[House Hearing, 107 Congress] [From the U.S. Government Publishing Office] FEDERAL FARM PROGRAM: UNINTENDED CONSEQUENCES OF FAV RULES ======================================================================= HEARING before the SUBCOMMITTEE ON REGULATORY REFORM AND OVERSIGHT of the COMMITTEE ON SMALL BUSINESS HOUSE OF REPRESENTATIVES ONE HUNDRED SEVENTH CONGRESS SECOND SESSION __________ WASHINGTON, DC, SEPTEMBER 19, 2002 __________ Serial No. 107-69 __________ Printed for the use of the Committee on Small Business U.S. GOVERNMENT PRINTING OFFICE 82-505 WASHINGTON : 2002 _____________________________________________________________________________ For Sale by the Superintendent of Documents, U.S. Government Printing Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; (202) 512-1800 Fax: (202) 512-2250 Mail: Stop SSOP, Washington, DC 20402-0001 COMMITTEE ON SMALL BUSINESS DONALD MANZULLO, Illinois, Chairman LARRY COMBEST, Texas NYDIA M. VELAZQUEZ, New York JOEL HEFLEY, Colorado JUANITA MILLENDER-McDONALD, ROSCOE G. BARTLETT, Maryland California FRANK A. LoBIONDO, New Jersey DANNY K. DAVIS, Illinois SUE W. KELLY, New York BILL PASCRELL, Jr., New Jersey STEVE. CHABOT, Ohio DONNA M. CHRISTENSEN, Virgin PATRICK J. TOOMEY, Pennsylvania Islands JIM DeMINT, South Carolina ROBERT A. BRADY, Pennsylvania JOHN R. THUNE, South Dakota TOM UDALL, New Mexico MICHAEL PENCE, Indiana STEPHANIE TUBBS JONES, Ohio MIKE FERGUSON, New Jersey CHARLES A. GONZALEZ, Texas DARRELL E. ISSA, California DAVID D. PHELPS, Illinois SAM GRAVES, Missouri GRACE F. NAPOLITANO, California EDWARD L. SCHROCK, Virginia BRIAN BAIRD, Washington FELIX J. GRUCCI, Jr., New York MARK UDALL, Colorado TODD W. AKIN, Missouri JAMES R. LANGEVIN, Rhode Island SHELLEY MOORE CAPITO, West Virginia MIKE ROSS, Arkansas BILL SHUSTER, Pennsylvania BRAD CARSON, Oklahoma ANIBAL ACEVEDO-VILA, Puerto Rico Doug Thomas, Staff Director Phil Eskeland, Deputy Staff Director Michael Day, Minority Staff Director ------ Subcommittee on Regulatory Reform and Oversight MIKE PENCE, Indiana, Chairman LARRY COMBEST, Texas ROBERT BRADY, Pennsylvania SUE KELLY, New York BILL PASCRELL, Jr., New Jersey SAM GRAVES, Missouri CHARLES GONZALEZ, Texas ROSCOE BARTLETT, Maryland DAVID D. PHELPS, Illinois TODD AKIN, Missouri JAMES R. LANGEVIN, Rhode Island PAT TOOMEY, Pennsylvania ANIBAL ACEVEDO-VILA, Puerto Rico Rosario Palmieri, Professional Staff C O N T E N T S ---------- Page Hearing held on September 19, 2002............................... 1 Witnesses Howell, Dave, President, Howell Farms, Middletown, IN............ 3 Reichart, Brian, President & CEO, Red Gold, Inc., Elwood, IN..... 5 Hartung, Dan, President, Hartung Brothers, Arena, WI............. 8 Palmby, Paul, Vice President of Manufacturing, Seneca Foods Corporation, Janesville, WI.................................... 9 Appendix Opening statement: Pence, Hon. Mike.............................. 19 Prepared statements: Howell, Dave................................................. 22 Reichart, Brian.............................................. 26 Hartung, Dan................................................. 31 Palmby, Paul................................................. 33 Additional information: Written Testimony of J.B. Penn, U.S. Department of Agriculture................................................ 37 Written Statement Ball Corporation........................... 43 Letter to House Subcommittee on Regulatory Reform and Oversight from Curtis Linge, Chiquita Processed Foods, L.L.C...................................................... 45 Letter to Subcommittee Chairman Pence from Randy Mott, Tip Top Canning Company........................................ 47 Letter to Subcommittee Staff Director Palmieri from William Gast, The Beckman & Gast Co................................ 48 FEDERAL FARM PROGRAM: UNINTENDED CONSEQUENCES OF FAV RULES ---------- THURSDAY, SEPTEMBER 19, 2002 House of Representatives, Committee on Small Business, Subcommittee on Regulatory Reform and Oversight, Washington, DC. The committee met, pursuant to call, at 10:05 a.m. in room 2360, Rayburn House Office Building, Hon. Mike Pence (chairman of the committee) presiding. Chairman Pence. This hearing of the Committee on Small Business, Subcommittee on Regulatory Reform and Oversight having to do with federal farm program rules' effects on small growers is called to order. I will have a brief opening statement. We do not anticipate the ranking member or other members joining us. But in the event that other members do participate on this busy Thursday, we will recognize members for any opening statements. Then I will recognize each of the witnesses beginning, I think, from right to left, and we will hear five minutes of remarks from each of the witnesses, and thereafter have a period of questions and answers. The Farm Security in Rural Investment Act of 2002 not only ensures that aid reaches the right farmers, but that it reaches them in the right way. The law provides `Hoosier' farmers and farmers across America with a strong safety net, and I was proud to support it, and proud to help draft it as a member of the House Agriculture Committee. It increased average U.S. farm income by $4.5 billion per year according to independent analysis by the Food and Agriculture Policy Research Institute. Congress and the President recognized the difficulties that American farmers face both from unfair trade barriers in other countries and tough economic times here at home. In voting for this landmark legislation and in helping to draft it, I remain confident that the farm bill will provide the necessary resources to keep family farmers in Indiana and across America competitive in a global marketplace. Now, in stark contrast to this great achievement, we are here today to talk about some problems with the farm bill. Our hearing today addresses the unintended consequences of restrictions on growing fruits and vegetables. Now many of the 64,000 farms in Indiana were pleased to hear that soybeans were added as a program crop since soybean farmers have been particularly hard hit by these tough economic times. But what was not immediately obvious was that by adding soybeans as a program crop large amounts of acreage would now be off limits for the planting of fruits and vegetables for processing, which, as we will no doubt hear today in my home state is a very significant industry as it is for much of the Midwest. After the Freedom to Farm Bill in 1996, this restriction did have some impact on Midwestern production of fruits and vegetables and the rotation of crops, but it really was not until this year's farm bill that the consequences of this prohibition would be so dramatic. We are still awaiting the U.S. Department of Agriculture's regulations on how this restriction will be implemented. The USDA can help to make sure that this will not be a death blow to fruit and vegetable production in the Midwest and well they should. But even if the USDA does all that it can to help Midwestern fruit and vegetable growers, there will still be negative consequences if we do not make legislative corrections. We have received written testimony from the Undersecretary for Farm and Foreign Agriculture Services, J. B. Penn, at the USDA. And it is submitted into the record without objection. We are encouraged at this point to see that their statement is consistent with commitments the Undersecretary has made informally to this subcommittee and to its Chairman. Their full testimony will be included in the record and available to all interested parties. My goal is to make sure that America's farmers and those in my home state of Indiana are able to have the degree of planting flexibility necessary to make a living, expand their business, and use an environmentally safe means of pest management by rotating crops. Agriculture accounts for 13 percent of the nation's economy, and 17 percent of our nation's employment. I might add parenthetically that the very vision of Freedom to Farm in 1996, a vision expanded on by the senior senator from Indiana, was a vision for flexibility. The idea that we would move American agriculture away from a top down command and control economy into an economy where the farmer would use discretion based upon the marketplace, we are not there perfectly, but it should remain the vision of every aspect of American agricultural policy. At a time when we have come together to help this enormously important sector of our economy, I want to make sure we are not doing more harm than good. I certainly look forward to the testimony of all of our witnesses and will reserve time at the close of the last presentation to ask a series of questions to each of the participants. Before beginning testimony, I want to remind everyone that we would like you to keep your oral testimony to five minutes. Some of our witnesses have been here many times before, others are new, know that you need not be an hurry about getting through your testimony. Your written statement will be added in its entirety to the record without objection. There will be a light in front of you that we grow accustomed to here on Capitol Hill. The green light means you are free to make your presentation. The yellow light does not mean speed up. It warns you that it is getting close to wrapping up. The red light does mean that you should wrap up in an orderly way. With that said, having just been notified of a vote on the House floor, we will go ahead and take the testimony of our first witness, and then the Chair will be excused for just a few moments while I return for what we understand to be one vote on the floor of the House. Our first witness is Dave Howell who is president of Howell Farms in Middletown, Indiana. He has a Bachelor of Science and a Master of Science in agricultural economics from Purdue University and serves on the advisory council of the dean of agriculture there, and has one of the best farms for town hall meetings in the central part of the United States of America. And we acknowledge his hospitality. And Mr. Howell, you are recognized for five minutes. [Mr. Pence's statement may be found in the appendix.] STATEMENT OF DAVID W. HOWELL, OWNER, HOWELL FARMS Mr. Howell. Good morning, Mr. Chairman and members of the committee. I am David Howell, a farmer from Middletown, Indiana. I am please to have the opportunity to share my thoughts and observations regarding potential negative consequences of the provision restrictingthe planting of fruits and vegetables, which is a part of the new farm bill. My family and I grow a few thousand acres of traditional corn and soybeans as well as several hundred acres of fruits and vegetables for fresh market and for processing. Our business is made up of three separate sole proprietorships; one, my wife and I; two, our son Adam; and three, our son Aaron--doing business under the umbrella of Howell Farms. We are still a small family farm operating at the level required to provide modest income for the three entitles. Adam is a graduate of Princeton University with a degree in economics. I am happy to say that he made the decision to make agriculture his full-time career after completing his studies. Aaron, who is with me today, cutting classes, graduated from Texas A&M University last year, and is pursuing a master's degree in agricultural economics at Purdue. He currently farms 300 acres and plans to return to farming full time after graduate school. They are both growth, efficiency and profitability oriented and understand well the need to expand our business. We derive approximately 50 percent of our gross revenue and an even larger percentage of the profits from fruit and vegetable production. Unfortunately, the unintended consequences are frequently generated in geometric proportion to well-intended government regulations. Whether it is the FSA, the DOT, the EPA, the DNR, or the QPG, I cannot get out of bed in the morning without breaking someone's rules. Last week we had $150,000 worth of tomato harvesting equipment impounded at a highway scale house for over 24 hours. We had the necessary permits, but two zealous DOT officers decided to measure our height, not from the top of the machine, but rather to the top of the removable wire, radio antenna, and then proceeded to argue that we voided our permit. The last DNR employee I met clearly knew how to run his siren and red flashing lights but he was in hot pursuit of some burning grass. He had no clue how to pronounce carcinogen. Barney Fife lives; he works for the government; and there are not enough Sheriff Taylors to keep him straight. I understand at least partially the near-sighted protectionist attitude and the regional politics that brought about this major change in the FAV or fruit and vegetable rules which become part of the new bill. I truly believe, however, that the unintended consequences were not understood by most legislators when the act passed. This act limits the entry of young farmers into business and threatens the success and possible expansion of existing producers. As it stands, I am being protected from my sons. They cannot enter FAV production. Adam will have only a small history of fruits and vegetables from the year 1996 to 2001, and Aaron has no history because he had no tomato contract and has only grown corn and soybeans. To take the problem a step further, you may say, ``Why don't I rent my ground to Adam or Aaron and let them use the farm history?'' Well, this is only partially possible, but I am already competing with them for suitable rented land because my current land base has been intensively used for fruits and vegetables and needs to be rotated to other crops. The only alternative is to not rotate, and thus be required to use higher and higher rates of insecticides, fungicides, bactericides, and still only achieve less than potential production. You may also say, ``Why don't we incorporate and then could share in the corporate operation?'' Well, there are a number of reasons why this would not work, but the one relevant here is that with the new farm bill Adam and I both would lose our histories because--and the corporation would have no producer history at that point. The act restricts diversification of exiting farms. Mary and I did not always raise fruits and vegetables. In the beginning, it was only the traditional Midwest corn, soybeans and hogs. In the early eighties, we found ourselves sucked into the mismanagement and near collapse of the Farm Credit System and nearly lost the farm. Had it not been for our ability to diversify and start producing fresh fruits and vegetables with the help of our children and selling our production with the help of their friends and multiple retail markets, I would not be here today in this role. With the farm bill as it now stands, if that were to have happened today, we could not work ourselves out of our own problem. We could not go into FAV without losing our income from government subsidy. Since the early eighties, diversification has been touted as the key to survival for the family farm and I would completely agree. That, however, is not what the new farm bill says. It says plant contract crops, corn, beans and wheat, or we will not support you. In fact, we will fine you for diversifying into other crops, and we will diminish the value of the land you farm by reducing revenue-generating crop bases on the land for your future years. The act damages and limits the ability of older farmers to pass on their life's work, assets and experience. No one needs a $100,000 used tomato harvester and any of the associated equipment if the new people cannot start growing tomatoes. Instead of possible new producers needing to learn the keys and secrets of producing higher value fruits and vegetables crops, they need to learn how to play the government game. Chairman Pence. Mr. Howell, I will need to interrupt you at that point at the risk of being rude. Mr. Howell. That is fine. Chairman Pence. About eight minutes remaining before I need to make it over to the House chamber, and these old bones do not move that quick. So allow me to recognize the balance of your testimony will be entered as written in the record. Mr. Howell. Fine. Chairman Pence. And I will also give you ample time to amplify any additional points in your testimony during the question and answer session. Mr. Howell. Okay. [Mr. Howell's statement may be found in the appendix.] Chairman Pence. I thank you for your testimony; very proactive and personal; exactly what we were hoping to add in the record today. We will recess briefly. I should return in no more than 10 minutes, and I thank you for your indulgence. [Whereupon, a recess was taken.] Chairman Pence. This hearing of the Subcommittee on Regulatory Reform and Oversight, the House Committee on Small Business will be reconvened, with appreciation for your patience. I do not anticipate another interruption from the floor prior to the end of the hearing, so we should be able to move expeditiously through both testimony and question and answers. But having heard from the president of Howell Farms in Middletown, Indiana, the subcommittee will now hear from Brian Reichart, another ``Hoosier'' from the east central Indiana district that I have the privilege of serving. He is the president and CEO of Red Gold, Incorporated, which is a tomato processing company headquartered in Indiana. Mr. Reichart has a degree in industrial management from Purdue University. He is past president of the Indiana Canner Association, and has served as a director of the National Food Processors Association since 1993. And the committee also would gratefully acknowledge Mr. Reichart's efforts in bringing thisissue as it affects farmers in our state in particular to the Chair's attention. With that, Mr. Reichart, you are recognized for five minutes. STATEMENT OF BRIAN REICHART, PRESIDENT AND CEO, RED GOLD, INC. Mr. Reichart. Thank you, Mr. Chairman, for hosting this hearing today on these agricultural issues that affect many small businesses. It is a great honor to represent my company and these growers behind me. We have come to lend our support in the midst of our harvest, to speak before you and bring attention to the unintended consequences of the 2002 Farm Bill as they relate to the fruit and vegetable processing business. Well, my name is Brian Reichart, and I am president and CEO of Red Gold. I am proud to represent the third generation of my family in the tomato business. Red Gold is a full-time tomato manufacturing company with three processing plants, all of which are located in Indiana. We employ 1,200 full-time employees and 600 seasonal. Sixty traditional family farms throughout Indiana, western Ohio and southern Michigan grow Red Gold tomatoes in a favorable climate and soil, enabling us to grow a high quality food product. With the passage of the Freedom to Farm Bill in 1996, our growers' ability to supply tomatoes was unimpeded because adequate acreage was available for fruits and vegetable production. With the rewriting of the new farm bill, it came to our attention that a severe problem for Midwest fruit and vegetable growers was at hand. The new farm bill added soybeans as a subsidized program crop. In states like Indiana where corn and soybeans are grown on nearly 100 percent of tillable acres, the majority of production land is entered into the federal program. Because of this prohibition in the law for planting fruits and vegetables, nearly all land becomes legislatively unavailable, unless a grower or landlord would choose to withdraw from the federal program permanently. The new law and proposed USDA regulations provides avenues for growing fruits and vegetables on farms with a history or for growers with a specific crop history without penalty. Now, however, a critical, unintentional consequence occurred when no mechanism was included for us to replace growers due to natural attrition, to bring in new farms for rotational purposes, or for a way to allow new generations of family farms into the fruit and vegetable business. Now, at Red Gold, 75 percent of our growers have farms representing two or more generations, and they have been supplying us tomatoes for up to 20 years or more. This cultural tradition could very well come to an end. The canning industry must be agile and free to respond to demand-driven markets and to adjust supplies on an annual basis. We must also have availability to allow growers to be good stewards of the land and employ good integrated pest management practices, such as land rotation. At Red Gold, we encourage our growers to raise only one crop of tomatoes on the same field every four to five years. We also need to be free to diversify growing regions to reduce production risk associated with drought or flood, even though it adds to the cost of higher freight. Now, those who oppose our efforts to relieve restrictions for growing fruits and vegetables in the Midwest say they fear competition, fear subsidized competition. A point with which to make clear, we would like to make clear today is that we do not advocate growing fruits and vegetables on acres that receive a government payment. We advocate a reduction in federal payments on an acre-for-acre basis planted to fruits and vegetables. The processed food industry is responsible for hundreds of thousands of jobs in America. Within our coalition of can and frozen food processors in the Midwest, there are 20,000 direct full-time jobs, plus 10,000 seasonal jobs, and 10,000 growers. Losing established fruit and vegetable food processing companies out of the Midwest due to needless regulation will have a devastating impact to families and communities. Restricting growers from entering into a profitable cash crop as an alternate to corn and soybeans is nothing more than protectionism at its worst. If growers are prohibited from growing fruits and vegetables, the void in supply would be filled by imports. Other countries are ready and eager to flood our markets with their fruits and vegetables. The processed fruit and vegetable sector has adapted to these marketing challenges by reinvesting, keeping our costs low and becoming efficient. When left to our own abilities without undue government regulation such as these planting regulations, we are able to compete within the domestic market. Diverse geographical regions are a necessary link in the food chain for safety, security and supply. Food terrorism risks increase as growing regions become more concentrated. The consequence of restricting production of fruits and vegetables in the Midwest will cause supply fluctuations and unacceptable food production risks as reminded by this year's drought- devastated areas. In closing, I would like to reiterate that with this issue, what is good for growers is good for the food processing industry. Conversely, what is bad for growers is bad for the processing industry, and this restriction is bad for growers. Planting restrictions in the new farm bill is unwarranted protectionism, severely harming a food processing business that has a long, traditional history of free enterprise in the central regions of our nation. This situation could be relieved if the law were changed. Allow access to use base acreage for fruits and vegetables for processing on an acre-per-acre reduction in this program. With your action, everyone will win by reducing government payments and ensuring a safe and affordable supply of nutritious food to the citizens and taxpayers of this great country. Growers and processors would then be free to use their talents in an atmosphere of efficiency, cooperation and true freedom to farm. Thank you very much, Mr. Chairman. [Mr. Reichart's statement may be found in the appendix.] Chairman Pence. Thank you. And the witness's entire statement, which I know you passed over sections to accommodate the time, will be added to the record without objection. Next, the subcommittee will hear from Dan Hartung, I hope I am pronouncing that right, Dan. Mr. Hartung. Yes, you did. Chairman Pence. Who is president of Hartung Brothers, Incorporated. He is a vegetable grower as well, and hails from the great State of Wisconsin. And Mr. Hartung is recognized for five minutes. STATEMENT OF DAN HARTUNG, PRESIDENT, HARTUNG BROTHERS, INC. Mr. Hartung. Thank you. Thank you, Mr. Chairman. My name is Dan Hartung, and I am the president of Hartung Brothers, Incorporated. Hartung Brothers is a raw product supplier for food processors located throughout the United States. We producer over 25,000 acres of snap beans, sweet corn, cucumbers for pickling, and carrots. We produce the above fruits and vegetables in Wisconsin, Illinois, and Texas, and all of ourproduction is for processing--canning, freezing or brining. We do not do any fresh market sales. I am here today to discuss the negative impact the 2002 farm bill will have on my business. The previous farm bill, the Freedom to Farm Act, placed a restriction on planting fruits and vegetables on base acres. Under the act, soybeans were not program acres so the impact was more of an inconvenience to some of our land owners and growers, but for the most part did not affect our ability to get acreage for fruit and vegetable production. Under the 200 farm bill soybeans are added as a program crop, and this will take away a large block of acres that is critical to us. A large portion of our operation is producing early production for our processor customers ahead of their local crops. We do this by going to non-traditional fruit and vegetable production areas in central and southern Illinois, and produce crops two to three weeks earlier than our processors can do in their location production in Wisconsin, Michigan and Minnesota. This acreage has traditionally gone on land that would have been planed to soybeans. Because of the penalties and restrictions on planting fruit and vegetables on program acres in the 2002 farm bill, it will in all likelihood wipe this portion of our business out or reduce it to a level that it would not be economical to operate. Another ramification of adding soybeans as a program crop to the 2002 farm bill is attracting new acres for crop rotation. Snap beans and cucumbers are very sensitive to root disease and without the ability to attract new acres for rotation, we will be forced to apply more pesticide, thus raising production costs and increasing the potential to reduce the efficacy of the pesticides due to continuous applications. I also see no way for a new landlord or grower to get into the business of growing fruits and vegetables. The penalties are just too great. This leaves us without any means of replacing retiring and/or poor producers. I have no problem competing monetarily for acres with all the commodities. I can compete with the returns landlords and growers can receive including their government subsidies for program crops. What I can't compete with is the rules that put such a large penalty for growing fruits and vegetables on base acres. I believe that an unintended consequence of the 2002 farm bill will be to increase soybean acres at the expense of processed fruits and vegetables. This will increase the cost to taxpayers for both program payments as well as increased costs for processed government. Adding soybeans as a program crop will have a substantial negative impact on our business as well as many of our processing customers and the consumers who will ultimately foot the bill. Thank you for your consideration. [Mr. Hartung's statement may be found in the appendix.] Chairman Pence. Thank you, Mr. Hartung. And finally, the subcommittee will hear from Paul Palmby, who is vice president of operations and agriculture for Seneca Foods Corporation. Mr. Palmby has degrees in agricultural business and economics from Iowa State University, and we are grateful for your participation, and anxious for your remarks. You are recognized for five minutes. STATEMENT OF PAUL PALMBY, VICE PRESIDENT OF OPERATIONS AND AGRICULTURE, SENECA FOODS CORPORATION Mr. Palmby. Thank you, Mr. Chairman. I would like to sincerely thank you for the opportunity to be here today to speak on behalf of the Canned, Frozen Food and Grower Coalition and Seneca Foods about the impacts of the farm bill on our processing industry and its growers. Seneca, with the majority of its plans in the Midwest, Wisconsin and Minnesota, contracts vegetable crops with approximately 2,000 growers in the Midwest, and those growers are essential to our success. The Canned, Frozen Food and Grower Coalition represents virtually all of the processed vegetable production in the Midwest and has a sizeable contingent outside of the Midwest. The coalition represents a diverse segment of food industry from small farms and family-owned processing companies to multinational companies. In fact, the vast majority of canned vegetables sold in this country are represented by this coalition. The late addition of soybeans as a program crop in the 2002 bill and the further establishment of bases for soybeans has dramatically changed the dynamics of fruit and vegetable production in the Midwest. Maintaining the penalties and restrictions on planting FAVs on program acreage established in the previous bill has and will continue to assure that program acreage cannot be planted to FAVs. Prudently, Congress preserved in the statute significant discretion for USDA in implementation of the sign-up and penalty provisions of the programs. Although the department has not published final implementing regulations, our coalition is hopeful that it will follow through on prior indications to address some of the issues. A number of concerns have been raised that flexible implementation by USDA would put the fresh fruit and vegetable industry at a competitive disadvantage. That simply will not happen. Fruits and vegetables grown for processing are to a 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. Growers of vegetable for processing by contract must sell the vegetables to the processor to be run in one of many of the plants located mostly in rural communities throughout the Midwest and processing crops are not diverted to fresh markets. Actually, the opposite is true. 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 are important attributes for processing. These processing crops are simply alternatives for growers of more traditional corn and soybeans that dominate the Midwest. Generally speaking, the processor provides some of the inputs like seed as well as harvesting and hauling of the crop. This can be attractive for the young grower trying to become established with limited working capital as well as the established grower simply looking to diversify and defer a portion of his workload. The problems: We see no plausible way for a new grower to begin growing FAVs under restrictions of the current bill. In addition, growers who have already made the decision to diversify in 2002 may be restricted--and who do not have previous farmer/producer history may be restricted from--to continue growing in 2003 without prohibitive economic impact. Out of our nearly 2,000 Minnesota, Wisconsin and Illinois growers, there are 92 such individuals. Also, crops like sweet peas, green beans, and pumpkin require strict rotation to combat disease, the introduction of the new ground is essential to maintaining yield and minimizing increasedneeds for chemical applications. A question of new ground with new growers becomes all but impossible. One example that I would like to share as a part of the testimony is a small group of growers in Scandia, Kansas that formed a co-op in July, partially from funds supplied by USDA, to start a small sweet corn processing plant. Many of these individuals now find themselves in the situation where they are 100 percent based and may not be able to continue to grow the vegetables for which they grew in 2002. Farm policy has created negative implications to growing FAVs. The capitalized value of the government program itself has increased land cost for those acres having high bases. For those loyal processing fruit and vegetable 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. In conclusion, the unintended consequences of the addition of soybeans combined with already in place restrictions on growing FAVs presents a serious issue for Midwest growers and processors. USDA has announced that improvements to the original language of the farm bill are expected to be implemented as a result of our coalition's efforts to bring these issues to the department's attention. Regrettably, there is only so much the department can do, and some of the yet unresolved fundamental issues that affect the growing of FAVs require congressional action. Our industry provides both vitally important and safe food as well as significant economic stability in the mostly rural areas that we operate. We ask for your help in resolving these issues and request your assistance in removing this threat. Thank you. [Mr. Palmby's statement may be found in the appendix.] Chairman Pence. Thank you, and thank you to all of the witnesses for some very provocative testimony. I have a couple of questions that I want to see if we can flesh out. It seems that there is a great deal of agreement on the panel about the impact that moving soybeans into the program crop status and the whole anticipated trouble, damages the structure will have. But I want to see if you can flush out that in a little more plain English, and particularly we will begin with Mr. Howell. I know that when I reviewed your written testimony last night, you reflected on your farm in Brazil, and you made some fairly blunt assertions in your testimony about if the issue before this subcommittee is not addressed in the new USDA sign- up and penalty regulations that you could anticipate as someone who engages in farming in South America . . . you would anticipate that that market may well become more attractive to food processors and find itself more active in fruit and vegetables. I guess my question would simply be to ask you, Mr. Howell, to elaborate on that. What would you see to be the time-line of that if everything remains status quo? And to what extent do we already face competition from those markets in FAVs? Mr. Howell. Well, Mr. Chairman, I--maybe I am blunt by nature, I did not mean it as a threat certainly, and always will be proud to be an American, but economics simply work. And the fact that this happened in many of our other industries in this country, and agriculture is no different than those. It is not a black and white thing. It is not going to happen immediately. But I think this may very well be a watershed decision that brings about the start of a ball rolling or rolling a little faster. And I think that not only this but for other reasons, it is inevitable that that will happen. As economies mature, I have a theory that I cannot back up with my formal training at this point, but as you look at the countries of the world and their economies, you go from the European countries that are very mature to ours in the middle that has done very well, and to the developing countries, there is an evolution of agriculture. From subsistence it became--in Europe, it has become essentially entertainment and aesthetics, and all controlled. We are working that way. And in the process the real hard production oftentimes goes to the less developed and more free enterprise areas, and I think this may very well happen. Chairman Pence. Maybe I can ask that of Mr. Palmby. From your perspective at Seneca, what is the nature right now of the fruits and vegetables industry in The Americas and how much competition, how ready would our trading partners be to fill in any gaps that could ensue through this unintended consequence? Mr. Palmby. Mr. Chairman, in the--we currently already have significant competition in South America on, for example, processed asparagus. Asparagus can be brought in this country from South America as cheaply or more so than it can be produced in the Midwest. Thailand is a significant factor in the corn market. Canned corn can be brought in from Thailand. And Canada is another area where we can bring peas and green beans competitively to the Midwest, and as costs continue to escalate as a result of these programs, that will only continue to become more and more. Chairman Pence. Mr. Reichart, in your testimony you describe among the Coalition of Can and Frozen Food Processors in the Midwest that there are 20,000 full-time jobs, 10,000 seasonal jobs, and 10,000 growers. What do you expect the can and frozen food processor industry to look like in ten years from an employment and job's base if we stay on the track that we are on without some regulatory or legislative change? Mr. Reichart. In my testimony, I explained that we were competitive, but we were competitive just within the United States. We feel that it is like the government is tying one arm behind our backs. We need to have good rotation practices to have good crops, maximizing yield, and quality. That is what the American people want. We want to be able to make sure that we have new growers coming up. We want to be able to stay efficient, both on the farm and in the factory. Where else in the world can you get five cans of tomatoes or corn for a dollar? You know, bottled water is $1.25 in this town. We have done a good job. In fact, I do not know of any other business in the United States that has done any better than the canned vegetable processing. If this happens, I can just see that gradually a lot of our little advantages will be taken away from us. Right now, Italy can send tomatoes into the United States and back, all up and down the coast. They are a very big competitor of ours. Greece and China, right now, is in the process of building up their tomato industry. We have not come to ask for help. We have come to ask to take the restrictions away. Let us do what we do well. We are Americans, and we believe in a free enterprise, and you have got farmers who, you know, there is no question of their abilities and their dedication, as well as the processors. We need your help. Thank you very much. Chairman Pence. Mr. Hartung, you farm, I think, 25,000 acres I remember from the testimony with the Hartung Brothers, Incorporated. And I am working from a conceptual model here to just ask you all to be thinking about what if nothing happens, and we will remain optimistic about outcomes, and I want to talk to you all about recommendations. But what is the net effect if nothing changes for Hartung Brothers? Do you look to diversify overseas both with regard to planting, and would you anticipate processing facilities to move overseas as well? Mr. Hartung. I think we will see some of that. I think there is really three issues. If nothing happens at all, there is going to be three really people that are going to be dramatically affected. There is going to be the farmer that has never grown fruits and vegetables, and under this current situation he never will. I mean, the penalties are just too great. There is the guy, the grower that had previous history that he will be allowed to grow fruits and vegetables by giving up a partial payment. He is going to have to weigh the value of the payments then against the value of what the vegetable contract is. And then you have, which is really maybe the most important person here, is the landlord. The lion's share of our growers farm land that they do not know, and landlords right now are getting very active in the fact that they do not want to see their base, if it is a corn base, or now we are going to have a soybean base or whatever, they do not want to see that eroded. That in their mind brings value to that farmland. And by allowing their tenant to grow a fruit or vegetable that by some future farm bill would eliminate or reduce their base, a lot of them are just writing in their contracts you cannot do it. Even if they are ``legal'' to do it under the farm bill, the landlords, most of them are--a lot of them are elderly and so on, they just do not want to take any risk, and they are not going to take the exposure, and say ``No, don't do it.'' So we are going to have a number of our growers that are going to be restricted. It is not going to be a government restriction, it is going to be the landlord restriction to say, ``I am not going to take the chance of my farm going down in value because you wanted to grow something today, and five years from now somebody picks a different set of years, and I am out base.'' That is where I see the real problem to be. Moving a lot of this industry overseas or south into South America, that is going go to take a lot of time. I look at the immediate ramifications of how are we going to fill the needs for next year, and that is where I see the real problem. Chairman Pence. Let us follow up to understand you correctly. Even though if we do not repair the current penalty structure, even though certainly there would be the freedom to diversify, it may well be that in the context of the lease agreement many of the people you rely on for product---- Mr. Hartung. Absolutely. Chairman Pence [continuing]. No longer have the freedom within their own lease agreement to diversity in that way. Mr. Hartung. That is correct. Chairman Pence. That is very insightful and very helpful to the record. Mr. Howell, I will ask you this question. Not being in farming, and not having a background in farming, I think the initial reaction to the average citizen might be, well, why do you not just stay with the same average that you have in fruits and vegetables. And you brought up and several of the other witnesses brought up the importance and the criticality of rotation. The rotation thereby then exposing the farm to potential damages. Maybe you would speak for the record to why is rotation critical, and why should it be addressed in the sign-up and penalty regulation? Mr. Howell. Well, rotation is--we are all wanting to be good stewards of the land and the environment, and at the same time we are trying to make a living off the land. And as you repeat cropping, the same crop year after year, or closer than prescribed yields go down. Pest populations go up. Diseases go up. And the only way to control or attempt to control that, is through increased uses of pesticides. We are already under the gun, if you will, from using too many pesticides the way it is, and it just becomes an unmanageable situation. In the long run it is a food quality and safety and health issue. Chairman Pence. That is helpful. Let me ask, Mr. Reichart, you made a comment having survived 23 hours of a markup in the farm bill on the Agriculture Committee. There was a statement in your testimony that I found provocative. You said that you wish to make clear today that we do not advocate growing FAVs on acres that receive a government payment. You might be the first person I have seen this year that was not asking for a government payment for an agricultural program. And I know in your testimony you go on to say what you are advocating, and I wanted to start with you, with Mr. Reichart, and then I want to start with Mr. Palmby, get your specific recommendations. As we know from the testimony submitted today, the USDA is knee deep in this process, and with representatives here and who will be combing over this testimony, this is a very unique opportunity to express what you think from a ground level makes sense with regard to the sign-up and penalty regulations. So, Mr. Reichart, what are you advocating? What would you like to see happen? Mr. Reichart. First of all, I think there is a lot of misconception of what we want, what we need, and what we are asking for is, basically, for processed fruits and vegetables under contract. We are not--and those are the items that we are looking for. And what we are asking is just that the penalty will be--the crop, whatever the penalty will be whatever the payment, government payment would be, and that will enable us to rotate crops, and continue doing--like you say, doing what we do well, and that would be for processed fruits and vegetables. Chairman Pence. It would be an acre-by-acre basis? Mr. Reichart. Acre-by-acre, and the processed fruits and vegetables would be under contract to various canneries. Chairman Pence. Mr. Palmby, same question. Mr. Palmby. I would concur with that, and add that under the 1996 bill we have had available acreage to get the processing crops that we need. It is only the addition of soybeans and removing that block of acreage that restrict it. So the ability for us to be able to plant FAVs on program acres or oil seed acres, in particular, would be sufficient to take care of the problem. And, you know, we have an immediate need of the 2002 growers that have already made the decision to diversify and under current rules may not be able to continue. I would like to add one point on the rotation to Mr. Howell's testimony. Chairman Pence. Please. Mr. Palmby. For example, peas, you literally may only be able to grow four or five crops of peas on a piece of ground ever, and it is critical that we are able to rotate those crops around, and make sure that we have a four-year or five-year rotation between the growing of those crops from root disease problems and whatnot. There is not a lot of research going on in that area todevelop the root disease tolerance that you need. Peas, snap beans, pumpkins, they are all kind of in that area. The addition of new ground is critical. Thank you. Chairman Pence. Thank you. Mr. Hartung, same question. Mr. Hartung. I just want to add a little bit to Mr. Reichart's. If we could get the processed fruits and vegetables to be able to be raised on soybean acres, the soybean base, with the giving up of the--well, I just want to make it clear that the grower would have to give up his payment for that soybean acre. We can compete with that. But what the problem really is is that the penalty where he has to give up the entire gross compensation of his crop against his farm payment, if we can get that, I think we will be happy. I mean, we can--we will be back to the same standards we were in 1996. Chairman Pence. Right, right. Mr. Hartung. Our papers would be available. Chairman Pence. Mr. Howell. Mr. Howell. We do not want anything from the government in the form of money. We want to be able to go back to--we want an acre-for-acre reduction. Take that acre out of program crops, plant it in vegetables, and at the maximum that reduction in program payment be the penalty. And then we also need the recognition of several of the people, like the sweet corn growers in Kansas. And we need to address the dilemma of the 2002 production history not being recognized. Chairman Pence. A final question for the panel. As we talk about the impact on farmers and processors that are well represented here today, I wanted to also ask how the current posture and current law will affect consumers. And we obviously have a very active marketplace in fruits and vegetables in the United States, and I guess I probably would best direct my question to Mr. Palmby and Mr. Reichart on this. How would--how would the status quo if we do not address these issues, both the 2002 issue and also the issue of the damages are associated with acre basis, how does that---- Mr. Reichart. As far as the consumer is concerned? Chairman Pence. How does that ultimately, whether it causes you to rely more on imports, what does that mean to the consumer of Red Gold products? Mr. Reichart. Well, without a doubt, I think the prices of ground have gone up because of this bill, but we will live with that, and a lot of that is going to be passed on to the consumer. But I think what we are going to see is, if we are not able to farm efficiently, and if we are not able to process efficiently, the costs will continue to rise. You know, the prices in the markets--canned goods are a bargain. They have always been a bargain. And the beauty of a can--you know, that is one of the safest items in a grocery store. When we talk about--unfortunately, when we talk about terrorism or any kind of tampering issues, canned food is the safest product. Next time you go into the grocery store just look and see what can be tampered with and what cannot. It is pretty scary. Thank goodness for the invention of the can. But we will see prices move up, if our hands are tied behind our backs, and when prices rise high enough, foreign imports will definitely come in, and we pay a lot of taxes. I think that is going to hurt the communities. A lot of the factories are located in small communities. All three of our plants are in small towns, and all three of those towns are having a hard time trying to attract people. The towns are on either a status quo or decline. They count on the employees of Red Gold; the taxpayers that work at the plant, to, you know, provide the taxes. So, we are talking about major issues here, not only to the consumer, but to communities where these plants are and where the farmers have their farms. Thank you. Chairman Pence. That is a very worthy addition to the impact that the business has--that processors have on their communities, but I was especially interested in what inflationary impact might be. And with Seneca Foods, have you run any models on what the potential impact--I assume you have--if the regs were to go in the direction that we hope they do not go? Mr. Palmby. We have looked at it, and had many discussion and are trying to formulate what we think the outcome will be. We have definitively concluded that there is no alternative for us but to go greater distances to contract the crops, take less suitable land than what we might otherwise do, move production to other parts of the country that are not so heavily impacted by corn and soybean base acres. Specifically, plants in areas that have high soybean and corn acreages may be impacted--will be impacted much greater than plants that have other free acres so to speak. You know, canned vegetables, as Mr. Reichart indicated, and we have looked at and tracked this. You can go back into the early eighties and find that the cost of canned vegetables have not increased over that time. Processors have been able to become more efficient, and offset inflationary pressure and have been very successful at that. Having said that, our industry as a whole is not a healthy industry. There is no one making tremendous amounts of money, and in fact both large and small companies in the canned food industry in the Midwest have gone out of business in the past couple of years. So we just feel that this will be the final death blow to some folks. It is a very distinct disadvantage to those growers that have been loyal vegetable growers, and now find themselves not with the kind of bases that they would have otherwise had had they grown vegetables, or I should say grown program crops. And the landlord issue and the perception that future farm bills will only favor program crops is a real issue. We have got growers that are already being told that landlords will not allow the production of those crops on those lands. And there is no other alternative but to become more efficient, or more inefficient. We also will have to do things like where we can farm ourselves competing with local growers for land, and not having it as part of the program. We do farm in a small way in central Wisconsin, and that would have to be increased to try and pick up those acreage. So the impact is very difficult to quantify at this point, but we feel strongly that it is absolutely there, and will incrementally get worse as time goes on and attrition occurs with the growers overtime. Thank you. Chairman Pence. Lastly, I wanted to give Mr. Howell and Mr. Hartung a chance to speak to one other issue. In your testimony, Mr. Howell, you made the assertion that the act damages and limits the ability of older farmers to pass on their life's worth, assets and experience, and presumably because of the history requirements that come with and also the--I would assume that would be the--as you go on to say--the less people that there are in fruits and vegetables the less the assets that any particular farming operation owns are worth. But I thought that I might simply leave that with you and Mr. Hartung any comments that you might make with regard to the negative effect of the current posture in the law relative to keeping the family farm vibrant and strong and something that will continue to be inter-generational in our communities. Mr. Howell. Mr. Howell. Mr. Chairman, the used harvest equipment example in the testimony is really clear cut. If there are not new growers coming in or young growers coming in, it has no value. That is not a major thing in that they can--they can get over it. I guess the things that we have heard down the line is that there is a big problem already over the definition of the family farm. But almost everything you have heard down the line is that this current writing of unintended consequence of the Farm Bill is going to force bigger and bigger, and I am not opposed necessarily to bigger and bigger, but it is going to take fruit and vegetable production, agriculture out of the family farm context with my boys. It presents the problems of how do you bring them in under any system. And so it is a--it is a structural change that is a watershed event. Chairman Pence. Thank you. Mr. Hartung, the same question. Mr. Hartung. Well, I--our corporation is--I have got six brothers and two sisters that are involved in the business, and there is 29 grandchildren, so I am not just sure how things are going to work out down the road. But I can see it being a pretty difficult situation here for people that are close to retirement right now, that want to try to figure out how to get their sons and daughters involved in their business. And under the example Mr. Howell put in his testimony, it is going to be very difficult. It is going to take a lot more creative thinking than I guess we have come across in the last two days visiting on this issue of how to do some of those things. And the other--maybe the other thing I just want to touch on is your consumer issue. I am a consumer and I am a taxpayer, and it looks like to me I am going to get it from both ends. I am going to have to pay the taxes to pay the soybean subsidy, and I am going to have to go to the grocery store and pay higher prices for fruits and vegetables. I am thinking that is going to be a bad deal all around. Nobody is going to win. Chairman Pence. You left out you might also have to pay the damages and penalties. Mr. Hartung. Yeah. Yeah. It is not going to be a good day. Chairman Pence. Yes, not a good day. Well, I want to compliment all of our witnesses today. This has been enormously helpful not only to the subcommittee, but I am very confident, to those that will review this record in great detail in other parts of the city. We all are still waiting for the USDA's regulations on how these restrictions will be implemented. And while this Chairman is encouraged at what seems to be the course and direction of those deliberations, our intention is to continue both from the standpoint of the subcommittee and maybe even in the form of legislation to aggressively seek to address this issue and to head off the negative consequences for consumers, for farmers, for important processing firms that are staples of communities, not just those of which I represent, but communities all over the heartland of America that have relied for generations on these great companies that provide a great quality of life for their employees and are important corporate citizens in their community. I would remind you that we have received written testimony from the Undersecretary for Farm and Foreign Agricultural Services, J. B. Penn at the USDA, and our witnesses can contact the subcommittee for copies of that testimony. And let me just say again that I think the most powerful statement that was made today from several of the witnesses was that here is a group of plaintiffs to the federal government, citizens all, who are not asking for anything but simply asking that the farm bill as conceived in its new form in 1996 would simply be preserved; that the vision of Freedom to Farm with regard to fruits and vegetables would be preserved, and that is a vision that I embrace wholeheartedly. It is a long-term vision of mine not only as a Chairman of a regulatory subcommittee on small business, and farms are small businesses in America, but also it is a vision that embraces as a member of the House Agriculture Committee. And your testimony today has equipped me in a very meaningful way to make--make this argument and to be an advocate from this position on behalf of this reform. So we will gavel this hearing to a close, believing that the right people are listening, and we will do so grateful for your testimony and your willingness to come to our nation's capitol and participate in the process. This hearing is adjourned. [Whereupon, at 11:21 a.m., the subcommittee was adjourned.] [GRAPHICS] [TIFF OMITTED]