SECTION: CAPITOL HILL HEARING TESTIMONY

LENGTH: 4721 words

COMMITTEE: SENATE AGRICULTURE, NUTRITION AND FORESTRY

HEADLINE: 2002 FARM BILL

TESTIMONY-BY: MR. JOHN DENISON, CHAIRMAN OF THE,

AFFILIATION: RICE FOUNDATION, IOWA, IA

BODY:
July 17, 2001

Testimony of the U.S. Rice Producers' Group and the U. S. Rice Producers Association

By Mr. John Denison Chairman of the, Rice Foundation, Iowa, IA

Before The Committee on Agriculture, Nutrition and Forestry United States Senate

INTRODUCTION

Mr. Chairman and members of the Committee, my name is John Denison. I am a rice, soybean and cattle producer from Iowa, Louisiana. I am the Chairman of the Rice Foundation, and the immediate past Chairman of the USA Rice Federation. I am accompanied today by Mr. Nolen Canon, a rice and soybean farmer from Tunica, Mississippi. Mr. Canon also currently serves as Chairman of the US Rice Producers Association.

I am pleased to appear before the Committee today on behalf of the Rice Producers' Group and the U.S. Rice Producers Association. Together, these two organizations represent virtually all of the nation's rice producers. My testimony represents the consensus position of these two organizations with respect to legislation addressing our domestic agricultural commodity programs. This consensus was developed during a series of meetings among our producer representatives held over the past several months. I am also pleased to inform the Committee that the Rice Millers' Association and the USA Rice Federation have endorsed this testimony.

Mr. Chairman, prior to presenting our initial recommendations for the Committee's consideration in drafting a new farm bill, I would like to thank the Committee for your support for the recent budget resolution, increasing the agriculture budget baseline and providing sufficient budgetary resources to provide additional economic assistance for crop years 2001 and 2002 and beyond, if necessary. I also urge you to act as soon as possible with regard to authorizing the supplemental AMTA payments for the current crop year.

U.S. agriculture in general, and rice producers in particular, are facing continued low prices and declining income. Prices for energy-related products, including fuel, natural gas and fertilizer, have increased substantially, placing rice producers in a further cost-price squeeze. This is occurring while aggregate rice exports remain stagnant and farmers face growing costs due to increased environmental and pesticide use regulations.

Negative cash flow projections have caused bankers to reduce or even refuse credit for spring rice planting. This hesitancy on the part of lenders is not unfounded. Our economic analyses indicate that rice is the only major commodity for which net market returns after variable costs for the 2001 crop will be negative, if government payments are excluded.

In short, if Congress had not provided rice producers with further immediate assistance, consideration of any long-term farm policy would have been in all likelihood unnecessary for many rice farmers who would be forced out of business before the new farm policy can take effect.

Mr. Chairman, it is for these reasons that we need the additional farm assistance provided for crop year 2001. This additional financial assistance is critical to help rice farmers through this difficult economic period. It will also provide Congress sufficient time over the next year to fully consider and debate all aspects of the new farm bill, including price and income supports, and the trade, conservation and research titles that are all important to U.S. rice producers.

BACKGROUND

Rice production and marketing is a multi-billion dollar activity in the United States. Primarily produced on over 3 million acres in six states, rice accounts for $1.4 billion in farm revenues. Rice production declined modestly in the mid-1980's, but grew sharply in the 1990's, from 156.1 million hundredweight in 1990 to an estimated 191.1 million hundredweight in 2000, an increase of more than 22 percent over the decade. Over the last 10 years California and Arkansas, the two largest rice-producing states, have gained acreage, up 38 and 15 percent respectively. Missouri has almost doubled its rice acreage. Over the same period rice acreage has declined substantially in Texas. Acreage in Louisiana and Mississippi has also declined.

U.S. rice production provides a versatile, nutritious food product for people here in the United States and around the world. Rice is used in everything from baby formulas to beer, and in a wide variety of ethnic cuisines enjoyed by many Americans. Rice hulls and other co-products are being used in a number of innovative applications - in building materials and to provide energy. Winter-flooded rice fields provide important habitats for migratory waterfowl and other species.

Rice is a capital intensive and expensive crop to produce because of its requirement for extensive irrigation. Approximately sixty percent of total rice supply is used domestically and the balance is exported.

While the United States is currently the third largest exporter of rice in the world, our share of world export trade has declined continuously over the past twelve years. In 1986 the United States accounted for nearly 30 percent of world exports of rice. This year, the Department of Agriculture projects that U.S. rice will account for only 15 percent of world rice exports. The world's primary exporter of rice is Thailand. Other major exporting countries include Pakistan, India, and Vietnam. The United States competes with these and other countries in the world market. World rice export market share is a critical issue for the U.S. rice industry because we depend on the world market to sell such a large part of our annual production. Unlike the price for U.S. produced wheat and feed grains, the price for milled rice traded on the world market, is determined in large part by our Asian competitors.

While the total export market share of U.S. rice has fallen, the United States has emerged as the world's leading exporter of "rough" (unprocessed) rice. Because the U.S. is the only major rice exporter that does not restrict the export of rice in its raw form, the U.S. has a competitive advantage in the rough rice trade. Other major rice exporters, through government intervention in the export trade, forego rough rice exports in an effort to retain in their countries the value-added economic activity that milled rice exports generate.

RECOMMENDATIONS

Mr. Chairman, we appreciate the Committee's efforts to gain input from the rice industry through these hearings to consider the effectiveness of our farm programs. We also appreciate the opportunity to comment on the impact of the 1996 Farm Bill on rice producers, and to recommend specific changes in our farm programs that will allow our growers to earn a reasonable return on their efforts, contribute to the economic success of their rural communities, and provide critical habitat to hundreds of wildlife species. U.S. rice producers also believe it is important to develop a new farm bill that is consistent with our existing domestic support obligations under the World Trade Organization (WTO). . In addition, we are pleased to provide your committee with the detailed analysis of various issues associated with the counter cyclical payment program proposed jointly by our organizations, as performed by the Agricultural and Food Policy Center at Texas A&M University (AFPC-TAMU), one of the FAPRI consortium of universities.

Since appearing before the House Agriculture Committee in Washington earlier this year, the U.S. Rice Producers' Group and the US Rice Producers Association have continued to work together to refine more specific recommendations with respect to long-term farm policy. Producers from all six major rice producing states carefully reviewed the results of the in-depth analyses performed by AFPC-TAMU and the effect of a number of various policies on rice producers as well as the producers of other major program crops (cotton, corn, wheat, soybeans, and sorghum).

In a meeting three weeks ago, producer representatives from all six of the major rice producing states agreed on the following recommendations:

- Maintain the planting flexibility provisions in the 1996 FAIR Act. Prior to the enactment of the 1996 Farm Bill, farmers had to plant their base acreage to a specific crop in order to receive program payments. Therefore, farmers largely planted their base acreage irrespective of what the market was signaling, or what made the most sense agronomically. Congress wisely changed this system in the 1996 Farm Bill to allow producers to receive program benefits largely without regard to which crop producers planted on their base acreage. Maintaining the planting flexibility provisions enacted in the 1996 Farm Bill is strongly supported by U.S. rice producers and should be continued in any new farm legislation. Growers should however, be given the opportunity to reset (update) their base acreage, but only if the CCC budget baseline is adjusted to cover the increase in fixed payments (PFC), marketing loan gains and loan deficiency payments that would result from increased base acreages.

- Continue the marketing loan and loan deficiency payment (LDP) structure as currently administered under the 1996 FAIR Act. The marketing loan program for rice was first implemented in 1985. This program has been critically important in helping the U.S. rice industry to maintain its export competitiveness while freeing the government from taking over rice under the loan program. Loan deficiency payments (LDP) allow producers to waive their right to the loan program while receiving a direct payment equal to the difference between the loan rate and the existing market price (when the market price is below the loan rate). Both LDPs and marketing loans provide rice producers with critically important income protection while keeping the U.S. rice industry competitive in international markets.

- Rice producers strongly support maintaining the option for producers to redeem their loans with generic commodity certificates. This option has enhanced the marketing flexibility available to producers, empowering them to more effectively market their rice both here and abroad. This current marketing loan system works well, and should be continued.

- Continue to establish rice loan rates at no less than $6.50 per hundredweight. The loan program provides much needed liquidity for rice producers and should be maintained at a level not less than $6.50 per hundredweight, but that the Secretary of Agriculture retain authority to increase the loan rate. In addition, if loan rates for the other basic commodities are realigned upward toward the loan rate for soybeans (currently $5.26 per bushel), then the rice loan should be realigned upward. This will discourage distortions in cropping patterns and loan- rate driven over- and under-production of individual commodities. The resulting new loan level should be established as an absolute floor. In addition, the payment limitation for marketing loan gains and loan deficiency payments should be eliminated.

- Continue to ensure that basic commodity programs are not contingent on mandatory idled acreage. Until the 1996 Farm Bill, a major component of our domestic farm policy for fifty years had been annual supply controls. However, the 1996 Farm Bill ended this reliance on annual supply controls. As U.S. agriculture in general, and the rice industry in particular, has become more dependent on exports, supply controls became a hindrance to our ability to expand our exports and maintain our reputation as a reliable supplier. Mandatory production controls raise our own cost of production and reduce our export competitiveness, while allowing foreign competitors to increase their share of the global rice market. Therefore, future farm program benefits should not be contingent on any annual supply control requirements.

- Provide "Decoupled" PFC-type Payments. The 1996 Farm Bill created a new system for providing direct income support to rice producers. Rather than deficiency payments, which varied according to market prices, the 1996 legislation provided fixed direct payments, which declined each year through the 2002-crop year. We recommend that the Production Flexibility Contract payments for rice in the next farm bill should be fixed at $2.56 per hundredweight (the seven-year average of PFC payments during the 1996 farm bill). Such a payment should give producers an assured minimum level of support, in compliance with the WTO "Green Box" provisions.

However, many rice producers continue to be concerned regarding the effects that the current Production Flexibility Contract (PFC) payments are having on the rice-farming infrastructure. Because these payments are currently completely decoupled from rice production, some tenant farmers have been faced with situations where landlords make the economic decision to accept the PFC payments, while declining to produce a crop, or even to accept any risk associated with the production of a rice crop.

This is one of several factors that have contributed to the decline in rice acreage in Texas since the enactment of the 1996 Farm Bill, from 300,000 acres planted in 1996 to 240,000 acres planted in 2000. Rice producers believe that any new farm legislation should be carefully constructed to avoid further economic dislocations of this type.

U.S. rice producers have not yet reached a consensus on precisely how to address this issue between landlords and tenants. However, rice producers agree that benefits under our farm programs should accrue primarily to those who have actually produced or shared in the risk of producing the crop.

Rice producers will continue to work toward suggested resolutions to this issue in the months ahead. We will be pleased to work with the Committee on resolutions to these important issues.

- Provide a more effective income safety net for producers through a countercyclical income support payment in addition to current program mechanisms. While the program structure of PFC payments coupled with LDPs has served the rice industry well, it also contained some weaknesses. Specifically, this structure has provided inadequate income support in periods of very low prices such as those experienced since 1998. This has necessitated the enactment of emergency farm assistance in each of the last three years, as well as this year.

In an effort to address this inadequacy on a long-term basis, U.S. rice producers support maintaining a PFC-type fixed payment coupled with LDPs, while supplementing them with a counter cyclical payment paid to producers. We recommend that a counter cyclical payment program be established with a base period of the Olympic Average of 1994-1998 receipts. The payment trigger should be 100 percent of the base receipts during the base period. If, due to budget constraints, any downward adjustment in the payment is necessary, it is imperative that the adjustment is made by reducing or pro-rating the payment itself, NOT by lowering the trigger level below 100 percent of receipts during the base period.

The producer representatives agreed to the counter cyclical payment program recommendation based in part on the in-depth analysis of a number of issues performed by AFPC-TAMU in four separate but related reports. Copies of all four reports are attached to my written testimony for your information.

In brief summary, some of the most important findings of the reports include:

- Based on simulation analysis, the base period that yielded the greatest counter cyclical support for rice was the Olympic average (national) for the period 1994-98 or 1995-99. This represents a national estimated trigger support level of $525.60 per planted acre. All the other commodities, except wheat, also receive the highest counter cyclical support level when based on the national Olympic average base period 1994-98.

- Considering the several scenarios evaluated, maximum support for rice (reflecting the marketing loan, base AMTA and the counter cyclical payment) is associated with Scenario 2 (contained in Briefing Paper 01-4, Table 2):

Loan rate $7.54 cwt. (realigned to soybeans at $5.26)

Base AMTA $2.56 cwt.

OA (94-98) CCP

Trigger at $525.60 per acre

- If all commodities are restricted to current loan rate levels, then the maximum support would be associated with Scenario 1 (contained in Briefing Paper 01-4, Table 2):

Loan rate $6.50 cwt.

Base AMTA $2.56 cwt.

OA (94-98) CCP

Trigger at $525.60 per acre

- If the counter cyclical trigger level is reduced to 95%, then the preferred option for rice changes altogether from a counter- cyclical program to a program under which additional budget resources are dedicated to a supplemental AMTA payment.

We are hopeful that this overview, also prepared by AFPC-TAMU, will direct the Committee to information - applicable to all of the basic commodities - which will be helpful as you consider long-term farm legislation.

Mr. Chairman, the information provided in these reports was gained at the collective expense of the nation's rice industry. While it answers many questions, it raises many more. For example, all of the analyses in the reports were performed based on the conditions and available data relative to the 2001 crop year. Time and financial resources have prevented further analysis with respect to these questions in future crop years.

We believe that such long-term analyses would be of great value to the Committee and the Congress as they consider long-term farm legislation. This is true not just for rice, but also for all of the crops that will be affected by the basic commodity provisions of the legislation. We strongly urge you to take advantage of the very extensive work that AFPC-TAMU has already completed to further analyze the impacts of each of these options other commodities.

- Regional differences in yields should be considered when calculating the countercyclical payments. Regions of the country where yields are above the national average, for example, should not be penalized as compared to regions that experience below average yields. Our proposal addresses this issue by basing countercyclical payments on each state's actual production and yields.

- Eliminate the payment limitations for income support and marketing loan/loan deficiency payments. The 1996 Farm Bill imposes a payment limitation per person of $40,000 for PFC payments, and of $75,000 for loan deficiency payments and marketing loan gains combined. Congress has increased these limits on an annual basis over the past three years for program crops, including rice. Unless Congress acts, the $150,000 payment limit for LDPs/marketing loan gains for the 2000 crop will revert back to $75,000 for the 2001 crop year. These arbitrarily set payment limits only serve to limit income assistance and reduce the effectiveness of the existing program. Eliminating these payment limits will allow rice and other program crop producers to more fully utilize existing income and marketing assistance programs, and help to address the cost/price squeeze that all farmers, regardless of the size of their operations, are facing.

- Compensate producers for current and future conservation/environmental practices that enhance water, soil and air quality and wildlife habitat. Rice growers currently provide about 775,000 acres of enhanced waterfowl and wildlife habitat at their own expense. We recommend that the Committee follow the policy guidelines listed below when considering the conservation title of the next farm bill:

- Support for existing programs including the Conservation Reserve Program, Wetlands Reserve Program, Wildlife Habitat Incentive Program, Environmental Quality Incentive Program, conservation technical assistance, etc. and maintaining existing funding for these programs. However, new conservation funding should be targeted towards land that is in production or considered in production.

- Support for funding and maintenance costs not only for practices already being implemented that enhance the environment, but also additional practices that may be encouraged through higher payments.

- There should be no payment limitations on conservation program payments.

- Compensation for conservation practices will in no way be a substitute for existing or future farm safety net programs including production flexibility contract payments, marketing loan gain/loan deficiency payments, counter cyclical program payments, or any other farm income support payment program.

- All conservation payment programs will be voluntary and incentive-driven.

- Any measure of the environmental benefit of conservation practices compensated for under a conservation program will be science-based.

- Conservation programs should clearly enhance the rural economy and maintain property rights.

- Conservation programs should be WTO consistent and should be designed and implemented to be defined as "Green Box" measures.

- Conservation programs should be administered primarily at the local level, with primary administrative oversight exercised by the Farm Service Agency, with technical support from the National Resource Conservation Service and State Advisory Committees. Any new conservation program advisory committees should be comprised primarily of agricultural producers.

Mr. Chairman, we have reviewed the provisions of the Conservation Security Act that you and others introduced earlier this year. We appreciate your leadership in highlighting the importance of conservation and the need to help promote the use of voluntary, incentive-driven practices that many farmers and ranchers already have in place. Rice producers already utilize several conservation practices including winter-rice flooding, conservation tillage and no-till practices that provide clear, science-based soil conservation, water quality, air quality and wildlife habitat benefits. We would urge your consideration of including these practices in the three-tiers of any

CSA approach considered by the Committee.

Any environmental/conservation payments should be in addition to, and not as a substitute for, other income support provided under the new legislation. Payments should be made available not only to producers who begin to invest in such habitat protection, but also to those who have already implemented important wildlife habitat protection initiatives.

- Comply with U.S. domestic support commitments under the WTO. Rice producers support the enactment of a farm bill that is consistent with our current domestic support commitments under the WTO. Such a farm bill could include, for example, domestic support programs that are not subjected to specific reduction commitments under the WTO (so-called "Green Box" programs). In addition, the bill could provide support under programs subject to specific WTO reduction commitments, but nonetheless allowed, on a limited basis, under the WTO (so-called "Amber Box" programs).

It is our understanding that the United States can "spend" $19.1 billion annually on "Amber Box" programs, and still comply with its WTO domestic support commitments. Based on 1999 spending, Aapproximately $6.2 billion of this amount is currently committed each year to certain commodity price support programs (e.g. dairy, peanuts, and sugar).

Should such work be necessary, the WTO "Green Box" rules regarding eligibility for decoupled income support are fairly flexible. These rules would appear to permit the operation of a farm program that reflects a balance between payments targeted to producers and the fulfillment of our WTO commitments.

- Fully support and fund USDA export market promotion and food aid programs. To help U.S. agriculture compete for export markets in today's world of increased spending from competitors like the European Union and the Cairns Group, and in which U.S. agriculture continues to experience low and record low prices in some sectors, USDA/Foreign Agricultural Service's Foreign Market Development (FMD) program should be funded annually at not less than $43.25 million in the next farm bill.

The FMD program is an integral part of USDA's arsenal of export programs. To have last year attained an effective/real FMD allocation of the approximately $32 million level Congress began allocating to FMD in the 1986 farm bill, a nominal FMD allocation of $43.25 million would have been needed. Thus, for the upcoming farm bill, FMD should be funded at no less than $43.25 million annually.

In order to reverse the decline in funding over the past decade for a number of our agricultural export programs, U.S. rice producers strongly support increasing the authorized level of funding for MAP from its current level of $90 million per year to $200 million per year. Further, we recommend that the Export Enhancement Program (EEP) be fully funded as allowed under the Uruguay Round agreement, and if the program has unused funds available at the end of the fiscal year, they should be used for related market development and promotion activities or other WTO legal programs.

With regard to food aid, according to the USDA Economic Research Service, at least 15 MMT of food aid a year is needed to meet the minimum requirements in the 60 countries that are least developed and reliant on food imports. The United States, as the most productive country in the world, should commit to provide at least 5 MMT, or one-third of this need, each year. Additional amounts should be made available for emergency needs.

Second, in recent years the administration of US food aid programs has become entangled in a web of lengthy, inconsistent and difficult-to-follow policies, regulations and guidelines. The current administrative structures and inadequate staffing levels at USAID and USDA make it difficult to get programs approved or for PVO's to plan programs that they believe would work best in a particular setting. PVO's incur costs to develop these programs and it is only fair and appropriate that administrative agencies provide an environment that is conducive for the submission and review of program proposals.

Thus, equally important as providing sustained and adequate levels of food aid, is creating an administrative structure that supports the constructive use of food aid. There needs to be transparency and predictability in the process, performance-based guidelines and agreements, and the knowledge that adequate resources will be available to make it worthwhile to dedicate the time and effort necessary to develop a proposal.

CONCLUSION

The nation's rice producers collectively urge the Congress to move rapidly to enact a new farm bill that addresses the fundamental issues of an improved safety net through a combination of a fixed PFC-type payment, extension of the current marketing loan mechanisms, and a counter cyclical income support payment. The possible increase of loan rates to keep the rice loan rate aligned with the other commodity loan rates should also be carefully reviewed.

Equally important, the new farm bill should maintain the 1996 FAIR Act's planting flexibility and refrain from any return to annual supply controls. The bill should also provide for incentive payments for wildlife habitat and other environmental benefits voluntarily provided by producers.

It is also important for Congress to develop a new long-term farm bill that targets payments to those who have actually produced, orare shared ing in the risk of producing, the crop, while maintaining consistency with our domestic support obligations under the WTO.

In order to achieve these important policies and to improve farmers' income, adequate funding for these initiatives must be provided in the fiscal year 2002 budget resolution to provide the resources necessary for this Committee and the Congress to fashion an adequate farm program safety net.

Again, on behalf of the nation's rice producers, I want to thank you and the Members of the Committee for your interest in these important issues, and for the opportunity to testify. Nolen and I would be glad to answer any questions that you may have.



LOAD-DATE: July 17, 2001