SECTION: CAPITOL HILL HEARING TESTIMONY

LENGTH: 7254 words

HEADLINE: TESTIMONY May 01, 2000 JOHN GIOVANNETTI A GROWER AND SHIPPER OF FRESH FRUITS WESTERN GROWERS ASSOCIATION HOUSE AGRICULTURE FARM POLICY

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May 1, 2000 Statement of John Giovannetti on behalf of Western Growers Association before the House Committee on Agriculture Hearing on Federal Farm Policy Good morning and thank you very much for holding this hearing in California to discuss federal agricultural policy issues. I am John Giovannetti, a grower and shipper of fresh fruits and vegetables in Yolo, California. Today I am presenting testimony on behalf of Western Growers Association (WGA), as a member of the Board of Directors. WGA was established in 1926, and represents over 3,300 members who grow, pack and ship more than half of the nation's fresh fruits, vegetables and nuts. The Association represents over 90 percent of the fresh vegetables and about 60 percent of the fresh fruits and nuts grown in Arizona and California. Federal Agricultural Policy The U.S. horticultural sector has always been on the periphery of farm policy because our fruit and vegetable growers have never participated in the historical "farm programs' as have other agricultural sectors, such as dairy, cotton, or wheat. Our growers, however, believe that federal farm policy also includes import and export policies, and it is to these policies that I wish to first address my remarks today. In addition to agricultural trade policy, my written statement also will comment on the Perishable Agricultural Commodities Act, the U.S. Department of Agriculture's Animal and Plant Health Inspection Service (APHIS), planting flexibility on subsidized acreage under the 1996 Farm Bill, guest worker legislation, crop insurance, supermarket consolidation, and agricultural research and other issues of importance to our industry. As you can see, fruit and vegetable growers have many issues on our plate. Agricultural Trade Policy With U.S. tariffs on imports being among the lowest in the world, our market is open to fresh fi7uits and vegetables from around the world. When trade negotiators raise the issue of reducing domestic and export subsidies, there is nothing to debate with regard to the U.S. fruit and vegetable industry, since our industry receives no trade-distorting subsidies. There are no protectionist safeguards or sophisticated price or volume mechanisms designed to keep imports out when our produce is being harvested and marketed. Let's compare this situation with the fruit and vegetable industry in Europe. Taking a look at the most recent data (for the marketing year 1996/97) which the European Union has provided the World Trade Organization, we find that the EU's aggregate measure of support (the WTO's measure of domestic support) exceeded $17 billion. Let me reiterate - the European industry received $17 billion in subsidies for one marketing year, compared to zero for the U.S.! Additionally, the EU was allowed in the Uruguay Round to basically retain its Reference Price System for certain fruits and vegetables. It is now called the Entry Price System. This system imposes a duty on imports that enter the two below a specified price. For the EU's most sensitive fruits and vegetables (15), there is a special volume-based safeguard (additional duty) that protects the domestic industry by effectively keeping out U.S. exports when the EU is harvesting and marketing its own crop(s). In 1996/97, this safeguard was used for tomatoes, cucumbers, oranges, clementines, mandarins, lemons, apples, and pears. In addition to these measures, the EU uses Producer Organizations (POs) to provide subsidies more directly to fruit and vegetable growers. Growers pay levies to the PO which are reimbursed I 00% by the EU, up to 4.5% of the value of the product marketed. The U. S. Department of Agriculture's Foreign Agricultural Service estimates that in 1999, the total estimated EU direct support to the POs was approximately $1.8 billion. While the EU member states do report the activities of the POs to the European Commission in Brussels, there is no strict oversight by the EC. Thus, there is ample opportunity to report the activities of POs as non-trade distorting, a classification which does not require reductions in support levels. With ongoing efforts to reduce all subsidies, it is expected that more and more effort will be made to disguise the PO subsidies as non-trade distorting, and thus not subject to reduction efforts. WGA is a member of the Agricultural Coalition on Trade (ACT) which is comprised of California fruit and vegetable associations. ACT has reviewed the U.S./EU fruit and vegetable trade picture since implementation of the Uruguay Round. Attached to my testimony are two charts for your review. Please note the significant increase in imports from the EU - over 141 % in quantity (95% in value), while there has been a 12% decrease in the quantity (16% in value) of U.S. exports to the EU. WGA believes that this disturbing imbalance of trade is due primarily to inadequate attention in the Uruguay Round to the U.S. fruit and vegetable sector. When the U.S. negotiating strategy is to reduce subsidies, and the U.S. sector has nothing to reduce, our industry stands to gain very little, especially when the subsidies are as high as those of the EU. The situation is even more severe when the subsidy reductions are made on an aggregate basis. While WGA believes this situation can only be rectified by complete elimination of all domestic and export subsidies, we are realists and do not expect this to happen in the next trade round. However, WGA believes the U.S. fruit and vegetable sector can benefit from a new trade round only if the following approaches are taken: 1)Elimination or reduction of domestic subsidies on a product basis (not in aggregation) to prohibit any future increase in subsidies; 2)Substantial percentage reductions in subsidies based on the value of the aggregate measure of support (AMS) for each product (i.e., the higher the AMS, the larger the percentage reduction); 3)Elimination of export subsidies; 4)Elimination of the Peace Clause; 5)Clarification and harmonization (to the greatest extent possible) of domestic support terms (i.e., price support, direct aid, premium, etc.) used in V, TO notifications; 6)More transparency in WTO required notifications to clearly determine whether the support is appropriately placed in the green, amber, or blue box; and, 7)Symmetry in safeguard measures. WGA recognizes that members of the House Committee on Agriculture will not be negotiating the next WTO trade round. However, decisions made in the next trade round will directly affect the future economic health of the U.S. fruit and vegetable sector. Thus, when developing U.S. farm policy, members must carefully scrutinize the impact of our trade actions on all sectors of U.S. agriculture. This includes specialty crops as well as the bulk commodities. WGA supports free trade and has endorsed previous multilateral trade rounds. However, our members cannot continue to endorse future trade negotiations that allow the EU to continue providing its fruit and vegetable industry with billions of dollars in subsidies. With respect to the Free Trade Area of the Americas (FTAA), these negotiations are proceeding faster than the WTO negotiations. WGA is concerned that our government's WTO objectives are influencing the FTAA negotiations. The domestic subsidy objective appears to be the same as the WTO objective - a substantial reduction in domestic trade distorting subsidies. Why? The Western Hemisphere countries do not appear to be subsidizing there horticultural crops. Congress needs to consider separating the trade negotiations for horticultural crops from other agricultural crops and prohibit domestic subsidies. WGA hopes that as members of the Committee focus on U.S. trade policy and the future health of American agriculture, you will be able support a trade policy that is fair and equitable to the U.S. fruit and vegetable industry. Market Access Program Legislation WGA strongly supports legislation currently pending before this committee to expand the successful Market Access Program (MAP). This legislation, H.R. 3593, would authorize $200 million annually for the MAP, $35 million annually for FMD, and allow 50% of unused Export Enhancement Program funds to be used for market development and promotion activities. As members of this committee are well aware, the non-trade distorting MAP program has proven to be extremely successful in promoting the expansion of U.S. agricultural exports in international markets, especially those in which we face unfair trade barriers. Passage of the legislation, which would restore MAP funding to levels of the early 1990's, would expand agricultural exports and also would strengthen the U.S. negotiating position in new WTO trade discussions. We hope the committee will expeditiously approve this legislation. Perishable Agricultural Commodities Act The Perishable Agricultural Commodities Act (PACA), which is administered by USDA to regulate trade in fresh produce, but which is fully funded by the industry, is critically important to our industry. PACA has enabled growers, shippers and receivers to move perishable fruit and vegetable crops great distances with assurances that all parties are fairly compensated. In playing a critical role in ensuring an abundant and affordable supply of healthy fruits and vegetables, PACA provides many benefits to consumers, as well as to all sectors of the industry. Hunts Point Terminal Market Criminal Activity Unfortunately, it was learned last year that USDA inspectors and wholesalers at the Hunts Point Terminal Market in New York City entered into a massive kick-back scheme to defraud growers and shippers by falsifying inspections of fresh produce over nearly a two decade period. All of the inspectors involved in the scheme, and most of the wholesalers' employees, have agreed to plead guilty in criminal proceedings. WGA is pleased to see that this criminal activity has been uncovered and prosecuted. However, WGA is concerned that growers and shippers will have great difficulty in recovering the substantial financial losses they have suffered due to the Hunts Point criminal activity. While the PACA process permits defrauded shippers to file grievances against the wholesalers in order to recoup losses suffered as a result of this admitted criminal activity, the burden of proof rests solely with the shippers. Some accommodation must be made to relieve the shippers' burden of proof requirement in this situation, or it will be virtually impossible to recover any of the losses caused by this criminal activity. In addition to the burden of proof problem, the industry has the burden of investigating all the inspections by the AMS inspectors who have pleaded guilty. The inspection certificates used for the indictments will be the shippers basis for filing the PACA grievance, but there remains the investigation of all the inspections made by the indicted inspectors. It is the contention of WGA that all of these inspections are suspected of being part of the same kick-back scheme, and therefore need to be fully investigated by the federal government, not by the industry. Procedurally, the statute of limitations will expire on July 27, 2000, yet the evidence needed to go forward in the PACA proceedings has not yet been made available by the USDA Office of Inspector General. It is appropriate for Congress to either extend the statute of limitations, or make it clear that the Inspector General should do everything possible, in addition to retaining a non-government contractor, to assist with making this evidence available to shippers. Another problem in the Hunts Point matter is the shipments involved in the government's sting operation. The shippers were unknowingly involved in, and paid a heavy price for, federal efforts to catch criminals. Our shippers are not asking for a reward, but we do believe we should be compensated for the fair market value of our produce involved in this government operation. It is well within the power of Congress to reimburse shippers for such losses involving the federal government. Administrative Infrastructure Improvements During the last decade, the trading of perishable fruits and vegetables has changed substantially, just as other aspects of the economy have changed. However, USDA's Fresh Products Branch operates today just as it has for many decades, and is in serious need of modernization. Our industry is now utilizing digital imaging, Internet trading, and more direct sales to supermarkets, and the inspection process needs to be modernized to keep up with private industry. Moreover, criminal activities, like the Hunts Point matter, could be minimized with updated procedures and facilities. The Fresh Products Branch staff and internal procedures at USDA require updating in order to meet the challenges of supplying consumers with a nutritious supply of fresh produce in the 2 1 " century. WGA believes that the House Agriculture Committee should work with USDA to ensure that a number of improvements to the Fresh Products Branch inspection program are implemented. This should include, at a minimum, the following initiatives: 1)The ethics training that the Fresh Products Branch staff receives each year should be improved. In addition to strengthening existing ethics training, staff should be required to be trained yearly on changing inspection procedures and new inspection techniques; 2)Efforts to improve our inspection procedures by learning from, and adopting, the best inspection practices used by other developed countries; 3)Capital improvements such as notebook or hand-held computers, digital imaging equipment, and simple items such as inspection tables at inspection locations must be authorized and funded. These and other updated procedures or facilities would greatly improve the Fresh Products Branch services, and are in the best interest of consumers and industry alike. We urge the Committee to authorize such capital improvements for the Fresh Products inspection program in a timely manner. Animal and Plant Health Inspection Service WGA encourages the Committee to provide strong oversight and provision of adequate authorization of funding for one of the most important agencies of the U.S. Department of Agriculture, the Animal and Plant Health Inspection Service (APHIS). This agency provides invaluable assistance to exporters of U.S. agricultural products by working with foreign plant health officials to resolve phytosanitary barriers which stop or delay our exports. Unfortunately, APHIS's efforts to improve our export picture have been diminished by the growing list of import petitions received from foreign governments eager to export to the U.S. In fact, APHIS appears to have made consideration of import petitions a priority at the expense of assisting American exporters. WGA fears that APHIS has somehow strayed from its original mission of focusing on the problems facing our exporters. Another concern is that the responsibilities of APHIS were increased dramatically with the adoption of the Uruguay Round WTO Agreement (which includes the Sanitary and Phytosanitary (SPS) Agreement), yet the agency's personnel and other resources were not increased at anything close to the level needed. The release last year of the National Plant Board's study, Safeguarding American Plant Resources, makes clear how extensive the needs are at the agency - and how important this agency is to the future of U.S. agriculture. Given the critical importance of opening new international markets for our fresh produce exports, WGA believes that APHIS should have a specific mandate from Congress to assist U.S. agriculture in these efforts. Western Growers is also quite concerned that APHIS is being made subject to political pressures, and is not taking the necessary care required to protect domestic agricultural crops from the risk of pest infestation before approving new import petitions. Exotic pest infestations are much more prevalent than they were even 10 years ago, due to the increased level of international trade. With increased trade comes increase risk of exotic pest infestation, and APHIS must have the resources to confront the task of keeping exotic pest infestations to a relatively low level. Obviously this is necessary if we are to continue to have a successful agriculture industry - for both specialty crops and commodity crops. WGA believes that Congress should undertake a comprehensive, detailed review of APHIS activities and adopt a new law which clarifies APHIS's role with respect to expanding access to new markets for U.S. agricultural exports. Further, Congress must provide the agency with vastly increased resources. There is no more important investment that can be made for the future of U.S. agriculture. Planting Flexibility on Subsidized Acreage Western Growers Association is strongly opposed to allowing fruits, vegetables and nut trees to be grown on acreage which is enrolled in USDA subsidy programs for the bulk commodities (the so-called "Flex Acreage" policy). This is necessary to ensure that producers of fruits and vegetables who do not receive USDA subsidies are not put at a competitive disadvantage against growers who do participate in the federal farm programs. This policy also prevents against the disruption of produce markets due to artificially imposed signals arising from changes in government policy. Along with other produce organizations, WGA worked hard to ensure that Congress abided by this policy in writing both the 1990 and 1996 Farm Bills. The Federal Agricultural Improvement Act of 1996 (1996 Farm Bill) prohibits the planting of fruits and vegetables on all USDA contract acres, with certain narrow exceptions specified in the law. In testimony before the House Agriculture Committee in 1999, Secretary of Agriculture Glickman recommended that Congress expand "planting flexibility so that producers can elect to plant fruits and vegetables on subsidized acres if they choose to do so." This proposed amendment would overturn the policy, included in the 1996 Farm Bill, of preventing subsidized growers from planting fruits and vegetables on contract acreage. WGA is strongly opposed to Secretary Glickman's proposal, and will strongly oppose any new legislation which would allow subsidized producers to compete against non-subsidized growers in the production of fruits and vegetables. WGA also is concerned about USDA's enforcement of the Flex Acreage provisions of the law. On May 5, 1999, USDA issued an Advance Notice of Proposed Rulemaking indicating that many growers believe the penalties for violating the current prohibition of planting fruit or vegetables on contract acreage are unduly harsh, and that the agency is considering reducing these penalties. While WGA does not believe that penalties should be unnecessarily punitive, we do believe it is incumbent upon USDA to ensure that any reduction in the current penalty regime does not lessen the deterrent effect of the penalties in enforcing the Flex Acreage policy, as clearly intended by Congress. WGA opposes any substantial change in the penalties which would weaken current law. WGA remains committed to ensuring that the fundamentally fair policy of prohibiting subsidized growers from competing against growers who do not receive government assistance in fruit and vegetable production remains the law of the land, and that the law is effectively enforced. Supermarket Consolidation Supermarket consolidation is a concern from the grower to the consumer. The ability of the supermarket to drive farm-gate prices down and drive retail prices up when a supermarket chain dominates the market is economically unacceptable. Unlike non- perishable consumer products, a family farmer with a perishable crop ready for harvest does not have the alternative of waiting for prices to rise. The immediate requirement to market the product is further complicated when the market is dominated by a few large chain supermarkets. The trend of retail supermarkets demanding slotting fees from grower/shippers of fresh produce is evidence of market power which puts family farmers at a great disadvantage. Guest Worker Legislation Western Growers Association also strongly supports bipartisan legislation to reform the H-2A agricultural guest worker program (S. 1 814 and H.R. 4056). An effective guest worker program is needed to ensure that legal workers are available to harvest perishable crops when there are not enough domestic workers for this purpose. The inability to secure a sufficient number of workers in a timely fashion to harvest perishable crops results in adverse consequences for growers, workers, and consumers of fresh fruit and vegetables. in recent years, the H-2A program has proven to be cumbersome and inefficient when faced with the task of supplying significant numbers of guest workers on short notice. As our industry continues to experience localized labor shortages throughout California and Arizona, the need for a reformed program to avert labor shortages continues to grow. Thus, legislation to reform the H-2A guest worker program is very important to the California fresh produce industries. S.1814 and H.R. 4056 also include provisions that will provide undocumented workers with the opportunity to earn permanent status through employment in agriculture. This "adjustment of status" provision is a "win-win" situation for growers and farmworkers. Growers benefit through the stability of a legal workforce and the certainty that highly perishable crops will be harvested in a timely manner. Farmworkers benefit by earning the right to legal status, avoiding the substantial risks inherent in undocumented status, and get the protection of U.S. labor laws. Again, WGA strongly supports the bipartisan agricultural guest worker legislation with adjustment of status for farmworkers, and urges Congress to enact this legislation in 2000. Federal Crop Insurance WGA has generally been supportive of efforts to expand effective risk management tools to growers of fresh fruits and vegetables. However, due to recent experience, we are concerned about potential adverse impacts on growers from any expansion of the federal crop insurance program. WGA strongly urges USDA and the Risk Management Agency to ensure that new crop insurance programs are structured in such as a way as to ensure that they do not disrupt existing markets for fresh fruits and vegetables. WGA's concerns are illustrated by the situation with the watermelon pilot program in 1999. Last year, watermelon growers in Arizona and California experienced one of the worst markets in history. The supply of domestic watermelons was much greater than in previous years, which produced record low farm-gate prices. Moreover, watermelon consumption did not increase significantly because the retail supermarkets did not pass along the low farm- gate prices to consumers. The watermelon farm-gate price collapse also adversely affected farm-gate prices for other types of melons grown by WGA members. WGA is concerned that the USDA's watermelon crop insurance pilot program was a major factor contributing to the increased supply of watermelons in the U.S. market. The pilot program implemented in select counties in a few states appears to have provided incentives for growers to expand production, or for new growers to enter the market. This created an imbalance in an industry that previously was characterized by a reasonably balanced supply and demand history. Large increases in acreage planted to watermelons in areas served by the pilot program indicate that the program may have been a major factor in causing this shift into watermelon acreage. WGA strongly opposes the continuation of the watermelon pilot program, and expansion of the federal crop insurance program to other fruit and vegetable crops, unless USDA can ensure that such programs will not disrupt traditional marketing patterns and will not provide artificial signals or stimulants towards increased acreage and supply. It should be remembered that fruit and vegetable markets are much different in nature than markets for the bulk commodities. Government programs designed for growers of bulk commodities generally are not effective for fruit and vegetables growers, and can often be detrimental to the latter. Ensuring that new programs are available on a equal basis among all growers, and will not disrupt markets, should be a standard requirement for RMA in developing any new crop insurance programs for fruit and vegetable commodities. WGA also believes that association and cooperatives have a vital role to provide in crafting crop insurance policies and providing premium discounts to growers. Any crop insurance reform approved by Congress must include a role for agricultural associations and cooperatives. Food Quality Protection Act Reform WGA strongly supports efforts to provide for a better implementation process of the Food Quality Protection Act (FQPA), such as the "Regulatory Fairness and Openness Act of 1999" (H.R. 1592) by Rep. Pombo. This legislation does not change the fundamental requirements of FQPA, but rather reinforces the original FQPA language to ensure that the EPA uses actual data and realistic models in their risk calculations. The bill also would require EPA to use the data call-in provision of the law where there are data gaps. Effective and fair implementation of FQPA based on actual data and sound science is critical to ensuring that growers have access to the crop protection tools needed to grow nutritious and affordable fruits and vegetables. WGA is pleased to see that this FQPA reform bill has 218 cosponsors, thus attaining the support of a majority of the 435 members of the House, and urges Congress to move forward with the legislation as soon as possible. Agriculture Research WGA appreciates the small increase in funding for federal agricultural research that Congress has provided in the last year or two. However, our industry has two concerns regarding research. First, the Agricultural Extension Service has been decimated over the last 15 years. Their advice and applied research is critical to assisting growers in the development of more efficient ways of growing crops. In California, many of the long time extension advisors are reaching retirement age and it is not clear that there is the will to replace them. Secondly, we believe that more funding should be directed towards applied research. As we struggle with changes in pest control, new environmental legislation, and other challenges, applied research has the potential to assist in the development of new solutions to these issues. Thank you for this opportunity to present the WGA's views on federal agricultural policy. I will be glad to respond to any questions.

LOAD-DATE: May 12, 2000, Friday