran Church, up in
Minneapolis, Minnesota, and got out before that brewery closed.
Now, we see this explosion, again, of small craft breweries,
which I just love to see. But, again, we are talking about
``small versus big'' and you are, certainly, concerned about
the problem of being able to compete as a small brewery against
the big guys.
Trust me, I have been in Miller Brewing Company. I have
seen those unbelievable high-speed filling lines--and an
enormous operation. And, I am looking around, thinking ``Where
are the people?'' It is all automated. And, that is the point I
wanted to make. You were talking about a $15 minimum wage. If
you combine a $15 minimum wage with these artificially low
interest rates--and I have been in the manufacturing sector. I
have made investment decisions on millions of dollars. If the
cost of capital is that unbelievably low and you artificially
drive up the cost of labor, what does that result in?
Mr. Fritz. It is going to result in a lot of the breweries
having to close. And, the National Brewery Museum is
celebrating the history of all of those breweries, like the one
your father was running.
And, we do not want our museum to be loaded with all of the
past stories and memorabilia of the breweries, today, if they
begin to close again.
Chairman Johnson. Does it not also--because you were
talking about, potentially, buying automated packaging
material?
Mr. Fritz. Yes.
Chairman Johnson. Packaging lines?
Mr. Fritz. Yes.
Chairman Johnson. So, it makes it a whole lot easier, when
capital is really cheap and labor starts getting a lot more
expensive, if you are worried about job growth and if you are
worried about providing opportunities--for example, for people
in the inner city of Milwaukee, where you do not have the hope
and you have despair, because they do not have the employment
opportunities--the last thing you want to do is to increase the
cost of the labor when you have low interest rates, correct?
Mr. Fritz. Absolutely.
Chairman Johnson. You also talked about the sheltered
workshops. And, first of all, God bless you for using those. I
have gone to visit so many in the State of Wisconsin. You see,
these are individuals with mental and physical disabilities,
who have the opportunity to get together in a working
environment. It is their family. They spend--rather than
sitting in their apartment, they are there at work. The only
way that is economically viable, though, is
for a subminimum wage. In order for you to pay a reasonable
price--a competitive price, because you are competing with
bigger companies with all of the automation and you are
competing globally--so the only way you can access those
sheltered workshops is if, basically, those operations can have
a subminimum wage--so they can offer you a product or service
that is competitive, correct?
Mr. Fritz. Absolutely. And, the local sheltered workshop
was a little nervous when they heard we were pricing out
automated packaging equipment. But, in the brewing industry,
variety packs are very popular. It takes quite a machine to put
a variety pack together. So, I assured them that, for years to
come, they will have plenty of work to do, as we move forward
to different levels of success.
Chairman Johnson. Are you aware that there are elements, in
this country, that are trying to get rid of the subminimum wage
for those types of organizations? Basically, they are trying to
put those businesses out of business that provide that--again,
those that provide that experience for people with
disabilities--because we are hearing that as well.
Mr. Fritz. They should all be required to go and experience
a sheltered workshop and see the value and the joy that is
brought to those individuals.
Chairman Johnson. Dr. Williams, a number of times now, I
have heard the word ``uncertainty.'' I am not sure that is
included in that 2 trillion dollar cost. But, again, coming
from the business world, as somebody who has made investment
decisions, the first thing you want is some measure of
certainty--or as much certainty as possible. Business is risky
enough. You have to compete against your competitors. You do
not know what they are up to. You do not know what products and
you do not know what breakthrough innovations there are. So,
you already have, baked in the cake--when competing in a free-
market system--a high level of uncertainty.
Talk about the cost that the Federal Government is throwing
on top, in terms of added uncertainty.
Dr. Williams. The 2 trillion dollars that we estimated was,
basically, reduced innovation in the United States. And, the
uncertainty--due to regulations--that is the cause of that.
That is what we actually went out and estimated.
What we see around the world is, we see that America is
dropping back--is becoming a more and more regulated country,
relative to our competitors. They are going forward. They are
instituting lots of different programs to reform, particularly,
their regulatory process. We can talk a lot about individual
regulations--and there are a lot of bad ones--but, until we get
the process right, we are going to continue to get these bad
ones.
And, what we see in other companies--excuse me, in other
countries--they are recognizing that--they are reforming their
regulatory process. I know we have had a lot of activity over
the last, particularly, 4 years or 5 years to do this, but so
far we have not gotten anywhere.
Chairman Johnson. Can you address the cost-benefit analysis
that these Agencies go through? I know President Obama has
issued some Executive Orders (EOs) that remind me of the
MasterCard commercial: ``This is priceless.''
So, the benefit is always priced out as priceless and the
cost is grossly understated. Can you just kind of speak to that
phenomenon?
Dr. Williams. Sure. I did it for 27 years in the FDA--as
well as supervised it. I can tell you that, what, generally,
happens is, whoever is in charge makes a decision. Everybody
knows what that decision is. Then, the pressure gets put on the
economist, saying, ``Go make a cost-benefit analysis that makes
my decision look good.'' That happens far too frequently.
If you actually do an analysis that does not make it look
good, they will just ignore it, and then you will never get
promoted. But, that happens.
But, I have to tell you, President Obama has said, what
every President has said, going back to Jimmy Carter--that it
is ridiculously hard to control the giant Executive Branch.
President Carter went in and said--going into office, he
said, ``This will be my biggest challenge, to control this
Executive Branch.'' Coming out, he said, ``This was a lot
harder than I thought it was going to be. That was my biggest
problem.''
Chairman Johnson. Government wants to grow. And, it is
extremely good at growing. What I am going to do, before I
close out the hearing, is allow you all an opportunity to kind
of give a closing comment, based on the discussion here. But, I
would, certainly, like to give Senator Ernst another
opportunity to ask questions, if you have any.
Senator Ernst. I think we can go ahead and hear their
closing statements and then we will conclude.
Chairman Johnson. We will start with Mr. Zimmerman. Do you
have any closing comments?
Mr. Zimmerman. Thank you. Yes. One of the things that I
would add is how much opportunity we have missed, because of
overregulation and--and different things that could be solved--
problems, diseases, pests, and things like that--that could
affect many other species--many other crops and whatnot, if the
cost of the regulation process did not chew up so much patent
time and if there was not so much time involved in getting it
deregulated.
And so, we miss out on a lot of opportunities to be able to
develop and advance more technology. So, this overregulation
is--I see it as a huge cost--and we are driving consolidation,
within our industry, because only the very large industries--or
groups--companies can afford a research platform and also
sustain a fall of
13-, 14-, or 15-year research--and wait for the deregulation of
product--to come out on the market. And so, when that happens,
it is just a snowball effect back down to us. And, we see that
the consolidation will continue with the farms also.
Chairman Johnson. You are really talking about the
opportunity cost of regulation. If you are an owner or a
manager, you only have so many hours in the day. And, if a big
chunk of your time is spent complying with Federal regulations,
that means you are not spending time on improving your
products, innovating, or creating.
We had the Chancellor of the University of Wisconsin (UW)-
Madison come into my office the last 2 years. The number one
thing she was complaining about is the regulatory burden. She
came in this year, with a study, commissioned by other research
universities, that said that, on Federal grants--again, these
are grants that are given to universities to push the bowels of
science and human knowledge--to cure diseases--42 percent of
every researcher's time--of those researchers' time spent on
those grants is spent complying with the Federal regulations
attached to the grants--42 percent.
That is an enormous opportunity cost right there. Mr.
Vaughan.
Mr. Vaughan. Thank you very much.
It feels like you both have a very good handle on the
challenges that we need to face--things we need to do. I concur
100 percent with what is being said about regulation becoming a
burden. I spend more and more of my time on it and it takes
away from our customers, our employees, and the future
productivity of our organization. This money needs to stay
where it is generated. In this case, in Iowa. We are operating
in eastern central Iowa--it is not sent off some place else and
redistributed in some other manner.
We have experienced that with the Patient Protection and
Affordable Care Act (Obama care). We have experienced that with
some of the labor laws that are changing.
And, one challenge we have is operating in a rural
environment with our farmer-customers, who do not have to
adhere to much of any of that--they do not have much time for
it. So, it instantly pits us against our most important
aspect--which is our customers.
So, thank you for your time. Thank you for your dedication.
Keep up the good work.
Chairman Johnson. By the way, those dollars are shipped off
some place. It is called Washington, D.C. Washington, D.C. is a
boomtown.
Mr. Fritz, do you have any closing thoughts?
Mr. Fritz. The success of our industry, in the craft beer
segment, is all about quality. And, every individual
entrepreneur that is in that industry segment is doing
everything they can to make sure that they are producing a
quality product. And, they have many different styles of beer--
and some people may not like an IPA, and some people do. But,
the quality of the product, in making it fit the style of the
beer that they are trying to brew, is at the top of their minds
when they are out there. If their costs continue to elevate,
where they cannot be competitive--and the consumer will pay for
quality. That is evidenced, every day, with the choices that
are being made when you walk into the retailer and buy that
product.
But, if it gets pushed further, then what will happen--and
we are seeing it already--there are a lot of large breweries
out there that, on a very regular basis, are buying up
breweries in the craft segment. They want to play in that
market. And, it is, probably, a smart business choice for them,
because they know that it is being very well perceived. But, as
they individually get picked off and picked off--and it was
mentioned, with one of the co-ops, that, if they cannot compete
and comply, then they need to move on. And, as long as there
are buyers out there--so the success of this industry depends
on helping them stay in business.
And, they will take care of the quality. But, just do not
overburden them with costs that are unnecessary.
Chairman Johnson. As a plastics manufacturer, I would have
loved to have been a monopolist. But, because I had to compete,
my prices were lower and my quality was higher--as was my
dedication to customer service. The larger the number of small
businesses, the greater the competition. And, you have all of
those benefits of a free-market system. Dr. Williams.
Dr. Williams. Yes. As I mentioned, I would love to see
better cost-benefit analysis done in the U.S. Government--more
frequently done and paid attention to. But, cost-benefit
analysis does not cover a lot of the cost of our regulatory
stakes. It does not cover--for instance, we are never going--to
begin with, small firms and medium-size firms that closed, it
does not cover the products that were lost or the products that
were never produced to begin with. It does not cover jobs lost
and, certainly, it does not cover the enormous cost, now, of
just dealing with Washington, D.C.
I think it would be better if manufacturers would be able
to focus on running their own businesses and not having to
focus so much time on dealing with Washington, D.C. That is
very costly.
Chairman Johnson. Thank you, Dr. Williams. Senator Ernst,
would you like to make a closing comment?
Senator Ernst. Yes. Again, our panelists--I want to thank
you for taking time out of your schedules to be with us, today.
And, thank you for presenting your personal testimonies,
because they are very valuable--not only to Senator Johnson and
I, as we take your thoughts to Washington D.C. and share them
with our other Committee Members, but it is important to our
constituencies as well. We know that there are many out there
that share those same stories that you do, about government
overreach and the cost of regulations, in doing business.
And, we know that, as you have demonstrated, today, those
overreaching rules and regulations are burdening our employers
and our businesses. And, we are not growing the economy like we
could be and should be, here in the United States, because of
that.
So, I know that Senator Johnson has been very diligent in
approaching how we can reform the rules and regulations and--
and do it in a way where we are involving stakeholders--
because, oftentimes--just as some of the examples that were
given, today--those stakeholders are not involved in the
process. And, these Agencies are not following original
Congressional intent. So, we have to get back to that. This is
valuable information that I will be taking back and working
with the Committee on.
And, finally, Senator Johnson, thank you for being such a
great leader on these issues. Senator Johnson is the Chairman
of our Homeland Security and Governmental Affairs Committee.
And, your work has really been noticed by me, and I appreciate
it so much, because, if we do want to grow our economy, here in
the United States, these are the issues that we need to be
focusing on. So, thank you for taking the time to come to Iowa
to share your thoughts with our constituents.
Chairman Johnson. Thank you for inviting me. This was
Senator Ernst's idea, and it was a great idea for what, I
think, has been just a great hearing.
I do want to thank everybody in the audience for coming and
showing interest. Obviously, our witnesses have great
testimonies and have given great answers to our questions.
Thank you to the members of the press, for coming here and
highlighting this.
I always have said that overregulation is the silent
killer. It crushes innovation. It crushes small businesses.
And, it crushes the kind of competition that we need in order
to grow our economy, which is the number one solution. If we
want opportunities--whether in the inner city of Milwaukee or
anywhere in Iowa or Wisconsin--we need to grow our economy.
And, this enormous regulatory burden is making it very
difficult for businesses to grow and to create those good-
paying jobs that we all want.
So, again, I just want to thank everybody for participating
in this. It was a great idea for a hearing. I love coming here,
to Dubuque--beautiful part of our State and your State. I am
going to enjoy the drive back.
With that, the hearing record will remain open for the next
15 days until September 1, at 5:00 p.m., for the submission of
statements and questions for the record.
This hearing is adjourned.
[Whereupon, at 1:22 p.m., the Committee was adjourned.]
A P P E N D I X
----------
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
[all]