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The CHAIRMAN.We are pleased, as always, to have the Secretary of Agriculture, Dan Glickman, who sat here many years and faced many of these same issues. We are delighted because he is here now with all of the answers. Mr. Secretary, welcome.
STATEMENT OF HON. DAN GLICKMAN, SECRETARY, U.S.
DEPARTMENT OF AGRICULTURE Secretary GLICKMAN. Mr. Chairman and Mr. Stenholm, thank you. Before I begin, I want to express my personal feelings, I haven't had a chance to do so, at the tragic loss of the two officers. Officer Chestnut was the officer who basically guarded the Intelligence Committee during the time I was the chairman, and he was friendly and had to deal with an unusual assortment of people often running up and down those stairs, and it was a very tragic loss for me personally as well.
Let me begin by saying that I don't have a shortened statement, but I am going to try to summarize my longer statement. I need to talk in a little bit of depth about what is going on in agriculture.
I just came back from Texas and Oklahoma. I was with Governor Keating most of the time, and Congressman Watkins was at one of our visits. I was in north Texas in Charlie's district and down in College Station, and I have also taken quite a few other visits. And one of things that strikes me is that we have unprecedented strength in the general economy, lowest inflation rate, lowest interest rate, highest employment, and it seems especially with respect to heartland agriculture, row crop agriculture, those strengths seem to have bypassed it.
That does not mean that there are not pockets of American agriculture doing quite well. In many areas, fresh fruits and vegetables are doing well, and poultry is doing well. We have parts of America that have not suffered from major
weather problems. We have had big crops, highest wheat yields in history in Kansas. We expect seeing big crop yields in the Midwest in corn and soybean crops.
can tell you, coming back from my visits, that there are farmers and ranchers that will suffer, I will say, billions of dollars in losses this year from natural disasters, and it is not just in those States. There are places in Georgia and South Carolina that have losses although regionally the most affected areas tend to be placed more in the South, Southwest and the upper Plains area. For example, Texas has had the hottest and driest second quarter since weather records have been taken, and those numbers are somewhat replicated in Florida, Arkansas, Louisiana, New Mexico and other States.
Second of all, the markets were pretty strong for 2 years, 1996 and 1997, but today the markets are limping. Wheat is off 25 percent from a year ago, as are soybeans. The price of corn is down about 15 percent. The turnaround that USDA has projected for beef has turned around, and prices are running well below the average for the decade, in part because of liquidations occurring, because there is no hay and pasture and animals are being marketed.
Overall, USDA's most recent estimate shows net farm income being reduced by about $7.5 billion this year. While I can't make it rain, I do think with the help of Congress I can do more to help the farmers and ranchers fighting the drought and disasters of 1998 stay on the land.
And the first thing I would say to you today with respect to strengthening the safety net, we must help farmers and ranchers weather the cruel downturn relating to natural disasters. The disaster reserve we have used over the last couple of years to aid ranchers is depleted, and I do not have authority to add to that without money from Congress. And without that feed assistance, livestock producers will be totally on their own to deal with disasters.
I will be the first to acknowledge that we have much work to do to strengthen crop insurance, both legislatively and administratively. It works some places. It is not acceptable in other places at all. And we have both tried to twist and stretch the program as far as we can, but without supplemental benefits that only Congress can authorize to address this year's problems and the accumulation of several years' worth of disasters whose effects are hemorrhaging parts of the country, conditions over which farmers have no control will force them into bankruptcy.
And I will talk in a moment about the Senate language in the appropriations bill.
I have with me Gus Schumacher, our Under Secretary. He and his team have been tirelessly promoting exports, opening markets. In fact, our general sales manager is in Asia today scouting out new opportunities. But trade alone, particularly in today's market environment, is not the complete safety net. It is part of it, but not the complete safety net. And so this afternoon I will give you a thumbnail sketch of the state of the farm economy and the actions I think we need to take.
But before going into that in more detail, I want to talk for a moment about our plans for responding to the Conrad-Dorgan amendment to the fiscal year 1999 agricultural appropriations bill which the President and I support. During its consideration, the Senators called on the Department to provide a comprehensive picture of the extent of the losses in farm country. Indeed the amendment itself requires that information. USDA's World Agricultural Outlook Board and the National Agriculture Statistics Service release the next world agricultural supply and demand crop reports on August 12, 2 weeks from today. Those reports will contain not only the most current but also the best assessment we have produced this year on the prospects for this year's crops. Crop production estimates will be based on actual in-the-field data. To meet the requirements of the amendment, we intend to base our estimate of losses on that report, using that assessment, and I have instructed the State executive directors of the Farm Service Agency in every State to then contemporaneously make a determination of disaster losses.
We intend to develop a proposal for consideration of the Congress, building on the proposals I previously outlined in my letter of July 16 to Senator Conrad. That letter proposes a Supplement Crop Insurance Benefit Program, a program to compensate farmers and ranchers for the loss of productive farm and pasture land from standing water and a program of Emergency Livestock Assistance. We will revise our estimate of those costs of those proposals from the August 12 report. I suspect that the numbers will be considerably higher than the numbers that we gave the Senate last month.
In light of my recent trip to Texas and Oklahoma, we are currently reassessing the emergency needs in these States and throughout the country. We will be presenting to Congress the needs, financial and others, reevaluating the emergency situation sometime in the next couple of weeks.
Let me repeat, the President and I strongly support a legislative proposal to make sure that the disasters afflicting the farm country are addressed as financially responsibly as we can. I firmly believe that we should develop a system where no farmer goes under because of an act of God. We are not there yet. We all share in the responsibility of the administration and Congress to see what we can do in the short and long term.
With respect to a firsthand look, I am sure Earl Pomeroy has talked to you about this, but in North Dakota net farm income fell 92 percent in 1997 compared to 1996, the largest decline of any State. A further decline is expected this year in North Dakota and other northern Plains States. My trip there raised serious questions about the adequacy of the farm safety net. The current crop insurance program does not appear to provide sufficient protection at an affordable rate to prevent many farm failures in particular circumstances. The combination of weather and low prices is bringing many producers to USDA's door for credit. But limitations on how much we can lend and who we will lend to result in many being turned away.
My trips to the southern Plains and the Southeast, Georgia, South Carolina and
Florida, showed the devastating effects of this summer's drought. We talked about this before. The April to June period was the driest since 1895 when we began keeping records for Texas, New Mexico, Louisiana and Florida. Dry land crops are burning up. Some 3 million acres of cotton are estimated to be lost in Texas. High hay prices and the condition of pasture and range, 72 percent of which have been rated poor or very poor, are causing producers to have to market their cattle, and they are squeezed by low cattle prices and high forage prices.
Even irrigation crops are suffering and irrigation costs are up sharply. Southeastern field crops such as corn and soybeans are generally faring poorly.
While the price is up now, milk production is down and there are numerous reports of other livestock losses due to heat.
The weather problems in agriculture are unusual because they are occurring at the same time that production and stocks are expected to be large and prices are declining. That is most unusual. The crop losses are regional and are not jeopardizing the Nation's food supply or leading to rampant national economic problems. The declining prices mean that those farmers facing crop losses are not getting any offset from higher prices that often come when weather reduces production. Even for cotton, where a substantial portion of the national crop is being lost due to drought and cool and wet weather in California, prices have been limited by large expected foreign production. These regional problems are a cause for national concern.
Now, I will provide on overview with respect to the agricultural economy. After strong performances in 1996 and 1997, characterized by record exports, high farm prices and incomes, and the market transition payments which helped significantly, the U.S. agricultural economy is now declining to some degree. The Asian economic problems, a strengthening dollar and record large global crop production have reduced U.S. agricultural exports from the record high of $60 billion in fiscal 1996 to about $55 billion this year. Falling commodity prices are expected to cause net farm income to decline nearly $742 billion below last year's record.
Despite these declines there are some positive indicators. First, net farm income for 1998, while down, is expected to be near the average in all of the rest of the 1990's.
Second, although farmer debt is rising the average debt-to-asset ratio for all farm operator is expected to remain stable at about 15 percent in 1998 compared to over 20 percent during the farm financial crisis of the 1980's. However, this is largely due to the fact that farm land values have appreciated.
And third, we have had stable interest rates, low oil prices, low inflation, and that has helped to bring production costs down by about a billion dollars last year.
But saying that, I don't have to tell you that the sharp declines in prices for some commodities have meant low prices for several years in a row. In addition, feed grain and oil stocks are rising and weather thus far suggests large fall harvests which, if realized, could drive prices down further.
Also, farmers are increasingly taking on more debt relative to their repayment capacity from current income. Following recovery from the mid-eighties farm financial crisis, farm debt fell by the early 1990's to 45 percent of the maximum debt producers could repay given current income, so-called debt repayment capacity utilization.
This year, use of debt repayment capacity is expected to be up to about 60 percent.
Low prices coupled with several consecutive years of below average crops and low cattle prices have greatly increased the financial vulnerability of certain areas, particularly the northern and southern Plains and Lake States. And the hot dry weather is further reducing crop yields in those areas as well.
I discuss in my statement that wheat has been particularly hard hit, and corn and soybeans hit to some degree by low prices. Cotton and rice prices are generally less hit, and in some cases
unchanged. Let me talk a little bit about actions taken to date. With respect to the Asian crisis, we have made a significant increase in the use of our GSM-102 Program. Overall credit guarantees are operational worldwide, totaling nearly $5.8 billion, up from $4.6 billion
We appreciate the support of this committee for this program and we will continue to help U.S. producers develop foreign markets through the GSM Program, the Market Access Program, the Foreign Market Development Program, the Cochran Fellowship Program and the others.
President Clinton recently announced that USDA will purchase surplus wheat, using the surplus removal authority of the CCC.
Initially we expect to purchase roughly 242 million tons of wheat. The Department is in the process of purchasing the wheat, and the first tender for about 550,000 tons was issued last Friday.
We continue to purchase beef, pork and poultry for domestic food assistance programs. This year those purchases have been about $440 million for meat, poultry and fish alone. We have also purchased about $135 million of nonfat dry milk under the Dairy Price Support Program.
We also are proposing to revise crop insurance regulations to provide more effective assistance to producers in the northern Plains and other regions where successive disasters have sharply raised premiums and reduced coverage.
We are also expanding our research into developing new strains of wheat that are resistant to scab and other diseases.
And finally, Mr. Chairman, as you stated, the House and the Senate passed and President Clinton signed the Agricultural Export Relief Act dealing with sanctions, and the very next day Pakistan purchased over 300,000 tons of U.S. wheat, which would not have happened if Congress had not acted the way that they did.
Let me talk quickly about what additional actions we think are needed. We have proposed legislation to Congress to improve the 1996 act by strengthening the safety net for family farmers. In addition to the changes in the Crop Insurance and Livestock Disaster Programs that we are considering, if the Senate-passed version of the appropriations bill is adopted and that is the highest priority right now—that is the only way that we are going to get money into farmers' pockets right away, together with the AMTĂ payment that I will talk about in a moment.
Our proposals would also extend the term of marketing assistance loans, allow flexibility in farmers receiving advance 1996 act payments which we support, improve credit availability, and modify the one strike policy for farmers who have had a debt writedown and let farmers use USDA guaranteed operating loans to refinance debt.
I note the committee is considering legislation to make the entire fiscal 1999 payment available to farmers on October 1, 1998. We support advancing those payments.
I would say that I have two concerns which I hope the committee will address.
Number one, farmers frequently, some every year, reconstitute or reorganize their operations and leasing arrangements; meaning crop shares may change between landlords and tenants, and some individuals who share in the farm operation one year do not in the next. In most cases these arrangements are not final until planting season; meaning for crops covered by the fiscal 1999 payment, farm operating plans and leasing arrangements may not be finished until next spring.
That does mean if the entire fiscal 1999 payment is made available on October 1, some individuals who are on that date eligible for the payment may elect to receive it and then may not remain in the farming operation for the crop year. This issue can be remedied, and it is one that I think needs to be or else we will cause a great deal of confusion, particularly in those parts of the country where landlord and tenants' relationships change every year.