SECTION: IN THE NEWS

LENGTH: 2798 words

HEADLINE: PREPARED TESTIMONY OF
BRUCE B. COBB
ARC GREENHOUSES
BEFORE THE HOUSE SMALL BUSINESS COMMITTEE
THE SUBCOMMITTEE OF EMPOWERMENT
AND THE SUBCOMMITTEE ON RURAL ENTERPRISES,
BUSINESS OPPORTUNITIES AND SPECIAL SMALL BUSINESS PROBLEMS

BODY:


Contents
A. Our Farm: a brief overview of our farm to help put my testimony in perspective.
B. Questions: my understanding of the questions on which you would like my view.
C. Economics Retard Young People From Entering Traditional Agriculture
D. Attracting More Entrepreneurs To Agriculture
E. Increasing The Success Rate Of Agriculture Entrepreneurs
F. What Can The Government Do To Help Us Right Now A. Our Farm
We operate a small farm. This years revenues will be between 1 and 1.5 million. We grow some 20 varieties of herbs and 24 varieties of specialty lettuces. We grow these products in greenhouses using recirculating hydroponic systems. The benefits of this type of growing include:
We grow in a protected environment. We supplement lower sunlight winter days by lighting our crops. Therefore, we grow the same high quality product all year so the chefs and homemakers who use our produce can be assured of consistent, high quality every week of the year; We grow on a schedule that permits us to harvest daily. Therefore, our product is picked fresh to fill that day's orders; we recirculate our nutrient solution. Therefore, we do not have any negative impact on the environment in terms of nutrient runoff; and We take great pains to keep pests out of the greenhouse and the greenhouses are clean. Therefore, we do not have the same problem with pest management as farmers who grow outside. Our business philosophy is to be a consistent supplier of high quality product that we grow our selves. Our customers buy from us because they know they are obtaining the same high quality every day of the year. We are very pleased to have chefs in many high quality restaurants that want to cook using only our herbs. They buy not because they know us personally, in most cases we have never seen each other. They buy because they know they are getting consistent high quality.
We employ a tremendous amount of technology in our growing methods. We have to move millions of gallons of water every day. We have to heat two acres. We have to light two acres. We have to cool two acres. The list goes on and on. We generate most of our own electricity using small co-generation units. The co-generation units are cost efficient for our operation because we need both hot water to heat and electricity to light our greenhouses. We use hundreds of computers that we have designed and built to control every facet of our operation.
Technology is very important to us. My father's main interest is the technology since his objective is to prefect the technology so it moves from the laboratories to the real world on a large scale so that recirculating systems become economically feasible for farmers all over the world. Our intensive methods permit a high quantity of food to be produced in a small area. For example, in our two acres of greenhouses we grow the same quantity of produce that 23 acres of prime land in the Imperial Valley is able to produce.B. Questions
As I understand it you want my point of view on the following questions:
Why are more young people not attracted to Agriculture? What can be done to attract more young people to agriculture? What can be done to help young people to be successful once they decide to enter agriculture? C. Economics Retard Young People From Entering Traditional Agriculture
The ultimate consideration that a person makes when deciding to start a business is will the opportunity provide above average returns for the investment in dollars and sweat equity. In most cases the answer is that farming, as many people perceive it, does not provide a good opportunity. The typical business model for fanning today is that you buy or lease some land, buy a tractor and other equipment and then raise animals or crops for someone else to package, market and sell. In other words, a farmer raises a commodity that he/she sells at the price the marketer decides is attractive so the marketer can make their target margin. The marketer can always find someone either in this country or abroad who is willing to take something less. Therefore, the average price is driven down to a level that does not provide good margins to the farmer year after year. In other words, on the average, commodity farming is a marginal business.
I was talking to a farmer last week that raises some commodity products. If he was to sell one acre of his land and invest the proceeds his return would be at least $400/year. He is a very good farmer and his gross revenue from growing and selling commodities from one acre is only $360/year. Between these two alternates the wise choice is to sell and use the money to invest somewhere else.
Therefore, young people who decide not to enter that type of business are making a wise decision.
D. Attracting More Entrepreneurs To Agriculture
If more people had a higher regard for agriculture then a higher percentage of entrepreneurs would go into agriculture. Young people do start farms. Young people do start software companies. Both businesses are hard and require brains, motivation, luck and ability. The reason more people are attracted to software is that software is thought to be more intellectually demanding; therefore, it is more attractive to those people that have the attributes to start and run a business.
It is a communications problem to alert people of the opportunities for combining agriculture production with the development of market channels. The government can use its bully pulpit to help with this communications problem.
All new businesses require capital. It takes convincing people to obtain capital. That means the people with money must be convinced that the entrepreneur can deliver on his/her dream.People who want to engage in traditional agriculture have a hard time raising capital because they are trying to finance a business that does not have a great outlook for large returns. That is why people trying to start a traditional farm have to resort to borrowing money and thus having a fragile, underfinanced business. Creating a business with borrowed money is a very risky way to proceed.
I think the elimination of inheritance taxes would help create a much better climate for investment in agriculture. It is my hypothesis that currently the largest source of capital for farming entrepreneurs are family funds. These funds are typically provided in some way that eventually is effected by inheritance taxes.

Therefore, one positive thing the government can do to promote farming entrepreneurship is to eliminate inheritance taxes. In a few years it would move capital to younger people who can build on what is already in existence. This may the single most important tangible step the government could take to promote agriculture entrepreneurship.
In my case our farm belongs to my parents even though I operate the farm on a daily basis. In operating the farm I am increasing the value through my sweat equity. I expect to get the farm when my parents die. My situation is not unique. Recently I had the opportunity to participate in a two year leadership program for young farmers in New Jersey. In my class, many are in the same financial situation as I am in with my parents. In my case, my parents have taken out a life insurance policy that will pay the death taxes so I will get the farm provided they continue to be able to pay the premium. Others are not so lucky.
The federal government may need the money provided by inheritance taxes but it is just unfair to take money in this way and makes no economic sense. Either the government should reduce spending or find a fairer way to finance its activities. Farms become increasing productive based on continued investment. In many cases investments in farms must begin anew with each new generation because farms are sold in advance of death or to pay inheritance taxes. If farming ventures had a long term future then investments could be made for the long term. If you want to really promote agriculture entrepreneurship then only eliminate inheritance taxes on farms. This will have all sorts of families investing money in agriculture.
E. Increasing The Success Rate Of Agriculture Entrepreneurs
I do not think there is a silver bullet for making entrepreneurs successful. There is nothing different between creating a successful business in agriculture, software, trucking, etc. A discussion of what the government can do to help entrepreneurs be successful is beyond the scope of this five minutes but I do have one concrete suggestion which I will make at the end of the paper that I think can have an enormous impact on increasing the rate of successful entrepreneurship in agriculture.
F. What can the federal Government do right now to help us?
I would like to bring up two topics where I think the government can provide farmers like us with significant help right now. The two topics fall in the area of labor and product labeling.LABOR
Our biggest current problem where the government has an enormous impact is labor. We employ a great amount of technology but we still employ some people, currently we have 32 people, some of whom are part time. We have several problems with our labor force that are caused by the Federal Government.
Social Security Earnings Test We employ several older people who are also drawing social security. They want to work because it is fun, they want to be productive, they want the money, they want the satisfaction of doing something of importance. But they feel cheated when they pay a high rate of tax on their social security income. At this time of the year when they are worried about making too much they become down right upset. Eliminating the means test would do a great deal of good for them and I assume all other older Americans who want to work.
INS We employ people who show up when we run an ad that satisfy three conditions:
they have a creditable employment history and do not appear to be on drugs, after seeing the work we have to offer they say they would like to work with us, and they provide the proper I-9 credentials.
We then keep the people who want to stay and who put in a fair days work. We believe we have superior working conditions over field growers. Currently many of our workers are of Mexican decent. We have some we are sure who are citizens or have valid green cards. We have others who we are not so sure that they are legal. The traits all these workers have in common are: the identification papers appear correct, many own their own homes, some of them have been working with us for 4 or more years, and they all work hard and take pride in their work and they want to move up.
What is our problem? We do every thing we are suppose to do but we still live in fear of an INS raid that will certainly disrupt our operation even if there is no illegal persons in our employ. No one wants to lined up against the wall and quizzed. On the other hand if we suspect someone may be illegal and we dismiss them we are in jeopardy of a wrongful discharge suit. We are not sure what to do. We believe that the government should have regulations that permit us to develop a strong reliable work force free of all fear as long as we doing everything according to the law. What do we want from our labor force? We want them to be reliable, motivated, willing to work, not on drugs, etc. Right now about the only people who want to work on the farm are people who seem to be of Mexican descent. No one else applies. Please get regulations that remove the uncertainty!
Minimum Wage We are sure you all understand that by raising the minimum wage that you will reduce the number of jobs available for low skilled people. Minimum wage jobs should not be a way of life, they are an opportunity. In fact, three people that started with us at minimum wage 5-6 years ago are now on their way to becoming US citizens and are now making a considerable amount more than minimum wage.
That's what minimum wages jobs do. They give people an opportunity to "pull themselves up by their bootstraps". As an employer I do not expect our workers to stay around forever, In fact we encourage them to move up to the next level. The main reason there will be fewer under skilled jobs as the minimum wage increases is because as the cost of labor increases it is better for us and other employers to increase the amount of automation we devote to replacing labor with capital. We have been successful in doing that because currently we employee about the same amount of unskilled labor as we did when we were half the size. As a result of the forthcoming increase in the minimum wage we are now in the process of designing a new packing operation that requires fewer unskilled labors. We must do that to maintain our profits. The only people who will be hurt by the increase of the minimum wage are the people with low skills that want a chance to work to develop their skills so they can move on up. Society is the big winner when people are able to move on up.
Wage Taxes It seems to us young people just entering the work force need money to buy a car, house, etc. They need to get ahead of payments. The 15% wage tax is a very big bite right off the top of their earnings. Why not use the social security over charge or what government types now call a surplus to offer wage tax relief?. Social Security was designed to be a pay as you go program so the over charges are being loaned to the Treasury to be spent on other things or transfer the debt from investors to the Social Security Administration. In either way the debt must eventually be repaid from general revenues.
Rather than using the over charges on the social security program why not reduce the over charge and let the people who are paying the charge use the money to make a better life for them selves. Some modification of this type would do a great deal to help our employees. On the whole we have a young work force from college graduates, to high school graduates, high school drop outs and immigrants. The faster they are able to put down strong roots in our community the better we will all be. 15% off the top is a big impediment to putting down roots.
PRODUCT LABELING
As you all ready understand we want to establish a relationship with our customers. We want our customers to know what they are buying: where and how it was grown. We think the best thing other farmers can do is stop thinking about growing a commodity and start growing a product that has their name on it. We think the Federal government can help both the farmers and consumers by improving labeling requirements. Ideally what we would like to see each package of food offered for sale contain the name and address of the farmer who grew the product and the name of the person who packed the product.
Short of that we would like to see real truth in labeling where a person who packs the product cannot imply they also grew the product. For example, today if you go into the super market and read the label on a package of fresh herbs you will get the impression the herbs were grown at the packer's farms in California, Florida or Virginia instead of being shipped in from Israel and repackaged in California, Florida or Virginia. We think the consumer has the right to know where the produce they buy was grown and by whom.Product labeling will help with the negative effects the newly enacted Food Quality Protection Act will have on the US farmer. The FQPA regulations will not be effective outside of the US. Farmers in other countries will still be able to use these pesticides. Business that market crops in the US will simply buy cheaper foreign product. Both the US farmer and the consumers will lose. For example, consumers will buy the lettuce thinking they are getting lettuce grown by US standards so it is free of these illegal pesticides. The result will be consumers paying more for the product they do not want. Our labeling suggestion will make this impossible.
Product labeling will:
- Help farmers with the costs associated with FQPA; - Promotes free trade; - Educate consumers; and - Let the marketplace push down pesticide use.
Not expensive regulations.
Increase opportunities for entrepreneurs and attract investment in US agriculture. Give farmers the help they need in moving from a commodity to a brand name. Give farmers the power to fight the large corporations that control the retail food distribution in this country. Not be perceived as a protectionist act Not be expensive regulation for distributors to comply with Product labeling will benefit all farmers and all consumers. Product labeling will release a wave of farming entrepreneurship.
Thank you very much for the opportunity to share my beliefs.
END


LOAD-DATE: November 4, 1999