[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]
MODERNIZING AGRICULTURE PRODUCER SIZE STANDARDS
=======================================================================
HEARING
before the
SUBCOMMITTEE ON AGRICULTURE, ENERGY AND TRADE
OF THE
COMMITTEE ON SMALL BUSINESS
UNITED STATES
HOUSE OF REPRESENTATIVES
ONE HUNDRED THIRTEENTH CONGRESS
SECOND SESSION
__________
HEARING HELD
JULY 24, 2014
__________
[GRAPHIC] [TIFF OMITTED] TONGRESS.#13
Small Business Committee Document Number 113-078
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HOUSE COMMITTEE ON SMALL BUSINESS
SAM GRAVES, Missouri, Chairman
STEVE CHABOT, Ohio
STEVE KING, Iowa
MIKE COFFMAN, Colorado
BLAINE LUETKEMEYER, Missouri
MICK MULVANEY, South Carolina
SCOTT TIPTON, Colorado
JAIME HERRERA BEUTLER, Washington
RICHARD HANNA, New York
TIM HUELSKAMP, Kansas
DAVID SCHWEIKERT, Arizona
KERRY BENTIVOLIO, Michigan
CHRIS COLLINS, New York
TOM RICE, South Carolina
NYDIA VELAZQUEZ, New York, Ranking Member
KURT SCHRADER, Oregon
YVETTE CLARKE, New York
JUDY CHU, California
JANICE HAHN, California
DONALD PAYNE, JR., New Jersey
GRACE MENG, New York
BRAD SCHNEIDER, Illinois
RON BARBER, Arizona
ANN McLANE KUSTER, New Hampshire
PATRICK MURPHY, Florida
Lori Salley, Staff Director
Paul Sass Deputy Staff Director
Barry Pineles, Chief Counsel
Michael Day, Minority Staff Director
C O N T E N T S
OPENING STATEMENTS
Hon. Scott Tipton................................................ 1
Hon. Patrick Murphy.............................................. 2
WITNESSES
Mr. John Shoraka, Associate Administrator for Government
Contracting and Business Development, United States Small
Business Administration, Washington, DC........................ 4
Mr. Mark Oestman, Owner, Oestman Farms, LLC, Eckley, CO.......... 5
Mr. Ken Keesaman, Owner, KK Farms Red Angus, Osborn, MO,
testifying on behalf of the National Cattlemen's Beef
Association.................................................... 6
Mr. Robert Guenther, Senior VP, Public Policy, United Fresh
Produce Association, Washington, DC............................ 8
APPENDIX
Prepared Statements:
Mr. John Shoraka, Associate Administrator for Government
Contracting and Business Development, United States Small
Business Administration, Washington, DC.................... 19
Mr. Mark Oestman, Owner, Oestman Farms, LLC, Eckley, CO...... 21
Mr. Ken Keesaman, Owner, KK Farms Red Angus, Osborn, MO,
testifying on behalf of the National Cattlemen's Beef
Association................................................ 22
Mr. Robert Guenther, Senior VP, Public Policy, United Fresh
Produce Association, Washington, DC........................ 29
Questions for the Record:
None.
Answers for the Record:
None.
Additional Material for the Record:
None.
MODERNIZING AGRICULTURE PRODUCER SIZE STANDARDS
----------
THURSDAY, JULY 24, 2014
House of Representatives,
Committee on Small Business,
Subcommittee on Agriculture, Energy and Trade,
Washington, DC.
The Subcommittee met, pursuant to call, at 10:00 a.m., in
Room 2360, Rayburn House Office Building. Hon. Scott Tipton
[chairman of the subcommittee] presiding.
Present: Representatives Tipton, Luetkemeyer, Murphy, and
Schrader.
Chairman TIPTON. Good morning. I would like to call this
hearing to order.
I would like to thank all of our witnesses for taking time
out of your busy schedules to be able to join us today and to
discuss the Small Business Act and how it currently applies to
small agricultural enterprises.
As Members know, the Small Business Act authorizes the
Small Business Administration to develop small business-size
standards to specific industries.
The SBA currently has size standards for over 1,000
different industries, and size standards ranging from $4.5
million to $35.5 million in annual receipts, or 50 to 1,500
employees.
The SBA sets the size standards only after studying a
number of statistical factors and industry-specific
considerations, including technological changes and industry
growth trends. The law also now requires the SBA to revisit
each industry's size standard at least once every five years,
and to ensure public participation in the process through
notice and comment rulemaking.
However, we treat small agricultural enterprises different;
Congress statutorily sets this size standard.
It was not always this way. Until 1985, the SBA set the
size standards for these 46 industries. In 1984, the SBA set
the size standard for these industries at $100,000, a level
Congress believed would harm family farms because it was too
low.
Therefore, in 1985, Congress amended the Small Business Act
to create a $500,000 size standard for small agricultural
enterprises. This size standard was updated in the year 2000,
when it was set at $750,000 in annual receipts.
The $750,000 standard is currently the lowest revenue-based
standard for any industry, and it simply has not kept pace with
inflation or changes in the farming sector of the economy.
If the size standard is too low, it limits agricultural
producers' access to billions in federal prime contracts and
subcontracts. By lumping all small agricultural enterprises
into a one-size standard, we also are not accurately capturing
distinctions between the various industries.
Furthermore, the Department of Agriculture typically relies
on the $750,000 size standard when assessing the effects of its
proposed rules pursuant to the Regulatory Flexibility Act. An
artificially low standard could lead to additional regulatory
burdens for small agricultural enterprise. Thus, a provision
that originally helped small businesses may now actually be
harming them.
The purpose of today's hearing is to examine whether the
current statutory size standard continues to meet the needs of
small agricultural businesses, and if not, what alternatives
Congress should pursue to ensure equitable treatment for small
businesses and their concerns in this industry.
Andrew Jackson once said that the American farmer is the
bone and sinew of our economy, so we need to make sure that the
policies we create help, rather than hinder, our small farmers.
Before I introduce the witnesses for our next panel, I
would like to yield to Ranking Member Murphy for his opening
statement.
Mr. MURPHY. Thank you, Mr. Chairman. Thank you all for
being here.
This Committee has long recognized the vital role small
businesses play in our national economy. Small firms remain a
cornerstone of economic growth and make up the vast majority of
employer firms and create two-thirds of all net jobs. Given the
many economic benefits of a strong small business sector,
Congress and the federal government have established a range of
programs helping small companies flourish and hire new workers.
How a small business is defined can vary widely by
industry. For some sectors, a measurement of number of
employees makes sense. For others, annual revenues are a better
benchmark. Regardless of which benchmark is used, what
qualifies as a small business under federal law can have major
consequences. For example, small businesses qualify for
billions of dollars in government guaranteed loans every year,
and being deemed a small business can give a firm pursuing
federal contracts boost in the procurement process. Everything
from regulations to tax write-offs are impacted by whether a
firm is classified as a small business or not.
In that regard, how this Committee, Congress, and the SBA
define a small business very directly shapes our nation's small
business policy. The size standards SBA uses determine which
businesses are eligible for assistance and which firms have
grown so large as to no longer warrant assistance under the
Small Business Act.
With regards to small firms and agriculture production, SBA
has encountered significant difficulty setting a practical
standard. In the 1980s, Congress took some responsibility for
setting the agriculture size standard. Since then, the
threshold has been adjusted only once since 2012. Given changes
in the major differences with the sector, it is important that
this Committee and Congress evaluate whether it is time to
update this standard so as to better reflect the modern
landscape of American agriculture.
Since Congress began setting the small business size
standard for agriculture, the midpoint for crops has grown 88
percent, from 589 acres to 1,105. As of 2011, farmers with at
least 2,000 acres now account for more than 34 percent of crop
land. Additionally, with the advent of new technologies, many
agricultural businesses have vastly increased their production
rates.
Despite these changes, there has also been a reduction in
the number of small and mid-size farms. According to the
Department of Agriculture, the number of farms with at least
one million in sales more than doubled between 1982 and 2007.
Small commercial farms, those with $10,000 to $250,000 in
sales, fell by two-thirds. Although SBA has issued proposed
size standard changes for a number of industries, agriculture
has been left out of that process as Congress took on this
responsibility in the 1980s.
Today, we will examine how current size standards function
in the real world. We will hear from those in the relevant
industries as to how the standard is working for them and
whether it is in need of a change. Additionally, we will hear
from SBA as to their current methodology and how it could be
applied to set new size standards for those operating in those
industries. It is my hope that we can come to the best solution
as to how to review the size standard for those in agriculture
production. This is an important task with resources already
stretched thin. It is important that small business assistance
truly reaches agriculture producers, thereby maximizing
economic growth and job creation.
I want to thank all the witnesses for traveling here today.
Your participation and insights will help this Committee as we
consider this timely topic.
Thank you, Mr. Chairman.
Chairman TIPTON. Thank you, Mr. Murphy.
If Committee members have an opening statement prepared, I
would ask that they submit it for the record.
I would like to take a moment to be able to explain our
timing lights for you. You will each have five minutes to be
able to deliver your testimony. The light will start out as
green, and when you have one minute remaining, the light will
turn yellow. And finally, at the end of your five minutes, it
will turn red, and we would ask that you adhere to the time
limit.
We will now begin with our testimony.
I would like to be able to introduce our first witness, Mr.
John Shoraka, associate administrator for Government
Contracting and Business Development at the United States Small
Business Administration. Prior to his service at the SBA, he
served as vice president of the Aries Group at Silver Spring,
Maryland.
Mr. Shoraka, welcome back, and we look forward to your
testimony.
STATEMENTS OF JOHN SHORAKA, ASSOCIATE ADMINISTRATOR FOR
GOVERNMENT CONTRACTING AND BUSINESS DEVELOPMENT, UNITED STATES
SMALL BUSINESS ADMINISTRATION; MARK OESTMAN, OWNER, OESTMAN
FARMS, LLC; KEN KEESAMAN, OWNER, KK FARMS RED ANGUS; ROBERT
GUENTHER, SENIOR VP, PUBLIC POLICY, UNITED FRESH PRODUCE
ASSOCIATION
STATEMENT OF JOHN SHORAKA
Mr. SHORAKA. Thank you for having me.
Chairman Tipton, Ranking Member Murphy, and Members of the
Subcommittee, I am honored to be here today to discuss SBA's
size standard methodology as it pertains to agricultural
enterprises.
As you know, with the exception of certain agricultural
enterprises, the Small Business Act provides the U.S. Small
Business Administration with statutory authority to establish
small business size definitions, referred to as size standards,
for federal government programs. The size standards for
agricultural enterprises, as was mentioned earlier, are unique
in that they are directly established by statute. The size
standard for agricultural enterprises was first set by statute
in 1985. Currently, the size standard for 46 industries in the
North American Industry Classification System (NAICS) Section
11, which includes agriculture, forestry, fishing, and hunting,
is set by statute at $750,000 in annual receipts.
SBA is capable of conducting the analysis to establish size
standards for small businesses for agricultural enterprises, as
SBA would use the same process that it currently uses to
establish size standards for business concerns in other
industries. When establishing size standards, SBA examines
economic characteristics, such as average firm size, industry
concentration, start-up costs and entry barriers, and federal
market conditions in each industry. At SBA, we believe in a
transparent process. A detailed explanation of how we establish
size standards is provided in our Size Standards Methodology
White Paper, which is available on the Agency's
Website.
Establishing size standards based on characteristics of
individual industries is consistent with Section 3(a)(3) of the
Small Business Act, which requires the administrator to ensure
that size standards vary, to the extent possible, to reflect
the differing characteristics of individual industries. SBA
believes its methodology for establishing standards meets this
requirement by incorporating economic characteristics and
federal market conditions into its analysis of an industry-by-
industry calculation.
The Small Business Jobs Act of 2010 requires SBA to review
all size standards and make necessary adjustments to reflect
market conditions every five years. The Small Business Act does
not require SBA to review size standards for most agricultural
industries, so the Agency did not review agricultural size
standards under the current review. In addition, SBA reviews
all monetary based size standards every five years for
inflation and makes necessary adjustments. Currently, SBA does
not adjust the statutory agricultural size standards for
inflation. As a result, again, the agricultural size standard
has remained at the $750,000 receipts level since 2000, while
SBA has reviewed and adjusted monetary-based size standards for
inflation four times in that same time period.
If SBA were mandated to review agricultural size standards,
adjustments for inflation and other economic conditions could
be made.
Thank you for your continued leadership and support. I am
happy to be here today, and I look forward to your questions.
Chairman TIPTON. Thank you, Mr. Shoraka.
I would now like to be able to introduce Mr. Ken Oestman,
owner of Oestman Farms located in Eckley, Colorado, which is a
town in the recognized center of the universe, the Third
Congressional District of Colorado. In addition to his farming
operation, Mr. Oestman served a term as president of the
Colorado Corn Administrative Committee. He is testifying today
on behalf of the Colorado Corn Growers Association.
Mr. Oestman, thank you for appearing today, and you may now
deliver your testimony.
STATEMENT OF MARK OESTMAN
Mr. OESTMAN. Good morning, and thank you.
Chairman Tipton, Ranking Member Murphy, and all Committee
Members, my name is Mark Oestman, and I am a fourth generation
farmer and rancher from near Eckley in Northeast Colorado. I
farm 2,500 acres of irrigated ground raising corn, wheat, and
soybeans in a family partnership with my dad. Together, we also
run about 400 steers in a grower/stocker operation. My wife
Dessany and I are raising our children to hopefully be the
fifth generation to operate our farming operation. In addition
to farming, I currently serve as the president of the Colorado
Corn Administrative Committee, which is the state corn ``check-
off'' organization.
When someone asks me today to sum up production
agriculture, I like to say that farmers are just like everyone
else, except that the cost of running our business adds a few
extra zeroes to the income and expense columns at the end of
the month. From the combines that we use to harvest our crops,
which coast as much, if not more, than many homes, to the
enormous increases in the input costs associated with producing
that crop, such as fertilizer, seed, and energy costs, the
challenges of staying in the farming business can be difficult
to manage.
I believe part of the reason for increased costs can be
attributed to an unprecedented period of growth in the
agricultural industry. Many things have contributed to this
period, such as an ever-increasing population demand for more
protein and more grain, along with improved markets for
ethanol. These factors and others have led to record demand for
most production agriculture commodities and, in turn, to higher
prices for these commodities as well.
With these higher prices, both for the commodities we grow
and the inputs we must purchase, there has been a trend of
consolidation in modern agriculture resulting in larger farms.
These additional acres help us to spread our machinery costs
and land payments over more acres and use our equipment more
efficiently. With the average age of the American farmer
continuing to rise, we will see more and more farms sold or
rented out.
Increased yields are another trend we are seeing in
agriculture today. Thanks to advanced technologies, I am able
to select hybrid seeds. I can effectively plant a field and
know that because of seed selection I have reduced the amount
of inputs needed to combat weeds and insect attacks. Precision
technology has helped me to maximize yields, minimize inputs,
all while protecting the environment.
Any single one of these variables I have talked about could
support a need to increase the $750,000 level for production
agriculture to meet the small business criteria. When you
consider all of them together, it becomes abundantly clear that
this level needs to be increased, and by a substantial amount.
If you take my farm for an example, we usually raise
roughly 1,500 acres of corn, 500 acres of soybeans, and 500
acres of wheat. In a typical year, we would hope to raise
300,000 bushels of corn, 25,000 bushels of soybeans, and 50,000
bushels of wheat. I did some research, and from 1985 to 2006,
an average price for corn was approximately $2.27 per bushel.
So, our farm receipts just from our corn during that period
would have been $681,000. Compare that to today's average
price. From 2007 to 2013, it was around $4.94 per bushel; the
same 300,000 bushels would bring in around $1,482,000.
So in summary, I believe that the Small Business Committee
should consider substantially raising the arbitrary $750,000 in
receipts that currently exist for agriculture producers. The
dynamics of today's farms and farmers, especially those who
farm as their sole source of income, have changed dramatically,
and I believe the limit should as well. Due to factors largely
out of a farmer's control, my total receipts can change
dramatically from year to year, and I believe the SBA standard
should take many of those factors into consideration and
increase the standard.
Thank you.
Chairman TIPTON. Thank you, Mr. Oestman.
I would now like to be able to introduce Mr. Keesaman of
Osborn, Missouri. Mr. Keesaman is owner of KK Red Angus Farms,
where He raises breeder livestock. He is testifying today on
behalf of the National Cattlemen's Beef Association.
Mr. Keesaman, thank you for appearing here today. Pleasure
to visit with you. You may now deliver your testimony.
STATEMENT OF KEN KEESAMAN
Mr. KEESAMAN. Thank you, sir. It is a pleasure of meeting
you sir and talking about Colorado.
Good morning, Chairman Tipton, Ranking Member murphy, and
Members of the Committee. I am Ken Keesaman, a cattle farmer
from Osborn, Missouri. My family and I are members of the
National Cattlemen's Beef Association and the Missouri
Cattlemen's Association. It is a pleasure to testify before
your Committee today on how the livestock industry, and
particularly our farming operation, KK Farms Red Angus has
evolved over the years.
Our family started in the cattle business in the 1870s, and
I began farming full-time in 1969 when I returned from active
duty with the Missouri Air National Guard. KK Farms consists of
1,500 acres, of which 900 are owned by our family and the
remaining acres are leased. Of the 900 acres, 240 of the farm
have been in the family since the establishment of our farm,
earning us the Missouri Century Farm award. Maintaining the
original farm acreage continues to be a priority for my family,
and we have expanded our business model throughout the years to
maintain our livelihood. Raising cattle is the foundation of
our farm, and we have been in the Registered Red Angus business
since 1972.
The face of the livestock industry is much different today
than it was in 1969 when I returned to the farm. In 1969, there
were approximately 845,000 beef cattle farms with more than 34
million head of beef cattle. Other than the expansion of farms
and herd size in 1974 and 1995, there has been a steady decline
of the number of farms and the total number of head of beef
cattle in the United States. Today, we have approximately 29
million head of beef cattle, and according to the 2012 Ag
Census, there are 729,000 beef cattle farms. Even though we
have the smallest beef herd since 1951, our industry has been
able to utilize the latest science and management practices to
produce approximately 25 billion pounds of beef.
When you evaluate the success of America's cattle farmers
and ranchers, we have developed a successful business model not
only domestically, but also globally. In terms of production,
the United States has only seven percent of the world's cattle
supply, but we are able to produce 20 percent of the world's
beef. We have found ways to utilize more of our natural
resources and the latest science to be more efficient than our
international competition.
Our demand has changed, like many other small farms since
1985. During the late 1980s, due to changing trends in
agriculture, we downsized our hog operation and increased our
Red Angus herd. Our production costs have increased also,
making it difficult for family farmers to compete in today's
environment.
The cattle industry in Missouri is comprised of a lot of
small family farms who make a big impact. We have a lot of
small players who make a big impact nationwide. The average
herd size in Missouri is 36 head, but overall, we are the
second largest beef cattle state behind Texas. We have to do
everything we can to send signals to these families that the
climate is right to expand.
We use risk management by utilizing research and technology
afforded to us through land grant universities, like the
University of Missouri. Examples include planting cover crops
over our corn and soybeans, which can be grazed by livestock.
This helps us manage our feed costs during the recent droughts
of 2012 and 2013. Also, in regards to risk management, we have
added new ventures. In 2009, my son Kraig and his wife added
Windy Wine Company and planted nearly eight acres of Missouri
grapes. My son Kody and I ventured into the All-Natural Meat
production/sales of our Red Angus Beef, and another son Kasey
and his wife started a microbrewery called Blackbelt Brewery.
Future plans to help spread risk are to include a farm-to-table
restaurant, event center, and bed and breakfast. All of this
adds value to our products and helps spread risk. It also
ensures that every family member and sons and their sons will
have a place on our family farm.
The evolution of today's livestock industry has shifted,
and in order for family business to survive, we have expanded,
diversified, and in terms of agriculture, today's small
business has changed. It is appropriate for the size standards
to be changed by the Small Business Administration to most
accurately represent today's small operations. It is my
understanding that agriculture is the only industry where the
statute establishes our size standard. With that being the
case, Congress needs to change the statute and consider
alternatives to these standards. Smaller operations play a
significant role in the beef cattle industry.
In closing, I appreciate the work that the Committee has
done, and there are opportunities for individuals to pursue the
American dream. Small businesses are the life-blood of America
and rural communities. We also appreciate the good work the
Committee has done to bring small business perspective into the
regulatory climate and it is appreciated by smaller operations,
like KK Farms.
Thank you for the opportunity today to share our family's
history and commitment to agriculture. It is more than a
business; it is our way of life.
Chairman TIPTON. Thank you, Mr. Keesaman, for your
testimony. We hope those sample are going to be passed out. We
noticed that.
Mr. KEESAMAN. You are more than welcome to come take one. I
think they are one ounce samples, so I think the Ethics
Commission will be all right with that.
Chairman TIPTON. I would now like to yield to Ranking
Member Murphy so that he may introduce our final witness.
Mr. MURPHY. Thank you, Mr. Chairman.
It is my pleasure to introduce Mr. Robert Guenther, senior
vice president of Public Policy for United Fresh Produce
Association, which represents the fresh fruit and vegetable
industry. During his time there he has been interviewed and
quoted by CNN, C-SPAN, Wall Street Journal, New York Times, and
other major publications. Formerly, Mr. Guenther served as
congressional aide to the U.S. House Committee on Agriculture,
and also worked as an environmental protection specialist for
the Environmental Protection Agency's Office of Pesticide
Programs.
Welcome, Mr. Guenther.
STATEMENT OF ROBERT GUENTHER
Mr. GUENTHER. Thank you, Ranking Member Murphy, Chairman
Tipton.
My name is Robert Guenther, and I am the senior vice
president of Public Policy for the United Fresh Produce
Association. As you know, United Fresh is the national trade
association representing the entire distribution chain of fresh
fruit and vegetable production, including growers, shippers,
wholesale distributors, processors, and retailers. Since 1904,
United Fresh has worked with Congress and the administration to
help shape legislative and regulatory policies to provide a
strong business climate for our members that encourages growth
and development. We thank you for the opportunity to address an
issue that impacts the ability of many of our United Fresh
members to utilize key programs designed to assist small
businesses as they seek to develop and diversify their
operations. And on a personal note, I, like two of my other
colleagues at the table today, also grew up on a small family
farm, which is located in North Central Florida and has focused
on citrus and nursery production for over 100 years.
For a variety of reasons, such as changes in the economy or
fluctuations in commodity prices, the number of agriculture
producer operations classified as small businesses has been on
a continual decline, even though many of these operations made
no significant changes that would otherwise justify a
reclassification. Taking into account current agriculture
business models, a standard many times higher than the current
$750,000 in annual receipts would be the norm in today's
agriculture community. More importantly, fruit and vegetable
producers, like producers of other commodities, will tell you
that the annual gross receipts are not a reliable indicator of
an operation's size, nor is it a good indicator of
profitability in light of cost of inputs and labor, which in
fruit and vegetable production are particularly significant.
In addition to being an unrealistic representation of many
agriculture operations, the current SBA standard puts
agriculture small business operators at a disadvantage in their
ability to avail themselves of assistance they could utilize to
grow and adapt their operations. Again, the current $750,000
size standard applied to agriculture operations limits small
agriculture producers' access to SBA's assistance programs and
federal contracting preferences for small prime and
subcontractors. Key SBA programs that may prove useful to
produce operations include loans to start, acquire, or expand a
small business or loans that provide long-term, fixed-rate
financing for assets such as land or buildings, among others.
More importantly, when you look at the wide variety of
programs available at the Department of Agriculture to help the
fresh produce operations, including farm loan programs, market
promotion and export assistance, technical assistance for
conservation and compliance, nutrition programs, rural and
infrastructure development, new and beginning farmer programs,
we believe it is important to ensure that there is a level of
consistency between USDA and other federal agencies when it
comes to a small business definition.
Finally, among the most significant challenges that
agriculture operations face, like any business, is compliance
with government regulations. Some agencies use SBA size
standards to assess the impact of their proposed regulations in
accordance with the Regulatory Flexibility Act. However, the
current standard for agriculture operations to qualify as a
small business of annual receipts of no more than $750,000 was
set by Congress in 20000, as was mentioned earlier. As
discussed, given the enormous changes in agriculture since that
time, a review of the small business standard, which would
provide agriculture producers with justifiable regulatory
relief, is long overdue.
To this end, we would suggest that Congress and the
administration consider alternatives that would eliminate the
current standard and allow SBA to review industries currently
considered to be small agriculture businesses. Following that
review, SBA could then propose new size standards through the
normal regulatory process, which would allow agriculture
operators to comment and provide recommendations for a new
standard. In addition, this would allow SBA to routinely review
and update the standard and to keep pace with variations in the
agriculture community such as change in commodity prices. As a
result, the correct and appropriate size standard will be in
place, better allowing producers to have access to SBA programs
and ensure that agriculture producers' needs are better
reflected in a variety of regulatory initiatives. In addition,
we suggest that it would be very helpful if there was a
stronger harmonization of standards used by SBA and the U.S.
Department of Agriculture.
Again, thank you Chairman Tipton and Ranking Member Murphy
for holding this hearing and for allowing me to share United's
position with you. We look forward to working with you, and I
will be happy to answer any questions.
Chairman TIPTON. Thank you, sir.
I will now begin the questioning, and I would like to begin
with Mr. Luetkemeyer.
Mr. LUETKEMEYER. Thank you, Mr. Chairman. And welcome to
all the panelists today. It is good to see somebody from
Missouri as well.
Mr. Shoraka, I am kind of curious. I think at one time SBA
had the authority and the flexibility to do this themselves.
Why was it taken away? Let us have a little history here.
Mr. SHORAKA. Sure. I cannot speak to the intent back in the
1980s when this was taken away. As was mentioned today, at the
time I understand the size standard was $100,000 annual
receipts, and it was felt that that was below what was
appropriate. But I cannot speak to the congressional intent as
to why that authority was taken away from the SBA. But since
that time we have not had the authority to establish that size
standard.
Mr. LUETKEMEYER. I was curious if there was a standard that
caused the flexibility to be taken away. Congress, you know,
they always like to take more power themselves or they like to
do things, you know, not necessarily well, but they like to do
more things. I am just kind of curious about it.
I know in your testimony you talked about the different
things that you look for, the characteristics, and I did not
see in there the number of employees. One of the things that we
do with SBA, a lot of the other definitions are by the number
of employees. Why was that not included?
Mr. SHORAKA. There actually is difficult classifications
for size standards. Some size standards are based on revenues.
Others, like manufacturing, are based on number of employees.
So there are different methodologies. What I would say is that
as was mentioned earlier, the rulemaking process is such that
we follow the Administrative Procedures Act. So we would do an
analysis, but then we would have the opportunity not only to
share it with our sister agencies to get their feedback, but it
would also go to the community. And that is where we could
really gather the feedback from industry. And oftentimes, it is
that industry feedback and data from the industry that helps us
really establish a size standard that represents industry.
Mr. LUETKEMEYER. Agriculture is a unique industry in that
the fluctuation within it, because of the markets, because of
the weather--I always tell people if you think going to Las
Vegas is a real gamble, you need to be a farmer for a while and
just roll the dice every day when you walk out your front door.
But it is amazing. Farming, I always tell people, it is one
of the few occupations where you really do not have control
over your inputs. You do not have any control over the weather.
You do not have any control over the outputs. And yet you want
to be a farmer. Congratulations, guys. It is amazing.
One other comment I want to make with Mr. Shoraka before we
move on, one of the things I do not see in here, although you
say federal market conditions in each industry, one of the--I
think Mr. Keesaman mentioned something about market
fluctuations, the yearly fluctuations. I mean, that is not
listed here. Is that something that is also in your federal
market conditions? Is that where you take care of the
fluctuations in the market?
Mr. SHORAKA. We try to look at three-year averages to
address the fluctuations.
Mr. LUETKEMEYER. Okay, so easy question. Where do you think
it needs to be? Or what do you----
Mr. SHORAKA. I think we would have to the analysis. We have
not done it for decades. I think we really would have to do the
analysis and really go through the process, as I said, to work
with USDA and other agencies in establishing the size
standards. But it is very important to get industry----
Mr. LUETKEMEYER. Do you do it on an annual basis then or
would you do it every five years because of the uniqueness of
agriculture? Or what do you want to do?
Mr. SHORAKA. Based on the Small Business Jobs Act, we were
required--we actually had not looked at size standards
comprehensively for decades, but the Small Business Jobs Act of
2010, which we were thankful to receive, as an agency required
us to look at a third of the size standards every 18 months.
And we are on schedule to review all the size standards. And we
go back every five years. But it is adjusted for inflation.
Mr. LUETKEMEYER. Very good.
Mr. Oestman and Mr. Keesaman, what size do you think would
be appropriate? I am sure your associations have got some
thoughts on it.
Mr. KEESAMAN. Well, Congressman, our farm bumps this limit.
I love to do business with small family farms or small family
businesses. Our meat sticks are made by a farm family business.
Our beef is processed USDA inspected that we sell in our winery
by a small family, and I like to do that. I know a lot of small
farms that are way over the limit very easily. You know, one,
two, three, four million. It depends on whether I am buying his
corn at $8.60 or I am buying it at $3.00. Or it makes a
difference whether he is buying my beef at $1.00 a pound or
$2.50 a pound on hanging weight.
Mr. LUETKEMEYER. Farming is a very capital-intensive
business. I mean, your restaurant business and your winery are
going to be completely different business models than what
agriculture is.
Mr. KEESAMAN. They are, and it is just a way, as you can
see from my testimony, we want to bring sons back into the
operation.
Mr. LUETKEMEYER. Right.
Mr. KEESAMAN. My great granddad was there. My grandfather
was there. My father, that is all he knew, was farm. That is
all I know. I have got one son that farms with me full-time
that followed me around when he was a little kid. And so that
is what our roots are in. We have had to change, and small
business needs to change because of the limits, you know, and
our Congress needs to change it. But yes, agriculture is a
different breed of cat.
Mr. LUETKEMEYER. I appreciate your testimony today. I know
that by rule here we are supposed to do this every five years
and all the other entities, and yet we have not done this since
2000. So obviously it is time for a change.
Mr. Chairman, I yield back.
Chairman TIPTON. Thank you, Mr. Luetkemeyer.
And now I yield to Mr. Murphy for his questions.
Mr. MURPHY. Thank you, Mr. Chairman. Thank you all again.
It seems that there is sort of a fine line here. And over
the past several years and decades we have seen a continual
consolidation of smaller farms into the larger farms. By
modernizing these standards and size-setting standards, how do
we protect the integrity of the small businesses and prevent
the corporations and the large businesses from seizing all
these opportunities? How do we make that distinction? This is
for the whole panel.
Chairman TIPTON. You can go ahead, Mr. Shoraka, if you want
to start.
Mr. SHORAKA. Sure. I think, obviously, the question becomes
as we set size standards for other industries because as has
been mentioned today, there are certain benefits that flow to
the small businesses that we set standards for. So making sure
that the benefits flow to the intended recipients. And one
thing that you mentioned, potentially affiliation. Right? When
you see affiliation amongst businesses, that has to be
considered. What we consider as an individual small entity is
an independently owned entity. So that takes a lot of that sort
of affiliation concern away. But you are absolutely right. As
we establish size standards, there are benefits that flow to
those small businesses, and we need to make sure that the
benefits flow to the intended recipients.
Mr. MURPHY. Thank you.
Mr. Oestman?
Mr. OESTMAN. Great question. I kind of agree with what he
said. You know, individually owned, our farm has turned into an
LLC, but that is just for liability reasons. I mean, we have
talked about these numbers and how great they are, and that
does not mean we are an evil corporation but we just realized
that we do not want to jeopardize all our family's assets. So,
I mean, like he said, there is a continuing consolidation. So
there are great big farmers out there, you know, but I am not
sure exactly how to set that standard. But most of them are
smaller, family-owned.
Mr. MURPHY. Thank you.
Mr. KEESAMAN. As I commented a minute ago, there is a lot
of large farmers. A good friend of mine farms right across the
road from me and they have got 9,000 acres of corn and probably
12,000 acres of beans. And he is a small farm family. He and
his two sons. And so that is what we have done to bring sons
in, is form--we have three different LLCs for each of the sons.
So each of them share in that, but each one of them is sole
proprietor of those LLCs. And it is a position now where that
needs to be changed. Just thinking here a minute ago, two of my
sons were still in diapers when this was changed. So times do
need to change. Thank you.
Mr. GUENTHER. Yeah. I would agree with everybody on the
panel here in terms of independently owned. Looking at a
combination of things, of size, and number of employees, but
also kind of what the makeup of that small business looks like
in terms of its needs and kind of what potentially they are
asking for quite frankly through SBA, too. I think that is an
important thing as well to consider.
Mr. MURPHY. Mr. Guenther, it sounds like what I am hearing
today and what I have read, that most people are in agreement
the size standard does need to increase. Do you believe that is
true? And if so, to what level? And do you have a range that
that should be?
Mr. GUENTHER. That is a hard question to answer. I think
something we would certain, you know, have to reach out to our
members and our industry because it is an interesting dynamic
that you place. When you look at a corn farm operation, a beef
cattle operation, or a produce operation, those are totally
different agriculture business models and a lot of them are
very family owned, family, you know, multiple generations. So I
think that would be a tough task for SBA to kind of look at
agriculture and kind of look at the different diversity within
these companies and how they are developed in these small
businesses. So kind of giving you a range, certainly $750,000
is out of date. Certainly, it needs to be adjusted to reflect
more of the last 15-plus years or 14-plus years since it has
been done and look at the characteristics of what a small
business farm or agriculture operation really looks like. We
would certainly want to talk to our members about that and kind
of get a sense of that as well. But certainly, $750,000 is a
very low threshold.
I can tell you from my parents, you know, to kind of add on
to what you guys have said about, you know, my parents, they
have one person working for them, and my son works for them a
little bit, and they would not meet that threshold. I mean,
they would be over that threshold. It is just them, and it has
been that way for many years.
Mr. MURPHY. And Mr. Guenther, as you know, SBA has many
programs that could help many farmers grow their businesses.
What percentage do you think, or how many folks that you work
with know about the opportunities available through SBA?
Mr. GUENTHER. I think a fair amount do. They probably lean
more towards the programs at UDSA in looking at those types of
programs through, you know, development of farm bills and those
programs. But certainly, I do think when you go up the
distribution chain, even from agriculture to the wholesale
distributors, the processors, you know, folks that are in that
part of the produce industry, they are more attune to looking
at SBA as a partner in developing startups or new acquisitions
and things like that.
Mr. MURPHY. Do you think you have many members that would
qualify but simply do not know about it?
Mr. GUENTHER. I think based on the current threshold, at
least at the agriculture operations at $750,000, it would be
very difficult. When you go up into the wholesale distributor
where I think it is 500 employees or less, you would have a lot
more in that world who were creating--like food hubs, for
instance, and the wholesale distributor in the wholesale
markets around the country. They potentially would have a lot
easier time to meet that employee threshold because there are
very few that are over 500,000 that I am aware of in that world
of the produce industry.
Mr. MURPHY. Okay. Thank you, Mr. Guenther. And thank you
all.
Chairman TIPTON. Thank you, Mr. Murphy.
Mr. Shoraka, just for clarity really probably more for the
record than anything, in the view of the SBA, does the current
statutory size accurately reflect the current economic
realities of the agricultural industry? How are these measured
by the SBA?
Mr. SHORAKA. Since we really have not set the size standard
when the statute was established in the '80s, I think it would
require an analysis really to determine if $750,000 is
appropriate. We really just have not analyzed the industry, and
I could not really speak to what the appropriate number would
be. And what has been mentioned here a number of times I think
is important is we have by statute clumped a lot of different
things together, and we really need to look at the industries
under that overall umbrella and determine what the appropriate
size standards are for each.
Chairman TIPTON. I appreciate that.
If the authority for setting the size standards in these
industries is going to be returned to the SBA, with
agricultural enterprise size standards, would those
automatically default at least to that number or would the SBA
look at even lower numbers potentially?
Mr. SHORAKA. That is a great question. Thank you.
I think, you know, again, I think it is the analysis that
is going to produce the results. And that is why I think it is
really important to have the public comment period and to get
input from industry. Certainly, the analysis may show certain
industries going up, certain going down, but again, it is
dependent through the Administrative Procedures Act for us to
not only engage our sister agencies like USDA and others, but
to get input from industry and make sure that it is accurate or
that our size standards are accurate. And then on a five-year
basis review it and adjust it appropriately.
Chairman TIPTON. Would each of the 46 subcategories I
believe it is, would they get their own size standards?
Mr. SHORAKA. I believe so. I would have to double-check
that, but I believe so.
Chairman TIPTON. When we are talking about gathering the
information, you know, listening to Mr. Oestman and Mr.
Keesaman, it is going to take a little while to be able to do
that. Do you have a vague idea of how long it would take you to
actually get----
Mr. SHORAKA. That is a great question. Obviously, I think
based on the Small Business Jobs Act of 2010, we have been on
schedule at looking at one-third of the size standards every 18
months. So we would have to, you know, if authority was given
to us, we would have to see to work that into our schedule. It
is obviously something that we have a methodology to do. We
have staff to do. When we look at our resources and map out
what we are doing in 2015 and 2016, obviously this is not one
of the ones that has been on our radar screen but we would have
to work it into our schedule accordingly.
Chairman TIPTON. Well, that is good news I am hearing, and
that is that it should not any further appropriations.
Mr. SHORAKA. Well, I cannot speak to our appropriations. I
would leave that up to our administrator.
Chairman TIPTON. And I guess maybe for our producers that
are here, you know, it is fascinating. I grew up in rural
Colorado. Our family did a little bit of ranching, a little bit
of farming, going out, and agricultural practices have changed
a lot.
Mr. Oestman, you were talking about developing new seeds.
Probably worked with CSU. And could you maybe talk to us a
little bit about, Mr. Keesaman, you have got a family farm
going back to the 1800s, how things have changed maybe since
your grandparents had the family farm, family ranch?
Mr. OESTMAN. Yeah, thanks. Great question, Congressman.
I think part of what I talked about in testimony is just
technology today. I mean, everything, you know, we have
implemented a lot of precision technologies on our farm. When
we harvest a field, we map the yields and we break it down into
a data zone, and we treat each zone differently. We apply
fertilizer different to that zone than to a different zone. And
that allows us to put the inputs where we need them. We used to
blanket apply a field, whether it could be wasteful in a spot
or it might not be enough in another one. And just those
advancements in technology and, you know, bigger equipment,
being able to do things more efficiently and effectively. I
just believe we are better managers and stewards of our natural
resources now. And not that they were not then but we just have
a lot more technologies available now to do that.
Chairman TIPTON. Mr. Keesaman?
Mr. KEESAMAN. We are fifth and sixth generations work on
our farm now, and we can see that use of genetics, the same as
in seed corn, we use it in the Red Angus breed today. We have
bulls that are negative birth weight which make calving ease
great. They will go from 76 pounds, a new herd bull, to 705,
725 in weaning weight. That is in 205 days. And then they will
go on at 365 days and weigh 1,300 pounds.
So you can see in my testimony, wherein only 7 percent of
the world supply of cattle are in the United States, but we are
raising 20 percent. So they are growing faster on less feed,
they are more efficient. So that is where we keep working on
through the universities, through the National Cattlemen's Beef
Association, and Missouri Cattlemen's Association. It is a good
life but you have got to keep doing more to continue, and the
Ag is not much different in northwest Missouri as it is in
northwest Colorado.
Chairman TIPTON. Mr. Guenther, do you have any comments on
that?
Mr. GUENTHER. I mean, I would agree with technology.
Diversification is fascinating. When you look at Mr. Keesaman
and the diversification in his family's operations and others.
You know, I look at it in our world, in the produce world, and
the different varieties that are available now that were never
available several generations ago. And the continuing need to
keep updated with new varieties and new scientific developments
that help maintain profitability in our industries with the
challenges, as you know, on food safety and other issues in our
world. You know, it is important to make sure that you are up
to speed on those types of new technologies and opportunities
available to you.
Chairman TIPTON. That is just kind of a personal thing I
think to our agricultural producers, you know, across the
board, it has always been my opinion that the best
environmentalists actually that we have, you know, Mr. Oestman
when you are talking about going out and broad-based
fertilizing and now spot fertilizing. You know, the analysis.
This has become literally a high-tech world from the planning
end of it to the analysis of the soils, to water consumption
and product growth and development, I think that is absolutely
remarkable in terms of the yield that we are getting out of our
cattle industry and what we are able to do. And that is
incredibly admirable.
Mr. KEESAMAN. If I could say, you now, we are good stewards
of the land or we cannot pass it on generations and raise the
yields that this man is raising, and our beef is fast. You
know, we take care of our product and our commodities and our
animals, and if we did not take care of them, you know, there
are organizations (HSUS, PETA) that are looking down at us, you
know, and they do not want, you know, we are not doing things
right. But we are. We are taking care of our--we are stewards
of the land, and we have to fight Mother Nature, as Congressman
Luetkemeyer commented a while ago, we have to fight Mother
Nature. We have to fight the government and commodity prices,
everything else, but then we have got all these weight of the
far-out here organizations that are really cracking down on us,
you know, and sometimes they do not know the true story.
Chairman TIPTON. And I think there is at least general
appreciation from a lot of the folks I visit with. The American
farmer, American rancher feeds this country and a good part of
the world, and that does not come without a lot of risk that
you cannot control when we are talking about the weather, to
some of the unintended consequences of some government
regulations.
Talking about that, in your view, do government agencies in
your estimation, do they accurately measure and consider some
of the potential impacts of proposed rules, regulations on our
agricultural producers?
Mr. KEESAMAN. Well, yes and no. I think, you know, some
regulation I think is really good. On others, I do not know.
And we were talking coming over here today, the regulations on
the wine and the liquor industry, you know, we have had to jump
through more hurdles and some of it is just bureaucracy and red
tape, and it is the same way in the meat business. And again,
some of this is good and some of it is bad, and that is where
we get back to the regulations. You know, sometimes it hurts
us. Sometimes it helps. And just like some of what they are
calling right now large farms, you know, we are not. We are
small family farms that are up there in over the $750,000
gross.
Chairman TIPTON. Do you have anything, Mr. Oestman?
Mr. OESTMAN. Thanks, Congressman.
Yeah, I think some regulations, you know, are a great thing
and help curve some people and abuses in other places, but I
sometimes see that some government regulations and agencies may
overstep or overreach a lot of times in things that may or may
not need to be regulated in my opinion. So, I mean, I have seen
some of them come down to the farm level and make sure what
they are doing is good, and that is good. I encourage any of
them to do that. I think that is a great way. Thank you.
Chairman TIPTON. Yes, sir?
Mr. KEESAMAN. If I could, the regulations on the water is
going to be terrible on all of us. We are kind of from the high
country of Missouri, northwest Missouri, I guess, and our
farms, luckily, not much water drains on us, but it does run
off. And what EPA is trying to do on all these water rights is
going to really hurt us with the regulations.
Chairman TIPTON. Do you find it a little disturbing--I find
it infuriating--when we have the EPA--I consider this the
greatest water grab in American history that is coming out of
the EPA now in terms of regulatory authority. We have a
rancher, Wyoming, potentially facing a $74,000 fine because he
put in a stock pond. Just forget that he got all of the permits
and abided by the law of the State of Wyoming. And now they
want to be able to step in and garnish wages. Come in to your
farm, to your wine business, to your cattle industry, to be
able to garnish wages on a fine. And we have seen a 160 percent
increase in terms of fines coming out of the EPA right now.
That has got to be of incredible concern to you because without
water, be it in Missouri, be it in Florida, certainly in
Colorado, that is the life blood.
Mr. KEESAMAN. Well, it is. And I think they are picking on
the people that are really doing a good job and trying to
protect. Because if you run cattle in a lot of these streams or
ponds, you know what happens. The life expectancy of them is
not very long. And we have got several ponds that have been
built by the NRCS on a cross-share program, and we fence them
and keep them out, and we have been doing this for a long time.
So, but they still could come down on us on about anything, and
it is very disturbing.
Chairman TIPTON. We might well have to have you come back.
I would love to be able to have a hearing and to be able to
have the EPA administrator come in and try and justify the
savaging of the American agricultural community through some of
their rules and regulations that are going on because we have
very common ground. We all like clean air. We all like clean
water. But we do take umbrage of overreach that is going on,
and I think what I am hearing from you, and certain from the
administrator as well, that dialogue is important. We need some
rules. We need some regulations. But we also need to be able to
insert some common sense into the process, make sure that that
dialogue is continuing, and if something is not working, let us
stop doing it. If we cannot fix it, let us just take it off the
books. If we can fix it, let us make those adjustments.
I would like to thank you all for taking the time to be
able to be here. I know that this is certainly a big effort.
Thank you all for your busy schedules, making time to be able
to come in and testify here. You have provided us all with, I
believe, some important insights on how federal policy and
decisions in Washington will impact our small businesses and
the economies. And most importantly, your families and the
ability to be able to provide for them.
I would like to ask for unanimous consent that members and
the public have five legislative days to be able to insert
statements and supporting materials for the hearing record.
With no objection, so ordered.
This hearing is now adjourned. Thank you again.
[Whereupon, at 10:52 a.m., the Subcommittee was adjourned.]
A P P E N D I X
[GRAPHIC] [TIFF OMITTED] T8924.001
Chairman Tipton, Ranking Member Murphy, and members of the
Subcommittee, I am honored to be here today to discuss SBA's
size standard methodology as it pertains to agricultural
enterprises.
As you know, with the exception of certain agricultural
enterprises, the Small Business Act (P.L. 85-536, as amended)
provides the U.S. Small Business Administration (SBA) with
statutory authority to establish small business size
definitions, referred to as ``Size Standards'', for federal
government programs. The size standards for agricultural
enterprises are unique in that they are directly established by
the statute. The size standard for agricultural enterprises was
first set by statute in 1985 (P.L. 99-272). Currently, the size
standard for 46 industries in North American Industry
Classification System (NAICS) Sector 11 (Agriculture, Forestry,
Fishing and Hunting) is set by statute at $750,000 in average
annual receipts (P.L. 106-554).
SBA is capable of conducting the analysis to establish
small business size standard for agricultural enterprises, as
SBA would use the same process that it currently uses to
establish size standards for business concerns in other
industries. When establishing size standards, SBA examines
economic characteristics, such as average firm size, industry
concentration, start-up costs and entry barriers, and federal
market conditions in each industry. At SBA, we believe in a
transparent process. A detailed explanation of how SBA
establishes size standards is provided in our ``Size Standards
Methodology'' White Paper, which is available on the Agency's
website at www.sba.gov/size.
Establishing size standards based on characteristics of
individual industries is consistent with Section 3(a)(3) of the
Small Business Act which requires the Administrator to ensure
that size standards vary--to the extent necessary--to reflect
the differing characteristics of industries. SBA believes its
methodology for establishing size standards meets this
requirement by incorporating economic characteristics and
federal market conditions into its analysis on an industry-by-
industry basis.
The Small Business Jobs Act of 2010 (Jobs Act) requires SBA
to review all size standards and make necessary adjustments to
reflect market conditions every five years. The Small Business
Act does not require SBA to review size standards for most
agricultural industries, so the Agency did not review
agricultural size standards under the current review. In
addition, SBA reviews all monetary based size standards every
five years for inflation and makes necessary adjustments.
Currently, SBA does not adjust the statutory agricultural size
standards for inflation. As a result, the agricultural size
standard has remained at the $750,000 receipts level since
2000, while SBA has reviewed and adjusted monetary based size
standards for inflation four times in that time period.
If SBA were mandated to review agricultural size standards,
adjustments for inflation and other economic conditions could
be made.
Thank you for your continued leadership and support. I look
forward to your questions.
[GRAPHIC] [TIFF OMITTED] T8924.002
[GRAPHIC] [TIFF OMITTED] T8924.003
Good morning, Chairman Tipton, Ranking Member Murphy and
members of the Committee. I am Ken Keesaman a cattle farmer
from Osborn, Missouri. My family and I are members of the
National Cattlemen's Beef Association and the Missouri
Cattlemen's Association. It is a pleasure to testify before
your Committee today on how the livestock industry and in
particular our family operation, KK Farms Red Angus, has
evolved over the years. My wife and I own KK Farms along with
our three sons Kody, Kasey and Kraig. KK Farms is a purebred
livestock farm that sells breeding cattle from 300 head of
registered Red Angus cattle. Our farm is also diversified as we
raise corn, soybeans, hay, a few hogs and over the years have
added a vineyard and winery featuring Angus Red wine and a
microbrewery. Currently, we are in the process of planning a
restaurant and event center to add to our agri-tourism venture.
Our family started in the cattle business in the 1870's and
I began farming full-time in 1969 when I returned from active
duty with the Missouri Air National Guard. KK Farms consists of
1500 acres of which 900 acres are owned by our family and the
remaining acres are leased. Of the 900 acres, 240 have been in
the family since the establishment of our farm earning KK Farms
the ``Missouri Century Farm'' award. Maintaining the original
farm acreage continues to be a priority for our family and we
have expanded our business model throughout the years to
maintain our livelihood. Raising cattle is the foundation of
our farm and we have been in the Registered Red Angus business
since 1972.
The face of the livestock industry is much different today
than it was in 1969 when I returned to the farm. In 1969, there
were approximately 845,000 beef cattle farms with more than 34
million head of beef cattle. Other than the expansion of farms
and herd size in 1974 and 1995 there has been a steady decline
of the number of farms and the total head of beef cattle in the
United States. Today, we have approximately 29 million head of
beef cattle and according to the 2012 Ag Census, there are
729,000 beef cattle farms. Even though we have the smallest
beef herd since 1951 our industry has been able to utilize the
latest science and management practices to produce
approximately 25 billion pounds of beef.
[GRAPHIC] [TIFF OMITTED] T8924.004
[GRAPHIC] [TIFF OMITTED] T8924.005
When you evaluate the success of America's cattle farmers
and ranchers, we have developed a successful business model not
only domestically but also globally. In terms of production,
the United States has only seven percent of the world's cattle
supply but we are able to produce 20 percent of the world's
beef. We have found ways to utilize more of our natural
resources and the latest science to be more efficient than our
international competition.
Our farm has changed like many other small family farms
since 1985. During the late 1980s, due to changing trends in
agriculture, we downsized our hog operation and increased our
Red Angus herd. Our production costs have increased making it
difficult for family farms to compete today's agricultural
environment.
The cattle industry in Missouri is comprised of a lot of
smaller family farms who make a big impact. We have a lot of
small player who make a big impact nationwide. The average herd
size in Missouri is 36 head but overall, we are the second
largest beef cattle state behind Texas. We have to do
everything we can to send signals to these families that the
climate in right to expand.
We use risk management by utilizing research and technology
afforded to us through land grant universities like the
University of Missouri Extension. Examples include planting
cover crops over our corn and soybeans, which can be grazed by
livestock. This helps us manage our feed costs during the
recent droughts of 2012 and 2013. Also, in regards to risk
management, we've added new ventures to spread our risk. In
2009, my son Kraig and his wife added Windy Wine Company and
planted nearly 8 acres of Missouri grapes. We've also ventured
into All-Natural Meat production/sales of our Fed Angus Beef
and another son started a microbrewery called Blackbelt
Brewery. Future plans to spread risk include a farm-to-table
restaurant, even center and bed and breakfast. All of this adds
value to our farm helps to spread risk. It also ensures every
member of my family have a place on this family farm.
The evolution of today's livestock industry has shifted and
in order for family businesses to survive we have expanded and
diversified our operations. In terms of agriculture, today's
small business has changed and it is appropriate for the size
standards applied by the Small Business Administration to more
accurately represent today's small operations. It is my
understanding that agriculture is the only industry where the
statute establishes our size standard. With that being the
case, Congress must change the statute and consider
alternatives to the current size standards so they more
accurately reflect today's small businesses. Smaller operations
play a significant role in the beef cattle industry. The chart
below from USDA's National Agricultural Statistics Service
shows the number of operations that have fewer than 500 head of
cattle and the percentage of our industry inventory they raise.
You'll quickly notice that smaller operations account for the
majority of beef cattle operations in the U.S.
[GRAPHIC] [TIFF OMITTED] T8924.006
In closing, I appreciate the work this Committee does to
ensure there are opportunities for individuals to pursue the
American Dream. Small businesses are the life-blood of America
and our rural communities. As industries evolve it is important
for the government to modify the governing statutes and
regulations to better reflect the changes in the business
climate. Another area where I appreciate the work of the
Committee is on the regulatory front. Burdensome regulations
stifle innovation and cripple America's small businesses. The
good work this Committee does to bring the small business
perspective into the regulatory climate is appreciated by
smaller operations like KK Farms. Thank you for the opportunity
today, to share our family's history and commitment to
agriculture--it's more than a business, it's our way of life.
[GRAPHIC] [TIFF OMITTED] T8924.007
Thank you Chairman Tipton and Ranking Member Murphy, my
name is Robert Guenther and I am the Senior Vice President of
Public Policy for United Fresh Produce Association. As you
know, United Fresh is the national trade association
representing the entire distribution chain of fresh fruit and
vegetable production including, growers, shippers, wholesale
distributors, processors and retailers. Since 1904, United
Fresh has worked with Congress and the Administration to help
shape legislative and regulatory policies to provide a strong
business climate for our members that encourages growth and
development. We thank you for the opportunity to address an
issue that impacts the ability of many of our United Fresh
members to utilize key programs designed to assist small
businesses as they seek to develop and diversify their
operations. And on a personal note, I, like my two other
colleagues at the table today, also grew up on a small family
farm which is located in North Central Florida and has focused
on citrus and nursery production for over 100 years. So this
issue does take on a personal appeal for me.
For a variety of reasons such as changes in the economy or
fluctuations in commodity prices, the number of agriculture
producer operations classified as small businesses has been on
a continual decline, even though many of these operations made
no significant changes that would otherwise justify a
reclassification. Taking into account current agriculture
business models, a standard many times higher than the current
$750,000 in annual receipts would be the norm in today's
agriculture community. More importantly, fruit and vegetable
producers, like producer of other commodities, will tell you
that annual gross receipts are not a reliable indicator of an
operation's size. Nor is it a good indicator of profitability--
in light of the cost of inputs and labor, which in fruit and
vegetable production, is particularly significant.
In addition to being an unrealistic representation of many
agriculture operations, the current SBA standard puts
agriculture small business operators at a disadvantage in their
ability to avail themselves of assistance they could utilize to
grow and adapt their operations. The current $750,000 size
standard applied to agriculture operations limits small
agriculture producer's access to SBA's assistance programs and
federal contracting preferences for small prime and
subcontractors. Key SBA programs that may prove useful to
produce operations include loans to start, acquire or expand a
small business or loans that provide long-term, fixed-rate
financing for assets such as land or buildings, among others.
More importantly when you look at wide variety of programs
available at the U.S. Department of Agriculture to help fresh
produce operations including farm loan programs, market
promotion and export assistance, technical assistance for
conservation compliance, nutrition programs, rural and
infrastructure development, new and beginning farmers, or
organic programs, we believe it is important to ensure that
there is a level of consistency between USDA and other federal
agencies when it comes to a small business definitions.
Finally, among the most significant challenges that
agriculture operations face, like any business, is compliance
with government regulations. Some agencies use SBA size
standards to assess the impact of their proposed regulations in
accordance with the Regulatory Flexibility Act. However, the
current standard for agriculture operations to qualify as a
small business of annual receipts of no more than $750,000 was
set by Congress in 2000. As discussed earlier, given the
enormous changes in agriculture since that time, a review of
the small business standard, which would provide agriculture
producers with justifiable regulatory relief, is long overdue.
To this end, we would suggest that Congress and the
Administration consider alternatives that would eliminate the
current standard and allow SBA to review industries currently
considered to be small agriculture businesses. Following that
review, SBA could then propose new size standards through the
normal regulatory process, which would allow agriculture
operators to comment and provide recommendations for a new
standard. In addition this would allow SBA to routinely review
and update the standard and keep pace with variations in the
agriculture community such changes in the commodities markets.
As a result, the correct and appropriate size standard will be
in place, better allowing producers to have access to SBA
programs and ensure that agriculture producers' needs are
better reflected in a variety of regulatory initiatives. In
addition, we suggest that it would be very helpful if there was
stronger harmonization of the standards used by SBA and the
Department of Agriculture (USDA). For example, USDA uses
acreage as a determining factor in how an operation is
categorized. We believe that is a more accurate indicator of
whether a business can be considered small and should be
incorporated in any determination of what category an
agriculture operation should be included.
Again, thank you Chairman Tipton and Ranking Member Murphy
for holding this hearing for allowing me to share United's
position with you. We look forward to working with you and I
will be happy to take questions.