Mr. Chairman / Honorable Members of the Committee

I would like to thank you for the opportunity to be here today as a representative of the Canned, Frozen Food and Grower Coalition and Seneca Foods Corporation to discuss the impacts of the 2002 Farm Bill on the vegetable processing industry and its growers.

My name is Paul Palmby. I am Vice President of Operations and Agriculture for Seneca Foods Corporation. Seneca Foods is the largest processor of canned vegetables in America with 14 processing plants mostly in Wisconsin and Minnesota. We process over one and a half billion cans of sweet peas, green beans, sweet corn and other vegetables each year.

Previous Farm Bills established base acres for corn determined by historical planting of the crop and further restricted permitted crop growth in order to be able to participate in the Farm Program. The remainder of the acreage not in the program was then eligible to be planted into any crop the farmer desired and the base acres could be planted to any program crop and thus the historic name for the bill, "The Freedom to Farm Act". A largely unnoticed insertion to the bill was the restriction for any farmer to plant "Fruits and Vegetables" (FAV's) on base acres. In most situations, the established bases still allowed Midwest processors enough flexibility to contract with growers to plant vegetables under contract for processing in desired quantities to meet consumer demand. Although the establishment of the corn base made this large block of acreage unavailable for FAV's there were enough non-program acres to allow growers to raise processing FAV's. As well as allow for necessary rotations, expansion of farm operations to improve efficiency and the diversification of farm income into these non-subsidized crops.

The late addition of soybeans as a program crop in the 2002 Farm Bill and the further establishment of bases for soybeans has dramatically changed the dynamics of FAV production in the Midwest. Maintaining the penalties and restrictions on planting FAV's on program acreage, established in a previous Farm Bill, has and will continue to assure that program acreage cannot be planted to FAV's. The economic impact both short term, in lost payments and penalties, as well as long term in lost capitalization value of the Farm payments themselves. Simply assures that growers and landlords will not be able to afford to diversify into non-subsidized and otherwise economically competitive FAV's and will force them to continue to grow subsidized program crops.    

The Canned, Frozen Food and Grower Coalition represents virtually all of the processed vegetables in the Midwest and has a sizeable contingent from outside of the Midwest with similar concerns as to the effects of the Farm Bill on FAV production for processing. Seneca Foods as the largest vegetable canner in America, is joined by Del Monte Foods, Chiquita Processed Foods, Allen Canning, Lakeside Foods and many other companies and growers comprising the vast majority of the canned vegetables grown, processed and sold in this country being represented by this coalition. In addition virtually all of the Midwest tomato production is also represented. For a group with members ranging from multi plant processing companies to one plant family owned processors to family farmers, even achieving majority consensus on an issue confronting an industry would be difficult. The unanimous and genuine concern on this issue is truly unprecedented in our industry.

Processing fruits and vegetables are in large degree not suitable for fresh consumption. A processing tomato for example would not be considered desirable to consume as part of your dinner salad. The attributes of processing sweet corn varieties are significantly different than those sold on the fresh market stand. Even processing pumpkins are much different than those used to carve the Jack-o-Lantern a Halloween. Processing vegetables are grown under contract between a grower and a processor to be run in one of many of the plants located mostly in rural communities throughout the Midwest. The varieties are bred to maximize attributes that are desirable for processing and not fresh consumption (sieve size, field yield, plant recovery, color, disease and pest resistance, etc). The price is usually established months before planting and is generally based on competing commodity alternatives in the area. These processing crops are simply alternatives for growers of the more traditional corn and soybeans that dominate the Midwest. Most require little or no specialized equipment to be provided by the grower. Generally speaking the processor provides some of the inputs like seed as well as in many cases harvesting and hauling of the crop. This can be attractive for the young grower trying to get established with limited working capital as well as the established grower simply looking to diversify and defer a portion of the operations workload.

Having said all this, the growing of processing crops is not for everyone. It takes the willingness to include in many important decisions, the processor. The timing and method of many functions such as planting, pest control and harvest is controlled by the processor as opposed to the grower. With most FAV’s there is an even greater need to have proper rotational and cultural practices in order to be successful. For these reasons the pool of potential growers to replace those who retire or decide not to continue to grow FAV's is already limited. Simple geographic proximity to the processing plant is an additional factor. 

To make matters worse, we see no plausible way for a new grower to begin growing FAV’s under the restrictions of the current bill. In addition, growers who have already made the decision to diversify into FAV's in 2002, who do not have previous farm or producer history, may not be able to continue growing in 2003 without prohibitive economic impact. At Seneca Foods, out of our 1964 Minnesota, Wisconsin and Illinois growers there are 92 such growers. This may not seem like a large number of affected individuals or acreage, but please consider that for them and for Seneca Foods, who must somehow replace the crops grown on those acres, it is a very significant issue. Other Midwest processors would have similar or worse impacts. The impact for processors that have increased production at key locations as a result of consolidation find themselves in a situation where many growers have little or no vegetable history. Fluctuation in demand from year to year due to crop size the previous year sometimes requires extending the processing season in new areas. This possibility becomes all but impossible. In addition, for crops like sweet peas, green beans and pumpkin, requiring strict rotation to combat disease, the introduction of new ground is essential to maintaining yield and minimizing increased needs for chemical applications. There is no doubt. We have not even seen the beginning of a problem that will increase with each year under this bill.

In July of this year a group of approximately 40 growers in the small town of Scandia Kansas formed a cooperative and began operating a small sweet corn processing plant that was funded in part by a $500,000 grant from USDA. These growers took seriously agricultural experts advice to diversify in to value added crops and committed to building this plant. Even under the last Farm Bill several of the owners who would have otherwise purchased more acre rights in the co op did not do so due to limited non base acres and the restrictive economic impact of planting FAV's on program acres. Many of the growers / owners of this new venture, with the addition of soybeans as a program crop now have essentially 100% program crop bases. There is no farm or producer history for any of these growers. Each and every member has made significant investment and commitment to this new venture. Many now are faced with significant economic penalties to even continue growing the acreage of vegetables grown this year, let alone expanding per original intentions of this young venture. They cannot afford to stop growing subsidized program crops. Remember the economics of the crop itself are not the problem. It is the penalties and restrictions of the legislation itself that are prohibitive.         

Farm policy has created negative implications to the growing of FAV's that have gradually increased over time and now have reached a critical state. The capitalized value of the government program has increased land cost for those who were fortunate enough to receive the benefit of having high base percentages when they were originally established. In many cases this was in part due to lack of other alternatives, like processing vegetables, in their area. For those loyal processing FAV growers who took advantage of the opportunity to diversify, reducing subsidized production, they now face reduced land value due to minimal bases and landlords who have realized the value of the farm program and are expressly prohibiting the growing of FAV's. Remember, these FAV growers received only competitive returns for growing FAV's, not the premium that some seem to think that they had received or the government subsidies associated with program crops. FAV's for processing do not have the revenue potential that can be seen with FAVs grown for the fresh market.  

A family farmer in southern Minnesota told me that he lays awake nights over worry and distress due to his "poor management decision" to grow vegetables on his own, his father's and his sister's land and the resulting effect on the value of their land and thus his retirement and his families wealth. He now has some of the most fertile and productive soil in his county that is worth significantly less in both sale or rental value than comparable land simply because of his lack of base. The same grower also has two landlords that have told him that they will not allow growing of vegetables on their farms any longer due to uncertainty of effect of future farm bills.

The reality of the 2002 Farm Bill is not only that processors are forced to compete with the Federal Government for acres. But that given the restrictions on planting FAV's they are at a distinct disadvantage. To the extent that the program does what we understand that it is intended to do, that is stabilize and improve commodity pricing and thus farm income we do not take issue. While some might argue the effectiveness of such policy, we will, as we have in the past, continue to compete with commodity values in developing contract pricing for our FAV's. Vegetable contracts for processing are based, in large part, on the competitive returns to growers for alternative crops (program and other) in the region. As government subsidies and or market pressures make commodities more attractive, processing FAV pricing must increase to attract suitable acreage. This is not the issue.

 Areas in which processors simply cannot compete with the government due to restrictions and penalties associated with FAV production, are in replacing acreage that has been taken out of vegetable production either due to rotational issues or grower decisions and the capitalized value of the program itself. The ability to obtain new growers who are willing to diversify and forgo program payments as well as incur long-term reduction of land value is practically impossible.

The unintended consequence of the addition of soybeans combined with already in place restrictions on the growing of FAV's presents a serious issue for Midwest processors and growers. Important improvements to the original language of the Farm Bill are expected to be implemented by USDA as a result of our coalitions efforts to bring these issues to the department's attention. Although we would have liked to see further improvements within the discretion of USDA, we are grateful for the time that they took to meet with us and the steps that they had indicated would be taken. Our coalition believes that the fundamental issues that affect the growing of FAV's, which remain unresolved, must be addressed. Our industry provides both vitally important and safe food as well as significant economic stability in the rural areas that we operate. We ask for your help in resolving these issues and request your direction in moving the process for change continually forward.

Thank you again for your time and interest in this issue.