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 $72 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 last year.

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 22 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 AMTA 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.

The other concern has to do with the flexibility given our short staff in situations where farmers can take a portion of the payment at any time. Some have construed the legislation to allow a farmer to come in and get 10 percent of his payment one month, 10 percent the next month, and 20 percent the following month.

I will have to tell you, if you want to start getting calls into your office because of confusion-and my office as well-that will create it. We need to set some reasonable standards about how those payments are going to be advanced to make it easy for those folks out there in those county offices to do their jobs. In principle we support the legislation and we want to work with you to see that it is passed.

Just a couple of final points. The farm bill imposes a lifetime ban, without exception, on USDA loans to family farmers who have received debt forgiveness. There is no such rule for obtaining private sector credit from any bank in America.

When I was out in Texas, I talked to several farmers who said, "We restructurrd in 1989 or 1990 or 1991, and what can we do if we need new loans" and they may or may not qualify for certain loans, but we have requested congressional authority to give creditworthy USDA borrowers a second chance. Unless this provision changes, some producers will be forced out of business even though they have the ability to repay the loans they need, and I urge Congress to work with us to try to fix those provisions.

Finally, let me say on the export front, I generally agree with you, Mr. Chairman, on most of your comments in terms of opening markets, but I will have to tell you that the No. 1 priority is the IMF assistance. That is what is going to get stability in the world immediately so these countries can use our GSM credits and buy our products right away.

I want to see us do nothing to take away our ability to get the IMF assistance adequately funded, aiding in the economic recovery of Asian economies which buy about 40 percent of American agricultural commodities.

I think I have summarized the statement as fast as I can. Short term-short term, we have to get emergency assistance. The agricultural appropriations bill provides it. We are going to get you a fuller assessment of damages in a couple of weeks, and I think we need to provide the augmentation of emergency assistance this year before you leave so that livestock producers and crop_insurance holders who are not adequately covered can be protected.

We support the moving up of AMTA payments. We hopefully can work together to make sure that language is responsible so we can make those payments as quickly as possible. We support the IMF assistance. We think that is critical for American agriculture.

We do have some problems. It was a lot more fun being Secretary in 1996 and 1997 than it is this year, but I think we have the opportunity to do some positive things to help out, and that is what I would like to see us do working together.

Also, France has approved the two corn GMO varieties. I said this once before and then they told me I made a mistake. We should be able to participate in the remaining Spanish corn tenders and move a substantial quantity of corn there in the coming weeks. I thought I should mention these breaking developments.

Thank you, Mr. Chairman.

[The prepared statement of Secretary Glickman appears at the conclusion of the hearing.]

The CHAIRMAN. The other part of that tariff rate quota fulfillment is substantial to Spain. I have forgotten, what is it?

Secretary GLICKMAN. There are about 600,000 tons left.

The CHAIRMAN. That is what I thought it was. That is good news. Thank you. And as you know, we worked together in Europe, and there is a lot of pressure upon the European Union and upon France to fulfill their commitment which they have finally responded to, and it will make a difference.

For clarification, I want to ask you about the language in the Senate bill that you are asking us to support. We understood that it was originally designed to impact North and South Dakota and Minnesota, which was designed to take care of losses in 3 out of the 5 years which they have experienced.

Having said that, looking at the language it does not narrowly identify that situation. It appears as though it is open now to drought conditions and severe weather conditions in Texas and the Southeast and all across the Nation. With that in mind, we understood that the cost would be about $500 million, now expanded to $800 million if we had the condensed version, 3 out of 5-year loss. What is the version that you propose with the expanded language?

Secretary GLICKMAN. I can't give you the amount yet, but if you used the same criterion of 3 out of the 5-year loss, coupled with the livestock feed assistance, coupled with the planting in the areas under water over an extended period of time and you based it on the amount of losses that occurred around the country, it is probably going to be significantly more than $500 million using that same criteria.

My belief is that we can get you, sometime in August, the nature of the loss and what costs would be under that criteria or under other criteria-and the conferees working with you are going to have to decide what eligibility criteria should be used. All I can tell you is at the time we came up with that proposal, I do not believe that there had been an adequate assessment done of the damage in the Southwest, particularly in Texas, and that damage is considerably higher now than we anticipated that it was going to be.

The CHAIRMAN. I only press you for accuracy, Mr. Secretary. So are you suggesting that we limit the language to 3 of the 5-year losses?

Secretary GLICKMAN. I would say the following. Chairmen Cochran and Skeen and the appropriators had asked us to come up with basically a formula by which we would spend that $500 million. If you notice, their amendment does not provide any specific allocation for how those funds are to be spent.

The CHAIRMAN. That is right.

Secretary GLICKMAN. So we came up with the proposal you could spend it that way, and we thought that the $500 million figure would be an adequate amount.

Now, saying that, I want to make it clear that while North Dakota and South Dakota and Minnesota were the prime places where there were problems, there were also disasters that occurred in other parts of the country, and this was not meant to just deal

with one region of the country alone. There will have to be some limiting criteria to control the costs, I will grant you that, but the damage in other parts of the country is very significant.

The CHAIRMAN. We understand that, and I am attempting here to identify exactly what you are requesting. So you want to open up the criteria beyond 3- to 5-year loss?

Secretary GLICKMAN. We stand with the letter that we wrote on that criteria because we were requested by Congress to come up with some criteria. And we will let you know how much that criteria will cost as we do our full assessments in expanded parts of the country. But, we will work with the Congress if you decide that you want to modify that criteria in some degree. There was a lot of rush at the time to come up with some disaster assistance, and we came up with a criteria that we thought could fairly spend those dollars.

The CHAIRMAN. Your idea is to spend $500 million only?

Secretary GLICKMAN. No. The Senate put $500 million in the account. They asked us to come up with some funds to do that. I think the $500 million was basically based on what they thought and what we thought the extent of the damage would be at the time.

The CHAIRMAN. In North Dakota, South Dakota and Minnesota? Secretary GLICKMAN. Primarily, but nationwide as well. It was mostly in the northern Plains. The damage now is clearly greater than that, and we are trying to figure out an assessment of what it is. If you live within that $500 million, those funds will have to be severely sequestered down to provide money for other States with disaster. I have been to Florida and Georgia and South Carolina and I can tell you that there are portions of those States that are every bit as bad as those in the Dakotas and Texas, although the Dakotas and Texas seem to be the worst overall in regional

areas.

The CHAIRMAN. I am just trying to identify. Of course, if you expand the 3 losses out of 5 years, you have gone much beyond the

issue.

Secretary GLICKMAN. The Congress will have to determine-if they want to go this road-what the criteria ought to be. The fact is if you go 3 years out of the past 5, 3 out of 5 where indemnities have been paid, and you use that as the period to augment crop insurance, virtually every State that suffered a disaster will have large areas that will be covered under that as well.

The other thing is the Livestock Feed Assistance Program is one that will probably affect the State of Texas and perhaps Oklahoma even more than it will affect the Dakotas.

The CHAIRMAN. Very quickly, you purchased $250 million worth of wheat for the assistance, the Food Assistance Program from the CCC stocks?

Secretary GLICKMAN. Right.

The CHAIRMAN. Which have in them some $30 billion of money. Have you considered using additional parts of CCC to purchase either feed, which you can do, or other grains for other purposes, using the authority you already have to assist in this problem?

Secretary GLICKMAN. I would ask Mr. Schumacher to come up here, if I might, because it is a good question. I told my folks we