Mr. COMBEST [presiding]. Mr. Thune.

Mr. THUNE. Thank you, Mr. Chairman. I would also ask, if there is no objection, to include a statement for the record.

Mr. ČOMBEST. I think the chairman indicated earlier that all statements will be part of the record.

Mr. THUNE. If you could characterize the agricultural economy in South Dakota this year, it would probably be as follows: We will lose a little bit on each sale, but make up for it in volume, and you can't do that very many years in a row. And unlike North Dakota where they have some serious shortages due to disease and weather-related problems, we should have some substantial yields in our State, which is encouraging. Normally under those circumstances, farmers would be ecstatic, but we have a whole lot of frustration and discouragement in South Dakota because prices are in a freefall and there does not seem to be any end in sight. You were in Aberdeen a few months back, and the atmosphere would be less favorable now. It wasn't, as I recall-we all got an earful that day. A lot of the things that are being proposed are very important, and again I think down the road the export issues are critical in terms of what we are able to do to assist and make agriculture competitive, but that seems abstract to producers who are struggling to make it this year and whose very survival is up in the air. It seems to me that we have to figure out a way to bring some stability to income and prices and minimize the volatility that we have in the farm sector of the economy. And we have put in place, and you were there involved with it, as were others here before our time, a crop insurance program which was designed to do that.

And I am just wondering what you or Mr. Ackerman can respond to this as well, what you might suggest as to how we fix that program to make it work as opposed to going back to the old system? I sort of view this as where we are kind of wandering around in the wilderness and are trying to find the promised land, but I am not sure that we are ready to go back to Egypt to the old system.

I think we have some tools in place. Can we make them work? I am open, and I think other members of the committee are, about what we can do to fix that program and make it work.

Mr. ACKERMAN. I appreciate the question. I was very involved in the advocacy of the 1994 statute when it was before Congress a number of years ago. We gave a lot of thought about what went wrong. Is there something that we did not think of in writing that statute?

As the Secretary said, there are a lot of good things in the 1994 Crop Insurance Reform Act that we achieved, but there are some shortcomings. Crop insurance has to be actuarially sound. It is based on contracts. Those facts give it a lot of strengths but they also create some limits. Crop insurance is quick, automatic, very predictable. Farms can tailor their own coverage, it is financially sound. It avoids competing Government programs. But at the same time, because it has to be actuarially sound and it is based on contracts that can't be changed midyear, it does give it a lack of flexibility to adjust to changes, to adjust to shortfalls, to gaps that become apparent.

The biggest one that we have seen is a situation of multiyear losses around the country. Under an actuarially sound program,

when you have a multiyear loss, rates tend to go up and coverage goes down, and the drain on a farmer financially with multiple years of loss can be very serious.

That is why we proposed the Supplemental Benefit Program that came up with the Conrad-Dorgan amendment. The fact is the coverage is limited, and it is based on contracts which makes change difficult to do. But we are obviously going to be going to the drawing board over the next few weeks and months to try to think this through.

Secretary GLICKMAN. Philosophically, I don't know if you can protect everybody against an act of God, but in this modern era of less regulation on the pricing side of the picture and we are not going to go back to what it used to be, where Government micromanaged supply and price-it does strike me that we have an opportunity to come up with a risk package which does provide reasonable protection for most producers, whether in a high- or low-risk area, to know that they will be covered if Mother Nature kills their crops. And in some areas it works fine. If you are in an area with one disaster out of 7 years and predictable yields, that is fine. If you are in an area where you want to switch crops and there is no crop history in the new crop, if you can't get coverage, four disasters out of five, those are really the areas where it is a real problem, and there is a huge gap there and it is not right.

I do think to some extent we in the Government promised people that there would be this coverage. Let me tell you, one of the reasons why North Dakota and Texas have such problems right now is because of the nature of the repeated disasters. They did much better under the Ad Hoc Disaster Program. A big chunk of the payments used to go to those two States every single year. A big percentage of the programs would go to those States. It has nothing to do with the quality of the soil, as Earl said. It is the weather is more unpredictable in those parts of the country. I think legacywise this is one of the most important things that we can do for agriculture.

Mr. THUNE. It does seem to me that is going to be a critical component in trying to fix this. We are all floundering around trying to come up with solutions, and a number have been proposed. But the fact of the matter is that it is an inherently risky business. We have had successive bad years in our part of the country. We have to figure out a way to make this program work that makes that an efficient program and a program which people in agriculture year in and year out can depend upon so they have one way to manage the risk.

Just one last question, because there has been a lot of discussion as well about the marketing loan rate, lifting the caps and extending the term, and I am not averse to any of those solutions, again presuming that we can figure out a way to pay for those things. But my question is again, how does that impact price, because ultimately the impact is to raise prices, and it seems to me at least in some ways it might actually be counterintuitive to start talking about doing that. I would be curious to know what your thought is about how raising the marking loan if you have the price going below where the marking loan is today. Doesn't perhaps further raising it further aggravate the problem and cause producers to

hang on for longer periods of time and just add to the surplus problems we already have?

It seems to me from the supply and demand, from an economic standpoint, that would seem to be the case. I am curious to know what your thoughts are.

Secretary GLICKMAN. The key part of the 1996 farm bill was flexibility so people can move from crop to crop. I think higher loan rates might encourage more production. As long as you have the loan rates pretty much in sync with each other, you won't have that.

If we wanted to get rid of the loan rates, I would assume that Congress would have done away with them in the 1996 farm bill. What they did was cap them. They capped them at a level that didn't relate to the market price. I just think you are better off supporting a level based upon a percentage of the market price, because that gives a little more security to a producer during up and down-particularly during down markets. Up markets, it is not needed as much.

I think you have a situation of big crops in the world and weaker demand, and when the market goes to hell, basically there isn't that floor that we used to have. And it scares people. I think it scares their bankers, quite honestly.

But I don't think that if you had the loan rates that we had pre1996 during that 5-year period, it would have encouraged more production, provided you had planting flexibility and people could move from crop to crop.

Mr. THUNE. Going back a few years under this bill, prices are fairly comparable to where they are today and under the old system. But the loan rate itself, which acts as a floor, you have market prices already below the floor today.

Secretary GLICKMAN. And you will have loan deficiency payments because of that as well.

Mr. THUNE. I just appreciate your answer to that and I yield back, Mr. Chairman.

The CHAIRMAN [presiding]. I thank the gentleman. We will have a vote very shortly, Mr. Secretary, and I thank you for your patience, and those who are waiting to testify as well.

I want to ask you if you would agree with us on this committee that it is time to hold a high-level meeting with Canada regarding livestock and grain, wheat. We would like you to think about inviting your counterparts, Ms. Barshefsky, to Washington so that members of this committee and those interested could have a sit down with the Canadians as soon as possible. We will work with you about the timing, but we just want to state that is of great interest to us and we have great problems on our northern border. Secretary GLICKMAN. I think that is a good comment, and we will work with you.

The CHAIRMAN. I am going to read from a piece that was sent on July 28, 1998, written by Dwight Ackrey, who the gentleman may know, who is from North Dakota State University Extension Service, and I think it adds to the total discussion here.

The 1996 farm bill, commonly called Freedom to Farm, has been criticized as the primary cause of the financial difficulties our farmers are facing. That is only true if it is compared to a benchmark that doesn't exist. In other words, for the 2 crop

years covered by the current farm program, the region's farmers are financially better off than they would have been under both of the previous two farm bills.

He points out the total transition payments received in North Dakota for the 1996 crop year were $311,500,000.

If the previous farm legislation, the 1990 farm bill, had been in effect, the total deficiency payments would have been zero. The next year the total transition payments received by North Dakota for the 1997 crop year were $246,900,000. If the 1990 farm bill had been in effect, deficiency payments would have been $197,148,000.

Then he goes on to identify the 1998 crop would have been down some $150,000,000. I place that in the record only to point out that maybe this fellow is right and maybe he is wrong, but he does point out the facts. It doesn't take care of the situation. It is not an excuse for where we are, I don't mean it to be, but I want to put the balance of the decision here.

Mr. MINGE. Mr. Chairman, would you yield?

The CHAIRMAN. I would.

Mr. MINGE. I would like to follow-up and ask the Secretary for his comments on the extent to which these payments have actually been benefiting production agriculture and the extent they have been captured in land values, and in essence benefiting landownership. And it is my understanding from publications that have come from USDA that the Freedom to Farm transition payments have had the unexpected benefit for landownership and not for production agriculture.

Secretary GLICKMAN. With the chairman's indulgence, I might ask my chief economist to respond to that. I think perhaps he is better equipped to answer it than I am.

Mr. COLLINS. Only 30 seconds?

Secretary GLICKMAN. Whatever.

Mr. COLLINS. I think there is some evidence that the payments have been capitalized in land values. That is the way payment programs have traditionally worked. Over the first 3 years of this farm bill, the average land values in the United States have gone up 6 to 7 percent per year. Last year, 1997, farm land values went up 6 percent. That is pretty high. Part of that reflects the higher income prospects we have had the last few years and part of it reflects the lower interest rates, but I think part of it also reflects the payments. Only landowners who share in the crop get the payment directly, but other landowners who have cash rents can still get it by raising the rental rate. I can't tell you what percentage exactly, but a large part has probably gone to landowners.

Mr. MINGE. There has been a great deal of anecdotal evidence in my area that landlords immediately demanded that these payments somehow be reflected in rents and that land values were increased precipitously not so much also because of increased crop prices, but this coincided with it and augmented the increase.

Mr. COLLINS. I think the value of land reflects the expected return that the land can generate. Payments are part of that return. So as soon as the return is up because of the guaranteed payments in the 1996 act, that should raise the price of land and the rental rates.

Mr. LUCAS. Would the gentleman yield?
The CHAIRMAN. Yes.

Mr. LUCAS. Isn't that reflected in any Government program or effort to create a higher return from land? Isn't the most valuable asset of any farmer his land? Won't farmers on any occasion bid as much as they can to control land? Isn't that the nature of anything that we do on the Federal level? Any program since 1933?

Mr. MINGE. I believe the question is directed to me, if I may respond.

The CHAIRMAN. Please respond.

Mr. MINGE. This, in a way, is revisiting the 1996 farm bill, which is perhaps a healthy thing to do this afternoon. One of the problems, it was pointed out, that a direct payment to the producer is more apt to be capitalized in land values than payments that are geared to respond to the nature of the farm economy to try to deal with the spikes, the valleys, and that payments that go for production as opposed to payments that are automatic are more difficult for the landowner to capture.

Mr. LUCAS. But, Mr. Minge, any payment that creates a potential higher return will cause the business person to respond by competing for those assets that potentially generate those payments with more intensity. The price goes up, that could be the 1996 farm bill, or the 1933. It is the net effect of any Government payments.

The CHAIRMAN. Gentlemen, it is an interesting exchange, but we are trying to interrogate the Secretary and we have many, many more witnesses. Could I ask that we allow the Secretary to retire, or is there something burning in your mind?

Secretary GLICKMAN. To move to Oregon?

The CHAIRMAN. Sure. Is there something of burning interest that Mr. Pomeroy has that in 30 seconds he will deliver?

Mr. POMEROY. I have great respect for the gentleman that you quoted from, and I am glad that his statement is in the record. I would like to quote another sentence within that document.

Farmers haven't yet experienced the downside of the 1996 farm bill, but this year they probably will. It is very likely that the fixed transition payments that the farmers received for their 1998 crop, plus the national average market prices they get will add up to less than the old target prices of $4 for wheat, $2.36 for barley and $2.75 for corn.

So we have this big hit of money in 1996 which got capitalized, and the consequence of this is higher cash rents and higher land payments. And now we are down here in 1998 where we have a price collapse situation and no response to it, leaving farmers with higher prices and no support in 1998.

For the crisis in 1998, it doesn't do much good to talk about what we did 2 years ago. It is not responding to the here and now in production agriculture. I thank the chairman.

The CHAIRMAN. The gentleman remembers that I mentioned that you are $152 million short in 1998, and I am quoting from this document.

Mr. Secretary, thank you very much, and Mr. Schumacher. They have a voice vote on the rule, so those of you who have been patiently waiting, please come forward.

The next panel is Dr. Gary Adams, Dr. Bruce Gardner, Dr. Neil Harl and Dr. Jerry Skees. These are professors and economists from as far away as Missouri and Texas and Maryland and Iowa