<DOC>
[107th Congress House Hearings]
[From the U.S. Government Printing Office via GPO Access]
[DOCID: f:70997.wais]
DEPARTMENT OF AGRICULTURE FISCAL YEAR 2002 BUDGET PRIORITIES
=======================================================================
HEARING
before the
COMMITTEE ON THE BUDGET
HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTH CONGRESS
FIRST SESSION
__________
HEARING HELD IN WASHINGTON, DC, MARCH 14, 2001
__________
Serial No. 107-9
__________
Printed for the use of the Committee on the Budget
Available on the Internet: http://www.access.gpo.gov/congress/house/
house04.html
__________
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COMMITTEE ON THE BUDGET
JIM NUSSLE, Iowa, Chairman
JOHN E. SUNUNU, New Hampshire JOHN M. SPRATT, Jr., South
Vice Chairman Carolina,
PETER HOEKSTRA, Michigan Ranking Minority Member
Vice Chairman JIM McDERMOTT, Washington
CHARLES F. BASS, New Hampshire BENNIE G. THOMPSON, Mississippi
GIL GUTKNECHT, Minnesota KEN BENTSEN, Texas
VAN HILLEARY, Tennessee JIM DAVIS, Florida
MAC THORNBERRY, Texas EVA M. CLAYTON, North Carolina
JIM RYUN, Kansas DAVID E. PRICE, North Carolina
MAC COLLINS, Georgia GERALD D. KLECZKA, Wisconsin
ERNIE FLETCHER, Kentucky BOB CLEMENT, Tennessee
GARY G. MILLER, California JAMES P. MORAN, Virginia
PAT TOOMEY, Pennsylvania DARLENE HOOLEY, Oregon
WES WATKINS, Oklahoma TAMMY BALDWIN, Wisconsin
DOC HASTINGS, Washington CAROLYN McCARTHY, New York
JOHN T. DOOLITTLE, California DENNIS MOORE, Kansas
ROB PORTMAN, Ohio MICHAEL E. CAPUANO, Massachusetts
RAY LaHOOD, Illinois MICHAEL M. HONDA, California
KAY GRANGER, Texas JOSEPH M. HOEFFEL III,
EDWARD SCHROCK, Virginia Pennsylvania
JOHN CULBERSON, Texas RUSH D. HOLT, New Jersey
HENRY E. BROWN, Jr., South Carolina JIM MATHESON, Utah
ANDER CRENSHAW, Florida
ADAM PUTNAM, Florida
MARK KIRK, Illinois
Professional Staff
Rich Meade, Chief of Staff
Thomas S. Kahn, Minority Staff Director and Chief Counsel
C O N T E N T S
Page
Hearing held in Washington, DC, March 14, 2001................... 1
Statement of:
Hon. Ann M. Veneman, Secretary, U.S. Department of
Agriculture................................................ 3
Hon. Charles W. Stenholm, a Representative in Congress from
the State of Texas......................................... 28
Bruce L. Gardner, chairman, Department of Agriculture and
Resource Economics, University of Maryland................. 36
Prepared statement of:
Secretary Veneman............................................ 6
Representative Stenholm...................................... 30
Mr. Gardner.................................................. 40
DEPARTMENT OF AGRICULTURE FISCAL YEAR 2002 BUDGET PRIORITIES
----------
WEDNESDAY, MARCH 14, 2001
House of Representatives,
Committee on the Budget,
Washington, DC.
The committee met, pursuant to notice, at 1 p.m. in room
210, Cannon House Office Building, Hon. Jim Nussle (chairman of
the committee) presiding.
Members present: Representatives Nussle, Hastings, LaHood,
Schrock, Gutknecht, Thornberry, Brown, Fletcher, Watkins,
Collins, Bass, Culberson, Spratt, Moore, Hooley, Clayton,
Putnam, McDermott, and Matheson.
Chairman Nussle. I call the full Committee hearing of the
Budget Committee to order.
Today we have the opportunity to continue our exploration
of the President's fiscal year 2002 budget with an examination
of the Department of Agriculture budget priorities. Today we
are honored to have with us the 27th Secretary of Agriculture,
the Honorable Ann Veneman from California, who is the Secretary
of Agriculture.
We're so happy that you are with us today to visit with us
about not only the President's priorities, but your priorities
as you return to the Department of Agriculture in a new role.
We were just reminiscing about a former colleague, Ed Madigan,
who was not only a colleague of ours, and a dear friend of mine
when I first came to Congress, but then of course went to the
Department of Agriculture and whom you served for for that
period of time. So we welcome you back to your role in the
Department of Agriculture.
As the markets continue to fluctuate out there, we
particularly from farm country, coming from Iowa, the markets
that we watch of course more closely maybe than any others are
those that affect us in agriculture. Those markets have been
down, maybe not as newsworthy to most, to the general public as
they are to farmers and to ranchers across this country. But
they've been fluctuating down for many years now.
We have a real challenge out there in farm country. Bad
news with regard to the economy is not news to those of us that
come from rural areas and farm country. One of the great
challenges, I think, that you have and the Administration has,
together with us as partners, is to work at trying to do what
we can in order to restore not only faith but to restore
confidence, restore safety and security back into our food and
that important resource that all of us take for granted.
We all pick up the gallon of milk at the store and
sometimes we forget that it comes from our farmers, or we buy
that loaf of bread and those corn flakes and we forget about
all the hard work that goes into it. We hear the stories about
the box costing more than the ingredients these days.
There are people out there that are in need of attention
from the administration and from us as we work through this
budget. I see a couple of challenges, and I'll mention them
briefly to you. Firstly, with the emergencies we've been having
in the farm program over the last couple of years in
particular, I'm not sure that we can wait until next year for
reauthorization of the full Farm Bill.
We may want to look at a portion of that Farm bill being
authorized even as early as this year, possibly by the end of
this year, looking at the commodity programs to look at some
changes, so that it takes effect as quickly as possible and we
don't have this constant dipping into emergency funding to deal
with our farmers. They don't want it. It's not what they want.
They certainly need it, and we gladly provide it. But that's
not the farm program they want, one that is based on emergency
checks that go out from Washington, D.C.
The second challenge that I would just report to you is one
that involves the Department of Agriculture as a whole. I hear
unfortunately some complaints about the way that constituents
are being served through the different agencies, getting their
responses attended to. You have a lot of great people that work
down at the Department of Agriculture. But sometimes those
great people working in poor systems don't always get to do the
kind of work that we all want them to do.
I would just encourage you, similar to what the President
has suggested in the Department of Defense, that we consider a
top to bottom review of the Department of Agriculture. It's not
just that which affects farmers. We held hearings last year on
the Food Stamp Program and on trafficking of food stamps that
continues to go on, using it as a currency in some
neighborhoods of our country, not using the technology and the
good, new technological practices that are available, such as
ATM cards, electronic transfers.
So there are some challenges out there that we're hoping
can be addressed by your administration as well as by the
budget. We look forward to your testimony and the chance to ask
you some questions about that.
Welcome, and we look forward to working with you on these
very important programs.
I'd now like to recognize the Ranking Member, John Spratt,
from South Carolina.
Mr. Spratt. I'd also like to extend a warm welcome to you.
We appreciate very much your coming. We'll have questions about
the program later, but let me simply say we look forward to
working with you.
Chairman Nussle. Madam Secretary, your entire testimony
will be made part of the record, and without objection, all
members will be allowed to put a statement into the record at
this point.
You may summarize testimony or proceed as you would like.
We welcome you and we look forward to your testimony.
STATEMENT OF HON. ANN M. VENEMAN, SECRETARY, U.S. DEPARTMENT OF
AGRICULTURE
Secretary Veneman. Thank you, Mr. Chairman, and members of
the committee. It is an honor for me to be here today. I
appreciate the initiative you have shown in calling this
hearing, because the issues that are affecting farmers,
consumers and other constituents of the Department's programs
are, as you pointed out, very important.
As you know, the administration recently issued a blueprint
document outlining its budget priorities for fiscal year 2002.
While the detailed budget will not be submitted to the Congress
until the first part of April, I want to give you the best
possible overview of our priorities.
There are three overarching considerations that shape the
administration's approach to developing the budget for 2002.
These include, first, slowing down the growth of Federal
spending and funding urgent national priorities; second,
achieving historic levels of debt reduction; and third,
providing tax relief.
Farmers and other beneficiaries of USDA programs all have a
stake in these objectives and will benefit from the President's
initiatives, particularly tax relief. Farmers especially will
benefit from the elimination of the estate tax and from the
proposed establishment of tax deferred risk management
accounts.
Restraint of Federal spending is important, since it has
grown substantially in recent years. Left unchecked, this
growth would cause spending to far exceed the Budget
Enforcement Act baseline over the next 10 years. USDA has
contributed to this accelerating growth of Federal spending.
Over a 10 year period, USDA outlays increased by about $24
billion, from $46 billion in 1990 to nearly $70 billion in
2001. In recent years, USDA outlays have been highly variable,
largely reflecting emergency spending to address natural and
economic disasters in the agricultural and rural economy.
Substantial growth occurred in both mandatory and discretionary
spending.
I'm sure this committee is aware that the Department of
Agriculture has one of the most diverse sets of discretionary
programs in the Government. In 2001 our discretionary budget
will exceed $19 billion. The largest discretionary program that
we administer is the Special Supplemental Nutrition Program for
Women, Infants and Children, commonly referred to as WIC. This
provides nutrition assistance to some of the most vulnerable
and needy people in our society.
The discretionary budget also provides funding for other
crucial responsibilities, such as pest and disease control,
domestic and international marketing assistance programs,
conservation, rural development, research, food safety and the
U.S. Forest Service. Developing a discretionary budget for the
Department always involves difficult questions of finding the
appropriate balance between all of these programs within a
reasonable budget figure.
Mandatory spending accounts for over three quarters of the
Department's spending and will amount to $53.5 billion in 2001.
The primary components of our mandatory budget are the Food
Stamp Program, the child nutrition programs, farm support
programs, and a number of conservation programs. Many of these
programs are entitlements and their funding requirements are
largely dictated by economic conditions.
USDA's discretionary budget for 2001 reflects a 13 percent
increase over the 2000 level, which in our view is
unsustainable over the longer term. For 2002, the budget
includes a more realistic level of $17.9 billion, which is
about 5 percent over the 2000 level, largely reflecting the
rate of inflation over the 2 years.
To achieve what we believe is the appropriate level of
growth in spending, the 2002 budget proposes to eliminate
approximately $1.1 billion in one-time spending provided for
2001, most of which is emergency funding. In addition, the
budget saves about $150 million by eliminating approximately
300 earmarked projects that were not subject to the merit based
selection process.
The budget also proposes saving taxpayers an additional
$200 million by reducing or eliminating programs that are not
immediate priorities or need to be better targeted.
The budget does fund a number of very important top
priorities in USDA that are part of the President's agenda.
First, it carries out the President's commitment to expanding
overseas markets for American agricultural products by
strengthening USDA's marketing intelligence capabilities and
the Department's expertise for resolving technical trade issues
with foreign trading partners. It also expands and strengthens
our analytical capabilities in a number of USDA agencies that
have trade related programs.
Second, it redirects USDA research to provide new emphasis
in key areas such as improving protection against emerging
exotic plant and animal diseases and pests of crops and
animals, biotechnology and the development of new uses for
agricultural products. It maintains funding for priority
activities in the Forest Service's wildland fire management
plan, including hazardous fuels reduction. In addition, the
budget proposes a reserve for unforeseen national emergency
disaster needs.
It also funds 7,600 meat and poultry inspectors without
reliance on user fees, in addition to fully supporting other
USDA food safety and inspection activities. The budget
maintains average monthly participation in the WIC program at
7.25 million individuals, which is the year end level for 2000
and the participation level projected for 2001. It supports
60,000 low to moderate income rural families in their
acquisition of decent, safe, affordable housing and provides
access to clear, safe drinking water for 1.4 million poor rural
residents.
It provides conservation assistance to 650,000 landowners,
farmers and ranchers. It funds continuing actions to combat
pest and disease infestations through direct appropriations
rather than through emergency funding transfers. Emergency
funding would be considered for unforeseen infestations.
On the mandatory side, the largest component of spending is
for the food assistance programs, and that is followed by the
farm support programs. Mandatory spending in the food
assistance area covers both food stamps and child nutrition.
The 2002 budget proposes no major changes for either of these
programs. The current services outlay estimate for 2002 is
$20.9 billion for food stamps and $10.3 billion for child
nutrition programs. These estimates are driven by the cost of
the food benefit and the number of anticipated participants in
the program.
Farm support spending carried out through the Commodity
Credit Corporation, commonly referred to as the CCC, is
estimated under current law at $13 billion for 2002, down from
$20 billion estimated for 2001 and $32 billion in 2000. The
reduction in 2002 primarily reflects the effect of emergency
supplemental appropriations that added an average of over $8
billion per year to CCC outlays for the last 3 years. Out year
estimates also decline as market conditions are projected to
improve and reduce the assistance provided by ongoing safety
net provisions like marketing assistance loans and loan
deficiency payments.
Since emergency appropriations are not part of the ongoing
mandatory program, they have not been projected in future
years. However, I would stress that spending on farm support
programs is highly variable and difficult to predict, since it
is so dependent on market conditions and weather. In fact, the
President's budget proposes the establishment of a contingency
fund of nearly $1 trillion for use in dealing with unexpected
and difficult to predict needs or necessary programmatic
reforms which may emerge in the future and for which adequate
resources cannot readily be found by reforming other
activities. Assistance to farmers will be one of the many
potential uses for this contingency reserve.
In conjunction with support to farmers provided by CCC,
crop insurance reforms enacted in ARPA meet the
administration's objective for improving the crop insurance
program. These reforms should help reduce the need for natural
disaster related crop loss assistance in 2002 and beyond. In
addition, as I indicated, the administration will propose
legislation to allow farmers and ranchers to reserve a
substantial percentage of their net farm income in tax deferred
accounts known as Federal Farm and Ranch Management Accounts
that could be drawn upon during the times of financial stress.
With respect to other aspects of the farm safety net, I
recognize that there are ongoing weaknesses in the farm
economy. We are closely monitoring the situation, but we need
to wait and see how crop and market conditions develop over the
coming months. We are aware of concerns about farm financial
conditions which may require additional assistance if uncertain
market conditions worsen or do not improve soon.
That's one of the many reasons the administration proposed
budget reforms to include an explicit contingency reserve. We
will work with Congress to assess further needs for farm
assistance and will take other appropriate measures, such as
pursuing an aggressive trade policy and improving the
effectiveness of our current programs to move the sector toward
greater reliance on the market based economy.
There is currently a wide range of ideas being discussed
for policy reforms over the longer term. We are reviewing the
report from the Commission on 21st Century Production
Agriculture and House Committee Chairman Combest has taken an
important step toward establishing a framework that encourages
commodity groups to work together to develop proposals for the
future.
We look forward to working with the Congress and other
representatives of the farm sector on these important issues.
Thank you very much.
[The prepared statement of Ann Veneman follows:]
Prepared Statement of Hon. Ann M. Veneman, Secretary, U.S. Department
of Agriculture
Mr. Chairman, members of the committee, it is an honor for me to
appear before you to discuss the Administration's programs and budget
priorities for fiscal year (FY) 2002.
The administration has recently issued a blueprint document
outlining its budget priorities for 2002. The detailed budget is to be
submitted during the first part of April. However, today I want to give
you a broad overview of our priorities.
There are three over-arching considerations that shaped the
administration's approach to developing the budget for 2002. These are:
<bullet> Slowing the growth of Federal spending and funding urgent
national priorities.
<bullet> Achieving historic levels of debt reduction.
<bullet> Providing tax relief.
Farmers and other beneficiaries of USDA programs all have a stake
in these objectives and will benefit from the President's initiatives,
particularly tax relief. Farmers especially will benefit from the
elimination of the estate tax and from the proposed establishment of
tax-deferred risk management accounts.
Restraint of Federal spending is important, since it has grown
substantially in recent years. Left unchecked, this rate of growth
would cause spending to far exceed the Budget Enforcement Act baseline
over the next 10 years. USDA has contributed to this accelerating
growth of Federal spending.
Over a 10-year period, USDA outlays increased by about $26 billion,
from $46 billion in 1990 to nearly $73 billion in 2001. In recent
years, USDA outlays have been highly variable, largely reflecting
emergency spending to address natural and economic disasters in the
agriculture and rural economy. Substantial growth occurred in both
mandatory as well as discretionary spending.
USDA discretionary spending amounted to over $19 billion in 2001
and accounted for about a quarter of total USDA spending. The
Department's discretionary programs are wide ranging and include the
Special Supplemental Nutrition Program for Women, Infants and Children
(WIC), the largest single discretionary program, domestic and
international marketing assistance programs, conservation technical
assistance, rural development, research, food safety and Forest Service
programs. Mandatory spending makes up over three-quarters of USDA
spending or $53.5 billion in 2001 and includes funding for most
domestic nutrition assistance programs other than WIC, farm support
programs and a number of conservation programs.
USDA's discretionary budget for 2001 reflects a 13 percent increase
over the 2000 level which, in our view, is unsustainable over the
longer term. For 2002, the budget includes a more realistic level of
$17.9 billion, which is about 5 percent over the 2000 level, largely
reflecting the rate of inflation over the 2 years. To achieve what we
believe is an appropriate level of growth in spending, the 2002 budget
proposes to eliminate approximately $1.1 billion in one-time spending
during 2001, most of which is emergency funding. In addition, it saves
about $150 million by eliminating approximately 300 earmarked projects
that were not subject to a merit-based selection process. The budget
also proposes saving taxpayers an additional $200 million by reducing
or eliminating programs that are not immediate priorities or need to be
better targeted.
The budget does fund a number of very important priorities in USDA
that are part of the President's agenda. Specifically, the budget:
<bullet> Carries out the President's commitment to expanding
overseas markets for American agricultural products by strengthening
USDA's market intelligence capabilities and the Department's expertise
for resolving technical trade issues with foreign trading partners. It
also expands and strengthens our analytical capabilities in a number of
USDA agencies that have trade related programs.
<bullet> Redirects USDA research to provide new emphasis in key
areas such as improving protection against emerging exotic plant and
animal diseases and pests of crops and animals, biotechnology, and the
development of new agricultural products.
<bullet> Maintains funding for priority activities in the Forest
Service's wildland fire management plan, including hazardous fuels
reduction. In addition, the budget proposes a reserve for unforeseen
national emergency disaster needs.
<bullet> Funds 7,600 meat and poultry inspectors without reliance
on user fees, in addition to fully supporting other USDA food safety
and inspection activities.
<bullet> Maintains average monthly participation in the WIC program
at 7.25 million individuals, which is the year end level for 2000 and
the participation level projected for 2001.
<bullet> Supports 60,000 low to moderate income rural families'
acquisition of decent, safe, and affordable housing; and provides
access to clear, safe drinking water to 1.4 million poor, rural
residents.
<bullet> Provides conservation assistance to 650,000 landowners,
farmers, and ranchers.
<bullet> Funds continuing actions to combat pest and disease
infestations through direct appropriations rather than through
emergency funding transfers. Emergency funding would be considered for
unforeseen infestations.
On the mandatory side, the largest component of spending is for the
food assistance programs followed by the farm support programs.
Mandatory spending in the food assistance area covers both Food
Stamps and Child Nutrition. The 2002 budget proposes no major changes
for either of these programs. The current services outlay estimate for
2002 is $20.9 billion for Food Stamps and $10.3 billion for the child
nutrition programs. These estimates are driven by the cost of the food
benefit and the number of anticipated participants in the programs.
Farm support spending carried out through the Commodity Credit
Corporation (CCC) is estimated under current law at $13 billion for
2002, down from $20 billion estimated for 2001 and $32 billion in 2000.
The reduction in 2002 primarily reflects the effect of emergency
supplemental appropriations that added an average of over $8 billion
per year to CCC outlays over the past 3 years. Outyear estimates also
decline as market conditions are projected to improve and reduce the
assistance provided by ongoing safety net provisions like marketing
assistance loans and loan deficiency payments.
Since emergency appropriations are not part of the ongoing
mandatory program they have not been projected in future years.
However, I would stress that spending on farm support programs is
highly variable and difficult to predict since it is so dependent on
market conditions and weather. In fact, the President's budget proposes
the establishment of a contingency fund of nearly a trillion dollars
for use in dealing with unexpected and difficult to predict needs or
necessary programmatic reforms which may emerge in the future and for
which adequate resources cannot be readily found by reforming other
activities. Assistance to farmers will be one of many potential uses
for this contingency reserve.
Along with the contingency provision for which it is too early to
determine precise needs for any additional farm assistance, estimated
CCC farm assistance under current law is projected based on the
following assumptions:
<bullet> Major provisions of the 1996 Federal Agriculture
Improvement and Reform Act of 1996 (FAIR Act) are assumed to extend
beyond 2002 in accordance with conventional budget rules. Supply/use
conditions as of October 2000 are used for estimation purposes and
normal weather is assumed.
<bullet> Production flexibility contract payments would be reduced,
as provided by the FAIR Act, by $1 billion from FY 2000 to $4 billion
per year for FY 2001 and FY 2002 and beyond.
<bullet> Marketing assistance loan rates are frozen at their
maximum rates for the 2001 crop but are assumed to be adjusted per
formula provisions for the 2002 crop and beyond.
<bullet> Emergency and disaster assistance provided by the
Agriculture Risk Protection Act of 2000 (ARPA) and the FY 2001
Agriculture Appropriations Act are assumed to apply only for 2001.
<bullet> Dairy price support is extended until the end of calendar
year 2001 and then is replaced by a recourse loan program.
<bullet> The Conservation Reserve Program's 36.4 million acre cap
is assumed to extend through the outyears.
<bullet> The Department's major export promotion and market
development activities are continued at or slightly above their 2001
levels. These include CCC export credit guarantees, the Cooperator and
Market Access programs, and the Export Enhancement and Dairy Export
Incentive programs.
In conjunction with support to farmers provided by CCC, crop
insurance reforms enacted in ARPA meet the administration's objectives
for improving the crop insurance program. These reforms should help
reduce the need for natural disaster related crop loss assistance in
2002 and beyond. In addition, as I indicated, the administration will
propose legislation to allow farmers and ranchers to reserve a
substantial percentage of their net farm income in tax deferred
accounts, known as Federal Farm and Ranch Risk Management (FFARRM)
accounts, that could be drawn upon during time of financial stress.
With respect to other aspects of the farm safety net, I recognize
that there are ongoing weaknesses in the farm economy. We are closely
monitoring the situation, but we need to wait and see how crop and
market conditions develop over the coming months. We are aware of
concerns about farm financial conditions which may require additional
assistance if uncertain market conditions worsen or do not improve
soon. That is one of many reasons the administration proposed budget
reforms are to include an explicit contingency reserve. We will work
with Congress to assess further needs for farm assistance and will take
other appropriate measures, such as pursuing an aggressive trade policy
and improving the effectiveness of our current programs, to move the
sector toward greater reliance on the market based economy.
There is currently a wide range of ideas being discussed for policy
reforms over the longer term. We are reviewing the report from the
Commission on 21st Century Production Agriculture, and House
Agriculture Committee Chairman Combest has taken an important step
toward establishing a framework that encourages commodity groups to
work together to develop proposals for the future. We look forward to
working with the Congress and other representatives of the farm sector
on these important issues.
Chairman Nussle. Thank you, Madam Secretary.
First off, before you have the opportunity to leave,
there's been some concern from producers about the way that the
USDA has handled responses to concerns or complaints to
specific key studies. I will give you what my staff has put
together, just random issues that constituents have asked
about. Really, they have not felt like the Department has given
them the kind of response that they need.
I don't get that from so many of the other departments.
That's why I want to raise it to you now while we have the
opportunity to take a new look at the Department. Also another
one that quite honestly my calls are running very heavily right
now is on the issue of the pork checkoff and the decision that
was made. It's another one of those areas, particularly in
Iowa, that has been very concerning.
So I throw those out to you not because you necessarily
handle them yourself, but because you inherited them. And I
want you to be aware of them, because I think it's important,
as you begin to restructure the Department and look at some of
the reforms.
As you look at the reforms, let me just ask you a question
that farmers ask me back home. That is, did Freedom to Farm
fail? Did it fail, if it did fail, is it because it was not
properly implemented, or with a full partnership on behalf of
the former administration? Is it because the markets overseas
just were too difficult and collapsed under the weight of the
currency collapses that we saw in the Far East in particular?
Was it our failure with regard to expanding our trade, tax,
regulatory changes that were part of the promise of Freedom to
Farm?
As we go in, as we're sitting on the threshold of this
debate of farm policy and the whole safety net, what is your
take, as someone who has obviously carefully watched this from
a number of perspectives over the last 10 plus years, just
watching the last three Farm bills in particular, what is your
take on what has happened with our current safety net program?
Secretary Veneman. Well, Mr. Chairman, I don't believe that
Freedom to Farm has failed. But I do believe that many of the
factors that you mentioned were, at the time Freedom to Farm
came into effect, anticipated to be part of the overall package
that would assist the farm sector. As you mentioned, it was
anticipated that we would be opening up markets, but we have
not been able to make significant progress in furthering the
next WTO round. We haven't been able to get trade negotiating
authority in the last few years.
We continue to have a number of trade disputes with various
countries. We have some promise of opening up China's market
once we get the accession agreements completed with China to
move them into the WTO. You mentioned taxes. I think all of the
tax initiatives that the President has proposed would be of
assistance, and they were talked about during the discussion of
the 1996 Farm bill as well, whether it's the farm accounts that
I discussed in my opening testimony, or estate tax relief.
And clearly, income tax relief, marriage penalty relief,
child care deductions, all of those things help agriculture as
much as they help anyone else.
You also mentioned regulatory relief. Farmers are under
tremendous pressure with more and more regulation impacting the
way they do business. We have to take a reasonable approach, a
common sense approach to regulations, and they must be based on
sound science. And we have to have programs that work in
partnership with producer groups and with scientists that help
farmers understand the best management and the best farming
practices.
I want to go back to a couple of the things that you said
in the beginning with regard to the complaints of delivery of
services. You referred to the time I served with Secretary
Madigan. During the time I was Deputy Secretary, he asked me
and Congressman Stenholm and then Congressman Roberts to
conduct a review of the way services were delivered to USDA
constituent groups, to look at our office structure to
determine how we could more efficiently and effectively deliver
those services.
Much of what that study contained then became the basis for
what was used to determine the reorganization that was done
early in the Clinton administration, while Secretary Espy was
there. I still believe that there are a number of things that
we still need to do to make sure that delivery of services is
being done in the most effective and efficient way possible,
whether it's making sure that our agencies are working together
in the field, computer systems and technology, or the e-filing
of forms. All of these things need to be looked at with, as you
say, a top to bottom review to make sure that we are
effectively delivering programs to our various constituent
groups. We intend to make that a priority of this
administration.
Chairman Nussle. So some type of top to bottom review,
similar to what we've heard from the Defense Department,
certainly it's a little bit different type of national security
interest. But certainly, no less important.
That would not be out of the question as far as you're
concerned, as you begin your tenure?
Secretary Veneman. No, it would not. And as I mentioned,
it's something I was very much involved with in the Madigan
administration of the USDA.
Chairman Nussle. Thank you. Let me ask you, too, I also
have had the opportunity to talk to senators and
representatives, our chairmen of the Ag Committees. There is
some both public and private support for and interest in moving
possibly a portion of the Farm bill reauthorization and reform
as early as this year. Senator Lugar and Senator Combest both
have indicated that all or part of the Farm bill debate could
possibly occur and maybe even conclude this year.
What would be your position on that, and would the
administration be willing to assist us if we can expedite that
debate? Part of the context I want you to have for this is that
the emergency format that we have been under over the last 3 or
4 years is, it just can't be sustained. We can't continue to do
this. Our farmers don't want it this way. And the kind of
political bidding war that I can describe for you and that we
can all describe that we had to go through over the last couple
of years has been, I think, fiscally irresponsible.
So to try and figure out a framework that is not only
responsible to all taxpayers and allows them to understand the
importance of agriculture in their daily lives, but also is
more predictable to our farmers and our ranchers and our
producers out there is something that I hope we look toward
achieving. Because the current method of just putting this off
and allowing the emergency or the supplemental fund, the
contingency fund to work this out, I've got to tell you, there
is more, and I've had the conversations, there are more
requests for the contingency funds than there is money in the
contingency funds. And it starts with everything from
agriculture to defense to more tax cuts to you name it. And
they're all worthy to consider.
But in an era of surpluses, we have a mentality around here
that we're going to have to come to grips with. And I would
just encourage anything that can be done to push up the reforms
to get our arms around this. Otherwise, the feeding frenzy
that's been occurring will not be quenched by yet one more
emergency supplemental. I just ask your opinion on that
strategy and what the administration might be willing to do to
help.
Secretary Veneman. Well, certainly we're always going to be
willing to assist the Congress with the legislative packages
that they're working on. I have been saying that while I
thought a considerable amount of work would be done this year
on the Farm bill, I did not anticipate that it would get done
until next year. Now, if the Congress decides that they want to
move that up, certainly, as I said, we would be willing to
assist. But the administration has not taken a specific
position on the timing for the Farm bill.
I understand, very much, the need for the farmers to have
some certainty. Regarding the 1996 Farm bill, the first couple
of years worked very well and I think farmers were very happy.
They remain very happy, at least from what I have heard, with
the ability to have flexibility in planting decisions. That's
one thing that farmers seem to be very happy about.
But I think this issue of certainty and predictability as
we've gone through emergency bill after emergency bill after
emergency bill, has become something that is a difficult issue
for farmers, because they don't know how much Federal
assistance they're ultimately going to receive.
Chairman Nussle. Well, with both chairmen of the Ag
committees, and with now the chairman of the Budget Committee
and many other members, I think with our interest in this, I
would hope that the administration would at least consider, as
it sounds like you will, expediting that and doing whatever you
can to assist in that, and maybe moving your strategy up
slightly as well. Because we just, this is an issue that is not
going to go away just by one budget cycle passing us by.
Mr. Spratt.
Mr. Spratt. Thank you, Mr. Chairman.
Secretary Veneman, let me explain to you what we're
struggling with. We don't have before us, in your budget, the
Department of Education's budget, enough detail yet to really
pass analytical judgment on the adequacy of this request. All
we have are the aggregate numbers. In agriculture, the
aggregate numbers are like this: for this year, the current
budget year, 2001, U.S. Department of Agriculture was
appropriated $19.4 billion for appropriated programs.
The Bush budget, the one we have before us, requests $17.9
billion. That is a cut of $1.5 billion before you count for
inflation. If you count for inflation, if you try to keep the
amount appropriated constant in purchasing power, then the
Department, according to CBO, needs about $19.6 billion.
You're 8.6 percent below that level. And number one, we
don't know where those cuts are coming from. I really doubt
that the Ag Committee or the Appropriations Subcommittee is
likely to make cuts of that magnitude. And number two, we're
concerned that if they can indeed make those cuts, we'll see
our budget beginning to edge upwards and miss the targets that
we set in the budget resolution.
Here's a chart that explains part of our problem. If you
look backwards to recent history, it's what the Commodity
Credit Corporation has paid for various program payments, loan
payments and deficiency payments and flex contracts. It was a
substantial amount of money, around $30 billion, as recently as
the year 2000, less than that this year. And in the out years,
all of the out years that are the focus of your budget, it is
substantially below recent history.
How do we get there, or indeed, can we get there from here
without major revision in the program?
Secretary Veneman. Congressman, your question really has
two parts. One is about the discretionary side of the budget
and one is about the mandatory side. On the discretionary side,
as I mentioned in my testimony, this budget is down from the
year 2001. But most of that additional money in 2001 that is
not included in the 2002 budget is from emergencies and was
provided in supplemental appropriations last year. The money
was for specific things such as extraordinary fire fighting
costs.
The FY 2002 budget is about 5 percent above the year 2000
budget, which is about in line with inflation. So if you look
at a chart, and I don't have one with me to show you, but if
you look at a chart, fiscal year 2001 was an unusual situation
because of all this additional emergency money that was
included.
With regard to the mandatory side or the CCC outlay side
that you have displayed on the chart there, the prior years up
to 2001 all include additional mandatory funding payments, CCC
outlays, for farm programs that were added as emergencies. As
we were just discussing with the Chairman----
Mr. Spratt. These were valid and bona fide emergencies.
Weren't people struggling in farm country? Wasn't this kind of
a salvation for them?
Secretary Veneman. I'm not saying whether they're valid or
not. They were valid emergencies. But the issue here is that
the budget assumptions at this point do not assume emergency
money. Rather, the emergency situation or potential is being
dealt with in this nearly trillion dollar fund. So the
projections for the outlays shown on your chart don't take into
account what may be appropriate for emergencies that may arise
from this crop year.
Mr. Spratt. Our concern is that the emergency money didn't
come just last year, but over the last 3 years, it's been close
to $9 billion each year, $27 billion for 3 years. And it's sort
of strange credulity to think that all of a sudden, we're going
to drop from an $8 billion a year emergency assistance to
farmers to nothing at all except for the contingency fund.
So when the Chairman asked you about Freedom to Farm, I
think we'd ask the same question, did we cut so deeply in
Freedom to Farm that we had to come back and provide these
emergency payments for whatever reason, just to help farmers
make ends meet in a particular crop year? It looks to me like
that's what happened. I don't think we've corrected the
underlying problems.
So it would seem to me that these payments are likely to be
recurring, unless something dramatically improves with
commodity prices.
Secretary Veneman. I believe that we will have the
opportunity with the next Farm bill, the 2002 Farm bill, to
look at all of these issues. It's a fact that under the 1996
Farm bill, a large amount of additional emergency money had to
be appropriated. So I think that is why the Chairman is
suggesting that we need to look carefully at timing for all of
this.
But the fact of the matter is that virtually everyone who's
talking about the next Farm bill is looking at ways that will
avoid the need to deal with emergencies year after year after
year.
Mr. Spratt. Let me just comment on the contingency fund,
because even if you go to 2002, if the changes in the law
require more money, it's not really provided for in this budget
in the out years. And you mentioned the contingency fund a
minute ago as containing almost $1 trillion.
On page 186 of the blueprint of the budget, there's a
contingency fund of $842 billion. Last week, as we probed the
derivation of that contingency fund, we found that it included
$526 billion in the Medicare trust fund, the surplus net trust
fund. Consequently, the real balance in that fund, if we indeed
resolve not to spend the Medicare surplus, is $316 billion.
Out of that you've got to provide for a probable plus-up in
defense, prescription drugs under Medicare, substantial plus-up
in education, as the Chairman said, there are more requests for
those funds than there are funds available. So that's a concern
of ours, too, that you're kind of pushing this problem forward
to the future with the revision of the law, but when you get
there, you'll probably need the extra funding, and it's not
there. It's not there in the contingency fund.
In the other reserve fund that the administration has set
up, the National Emergency Reserve Fund, it's $5.6 billion
provided in 2002, but this falls well short of the historic
average that we've spent on emergencies over the last 10 years.
Now, granted, some of that money for emergencies was not
really an emergency. We called it that to get around budget
strictures.
But nevertheless, the average is pretty high. We've
appropriated substantially more than that.
So that's our concern, that you've got a very, very thinly
funded program here, and if it turns out that farm needs are
greater or commodity prices are less, the revision in the Farm
bill costs more, the budget is out of whack. Would you agree
with that?
Secretary Veneman. I'm not prepared today to really get
into the Governmentwide calculations that have been made. I
hope that you would have that conversation with Mr. Daniels.
I think it's also----
Mr. Spratt. I heard that as an appeal for help.
Secretary Veneman. No, I'm not arguing that at all. I'm
just simply saying that I'm not prepared to discuss the
Governmentwide assumptions that were made in this budget today.
I also would like to point out that what was released a couple
of weeks ago is a blueprint. It does not provide at this point
the specific budget details. The target date for releasing the
more detailed budget is around the first week in April.
Mr. Spratt. I understand that. The problem is, we are
scheduled to mark up on March 21st. So we've got to make the
most with the details we've got. I think from our discussion,
you can understand our reservations about this particular
request.
Thank you very much.
Chairman Nussle. Mr. Thornberry.
Mr. Thornberry. Thank you, Mr. Chairman.
Madam Secretary, congratulations on your post. Thank you
for being here. I hope you're still glad to have the job, after
having to undergo what you have to sort through over the next
several months.
Certainly no one, I don't believe, can be satisfied at
where we have been in recent years with farm policy. From the
farmers' standpoint, they are very dependent upon Government
payments. I think I saw recently that more than half of farm
income came from Government payments last year. They would, as
the Chairman said, certainly much rather make their money from
the market. They and their bankers cannot make decisions while
they wait to see what we do each year.
The other side of it, from this committee, it's costing a
lot of money to make these payments, and we're not solving the
problem. The money that we're paying out is just keeping people
alive from year to year. But it is not going to really solve a
problem, make it better, I don't believe, over the long run. I
mean, it's better that they're staying in business, but it is
not getting at some of the fundamental problems.
And then, particularly in recent months, as farmers have
had to cope, as much of the country has, with higher energy
prices, I think a lot of farmers are starting to doubt whether
there is any chance in the foreseeable future of making a
living off of the market. And rather than looking at the
payment side from the Government, as Mr. Spratt was just doing,
I wonder if we've got some even bigger fundamental changes
going on, where the world market. Because technology has
improved production here, technology has improved production in
all these other countries. They have lower input costs in other
countries, so their prices are going to be low.
You know, if can we make a living off the market is a much
more fundamental question that maybe we have to think about.
I hope you can make me feel better. But things do not look
particularly promising for the foreseeable future, it seems to
me, do you agree?
Secretary Veneman. I would absolutely agree that it's been
a difficult time in the sense that prices have been down, and
as you indicate the cost of inputs, particularly energy, has
been rising, with a significant impact on agriculture. We're
seeing particularly the impacts of higher fertilizer costs due
to natural gas prices increasing so much. When I was in
Wisconsin last week, they were talking about the difficulty in
their greenhouse industry with the gas prices. Certainly the
difficulties in California with the energy shortage will have a
significant impact on agriculture, whether it's irrigation,
electricity, cold storage, processing capacity, whatever.
So I would agree that there are a number of issues that are
larger issues that we're facing in this country that are having
specific impacts on agriculture. I think a lot of people don't
think about this aspect of the energy problem.
I think it's also important that we continue to try to open
up markets. Ninety-six percent of the world's population lives
outside the United States. We have some of the most productive
agriculture in the world in this country. We want to make sure
we have the opportunity to export and have access to as many
markets as we can around the world.
Mr. Thornberry. Well, I just want to join with the
Chairman. I think if we can look at rewriting the Farm bill in
a way this year that can help us break out of this cycle that
we've gotten ourselves into, I think we ought to take advantage
of it.
Let me ask just about one other area. As someone who is
personally involved in the cattle business, obviously food
safety is a key interest, not just for those of us involved in
agriculture, but obviously, everyone who consumes agricultural
products as well. Can you talk a little bit about where we are
with some of the food safety concerns that are going on, the
ban on imported meat that we've seen recently, and is the
Department's budget adequate to ensure that American consumers
and American industry have a safe supply of food?
Secretary Veneman. I appreciate very much that question.
Food safety is a very, very important question and issue in our
Department, and we work closely with HHS and the Food and Drug
Administration. We want to continue to work closely with them
to make sure that our policies are very closely coordinated,
because we do have one of the best food safety systems in the
world in this country. And we want to maintain it.
As far as what has been happening recently, I think it's
important to point out the issue that has been in the news in
the last 2 days, our temporarily banning the import of live
animals and meat products from the European Union, is related
to a disease called foot and mouth disease. It is not a food
safety issue. It is an animal disease issue, but a very, very
serious one. We have not had foot and mouth disease in this
country since 1929.
It can be devastating to livestock herds. It spreads very
quickly, and it's a very, very serious animal disease. We want
to make sure that we take every measure to ensure that it does
not come into this country.
In addition to the 20 veterinarians we already sent to
assist Europe in combatting this disease, we're sending another
20, for a total of 40. We are beefing up our inspection at the
airports and the ports to ensure that we do not have any
breaches of the security. Because this can be carried on
clothes of people that have been on farms or particularly their
shoes, we are increasing public awareness about this problem.
We're working with the airlines to make sure they will have
information on airplanes, so that travelers will understand
what the issue is all about, that it's a risk to our livestock
and not a risk to human health.
That raises, I think, another issue in addition to food
safety, which is how important our animal and plant health
inspection systems are in this country. We have continued to
maintain levels of funding that will ensure that we can fight
pest and disease programs for any kind of threats or any kind
of infestations that we have. That's been a big issue.
We've also heard a lot of discussion about BSE, another
animal disease that has impacted Europe quite substantially,
which is also a human health issue. Both on the food safety
side and on the animal and plant health inspection side, we
have increased our surveillance. We have increased our testing,
and we are working very closely with our research organizations
to ensure that we don't get BSE in this country as well.
There are a number of other food safety issues that we
continue to work on, but both of these issues, both the food
safety side and the animal and plant health inspection, the
prevention and eradication programs are extremely important in
the mission of the USDA.
Mr. Thornberry. Thank you.
Chairman Nussle. Mr. Moore.
Mr. Moore. Thank you, Mr. Chairman.
Madam Secretary, I appreciate your being here to testify
today before this committee. I'm from Kansas, which is out in
the center. On September 27th, 2000, the Farmers Cooperative
Association, which is the largest agricultural cooperative in
the State of Kansas, filed for bankruptcy. This action left 875
farmers facing considerable losses, farmers who had placed
their product in these elevators.
We discovered that in 1984, Congress authorized a limited
priority in bankruptcy proceedings for grain producers, and
under the provision, unsecured creditors are conferred fifth
priority for priority claims, capped at $4,300 per producers.
For claims exceeding that amount, the farmers have a general
unsecured claim and most likely would suffer a loss.
This is the worst case scenario, and is what happened to
most of the farmers in our State that delivered the grain to
the elevators and have not yet been paid. These farmers again,
in excess of the $4,300 cap, are totally unsecured. This is a
problem I believe Congress should address.
The situation has improved since the buyout plan to FCA
that at this time includes payment to the Kansas farmers. But
it will likely take several months for that to happen. In the
meantime, the farmers are kind of left hanging out. They are
operating under extremely tight budgets due to low commodity
prices and soaring costs for energy and fertilizer. I think
everybody is aware of the plight of farmers in this country.
They need help now. They need funds now in order to meet their
cash flow needs.
On February 27th of this year, Representative Jerry Moran
of western Kansas and I wrote a letter to you and the
Department, seeking assistance and emergency loans for seed
producers program, funds or other loans that will be vital to
help these farmers remain in production.
Madam Secretary, I just was now handed by my staff a note
that we got a call from USDA today, I believe, and according to
the Farm Service Agency, our farmers are not eligible for the
ELSPP loans. There are not specifics that are known to us at
this time, and the person who gave us that information did not
say why they're not eligible.
I wondered if you would be willing to check, or people at
the agency to check, to see if there might be other interest-
free or other loans available to help the farmers who really
are in a desperate situation in Kansas. I would ask that you
look into that for us.
Secretary Veneman. I am not familiar with the particular
situation in Kansas, but we will certainly do anything we can
to assist in trying to determine what programs might be
available for these farmers. Although I don't know about this
issue, I do know about the farmers that are experiencing a very
similar thing in California with the bankruptcy of the
TriValley Cooperative. So this is an issue, I think, where
farmers really face a lot of hardship when this happens. I've
talked to a lot of farmers in California personally about some
of the hardships that they're facing.
Mr. Moore. Thank you very much.
Thank you, Mr. Chairman.
Chairman Nussle. Thank you.
Mr. Hastings.
Mr. Hastings. Thank you, Mr. Chairman.
Madam Secretary, welcome to what I hope will be a very
fruitful time for you as Secretary.
I want to start right off by thanking your Department, if
the indication of the way you started with a particular concern
that I had is any indication of how you'll govern in the next 4
to 8 years, you're going to be very successful. I'm talking
about the apple Market Loss Program that unfortunately was not
even started with the last administration. By the time you got
on board, your Department moved extremely fast to get this
program put into place. That was very important to the growers
in my district, and I want to thank you publicly for that as
this process moves through.
I was also very pleased to hear you emphasize on several
occasions in your statement but also in response to members'
inquiries regarding the need for expanded trade, the growers in
my area, and I might add, my district is in Central Washington,
I dare say it has probably as diverse an agricultural mix as
the Central Valley in California. We say that very proudly.
We'll never catch up with you with premium wine grapes, but
when I say premium, we're right there.
Nevertheless, all the growers in my district, they're non-
program products. But they're hurting, and they're trying to
find other avenues to try to take the pressure off. Obviously,
one of them is trade. Once you talk about trade, that's generic
in nature, but you get down to specifics, and we have one
specific one that is probably an example that a lot of them
face, and that's with apples in South Korea.
Specifically, they have the phytosanitary arguments that we
can't get our product in there, yet we allow them unfettered
access to our markets. Even if they were to raise or eliminate
the phytosanitary arguments, you'd still be facing a barrier of
about 48 percent of tariffs. I mean, this is a very unlevel
playing field.
So I want to commend you for keeping the pressure on as far
as expanding markets. I would invite you to look at a bill that
I've introduced, Market Access Program. It's H.R. 98, it
expands that program with more funding, which has been very
successful, especially with a smaller crop.
Finally, I just want to talk, again going back to these
specialty crops, and some of the different needs that arise
that aren't covered in a broad sense within USDA. One of them
is, as I mentioned, apples. Apples are hurting. I have one
particular county in my district where they anticipate over a
third of the acreage in apples will be pulled out.
Now, they're being pulled out because obviously the grower
can't make any money. If they can't dispose of those trees that
are pulled out or if they're left abandoned, then those trees
become agents for pests that will invade other healthy
orchards. The counties obviously can't pick up the tab on that.
And we've been exploring ways that maybe, you mentioned in your
testimony some programs to help in areas like that.
I would just ask you if you'd be willing to pursue
something like that. Because this is a huge, huge cost to not
only the local governments there, but to the growers that
obviously can't pull out their orchard. Would you care to
comment on that?
Secretary Veneman. I was not familiar that that amount of
acreage was being pulled.
Mr. Hastings. It's one county. I don't want to say it's a
whole--just in one county.
Secretary Veneman. Oh, one county.
Mr. Hastings. Just one county. I don't want to say it's the
whole industry.
Secretary Veneman. Obviously people don't recognize that
when you pull permanent crops, it does have an economic impact.
I know, I just heard 2 or 3 months ago that the pear growers in
California are undergoing a similar program. I believe, I'm not
certain this is exactly the way it's working, but I believe
that they're putting together a pool of money from all the pear
growers to assist in the payment for the tree pull and disposal
of these trees. Obviously that's a self-help way to do it.
I am not familiar with specific Government programs that
would assist the local governments in dealing with this
disposal program, but we'd be happy to explore what may be
available.
Mr. Hastings. OK, good. Well, obviously, this is something
that I haven't experienced and I daresay many counties in my
area have not experienced either, because you don't want to see
an industry leave.
Finally, one way to alleviate the pressure of specialty
crops is to purchase excess commodities. Do you anticipate,
within the Department, of purchasing any excess commodities for
food relief in other areas that would take some of the pressure
off? Is that being planned?
Secretary Veneman. Well, certainly the AMS has
traditionally purchased more of the specialty products and
processed foods for the school lunch program, and those
programs are continuing to operate. I don't anticipate change
in those programs. So I would say those programs will continue
to purchase excess commodities.
Mr. Hastings. OK, good. Well, thank you very much. You
certainly have a challenge ahead of you. I am one that again,
represents a rural area where people involved in agriculture,
all they want is a level playing field. And I am doing
everything I can. That is long-term. It's the short-term
problems that we have to address.
So I certainly look forward to working with you, if we can
resolve some of those problems. Thank you.
Thank you, Mr. Chairman.
Chairman Nussle. Thank you.
Before I recognize Ms. Hooley, let me welcome our newest
Budget Committee member, Mr. Matheson from Utah. We welcome
you. We are now at full strength on the ice, as they say. So we
appreciate your service, look forward to working with you.
Welcome.
Ms. Hooley.
Ms. Hooley. Thank you, Mr. Chairman.
Madam Secretary, welcome. I look forward to working with
you.
I too come from a rural community, Mid-Willamette Valley in
Oregon, some of the best farming land in the entire world. It
seems like every year, we have a new crisis of one sort of
another. And I looked at this budget, and knowing how much we
have spent on emergency funds in the last 3 years, the last
couple of years it's been almost $20 million.
My question is, before you get to reauthorization, what was
the thinking of not including additional money in the
agriculture budget, not including that emergency fund that's
been ongoing? I mean, it may be one emergency 1 year, the next
year it's another emergency. At least in my district, anything
from grass seed growers to this time where you now have some of
the food processing plants that have gone out of business
unexpectedly. Particularly for those farmers that have the soft
berries, the small fruits, strawberries, raspberries,
blackberries. I mean, this just kills them.
There's no way you can safely ship, I mean, you can
blueberries, but you can't ship those small berries. So again,
we have another dilemma on our hands.
And you look at the almost depression-like prices for all
of the commodities. I am really surprised that they didn't fold
that emergency money into the budget. And do you expect to be
submitting some kind of supplemental budget to this Congress
shortly?
Secretary Veneman. Well, again, the more detailed budget
will be released in early April. However, on emergencies, it is
difficult to predict them. I think the Congress has generally
acted on the emergency legislation in the late summer, they've
begun to look at that to see what the emergencies are, what's
going to be necessary.
I might also add that, as I mentioned, there is money
included in this contingency fund, this nearly trillion
dollars, and it is anticipated that for ag emergencies of the
type I think you're discussing, that would be addressed by that
fund.
The other kinds of emergencies that often affect specialty
crops, of course, are some of the things that I talked about in
response to my previous question, which is pest and disease
prevention and eradication. And we have fully funded the
ongoing situations that we have, whether it's citrus canker or
medflies or so forth in the budget itself. We also have the
ability to take money from the CCC on a temporary basis for
true emergencies that may come up in that regard as well.
Ms. Hooley. And I guess the real question, one of the
things I just puzzle over is, when it's been consistently
running around $9 billion a year, and the last couple of years
I think it's been $10 billion a year, that's been consistent.
And I guess what I have a problem with is why we haven't looked
at some of those issues and built that into the budget.
Secretary Veneman. I understand what you're saying. As I
discussed before, it is difficult to anticipate a disaster this
early. Therefore it was not built into the budget at this point
in time.
I might also add, regarding some of the kinds of crops that
you're talking about, that this budget does anticipate the full
funding of crop insurance reform. Some of the types of products
you're talking about would be eligible for some of the crop
insurance provisions under the reforms.
Ms. Hooley. So you don't see President Bush intending to
change the crop insurance program?
Secretary Veneman. The budget includes the crop insurance
reforms that were passed last year, and fully funds them.
Ms. Hooley. OK. Couple other just quick questions. Our
USDA, our county offices, you talk about reforming those. One
of the problems has been that, right now, there are not enough
people in those offices to do the job.
And again, as each issue and problem comes up, they have a
larger, larger workload and less and less people. As you look
at reforms, what are you talking about that would help that
situation? And are there going to be further cuts, so that you
have fewer people to deliver the services to farmers?
Secretary Veneman. I do understand that we have had, in the
last few budgets, more and more disaster type programs, which
require signups, require additional workload on FSA employees.
And we know that there has been tremendous pressure on those
employees, and we certainly appreciate all the hard work that
they've had to put in.
There has been provision allowed for temporary work force
to help with some of these emergencies. But some of the reforms
that we're talking about extend beyond just looking at the FSA,
but also looking at how our programs integrate in the field. Do
we have NRCS programs and Farm Service Agency programs that are
integrating, and are people working together in the delivery of
those services, and risk management programs as well?
We also want to look at ways that we can use technology to
more efficiently deliver our programs, whether it's online
forms and signups and use of the computer systems. But I think
there's great opportunities there that would help with the
workload that you're talking about in some of our county
offices.
Ms. Hooley. I look at some of our farming communities and
the workload that they have, and there's one person in the
office and then some temporary help. I mean, even if you've got
the best technology in the world, you still have to have people
in the office willing to talk to people and using the
technology. I just worry, as you look at streamlining these, I
don't know how you can cut any more people from some of these
offices. And again, that's a concern of mine.
Thank you.
Chairman Nussle. Mr. Gutknecht.
Mr. Gutknecht. Thank you, Mr. Chairman.
I want to come back to a couple of points that have been
made. I do like this chart over here and I think it's very
accurate. Mine isn't as big, but I do want to call attention to
the fact that essentially that chart is correct. But if you
went back just a few years pervious to that, I'm told, and I
thought I was correct in this and I confirmed it with Dr.
Collins, Dr. Keith Collins, Chief Economist for USDA, who is
here, in 1995, the total CCC outlays dropped to as low as $4.5
billion.
Frankly, if you look at that chart, Madam Secretary, and
this is why, I don't know, the more I've learned about
agricultural policy, the more confusing it becomes. The one
thing that comes through crystal clear is that the great farm
economist Johnny Cash was correct. He said, everything changes
as well it should, the bad ain't forever the good ain't for
good.
And it does strike me that long term, what we really need
to do is come up with a farm program that is counter-cyclical,
that will take some of those bumps out, which is why I've come
to the conclusion, about the only thing you can really do long
term that makes sense, at least to me, now, I'm just an amateur
here, but it seems to me, we've got to come up with some kind
of a revenue insurance program, where the farmers participate,
the Federal Government participates. Because we can all sit
around and say, well, the farm program failed, the farm program
failed, and we've had all these, since 1934 we've had something
like 17 different Farm bills. All of them worked well for a
couple of years and all of them, the market figured out a way
to beat them.
But it does strike me that, there's got to be a better way
to come up with a more predictable program in terms of the
overall cost to the taxpayers of having a farm program that
guarantees that we have an adequate supply of food at
reasonable prices, and that also allows farmers, the efficient
and the productive ones, the ones who deserve to make a good
profit at it, should have a right and an opportunity to make.
I agree with Mac earlier, he said that the problem with our
farm program right now is we're hanging on by the fingernails,
an awful lot of our producers. We ought to have a farm program
long-term that allows people to thrive. It's not enough. And a
strategy that's built around just having a survival mentality,
it seems to me, it's not a good one.
So I mean, I agree with Mr. Spratt's chart and I hope that
we can come up with a better plan. I guess my real question for
you would be, in the last administration, I don't mean this be
partisan or political, but as we talked about the Farm bill,
the administration was really more like passive observers to
discussion rather than helping to lead the debate. My question
for you is, do you intend to be an active participant in
developing the next Farm bill, or do you intend to react to
what the Congress presents?
Secretary Veneman. I was in the administration and worked
on the 1990 Farm bill. The administration was a very active
participant in the discussions around that Farm bill. And I
would hope that we could do that again.
But certainly, I agree that we need to look at various
kinds of opportunities to make farm policy that makes sense for
the future, that takes into account a changing structure of
agriculture in this country, that takes into account all of the
different kinds of issues that we are now dealing with, whether
it's animal diseases or food safety. These are not new issues
but they've come to the forefront much more. We hear a lot more
about the environmental issues and the regulations.
I think as we debate farm policy, we just can't look at it
in the context of the budget for farm programs, but in the
whole context. We need to look at what we're going to do about
opening up markets and trade, and how the trade programs
interact with all of this.
So I think that the debate on all of this needs to include
a discussion of all of the issues and not just the farm
programs in and of themselves.
The other thing that I think we need to recognize, and I
talked a little bit about this in my outlook speech this year,
is the fact that we have traditionally, as people in
Government, whether it's the administration or the Congress,
had various interests coming to us and saying, we want this, we
want this, we want this. I encouraged in that speech that the
food chain ought to be working more closely together to come up
with comprehensive policies that are in the best long term
interest of our food and agriculture systems in this country.
So I've sort of challenged people, both in the food
processing sectors and the retailing sectors as well as in
agriculture, to try to work together to look at some of the
farm policy issues. I say this with examples such as livestock
price reporting last year, where the producers and the
processors got together and came out with a compromise that was
acceptable to both. Or biotechnology, where you've seen the
whole food chain working together on these issues. Or the group
that got together that included most of the producer groups and
the processors and a variety of other groups, input groups on
the position they wanted agriculture to take prior to the
Seattle meeting that took place in December 1999.
So I think there's great opportunity in this regard. I
would hope that we can all encourage the so-called food chain
to come together and really look at these farm policy issue,
it's something that impacts everyone, and find solutions that
are those that will be the most beneficial for the future.
Mr. Gutknecht. Mr. Chairman and Madam Secretary, my yellow
light is already on, and I want to at least publicly welcome,
we've got a group from Minnesota, the Minnesota Agricultural
Rural Leadership Program is here today. On behalf of
particularly some of those younger dairy farmers back in
Minnesota, we strongly support opening markets. But one of the
real thorny subjects we're going to have to resolve here in the
next year is the idea of opening markets to places like
Vermont. [Laughter.]
The notion of dairy compacts, and my friend from New
Hampshire here takes a somewhat different view.
But it seems to me if we're going to really be serious
about opening markets, and I think we have to, because
ultimately, America's farmers can compete with anybody in the
world. But we've got to be honest with the way we deal with
markets here in the United States as well.
I do believe we as a Federal Government have a
responsibility to open new markets, both internationally as
well as domestically, and that's also part of research. So we
want to work with you. We want to come up with a plan that
levels out those bumps for those of us in the Budget Committee.
I think it can be done if we will look outside of the box a
bit. Thank you very much.
Chairman Nussle. Thank you, Mr. Gutknecht.
Let me just report to members that the Secretary has asked,
and I have tried to do this with others as well, to leave here
in about 15 minutes. She has a plane to catch, she has business
to attend to. We have a number of members that would like to
inquire. What I would just ask is that you do the best you can
to keep within not only the 5 minutes, but even if you could do
less than that so members can ask questions.
Mrs. Clayton. I always do this right when it comes to you,
and I apologize.
Mrs. Clayton. Yes, it's good you recognize that. I'll keep
in time. But thank you, Mr. Chairman. I appreciate the time.
Welcome, Secretary Veneman. I am delighted to have you
before the Budget Committee. I must say, as a woman, I'm
delighted to see you there. It is evidence that women are
indeed in agriculture. Sometimes we don't think of women in
agriculture.
And as someone said earlier, I think you will like your job
as well as you like it now after a year or two from now.
Agriculture is indeed demanding, and appreciated, but it's
also complex. I believe some of the background you are hearing
is that the appreciation from those of us who are on the
Agriculture Committee, as I am, also, those who are from rural
communities, as others may be, have an appreciation for the
Farm bill, which I think people look too much to this is true
because it sometimes is not the planning document that it could
be or should be. Nevertheless, it is a tradition. As a
tradition, the farm community will look toward that as the kind
of bible or guide. So hopefully, we can put some things in
perspective. That is so critical.
I have written to you on the subject, and you should not be
surprised, that I will be talking to you about it, the black
farmers. African-American farmers have not traditionally
benefitted well in the loans and programs that the Agriculture
Department has administered. It is the department that was
considered to be the people's department. That's what President
Lincoln said of it. Yet, it is found that we're denying black
farmers.
The issue I bring before you is certainly not of your
making. But, it is one that you are inheriting. It's called
Pigtord v. Glickman, I guess it if goes back in court it will
be Pigtord v. Veneman. But, it is an issue that will continue.
It has both policy issues and budgetary issues.
Would you comment as to how you plan to resolve this issue
and assist those who still have legitimate complaints? I'm
getting mail from people who are being foreclosed on as of now,
put out of their homes, have $250,000 in loans that they have
to pay back, with the promise of, almost 5 months ago, that
they would have gotten their supplement. Now, they are having
to live with their relatives.
What are the plans for funding USDA's Office of Civil
Rights. Would you comment on that, please?
Secretary Veneman. Civil rights in the Department is a very
difficult issue, and as you say, it's something I came into and
inherited, and certainly it is not an easy issue.
We want to get all of the complaints in the Department
resolved as quickly as possible. One of the things that I hope
we can do is accelerate the process under which these things
are looked at. I know we have a number of people on temporary
assignment, complying with the agreement in the case you
mentioned in an attempt to get all these cases resolved. It is
a huge undertaking.
But I do want to assure you that we will not tolerate
discrimination in the Department of Agriculture. We are making
that clear. We intend to pursue the resolution of the cases
that exist as quickly as possible.
Mrs. Clayton. Thank you. I do have a couple of other
questions. However, I'm going to follow my Chairman's lead and
do it very quickly.
The other concern is about food stamps. As you indicated,
the nutrition part is the mandatory part as it relates to food
stamps. In 1994, in reference to food stamp participation, we
had 27 million households. In the year 2000, we have just over
17 million. Part of that obviously, is because we've had a good
economy and we are thankful and celebrate that.
But clearly, the drop in the food stamp participation
outpaced the drop in poverty rate as the census has reported
it. For instance, only 59 percent of the eligible Americans are
receiving food stamps. Those who are eligible, not 59 percent
of people, but 59 percent of the eligible are not receiving it.
Then when you look at those who are eligible and are
working families, then it gets to be that additional safety net
of that mother who's working and has two or three children. Of
that, the percentage is even less, and that's 47 percent of
working families receiving food stamps.
Can you comment on what you will outreach to people who so
desperately need food for sustenance that they would know about
it in terms of the eligibility, in terms of the administration?
Let me put on one other part, real quickly so you can answer
both of those. The difficulty we have imposed upon poor people
to get pittance from our Government food, we should be ashamed.
Not you, but we should be ashamed of it. When we consider this
is just the applications process, in terms of how much they
have to fill out to get $40 and in some instances, $50 or $100.
In comparison, take the Federal home mortgage application.
If I'm trying to get a home from the Federal home mortgage, I
have to do one-fourth of the paperwork that I would have to do
if I was trying to get food stamps. If I'm trying to get a
$250,000 home, it takes four pages at best.
On the other side, we can get to that information very
quickly. Now, the Chairman and I co-chaired trafficking, in
terms of food stamps. We were trying to determine how to
monitor that. So we're on record saying we want to find ways
where those who don't need it shouldn't get it. We wrote your
predecessor a letter asking if he would put it in annual review
rather than every 3 years now. Every 5 years.
First, I want to know how we can make it simple. How indeed
can we instruct the States on an annual basis to reduce the
trafficking and not put artificial barriers for poor people
getting food assistance, when we say we want to help.
Secretary Veneman. Congresswoman, I don't have good answers
to either of your questions today, because I simply haven't had
the chance to get deeply into these issues. I've only been
there less than 60 days, but I have heard this issue about the
participation rates. I've seen it in the media stories, I've
read it in the letters and so forth. Certainly we will look at
that.
I was not aware of this issue with the applications, and
we'll take a look at that as well.
I might add that the food stamp budget has increased in
this budget. In the detailed budget that will be out in the
next couple of weeks, you will see that there is an increase in
the food stamp budget.
Mrs. Clayton. So we have something to look forward to.
Chairman Nussle. Thank you.
Mr. LaHood.
Mr. LaHood. Thank you for only taking 6 minutes, Eva. We
appreciate it very much. [Laughter.]
I'd be happy to give you my 5 minutes if you need it, you
know that.
Madam Secretary, I don't think there's anybody that's come
to the job that you have that has the broad breadth of
experiencing, having served in one of the most diverse States,
California, and then having served in our own Government. So we
have high hopes for you and what you'll be able to do.
I'm going to be very brief, because I know you'll be coming
before the Ag Committees, both Authorization and
Appropriations. I hope that if, I guess let me put it this way.
If I had your job, I would get up every day and figure out we
can improve trade. You can talk all you want about the faults
with Freedom to Farm, the ag economy has been in recession for
3 or 4 years. In my opinion, the answer is trade. We need to
open up markets, we need to pass Fast Track, which our previous
administration never would do, we need to lift sanctions
against countries, we need to start looking at countries where
we've never traded before, particularly food and medicine.
Trade is the ultimate answer. And I voted for all these
additional payments. And I've had so many farmers tell me, I
don't want to receive them, but I wouldn't be here today if we
didn't get them. Trade is the key. And I hope you'll push this
administration.
When I was down to the White House with a group that talked
to the President, he talked about Fast Track. And I know he
knows the importance of trade. I don't think he would have made
his first trip to Mexico if he didn't believe in trade. And I
know you believe in it, too, coming from a State like
California and having worked in the previous administration.
I hope that from time to time, when you think about what we
need to do, you'll think about trade.
I yield back.
Chairman Nussle. Thank you.
Mr. Brown.
Mr. Brown. Thank you, Mr. Chairman.
Madam Secretary, glad to have you here before the
committee. I'm just going to ask you a couple of basic
questions, I know our time is about to expire. But how many
employees are totally in the Agriculture Department?
Secretary Veneman. I think we have roughly about 100,000--
we have 106,000 including the county office employees, I'm
told.
Mr. Brown. And how many of those reside here in Washington?
Secretary Veneman. Nine thousand five hundred.
Mr. Brown. And how many farms do we have?
Secretary Veneman. We have about 1.9 million farmers,
according to the 1997 census of agriculture. I understand where
you're going with this, and I might just add that about 35,000
of the employees are in the U.S. Forest Service, which really
doesn't have much to do with the production agriculture side.
Mr. Brown. I see. Thanks for sharing that.
I know you mentioned briefly in your opening remarks, and I
would just ask you, if you would, to expand a little on your
thoughts about a market driven agriculture economy versus price
support.
Secretary Veneman. Well, as I talked about earlier, I think
that clearly, the goal is to get a more market oriented and
market driven policy in agriculture. The 1996 Farm bill went a
considerable way in doing that, by decoupling the payments, the
AMTA payments, as they're called, and allowing planting
flexibility. I think farmers have responded well to those
concepts. The question is, how do you address some of the other
issues that have come along with it.
I certainly think tax reform is an important component.
Trade is an important component. Common sense regulation is an
important component. So I think it's a combination of policies,
it's not just farm policies looked at in a vacuum. It is a
combination of policies that we need to look at to move
agriculture in a market oriented direction.
Mr. Brown. One final question, if I might. I know in South
Carolina a lot of the farming economy is based on tobacco. I
know that's sort of a diminishing return. I've listened to some
of the other members question about apples, whatever else, some
of those commodities. Trying to find alternative crop
replacements, is that sort of a high priority under this
administration?
Secretary Veneman. I think alternative crop replacements
are an important issue. I think that certainly, we want to find
ways to assist farmers making transitions in the marketplace
through rural development programs, extension programs, other
kinds of assistance programs that we have. That may be
alternative crops, it may be better business planning practices
that we can assist farmers with. It may be assistance with ways
to wire rural America, so that they aren't left behind in this
new technology age.
But I think all of those concepts must be considered as we
move forward and look at rural policy for the future.
Mr. Brown. Thank you.
Chairman Nussle. Thank you.
Mr. Putnam.
Mr. Putnam. Thank you, Mr. Chairman.
Madam Secretary, I welcome you and I want you to know how
much we're all looking forward to working with you for the
betterment of all American agriculture. I'm particularly
excited that you're from California and had some experience in
the fruits and vegetables business. Hopefully we can address
some issues that I think in the past have been neglected in
that particular aspect of American agriculture.
To follow up somewhat on what the Chairman's remarks were
about in terms of a comprehensive review of the Department's
role and responsibilities, when you really look through the
list of things that your department does, from home loans to
school lunches, to animal and plant health, to ecotourism in
our national forests, research, nutrition, farm support, trade,
it's all over the map. Has anyone in the past ever conducted a
strategic review, or do you intend to conduct a strategic
review to really look at what the core mission of the U.S.
Department of Agriculture is, and whether or not there are some
programs that this body has added to that mission that may or
may not be relevant or timely in 2001?
Secretary Veneman. Well, Congressman, I think that's a very
good question. I have certainly been involved, in my previous
position in California, with a hard look at strategic direction
of the California Department of Agriculture. I think that as we
go forward we need to continually, in any organization, look at
strategic direction.
I believe, and again, I've only been here less than 60
days, but I believe that a lot of our agencies within the U.S.
Department of Agriculture have been involved in strategic
planning and looking at how to best administer their programs
for the future. That is a priority of mine, to make sure that
we continue to look very strategically at what we do.
You do point out something. I think we are one of the most
diverse departments in all of Government in terms of mission.
People are shocked when I tell them that the Department of
Agriculture runs the food stamp program, or the national
forests and that Smokey Bear works for us. But the fact of the
matter is, it is a very diverse department with multiple
missions.
And it sometimes makes a complete strategic look a little
more difficult in terms of a single mission. Because I do think
we have multiple missions, many of which are very
interconnected.
One of the things that I want to make sure that we do is to
recognize that many of our programs have been operated in a
stovepipe type of structure. Yet many of our programs really
have overlapping responsibilities, whether it's research, with
almost every area of the Department, or it's the working
together of rural development programs with other programs that
assist in rural America, or it's NRCS and FSA and risk
management. All of these things are interconnected.
As I've talked with people who may potentially come to work
in our Department, I've had discussions about the importance of
teamwork, working together and finding better ways to
administer programs in a way that makes them more integrated
and consumer or constituent friendly.
Mr. Putnam. I appreciate that, and I just want to draw one
line of distinction, that there is a difference between a
strategic review of doing what you do better and reviewing
things to determine if some of the things that you do, and
probably do very well, may not be best done by your Department,
and there may be other appropriate folks.
Secretary Veneman. I understand that.
Mr. Putnam. With that I'll close, Mr. Chairman, and just
say, I appreciate, on a personal note, all the support the
Department has been to Florida on the citrus canker issue.
Thank you.
Chairman Nussle. Thank you.
Madam Secretary, I did the best I could. I came within
about 4 minutes. That's not bad. Hopefully your plane's on time
and everything will work out fine.
We appreciate your testimony and your time here today, and
we look forward to working with you on some of the issues that
we just discussed.
Secretary Veneman. Thank you, Mr. Chairman. I appreciate
the opportunity and I do appreciate your adhering to my rather
tight time schedule today. Thank you all very much.
Chairman Nussle. Thank you.
We'll recess for about a minute here while we're changing
the witness table.
[Recess.]
Chairman Nussle. This is the resumption of the Budget
Committee hearing on the Department of Agricultural Fiscal Year
2002 Budget Priorities. We are fortunate to have today
Representative Charlie Stenholm of Texas and Bruce Gardner of
the Department of Agricultural and Resource Economics of the
University of Maryland.
Mr. Gardner has been involved in a number of different
endeavors throughout his career. I was just reviewing your
resume, curriculum vitae, and you have been involved with the
Department of Agriculture, you've been a professor at Texas
A&M, you grew up on a dairy farm in Illinois, which is maybe
even more important to the discussion here today.
We welcome you to the Budget Committee and look forward to
your testimony.
But first off today is the very distinguished ranking
member of the Agriculture Committee and a good friend of this
committee, former member of this Committee, as I understand,
and someone who is very well known, not only on budget issues
but also on agriculture issues throughout this Congress, and is
well respected. We really appreciate the fact that you would
take some time, we understand the Ag Committee is organizing
today and you have to leave here shortly. So we'll let you go
first. Your entire statement will be part of the record, and
you may summarize as you see fit.
The gentleman from Texas.
STATEMENT OF HON. CHARLES W. STENHOLM, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF TEXAS
Mr. Stenholm. Thank you, Mr. Chairman.
I appreciate very much your kind remarks and I appreciate
this opportunity to testify before this Committee. Mr.
Chairman, Mr. Spratt, I am delighted to be here.
I think it is very fitting that agriculture continues to be
the focal point in our budget discussion. The current farm
recession is now entering its fourth year and ranks among the
deepest since 1915. This includes the agricultural recessions
the Nation experienced during the Great Depression, World War
II and the 1980's farm financial crisis.
I know that many of you are familiar with these figures.
Net cash income over the last 3 years fell in real dollars to
the lowest point since the Great Depression. Put another way,
last year's prices were a 27-year low for soybeans, a 25-year
low for cotton, a 14-year low for wheat and corn, and an 8-year
low for rice. With essentially no improvement in commodity
prices over last year, farmers are left with tighter cash flows
and serious questions about how they are going to make ends
meet.
Farm debt this year will surpass $180 billion for the first
time in 16 years. Farm production costs are expected to
increase $1.5 billion. The impact of the skyrocketing costs of
natural gas is now rippling through the farm sector in the form
of higher costs for fertilizer and irrigation. Repercussions
are still being felt from the Asian economic crisis.
In addition, 3 years of good weather worldwide have created
bumper crops all around the globe. This has driven down prices
and cut into potential markets for U.S. producers. Compounding
this situation for American producers is the strength of the
U.S. dollar, which has contributed to a substantial increase in
relative costs of U.S. commodities. Despite some progress in
lowering trade barriers through the World Trade Organization,
the fact remains that the average tariff on U.S. farm products
in other countries is 62 percent, while the average U.S. tariff
on goods coming into the United States is around 12 percent.
Additionally, the European Union continues to outspend the
Untied States on agriculture, having spent $47 billion last
year alone.
It is precisely these conditions that have led Congress to
provide $18.1 billion in emergency income assistance over the
last 3 years. This assistance was clearly needed, and there was
no question about whether or not Congress would act. That is
why the Agriculture Committee has begun the process of
developing legislation to provide multi-year additional income
assistance. The Agriculture Committee is currently holding
hearings during which commodity and producer groups make
specific recommendations on what Congress can do to bolster the
farm safety net. These hearings are laying the groundwork for
future farm policy and will help us as we write the next Farm
bill.
Given our experience, however, over the last 3 years, it is
my view, Mr. Chairman, that the budget allocation for
agriculture should be permanently increased, rather than
providing additional assistance on an emergency, ad hoc basis.
The reasons for doing so are two-fold. The first rests on the
need for certainty in farming, and the second on budget
discipline.
Ad hoc assistance is by its very nature unpredictable.
Producers and lenders alike are understandably nervous about
including any dollar figure for ad hoc assistance as they
prepare cash flow calculations. The current unpredictability of
assistance affects not only producers and lenders, but ripples
throughout the rest of the agricultural sector. When farmers
and ranchers are unsure about income, they don't spend money
with retailers, input suppliers, equipment manufacturers, or
anyone else.
Everyone who has testified before the Agriculture Committee
thus far has requested additional amounts for agricultural
spending. I am working with Chairman Combest, and I am hoping
that we will eventually be able to introduce legislation that
will ease the crisis. This is dependent, however, upon the
provision of additional resources for agriculture. Many of you
have seen the letter from the commodity and farm groups
requesting $9 billion for 2002 and $12 billion for each year
thereafter in the baseline.
Let me pose a question, Mr. Chairman, to members of the
Budget Committee who also represent agricultural interests. Do
you believe that we will provide additional spending this year
for agriculture? If your answer is in the affirmative, then now
is the time to budget for it.
The second reason for increasing the allocation for
agriculture is the recognition of a need for a more predictable
and disciplined approach to budgeting. The past 3 years have
shown that Congress has the will to provide necessary
assistance when existing programs are inadequate. But emergency
waivers of the Budget Act have led to greater spending than
might otherwise have been necessary.
For example, when included in the fiscal year 2001 budget
resolution, the Committee on Agriculture spent $7.1 billion in
2000. In subsequent years, funding was provided by resolution.
That was not the case 6 months later, however, when another
$8.9 billion was spent under emergency declaration.
I see two major deficiencies with the administration's
fiscal year 2002 budget for agriculture. One, it fails to
provide a realistic budget for agriculture, given the
additional ad hoc spending Congress has provided during the
last 3 years. And two, the budget relies upon an overall
contingency fund that includes agriculture when the amounts in
the fund are already oversubscribed.
Mr. Chairman, members of the committee, I would ask you to
sincerely look at not only what I have just mentioned, but to
realize that once you have allocated all of the projected $5.6
billion in so-called projected surpluses over the next 10
years, once you have allocated them, there will be no way under
any circumstances that there can be emergency spending without
dipping into the Social Security and Medicare trust funds.
Therefore, I appeal to you to seriously consider what all
of the farm organizations, and I mean from the Farm Bureau up
and down, Farmers Union up and down, have said recognizing, as
I'm sure you'll hear from Dr. Gardner and others who have
testified before the Committee, that the outlook for farm
prices is not good. Therefore, it is predictable.
Therefore, it makes a lot of sense for us, not only in this
particular area, but in the conservation programs, the wetland
preserve programs, the Environmental Quality Incentives
Program, as you heard Mrs. Clayton talking about the food stamp
program, rural development and all of these areas, it is clear
that rural America is not benefiting from the boom that the
rest of America has participated in for the last 10 years.
Therefore, the administration has stated, we may need to
increase spending for our farmers and maintains that a portion
of the contingency fund could be used to help farmers. But
claims again on the contingency fund may exceed the money
available. Those of us who insisted Congress act on a budget
resolution before acting on tax or spending legislation are not
arguing about process or arcane budget rules. This argument is
about acting responsibly to balance priorities important to our
constituents.
Just as the American people deserve to know what impact the
tax cut will have on the priorities that are important to them,
America's farmers and ranchers must be able to predict with
some degree of certainty what their income assistance will be,
so that they can work with their bankers to make plans for the
next 5 years. The producers of our Nation's food and fiber
should not have to scramble for a piece of an over-tapped
contingency fund at a time when they are at their greatest
need.
Thank you, Mr. Chairman.
[The prepared statement of Charles Stenholm follows:]
Prepared Statement of Hon. Charles W. Stenholm, a Representative in
Congress From the State of Texas
Mr. Chairman, thank you for this opportunity to testify today as
the Committee on the Budget considers USDA's budget for FY 2002.
It is fitting that agriculture continues to be a focal point in our
budget discussions. The current farm recession is now entering its
fourth year and ranks among the deepest since 1915. This includes the
agriculture recessions the nation experienced during the Great
Depression, World War II, and the 1980's farm financial crisis.
I know that many of you are familiar with the figures. Net cash
income over the last 3 years fell, in real dollars, to its lowest point
since the Great Depression. Put another way, last year's prices were a
27-year low for soybeans, a 25-year low for cotton, a 14-year low for
wheat and corn, and an 8-year low for rice.
With essentially no improvement in commodity prices over last year,
farmers are left with tighter cash flows and serious questions about
how they are going to make ends meet.
Farm debt this year will surpass $180 billion for the first time in
16 years, and farm production costs are expected to increase $1.5
billion. The impact of the skyrocketing cost of natural gas is now
rippling throughout the farm sector in the form of higher costs for
nitrogen fertilizer and irrigation.
Repercussions are still being felt from the Asian economic crisis
that began 3 years ago. In addition, 3 years of good weather worldwide
have created bumper crops all around the globe. This has driven down
prices and cut into potential markets for US producers.
Compounding this situation for American producers is the strength
of the US dollar, which has contributed to a substantial increase in
the relative cost of US commodities.
Despite some progress in lowering trade barriers through the World
Trade Organization, the fact remains that the average tariff on US farm
products in other countries is 62 percent, while the average US tariff
on goods coming into the US is around 12 percent. Additionally, the
European Union continues to outspend the US on agriculture, having
spent $47 billion last year alone.
It is precisely these conditions that have led Congress to provide
$18.1 billion in emergency income assistance over the last 3 years.
This assistance was clearly needed and there was no question about
whether or not Congress would act. This is why the Agriculture
Committee has begun the process of developing legislation to provide
multi-year additional income assistance.
The Agriculture Committee is currently holding hearings during
which commodity and producer groups make specific recommendations on
what Congress can do to bolster the farm safety net. These hearings are
laying the groundwork for future farm policy and will help us as we
write the next farm bill.
Given our experience over the past 3 years, it is my view that the
budget allocation for agriculture should be permanently increased,
rather than providing additional assistance on an emergency, ad hoc
basis. The reasons for doing so are twofold: the first rests on the
need for certainty in farming, and the second on budget discipline.
Ad hoc assistance is, by its very nature, unpredictable. Producers
and lenders alike are understandably nervous about including any dollar
figure for ad hoc assistance as they prepare cash flow calculations for
producer financing. The current unpredictability of assistance affects
not only producers and lenders, but ripples throughout the rest of the
agricultural sector. When farmers and ranchers are unsure about income,
they don't spend money with retailers, input suppliers, equipment
manufacturers, or anyone else.
Everyone who has testified before the Agriculture Committee thus
far has requested additional amounts for agricultural spending.
I am working with the Chairman and I am hopeful that we will
eventually be able to introduce legislation that will ease the crisis.
This is dependent, however, upon the provision of additional resources
for agriculture.
Many of you have seen the letter from the commodity and farm groups
requesting $9B for 2002 and $12B for each year thereafter. Let me pose
a question to the members of the Budget Committee who also represent
agricultural interests: Do you believe that we will provide additional
spending this year for agriculture? If your answer is in the
affirmative, then now is the time to budget for it.
The second reason for increasing the allocation for agriculture is
the recognition of the need for a more predictable and disciplined
approach to budgeting. The past 3 years have shown that Congress has
the will to provide necessary assistance when existing programs are
inadequate, but emergency waivers of the Budget Act have led to greater
spending than might otherwise have occurred.
For example, when included in the FY 2001 Budget Resolution, the
Committee on Agriculture spent the $7.1 billion that the resolution
provided. That was not the case 6 months later, however, when another
$8.9 billion was spent under emergency declaration.
I see two major deficiencies with the administration's FY 2002
budget for agriculture:
(1) It fails to provide a realistic budget for agriculture, given
the additional ad hoc spending Congress has provided during the last 3
years.
(2) The budget relies upon an overall contingency fund that
includes agriculture, when the amounts in the fund are already
oversubscribed.
The reliance upon ad hoc spending for agriculture is simply
unacceptable. As I indicated earlier, producers can't reliably set a
budget, and bankers don't like the uncertainty. In addition,
undisciplined budgeting results in deficit spending or dipping into the
Social Security or Medicare trust funds; funds which we are all pledged
to protect. It also creates additional pressure on other important
programs.
For example, conservation programs have greatly decreased soil
erosion from wind and water. These programs are not a one-time
investment; they are influenced by the weather and must be maintained
year after year. We spend far less today on conservation programs than
we did 50 years ago. Consider these unmet conservation needs:
The Wetlands Reserve Program has 3,153 applications pending to
enroll another 562,000 acres; this is nearly 60 percent more than is
currently enrolled.
The Environmental Quality Incentives Program (EQIP) has 197,000
applications to enroll an additional 66.6 million acres. The net cost
to meet this demand would be over $1 billion.
The Wildlife Habitat Incentives Program has 3,017 applications
pending to improve an additional 564,000 acres over the current 1.4
million acres.
These programs deliver services and benefits that the private
sector cannot provide. While the private sector would realize few
benefits by carrying out these programs, the public benefits are
enormous. The question then becomes whether such benefits are best
gained through incentive-based programs or through government
regulation. Without public expenditure, however, there could be
enormous public and private costs.
Rural development spending is another example of well-considered
public spending in one area that forestalls greater spending in
another. The strong economy that our nation has enjoyed these past
several years has created improved employment in rural areas, as well
as in cities and suburbs. The opportunity for off-farm income is
helping many smaller farm families survive, when they might not
otherwise do so.
Survey data from 1999 shows that farm households where the primary
occupation was farming, but where sales were less than $250,000,
comprise about 30percent of all farms. Off-farm income provided 85
percent of total average household income for farms with sales less
than $100,000. Off-farm income provided 37 percent of total average
household income for farms with sales from $100,000 to $250,000.
In spite of the $18.1 billion that was spent in emergency income
assistance during the past 3 years, President Bush's budget fails to
provide additional money for income assistance for farmers, and leaves
the baseline for agriculture unchanged. The administration has stated
that ``we may need to increase spending for our farmers'' and maintains
that a portion of the contingency fund could be used to help farmers.
Claims on the contingency fund, however, may exceed the money
available.
Those of us who insist that Congress act on a budget resolution
before voting on tax or spending legislation are not arguing about
process or arcane budget rules. This argument is about acting
responsibly to balance priorities important to our constituents. While
we all support enacting the largest tax cut we can afford, we have a
responsibility to consider what impact the tax cut will have on our
ability to meet agriculture's needs before we enact a tax cut.
Just as the American people deserve to know what impact the tax cut
will have on the priorities that are important to them, America's
farmers and ranchers must be able to predict with some degree of
certainty what their income assistance will be so that they can work
with their bankers to make plans for the next 5 years.
An over-tapped contingency fund provides no certainty for our
producers. At the time when they are in the greatest need, producers of
our nation's food and fiber should not have to concern themselves with
the adequacy of contingency fund monies, with competing needs of other
programs, or with points of order against the use of Social Security or
Medicare trust fund monies. There is no other fiscally prudent or
rational alternative than to provide permanent authority to address
agriculture's needs in the budget resolution.
Chairman Nussle. Thank you, Mr. Stenholm.
Let me ask you, are you as optimistic as I am that we might
be able to come up with a reauthorization of the Farm bill this
year? Is that something you believe is an attainable goal, and
not wait until next year, when the reauthorization comes due,
but actually complete consideration this year, so that whatever
reforms we can come up with, you from the Ag Committee and we
in the Congress, together with the administration can be put
into effect as quickly as possible, from a policy standpoint,
even before we talk about money for one moment?
Is that a reasonable time frame for your committee and for
the Congress to be on, in your judgment?
Mr. Stenholm. I wish I could say yes. Because I share your
desire and the importance of accomplishing that goal. I think
certainly Chairman Combest has established a very optimistic
and progressive and ambitious hearing process to do just that.
But I think practically speaking, given the difficulty of
the task that you have outlined for us, it will be very
difficult to complete work this year. We'll try. I agree we
should try. But I think more probably early next year will be
more likely.
And I would also say, and I say this in deference to the
administration, as you heard Secretary Veneman a moment ago.
She's only been on board for 60 days. She doesn't have her full
team in place, as yet. It's not realistic to expect the kind of
guidance and the input that I believe she will be providing in
a very active role as Secretary for us in time to do it this
year also. But we're going to try.
Chairman Nussle. Let me put it a different way. You know
the rules as well or better than I do when it comes to the
budget. Would an instruction, a reconciliation instruction,
assist us in this regard, some type of an instruction that can
help expedite this process? Would that be a consideration that
you would advise?
Mr. Stenholm. Without much time to think on that question,
I guess my first answer would be, I do not believe that that
would be the kind of process that would be the most helpful to
us for this year. But certainly, whatever this committee would
choose to do, we will do our best, as the Agriculture Committee
has always done. Whenever the Budget Committee has given
instructions to us, we have taken the amount of money that you
have set and we have done the best we could do with it.
I would encourage you to take a good, hard look and sleep
on it twice before you go down that path, unless you have a
policy in mind to accomplish that which you are suggesting with
the dollars that we're talking about.
Chairman Nussle. Well, and that brings me to the second
part of my question. That is, which comes first, the chicken or
the egg? Part of my frustration with this whole discussion, and
I share your concern as you may know, about the unrealistic
nature of budgets that don't anticipate that which we know is
about to occur. I mean, if we know it's coming, let's do
something about it now.
But the same is also true for knowing that not only may
there be a 2001 emergency, but there very likely, based on
testimony that we've heard and that you've heard, there may be
a 2002 emergency, if nothing changes and if there's no farm
policy adjustment in the meantime.
Part of the frustration we have here is while, yes, from
your standpoint and even if you look at the administration
budget you could say, well, there's not enough money there. But
who says? Who says there's not enough money there? Under what
policy are we comparing it, to say there's not enough money
there?
In other words, how much money do you need from us to write
a Farm bill? And I don't think it's good enough to say, oh, I
don't know, $9 billion, just because that's what the commodity
organizations are suggesting. I've heard their plea as well.
But their plea comes without underlying policy
consideration to the degree that it is necessary for us to
write a Farm bill, any more than it's there for us to write a
budget. So similar to the Defense Department, where the
President said the strategy should determine the budget, not
the budget should determine the strategy, I would suggest that
the same holds true here.
We need a policy to write this Farm bill. Otherwise, we're
putting money into a baseline that, with all due respect, and
coming from farm country as well, may not be appropriately
applied under responsible budgeting matrix, without the
consideration of the policy. I'm very worried about what comes
first here.
That's why I would really encourage, and I'm encouraged by
what I've heard so far, but I would desperately encourage my
friends on the Ag Committee that, as fast as we can, I don't
want to move without careful consideration, but boy, as quickly
as we can get this thing resolved in a bipartisan way, the way
we used to write Farm bills around here, the better off I think
we're all going to be.
I don't know what your response is to that, but that's my
concern, is putting the money before the policy.
Mr. Stenholm. I would briefly respond, Mr. Chairman. I
share your concerns. But I would point out that my request
comes under the policy that we are operating under, under the
1995-1996 Farm bill. If I had another hat on, if I were the
chairman of the Ag Committee or if I were the Secretary of
Agriculture, then I think it would be a very pertinent question
to ask me.
But I think here, I defer to my chairman and to the
Secretary. And we will be ready on our side of the aisle to
work with the Secretary. And I'm certainly working with the
chairman to develop those policies.
But until we do and until we have a clear signal of the
direction we need to go, I'm here today asking the committee to
provide the resources that I believe are going to be necessary
under the policy we're now operating under. And we will work
very closely with both sides of the aisle to develop a new set
of policies that I agree are much needed.
Chairman Nussle. Thank you.
Mr. Spratt.
Mr. Spratt. Mr. Stenholm, I wanted to clarify about what
you said about $9 billion to $12 billion. Is this a request for
CCC programs, for commodity programs?
Mr. Stenholm. That's correct.
Mr. Spratt. And that's an increment to what is in the
budget already?
Mr. Stenholm. Over the so-called baseline.
Mr. Spratt. We've got a chart up here, CCC outlays,
Commodity Credit Corporation outlays. Have you seen this chart
before?
Mr. Stenholm. Yes, sir.
Mr. Spratt. If you look backwards, just a few recent years,
we've got outlays that run up as high as $30 billion. If you
look forward from 2002 onward, we've got a precipitous drop and
then a level of spending that is well below the recent past. Do
you think that's realistic?
Mr. Stenholm. Not if we continue the current policy. But
just as I responded to the chairman, if we in fact change
policy, then you can make those numbers work on certain policy.
But they are not realistic to be budgeted for, based on current
policy. Because we had the experience, since 1995 and 1996, of
what that has brought to us. And we have no indication from any
of the experts who have testified before the Ag Committee as
yet that it is going to change.
Mr. Spratt. Well, do you have any confidence that we can
rewrite the farm program such that you can get it down to these
levels? And if so, what would be the implications for family
farmers across America?
Mr. Stenholm. That's the subject of the hearings that we
were in fact having just today, 2 hours before, on the House
Agriculture Committee. It requires some changes in philosophy.
I could not agree more with Mr. LaHood's comment, and point out
that when we start talking about embargoes, last year, the
Congress voted to lift an embargo on food and medicine. The
House did, on Cuba. Even though it was a 300 to 100 vote in the
House of Representative, the leadership of the House saw fit
not to implement that particular piece of legislation.
It is also fair to make the statements that Mr. LaHood made
about trade.
But again, I would be reluctant to say realistically, to
put the burden on my chairman to say that we can accomplish the
kind of in-depth agricultural policy changes this year under
reconciliation instructions. But if you decide to do it that
way, if that's the wish of the majority, then we'll bust a gut
doing it.
But I would rather take a little bit more time and have a
little bit more discussion about it, and accept this chart and
other charts right now as being realistic and provide that
additional budget. We can always change, as you know.
What I'm suggesting in terms of budget numbers, I want to
make very clear, this fits within the so-called Blue Dog
budget. And you're going to hear more this week about our
dedication to restraint of spending. This is in the category of
the \1/2\-\1/4\-\1/4\ that we've been talking about, or the \1/
3\-\1/3\-\1/3\ you've been talking about regarding budget
applications.
Mr. Spratt. Thank you very much.
Chairman Nussle. Mr. Watkins, the gentleman from Texas has
to go organize the Ag Committee. With all the to-do list we
just gave him, he may need to go.
Mr. Stenholm. The Agriculture Committee is formally
organizing the democratic side today.
Chairman Nussle. I follow. But that's an important side,
too. So Mr. Watkins, if you've got a question or two.
Mr. Watkins. Mr. Chairman, I have the deepest respect for
my friend from Texas, and also Mr. Spratt. I know we can
probably work a lot of things out.
I'd just like to say that I am really concerned, Charlie. I
think you know that. You know this, I'm genuine in what I'm
saying. It's not political. Because my background in
agriculture, the love I have for agriculture goes deep. Suffice
to say that, I missed the Secretary, Mr. Chairman, because of a
constituent problem out there in agriculture, I went outside
and all of a sudden she was finished up.
But I don't think, just to point out, in 1965 we had about
15 percent of our population in this country, John, that were
in production agriculture. That's about the time I was state
president of the Future Farmers of America. A few years later,
we had about 12 percent, when I graduated from the college of
agriculture up on the State.
Today we have only 1.5 percent of our people in production
agriculture. That shows the erosion. We're going to have to do
something to pay the price, like they're saying in France,
we're going to pay whatever the price to keep the farmers in
Europe. And they're doing it in exporting, Charlie, on the
supply and demand side, and we're not competing. I'm for trade,
free and fair trade, but we don't have the policies in place,
Mr. Chairman, to save the American farmer. We've got to try to
save him. But we do not have it in place today.
So Charlie, maybe you and I will have a chance over a
prayer breakfast table or somewhere to talk some more about
this. Thank you very much, and I'll respect the time.
Chairman Nussle. Thank you.
Thank you very much for coming today, Mr. Stenholm. We look
forward to working with you on this.
Mr. Stenholm. Thank you, Mr. Chairman. We look forward to
working with you. I know of your keen interest in agriculture,
and I never speak for my chairman, but Mr. Combest and I have a
serious interest in the policy changes required. We look
forward to working with you and Mr. Spratt and Mr. Watkins and
other members of the committee. Thank you.
Chairman Nussle. Thank you very much.
Dr. Gardner, we appreciate your patience in allowing a
member to organize his committee. We would enjoy hearing your
testimony now. Your entire statement will be in the record, and
you may summarize as you would like to proceed.
STATEMENT OF BRUCE L. GARDNER, CHAIRMAN, DEPARTMENT OF
AGRICULTURE AND RESOURCE ECONOMICS, UNIVERSITY OF MARYLAND
Mr. Gardner. Thank you, Mr. Chairman.
I will just briefly summarize what I have to say in the
testimony. It's basically trying to get at a somewhat narrower
issue that does get at this question of strategy of where it is
that it would be most promising to go with agricultural policy.
Because we all, I think, feel somewhat at sea with the
situation as it is, and would like to consider alternatives.
I want to address three areas of Federal spending on farm
programs that have been important since 1996: the production
flexibility contract payments, marketing loan costs, which are
principally loan deficiency payments, and the crop insurance
program costs. All three of those are in a chart, Figure 2 at
the back of the testimony, show how they have all expanded over
the course of the 1996 Act.
The production flexibility, or Freedom to Farm payments,
are the most costly budget item, and of course, they're the
ones that have been most troubling to many observers. Some have
argued that the FAIR Act has failed, pointing especially to
those payments and what they have done and not done. But we
have to recognize that there are pros as well as cons to what
the Freedom to Farm Act has done.
The pros are first that the program has, as advertised,
allowed farmers more freedom to farm. Since 1996, we've seen
about 10 million acres go out of wheat, and at the same time,
about a 12 million acre increase in soybean acreage. This
reflects in part the end of restraints on incentives that the
former programs had created.
The second pro is that the payments themselves have been
largely non-distorting in the sense that whether a farmer uses
more or less inputs or switches acreage among the program crops
or leaves land fallow, these things make no difference in the
amount of payments received.
The cons of the 1996 Act, are first: that the payments have
not been targeted to situation where they're most needed,
either in terms of the most depressed commodities or the lowest
priced years. Nor have they been targeted to the farmers who
are at most economic risk. And the same is true of the market
loss assistance supplementary payments of 1998, 1999 and 2000.
The second con is that the receipt of market loss
assistance payments for the last 3 years and their gradual
expansion to cover additional crops has led to an expectation
extending almost to a sense of entitlement that the payments at
higher levels should continue, as we've already heard. Of
course, the producers of the commodities that haven't been
covered or only partially covered so far are increasingly
wondering why they're left out, leading to the problems that
you've described quite eloquently, Mr. Chairman.
Turning to the marketing loan program, it wasn't created by
the FAIR Act, but the lower prices of recent years, together
with the decisions in the executive branch to maintain loan
rates at the maximum levels the 1996 Act permitted, those
decisions have made loan deficiency payments a large budget
item. And the problem here is that these payments have
overridden the market signals that were telling farmers to
produce less. The market mechanism is missing that permitted
hog prices, for example, after the disastrously low prices of a
couple of years ago, to recover without Government intervention
in any significant way.
USDA estimates that U.S. grain output now is something like
2 to 3 percent higher than would have been the case if we
wouldn't have had the loan deficiency payment program. So very
much unlike the Freedom to Farm payments, the loan deficiency
payments do affect what farmers do.
And because the programs are encouraging over-production, I
estimate that of the roughly $7 billion that the loan program
is providing the farmers, $2 billion is being taken back again.
That $2 billion goes to consumers or others on the grain buying
side of the market through the lower prices that this over-
production generates. Such distortion of markets is a real
problem, and loan rates should be reduced to fix it.
Third is the crop insurance programs. These have been
expanded to forestall the need for ad hoc disaster assistance,
as we've already heard. What is new under the FAIR Act is the
unprecedented levels of subsidy for crop insurance, not just
the FAIR Act, but the other crop insurance legislation since.
And expansions of the programs to cover economic hazards as
well. Some of these experiments I think are well worth looking
at, such as revenue insurance. In the State of Maryland, we're
now trying the pilot program on adjusted gross income
insurance.
The problem here, though, is that even though the budgetary
costs of crop insurance are in the neighborhood of $3 billion
annually, or it looks like they will be for 2001, the program
still has not attained sufficient coverage to forestall the
need for ad hoc disaster assistance. Moreover, the subsidies
for those who participate are becoming large enough to create
significant incentives to grow crops in more drought-prone
areas or otherwise less favorably situated areas.
But where does that leave us with the policy options as we
look out? I think that's what we have to be thinking about, as
you've been discussing. What alternatives make sense?
I'd like to consider one tempting possibility that I'm sure
will come up, although I didn't hear anything about it today.
One way to support farm incomes and farm prices without a lot
of budgetary expenditures is returning to some kind of acreage
controls or supply management program, while maintaining or
even raising loan rates. Then you attempt to generate higher
market prices in that way.
What are the pros and cons of that approach? The pros are
the higher market prices can be obtained and thereby, farm
incomes can be supported, with a smaller budget outlay. The
cons are that the cost is shifted to consumers and other buyers
of commodities, and that the total costs of consumers and
taxpayers together will be higher to support a given level of
farm income. The total costs will be higher just because in
these supply management programs, farmers have to be
compensated for the cost of holding valuable acreage idle, and
that's a cost to us as a society, as well as to the farmers.
I have an overall estimate that the sum of gains to
producers and landowners, taking away the losses to consumers
and taxpayers, under the current Freedom to Farm programs for
the grains and cotton, what is called in some of the economic
literature a deadweight loss, amounts to about $200 million a
year, basically from the overproduction that's being generated.
But if we try to achieve the same level of farm income,
that is, an addition of about $20 million going to farmers
through acreage controls, the overall social loss or deadweight
loss would be $2 billion to $3 billion a year. That's because
of the idled acreage.
Moreover, over the longer term, the supply management
approach becomes less and less capable of delivering benefits
to farmers. I would express the basic issue as follows. We can
all see that when there's a bad crop year in the United States,
prices rise sharply, because demand is inelastic. So there are
big gains for farmers to be had. Therefore, it's natural to
think that if we can create this kind of scarcity through
policy, we will make our farm community better off.
But the problem is that the supply and demand responses in
the longer run are larger. If you keep managing supply year
after year, and all market participants believe that the U.S.
will take steps to forestall lengthy periods of low prices,
then foreign producers are going to discount the prospect of
low prices, they will produce more than they otherwise would,
and the main thing the U.S. will accomplish is to lose markets.
That's the problem with this approach, the supply
management approach. It's the difficulty we got into with the
pre-1990 programs, and even to some extent in 1990 to 1995. I
believe it's what we would get into again if we go down the
supply management route.
So comparing the pros and cons that I just mentioned for a
supply management approach with the FAIR Act Freedom to Farm
approach that we've had, I wouldn't want to say that the FAIR
Act has been a sterling example of policy at its finest. But I
do say it's an improvement over what we had before, and it
would be a serious mistake to go back to those former policies.
I think overall, the preferable, forward looking approach
is to continue with the phaseout of payments that was begun
under the FAIR Act and to focus Federal spending on policies
that in the past have reaped the greatest rewards for our
Nation, including both food consumers as well as producers and
all involved in the agricultural industry.
These are the policies that help make the United States the
world's leader in agriculture and food production. These
include continuing efforts in research, technology development,
technical education. I believe it's important to maintain these
efforts, and to continue the turn in these investments toward
things like improving water quality, conservation programs, and
to keep supporting biotechnology development, including things
like alternative fuels and other alternative uses of
agricultural products.
It's especially important, as I have heard several people
mention, to make progress on international trade agreements, to
reduce protectionism in agricultural trade. A key practical
step in this last area is the congressional granting of Fast
Track negotiating authority to the President. And I think these
policies could be supplemented with a kind of market oriented
safety net policy, like a broad based risk management approach
where farmers essentially ensure against their own losses maybe
with some Government help, but try to keep the incentives to
invest in unduly risky activities down.
And also, more broad based rural development policies, that
are aimed at taking the people who really are in trouble in
agriculture, and there are a lot of them, and giving them
assistance in a way that doesn't lock them into losing farm
enterprises, but gives them other alternatives if that's what
works best for them. That whole scheme of things I call broad
based rural development policies.
I think one reason it would take a while to think about
alternatives to what we have now in the Agriculture Committee
is that a whole range of things ought to be considered as an
alternative to the kind of ad hoc payments that we're making
now.
Thank you very much.
[The prepared statement of Bruce Gardner follows:]
Prepared Statement of Bruce L. Gardner, Chairman, Department of
Agriculture and Resource Economics, University of Maryland
Mr. Chairman and members of the committee, I appreciate the
opportunity to appear before you to address issues of Federal spending
on farm policy. I am not going to attempt to cover the whole
agriculture budget, but instead will briefly address two central issues
in commodity policy: first, assessment of the FAIR Act's ``freedom to
farm'' approach to commodity programs as they have been implemented;
and second, policy options for the immediate and longer-term future.
assessment of the fair act
The Agricultural Market Transition Act (AMTA) title of the 1996
FAIR Act is a novel departure in farm policy. Its fixed payments, no
acreage set-asides, and avoidance CCC commodity stockpiles provides a
possible means of transition to a market-based agriculture that would
not require governmental intervention to prop up the agricultural
economy. Some now argue that the FAIR Act has failed, on the grounds
that we have spent too much, while at the same time this spending is
not effectively targeted at situations and people where help is most
needed. As Figure 1 shows, outlays on agricultural support are at near
record highs.\1\ What should be done, in the view of some critics, is
to scrap the FAIR Act approach and replace it with a different
approach, such as going back to payments that go up or down inversely
with market prices, and annual acreage set-asides if needed to support
market prices.
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\1\ Figure 1 shows both budget spending and payments received by
farmers. The two series are closely related but differ in that some
budget spending does not result in payments to producers (for example,
CCC acquisitions of dairy products). The much higher budget outlays
shown for FY2000 are in part the result of market loss assistance
outlays for both 1999 and 2000 crops occurring in FY2000. Adjusting for
this would lower the 2000 outlay value by about $5.5 billion. It should
also be noted that producers get some benefits from commodity programs
apart from payments, such as higher sugar prices because of U.S. import
restrictions. The budget data are CCC budget outlays plus estimated
crop insurance program costs as estimated by Jerry Skees, ``The Bad
Harvest,'' mimeo, University of Kentucky, 2001. CCC outlays in recent
years omit USDA's personnel and other costs of administering the
programs which would be about $600 million annually if included.
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In order to evaluate this argument, I want to consider three
important areas of Federal spending on farm programs since 1996:
production flexibility contract payments, marketing loan costs
(principally loan deficiency payments), and crop insurance program
costs. Figure 2 shows these costs, along with predecessor deficiency
payment program costs, since 1992.
Production flexibility, or freedom-to-farm payments are the biggest
item and the most troubling to many observers. As Figure 2 shows, they
started at a level about equivalent to what deficiency payments had
been on average in 1992-95, but have ended up higher. As contemplated
at the time, the 1996 Farm bill was being debated, freedom-to-farm
payments were a mechanism to phase out a long history of commodity
programs for grains and cotton which had come to be seen as having
outlived their usefulness. But as implemented they proved to cost more
than the preceding deficiency payment programs would have cost during
1996-2000, and are no longer seen as a mechanism leading to an end to
traditional commodity programs in 2002. I see the pros and cons of the
FAIR Act as implemented as follows:
Pros: (1) The program has, as advertised, allowed farmers more
freedom to farm, and resulted in production choices more attuned to
market conditions than the old deficiency payment and set-aside
approach had done. Since 1996 we have seen about 10 million acres go
out of wheat and, at the same time, about a 12 million acre increase in
soybean acreage, reflecting in part the end of restraints on incentives
that the former programs had created. (2) The payments themselves have
been largely non-distorting, in that whether a farmer uses more or less
inputs, switches acreage among program crops, or leaves land fallow
makes no difference in the amount of payments received. That is to say,
the FAIR Act has generated less deadweight loss to our economy than
previous agricultural programs.
Cons: (1) The payments have not been targeted to situations where
they are most needed, either in terms of most depressed commodities or
lowest-price years, nor have they been targeted to farmers who are most
at economic risk. (2) In response to farm distress when prices fell in
1998, 1999, and 2000, market loss assistance payments were made to
supplement contracted payments, but these too were not directed at
states or farmers where problems were greatest. (3) The receipt of
market loss assistance payments for the last 3 years, and their gradual
expansion to cover additional crops, has led to an expectation,
extending almost to a sense of entitlement, that payments at the higher
levels should continue.
The marketing loan program was not created by the FAIR Act, but the
lower prices of recent years, together with the decisions of the
executive branch to maintain loan rates at the maximum levels the 1996
Act permitted, have made loan deficiency payments a large budget item
and have caused economic distortions. With loan rates set at their
legislated maximum, and the administration of the loan deficiency
payment program generating expected market returns to farmers that
exceed loan rates by 10 to 15 percent, the loan program is overriding
market signals. The market mechanism is thus missing that permitted the
hog prices, for example, to recover without government intervention
after the extraordinarily low prices of 1998 and 1999. The exact amount
by which the loan program is fostering overproduction is difficult to
estimate. Reasonable estimates are those of the Economic Research
Service that indicate 2000 output of grain was perhaps 2 to 3 percent
higher than would have been the case if producers had not received loan
deficiency payments. This means market prices of grains and oilseeds
would have been about 3 percent higher, with a bigger increase for
cotton, if the loan programs were not encouraging overproduction.
Consequently, of the roughly $7 billion annually the loan program is
providing to farmers, $2 billion is being taken back again--actually
given to consumers and others on the grain buying side of the market--
through lower prices caused by the program.\2\ Such distortion of
markets is a real problem, and loan rates should be reduced to fix it.
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\2\ The ERS background for the preceding estimates is in P.
Westcott and M. Price ``Analysis of the U.S. Marketing Loan Program,''
draft, August 2000; and details of the calculations are spelled out in
B. Gardner, ``Agricultural Policy: Pre- and Post-FAIR Act
Comparisons,'' prepared for a Senate Agriculture Committee staff
briefing, December 2000.
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Crop Insurance and Disaster Assistance Programs. Attempts to
forestall the need for ad hoc disaster assistance by having farmers buy
crop insurance are of course not new with the FAIR Act. What is new
since 1996 is unprecedented levels of subsidy for crop insurance and
expansions to cover economic hazards as well. The problem here is that
even though the budgetary costs of crop insurance are in the
neighborhood of $3 billion annually as of the 2001 programs, the
programs still have not attained sufficient coverage to forestall the
need for ad hoc disaster assistance. Moreover, the subsidies for those
who participate are becoming large enough to significantly affect
farmers' production decisions. In particular, there is an incentive
that cannot be ignored to grow crops in more drought-prone and
otherwise less favorably situated areas.
policy options for the situation in 2001 and beyond
What alternatives make sense to consider in formulating the Federal
budget for 2002? One tempting possibility might be to save outlays by
scrapping the freedom to farm approach, and re-introducing acreage set-
asides. The idea would be to drive up commodity prices, thereby
reducing loan deficiency payments. However, acreage idling is a very
wasteful use of our agricultural resources, and I believe the costs of
this option to our economy far exceed the benefits.
Another option for reducing budget outlays from levels of the last
2 years would be simply to limit AMTA payments to the originally
contracted amounts and not supplement them with market loss payments
for the 2001 crops. Although commodity prices are likely to remain low
this year, the idea that the U.S. farm economy is in a state of
financial crisis that requires such payments is overdrawn. The best
evidence of this is that cropland rental rates and prices continue to
rise. It is true that some farms are in deep financial trouble. The
problem with market loss assistance payments in this respect is that
the vast bulk of them go to farms that are not in financial trouble,
and the sums that do go to farms in financial trouble are generally not
sufficient to restore them to solvency.
With respect to the longer term, the necessity to make changes in
policy is greater because the FAIR Act's AMTA program expires next
year. Possibilities will again be considered of returning to acreage
controls, while maintaining or raising loan rates, and attempting to
generate higher market prices through supply management. What are the
pros and cons of this approach? The pros are that higher market prices
can be obtained and thereby farm income can be supported for a smaller
budget outlay. The cons are that the cost is shifted to consumers and
other buyers of commodities, and that the total costs of consumers and
taxpayers together will be higher to support a given level of farm
income. The total costs will be higher because farmers will have to be
compensated for the costs of holding valuable acreage idle.
My overall estimate is that the overall sum of gains and losses
under current AMTA programs for the grains and cotton is a deadweight
loss of about $200 million per year. But if we tried to achieve the
same level of farm income through acreage controls, the deadweight loss
would be $2 to 3 billion per year.\3\ Moreover, over the longer term
the supply management approach becomes less and less capable of
delivering benefits to farmers. I would express the basic issue as
follows: we can all see that when there is a bad crop year in the
United States, prices rise sharply. Demand is inelastic. There are big
gains for farmers to be had. So it is natural to think that if we can
create such scarcity through policy we will make our farm community
better off. But the problem is that supply and demand responses in the
longer run are larger (``more elastic''). If you keep managing supply
year after year, and all market participants believe the U.S. will take
steps to forestall lengthy periods of low prices, then foreign
producers will discount the prospect of low market prices, produce more
than they otherwise would (as U.S. farmers would if were not for
acreage restrictions), and the main thing the United States will
accomplish is to lose markets. That is the problem. That is the
difficulty we got into in pre-1990 programs, and I believe it is what
we will get into again if we go down the supply management route.
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\3\ Details of the analysis leading to this conclusion are in
``Agricultural Policy: Pre- and Post-FAIR Act Comparisons,'' cited in
the preceding footnote.
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In short, while I would not say that the FAIR Act has been a
sterling example of policy at its finest, I do say that it is an
improvement over what we had before, and it would be a serious mistake
to go back to former policies.
The preferable forward-looking approach in my opinion is to
continue with the phase-out of payments that was begun under the FAIR
Act, and to focus Federal spending on policies that have reaped the
greatest rewards for our nation, including food consumers as well as
producers, policies which have helped make the United States the
world's leader in agriculture and food production. These include
continuing efforts in research, technology development, and technical
education. I believe it is important to maintain these efforts, and to
continue to turn these investments toward remedies for market failures,
for example protecting water quality, and to keep supporting
biotechnology development. It is especially important to make progress
on international agreement to reduce protectionism in this and other
areas of agricultural trade. A key practical step in this last area is
congressional granting of fast-track negotiating authority to the
President. These policies can be supplemented with market-oriented
safety net policies having only modest subsidies, and financial
assistance targeted at people in trouble without locking them into
losing farm enterprises--that is, broad-based rural development
policies.
<GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT>
Source: USDA and Skees (cited in text).
<GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT>
Source: USDA and Skees (cited in text).
Chairman Nussle. Thank you, Doctor.
I'm interested in your last couple of comments there. You
would then therefore advocate for or at least be willing to
consider some type of a program of income assurance or
insurance through, as opposed to our current program?
Mr. Gardner. That's something I would want to put on the
table for consideration, yes. I'm not saying I'm advocating
that today. My main point today was just to compare the supply
management with the Freedom to Farm approach.
Chairman Nussle. And we appreciate that. That's what we're
looking for right now, is alternatives.
Let me ask you this. The Farm Bureau has, together with a
number of other commodity organizations, has put a number on
the table of somewhere between $9 billion and, as Mr. Stenholm
reported here, maybe as high as $12 billion over and above what
we're talking about, $9 billion for 2002 and $12 billion
annually thereafter.
Is this advisable, in your opinion, based on your
testimony? I'm getting the impression that it may not be. Let
me start with that. What's your impression of the increased
funding request?
Mr. Gardner. Again, the strategic point I wanted to make is
that you don't want the policies that you put in place to
create any efficiencies, to create overproduction or to have
underproduction. The nice thing about Freedom to Farm payments
is that they don't do that, they just go into the farmer's
pocket pretty much whatever the farmer does.
Now, the question of the $9 billion to $12 billion is, how
much money do you want to devote to this purpose. For me as an
economist, it makes a big difference how you spend that money.
To me, that's the most important issue. The question of how
much to spend is a more political issue. And there, I'm not
running for anything and I don't have a view.
Chairman Nussle. We'll put the number at $9 billion and
what would be your advice on how best we should spend that
money? Let's take their number. What would be your advice on
how we should allocate that?
Mr. Gardner. Well, first, I would say that's a big number,
to me. Even over the kind of numbers that are in red on the
chart. So you could do a lot with that kind of money. With that
kind of money, no matter how you spend it, you're likely to
have some effects on what farmers do, so you want to be careful
about how you do it.
I think a good way is to consider some kind of revenue
insurance or some broader kind of risk management tool. I
wouldn't want actually want to limit it to revenue insurance. I
actually like the ideas that Senator Lugar was putting forth on
the Senate side last year, where you allow farmers a lot of
options with what to do with money that the Government puts up
to support this kind of activity.
I definitely would not want to spend any of this money
raising loan rates. I think that would be the worst way to do
it, because it would just intensify the overproduction problems
that we have. I think that these rural development ideas that I
talked about, which I admit are extremely vague, should be
looked at, but that takes time. And in fact, I would say that
you shouldn't try to put something through this year.
I understand it's very difficult, all these pressures on
how to react to the demands that are put on the Congress for
funds. But I would much rather be careful about this, and if it
came to spending $9 billion this year, I would rather just
spend it the way it was spent in previous years than to
precipitously set up a new kind of program that really hadn't
been tried before.
I guess I'd leave it at that, except, let me say one thing
about the market situation. I agree with all the pessimistic
statements that have been made about prices, where they are now
and that the prospects aren't high that they're going to
improve much this year, although I do think the likelihood is
they'll improve a little this year.
If you look at history and how the farm commodity prices
have behaved in the past, we've had this pattern of long
periods of very low commodity prices, farmers are just barely
getting by, and then something unexpected happens and we have a
boom. We had this in World War II, we had it in the Korean War,
we had it in the 1970's, we had a taste of it in 1995 and 1996.
And none of those cases were predicted. When it happens again
it won't be predicted, either.
So there's always the possibility that something will, as
Mr. Micauber says in Dickens, something will turn up. It has
happened from time to time in the past. So in that respect,
it's worth sometimes waiting to see what's going to happen in
the next year. Because one thing to think of, stocks are not
high right now. It wouldn't take that much of a reversal. The
dollar being less strong, a number of other things happening.
Chairman Nussle. I understand it's complicated. And I'm
certainly not suggesting that the entire Farm bill needs to be
reauthorized by the end of this year, but the commodity portion
of it I think needs serious consideration. I'll tell you the
biggest demand or the biggest deterrent from this, I would
suggest, is not market driven but politically driven, more than
anything else. When Congress wants to move, as you saw us move
the tax legislation last week, we can move pretty fast when we
want to. When we don't have the demand or the deadline or the
political demand, sometimes we can put things off, well,
forever.
So I certainly understand, we don't want to move so
precipitously that we make a mistake. All I would just observe
is that hasn't stopped us before.
Mr. Collins, do you have any questions? Mr. Brown, do you
have anything?
Thank you very much for coming today and giving us your
advice. We appreciate that and look forward to any more words
of wisdom you might have in the future.
Thank you.
If there isn't anything else to come before the committee,
we'll stand adjourned.
[Whereupon, at 3:19 p.m., the committee was adjourned, to
reconvene at the call of the Chair.]