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

FOCUS ON THE FARM ECONOMY

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

HEARINGS

BEFORE THE

SUBCOMMITTEE ON GENERAL FARM
COMMODITIES AND RISK MANAGEMENT

AND THE

SUBCOMMITTEE ON COMMODITY EXCHANGES, ENERGY, AND CREDIT

AND THE

SUBCOMMITTEE ON
BIOTECHNOLOGY, HORTICULTURE, AND RESEARCH

AND THE

SUBCOMMITTEE ON NUTRITION

AND THE

SUBCOMMITTEE ON CONSERVATION AND FORESTRY

AND THE

SUBCOMMITTEE ON LIVESTOCK AND FOREIGN AGRICULTURE

OF THE

COMMITTEE ON AGRICULTURE
HOUSE OF REPRESENTATIVES

ONE HUNDRED FOURTEENTH CONGRESS

SECOND SESSION

----------

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

----------

Serial No. 114-49

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

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

FOCUS ON THE FARM ECONOMY

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

HEARINGS

BEFORE THE

SUBCOMMITTEE ON GENERAL FARM
COMMODITIES AND RISK MANAGEMENT

AND THE

SUBCOMMITTEE ON COMMODITY EXCHANGES, ENERGY, AND CREDIT

AND THE

SUBCOMMITTEE ON
BIOTECHNOLOGY, HORTICULTURE, AND RESEARCH

AND THE

SUBCOMMITTEE ON NUTRITION

AND THE

SUBCOMMITTEE ON CONSERVATION AND FORESTRY

AND THE

SUBCOMMITTEE ON LIVESTOCK AND FOREIGN AGRICULTURE

OF THE

COMMITTEE ON AGRICULTURE
HOUSE OF REPRESENTATIVES

ONE HUNDRED FOURTEENTH CONGRESS

SECOND SESSION

__________

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

__________

Serial No. 114-49

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

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

U.S. GOVERNMENT PUBLISHING OFFICE

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COMMITTEE ON AGRICULTURE

K. MICHAEL CONAWAY, Texas, Chairman

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

______

Scott C. Graves, Staff Director

Robert L. Larew, Minority Staff Director

______

Subcommittee on General Farm Commodities and Risk Management

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

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

(ii)

Subcommittee on Commodity Exchanges, Energy, and Credit

AUSTIN SCOTT, Georgia, Chairman

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

______

Subcommittee on Biotechnology, Horticulture, and Research

RODNEY DAVIS, Illinois, Chairman

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

______

Subcommittee on Nutrition

JACKIE WALORSKI, Indiana, Chairwoman

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

______

Subcommittee on Conservation and Forestry

GLENN THOMPSON, Pennsylvania, Chairman

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

(iii)

Subcommittee on Livestock and Foreign Agriculture

DAVID ROUZER, North Carolina, Chairman

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

(iv)

C O N T E N T S

----------
Page

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

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

Witnesses

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

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

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

Witnesses

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

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

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

Witnesses

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

Submitted Material

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

Thursday, April 28, 2016--Subcommittee on Nutrition

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

Witnesses

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

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

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

Witnesses

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

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

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

Witnesses

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

Submitted Material

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

FOCUS ON THE FARM ECONOMY

(GROWING FARM FINANCIAL PRESSURE)

----------

THURSDAY, APRIL 14, 2016

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

Return Over Total Costs

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

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

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

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

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

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

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

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

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

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

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

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

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

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

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

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

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

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

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

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

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

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

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

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

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

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

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

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

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

FOCUS ON THE FARM ECONOMY

(TIGHTENING CREDIT CONDITIONS)

----------

TUESDAY, APRIL 19, 2016

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Follow the author on Twitter

@JacksonTakach
@FarmerMacNews

The Chairman. Dr. Featherstone.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The Chairman. Mr. Nelson.

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

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

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

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

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

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

Loan Breakdown
Grand Total on
Commitments

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

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

Loan Breakdown
Grand Total on
Commitments

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

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

Loan Breakdown
Grand Total on
Commitments

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

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

FOCUS ON THE FARM ECONOMY

(FACTORS IMPACTING THE COST OF PRODUCTION)

----------

WEDNESDAY, APRIL 27, 2016

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

An increase in revenues for the Inland Waterway Trust Fund.

Additional regulatory clarity for agricultural drivers in
the FAST Act.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Dear Chairman Davis and Ranking Member DelBene:

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

threats from pests and disease;

mitigating the negative impact of drought on specialty
crops;

technological innovations;

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

improved plant breeding and genetics.

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

Farmers have no way of authenticating such designations.

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

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

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

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

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

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

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

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

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

Dear Mr. Abel,

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

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

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

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

______

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

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

Dear Administrator McCarthy:

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

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

CC:

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

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

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

Dear Chairman Davis,

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Kelly Covello,
President.
______

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

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

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

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

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

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

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

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

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

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

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

Dear Chairman Davis and Ranking Member DelBene:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

For content questions, contact:

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

January 6, 2016

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

Last updated on April 6, 2016.
______

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

House Committee on Agriculture.

Honorable Members of the House Committee on Agriculture:

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

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

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

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

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

Dear Chairman Davis,

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

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

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

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

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

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

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

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

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

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

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

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

Paul Wenger,
President.
______

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

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

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

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

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

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

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

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

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

Aging and attrition of the current workforce;

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

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

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

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

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

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

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

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

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

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

Promoting national consistency regarding the labeling of
bioengineered food.

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

Promoting patent laws that drive critical life science
discoveries.

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

Promoting investments in public-sector agricultural
research.

Promoting public education about agricultural innovation.

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

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

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

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

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

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

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

U.S. Environmental Protection Agency (EPA)

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

Labeling

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

Cultivation/Seed Movement

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

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

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

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

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

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

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

A Strong, Steady Renewable Fuel Standard (RFS)

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

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

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

Promoting national consistency regarding the labeling of
bioengineered food.

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

Promoting patent laws that drive critical life science
discoveries.

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

Promoting investments in public-sector agricultural
research.

Promoting public education about agricultural innovation.

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

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

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

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

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

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

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

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

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

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

General Regulatory Impact

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

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

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

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

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

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

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

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

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

Dear Chairman Davis and Ranking Member DelBene:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Farm means:

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

i. Pack or hold raw agricultural commodities;

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

iii. Manufacture/process food, provided that:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Farm definition at present: 21 CFR 1.227:

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

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

Consequences Under the Current Definition

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

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

2. Preventive controls regulations and likely the produce
regulation;

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

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

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

Redefine ``Farm'' to Resemble Farm Practices

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

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

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

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

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

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

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

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

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

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

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

Redefine ``Harvesting'' to Resemble Farm Practices

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

Inconsistency Between Retail Establishment and Farm Definitions

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

Define Crop for the Purposes of the Farm Definition

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

Clarify Terms in Farm and Organization Size

Clarify ``Same Ownership''

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

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

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

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

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

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

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

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

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

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

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

Vermont:

covers ``food.''

Exemptions:

animal products and foods bearing USDA labels,

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

processing aids,

alcoholic beverages,

minimal GE content (no more than 0.9%),

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

medical food.

labels:

``produced with genetic engineering.''

``partially produced with genetic engineering.''

``may be produced with genetic engineering.''

Maine:

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

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

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

label: ``produced with genetic engineering.''

Connecticut:

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

exemptions:

alcoholic beverages,

food intended for human consumption,

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

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

label: ``Produced with Genetic Engineering.''

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Dear Chairman Davis and Ranking Member DelBene:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

FQPA

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

EPA & `Services' Process for Endangered Species Act Consultations

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

FOCUS ON THE FARM ECONOMY

(FOOD PRICES AND THE CONSUMER)

----------

THURSDAY, APRIL 28, 2016

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

FOCUS ON THE FARM ECONOMY

(IMPACTS OF ENVIRONMENTAL REGULATIONS AND VOLUNTARY CONSERVATION
SOLUTIONS)

----------

TUESDAY, MAY 17, 2016

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

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

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

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

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

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

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

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

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

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

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

Appendix 2

Public Bodies Created Under Auspices of Chesapeake Bay Program

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Work across administrative boundaries rather than staying
within them;

Integrate social capital with ecological and economic
dimensions;

Encourage bottom-up participation rather than top down
initiatives;

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Throughout the past 2 years, my colleagues and I have communicated
with several of the largest precision agriculture providers. They have
expressed an interest in, and in some cases excitement about,
delivering conservation technical assistance.
An Example of a Private-Sector Offering
In an effort to get more conservation on the ground, United
Suppliers, a customer-owned wholesale supplier of crop nutrients, crop
protection inputs and seed, with headquarters in Ames, Iowa has stepped
forward. United Suppliers is making a significant investment into
developing a conservation planning service through the private-sector.
They have named their conservation platform SUSTAINTM. To my
knowledge, this offering by United Suppliers is the single largest,
private-sector investment in soil conservation planning services
offered to farmers.
The SUSTAINTM service platform includes soil loss
estimates and initial planning of conservation structures, including
grassed waterways, water and sediment control basins, ponds, and
wetlands. ``The new conservation planning service will provide growers
assistance in exploring conservation alternatives that best meet their
needs,'' said United Suppliers President & CEO Brad Oelmann.
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What a change. Even 5 years ago, it was difficult to imagine a
major ag fertilizer/chemical dealer developing a platform with such a
bold Vision Statement, ``improve the capabilities and competitiveness
of United Suppliers' Owners by positioning them as leaders of the
environmentally sustainable agriculture movement, both in the
agriculture industry and in the communities they serve.'' And following
up with a Mission Statement of ``offering a leading-edge, economically
sound and forward-thinking pathway through which Owners can deliver
significant benefits for growers, and do so in ways that are good for
the environment and meet the demands of the supply chain for fertilizer
optimization and soil health.''
To add to this excitement, in October of 2015, United Suppliers
entered into a joint venture with WinField Solutions, the crop input
business unit of Land O'Lakes, creating WinField U.S. A full merger of
the two organizations will be completed in October of 2017. Precision
soil and water management has emerged as a high-priority and best fit
for the WinField U.S. sustainability platform. WinField U.S. believes
that helping their growers conserve soil resources is essential for
their productivity and profitability, as well as for the expanding
global population. As a major first step, the organization's leadership
is working to partner with the Minnesota Department of Agriculture to
support farmer participation in the Minnesota Agricultural Water
Quality Certification Program via the WinField U.S. cooperative retail
network.
Technology and Precision Conservation
Just like technology revolutionized precision agriculture,
precision conservation will be accelerated with new, innovative
technologies and approaches.
In 2006, Agren entered into the world of high tech software. With a
Conservation Innovation Grant from NRCS we developed two software
programs; one to design ponds and one to design sediment basins. The
technology is amazing. What used to take me 6 to 20 hours, I could now
do in 15 to 20 minutes.
However, we didn't stop there. We developed more software. We
developed tools for wetlands, prescribed fire, and then one for grassed
waterways.
Most recently, Agren worked with USDA's Agricultural Research
Service (ARS) to commercialize some of their science and technology.
Most people would refer to this as technology transfer; I call it
unlocking Pandora's Box.
ARS is the lead agency for developing the RUSLE2 (Revised Universal
Soil Loss Equation version2), a computer model that predicts rill and
inter-rill erosion caused by rainfall and runoff. Since its inception,
this model has been used by conservation agencies to model soil erosion
at one point in a field. Through a team effort, Agren developed the
same modeling engine (RUSLE2) to calculate soil erosion at 72,000
points in 160 acres with Agren' SoilCalculator. Armed with
the outputs of SoilCalculator, ag retailers can help farmers correlate
soil erosion (Figure 3) to yields (Figure 4). Furthermore, ag retailers
can begin to help farmers understand if soil erosion is causing a yield
drag and recommend appropriate conservation practices.
Figure 2
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Pond design generated by Agren' PondBuilder.
Figure 3
' SoilCalculator.
Figure 4
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Farmer yield map.

The outputs of SoilCalculator are powerful and can be used to drive
several other important environmental models. Agren has collaborated
with researchers at the ARS Sedimentation Laboratory and the University
of Tennessee to develop two GIS-based soil loss modeling tools,
referred to as the Revised Universal Soil Loss Equation 2-Raster
(RUSLER) and the Ephemeral Gully Erosion Estimator (EphGEE).
Once sheet and rill erosion could be modeled in a distributed
fashion, Agren worked with ARS researchers Dr. Seth Dabney and Dr.
Dalmo Vieira, to also develop a physically-based ephemeral gully model.
Conceptually, the new model is based on the assumptions and methods
similar to those used in the Chemicals, Runoff and Erosion model from
Agricultural Management Systems (CREAMS) (Knisel, 1980) and the Water
Erosion Prediction Project model (WEPP) (Ascough, Baffaut, Nearing, &
Liu, 1997), but with a number of modifications to remove technical
limitations of those older models.
By integrating with RUSLER, the integrated application provides a
mechanism for the estimation of runoff and sediment loads that control
the development of ephemeral gullies. EphGEE simulates ephemeral gully
erosion on complex in-field dendritic channel networks, with outputs
for channel erosion and sediment transport, deposition, and delivery to
a watershed outlet (Vieira, 2014).
This ability to determine the transport and deposition of soil will
allow ag retailer to target practices, such as water and sediment
control basins, to sensitive areas resulting in significant, positive,
environmental impact. With technology like SoilCalculator, ag retailers
can effectively and efficiently implement precision conservation.
Figure 5
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Using SoilCalculator in combination with EphGEE, conservation
planners can model the sediment that is transported and
delivered to waterways. The number in the oval represents the
annual delivery of sediment from a sub-watershed (measured in
tons).
Agren's Sustainability Solution Platform
Agren developed the Sustainability Solution platform to allow ag
retailers to introduce soil and water management solutions alongside
their precision ag offering. The three-tiered platform supports
delivery, sales, and documentation of soil and water management
services through field agronomists. As farmer response and the market
for these services grow over time, the Sustainability Solution allows
retailers to provide a full-suite of precision conservation planning
services.
Figure 6
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Agren's 3-tiered Sustainability Solution.

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

Machine control is a 3D grade-control system integrated into
construction equipment such as a motor grader (or bulldozer). The
grader's antenna receives a GPS location signal. The internal GPS
technology compares the grader blade position to a pre-defined three-
dimensional computerized model. The system automatically controls the
hydraulics of the grader and raises or lowers the blade to achieve the
grade design requirements. The automatic blade control allows the
operator to reach grade in shorter time, translating to higher
contractor productivity.
Conservation application of machine control: Imagine a
conservationist designing a structure like a grass waterway using LiDAR
data. Once designed, the conservationist can easily create a 3D machine
control file and e-mail it to the contractor. The contractor then
uploads the file into the machine control unit and builds the
structure. This could all happen within 1 day, with the elimination of
field layout work.
Figure 8
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Motor grader with machine control.

In some locations and for some conservation practices, contractors
already can obtain a 3D machine control. Given the increased accuracy
and productivity, machine control files should be made available to all
contractors who build conservation practices.
Currently, Agren can output machine control files for waterways. By
the end of this year, Agren intends to output machine control files for
all structural practices. Developers (companies like Trimble, Topcon,
and Leica) are poised and waiting to expand the use of machine control
for soil and water conservation. Machine control technology will
fundamentally change how conservation structures are designed, staked,
and constructed.
Testimonial from a contractor using machine control to build a
grass waterway: https://www.agrentools.com/construction-marketplace/
testimonials/.
LiDAR is an emerging technology that is changing conservation
planning practices from coast to coast. An acronym for Light Detection
and Ranging, this term is used in mapping to describe how location and
elevation data is collected, using laser beams. To obtain the data, a
small aircraft flies over a land mass and sends out thousands of light
beams to define the surface of the earth and the heights of above
ground features.
The data initially gathered by a LiDAR system is raw X, Y and Z
coordinates. Processing of the data points can result in a highly
accurate GIS-based digital elevation model; essentially a plaster
relief of the landform made from light. Field verification trials in
Iowa, document 8" or better vertical accuracy under leaf-off
conditions.
Figure 9
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Collecting LiDAR data (Fancher, 2012).

LiDAR has been used for road and culvert design, fire fuel mapping
and to visualize the Grand Canyon.
Conservation application of LiDAR: When LiDAR data is combined with
tools like the Agren engineering tools, the information can be used to
more quickly and accurately determine optimum locations for
conservation solutions like ponds, waterways and basins. Additionally,
the opportunity to almost instantaneously provide farmers with a visual
representation of how their fields might look with different
conservation practices applied is tremendous.
While there is some consensus at a Federal level supporting a
national database of LiDAR, this effort has encountered snags. While
these snags are being sorted out, cities and states are moving ahead
with their own statewide LIDAR collection. Significant regions of the
Eastern United States now have LiDAR coverage. Although LiDAR is
available in many areas, it unfortunately varies in quality. In some
cases, LiDAR is accurate enough for actually engineering practices, but
it is always good enough for planning conservation practices.
NRCS is researching the use of LiDAR. According to USDA, NRCS,
``LiDAR suitability for conservation engineering work is determined by
data quality, such as the accuracy and precision of the LiDAR dataset.
Data quality is impacted by aerial flight precision, type and execution
of elevational ground control, the rate and density of sampling, and
the level of post processing.'' (USDA, NRCS, 2015).
Unmanned Aerial Vehicle (UAV): Where LiDAR data is accurate enough
only for planning soil and water conservation practices, alternative
collection methods can be used. Using UAVs is an emerging way to
collect low cost topographic data.
Figure 10
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UAV used to collect high quality topographic data.

In the spring of 2016, Dr. Rob Wells, USDA Agricultural Research
Service, compared photogrammetry measurements, of several data
collection methods, to determine the accuracy of UAV-collected
topographic data. Dr. Wells found that the UAV methodology provided a
highly accurate substitute for more labor intensive ground collection
of topographic data. Dr. Wells reported, using a UAV, topographic data
with a vertical accuracy 1 cm to 2 cm can easily exceeds the survey
quality specified by NRCS for engineering practices.
Conservation application of Unmanned Aerial Vehicle (UAV): Using a
UAV can vastly reduce the time spent collecting accurate topographic
data for conservation practice design. Additionally, UAVs can collect
survey data when soil conditions prevent traditional survey crews from
working. In 2016, Agren contracted with Top Intelligence, a regional
provider of drone related technology to fly seven different sites at
two different times, for a total cost of $7,500, or an individual cost
of $530/site which includes process and cleaning the data. The cost of
collecting data with UAV in this case, is certainly less expensive than
sending a crew to the field to collect survey data.
Conclusion
Public pressure on agriculture is at an all-time high. The public
want foods grown more sustainably and improved water quality. We, in
the ag community, need to up our game. We need to speed up conservation
practice adoption. We know farmers want to receive conservation
information from their ag retailers. And, we know ag retailers are
interested in providing this service, but they need encouragement and
motivation to integrate precision conservation with their precision ag
platform. The conservation effort can be accelerated by ag retailers
who are equipped with state-of-the-art technology. It all starts with
giving farmers the information they need to make a decision and
providing fast and efficient technical assistance for implementation.
Works Cited
Arbuckle, J. (2013, April 16). Staff: Arbuckle: Iowa State
University. Retrieved May 6, 2016, from Iowa State University
Department of Sociology website:
http://www.soc.iastate.edu/staff/arbuckle/Arbuckle%20PPT%202013%20
Climate%20change%20beliefs_concerns_atti-
tudes_toward_adaptation_mitigation.pdf.
Arbuckle, J., & Bates, H. (2015). Iowa Farm and Rural Life Poll--
Farmer Perspectives on Iowa's Nutrient Reduction Strategy. Ames: Iowa
State University.
Ascough, J., Baffaut, C., Nearing, M., & Liu, B. (1997). The WEPP
Watershed Model: I. Hydrology and Erosion. Transactions of the ASAE,
404(4), 921-933.
Fancher, Z. (2012, December 15). Using ArcGIS 10.0 to develop a
LiDAR to Digital Elevation Model workflow for the U.S. Army Corps of
Engineers, Sacramento District Regulatory Division. Retrieved May 13,
2016, from American River College Los Rios: https://ic.arc.losrios.edu/
veiszep/28fall2012/Fancher/G350_ZFancher.html
Helms, D. (2010, February 19). National Historian. (T. Buman,
Interviewer).
Knisel, W. (1980). CREAMS: A Field Scale Model for Chemicals,
Runoff, and Erosion from Agricultural Management Systems. Washington,
D.C.: U.S. Department of Agriculture.
Lawrence, P. (2015, March 19). Chief of Staff, USDA NRCS. (T.
Buman, Interviewer)
USDA, NRCS. (2015, January). Using LiDAR for Planning and Designing
Engineering Practices. Retrieved May 12, 2016, from USDA, NRCS
eDirectives: http://directives.sc.egov.usda.gov/
OpenNonWebContent.aspx?content=36637.wba.
Vieira, D.A. (2014, December 11-14). Distributed soil loss
estimation system including ephemeral gully development and tillage
erosion. (D.A. Vieira, Performer) Sediment Dynamics from the Summit to
the Sea; ICCE/IAHS International Symposium, New Orleans, LA.
Presentation
Agren'
Revolutionizing Conservation Delivery
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PondBuilder
55 percent of the 20 dairy farms are projected to end the
baseline period in marginal or poor condition.

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

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

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

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

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

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

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

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

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

STATEMENT OF SCOTT BROWN, Ph.D., EXTENSION ASSISTANT PROFESSOR,
DEPARTMENT OF AGRICULTURAL AND
APPLIED ECONOMICS, UNIVERSITY OF MISSOURI; STATE
AGRICULTURAL ECONOMICS EXTENSION SPECIALIST,
UNIVERSITY OF MISSOURI EXTENSION, COLUMBIA, MO

Dr. Brown. Chairman Rouzer, Ranking Member Costa, and
Members of the Subcommittee, thank you for the opportunity to
testify regarding the current financial situation for livestock
producers. I am an agricultural economist at the University of
Missouri, and I have worked extensively on livestock and dairy
policy issues.
The previous decade has resulted in the best and worst of
times for the livestock sector: 2006 livestock cash receipts
totaled $118 billion and nearly doubled to over $212 billion in
2014. Feed costs skyrocketed over the last decade, as weather
and other factors drove tight feed supplies. Purchase feed
expenses doubled from $31 billion in 2006 to $64 billion in
2014. USDA currently estimates both will move lower this year.
Feed costs, weather, and disease issues place meat
availability at a 23 year low in 2014. Meat consumption peaked
at 220 pounds in 2007, and fell below 200 pounds in 2014. CY
2016 per capita meat consumption will show that \1/2\ of the 20
pound decline has been recovered, which has led to lower
livestock prices.
The extremes of 2009 and 2014 have shown the highest to be
breathtakingly high, while the lows have been desperately low,
making risk management important. Droughts in major cow/calf
regions contributed to record cattle prices in 2014 and 2015.
Markets have fallen substantially from the records, yet 2016
will still have positive returns for cow/calf producers. The
one million head annual growth in cows this year was the
largest in over 2 decades. Beef production expansion will
likely lead to even lower cattle prices.
CY 2014 hog returns hit record levels as feed costs eased
and disease dramatically cut pigs per litter. As the sector
recovered, production has grown and hog prices have declined by
more than 30 percent.
All-milk prices hit a record of $25.70 a hundredweight in
2014, but recently fell to $15.30 with the March information, a
level we haven't seen since 2010. Current price information
shows further declines will occur. Two factors have driven
those lower milk prices. Reduced U.S. dairy exports have meant
increased dairy product supplies on domestic markets. Second,
milk production expansion has continued despite lower returns.
April milk production is up 1.2 percent over a year ago, and
the cow herd has expanded by over 22,000 heads since the
beginning of this year.
Why has milk output grown when milk returns suggest
contraction? During the 1980s and 1990s, there were more
farmers with higher costs that exited during tough times.
Today's operations have larger fixed costs, which makes their
exit difficult. Since 2000, annual milk production has only
declined twice, while it declined five times over the 1986 to
1999 period.
If true, the only way out of low returns is for demand
growth. There has been much discussion that the Margin
Protection Program is not providing a strong enough safety net.
Before examining the MPP, it is important to understand that it
is extremely difficult to construct a stronger safety net for
dairy farmers while reducing Federal spending remains a
priority. CBO estimates Fiscal Year 2016 Federal outlays at $42
million, and USDA estimates 2016 dairy cash receipts will total
$33.2 billion, a drop of over $16 billion from 2014.
Identifying a safety net program that can moderate a $16
billion drop in cash receipts, yet only costs the government
$42 million is a large challenge. Lower feed costs have
resulted in the MPP margin falling far less than the milk price
decline. A comparison between the cost of corn production and
the decline in corn prices is instructive. AMS reports
Minneapolis corn prices fell from $7.15 to $3.23 per bushel
over the March 2013 to March 2016 period. The large decline in
corn prices is helpful to dairy producers, yet this direct
comparison of corn prices may mask some effects. The Economic
Research Service estimates that 63 percent of Wisconsin dairy
feed costs are homegrown harvested feed, compared to 26 percent
in California. ERS corn production costs have changed little
over the 2013 to 2016 crop seasons. The difference in the cost
of growing feed needs and the decline in crop prices may be one
of the reasons why producers have struggled with MPP.
The feed costs coefficients used in the formula were
reduced by ten percent during the farm bill debate. Record crop
prices and high crop price projections drove the change. This
change lessened the effect of feed prices on the MPP formula
and reduced Federal outlays. Without this adjustment, the feed
cost decline would have offset more of the milk price decline.
More work is needed to help producers think through the
risk management versus program return maximization facets of
policy. CY 2016 MPP participation has moved to lower levels of
margin coverage when producers may be better served to
participate at higher levels.
Mr. Chairman, thanks for the opportunity to discuss the
many issues facing the livestock and dairy industries today.
[The prepared statement of Dr. Brown follows:]

Prepared Statement of Scott Brown, Ph.D., Extension Assistant
Professor, Department of Agricultural and Applied Economics, University
of
Missouri; State Agricultural Economics Extension Specialist, University
of Missouri Extension, Columbia, MO
Chairman Rouzer, Ranking Member Costa, and Members of the
Subcommittee, thank you for the opportunity to testify regarding the
current financial situation for livestock producers in this country. I
am an agricultural extension economist at the University of Missouri
and for the last 3 decades have worked extensively on livestock policy
issues with a specific focus on dairy policy issues.
The previous decade has resulted in some of the best and worst
economic times the livestock sector has ever faced. In 2006, USDA
reports that livestock cash receipts totaled $118 billion. By 2014,
livestock cash receipts had soared to over $212 billion. USDA currently
estimates that livestock cash receipts will decline to below $178
billion in 2016.
U.S. Livestock Cash Receipts
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Source: USDA-Economic Research Service.
* 2016 USDA-ERS forecast.

Feed costs, the major input for all livestock industries,
skyrocketed over the last decade as weather and other factors drove
tight feed supplies. In 2006, USDA reported purchased feed expenses at
$31 billion. They rose to $64 billion by 2014. With larger crop
supplies, purchased feed costs are currently estimated by USDA to total
$56 billion in 2016.
U.S. Production Expenses, Purchased Feed
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Source: USDA-Economic Research Service.
* 2016 USDA-ERS forecast.

The combination of high feed costs, weather and disease issues
placed U.S. meat availability at a 23 year low in 2014. U.S. per capita
beef, pork and poultry consumption peaked at nearly 220 pounds per
person in 2007 before falling to slightly less than 200 pounds in 2014.
2016 meat per capita consumption will show that at least \1/2\ of the
20 pound decline has been recovered in just 2 years. This additional
quantity of meat in the U.S. marketplace relative to 2014 has driven
down prices for livestock products.
One thing is clear when looking at the financial picture of the
livestock sector, the highs have been breathtakingly high while the
lows have been desperately low. While 2009, with its high feed costs
and general global economic meltdown, can represent the lowest of lows,
2014 surely will remain in the record books for many years to come for
the record shattering high. Although either of these years could be
duplicated again, the probability of either of these years occurring
again soon is low.
Extreme livestock market volatility has become expected by all.
Long-term survival may depend critically on risk management plans
adopted by individual operations. Marketing livestock or milk using a
cash market strategy is a risk management strategy that works well in
rising markets but provides little help in declining markets.
Cattle markets have seen the droughts of 2011 and 2012 in major
areas of cow/calf production in the United States contribute to the
record cattle prices in late 2014 and early 2015. Although cattle
markets have fallen substantially from the record highs, 2016 will
still be another year of positive returns.
Oklahoma City, 600-700 lbs, Weekly, Feeder Steer Price
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

Beef cow expansion that began during 2014 and accelerated during
2015 continues in 2016. The decline in current economic incentives will
likely slow future growth in beef cow inventory. The one million head
annual growth in beef cows that was reported by USDA for January 1,
2016 was the largest increase experienced in over 2 decades.
As beef production continues to expand, cattle prices are likely to
come under further pressure over the next few years. For Missouri
combined auctions, 450 to 500 pound feeder steers which reached over $3
per pound in early 2015 but have recently fallen to $1.80 per pound.
However, that remains above the $1.25 per pound level seen in early
2010.
Hog producers saw farrow to finish returns hit record levels in
2014 as feed costs eased and PEDv dramatically cut the number of pigs
saved per litter. As the sector recovers from disease events, pork
production has grown and hog prices have moved lower. Pork production
grew by over seven percent in 2015 relative to 2014 and hog prices
declined by more than 30 percent.
Hog Price, National Base
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

The recent growth in barrow and gilt slaughter does highlight the
need for additional processing capacity to come on board soon. Current
pork processing expansion plans will help handle the flow of additional
hogs that will come to market in late 2017. By the fourth quarter of
2016, current processing capacity may be stretched to the limit.
Farrow to finish returns have remained slightly above breakeven in
the first quarter of 2016. The return picture for the remainder of this
year will depend on the strength of domestic and international demand
as well as the size of the U.S. crop currently being planted. If any of
these factors raise feed costs or further erode hog prices, the last
half of 2016 could be financially challenging.
Dairy producers have seen a similar milk price picture unfold as
has been experienced in the other livestock sectors. In September 2014,
the U.S. all milk price hit an all-time record at $25.70 per
hundredweight. The latest USDA Agricultural Prices report showed that
the March 2016 U.S. all milk prices fell to $15.30 per hundredweight.
Given current dairy product prices and advanced Federal Order prices,
further declines will occur. This level of milk prices has not been
experienced since early 2010.
Two factors have been at play in the decline in milk prices seen by
U.S. dairy producers. First, a decline in U.S. dairy product exports
has meant increased milk and dairy product supplies on domestic
markets. After annual U.S. dairy product exports reached a record of
over $6.5 billion in 2014, they fell below $5 billion in 2015. U.S.
dairy exports have declined another $0.3 billion in the first quarter
of 2016 relative to a year ago. A stronger U.S. dollar and growing
supplies in Europe have hindered U.S. dairy exports. Although many in
the industry continue to call for a turnaround in U.S. dairy export
demand, it has yet to occur. If U.S. dairy exports do not begin to
increase in the remaining months of 2016, the financial strain on U.S.
dairy producers is going to increase even further.
Second, the expansion in U.S. milk supplies has continued despite
the economic stress being felt in the dairy industry. The latest USDA
milk production report shows that April milk production growth slowed
but it was still 1.2 percent higher than a year ago. The report shows
U.S. dairy cow inventories have expanded by 22 thousand head since the
start of 2016. The growth in milk supplies is expected to continue into
2017 highlighting the need for U.S. dairy export growth.
The dairy industry needs to carefully consider the inability to
turn the spigot off when milk returns suggest contraction is needed.
During the 1980s and 1990s, there were more dairy farmers with
relatively higher production costs to exit the industry during tough
times. By the 2000s, the remaining operations tend to have larger fixed
costs, which makes their exit more difficult.
Historical data on U.S. milk production highlights past
difficulties in reducing milk supplies when producer returns are low.
Since 2000, annual milk production has only declined in 2001 and 2009.
Milk production even expanded during the drought-induced record feed
prices of 2012/2013. In comparison, annual milk production fell five
times over the 1986 to 1999 period.
If the assumption of less supply response to poor returns is
correct, there are implications that dairy producers must prepare for.
Most importantly, the only way out of low returns is for demand growth
to catch up to excess milk supplies.
With the current economic downturn in the dairy industry, there has
been an abundance of discussion about the new dairy safety net program
contained in the 2014 Farm Bill. There has been growing concern that
the Margin Protection Program (MPP) is not providing a strong enough
safety net for U.S. dairy producers.
Before examining detailed MPP features, it is important to
understand the large task of building a solid safety net program with a
tight Federal budget. It is extremely difficult to construct a stronger
safety net program for dairy farmers while reducing Federal spending
remains a priority.
The Congressional Budget Office estimates FY 2016 dairy CCC
expenditures at $42 million and USDA estimates that dairy cash receipts
will total $33.2 billion in 2016, a drop of over $16 billion from the
2014 level. Identifying a safety net program for dairy producers that
can moderate a $16 billion drop in cash receipts yet only cost $42
million to the Federal Government is a large challenge.
The MPP has come under scrutiny as milk prices and dairy farmer
returns fall. One of criticisms of the MPP is that the current level of
the MPP margin, which measures the U.S. all milk price less feed cost,
is not representative of what dairy producers face today. For March,
the MPP margin was measured at $7.47 per hundredweight which would only
provide a payment to those producers that bought coverage at some of
the highest levels.
The reduction in feed costs as represented by national corn,
soybean meal and alfalfa prices has resulted in the MPP margin falling
far less than the decline in national milk prices. Many producers have
reported their financial situation has eroded much faster than the MPP
margin has declined. It has led to much speculation on the reasons why.
A comparison between the costs of corn production and the decline in
corn prices is instructive as to some of the issues that are at play
for dairy producers.
In late March 2013 the USDA Agricultural Marketing Service (AMS)
reported single car unit Chino Valley California corn prices at $8.76
per bushel. By the same period in 2016 they fell to $4.82 per bushel.
AMS reported Minneapolis corn prices fell from $7.15 per bushel to
$3.23. Larger corn supplies and cheaper transportation allowed for a 45
percent decline in Chino Valley corn prices while Minneapolis corn
prices fell by 55 percent. The large declines in corn prices are
helpful to dairy producers, yet this direct comparison of corn prices
may mask some of the regional effects of dairy feed costs.
The USDA Economic Research Service (ERS) estimates that 63 percent
of Wisconsin dairy farmers' feed costs come from homegrown harvested
feed compared to 26 percent in California. Dairy producers that buy a
majority of their dairy feed may be in a better financial position
today than those that grow more of their feedstuffs, as the total corn
production cost reported by ERS has changed little over the 2013 to
2016 crop seasons. ERS reported 2013 total corn production costs at
$676.66 per acre while they estimate 2016 at $679.72 per acre. The
situation has changed rapidly relative to a few years ago when those
growing their own feed were in a better position to manage historically
high corn prices.
The difference in the cost of growing feed needs for the dairy and
the decline in crop prices may be one of the reasons dairy producers
have struggled with the safety net provided by the MPP. There has also
been discussion around the coefficients that derive the national feed
cost used in the MPP formula. The National Milk Producers Federation
(NMPF) had a taskforce of industry experts construct rations
representative of the dairy industry back during their development of
the Foundation for the Future program development. This work
constructed rations made up of corn, corn silage, soybean meal and
alfalfa. Corn silage was converted to a corn equivalent by valuing a
ton of corn silage at 10.1 multiplied by the price of corn per bushel.
These original coefficients were modified by reducing them by ten
percent to reduce the MPP program cost during debate on the Farm Bill
in 2013. This was a period of time with very high crop prices and many
baselines kept crop prices at much higher levels than we are
experiencing today. The effect of this change was to lessen the effect
of feed prices on the overall MPP formula. If these coefficients had
not been adjusted lower, the criticisms of the formula would only grow
as feed would have a larger effect and the decline in feed costs would
even offset a larger proportion of the milk price decline.
The MPP was a major change in dairy policy relative to the past
safety provided to the dairy industry. The move to policy focused on
providing margin risk management from one that provided a floor on milk
prices has required moving from an attitude of program return
maximization to risk management. More work is needed to help producers
think through the risk management aspect of the MPP. [CY] 2016 MPP
participation has moved to the lower levels of margin coverage when
producers may be better served to participate at higher levels.
Margin Protection Program Participation
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

There is a fine line that must be traversed in setting parameters
of Federal dairy policy. We have had experience with programs that
provided too much support to the industry and resulted in large milk
surpluses and chronically low milk prices or large government
expenditures. Everyone in the dairy industry did not like these
periods. However, setting support too low means it may never trigger in
those periods of times that it is most needed. This tradeoff will
always require modifications as future farm bills are debated and
passed.
In summary, it remains clear that U.S. meat and milk supplies are
going to continue to increase perhaps well into 2017. Global demand and
strengthening U.S. meat and dairy exports will be needed to move
livestock and dairy market prices higher. Strong domestic demand must
continue as well. Federal livestock and dairy policies must address the
added volatility that comes as a result of more emphasis on global
markets. Weather will remain another big risk for livestock producers
and the support provided by Federal programs like the Livestock Forage
Program (LFP) are a much needed help against catastrophic weather
events.
Mr. Chairman, thanks for the opportunity to discuss the many issues
facing the livestock and dairy industries today.

The Chairman. Thank you, Dr. Brown.
Mr. Zimmerman?

STATEMENT OF JOHN ZIMMERMAN, MEMBER, BOARD OF
DIRECTORS, NATIONAL TURKEY FEDERATION, NORTHFIELD, MN

Mr. Zimmerman. Good morning, Chairman Rouzer, Ranking
Member Costa, and Members of the Subcommittee. My name is John
Zimmerman, and I am a turkey farmer from Northfield, Minnesota,
raising approximately 4 million pounds per year. I am the past
President of the Minnesota Turkey Growers Association, as well
as a board member of the National Turkey Federation. I
appreciate the opportunity to testify today on behalf of the
63,000 men and women that put their boots on every day to keep
the turkey industry working.
Our industry raises approximately 238 million turkeys
annually, and USDA's latest forecast puts 2016 turkey
production at an all-time record of 6.4 billion pounds, 14
percent above 2015.
This year, the turkey industry has made significant strides
and learned a lot in recovering from high path avian influenza,
after suffering through the worst animal disease outbreak in
U.S. history last year. However, our preparation was tested
earlier this year in Indiana when a small outbreak occurred in
a commercial turkey flock. This outbreak was small precisely
because of the lessons we have learned, the most important of
which is that immediate action needs to be taken at the local
level to limit virus spread. No matter how good the intentions
are at the state and Federal level, industry must be given
clear permission to act within minutes, not hours or days, to
protect other farms from becoming infected. I must emphasize
the need for rapid stamping out procedures and methods that
ensure humane treatment, while eliminating virus spread.
Currently, there is no one method that achieves perfect results
in all circumstances.
NTF is deeply appreciative of the indemnification program
implemented by USDA APHIS and strongly supported by Congress
that helped us manage through this crisis. I would be remiss if
I did not take a moment to personally thank my fellow
Minnesotan, Congressman Collin Peterson, on behalf of myself,
NTF, and the entire turkey industry for all you did for us last
year. Thank you.
Finally the billion dollars in losses are well-documented.
In order to prevent future outbreaks, the U.S. needs to adopt a
forward looking mandatory animal pest and disease prevention
program designed to limit the impacts of foreign zoonotic
diseases on livestock and poultry producers. We look forward to
working with Congress to accomplish this.
All poultry exports were severely damaged by the trade
restrictions that resulted from the 2015 high-path outbreak.
Specifically, last year turkey exports declined 34 percent and
over 33 countries enacted some form of a ban on U.S. poultry.
Without the hard work of APHIS, it could have been a lot worse.
They reopened closed markets, as well as continued to establish
protocols that will limit bans to regional levels in the
future.
We also continue to see high-path outbreaks in Europe,
Asia, and South America, and now is the time to reengage with
our trade partners to discuss how HPAI can be treated, moving
forward. This is a global disease, and working with the
government we can develop a plan that minimizes export
disruptions now.
With regards to non-scientific trade barriers, it is
important that USDA's FAS continue to work with both APHIS and
the turkey industry to fully understand how we differ from
chicken and livestock production. For example, while never
covered under the U.S. COOL regulations, turkey has now become
subjected to COOL-like regulations by both Korea and South
Africa, who banned U.S. turkey raised and processed in the U.S.
just because it was hatched outside the U.S. This is not
science-based and is a problem for many companies that hope to
expand sales into these promising growth markets. Finally, we
support TPP as an important step forward in reducing trade
barriers and opening new markets to the turkey industry, and we
encourage Congress to approve this agreement as soon as
possible.
Recently, USDA proposed a rule to amend the organic
livestock and poultry production requirements based on
recommendations by the National Organic Standards Board. NTF is
concerned about the potential disruptions to existing organic
producers and their supply chains, as well as the impacts this
proposed rule may have in ensuring that animal health is fully
protected. Before moving forward with the rule, the turkey
industry feels that USDA should conduct a thorough assessment
of the cost of compliance, increased animal health and welfare
risks, and alternatives for existing organic growers,
producers, and supply chains to ensure minimal impact. Six
years ago, USDA proposed sweeping rule changes on farmer
contracting. With the expiration of a Congressional prohibition
on implementing these changes, USDA is once again threatening
to fundamentally change the rules by which our members operate.
We believe that the changes would increase costs, reduce
productivity, and possibly lead to increased live production
ownership by integrated poultry companies, to the detriment of
independent farmers like myself. We support the continued
prohibition of USDA's implementation of these proposed changes.
A recent report by the National Academy of Sciences found
that food made from genetically engineered crops are as safe to
eat as those made from conventional crops. Regarding food
labeling, NTF actively supports two critical components of any
GMO bill that comes out of Congress. First, that the bill
maintains Federal preemption for meat and poultry labeling,
which is already regulated by USDA FSIS; and second, that it
ensures that animals fed GE feed should not have to be labeled
GE. We look forward to a bill that prevents a patchwork of
state rules that create a labeling nightmare for food
producers, but these two conditions must be met.
Finally, we have a worker shortage all across this country,
and meat and poultry producers are no different in feeling the
pain of this shortage. The turkey industry supports immigration
reform that addresses the needs of year round meat and poultry
producers and processors. Our members need access to a pool of
legal, general labor immigrant workers and a visa program that
could address these needs. However politically difficult it
seems, we must get this done.
Once again, thank you for the opportunity to testify today
on behalf of the U.S. turkey industry and the issues impacting
our businesses, and I would be happy to answer any questions.
[The prepared statement of Mr. Zimmerman follows:]

Prepared Statement of John Zimmerman, Member, Board of Directors,
National Turkey Federation, Northfield, MN
Good morning, Chairman Rouzer, Ranking Member Costa, and Members of
the Subcommittee. My name is John Zimmerman, and I am a turkey farmer
from Northfield, Minnesota and past President of the Minnesota Turkey
Growers Association (MTGA). My family and I raise about 4 million
pounds of turkeys annually on our farm as well as grow about 500 acres
of corn and soybeans. I am also a board member of the National Turkey
Federation, which represents the $32 billion U.S. turkey industry. I
appreciate the opportunity to testify before you today on the state of
the turkey industry. The turkey industry raises approximately 238
million turkeys annually, and provides employment to over 63,000 people
nationwide, directly associated with breeding, hatching, raising and
processing turkeys. USDA's latest forecast puts 2017 turkey production
at an all-time record of 6.4 billion pounds, 14% higher than 2015. As
an industry, we continue to be challenged with a multitude of issues
that impact those of us in the turkey business and we look forward to
working with each of you to address these issues.
Avian Influenza
In 2016, the turkey industry has made significant strides in
recovering from highly pathogenic avian influenza (HPAI), after
suffering through the worst animal disease outbreak in U.S. history in
2015. The losses from HPAI were personal and weighed heavily upon the
shoulders of farmers, rural communities, and companies from the West
coast to the Midwest.
As an industry, we continue to learn new lessons from the outbreak
and guard against the potential return of the deadly virus. Our
preparation was tested earlier this year in Indiana when a small
outbreak occurred in a commercial turkey flock. This outbreak was so
small precisely because of the lessons we've learned. The most
important lesson is that immediate action needs to be taken at the
local level to limit virus spread. No matter how good the intentions
are at the state and Federal level, industry must be given clear
permission to act within minutes, not hours or days, to protect other
nearby farms from becoming infected. I must emphasize the need for
rapid ``stamping out'' procedures and methods that ensure humane
treatment while eliminating virus spread. Currently there is no one
method that achieves perfect results in all circumstances.
NTF is deeply appreciative of the indemnification program
implemented by USDA and the Animal Plant Health Inspection Service
(APHIS) along with the strong Congressional support for the turkey
industry as we managed through the crisis. I would be remiss at this
time if I did not take a moment to personally thank my fellow
Minnesotan, Ranking Member Collin Peterson, on behalf of myself, NTF
and the entire turkey industry for all you did to help last year.
Our industry continues to work with Federal and state officials on
key areas such as: biosecurity, depopulation strategy, disposal,
repopulation, vaccine usage and future research. However, the road
ahead remains long and as an industry we will need continued support
from Congress to assist USDA-APHIS on the avian influenza front. The
2016 Indiana incident is a stark reminder that HPAI is still out there
looking for an opportunity to strike again. The 2015 damage to the
poultry industry exceeded $1 billion, with much of that cost borne by
consumers in the form of higher turkey and egg prices.
In order to prevent future outbreaks, the U.S. needs to adopt a
forward-looking, mandatory animal pest and disease prevention program
designed to limit the impacts of foreign zoonotic diseases on livestock
and poultry producers. We look forward to working with Congress to get
this accomplished. As the saying goes, ``an ounce of prevention is
worth a pound of cure''.
Exports
All poultry exports--turkey, eggs and broilers--were severely
damaged by the trade restrictions that resulted from the 2015 HPAI
outbreak. Specifically, 2015 turkey exports declined to only 533
million pounds, a 34% drop from 805 million in 2014. Over 33 countries
enacted some form of ban on U.S. poultry during the height of the HPAI
crisis, and I want to make sure to thank the staff of USDA's APHIS for
their work in reopening closed markets as well as establishing
protocols that will limit bans to regional levels in any future cases
of avian influenza. We have seen this hard work pay off in the very
limited bans enacted after the two cases in 2016.
However, we continue to see HPAI outbreaks in Europe, Asia and
South America. Now is the time, to re-engage with our trade partners to
discuss how HPAI can be treated, moving forward. This is a global
disease and working with the government we can develop a plan that
minimizes export disruptions during future outbreaks.
Additionally, as APHIS knows, there is much more work to be done on
the international front to protect all sectors from non-scientific
trade barriers enacted in the name of protecting animal health. It is
important that USDA's Foreign Agriculture Service (FAS) continue its
work with both APHIS and the turkey industry to fully understand how
our industry differs from chicken and livestock production. For
example, while never covered under the U.S. COOL regulations, turkey
has unfortunately seen restrictions in response to COOL, with both
Korea and South Africa banning U.S. turkey ``hatched'' outside the U.S.
This causes significant problems for many companies that hope to expand
sales in these promising, growth markets.
Finally, we support the Trans-Pacific Partnership Agreement (TPP)
as an important step forward in reducing trade barriers and opening new
markets for the turkey industry. We encourage Congress to approve the
agreement as soon as possible.
Organic Rule
Recently, USDA proposed a rule to amend the organic livestock and
poultry production requirements based on recommendations by the
National Organic Standards Board. NTF is concerned about the potential
disruption to existing organic producers and their supply chains, as
well as the impacts this proposed rule may have on ensuring that animal
health is fully protected. Before moving forward with the rule, the
turkey industry feels that USDA should conduct a thorough assessment of
the costs of compliance, increased animal health and welfare risks, and
alternatives for existing organic growers so that producers and supply
chains directly impacted by these changes will be minimally impacted.
USDA's Grain Inspection, Packers and Stockyards Administration (GIPSA)
Six years ago, USDA proposed sweeping rules changes on farmer
contracting. With the expiration of a Congressional prohibition on
implementing those changes, USDA is once again threatening to
fundamentally change the rules by which our members operate. We
continue to believe that the changes would increase costs, reduce
productivity, and possibly lead to increased live production ownership
by integrated poultry companies, to the detriment of independent
farmers. We support the continued prohibition of USDA's implementation
of the proposed changes for the simple fact that the unintended
consequences would outweigh any purported benefits.
Food Labeling
A recent report by the National Research Council--the working arm
of the National Academy of Sciences, Engineering and Medicine--found
that foods made from genetically engineered crops are as safe to eat as
those made from conventional crops, and that GMOs generally improve
farmers' yields by controlling pests and weeds. With regards to food
labeling, NTF continues to actively support the two critical components
of any GMO bill that comes out of Congress: (1) That the bill maintains
Federal preemption for meat and poultry labeling, which is already
regulated by USDA-FSIS and (2) that it ensures that animals fed GE feed
should not have to be labeled GE. We look forward to having a bill that
prevents a patchwork of state rules that create a labeling nightmare
for food producers. The U.S. needs a single set of labeling rules that
are common-sense and based on the most respected science known.
Immigration
We have a worker shortage all across the country, and meat and
poultry producers are no different in feeling the pain of this
shortage. The turkey industry supports immigration reform that include
policies and provisions that will maximize benefits to the turkey
industry and ensure a strong and durable immigration system that meets
the needs of the U.S. economy. Most turkey plants are located in rural,
low-unemployment areas. To fully staff these plants, producers must
recruit from outside of their local areas and in many instances must
rely on first-generation Americans. There are very few permanent visas
for less skilled workers and the existing temporary programs only apply
to seasonal labor. This effectively leaves year-round meat and poultry
manufacturers with no good options. Our members need access to a pool
of legal, general labor immigrant workers, and we support a visa
program that addresses the needs of the meat and poultry industry.
There is currently no one bill that provides a ``silver bullet,'' but
it is time to resolve the immigration debate for the good of the
country.
Once again, thank you for the opportunity to testify today on the
state of the U.S. turkey industry and the issue impacting our
businesses. I will be happy to answer any questions at this time.

The Chairman. Thank you, Mr. Zimmerman.
Mr. Mooney?

STATEMENT OF RANDY MOONEY, CHAIRMAN, NATIONAL MILK PRODUCERS
FEDERATION AND DAIRY FARMERS OF
AMERICA, ROGERSVILLE, MO

Mr. Mooney. Thank you, Chairman Rouzer, Ranking Member
Costa, and distinguished Members. Thank you for the opportunity
to testify before the Subcommittee, and I want to thank
Congresswoman Hartzler for the kind introduction.
To be clear, times are tough on America's dairy farms. For
the second year in a row, USDA projections indicate that
revenues from milk sales will drop this year to $31.5 billion,
the second lowest level in the last decade, and more than a $20
billion plunge from 2014's high. As U.S. milk production has
grown and we have had to rely more heavily on world markets,
our fortunes are now more closely tied to the extreme
volatility that are a feature of global commodity markets.
Because of volatility in both milk and feed, we must
continue to reassess our risk management tools. For most of the
8 years that I have been Chairman of the National Milk, I have
worked with our member cooperatives and dairy producers to
build a better safety net. Our request to Congress after the
economic disaster our industry suffered in 2009 was to create a
risk management tool that would provide protection against the
prolonged and catastrophic cost price squeeze we had
experienced. In the 2014 Farm Bill, Congress created the Margin
Protection Program. Approximately 23,000 dairy producers are in
the program, representing 80 percent of the milk supply. In
2015, U.S. dairy producers paid $73 million in premiums and
fees to USDA, while USDA only paid out $700,000 under the
program. This year, dairy farmers have paid in another $23
million. I firmly believe MPP is the right dairy program for
the future. That said, our experience today is that MPP is not
completely fulfilling its intended objective as an effective
safety net, but we remain confident that the improvements can
be made by the Congress for this still evolving program.
For many farmers, the current program is simply not enough
to protect them in this economic environment. Since the farm
bill was signed into law, MPP margins have fallen 52 percent,
with further declines expected. While MPP is similar to the
initial proposal put forward with National Milk, the plan was
altered during the farm bill process. One change reduced the
feed cost component of the margin so the current formula no
longer reflects the true cost of feeding the herd. Second,
while the feed cost component was changed, farmers' premiums
were not, when they should have been reduced to accommodate the
reduced feed component. MPP has been less effective as a
result. I have heard from many dairy farmers that their
financial challenges will only increase if the prices do not
improve before 2017. We continue to discuss ways forward with
our member cooperatives, USDA, and the Congress.
Clearly, adjustments to the feed cost calculation and the
farmer paid premiums would improve MPP's effectiveness as a
safety net for all dairy producers. The feasibility and timing
of such adjustments are issues we want to explore with the
Committee.
Our industry is also impacted by numerous other policy
issues that are described more fully in my submitted comments,
but I want to highlight two of them today. First is the
critical importance of Congress acting immediately to pass
legislation to ensure that a single Federal standard is
established on labeling of a genetically modified food. I
cannot emphasize enough how important it is that Congress
resolve this matter before July 1, when the Vermont law takes
effect. Failure of Congress to address this issue threatens the
viability not only of my farm, but also the 30,000 farmers I
represent. It also threatens our ability to feed the world's
growing population.
Trade is another area of importance to dairy farmers. Our
nation has gone from exporting less than $1 billion worth of
products in 2000 to more than $5.2 billion of exports in 2015,
an increase of 435 percent. This enormous growth can be largely
attributed to the market opening free trade agreements
negotiated by our government. We support the TPP agreement
because it can help U.S. dairy exports continue to grow in key
world markets, but in order for farmers to realize any benefit,
important implementation and enforcement issues must be
addressed as Congress prepares to consider TPP.
Separately and finally, any trade agreement with the
European Union must first prioritize how to tackle our trade
deficit with Europe, while also addressing the non-tariff
barriers, like geographic indicators and sanitary barriers the
EU uses to limit our access. The EU has not demonstrated a good
faith commitment to open agricultural trade. The U.S. must
proceed cautiously by securing clear commitments from the EU to
guard against the imposition of future trade barriers.
Mr. Chairman, I want to thank you for holding this
important hearing. America's dairy farm families stand ready to
help this Committee as you review current policies and consider
new legislation that impacts our industry. Thank you.
[The prepared statement of Mr. Mooney follows:]

Prepared Statement of Randy Mooney, Chairman, National Milk Producers
Federation and Dairy Farmers of America, Rogersville, MO
About Randy Mooney
My wife, Jan, and I operate Mooney Dairy in Rogersville, Missouri.
I serve as Chairman of the National Milk Producers Federation (NMPF)
and Chairman of Dairy Farmers of America (DFA), the nation's largest
dairy cooperative. In addition to my duties as chairman of NMPF and
DFA, I serve on the boards of several dairy organizations, including
Missouri State Milk Board, Dairy Management Inc., Hiland Dairy and the
Innovation Center for U.S. Dairy.
About NMPF
National Milk Producers Federation develops and carries out
policies that advance the well-being of dairy producers and the
cooperatives they own. The members of NMPF's cooperatives produce the
majority of the U.S. milk supply, making NMPF the voice of more than
30,000 dairy farmers on national issues.
Opening Statement
Chairman Rouzer, Ranking Member Costa, and distinguished Members,
thank you for this opportunity to testify before the Subcommittee.
I am here today as Chairman of the National Milk Producers
Federation, the voice of America's dairy cooperatives and their 30,000
farmer-members. For 100 years, National Milk has advocated on behalf of
our nation's dairy farmers. I also serve as Chairman of Dairy Farmers
of America, the nation's largest dairy cooperative.
Dairy Market Situation
To be clear, times are tough on America's dairy farms for the
second year in a row. USDA's projections indicate that farm revenue
from milk sales will drop this year to $31.5 billion--the second-lowest
level in the last decade and. That's more than a $20 billion plunge
from 2014 highs. Unfortunately, the value of the fresh milk I produce
today is worth 22 percent less than it was 10 years ago, and nearly 40
percent less than only a few years ago.
The difficult economic conditions and tighter operating margins
over the last 10 years have resulted in the loss of more than 18,000
dairy farms in the United States. I fear the present environment of
depressed market prices could result in even more farm closures. USDA
projects the 2016 U.S. all-milk price to average $14.85 per
hundredweight. If realized, this price would represent a milk price
decline of nearly 40 percent from 2014 and is second only to 2009 in
terms of low milk prices over the last decade. For a small family farm
milking 100 cows, this price decline equates to a farm revenue decline
of approximately $200,000.
In my home State of Missouri, the situation is even worse. Over the
last 10 years, I've seen more than 600 of my home state dairy farmers
quit the business. We always knew dairy was a boom and bust industry,
but the recent swing of the pendulum back toward low prices is taking a
lot of farmers with it. Unlike other parts of the country where dairy
cows are absorbed by other operations, in Missouri we are producing
less milk year after year, and we are being paid less than the U.S.
all-milk price for that milk. USDA's mailbox milk prices for northern
and southern Missouri during 2015 indicated that the price Missouri
dairy farmers actually received was 14 to 22 per hundredweight less
than the U.S. average. The value of dairy to our state's economy has
also been diminished. The value of milk produced on the farm, and paid
to the farmer, has declined by more than $100 million over the past 18
months. The upstream effect is that dairy farmers in Missouri have less
money to reinvest in the local economy and less money to hire workers.
But it doesn't end there; a weaker dairy economy results in fewer jobs
supported by the industry in the processing and retail channels.
Milk Prices, Feed Costs, and MPP Margin
I'd like to provide some economic context to the dramatic situation
in the dairy industry I just described. The USDA monthly all-milk price
reached a monthly record high of $25.70 in September 2014, and averaged
a record high of $24 for the year. Following this record, the monthly
all-milk price declined in 13 of the next 18 consecutive months. In
2015, the average all-milk price was $17.10, down 30 percent from
2014.Through the first 3 months of 2016, the all-milk price has
averaged $15.70 per hundredweight. USDA currently projects the annual
average 2016 price to range from $14.60 to $15.10 per hundredweight.
The decline in milk prices can be traced directly back to sharp
declines in the price of nonfat dry milk, dry whey, and cheese since
late-2014. Nonfat dry milk prices reached a high of $2.09 per pound in
March 2014, and for the year averaged $1.77 per pound. By 2015, the
nonfat dry milk price average had dropped $0.90 per pound. As recently
as April 2016, the nonfat dry milk price dropped to $0.73 per pound.
This most recent price is the lowest nonfat dry milk price reported
since Federal Order reform was instituted in 2000 and, importantly, is
below the $0.80 per pound price previously supported under the dairy
price support program. Similarly, in 2015 the average cheese price was
down 51 percent to $1.65 per pound; and the dry whey price was down 27
percent to $0.38 per pound.
Butter prices have been the bright spot in terms of dairy commodity
prices. The monthly USDA price reported for butter reached a record
high in September 2014 of $2.85 per pound. For 2014, the average butter
price was $2.14 per pound. During 2015 the annual average butter price
declined only slightly to $2.07 per pound and was as high as $2.80 per
pound in November 2015. This strength in the butter price resulted in
the value of milkfat contributing as much as 52 percent to the value of
Class III milk--up 13 percentage points from the 2000 to 2014 average.
Without this support in butter prices, dairy farmer milk checks would
have been substantially lower in 2015 and 2016.
Average feed costs during 2014, based on USDA's MPP dairy ration,
were $10.67 per hundredweight. This price dropped in 2015 to an annual
average of $8.77 per hundredweight. While these prices are well below
the $13 per hundredweight average during 2012 and 2013, they continue
to pressure income-over-feed-costs as milk prices move lower. During
2014 the MPP margin, defined as the all-milk price minus the MPP
ration, averaged $13.29 per hundredweight and reached a record high of
$15.62 in October 2014. Since this time, weaker milk prices and
stronger feed prices pushed the MPP margin to a low of $7.50 per
hundredweight in April 2015 before increasing to $10.01 by November
2015. Since November 2015, MPP margins have deteriorated by $2.55 per
hundredweight, approximately 25 percent, to $7.47 per hundredweight in
March 2016. This March 2016 MPP margin is the lowest since the program
was introduced in September 2014.
Supply of Milk and Dairy Products
Following the record high prices and margins of 2014, the industry
expanded by approximately 58,000 milking cows to accommodate the
growing export demand for dairy products. The total number of milking
cows in the U.S. now stands at 9.3 million head as of March 2016. In
addition to an increase in the population of the milking herd, average
milk per cow also increased from the 2014 total of 22,258 pounds per
year, to 22,383 pounds per year in 2015--up 125 pounds per cow. USDA
data on milk per cow through March 2016 indicates this pattern will
continue. As a result of the additional milking cows and improved
productivity, milk production in the U.S. grew by 2.6 billion pounds
between 2014 and 2015, reaching 208.6 billion pounds last year. Current
USDA projections call for 212.4 billion pounds of milk to be produced
this year. This total would represent an increase of 3.8 billion pounds
of milk over last year's levels.
The additional milk that has come online flowed into additional
cheese, butter, and milk powder production. During 2014, American-type
cheese production totaled 4.59 billion pounds. Production increased by
107 million pounds in 2015 to 4.7 billion pounds, an increase of two
percent. This expansion is in line with recent growth rates of one to
four percent per year. For other cheese categories, total production in
2014 was 6.9 billion pounds, rising by nearly 220 million pounds in
2015 to 7.1 billion pounds--an increase of three percent. Additional
milk produced in 2015 also made it into butter churns, up only slightly
from prior year levels. During 2014, butter production totaled 1.855
billion pounds, increasing marginally by 2.7 million pounds in 2015 to
1.858 billion pounds. Finally, similar to cheeses and butter,
additional milk powders were also produced in 2015. Nonfat dry milk and
skim milk powder production were 1.82 billion pounds in 2015, a bump up
of 58 million pounds, or three percent, from 2014 levels. Similarly,
dry whey production in 2015 totaled 975 million pounds and was up 105
million pounds, or 12 percent, from 2014.
With milk production in 2016 also expected to rise compared to last
year, production of cheese and butter are also expected to increase.
Non-leap year adjusted U.S. production of all cheese is up 1.8 percent
year-to-date through March, and butter production is up 5.9 percent
through March.
Domestic Demand and Dairy Trade
Consumption of dairy products produced in the U.S. is broken down
into the domestic market and the export market. Domestic consumption of
cheese, butter, nonfat dry milk, and dry whey are all up in 2015
compared to 2014 levels. Domestic consumption of cheese was up 385
million pounds to 11.4 billion pounds during 2015. Domestic butter
consumption in 2015 was up 54 million pounds to 1.8 billion pounds.
Domestic consumption of nonfat dry milk in 2015 was up 65 million
pounds to 1.1 billion pounds. Finally, domestic consumption of dry whey
was up 216 million pounds to 579 million pounds.
With respect to dairy trade, all products except for nonfat dry
milk have seen their export volumes erode from the record high levels
of 2013 and 2014. Butter product exports reached a high of 178 million
pounds in 2013, before falling to a 7 year low of 37 million pounds in
2015. Year-over-year, the decline in butter exports during 2015 was
down 93 percent from 2014 levels. Total cheese exported reached a
record high in 2014 at 812 million pounds. However, in 2015 total
cheese exported from the U.S. declined 14 percent to 698 million
pounds. Nonfat dry milk and skim milk powders were one of the few
bright spots for dairy exports in 2015. Record low powder prices
resulted in record high export volumes in 2015. In 2015, nonfat dry
milk exports were up three percent over 2014 levels and totaled 1.2
billion pounds. Combined, the value of dairy product exports in 2014
was $7.1 billion. The decline in dairy product prices and the export
volume resulted in the value of U.S. exports in 2015 totaling $5.2
billion--a decline of $1.9 billion.
As U.S. prices rose in 2014 to record highs, it created a pricing
opportunity for dairy exporters around the world to access the U.S.
market. Imports of dairy products, especially in the higher fat cheese
and butter product categories, have contributed to weaker U.S. domestic
prices. For example, in 2013 the U.S. imported approximately 36.5
million pounds of butter and butter products. By 2014 that total had
surged 28 percent to 47 million pounds, and then again in 2015 it
increased another 22 percent to 57 million pounds. The net effect: over
a period of 2 years, butter product imports into the U.S. have
increased 229 percent. For cheese a similar pattern was observed.
Cheese imports into the U.S. totaled 288 million pounds in 2013, and
since then have grown by more than 90 million pounds, 32 percent, to
reach 379 million pounds in 2015. On a value basis, dairy product
imports into the U.S. have never been higher--reaching $3.4 billion in
both 2014 and 2015.
Stock Levels
The preceding set of numbers is manifesting itself in the real
world as a logjam of dairy products, resulting from slower exports,
increasing milk production, and imports displacing domestically
produced products. These conditions create larger dairy product
inventories. A variety of news sources including Bloomberg and the Wall
Street Journal are now reporting on the record volumes of cheese in
inventory. In addition to cheese, butter inventories are well above
prior year levels.
Stocks of cheese at the end of 2014 were slightly higher than 1
billion pounds. By the end of 2015 this total had increased 13 percent
to 1.15 billion pounds. Now, at the end of March 2016 total cheese in
inventory reached 1.19 billion pounds. This is the highest level of
cheese held in cold storage since the early 1980's, and is the second
highest total in March going back to 1917.
Stocks of butter at the end of 2014 were 105 million pounds--and
were at the lowest levels for December since 2010. Tightness in the
butter market provided support to domestic prices and also incentives
to import butter or butter alternatives. As a result, by the end of
2015 butter in cold storage increased 48 percent to 155 million pounds.
Now, at the end of March 2016, a point in time when butter inventories
reach a seasonal peak, butter in cold storage has reached 243.6 million
pounds. This is far from a record, but remains well above butter
storage levels of recent years.
Perspective on the Margin Protection Program
Because of the volatility in both milk and feed prices, we must
continue to reassess our risk management tools. And by we, I mean both
farmers as well as the Congress. For most of the 8 years I've been
Chairman of National Milk, I've worked with our member cooperatives,
and dairy producers across the country, to build a better safety net.
The previous elements of dairy policy had failed to evolve with the
industry. Our request to Congress after the economic disaster our
industry suffered in 2009 was to create a risk management tool that
would offer protection against prolonged and catastrophic income-over-
feed-cost margin declines like we experienced in 2009. In the 2014 Farm
Bill, Congress created the Margin Protection Program. Approximately
23,000 dairy producers are in the program, representing 80 percent of
our milk supply.
MPP is a voluntary program to provide support when the difference
between the milk price and feed costs falls below certain thresholds.
Every fall, dairy farmers must decide on coverage options for the
following year. In 2015, U.S. dairy producers paid $73 million dollars
in premiums and fees to USDA, while USDA only paid out $700,000 under
the program. This year, dairy farmers have paid in another $23 million.
I firmly believe that MPP is the right program for our industry for
the future. That said, our experience to date is that MPP is not
completely fulfilling its intended objective as an effective safety
net. We remain confident that improvements can be made by the Congress
to this still-evolving program. Since the farm bill was signed into
law, MPP margins have fallen 52 percent. The MPP margin is already at
its lowest level since the program was enacted, with further declines
expected. Specifically, USDA's MPP decision tool now projects the
margin to drop below $6 per hundredweight by June. If realized, this
would be the lowest margin since 2013, and already the MPP margin is at
its lowest level since the program was introduced in 2014. In this
environment, farmers naturally expect that the farm safety net would
provide some minimum level of support.
So why is the program not operating as expected? While MPP is
similar to the initial proposal put forward by National Milk, the plan
was altered as Congress finalized the Farm Bill in 2014. One change
reduced the feed cost component of the margin so the current formula no
longer reflects the true cost of feeding a herd. Second, while the feed
cost component was changed, farmer premiums did not (and some were even
adjusted upward), when they should have been changed to accommodate the
reduced feed component. MPP has been less effective as a result.
Let me describe this situation in greater detail. During the farm
bill negotiations Congress reduced the MPP feed ration by ten percent.
While this may not seem material, it had significant financial
implications for those farms participating in MPP. During 2015, the
average MPP margin was $8.30 and ranged from a low of $7.50 in the
spring to $8.65 by the end of the year. These margins triggered MPP at
only the highest coverage level of $8 per hundredweight and only 264
farmers received payments. Had Congress not reduced the feed ration
calculation, MPP margins would have been approximately $1 per
hundredweight lower and more than 8,500 dairy farmers would have
received a benefit from MPP. At a time when margins are depressed,
missing out on these important safety net benefits due to budgetary
concerns resulted in tens of million dollars of lost dairy farmer
revenue.
It is clear that while the effectiveness of the program was
reduced, the premiums remain at the original level, which at this time
should have been changed to accommodate forecasted risk environment.
The ten percent reduction to the feed ration hurt program performance
and also farmers' perception of the program. Many farmers saw that the
MPP didn't pay out much, even at the highest levels, in 2015. So, in
2016 they opted for the least expensive level of coverage required by
law. Approximately 77 percent of the farmers and 88 percent of the milk
enrolled in MPP during 2016 were are at only this $4 coverage only. Had
Congress not reduced the feed ration, more farmers would have seen
benefits in 2015 and participated at higher levels this year. More
participation means protection in this current high risk environment.
However, given the current feed ration, even with margins expected to
reach the lowest levels in years, total program payments are not
expected to exceed premiums for the second consecutive year.
In addition, U.S. dairy farmers simply could not have anticipated
the impact a highly-subsidized European dairy industry would have on
U.S. dairy prices following the April 2015 expiration of the EU milk
quota system. Since April 2015, EU dairy farmers have increased milk
output by more than 12 billion pounds over prior year levels. The
additional milk being produced by EU farmers is equivalent to 30
percent of California's annual output, 42 percent of Wisconsin's annual
output, and is 800 percent higher than production from dairy farmers in
my home state of Missouri. This milk is not staying in the EU. Instead,
it is being absorbed in the global market at extremely low prices. It
is finding its way into EU public stockholding programs and delaying
global price recovery. And, finally, this milk is displacing U.S.-
produced dairy products domestically and abroad through additional
imports and increased market share in competitive export regions.
Actions in the EU are having a very real impact in rural America. The
net effect is larger inventories here at home, and U.S. producers
enduring a longer period of depressed dairy market prices. MPP is not
designed to provide support against highly subsidized EU dairy
producers oversupplying and undercutting us in the global market.
In my role as NMPF Chairman I've toured the country talking to
dairy farmers about MPP. The overwhelming concern has been the feed
ration and the premium rates. Congress also adjusted the premiums rates
higher (the wrong way) due to budgetary concerns. During 2014 and 2015
Congress did provide a 25 percent discount to the lower tier premiums
under $8 per hundredweight. This made MPP more affordable to small
family farms like my own, as we explored risk management for the very
first time. However, this past year the premium discounts were removed
and MPP premiums increased substantially. With balance sheets already
thin due to the depressed price environment of 2015, and MPP under-
performing relative to expectations, many farmers could not justify
buy-up MPP coverage in 2016, even though it was sorely needed. The
expected benefits of MPP did not outweigh the costs and is likely to
result in 2 consecutive years of premium payments without a measurable
return. At the end of the day, dairy farmers just want consistent
access to affordable risk management tools.
We appreciate all of the recent improvements made by USDA,
including monthly premium payments, decoupling $4 coverage from the
buy-up provisions, and providing additional time to make coverage
decisions. But the program remains a work in progress. For many
farmers, the program is simply not enough to protect them in the
current economic environment.
I have heard from many dairy farmers that their financial
challenges will only increase if prices do not improve before 2017.
Lower commodity prices and slow-adjusting input costs are impacting the
ability of dairy farmers repay loans and forcing many farmers to
finance operating losses. These difficulties will have ramifications
throughout the dairy economy, and unfortunately USDA economists and
dairy industry experts all seem to be in agreement that dairy prices
may be very slow to recover. That's why it is important, now more than
ever, to ensure that problems with MPP are addressed head-on and the
program is improved in such a way that makes it a valuable risk
management tool to all dairy farmers in the U.S.
We continue to discuss ways to improve MPP with our dairy farmer,
USDA and the Congress. Clearly, adjustments to the feed cost
calculations and the supplemental coverage costs would improve its
effectiveness as a safety net for all dairy producers. The feasibility
and timing of adjustments to the program are an issue we want to
explore with the Agriculture Committee.
Biotechnology
NMPF has long supported the right of consumers to know how their
food is produced, and where it comes from. In fact, few industries have
been more transparent than we in the dairy industry have. We are proud
of the standards that guide our farmers and the care they put into
their cows and the milk and dairy products that they produce. That is
why we supported legislation introduced by Congressman Mike Pompeo of
Kansas, known as the Safe and Accurate Food Labeling Act (H.R. 1599).
On that note, I want to thank this Committee and those Members who
helped advance this legislation last year.
It is of critical importance that Congress act immediately to pass
legislation to ensure that a single, Federal standard is established on
the labeling of bioengineered foods. I cannot emphasize enough how
important it is that Congress resolve this matter, before July 1st when
the Vermont law takes effect. Failure by Congress to address this issue
threatens the viability of not only my farm, but also 3,000 farmers I
represent. It also threatens our ability to feed the world's growing
population I than this Committee for its previous work on this issue
and urge immediate action to bring this matter to final resolution.
Trade Policy
Our nation has gone from exporting less than $1 billion in dairy
products in 2000, to more than $5.2 billion of exports in 2015, an
increase of 435 percent. (Sales in 2014 were even greater at over $7
billion, before retrenching during a global dairy recession last year,
as noted previously). This enormous growth can be largely attributed to
the market-opening free trade agreements negotiated by our government,
including the Uruguay Round which took steps to reduce export subsidies
and implement the first SPS agreement. These agreements lowered and
ultimately removed tariffs and in many cases they gave our products a
preferential advantage over other supplying countries. They also helped
remove technical and regulatory barriers to our trade. Over that
period, our exports of dairy products to free trade agreement (FTA)
partner nations grew by 489 percent as compared to 384 percent to non-
FTA countries.
We must acknowledge that dairy exports last year dropped from the
record $7.1 billion achieved in 2014. This was due in large part to a
significant drop in global prices for milk powders and cheeses. In
addition, the increased value of the dollar and the strong global milk
supply have contributed to the decline in prices. But it is also worth
noting that, while our exports to non-FTA countries contracted by 32
percent, they fell by only 20 percent to our FTA partner countries.
Our FTAs have created important new market access opportunities for
us and we have worked very hard through our market development efforts
to ensure that we are taking full advantage of them. It is not a
foregone conclusion, however, that all trade agreements will be
beneficial. Their terms matter extensively, as does the level of
follow-through to ensure we secure the full scope of the benefits for
which the U.S. negotiated.
We support the Trans-Pacific Partnership agreement because it can
help U.S. dairy exports continue to grow in key world markets. But, in
order for farmers to realize any benefit, important implementation and
enforcement issues must be address as Congress prepares to consider
TPP.
Diligent implementation of U.S. free trade agreements is a vital
component to ensuring their effectiveness. Past experience in the dairy
industry has demonstrated to us the clear value in strong engagement
with our trading partners to foster compliance with their obligations
to the U.S. It has also demonstrated just how important the terms of an
agreement are. Past negotiations with the EU have led to trading terms
and regulatory conditions that drive the current $1.4B dairy trade
deficit with the EU.
Any future agreement with the EU must first and foremost prioritize
how to tackle this tremendous trade deficit and attack the non-tariff
barriers, such as the Geographical Indicators as well as sanitary
barriers that the EU uses to limit our access. Critically, fully
addressing those barriers requires not just a focus on today's problems
but a clear commitment through the trade agreement that new
requirements will not be laid on top of any resolutions reached on the
current range of issues. The EU has not demonstrated a good-faith
commitment to open agricultural trade; the U.S. must proceed cautiously
by securing specific and clear commitments from the EU to guard against
the imposition of future trade barriers.
Immigration Reform
Our current immigration system is failing America's dairy farmers.
When dairy farmers seek employees, they often find that Americans are
unwilling to do the difficult job of dairying. However, unlike other
industries which have codified access to foreign workers, dairy does
not. This is due to the year round nature of our industry which makes
us ineligible to participate even in the deeply flawed, though well-
intentioned, H-2A program. As such, the current labor situation we are
experiencing now threatens the livelihoods of dairy farmers in every
region of this country.
According to a University of Texas A&M report released in August
2015 (and conducted in coordination with NMPF), 51% of all dairy farm
workers are immigrants, and the farms that employ them account for 79%
of the milk produced in the United States. Without access to a steady
and reliable workforce, our industry will not be able to thrive, let
alone survive, in the future. That is why NMPF has led the way to urge
this Congress to pass immigration reform addressing the needs of
American agriculture. While I recognize the delicate balance you must
strike politically regarding this issue, America's dairy farmers cannot
wait any longer for real reform.
Environmental Sustainability
Dairy farmers are the original environmentalists, and care deeply
about the land, air, and water that they manage on and around their
farms. In recent years, however, Federal and state regulators have
applied significant pressure on the dairy sector to reduce nutrient
output to improve water quality in dairy producing regions from the
Chesapeake Bay Watershed to northern Wisconsin all the way to central
Washington.
We as an industry have invested significant resources to
proactively respond to this challenge, and we continue to work to
embrace the best possible environmental practices. In 2008, the dairy
industry voluntarily set a goal of reducing greenhouse gas (GHG)
emissions from fluid milk by 25 percent by 2020, and has since
undertaken several projects intended to help meet that goal.
Importantly, since 1944, GHG emissions per pound of milk produced have
decreased by 63 percent and total GHG emissions from dairy production
have decreased by 41 percent.
Like other sectors of the economy, dairy farmers are impacted by
the current climate of political, legal, and regulatory uncertainty. To
help us stand on a stronger footing, we have begun to advocate for
proactive policy solutions that will help us turn an environmental
liability such as manure into a valuable asset. The dairy industry is
working with bipartisan Members of the tax-writing Ways and Means
Committee to propose an Investment Tax Credit to cover the up-front
capital costs of biogas systems and nutrient recovery technologies,
which can play an important role in reducing the environmental impacts
of dairy farming.
Closing Statement
Mr. Chairman, I want to thank you for holding this important
hearing today. America's dairy farm families stand ready to help this
Committee as you review current policies and consider new legislation
that impacts our industry.

The Chairman. Thank you, Mr. Mooney.
Mr. Herring?

STATEMENT OF DAVID HERRING, MEMBER, BOARD OF
DIRECTORS, NATIONAL PORK PRODUCERS COUNCIL,
NEWTON GROVE, NC

Mr. Herring. Good morning, Mr. Chairman, Ranking Member
Costa, and Members of the Subcommittee. I am David Herring, a
Member of the Board of Directors at the National Pork Producers
Council from North Carolina and Vice President of TDM Farms, a
sow farrow-to-finish operation, incorporated out of North
Carolina.
The U.S. pork industry is in good economic shape after a
couple years of dealing with disease issues and weather-related
high feed grain prices. It now appears to be moving into a
period of cautious, calculated expansion. Pork production is
forecast by USDA to increase this year by two percent to almost
25 billion pounds, and in 2017 by 2.6 percent, to more than
25\1/2\ billion pounds. Of course, producers' fortunes can be
affected for good or for ill by any number of factors, some
controllable, some not so controllable such as disease and
weather.
I was going to first address an opportunity that would be
very positive for hog farmers like me, and that Congress can
control, the Trans-Pacific Partnership, or TPP. But another
issue recently has come up that if not addressed would wipe out
any benefits we gain from TPP. Pork producers are very
concerned about the so-called GIPSA rules. As many of you know,
the rule was born out of the 2008 Farm Bill, which included
five specific issues, mostly related to the poultry industry,
Congress wanted USDA to address. But the Grain Inspection,
Packers and Stockyards Administration in 2010 proposed an
expansive rule that would have had a significant negative
effect on the livestock industry. A November 2010 Informa
Economics study of the rule found it would have cost the pork
industry more than $330 million annually. Tens of thousands of
comments, including 16,000 from pork producers, were filed in
opposition to the rule, and Congress several times included
riders in USDA's annual appropriations bill to prevent it from
finalizing the regulation. Such an amendment was not included
in the USDA's Fiscal Year 2016 bill. Now the agency is moving
forward with the rule, and we have grave concerns it will
mirror the 2010 proposal. If it does, the livestock industry
will be fundamentally and negatively changed and the increased
exports and jobs created from TPP will or could be negated.
Additionally, the fact that we have to deal with this GIPSA
rule issue is diverting valuable resources away from the pork
industry's top priority, approval of TPP.
TPP, the benefits of which will exceed all past free trade
agreements, represents a great opportunity for U.S. pork
producers and for the entire U.S. economy. TPP includes the
United States and 11 Pacific Rim countries. Those nations
include nearly \1/2\ billion consumers and represent 40 percent
of the world's GDP.
The agreement has become the de facto global trade vehicle
and other countries in the region are already lining up to get
on it. Because other Asian Pacific trade agreements are being
negotiated without the United States we can't afford either
economically or geopolitically to walk away from the fastest
growing region in the world.
To give you an idea of the importance of free trade
agreements to the U.S. pork producers, the United States now
exports more pork to 20 countries with which it has FTAs than
to the rest of the whole world. Congress must pass the TPP, and
it must be done soon.
Finally, a challenge that would be out of everyone's
control but that could be tempered by preparedness is a foreign
animal disease outbreak. Specifically, an outbreak of foot-and-
mouth disease. An FMD outbreak in this country would be
economically devastating to U.S. pork producers and other food
producers. USDA and the livestock industry have been working on
a plan to combat an outbreak, but the only practical way is
through vaccination. Unfortunately, we currently don't have the
ability to produce the number of doses needed for an initial
outbreak with the capacity to produce more. The U.S. pork
industry believes consistent with Homeland Security
Presidential Directive 9 that an adequate FMD vaccine bank must
be established. This will require an offshore vendor-maintained
bank that would have available antigen concentrate to protect
against all of the 23 most common FMD types currently
circulating in the world. A vendor-managed inventory of ten
million doses, which is the estimated need for just the first 2
weeks of an outbreak, and a contract with an international
manufacturer or manufacturers with a reserve capacity to
produce at least 40 million additional doses.
Given the cost of dealing with an FMD outbreak and the
economic impact on the livestock industry, and indeed on the
entire U.S. economy, Congress should appropriate enough money
to set up such a vaccine bank. Those are just a few of the
opportunities and challenges that pork producers face. I thank
you for your time and I would be happy to answer any questions.
[The prepared statement of Mr. Herring follows:]

Prepared Statement of David Herring, Member, Board of Directors,
National Pork Producers Council, Newton Grove, NC
A Review of the U.S. Livestock and Poultry Sectors: Marketplace
Opportunities and Challenges
Introduction
The National Pork Producers Council (NPPC) is an association of 43
state pork producer organizations that serves as the global voice for
the nation's pork producers. The U.S. pork industry represents a
significant value-added activity in the agricultural economy and the
overall U.S. economy. Nationwide, more than 68,000 pork producers
marketed more than 115 million hogs in 2015, and those animals provided
total gross income of nearly $24 billion. Overall, an estimated $23
billion of personal income and $39 billion of gross national product
are supported by the U.S. pork industry.
Economists Daniel Otto, Lee Schulz and Mark Imerman at Iowa State
University estimate that the U.S. pork industry is directly responsible
for the creation of more than 37,000 full-time equivalent pork
producing jobs and generates about 128,000 jobs in the rest of
agriculture. It is responsible for approximately 102,000 jobs in the
manufacturing sector, mostly in the packing industry, and 65,000 jobs
in professional services such as veterinarians, real estate agents and
bankers. All told, the U.S. pork industry is responsible for nearly
550,000 mostly rural jobs in the United States. The U.S. pork producers
today provide 25 billion pounds of safe, wholesome and nutritious meat
protein to consumers worldwide.
Exports add significantly to the bottom line of each U.S. pork
producer. U.S. exports of pork and pork products totaled 2.13 million
metric tons in 2015, representing more than 24 percent of U.S.
production, and those exports added more than $48 to the value of each
hog marketed. Exports supported approximately 110,000 jobs in the U.S.
pork and allied industries.
Cautious Expansion, Continued Focus on International Markets
The state of the U.S. pork industry has been shaped in recent years
by disease: recall the H1N1 flu in 2009 and the Porcine Epidemic
Diarrhea virus (PEDv). The latter first was documented in the United
States during the spring of 2013, and over the next 18+ months killed
between eight million and ten million piglets. The dramatic reduction
in the supply of available market hogs led to record hog prices
throughout 2014 after 4 straight years of economic losses primarily
because of record-high feed costs.
Pig mortality since then has fallen dramatically, with the U.S.
Department of Agriculture's Quarterly Hogs and Pigs report for the
fourth quarter of 2015 showing the highest level of live births per
litter in history at 10.53 pigs.
Seemingly recovered from the worst of PEDv's catastrophic effect on
production, the U.S. pork industry appears to be moving into a period
of cautious, calculated expansion. Pork production in 2015 increased
year-on-year by a whopping 7.3 percent, albeit from the PEDv-ravaged
calendar year 2014. Pork production this year is forecast by USDA to
increase by two percent to 24.99 billion pounds, and 2017 production is
forecast to increase 2.6 percent to 25.64 billion pounds. The total hog
herd in the United States today is 67.6 million head, up slightly from
2015.
The typical cycle of barrow and gilt prices peaking in the summer
and bottoming out in the November-December timeframe was essentially
abandoned in 2014 and 2015 but is expected to return this year. The
annual average for barrow and gilt prices received by producers, at
$50.23 per carcass weight hundred (cwt.), fell dramatically in 2015
from its 2014 high of $76.03/cwt. Prices are expected to remain in the
$46-$48/cwt. range for the remainder of the calendar year and lose
another six percent throughout 2017. Estimated returns for farrow-to-
finish producers continue to be positive for the year as a whole, with
fourth quarter 2016 forecast at or below breakeven price levels.
There is currently a tremendous amount of red meat and poultry in
the marketplace and coming down the pipeline. Per capita consumption of
pork registered at just under 50 pounds in 2015, and pork retail prices
have been historically low relative to beef retail prices over the past
18 months. Moving into grilling season (roughly Memorial Day through
Labor Day), it will be interesting to see what happens to consumer
demand and how it plays out in the marketplace.
Per capita consumption of pork is forecast to remain nearly even in
2016 before increasing by 1.8 percent in 2017. That marginal increase,
coupled with the growing production expected throughout this year and
next, highlight the importance of being able to send pork products to
consumers outside the U.S. borders.
But economic growth in importing countries has been lackluster, and
the value of the U.S. dollar has served as a headwind to growing
exports of U.S. pork products, particularly in 2015. The Russian import
ban on Western products and other global geopolitical events also have
served as barriers to export growth. Total U.S. pork exports fell in
2015 on a value basis by 16.4 percent and on a volume basis by 2.1
percent. The top four markets for U.S. pork products on a value basis
(Japan, Mexico, Canada and China/Hong Kong) all imported less in 2015
than they did in 2014. U.S. pork producers lost a tremendous amount of
market share in the Chinese market to European producers, particularly
from Germany, Denmark and Spain.
Through the first quarter of 2016, U.S. pork exports were down nine
percent year-to-date on a value basis and up 2.5 percent on a volume
basis. In particular, the volume of exports to China/Hong Kong were up
83 percent year-on-year, marking the largest first quarter pork
shipments the United States ever has made to that market.
World economic conditions are expected to improve some, especially
in Asian countries. The Chinese hog market, for example, currently is
in flux, with red hot demand for imported pork and Chinese hog farming
profits larger than ever. Rapid pork inflation potentially presents an
opportunity for larger shipments of U.S. product into the Southeast
Asian nation, but economics does not always drive reality in China.
USDA forecasts pork export volume to grow 5.2 percent in 2016 and
two percent in 2017, but geopolitical events, the strength of the
dollar and removal of non-tariff trade barriers will play an important
role in realizing those export gains.
Looking forward, there is no shortage of both opportunities and
challenges for the U.S. pork industry. As the world becomes more
globalized, so too do grain and livestock markets. A flood in Argentina
or a drought in Brazil are felt locally and have an impact on U.S.
producers' bottom line. Since each finished hog consumes approximately
150 pounds of soybean meal and 10-11 bushels of corn, feed price levels
and volatility are of the utmost importance to pork producers. The
recent run-up in soybean meal prices has caught many by surprise, as
did the initial estimate of prospective corn plantings.
Total U.S. red meat and poultry production is projected to be above
2016 levels. Hog supplies will be adequate over the summer and will be
plentiful in the fall. Strong competition for slaughter hogs by packers
could support hog prices, and the prospect of at least four new packing
plants coming on line in the next couple of years could help boost
producers' bottom line, moving forward. The pace at which these new
plants come on line and begin processing hogs will be an interesting
storyline to watch and will have significant implications for both
domestic pork supplies and the availability and competitiveness of
exports overseas.
While the vagaries of Mother Nature--diseases affecting production
and weather affecting feed grains--are out of anyone's control, the
pork industry's fortunes can be affected, for good or for ill, by what
passes through the halls of Congress; government policies can and do
offer opportunities or pose challenges for pork producers.
Trade and the TPP Benefit Agriculture
One of the policies that could have a positive effect on the U.S.
pork industry--and indeed on all of U.S. agriculture--is trade,
specifically expanded trade.
Through free trade agreements (FTAs) and bilateral and multilateral
trade initiatives, the United States has been very successful in
removing barriers to U.S. exports and increasing trade in U.S. goods
and services.
U.S. exports of pork, for example, have increased by 1,550 percent
in value and nearly 1,300 percent in volume since 1989, the year the
United States implemented the FTA with Canada and started opening
international markets for value-added agricultural products. The
importance of trade deals is evident given that the United States now
exports more pork to the 20 countries with which it has FTAs than to
all other nations combined.
Exports add to the bottom line of producers, spur economic growth
and create tens of thousands of U.S. jobs. Last year, U.S. pork
producers shipped 2.13 million metric tons of pork worth $5.6 billion
to foreign destinations. Those exports added more than $48 to the price
producers received for each hog marketed, and they supported more than
110,000 pork industry jobs. (USDA's Economic Research Service
calculates that every $1 billion in U.S. agricultural exports generates
more than 7,500 jobs across the U.S. economy.)
The United States has been, on average, the top global exporter of
pork over the past 10 years, and given continued economic growth in the
world and rising per capita incomes, U.S. pork producers stand to
benefit significantly from new FTAs that eliminate tariff and non-
tariff barriers to U.S. exports.
The importance of FTAs is evident by the fact that the U.S. pork
industry now exports more product to the 20 countries with which the
United States has FTAs than to the rest of the world combined.
That's why the U.S. pork industry has been among the most
aggressive pro-trade voices in the U.S. private-sector and why it is a
strong supporter of the Trans-Pacific Partnership Agreement (TPP).
NPPC was among the biggest cheerleaders for the U.S.-lead Asia-
Pacific regional FTA negotiations from the beginning of the Obama
Administration. It was instrumental in getting Japan included in the
TPP talks, which were concluded last October after nearly 6 years of
negotiations.
The organization also led agriculture's efforts to gain
Congressional approval for Trade Promotion Authority to permit the
Administration to carry through with the TPP negotiations and conclude
an agreement.
The TPP, which includes the United States, Australia, Brunei,
Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore
and Vietnam, presents an opportunity to open and expand markets to U.S.
pork that include \1/2\ billion consumers and nearly 40 percent of the
world's GDP.
The three key markets for U.S. pork producers in the TPP are
Australia, Japan and Vietnam. Those countries account for the
overwhelming majority of economic benefits that will accrue to the U.S.
pork industry. While NPPC continues to have TPP implementation
concerns, it is confident that the issues will be resolved. Here's a
look at the benefits U.S. pork would gain from the TPP countries:

Australia--Tariffs on pork were eliminated under the U.S.-
Australia FTA. But while pork is the top U.S. agricultural
export to Australia, it is not eligible to be sold at retail in
that country because of non-science-based sanitary-
phytosanitary barriers. NPPC is working with the U.S.
Government to facilitate a review of the matter in Australia.
While the issue is not technically part of the TPP
negotiations, NPPC is working closely with the U.S. Government
to facilitate a review of the matter in Australia. There is no
credible scientific reason to prohibit the sale of U.S. pork at
retail in Australia.

Chile--Tariffs on U.S. pork are zero under the U.S.-Chile
FTA.

Japan--The largest value and second largest volume market in
the world for U.S. pork exports, Japan will eliminate tariffs
on all pork products, including its Gate Price--a complex
system of protection--on processed pork, in 6 to 11 years from
entry into force of the agreement. For processed products not
subject to the Gate Price such as seasoned ground pork and
sausages (the United States shipped more than $400 million of
these products in 2014), tariffs will be eliminated in year 6.
Japan also immediately will reduce the impact of the Gate Price
on chilled and frozen pork upon entry into force of TPP. The
Gate Price will remain at 524 Yen per kilogram indefinitely.
However, the specific duty that is assessed when products do
not meet the Gate Price will phase down to 50 Yen per kilogram
in year 10. There will be one safeguard on processed product
and two safeguards on chilled/frozen pork. These safeguards
disappear in year 11.

Malaysia--Nearly all of Malaysia's tariffs on pork and pork
products will be eliminated upon entry into force of the
agreement. In addition, Malaysia dropped its non-tariff-
barriers on U.S. pork in December 2014.

New Zealand--Currently, pork exports from Australia, Canada
and China enter New Zealand duty-free, but the United States
must pay an import tariff. Under TPP, New Zealand will
eliminate all pork tariffs for the United States and other TPP
nations upon entry into force of the agreement except on hams
and shoulders, which will go to zero in year 3.

Peru--Tariffs on U.S. pork either now are zero or will be
within 3 years under the U.S.-Peru FTA.

Singapore--Tariffs already are zero on U.S. pork as a result
of the U.S.-Singapore FTA. Separately, NPPC is working with the
U.S. Government to facilitate a review of certain non-tariff
measures in Singapore.

Vietnam--Despite being a larger consumer of pork than Mexico
(the largest volume destination for U.S. pork), pork imports
represent less than two percent of Vietnam's pork consumption.
U.S. pork exports have been limited by tariffs and a series of
non-tariff barriers. Under the TPP, Vietnam will eliminate
tariffs on pork and pork products, currently as high as 30
percent, in 5 to 10 years. It will eliminate tariffs on frozen
cuts and shoulders in 8 years and on preserved pork, fresh pork
cuts and shoulders in 10 years. Additionally, Vietnam's non-
tariff barriers, which are being eliminated, are the subject of
a side letter.

The TPP represents for the U.S. pork industry the biggest
commercial opportunity ever negotiated. Economist Dermot Hayes, with
Iowa State University, estimates that if the deal that was concluded
last October is implemented--that is, if all tariff and non-tariff
barriers are eliminated on pork in each TPP nation--U.S. pork exports
to those countries will increase exponentially and more than 10,000 new
U.S. jobs tied to those exports will be created.
But the reality is that if Congress does not expeditiously pass
TPP, there will be no implementation, and that means the U.S. pork
industry and the rest of American agriculture not only won't get the
benefits of expanded trade but will lose market share in the fastest
growing economic region in the world. The European Union and other
nations are negotiating FTAs with Japan and other TPP countries. Of
even greater concern is that if TPP fails, a much bigger regional trade
agreement is likely to fill the void. The Regional Comprehensive
Economic Partnership (RCEP) is comprised of 16 countries, including
Australia, China, India, Japan, Korea and New Zealand as well as the
ten countries of the Association of Southeast Asian Nations (ASEAN). It
does not include the United States. Make no mistake, U.S. exporters
will be significantly prejudiced if TPP is not soon passed by the
Congress.
NPPC urges Congress to quickly pass the Trans-Pacific Partnership
Agreement.
Vaccine Bank Needed To Address FMD
On the disease front, while PEDv is still an issue for the pork
industry, producers seem to have the disease in check. But other
bacterial and viral diseases are lurking around the world. The pork
industry has devoted significant resources to endemic and foreign
animal diseases, funding more than 120 research projects and spending
more than $5 million for studying, monitoring and addressing swine
diseases over the past 10 years.
And while there have been significant improvements in the systems
for safeguarding U.S. agriculture and the nation's food supply, there
are still significant vulnerabilities and challenges that must be
addressed.
The House Agriculture Committee Nov. 4, 2015, held a hearing on
``American Agriculture and National Security'' that highlighted the
vulnerability of the U.S. food supply to the potential for a foreign
animal disease (FAD) to be introduced by terrorists or by accident.
Additionally, the bipartisan Report of the Blue Ribbon Study Panel
on Biodefense--the panel was co-chaired by former Department of
Homeland Security Secretary Tom Ridge and former Sen. Joe Lieberman--
released Oct. 28, 2015, concluded that improvements are needed to the
U.S. system for protecting the U.S. livestock herd and the nation's
food supply from FADs.
Foot-and-Mouth Disease (FMD) is one of the most economically
devastating FADs affecting animal agriculture. It is highly contagious
and spreads easily through livestock movement, by wind currents, on
vehicles that have traveled to and from infected farms and even on
inanimate objects that have come in contact with the virus. It affects
all cloven hoofed species, including wildlife such as deer and elk.
FMD is endemic in Africa, Asia, South America and the Middle East.
The FMD virus has seven viral serotypes and more than 60 subtypes, with
wide strain variability. Managing and ultimately eradicating FMD
requires strain-specific vaccines, making vaccination challenging and
very expensive. Sporadic outbreaks with different types continue to pop
up in countries around the world.
Because North America is free of FMD, an outbreak of the disease in
the United States would immediately shut off all exports of U.S.
livestock, meat and dairy products, creating a precipitous drop in
livestock markets. Since U.S. consumers have little knowledge of the
disease, there also likely would be serious disruptions in the domestic
market because of decreased demand for those products. According to one
recent study, prevention of FMD is estimated to be worth $137 million a
year to the U.S. pork industry.
With support from the livestock industry, USDA's Animal and Plant
Health Inspection Service (APHIS) changed its policy on managing an FMD
outbreak from culling all infected and exposed animals to one of
vaccination in all but the smallest of outbreaks. Based on experience
with outbreaks in the United Kingdom and South Korea, the United States
simply cannot euthanize its way out of an outbreak; vaccination is the
only realistic alternative. When discussing how this policy would be
implemented, it became apparent that to deal with an outbreak there was
not enough vaccine available nor could a sufficient quantity be
obtained in time to implement an effective control program.
The United States is the only country in the world that maintains
its own vaccine antigen bank, and it serves all of North America. The
bank is maintained at the Plum Island Animal Disease Center (PIADC) on
Plum Island, N.Y., and has a limited number of antigens. Under the
current manufacturer(s)' contract, antigen is shipped to Europe where
it is made into finished vaccine that then is shipped back to the
United States. After 3 weeks, this process would produce only 2.5
million doses of vaccine. Dr. James Roth, professor and researcher at
Iowa State University, estimates that at least ten million doses would
be needed during the first 2 weeks of an outbreak. Currently, there is
no surge capacity to produce additional doses of vaccine. All the
vaccine production capacity in the world is currently in use by other
countries.
The Subcommittee on Livestock and Foreign Agriculture held a
hearing Feb. 11, 2016, on the FMD vaccine shortage at which the
livestock industry made clear that a solution to the shortage must
include a contract for an offshore, vendor-maintained bank that
includes antigen for all 23 FMD types that are currently circulating in
the world and that a contract be awarded for surge capacity to produce
sufficient quantities of vaccine for an outbreak in the U.S. livestock
herd. But there are factors that make this difficult.
The U.S. FMD vaccine bank is currently funded at just $1.9 million,
and there have been no requests for a substantial increase in the
President's budget despite the fact that Homeland Security Presidential
Directive 9 (HSPD9) requires an adequate vaccine stockpile to be
maintained.
Another factor complicating upgrades to the vaccine bank is that it
also serves as the North American Bank and thus includes Canada and
Mexico. NPPC believes it is appropriate to include those neighboring
countries, but the United States should not wait for negotiations with
those countries to be completed before making necessary improvements,
which are critical to the U.S. livestock industry.
NPPC knows that fixing the vaccine shortage will require a
significant increase in budget outlays. However, that cost pales in
comparison to the cost of an FMD outbreak. Iowa State University
economist Dermot Hayes estimates revenue losses to just the U.S. pork
and beef industries from an FMD outbreak at nearly $13 billion per year
over a 10 year period; the corn and soybean industries are estimated to
lose $44 billion and almost $25 billion, respectively. A recent study
by Kansas State University estimates cumulative losses to consumers and
livestock producers at $188 billion, with an added cost to the
government of $11 billion for eradication efforts if vaccination is not
employed. If vaccination is employed, the study estimates--depending on
the strategy used--the losses to consumers and producers could be cut
by 48 percent.
The history of government involvement in disasters like an FMD
outbreak is that, once an outbreak occurs, unlimited resources are
committed to getting control of the situation. In the case of FMD,
there is a clear opportunity to invest in a robust vaccine bank that
would limit the economic impact on producers, feed suppliers and
consumers and reduce the government's cost for control and eradication
of the disease.
NPPC urges Congress to work with the Administration to address the
alarming gap in the preparedness for an FMD outbreak. Whether the
disease introduction is the result of terrorism, careless travelers or
carried on traded commodities, the calamitous result is the same:
devastation to the U.S. livestock industry and a significant hit to the
U.S. economy.
Legislation and Regulation
Finally, the U.S. pork industry is, or can be, greatly affected by
Federal legislation and regulation.
NPPC works on behalf of America's pork producers to ensure that
laws and rules don't impose unnecessary costs on the U.S. pork
industry, restrict it from meeting consumer demands in an economical
manner or prevent market-based solutions to issues. The structure of
the pork production and packing sectors should be allowed to change
with the demands of the growing global marketplace. This includes
allowing producers and packers to adopt new technologies and pricing
and marketing mechanisms that enable the former to reduce their risks
and the latter to capture economies of scale.
The U.S. pork-packing sector is the envy of the world in terms of
efficiency and food safety, and legislation and regulation should not
take away or hamper that source of international advantage. Allowing
producers and packers the freedom to develop new ways of doing business
will only enhance the value of U.S. pork products, at home and abroad,
and reduce costs and risks.
Today, the U.S. pork industry has developed a variety of marketing
and pricing methods, including contracts, to meet the changing needs of
a diverse marketplace. U.S. pork producers will not be well served if
certain contracting mechanisms are eliminated, a move that only would
force livestock markets to revert to a system used more than half a
century ago in which animals were traded in small lots and at prices
determined in an open-market bid system. Such a system was inefficient
and makes no economic sense in today's economy.
That is why NPPC is very concerned about the revival of USDA
regulations to amend the Packers and Stockyards Act, which is
administered by the Grain Inspection, Packers and Stockyards
Administration (GIPSA). The regulations, collectively known as the
GIPSA rule and first proposed in 2010, would regulate the buying and
selling of livestock and poultry. Congress in the 2008 Farm Bill asked
USDA to address five specific issues related to production contracts:

Criteria for determining whether an undue or unreasonable
preference or advantage has been given to any producer.

Whether a poultry dealer or swine contractor has provided
sufficient time for a grower to remedy a breach of contract
that could result in contract termination.

Whether a poultry dealer has given reasonable notice of any
suspension of delivery of birds to a grower under a contract.

When a requirement of additional capital investment during
the life of a contract constitutes a violation of the Packers
and Stockyards Act as an unfair practice.

The factors that comprise a fair usage of arbitration,
including notification and the option for producers to opt out
of automatic arbitration to resolve disputes.

U.S. pork producers were stunned in June 2010 when USDA proposed a
rule that not only went well beyond the five issues Congress asked it
to address but included provisions considered and rejected by
Congressional lawmakers during the 2008 Farm Bill debate.
One provision included in the rule, for example, would have
required meat packers to justify and document, including with revenue
and cost analyses, price differences paid for livestock, making it
difficult for producers to negotiate premiums based on certain
production practices, or accept lower prices for livestock of lesser
quality. Such a ``justification'' provision was considered and rejected
by the Senate.
The rule would have had a devastating impact on livestock
producers. According to an analysis of the regulation conducted by
Informa Economics, it would have cost the U.S. pork industry more than
$350 million annually. Industry analysis of the rule concluded that it
likely would have had a chilling effect on innovation and flexibility,
leading to a race toward mediocrity. It would have created legal
uncertainty, driving costs higher and causing an increase in vertical
integration in the livestock sector, forcing producers out of business
and possibly affecting meat supplies. All of those effects would have
harmed the U.S. pork industry's international competitiveness, costing
U.S. on-farm and pork-processing jobs as well as negatively affecting
the U.S. balance of trade.
While there was overwhelming opposition to the GIPSA rule,
including more than 16,000 public comments from pork producers, it took
yearly action by Congress to prevent its implementation. Unfortunately,
no such action--in the form of language in USDA's annual
appropriation--was forthcoming for fiscal 2016.
In March, at a meeting of the National Farmers Union, which
supported the 2010 GIPSA rule, Agriculture Sec. Vilsack indicated that
his agency will move forward with implementing the regulation, and NPPC
confirmed last week that several of the regulations are with the White
House Office of Information and Regulatory Affairs, the last step
before rules are proposed final or become final.
Pork producers again are very concerned that USDA's GIPSA rule will
be too expansive, limiting farmers' ability to sell animals, dictating
the terms of private contracts, making it harder to get farm financing,
raising consumer prices and reducing choices, stifling innovation and
leading to more vertical integration in the livestock industry.
The U.S. pork industry opposes any legislation or regulation that
restricts marketing opportunities and interventions into hog markets
unless such actions address a clear, unequivocal instance of market
failure or abuse of market power. To date, USDA has not presented any
evidence that either is taking place.
NPPC urges Congress to ensure that any USDA rule to amend the
Packers and Stockyards Act not restrict producers' ability to sell or
packers' ability to buy animals and not limit their ability to use
technologies and pricing and marketing mechanisms that work for their
mutual benefit.
Another regulation that could have a profound negative effect on
U.S. pork producers is the Waters of the United States (WOTUS) rule
issued last year by the U.S. Environmental Protection Agency and the
U.S. Army Corps of Engineers.
The rule was promulgated ostensibly to clarify the agencies'
jurisdiction under the Clean Water Act (CWA) over various waters.
Historically and based on several U.S. Supreme Court decisions, those
waters were limited to navigable waters, their tributaries and adjacent
water bodies that are hydrologically connected or that otherwise affect
navigable waters.
Certainly, pork producers are concerned about water quality, and
they take a broad view of what it means to be environmentally
responsible farmers and business people and have embraced the fact that
their operations must protect and conserve the environment and the
resources they use and effect. Producers have made major commitments to
environmental conservation, including meeting EPA's stringent zero-
discharge standard that is part of the 2008 CAFO (Concentrated Animal
Feeding Operation) rule and participating in a historic study of air
emissions from farms.
But the WOTUS rule issued by EPA--over some objections from the
Corps of Engineers--is overbroad, vague and fails to let regulated
parties know what conduct violates the law. It includes, among other
water bodies, upstream waters and intermittent and ephemeral streams
such as the kind farmers use for drainage and irrigation. It also
encompasses lands adjacent to such waters.
The rule, for example, would cover any discernable feature that
possesses (or previously possessed) a bed, bank and high water mark.
This would create uncertainty, confusion and significant legal
liability for farmers. In short, the regulation as written could affect
farmers' ability to use their land. Moreover, under the CWA, there is
an absolute prohibition on discharging any pollutant--whether manure, a
chemical pesticide or fertilizer or even a seed of corn--into a WOTUS
without a Federal permit. Violations of the prohibition are subject to
significant criminal penalties as well as civil fines of up to $37,500
per day per discharge, with the power to enforce the penalties open to
private citizens.
It's not so much EPA enforcement but the threat of activist groups
suing--using the CWA's private right of action--over alleged WOTUS
violations that will have a chilling effect on farmers.
A number of lawsuits brought at the U.S. District Court level were
filed against the regulation, which took effect Aug. 28, 2015. (The
North Dakota-based District Court in September 2015 issued a temporary
injunction against EPA implementing the regulation in the 13 states
that brought suit against the rule in that court.) The government wants
the District Court cases to be consolidated in the U.S. Court of
Appeals for the 6th Circuit in Cincinnati, which in October 2015 issued
a stay of the rule until disposition of the cases before it.
In reaching its decision to stay the rule, the 6th Circuit found
that there's a substantial likelihood that the WOTUS regulation fails
to comply with the U.S. Supreme Court's instructions in previous Clean
Water Act cases and that the actions of EPA in the rulemaking process,
to which NPPC objected at the outset, are ``facially suspect.''
Despite its hints about the outcome of the consolidated cases, the
possibility exists that the appeals court will find that the EPA and
the Corps of Engineers were within their discretion in promulgating the
WOTUS rule.
So NPPC continues to urge the agencies to withdraw the rule and to
work with all affected stakeholders, including the agricultural
community, to develop a rule that clarifies what waters are and are not
jurisdictional in a manner consistent with the Supreme Court's rulings
and that is workable and cost effective for the regulated community.
Conclusion
The U.S. pork industry is the lowest-cost producer and No. 1
exporter of pork in the world, and U.S. pork producers continue to
produce the most abundant, safest, most nutritious pork in the world.
They have proved very resilient, weathering financial crises and
diseases as well as the vagaries of a supposedly free-market economy
pushed and pulled in various directions by government intervention and
regulation while investing in and adopting new technologies that have
promoted animal health, protected the environment and added thousands
of jobs and billions in national income to the American economy.
For America's pork producers to continue as leaders in the
international and domestic economies, for them to take advantage of the
opportunities and meet the challenges presented to them, Congress and
the Administration must pursue Federal policies and regulations that
support U.S. pork production rather than hinder its ability to continue
to produce safe, lean and nutritious pork and pork products for the
global marketplace.

The Chairman. Thank you, Mr. Herring.
Mr. Brunner?

STATEMENT OF TRACY BRUNNER, PRESIDENT, NATIONAL CATTLEMEN'S
BEEF ASSOCIATION; COW CAMP FEEDYARD INC., RAMONA, KS

Mr. Brunner. Thank you, Mr. Chairman, Members of the
Committee. Good morning to everyone.
Always at the mercy of Mother Nature, our industry is
rapidly recovering from extensive drought. Herd rebuilding and
expansion are taking place at a rate where U.S. cattle numbers
will soon be equal to 2012. Additionally, American beef
producers continue to be more efficient in producing beef.
Today, we can produce the same amount of beef that we produced
in 1977, with only \1/3\ of the land and cattle.
The beef value supply chain is always focused on the
consumer. Cow/calf ranchers tell their seedstock suppliers what
they need, and also ask their stocker and feeder calf buyers
what they will pay the most for. Cattle feeders likewise look
to packer processors for signals of greatest value, who in turn
have an ear for retail and food service needs.
Cattle prices have been the topic of focus for NCBA and our
members. In 2015, we saw record high cattle prices, but soon
those started back down. One factor was the overall increase in
overall protein supplies. In 2015, U.S. per capita red meat and
poultry supplies increased by nearly 10 pounds per person. In
addition, the strong U.S. dollar impacted our ability to ship
beef to our international customers. All this additional supply
puts downward pressure on the markets, but we are used to the
ups and downs of the cattle cycle.
In order to manage this cycle, we need risk management
tools that work. We currently rely on market forums like CME
Group's cattle futures contracts, and adding transparency to
our price discovery process. Changing technologies and a
transition to automated trading and commodity futures have
increased market volatility, making interpretation of those
price signals different than what we are accustomed to in the
past. The integrity of our market forums is very important, for
without futures contract integrity, our industry will abandon
their use.
We have recognized this volatility and are working directly
with the CME Group to find ways to address it. We have a joint
NCBA CME working group which is analyzing potential changes
such as slowing down the market to help ensure a level playing
field for producers who are using these tools to manage their
price risks.
Today, we ask for no direct action from our government in
our cattle marketing systems and forums. In fact, I am
concerned at some of the action that we have seen from USDA and
the Senate.
Secretary Vilsack has announced that he is going to dust
off the proposed GIPSA marketing rule that resulted from
language included in the 2008 Farm Bill. This is concerning to
us because bipartisan efforts already resulted in
appropriations language, which defunded any additional work or
implementation of the ideas that were included in that draft
rule. The proposed GIPSA rule would have made USDA the ultimate
arbiter of how cattle are marketed. We urge USDA to enforce the
Packers and Stockyards Act. We do not need them dictating how
we can or cannot market our cattle.
Our industry has worked for years in developing new and
innovative ways to market cattle. Alternative marketing
arrangements have been studied by USDA and independent groups,
and the results show that these alternatives benefit producers
and consumers alike. Any Congressional or Executive Branch
action to interfere will only add to our price problems, not
solve them.
Solving our price problems relies on addressing the true
issues of consequence in our industry. We have capitalized on
the growing demand for U.S. beef overseas, and Japan has become
our leading export market. But Australia now has a ten percent
tariff advantage over us, resulting in a $300 million loss to
our industry. The tariff advantage for Australia will continue
to grow until we pass TPP.
In closing, I would say you could also help our bottom like
by easing the regulatory burden our industry is under, taking
action to reform the Endangered Species Act, and helping us
keep EPA at bay will go a long way in easing the pressures on
our industry.
Again, thank you very much for this opportunity to be with
you today, and I will be happy to answer any questions.
[The prepared statement of Mr. Brunner follows:]

Prepared Statement of Tracy Brunner, President, National Cattlemen's
Beef Association; Cow Camp Feedyard Inc., Ramona, KS
Mr. Chairman, Ranking Member Costa, and Members of the
Subcommittee, my name is Tracy Brunner and I am the President of the
National Cattlemen's Beef Association. I am a fourth generation rancher
and cattle feeder from the Flint Hills area of Kansas, and our nearest
Post Office is at Ramona. Our family operation includes three brothers
and three sons. We are involved in cattle genetics, seed stock,
grazing, and finishing cattle. I surely appreciate the Committee's
interest in cattle marketing issues, and it is an honor for me to be
asked to share our viewpoints.
The National Cattlemen's Beef Association (NCBA) has for nearly 120
years represented America's beef cattle industry. We have over 30,000
direct and 170,000 affiliated members nationwide. America's cattle
industry is extensive and constitutes the largest segment of American
agriculture. Always at the mercy of Mother Nature, our industry is
recovering rapidly from extensive drought. Herd rebuilding and
expansion are taking place at a pace where U.S. cattle numbers will
soon be equal to 2012. Additionally, American cattle producers continue
to be more efficient in producing beef. We can produce the same amount
of beef that we produced in 1977 with 30% fewer cattle, 18% less feed,
12% less water, and 33% less land. However, we need to continue our
efforts to be more efficient as we strive to do our part in providing
70% more food to meet the expected population of nine billion people in
2050.
Our industry requires extensive tracts of land to run cattle
allowing us to preserve the ability for family cattle farms and ranches
to stay viable. The beef industry is diverse in structure, yet the
drive to stay competitive with other proteins has shown us the need to
coordinate among all the stakeholders from field to fork. Cow/calf
ranchers tell their seed stock suppliers what they need, and also ask
their stocker and feeder calf buyers what they will pay most for.
Cattle feeders likewise look to packer-processors for signals of
greatest value, who in turn have an ear for retail and foodservice
needs. As a complete beef supply chain, we have learned that without
ultimate consumer focus, we can soon blindly produce our way into
irrelevancy.
Due to the diverse and broad-based nature of the cattle industry
operating in an environment of increasing need for coordination and
cooperation, we have market needs more unique than other animal
proteins and commodities. We rely on clear and accurate price signals
to be passed up and down the beef value chain. A cow/calf producer must
have not only precipitation, but also market confidence that his
decision to mate a bull and heifer today will be rewarded beyond costs
by the time it heads to market nearly 2 years later. Cattle grazers and
feeders that purchase those calves need a clear view of future prices
in order to determine if there is a return on their investment. In
addition, packer-processors use price discovery and analysis in order
to price beef in a way for consumers to be assured of a constant supply
of the highest quality beef anywhere on Earth.
Cattle prices have been a topic of focus for NCBA and our members.
[CY] 2015 saw a record high for cattle prices, but those soon started
back down due to several reasons. One factor was the increase in
overall protein supplies. In 2015, U.S. per capita red meat and poultry
supplies increased by nearly 10 pounds per person. In addition, the
strong U.S. dollar impacted our ability to ship beef to our
international customers. All of this additional supply puts downward
pressure on the markets. This has been compounded by the break in the
drought throughout most of the cattle producing areas of this country
which has resulted in more abundant and cheaper feed, and the resulting
decision by many producers to increase the size of their herds. Larger
supplies always lead to lower prices, but we are used to the ups and
downs of the cattle cycle. In order to manage this cycle, we need risk
management tools that work.
Price discovery is ultimately driven by supply and demand. The
fundamentals of markets are universal. The cattle industry today relies
on transparency of price discovery to send clear signals up and down
the beef chain. Cattle and beef are a wonderful but perishable
creation. We are not grain that can be stored for great lengths waiting
on fundamentals to steady an uncertain market. We currently rely on
market forums like CME Group's cattle futures contracts as solid
information in our price discovery process. Changing technologies and a
transition to automated trading in commodity futures trading have
increased market volatility, making interpretation of those price
signals different than what we were accustomed to in the past. The
integrity of our market forums is very important, for without futures
contract integrity our industry will abandon their use.
We have recognized the volatility and are working directly with the
CME Group to find ways to address it. We have a joint NCBA/CME working
group which is analyzing potential changes which could slow the market
down and ensure a level playing field for producers who are using these
tools to manage their price risks. Today we ask for no direct action
from our government in our cattle marketing systems and forums. In
fact, I am concerned at some of the action we have seen from USDA and
the Senate.
Secretary Vilsack has announced that he is going to dust off the
proposed GIPSA marketing rule that resulted from language included in
the 2008 Farm Bill. This is concerning to us because bipartisan efforts
resulted in appropriations language which defunded any additional work
on, or implementation of, the ideas included in the draft rule. The
provisions in the draft rule would have taken away our ability to
market cattle the way we want to. The proposed GIPSA rule would have
made USDA the ultimate arbiter of how cattle are marketed. We urge USDA
to enforce the Packers and Stockyards Act as it exists now. We do not
need them dictating how we can or can't market our cattle.
I am also aware of the introduction of Senator Grassley's bill to
ban packer ownership of cattle. This is another solution in search of a
problem which has been tried, and defeated, many times before. Over the
past decade, USDA's Mandatory Price Reporting has shown that only five
to six percent of cattle are packer owned. This is not the source for
the downward market. We only wish that same tenacity was used to help
us address the real problems we have with our Federal Government.
We have worked for years to find new and innovative ways to market
cattle. Alternative marketing arrangements have been studied by USDA
and independent groups, and the results show that these alternatives
benefit producers and consumers alike. Any Congressional or Executive
action to interfere will only add to our price problems, not solve
them.
Solving our price problems relies on addressing the true issues of
consequence to our industry. Beef trade is one of those issues.
Globalization is not feared by the American beef industry, but
embraced. In fact we continue to export an increasing volume and value
of American beef to destinations worldwide. Last year we exported over
14% of all finished cattle value, that's worth over $300 extra for
every calf in America. Many of you can likely attest that NCBA is
always talking about more market access for the ability to sell more
beef. Our beef does compete on the global market, however our industry
is not easily replicated globally.
If Congress passes TPP this year, the U.S. beef industry will be
one of the biggest winners in agriculture. At the same time, if
Congress fails to pass TPP or delays action on TPP, the U.S. beef
industry will be one of the biggest losers in agriculture, and here's
why that is the case.
Roughly 80 to 85 percent of the beef we produce is for the American
market. American consumers love the ribeyes, tenderloins, and briskets
from our cattle, but not all cuts of the carcass can be sold
domestically at a premium. The small percentage of beef that we export
are cuts like tongues and short plates that are not desirable to the
American consumer. Rather than send these cuts to a landfill or process
them into pet food, we have found that Asia has proven to be a great
destination for these cuts.
As a result, we have capitalized on the growing demand for U.S.
beef overseas and Japan has become our leading export market. In 2015
the Japanese purchased $1.3 billion of U.S. beef and was one of the
leading export markets for beef tongue. Even with a 38.5 percent tariff
rate on our beef, we have seen a tremendous growth in export sales to
Japan over the past 4 years and we have been able to gain significant
market share because of the quality and price of our beef.
Our leading competitor in the Japanese beef market is Australia. In
January 2015 the Japan-Australia Economic Partnership Agreement took
effect and gave our leading competitors a ten percent tariff advantage
over us in our leading export market. In other words, the Japanese
tariff on U.S. beef is 38.5 percent and the Japanese tariff on
Australian beef is less than 28 percent. This disadvantage for U.S.
beef in Japan resulted in nearly $300 million in lost sales to Japan in
2015. The tariff rate advantage for Australia will continue to grow for
the next decade unless something is done to level the playing field in
Japan. The good news is TPP will level the playing field for U.S. beef
in Japan by lowering the tariff rate on U.S. beef to match Australia's
tariff rate upon implementation of TPP and will continue to decrease to
nine percent over 16 years. This the greatest beef market access ever
negotiated into Japan.
Japan market access is not the only highlight of TPP. TPP
eliminates tariffs on U.S. beef exports to other countries including
Vietnam and Malaysia, and also includes a strong set of rules that
prevent governments from putting in place non-science based barriers
and technical barriers to trade. TPP also gives us leverage over
countries like Indonesia, Taiwan, the Philippines--all countries who
want to join TPP and all are countries where U.S. beef has outstanding
issues with market access.
The benefits of TPP are great, but so are the costs of inaction. If
the United States fails to enact TPP, then we will send a strong
message to our allies in the Pacific Rim that we are no longer willing
to lead in the Pacific and the United States will simply resign our
position of leadership to China regarding international trade and the
geopolitical affairs of the Pacific Rim.
Unfortunately China already has leverage over the United States in
terms of beef market access and has exerted that leverage since it
banned U.S. beef in 2003 following the classical BSE case involving a
Canadian-born cow in the state of Washington. In 2006, China
unilaterally re-opened its market to de-boned beef from cattle under 30
months of age with the stipulation that U.S. beef imports meet 22
requirements that included traceability of the animal to place of birth
and the exclusion of meat from cattle that were of Mexican-origin. A
year later, in 2007, China expanded access for U.S. beef to include
bone-in beef from cattle under 30 months of age, subject to the same 22
conditions they introduced in 2006. The U.S. beef industry did not
agree to meet these non-science based and commercially restrictive
terms and worked to educate the Chinese Government on how these
unnecessary requirements did nothing to address food safety or animal
health concerns. In 2012, the United States received negligible risk
status for BSE from the World Organization for Animal Health (OIE);
this is one of the highest levels of safety awarded by the OIE. Even
with our negligible risk designation, China has not modified its BSE
restrictions on U.S. beef and we are still prohibited from the Chinese
market.
Regaining market access to the large and growing Chinese beef
market is essential to the future health of the U.S. beef industry. For
several years the U.S. Government has been meeting with Chinese
officials to discuss re-opening the Chinese market to U.S. beef.
Unfortunately whatever progress has been made in these meetings has
simply led to further questions and delays. Despite the frustrating
process, NCBA remains strongly committed to working with the U.S.
Government to address China's concerns. With the guidance and direction
of our volunteer leaders we will continue to provide the necessary
advice that our government needs to arrive at an agreement that will
address China's concerns and help us regain access for beef. One of the
points of concern for China is the U.S. capacity to identify at the
slaughter plant the birth premise of every animal from which beef is
certified for export to China. The U.S. beef industry and the U.S.
Government have worked extensively to find a solution that does not
place mandatory production requirements on producers regarding
traceability. We believe there are existing voluntary marketing
programs that address China's concerns and look forward to our
negotiators being able to find a common-sense solution and restore
access to China. Even if there is a consensus position to address
China's concerns, China may bring up other potential roadblocks that
will have to be addressed at that time. A healthy dose of caution is
needed in working with China.
Other actions can also be taken to help our industry recover from
downward prices. We continue to be hit with over burdensome regulations
which hamper our ability to be as efficient as possible. One such over
burdensome regulation is the Endangered Species Act. Despite being
essential to protecting habitat for wildlife everywhere, cattle
producers throughout the country continue to suffer the brunt of
regulatory and economic uncertainty as a result of the U.S. Fish &
Wildlife's implementation of the Endangered Species Act.
Simply put, the ESA is broken. Years of abusive litigation by
radical environmental groups have taken a toll, and the result is a
system badly in need of reform. Today more than two thousand species
are listed as either Threatened or Endangered, with new petitions
stacking up by the hundreds due to groups that have set up ``petition
assembly lines'' to churn out new filings by the dozen. When the Fish
and Wildlife Service fails to respond to this avalanche of procedural
paperwork, the groups sue, tying up the court system and sapping the
agency of money that should be used for species recovery and de-listing
efforts.
If we want to fix the Endangered Species Act we are going to have
to get serious about ending this taxpayer-funded litigation abuse. The
Equal Access to Justice Act and the ESA Judgement Fund were not created
to serve as bank accounts for activist groups, yet that's how they are
being used. Every time the FWS settles a lawsuit or enters a settlement
agreement like the infamous 2011 ``mega-settlement'' with the Center
for Biological Diversity and WildEarth Guardians, these ``factory
litigants'' receive a windfall profit, which only reinforces their
action and encourages more abuse.
The result of this cycle of abuse is a dismal 1.4% recovery rate
for listed species--a failure by any standard. Since all available
resources are devoted to listing petitions and litigation, virtually
nothing remains for recovery and de-listing efforts. Some species have
been listed for 15 years or more without a valid recovery plan or
recovery benchmarks in place. For cattle producers operating in the
range of a listed species, that means playing a game we can't win using
rules we're not allow to see.
After 40 years, Congress must step in to reform this broken law. We
need to restore balance to the ESA by making recovery plans and de-
listing benchmarks a requirement to list a new species. Certainly if
the Service has enough information to determine that a species is
threatened, it should also have enough information to determine what
``recovered'' looks like. Congress must also ensure that effective
conservation tools like Candidate Conservation Agreements with
Assurances (CCAAs) aren't marginalized through the rulemaking process.
The assurances provided to producers through such instruments are
critical to effective preemptive conservation efforts on the ground.
With clear guidance, realistic recovery goals, and a focus on truly
threatened species, cattle producers stand ready to continue their work
on the front lines of species conservation. It is my hope that Congress
will act to provide the Fish and Wildlife Service that badly needed
guidance.
When we talk of over burdensome regulations, we always need to talk
about the Environmental Protection Agency (EPA). Cattle producers rely
on clean water, clean air, and clean land to run successful businesses.
We pride ourselves on being good stewards of our country's natural
resources. Since our livelihood is made on the land, through the
utilization of our natural resources, being good stewards of the land
not only makes good environmental sense; it is fundamental for our
industry to remain strong. We maintain open spaces, healthy rangelands,
provide wildlife habitat, and feed the world, but to provide all these
important functions, we must be able to operate without excessive
Federal burdens. Unfortunately, the livestock industry is threatened
daily by urban encroachment and natural disasters, and the last thing
we need is additional regulatory burden and government overreach.
The Waters of the U.S. (or ``WOTUS'') rule continues to be a top
concern for cattle producers, despite the temporary court-ordered stay.
I am extremely concerned about the devastating impact this rule could
have on me and other ranchers and farmers. As a livestock producer, I
can tell you that the rule has the potential to impact every aspect of
my operation and others like it by regulating every tributary, stream,
pond, and dry streambed on my land. What's worse is the ambiguity in
the rule that makes it difficult to determine just how much of my
operation will be affected.
WOTUS is just the tip of the iceberg for incoming environmental
rules that impact beef producers. Another pending regulation is the
Spill Prevention, Control, and Countermeasure (or ``SPCC'') rule for
farms, which requires farmers to develop and certify a control plan and
install secondary containment structures for oil storage. There's also
the new ozone standard which can impact a rancher's ability to conduct
a prescribed burn, which is an environmentally beneficial practice for
burn-dependent ecosystems. I'll also mention the Resource, Conservation
& Recovery Act--a law designed by Congress to regulate landfills--which
for the first time ever was determined by a Federal court judge to
apply to agricultural operations. Ironically, these regulatory and
enforcement regimes ultimately disenfranchise agricultural producers
instead of incentivizing conservation efforts.
As I explained earlier, our industry is quite diverse and
independent by nature, but by necessity we come together to solve our
challenges. I sincerely appreciate your invitation and attention for
these few minutes today. We want to work with you to ensure that
legislation passed and regulations promulgated are ones which help
producers, not hinder us.

The Chairman. Thank you, Mr. Brunner. The chair would like
to remind Members that they will be recognized for questioning
in order of seniority for Members who were here at the start of
the hearing. After that, Members will be recognized in order of
arrival. I appreciate the Members' understanding.
Understanding that Ranking Member Collin Peterson has
another commitment he has got to get to, I would be happy to
yield at this time.
Mr. Peterson?
Mr. Peterson. Well thank you, Mr. Chairman. I appreciate
that.
Mr. Zimmerman, you mentioned in your testimony that USDA
proposed rules on organic poultry gives you concern. Could you
talk a bit more about the risks associated with this rule, your
concerns, and do you feel this rule will work counter to USDA's
efforts to prevent another high-path outbreak?
Mr. Zimmerman. Our primary concerns do have to deal with
another high-path outbreak. Here we are working with APHIS
trying to limit our exposure to water fowl, rodents, other
possibilities of bringing HPAI into our farms, and then AMS
comes up with these new proposals that want us to increase the
outside space required for organic production. It just doesn't
make any sense that one part of USDA is telling us to keep our
birds as safe as possible, inside our barns and the other group
is saying well one segment of the industry needs this much
greater space outside. So that is the greatest concern.
And they are also admitting that this will increase
mortality, some of these organic rules, and that is
counterintuitive to what we are tying to do.
Mr. Peterson. Are they listening?
Mr. Zimmerman. We hope so. I guess that is part of the
reason we are here today.
Mr. Peterson. All right.
Dr. Brown, you have done a lot of analysis on milk and MPP.
What would you say to some of the producers that think that
they were better off under MILC, first. And second, in your
analysis there has been talk about this feed cost adjuster
issue. It just looks to me like there is a bigger discrepancy
between whether somebody grows their feed and buys their feed
versus what region of the country they are in.
So would you agree with those two issues?
Dr. Brown. Yes, first, when you look at the old MILC
program versus MPP, I have said all along that for those
producers that would have signed up at the $600 or $650 range
for MPP, I believe the return to them is larger than what they
would have experienced under MILC. Getting them to sign up for
that level has been somewhat the challenge that we face. I
looked, and in 2016, almost 130 billion pounds of our milk
signed up at $4. That is a safety net about as firm as this
table top. It doesn't provide much help. So we have done a poor
job of educating on this idea of insurance versus program
maximization, and it is an area we need to work on. But I also
hear from producers who have felt like MILC was a better tool.
Sometimes I will say it might have paid sooner, but it only
offset 45 percent of the price decline. I don't know of any
producer that would like to receive only a 45 percent offset
once we get to the trigger.
When you look at MPP, and there has been a lot of
discussion about feed costs, and we all know from the debate on
the farm bill we had feed costs discussion all the way back in
the 2014 Farm Bill debate. It does seem like we have a lot of
differences in terms of feed cost by operation. Those that are
growing a lot of their own feed, frankly, did better in a high
feed price environment because they were able to use their own
harvested feed stuffs. However, those that were buying a lot of
their feed saw more of the full impact of the record corn
prices that we saw during the very dry weather of 2012 and
2013. So perhaps there is some ability to think about ways to
modify the formula, depending on whether you grow a lot of feed
or you don't grow a lot of feed. I am not so certain that it is
a regional issue as much as it is how that farm actually looks,
in terms of the amount of feed it has grown versus what it buys
from the marketplace.
Mr. Peterson. Thank you.
Mr. Mooney, why are bankers not requiring dairy farmers to
buy up insurance? Crop farmers would never get by with that. Is
that going to change now that we are going to a tighter margin
situation, or do you know anything about that?
Mr. Mooney. Well, I think it will change, and I haven't
spoken to a banker directly, but coming off of 2014 when
margins were really good, you went into 2015 with strong
balance sheets, and then disaster hit in 2015 and the results
of 2014 on our bottom line masked some of the problems we had
in 2015. And if you go back and you look at the results of the
Margin Protection Program, there were 263 farms that were paid
out, and if the feed cost adjuster had been the way National
Milk had presented it, there would have been 8,500 producers
receiving a payment. And farmers look at those things when they
look at whether to get involved next year. They see very few
farmers received money in 2015, so they take that into
consideration when they are looking.
And I do think to your specific question, once it is more
of a proven program and we go through some of these low down
cycles like we are going through now, I think that will be
required by banks.
Mr. Peterson. Thank you. Thank you, Mr. Chairman. I
appreciate your accommodating me.
The Chairman. Thank you, Mr. Peterson. I will now yield
myself 5 minutes.
Mr. Brunner, my line of questioning is going to focus on
this proposed GIPSA rule that we have on the table. The cattle
industry has put into place the alternative marketing
arrangements, or what is known as AMAs. Would the proposed
GIPSA rules make AMAs obsolete? I would love to get your
thoughts on that.
Mr. Brunner. Well thank you, Mr. Chairman. The proposed
GIPSA rule would extremely complicate and outlaw many of the
alternative marketing arrangements. Our industry believes that
these value-based marketing arrangements that we have, have
done much to improve the overall quality and demand for beef
over the years.
I can relate personally from our family's operation that we
rely on a value-based marketing arrangement with our packer
processor that has helped us over time achieve premiums to the
cash market of $30 to $50 a head consistently. We believe that
is responding to consumer demand and we rely very much on this
marketing arrangement. So the alternative marketing
arrangements are very beneficial to our industry. The GIPSA
marketing rule would threaten those.
The Chairman. Mr. Herring, in your written testimony you
mention the industry has plans to add four pork packing plants
in the United States in the next couple years. Obviously, these
are huge job creators and economic stimulators, and although we
don't know exactly what the final GIPSA rule is going to look
like, would the possible decrease in marketing agreements have
an impact on whether or not the industry goes forth with
building these plants?
Mr. Herring. Congressman, there is no doubt that these
proposed new GIPSA rules could delay or even stop some of these
potential plants. There are three plants under construction
today. There is one plant that is trying to get located. Maybe
there are four under construction today.
But, the better question is we need to ask why are new
plants getting built? New plants are getting built because U.S.
pork producers produce the safest, highest quality product in
the world. We are the best at what we do in the world. We
produce pork four times cheaper than Japan, 2\1/2\ times
cheaper than China. It is a very innovative industry.
These GIPSA rules are very concerning because they are so
vague. It is almost a trial lawyer's playground.
I work for a family business, Congressman, that designs and
builds swine production facilities all over the world.
Countries like Russia, China, Mexico, Poland, Chile, all these
countries are striving to be like our industry, and through our
current rules and regulations, our industry has been able to
grow. So I don't see why we need to change anything we are
doing today.
Thank you, Mr. Chairman.
The Chairman. I yield back my time.
Let's see, Ms. Plaskett?
Ms. Plaskett. Thank you, Mr. Chairman. Good morning,
gentlemen.
I have a general question that I am hoping that anyone in
the group can answer, give us their thoughts on, and this is
related to EPA regulations. As livestock producers, can you
explain the regulatory challenges that you face within each
part of the operations that you have? And with that, I am
really trying to understand what EPA could be doing better to
recognize the challenges that you have in your industry and in
the operations, and understanding those practices in their own
regulatory framework and how they put regulations forward that
may make it more difficult and more challenging for you in your
own industry.
Mr. Brunner. Well, I will take the first try at that.
Ms. Plaskett. Okay.
Mr. Brunner. The Waters of the U.S. rules is foremost in
mind as an initiative from EPA that would be very damaging to
the cattle and beef industry. America's farmers and ranchers
pride themselves as stewards of not only the land, but all of
the resources on that land. We believe that the best way to
manage and preserve that land is best managed at the ranch and
the local level. The Waters of the U.S. rule would be a massive
Federal overreach, and would be very damaging to our industry.
Ms. Plaskett. My understanding is that it goes as far as to
reaching into dry creek beds and others, and that that is
really going to be detrimental to the work of some of the
livestock owners.
Mr. Brunner. Absolutely. It would go far beyond navigable
waters of the U.S., and jurisdictionally include intermittent
streams and even dry----
Ms. Plaskett. Well how can EPA strike that balance? Are you
meeting regularly with them? Are people from different
associations having discussions with them? Do you feel that
they are understanding and hearing what your concerns are in a
market that is already very, very tight for you all?
Mr. Brunner. We believe our organization is taking
initiatives and outreach to work with EPA. To date, we don't
believe they have been as receptive to our arguments and our
information as we necessarily would like them to be.
Ms. Plaskett. Mr. Mooney, did you have something to add on
that?
Mr. Mooney. Yes. We have sat down with EPA and we have what
you call in the dairy industry innovation center where you
bring together farmer organizations and processor
organizations, and we have sat down with EPA to talk to them
about things like Waters of the U.S. and what effect it would
have on us. We have actually come up with a plan to reduce
greenhouse gases by 25 percent by 2020. So we are trying to get
ahead of some of this stuff and going in and having a
conversation with EPA to see if what we are doing fits what
they would--rather than work at it from a regulatory
standpoint, work with them when they tell us what is coming
down the road, how we can fit what we are doing into what they
are going to recommend.
We also have started a group, Nutrient is the name of the
company, to where several co-ops have financed this new company
to come together to try to find innovative ways to use animal
waste and animal manure in ways that we haven't ever thought
about before. So it is going to cost quite a bit of money to do
it, but cooperatives and farmers are putting resources into
this so we can find ways to get ahead of some of the EPA rules.
Ms. Plaskett. Thank you. I have noticed, and I am very
aware of the drought for the farmers and particularly livestock
owners in the Virgin Islands where we have the--as well as our
pork, there have been a huge, huge issues that they have had
related to drought. And I know that when we talk about the TPP,
that that as well is something that some of you all are really
concerned about and if Congress doesn't act to pass it, will
that be ceding marketshare that some of you may have in a
market already dealing with disease and drought and some of the
other areas.
Do any of you have any thoughts about, particularly Mr.
Herring, Mr. Mooney, about how passage of TPP or not passing
that would affect your industry?
Mr. Herring. Thank you. Currently today, there is about $48
per head of value added to every hog marketed in the United
States because of exports. If we are not able to pass the TPP,
other countries are working with Asian countries, and our
industry will start to decline and we will not be able to
increase the value of the animals that we are producing today.
The 20 countries we have free trade agreements today, we
sell them more pork than we sell the rest of the world. So
anywhere the U.S. pork industry has a free trade agreement, we
have been super successful, and they have created a tremendous
demand for our product.
Ms. Plaskett. Okay, thank you. Thank you, Mr. Chairman.
The Chairman. Mrs. Hartzler.
Mrs. Hartzler. Thank you. I really enjoyed the testimony
today. It seems like we have had a recurring theme of the TPP
and GIPSA, and some of the regulations, GMO labeling. I have
been a lifelong cattle producer, but I didn't know that we were
producing \1/3\ more cattle or beef product than we are with
\1/3\ less land and \1/3\ cattle, since 1977, so that was
impressive there. I am concerned to hear that you project lower
cattle prices, Dr. Brown. That doesn't look good for our cows
at home.
But my question today is about the Veterinary Feed
Directive, and this final rule scheduled to take effect in
December of this year. Producers in my district are concerned
with how these new regulations will be effecting their
operations and I have had several conversations with several
cattlemen, specifically at home.
So specifically, I have heard the regulatory burdens in the
VFD will force farm supply stores to stop selling products like
medicated milk replacer, which is used on calves during certain
times to protect the baby animals against illnesses like
pneumonia. So as I understand the VFD, a 1,000 cow dairy and
little Johnny with one show steer will be regulated under the
same rules, and the VFD will make it extremely costly and
difficult for small farmers and young kids with FFA and 4-H
projects to access critical feed products like medicated milk
replacer. Randy, I would like to hear your thoughts on this
rule first, and I would like to learn more about how the
Veterinary Feed Directive will be applied to products like
medicated milk replacer. And then I would like to open this up
to the whole panel to talk about other concerns you may or may
not have with the VFD, and any specific provisions or concern
in the directive that can be tweaked to improve the
implementation. Randy?
Mr. Mooney. Well as you might expect, any extra regulations
are very concerning for dairy producers, and probably all
livestock producers. And this probably affects dairy less than
it does maybe other livestock groups, because as you are well
aware of, our feed that goes into the dairy cow doesn't have
antibiotics in it anyway. We test our milk daily for
antibiotics so there are no antibiotics in dairy feed. It will
affect the milk replacer that we feed our calves if it has
antibiotics in it, and what you will have to do then is work
with a veterinarian to get a veterinarian prescription to use
that.
Now one of the things the dairy industry has done is we
came up with what we call the FARM Program, Farmers are Sharing
Responsible Management, and that is our new animal care program
that has been in existence about the last 3 or 4 years. And in
that program, you have to have a veterinary client/patient
relationship, so that relationship through this program will
actually be easier for dairy producers to deal with because we
have that relationship ongoing, and it is something that we
have to have resigned every year. But it is just another layer
of regulations that we are going to have to deal with, but I
don't see in the dairy industry it being as big a deal maybe as
in the livestock or poultry industry.
Mrs. Hartzler. Let me ask Mr. Brunner this. How often would
a beef producer, or even Mr. Herring, pork producer, have to
get that prescription from the veterinarian? Can you get a
blanket one for 1 year, or is this every time you want to give
the medicated feed you have to go back to your local
veterinarian?
Mr. Herring. The short answer to that would be I believe 6
months is what is commonly being said today would be the length
of a prescription.
Our organization on behalf of our industry has been working
with FDA and the development of the Veterinary Feed Directive.
We want to be part of the solution. We understand the
discussion on antimicrobial resistance that is taking place. We
also understand the very great need that all livestock industry
has in the availability of all the technologies in the tool
chest, if you will, to ensure the safety and the availability
of the global food supply. And all that said, there are
specific technologies that come under scrutiny of the
Veterinary Feed Directive that are ionophores. These are
classified as antibiotics. They have no use in human medicine,
but they are very important technologies in the efficiency of
production of beef, and we are currently working with FDA to
try and identify some ways to continue the use of them and
availability of those technologies.
Mrs. Hartzler. Ten seconds, Mr. Herring. Do you want to add
anything?
Mr. Herring. The pork industry is in concert with the
guidance 209 and the guidance 213 rules that are coming in
January. I am sure there will be some hiccups, just because
there are employees, there are people working. Somebody will
miss something. But first and foremost, we are trying to raise
safe, healthy pork, and the antibiotics are a tool that we
definitely need to be able to ensure that happens.
Mrs. Hartzler. Okay, thank you very much. Thank you, Mr.
Chairman.
The Chairman. Mr. Costa?
Mr. Costa. thank you very much, Mr. Chairman. I have a
couple questions.
First to Mr. Mooney and Dr. Scott Brown. When we worked
together on the farm bill on the MPP program, the economic
analysis reflected an assumption that the so-called sweet spot
as it has been discussed before where about $6 to $6.50 range,
and the premiums were therefore optimized at that level. Of
course, my friend and colleague Congressman Peterson said, ``.
. . it is not a good idea to write farm programs when prices
are high,'' but I would like to ask, in your view, is that
still the case? Because our California situation, and it was
noted about differences in regional production and the size of
dairies. I looked it up and we have had 38 dairies out of
almost 1,500 dairies in California that have purchased the
additional protection. So 38 out of almost 1,500 dairies is a
small number, I would argue. Mr. Mooney, Dr. Brown, would you
care to comment?
Mr. Mooney. Well, I will let Scott clean me up.
The cost of a sweet spot, and I agree that I even said that
up in front of talking with some groups, that was the sweet
spot, but when I was talking about that, that was in relation
to probably what National Milk at the time was talking about as
the feed cost that was prior to the ten percent reduction in
feed costs.
Mr. Costa. Which has changed.
Mr. Mooney. Yes, that is right. So, it probably should have
changed the rates when you changed the feed costs, because the
two are correlated. And I think when you----
Mr. Costa. But some argue that that may not do much.
Mr. Mooney. Yes, but when you get under $6.50 and you look
at ten percent in feed costs, you look at $10 feed costs, it is
$1 hundredweight. So if you are down at that level, it makes a
big difference.
Mr. Costa. Because of my time, Dr. Brown?
Dr. Brown. Also, when we debated the farm bill we certainly
didn't expect feed costs to go as low as they have today. So
first, I think that probably has some effect relative to where
we were in terms of the so-called sweet spot. I do think we
have to be extremely careful about what level of protection we
want to provide. Too high of protection creates a lot of excess
supplies for us to deal with, and we have had programs like
that in the past and we weren't very happy with those either.
So finding that in between has been very difficult. The
knowledge that we have today of how feed markets have moved
might suggest slightly higher protection is needed than where
we were when we debated this farm bill.
Mr. Costa. And maybe take another look at it then
Dr. Brown. Absolutely.
Mr. Costa. Yes. I want to switch here, Mr. Zimmerman, to
some of our issues dealing with the poultry industry. You
mentioned in your testimony the result of last year's high-path
avian influenza that created havoc in different parts of the
country that several countries, South Korea, South Africa have
placed new restrictions on poultry imported from this country
that is not born, raised, and slaughtered in the United States.
What is the impact of these adverse regulations?
Mr. Zimmerman. Well, the South African one is the most--
forgive my bluntness--silly. We receive a lot of poults or baby
turkeys that are hatched in Canada and transported across the
border at a day of age, and then we raise them and grow them
out and process them in the United States. Those birds cannot
be sold to South Africa, whereas the same poult or baby turkey
hatched in Canada and stays in Canada can be sold to South
Africa. These poults that come across the border from Canada
are a lot of times mixed in the processing plants and they
can't be kept separate, so anything that has this tint of
Canadian-ness in it can no longer be marketed to South Africa.
So it is just a silly trade barrier that affects the whole
industry because----
Mr. Costa. This is a non-tariff trade barrier that and in
effect is made for economic reasons as it relates to a
particular country?
Mr. Zimmerman. Correct. And it was thrown in at the last
minute, and if NTF had been consulted heavier with the people
negotiating the trade deal, we could have nipped this in the
bud before it happened.
Mr. Costa. So what remedy are you offering or suggesting
that the Subcommittee look at to try address this issue?
Mr. Zimmerman. Make sure NTF is involved and understanding
the difference the turkey industry faces compared to the
chicken and other livestock industries, and work with us to
hopefully change that rule.
Mr. Costa. All right. I want to thank you, Mr. Chairman. I
have to go back to my other Subcommittee, and I will yield back
the balance of my time.
The Chairman. Mr. Newhouse.
Mr. Newhouse. Thank you, Mr. Chairman. Gentlemen, I
appreciate very much all your testimony this morning. It has
been very informative and very important issues that impact
agriculture and its ability to be successful, so thank you very
much.
I am really looking forward to this opportunity today,
because I have a burning question that has been raised by some
of my cattle producers, so I was hoping that a couple of you
could address this issue, maybe Mr. Brunner and Dr. Anderson,
or whoever would like to, maybe Dr. Brown.
After the repeal of COOL, which as you know in the cattle
industry, there are some people for and some against that. Some
folks have brought the concern to me that now Canadian and
Mexican cattle can come into the United States for a certain
period of time, be slaughtered, and be sold as U.S. beef, and
that any benefit from TPP would then be a more direct benefit
to Canada and Mexico, not U.S. producers. And they have already
seen a price decrease, they think, because of this situation.
In your estimation, is this the right conclusion to come to?
Was the cause and effect correct, when you get rid of COOL,
then that automatically is not a benefit to U.S. producers?
Does that make sense?
Mr. Brunner. What I think you are asking is has the
importation of cattle increased since Country-of-Origin
Labeling is no longer the law of the land, and the North
American beef industry is highly integrated. On the U.S. side
of the border, we utilize feeder cattle from Mexico, it
averages about one million head a year that come in from
Mexico, and are part of our industry, that help with the feeder
supply. From Canada, depending on seasonally and also, the
situation of moisture, live cattle, feeder cattle, and also
slaughter cattle can come down from Canada. The North American
industry is highly integrated, and so we have not seen any
increase since the dismissal of COOL, and I am not sure exactly
how that would tie into TPP. TPP, although Canada and Mexico
are signatories to that agreement, would be a far greater
benefit for our industry in helping us level the playing field
of the tariff rate duty that we are paying into Japan.
Currently we are paying 38 percent. Australia, only 27 percent,
and that disparity will continue to escalate until we sign TPP.
Mr. Newhouse. Yes. Anybody else care to comment?
Dr. Anderson. I will probably just make one comment too
along with that. We have been importing fewer cattle, and it
relates to drought, weather conditions, grazing conditions up
there, and also changes in their own infrastructure within
their own industries. As they build more packing plants in
Mexico, we think that is going to continue to keep more cattle
down there and reduce that supply that could come here of the
live cattle.
Mr. Newhouse. Well that helps. I appreciate that. There are
a lot of moving pieces, a lot of things that can impact cattle
prices, and certainly, it is an integrated industry in all of
North America.
Just real quickly, Mr. Mooney, you talked a little bit
about the MPP. We talked a lot about the feed provisions in
that, but you also had some other suggestions for improvement,
and in the short time allotted, you mentioned farmer paid
premiums as one thing. Are there any other ideas that you might
have to improve the MPP?
Mr. Mooney. Well I think those are the two major ones is
making sure the feed cost adjustments, there is discussion out
there on regional feed cost adjusters. I don't think that is
the right way to go, personally, because you get into all kinds
of regional differences. If you do go with a regional feed cost
adjuster, you would almost have to go with regional milk
prices, because milk prices are different all over the country.
But, probably the other one is looking at the different
size of producers. If you are talking about getting more people
involved and Congressman Peterson said this, some of the
smaller producers aren't involved in this. The rates have
actually gone up on the smaller producers because there was a
deduction the first year, and if there was a way of having
lower rates for smaller producers to get them more incentivized
to be part of it, that might help there.
Mr. Newhouse. Thank you very much. Again, I appreciate all
your testimony. It has been great, and thank you very much, Mr.
Chairman.
The Chairman. Mr. Yoho?
Mr. Yoho. Thank you, Mr. Chairman. I appreciate everybody
being here, and I have so many questions and so little time.
TPP: I know we all need trade and we all want fair and
balanced trade. We want good trade, and it is so important that
we have that. Mr. Brunner, congratulations on your new post
with the NCBA.
Mr. Brunner. Thank you.
Mr. Yoho. Is anybody in the cattle industry, or Mr.
Herring, in the pork industry, or Mr. Zimmerman, in the turkey,
and Mr. Mooney, in the dairy industry, while we are waiting for
TPP to come across and get approved, as you brought up,
Australia was ahead of the curve. They went ahead and
negotiated with Japan. Is anybody in our industries doing that
today while we are waiting on TPP, because I felt like we sat
and just kind of watched the world go by, and Australia jumped
the gun and they did good for their country. Is anybody doing
that?
Mr. Brunner. Well the Canadians are working to get a
unilateral or bilateral agreement with Japan in our absence.
Mr. Yoho. What about us with our trade negotiators?
Mr. Brunner. Our trade negotiators negotiated the best
trade access we have ever been able to achieve with TPP.
Mr. Yoho. Right.
Mr. Brunner. Our current tariff rate of 38 percent would
level with Australia and all the other member nations, and it
would decline to nine percent in the 16 years of phase in over
that. So that is by far the----
Mr. Yoho. But, instead of waiting for that to pass, was
anybody being proactive and trying to get the trade agreement,
just a bilateral one so that we could be--I don't want to say
like Australia--benefitting our producers in this country
instead of waiting on this big multi-national trade agreement?
Mr. Brunner. We had a bilateral that was signed with Japan,
I believe, back in the 1990s in the early part of my career. It
was hard to get the Japanese market open, and when it did open,
we had to pay that high tariff rate and have been paying it
ever since.
Mr. Yoho. Right. Okay. I just feel like we could have, our
negotiators could have been a little bit more proactive, kind
of like Australia did or like you are saying Canada is doing it
now.
In lieu of that, thinking about that, we heard about foot-
and-mouth disease as you guys brought up, and we know the
threat of that. Is there any need to import beef from any
country that might have FMD, because we know if that got into
this country, it would shut down our export industry 100
percent. Right now, tomorrow, it would shut it down. Is there
any need to import it, and if you could, give me an economic
impact on this country's ag sector when you look at pork, beef,
sheep, goats, all the livestock sectors that would be impacted.
Any idea, Mr. Brunner?
Mr. Brunner. Well the Brazil/Argentina rule that is
proposed by USDA raises great concerns within our industry. We
don't believe an adequate risk assessment has been made of the
ability of those countries to certify their product coming into
this country as fresh or fresh frozen product. We believe that
that risk assessment needs to be made. And in direct answer to
your question of an economic analysis of the damage that that
would create, we have not seen that study from USDA and are not
sure that it has ever been made.
Mr. Yoho. The reports I have read is between $100 and $150
billion economic impact to this country.
Mr. Herring, do you have any thoughts on that?
Mr. Herring. Well, the ability or the devastation of a farm
animal disease in this country is, without a doubt, the 800
pound gorilla in the room, and it is the one thing that when I
meet with the bankers every year I think I just need to get out
of this business. It scares me to death. So we really need to
keep pushing and get prepared.
Mr. Yoho. All right, and bringing that up but going back to
TPP, if we know that were to come into this country and we're
struggling to get that trade negotiation, we need to stop any
country that maybe has that in their country to come here.
And we talked about GIPSA, the Food Modernization Safety
Act, EPA, all the regulations that come from these different
agencies and the FDA, and recently, the USDA noticed a grant to
help address a shortage of large animal veterinarians in rural
areas, and this continues to be a common problem from report
after report evaluating the veterinary profession. With
additional regulations like I mentioned from the FDA on the VFD
coming into effect early next year, the shortage for rural
areas could become more problematic. From your perspective as
the President of the NCBA, do you hear this concern from your
membership being concerned about current or future access to
veterinarians in their rural areas?
Mr. Brunner. Well our industry certainly relies on the
services of veterinarians, and beyond that I can say that they
are an integral part of the support service to our industry. We
want to make sure that there is adequate numbers of educated
and trained large animal veterinarians to support our industry.
Mr. Yoho. Thank you. Thank you, Mr. Chairman.
The Chairman. Thank you, Mr. Yoho.
I would like to thank all the members of the panel for your
testimony today. This has been very, very helpful, great input
for the record. I might add, to sum all this up, the Federal
Government just needs to get out of your way and help open up
your markets. Thank you again.
Under the rules of the Committee, the record of today's
hearing will remain open for 10 calendar days to receive
additional material and supplementary written responses from
the witnesses to any question posed by a Member. This hearing
of the Subcommittee on Livestock and Foreign Agriculture is
adjourned.
[Whereupon, at 11:31 a.m., the Subcommittee was adjourned.]
[Material submitted for inclusion in the record follows:]
Submitted Statement by Livestock Marketing Association
Subcommittee Chairman Rouzer and Members of the House Committee on
Agriculture Subcommittee on Livestock and Foreign Agriculture:

These comments are provided on behalf of the Livestock Marketing
Association (LMA), which is the leading national trade organization for
more than 800 livestock marketing businesses located throughout the
United States. LMA represents more than 75 percent of the regularly
selling local livestock auction markets in the U.S. Livestock auction
markets serve two important purposes: (1) they sell livestock for
producers in a competitive bidding environment and (2) they stimulate
the economies in local communities.
According to U.S. Department of Agriculture Grain Inspection,
Packers and Stockyards Administration (GIPSA) annual reports, livestock
auction markets each year sell more than 33,000,000 cattle, 8,000,000
hogs, and 2,800,000 sheep. This amounts to $30 billion in gross sales
of livestock sold in auction markets each year. In talking about the
opportunities and challenges for the livestock sector, we'll focus on
auction market businesses but also touch on some important topics for
the industry as a whole.

Key points:

The future holds both opportunities and challenges for
animal agriculture.

The Packers and Stockyards Act needs to be changed.

The structure of the livestock marketing industry has
changed; but the P&S Act has not. Some needed changes can
be made on a consensus basis in the short term. Other
changes will require more in depth analysis.

Market volatility is a serious issue that needs to be
studied.
Opportunities and Challenges Exist for Animal Agriculture
First, the good news is we see great opportunity for animal
agriculture. The United States is the premier producer of livestock and
livestock products, particularly grain-fed beef. We are excited about
the opportunities to expand as an industry, especially as the middle
class populations in many key countries grow. Factors such as lower
feed costs and much needed moisture in many parts of the country have
contributed positively to the livestock sector. This positive response
is especially evident in the cattle sector by the decision of many
cattle producers to take part in a rebuilding of numbers in the U.S.
beef herd.
From a marketing sector perspective, livestock auction markets see
opportunities to continue our proud tradition of serving our customers.
Markets help producers receive the highest price possible for their
animals through competitive bidding, sorting, and offering livestock in
volume. In addition, markets are often where producers receive the help
and information they need to ensure they are complying with state and
national requirements particularly those relating to animal health,
such as health certificates or disease testing requirements.
We also see growth opportunities that come with technology. Many
markets have expanded their services to include online or video sales.
Additionally, our members continue to look for innovative ways to help
producers realize additional premiums for their livestock, such as
desirable animal health programs.
However, we have some challenges to overcome as well. One of the
greatest challenges for the livestock marketing sector is figuring out
how to operate under an outdated and cumbersome regulatory structure.
Last summer, LMA hosted a nine stop listening tour to hear from market
owners, managers, and professional livestock buyers. From Valdosta,
Georgia to Modesto, California, and everywhere in between, the message
we heard was consistent. First, the laws and regulations governing the
livestock marketing industry have not kept up with the times. Second,
the greatest concern for livestock markets is making sure they receive
payment for livestock they sell.
The Livestock Marketing Industry Has Changed, But the P&S Act Has Not
Our industry has changed greatly over the last 100 years. When the
Packers and Stockyards (P&S) Act was passed in 1921, livestock were
being transported by rail cars to a handful of large terminal
stockyards in places such as Chicago, St. Louis, Kansas City, and Omaha
where they were sold by commission firms housed at the stockyards. The
stockyards often had close ties (or were controlled by) the packers
that bought the livestock and the railroads on whose lines the
livestock had to be shipped.
Today, approximately 1,000 regularly selling local livestock
auctions are spread out across the United States, and their connections
to the railroad and packing industries are completely different from
what existed 100 years ago. These auctions have greater transparency
than the terminal stockyards of years gone by, due to both the nature
of the auction environment and immediate information sharing. Today, in
a community of buyers and sellers connected by computers and cell
phones used by the markets and our customers, the flow of information
is almost instantaneous. It is common today for livestock markets to
broadcast their sales online. Finally, many livestock marketers have
also added an Internet or video sale component to their businesses.
While the marketing industry has adapted to structural changes in
the industry, to changes in the banking industry, and to changes in the
communications industry, the statutory authority of the Packers and
Stockyards Act has remained stagnant. It has been decades since a
wholesale review led to significant statutory or regulatory reform. For
livestock market owners, this results in GIPSA interpreting and
applying laws and regulations designed for the terminal stockyards to
the business structure that we have today. The combination of
antiquated statutory and regulatory authority coupled with a field
staff spread out across the U.S. has lead to differing interpretations
between regions and even individuals within a region. We heard on our
listening tour that this leaves many market owners and operators
feeling like GIPSA compliance is a moving target.
We will readily admit that there has been, and continues to be,
significant controversy surrounding proposed GIPSA regulations in
recent years. We share the concerns of many in the livestock industry
surrounding recent news that GIPSA is again considering regulatory
changes similar to those proposed in their 2010 proposed competition
rule. Any changes along these lines must be thoroughly vetted with
industry input to ensure that changes intended to increase competition
do not unintentionally reduce competition instead. This requires
significant debate and analysis.
However, at the same time, common sense, consensus-based changes
should be made to begin the process of bringing the law into the 21st
century. The regulated community needs action now in areas completely
unrelated to the controversial topics.
Short-Term, Targeted Changes to the P&S Act Are Needed
Language has been drafted and shared with legislative offices and
industry stakeholders that would make two targeted changes.
First, Section 301 should be revised to make it clear that online
and video auctions fall under the Act. More and more livestock are
being sold through online and video sales. As the Act is written, it is
not entirely clear whether, or to what extent, those online and video
sales are covered and must comply with the Act. Although LMA members
who conduct business online already follow the law's requirements when
doing so, the lack of clear authority of GIPSA to regulate these sales
is concerning. Clarifying Section 301 would ensure that people selling
through online and video markets receive the same protections as those
who sell at fixed-facility livestock markets, including a custodial
account, prompt payment, and bonding. Section 301 should be narrowly
revised so that it only applies to those online and video businesses
that are charging a commission or other fee and handling, or providing
a means to handle, funds due to sellers.
Second, Section 409 should be revised to make it clear that modern
electronic payment methods are permissible under the Act. Currently,
Section 409 refers to only two forms of payment to meet the prompt
payment requirement of payment within the next business day of the
sale: checks in the mail and wire transfers. Modern banking practices
use many different forms of payment, such as Automated Clearing House
(ACH) and credit and debit cards. Revising Section 409 to make it clear
that modern electronic forms of payment are permissible will allow for
quicker payment, which will reduce the risk of defaults. This is
especially important because it is taking longer and longer to receive
checks through the mail. Changing the P&S Act in this way would not
exclude any current payment options; it would simply allow buyers and
sellers flexibility by adding modern options.
These changes should be addressed this year, both to make needed
updates to the law and also to prove that, working together, Congress
and industry can address problems in a consensus-based manner.
More Long-Term, In-Depth Changes to the P&S Act Should Be Considered
A more in-depth review of the P&S Act is needed on two levels.
First, Congress needs to determine if the Act is fulfilling its
purpose. Second, there are specific changes that could provide much
needed financial protection to sellers of livestock.
Another issue often raised during LMA's listening sessions was the
amount of devastating risk sellers of livestock and markets under the
P&S Act are exposed to when a buyer fails to pay.
In 2010, Eastern Livestock, the largest livestock dealer in the
U.S., defaulted on payment to hundreds of livestock producers, markets,
and other dealers. The Eastern Livestock default is not a one-time,
isolated occurrence in the industry. Since 2010, there have been
several instances of dealer defaults. As recent as this past Fall, a
major dealer failed to pay two livestock markets (owing $980,000 to a
market in Kansas and $2.9 million to a market in Nebraska), as well as
several producers who sold to the dealer directly.
Producers who sell through a livestock auction market are protected
by both the market's surety bond and by the market's custodial account
(trust account). Producers who sell directly to packers are protected
by both the packer's surety bond and by the Packer Statutory Trust
under 7 U.S.C. 196. Producers who sell directly to dealers are provided
little protection. Under the current law, dealers do not have a
custodial account or a trust.
Markets are placed in a highly vulnerable position when it comes to
payment. Pursuant to 7 U.S.C. 228b, markets are required to pay sellers
of livestock by no later than the close of the next business day after
the sale, even if the markets are not paid by the buyer of those
livestock. When livestock markets are not paid, they are usually left
with no feasible way to collect. If the dealer has resold the livestock
to a good faith purchaser, that second purchaser has clear title to the
livestock, even if the dealer has not paid for them. In addition, a
dealer's bank usually will have a blanket security interest on all of
the dealer's livestock inventory, which, under current law, will give
the bank a perfected security interest in the livestock even though the
dealer never paid for them and the bank never loaned the dealer any
money for those specific livestock. A producer selling directly to a
dealer is in a similar poor position when the dealer fails to pay.
When a dealer mails a check, as the law allows, it may be several
days before the seller (whether livestock market or producer) even gets
the check or discovers that a check is not coming. In many parts of the
country, mail has slowed down significantly, further stretching this
critical time period. In some cases, a buyer may buy multiple times
before a payment problem is discovered.
Although the P&S law attempts to provide financial protection for
sellers of livestock by requiring dealers to maintain surety bonds,
bond claims rarely make up for any significant loss. P&S dealer bond
claims return, on average, about 15 for every dollar claimed (1999-
2013 data). This does not include Eastern Livestock claims where payout
was 4.37 on the dollar.
Additional protection is needed for markets and producers selling
to dealers. Financial protection already exists for those dealing with
packers (Packer Statutory Trust) and markets (custodial account) and in
other agriculture sectors (statutory trust under the Perishable
Agricultural Commodities Act). Simply raising bond amounts is not an
acceptable alternative because it would push legitimate buyers out of
the marketplace due to the significant assets needed to obtain this
type of bond, particularly young and beginning market participants.
Instead, the Packers and Stockyards Act should be amended to establish
a dealer statutory trust to provide livestock producers and markets
financial protection in the event of a dealer default. This would give
unpaid sellers of livestock first priority to receive livestock and
accounts receivable.
A dealer statutory trust could be modeled after the existing Packer
Statutory Trust that Congress added in 1976 to address packer defaults.
The trust requires packers to hold all livestock purchased from cash
sellers, and all inventories of, or receivables or proceeds from meat,
meat food products or livestock products derived from such livestock,
in a trust fund for the benefit of unpaid sellers. No separate account
would be needed. Instead this simply would give unpaid sellers priority
in livestock and accounts receivable for livestock. The need for this
protection is more important than ever with slowing mail service
delivering checks, increased value of livestock at times, and
volatility within the market.
Market Volatility Is a Serious Issue that Needs Attention
The final concern we will raise is that of volatility within the
futures and, subsequently, live cattle markets. Futures contracts
offered by the Chicago Mercantile Exchange (CME) can be an important
risk management tool for livestock producers to hedge against changes
in the market. In fact, many lenders require farmers and ranchers they
work with to hedge their livestock. However, in recent months, the
amount of volatility in the CME has turned it from a risk management
tool to a liability in some situations.
We understand that due to seasonal supply and demand there will be
ups and downs in the market; but what is difficult to understand is the
amount of volatility within the futures market that does not correspond
to the fundamentals of the cattle industry that traditionally drive
market change. Numerous times in recent months news that should
logically and historically move the market in one direction was met
with a move by the futures in the opposite direction. This has raised
some serious questions about high frequency trading of futures and
other trading practices.
For a market operator, it is devastating to watch our customers
experience a significant drop in prices received for quality calves
simply because the board is down the limit for the day or multiple days
in a row, with no fundamental reason driving the drop, and cash market
participants are reacting. It is important to remember that a trip to
town to market their calves is a producer's main paycheck for the year
and, with a perishable commodity like cattle, waiting a week to sell is
not always a good alternative.
While there is no specific Congressional ask on the topic of market
volatility at this time, we appreciate the shared concern on this
topic. LMA supports Congressional oversight as a support to industry
discussions on this issue in the hope it is one that may be
appropriately addressed in the near future.
Conclusion
In closing, we appreciate this opportunity to provide written
testimony and thank the Committee for its ongoing interest in helping
the livestock industry succeed, whether this be through working
together to address challenges such as nonpayment and market volatility
or allowing businesses to thrive without unnecessary government
intervention by modernizing antiquated requirements, such as those that
exist under the Packers and Stockyards Act today.

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