FERTILIZER SHORTAGE SITUATION WEDNESDAY, SEPTEMBER 26, 1973 HOUSE OF REPRESENTATIVES, DEPARTMENT OPERATIONS SUBCOMMITTEE Washington, D.C. The committee met, pursuant to notice, at 10:05 a.m. in room 1302, Longworth House Office Building, Hon. E de la Garza (chairman of the subcommittee) presiding. Present: Representatives de la Garza, Poage (chairman of the full committee), Rarick, Jones of Tennessee, Bergland, Denholm, Rose, Teague, Mayne, Zwach, Price, Sebelius, Thone, and Young. Also present: Betty Prezioso, staff assistant; Steven Allen, staff consultant; L. T. Easley, press assistant, and Hyde H. Murray, associate counsel. Mr. DE LA GARZA. The subcommittee will come to order. We meet this morning on oversight responsibilities of this subcommittee. Due to the fact that a shortage of fertilizer threatens American farmers at this critical time when we face an inordinate need for increased food production, we are holding these hearings. I have received reports that the situation is getting increasingly serious and I am aware of various factors which are responsible, including increased export demand and the devaluation of the dollar, but the question remains as to what can and should be done. Therefore, the committee has asked the administration officials with responsibility in this area to come before us today to discuss the problem. Hopefully we will be able to come up with some recommendations which can ease this shortage. Information already submitted to the committee indicates that domestic production of fertilizer actually is greater than it was last year and supplies available for domestic use are larger, but at the same time there has been a sharp increase in both the domestic and foreign use. Still another factor is a reported drop in the amount of fertilizers shipped into the United States. Now, several proposals have been submitted to the committee for coping with the situation. One of which calls for lifting the price ceiling on domestic sales of fertilizers since foreign buyers can offer more and are therefore increasingly purchasing more. Still another cause for imposition of export controls limiting exports to some previous year's levels including shipments under the AID program. The committee has consequently called this meeting today to check the accuracy and validity of all of these reports in order to determine what should be done. With this in mind we have asked Hon. James F. Campbell, Assistant Administrator for Program and Management Services, Agency for International Development to appear. I see by the list that he will be accompanied by Mr. William C. Schmeisser, Jr., Director of the Office of Commodity Management. I am very happy to have you with us both at the same time Mr. Campbell, and will be happy to hear from you. STATEMENT OF JAMES F. CAMPBELL, ASSISTANT ADMINISTRATOR, BUREAU FOR PROGRAM AND MANAGEMENT SERVICES, AGENCY FOR INTERNATIONAL DEVELOPMENT; ACCOMPANIED BY WILLIAM C. SCHMEISSER, JR., DIRECTOR, OFFICE OF COMMODITY MANAGEMENT, AND JOHN M. HILL, CHIEF, AGROINDUSTRY AND TEXTILE BRANCH, OFFICE OF COMMODITY MANAGEMENT Mr. CAMPBELL. Thank you very much, Mr. Chairman. I sincerely appreciate this opportunity to appear before you today to discuss a subject which is of deep concern to the Agency for International Development, just as it is to this committee. During the past year, we at AID have been keenly aware of the developing shortages of fertilizer-with all of the attendant implications for U.S. farmers and their production of essential foods. Obviously, before this committee, it is unnecessary for me to elaborate on the many reasons for these shortages, some of which you just mentioned, or the seriousness with which such shortages must be viewed. As an agency which has been involved in financing both grains and fertilizers under programs which are basic to the humanitarian and developmental objectives of U.S. foreign assistance, we have great concern for the welfare and productivity of U.S. agriculture. Anything which disrupts or curtails output of these products, which have made such a great contribution to the less-developed countries of the world, is necessarily of direct importance to AID. However, we are also fully aware of, and responsive to, the much broader problems which shortages of fertilizer present to American farmers, as well as to the American consumer. Thus, we recognize our responsibility to view these problems in a much broader context than that of our own programs. To begin with, I welcome this opportunity to place in perspective the quantities of fertilizer which AID has been financing from the United States. Here the significant point is that important as this fertilizer has been to AID programs the quantities have been only minor in relation to total U.S. stocks. During the year which ended June 30, 1973, 89 percent of fertilizer exports from the United States were pure commercial sales in which AID had no involvement. The 11 percent of total fertilizer exports financed by AID amounted to less than 2 percent of domestic production plus normal imports. Therefore, although the relatively small share of U.S. fertilizer financed in export trade by AID, is, quite properly, of interest to this com mittee's investigation, it should be apparent that a solution to the current shortage problems cannot be found through any action which AID might take to further reduce or even completely eliminate its financing of fertilizer. During the past year, we have taken a series of actions to minimize the effect of AID-financed exports upon domestic availabilities. About 10 months ago, we met with representatives of the Fertilizer Institute to seek solutions to the supply shortages which we could then see developing. Up to that point, AID-financed fertilizer had come predominantly from the United States, but, with the concurrence of the fertilizer industry, we broadened the sources from which fertilizer would be eligible for AID financing. As a result, in fiscal year 1973 about 20 percent of the fertilizer needed for AID programs was obtained from a selected list of less-developed countries which had that product available for export. During this past spring, we continued to follow the international fertilizer trends closely and, in early June, took two additional steps to minimize the effect of AID financing on the domestic situation. First, we instructed AID's overseas missions to advise their host countries that any AID-financed fertilizer procurements must be limited to those quantities essential for the next planting season and that any supplies in excess of such requirements, or for stockpiling, would not be considered. We further advised that AID/Washington would coordinate the release of all invitations to bid and would review and adjust the requested quantities, taking into account estimated availabilities and the requirements of other aid-recipient countries. Second, except for an emergency situation, we placed a restriction on the financing by AID of any fertilizer shipments during the months of February through May 1974 this was done about 5 months ago-because it is during these months that 70-75 percent of the fertilizer used by U.S. farmers is distributed. Finally, we have recently been discussing with the Department of Agriculture and with the Fertilizer Institute the advisability of broadening the offshore sources of availability to include almost all free world countries, particularly in the procurement of nitrogen-which is the fertilizer in the shortest supply. By so doing, we would hope not only to tap all the major sources of supply, but also obtain more competitive prices than those currently available from the more limited sources now participating in AID-financed procurement. We are continuing, and will continue, to seek other ways of minimizing the impact of AID-financed export of fertilizer upon domestic supplies. We must recognize, however, that more formal or rigid restrictions on exports from the United States could have only a minimal benefit in terms of increased availabilities here, while the consequences to the less-developed countries where malnutrition and famine are real threats might be very serious indeed. In this regard, I must emphasize the interest which the United States has, from the viewpoint of its foreign policy and its foreign assistance program, in helping the less-developed countries approach self-sufficiency in the production of food grains. This objective has a long history of congressional support. A major accomplishment toward the goal has been the development, partly as the result of AID-financed research of high yielding varieties of cereals which have made possible an agricultural revolution in many less-developed countries. As you are aware, high-yielding grains produce three to four times the amount of the traditional varieties and thus offer enormous potentialities for progress toward alleviating malnutrition and starvation in the less-developed countries. It is unfortunately true, however, that without fertilizer, the new varieties of grain may actually yield less than the old. If even minimum quantities of fertilizer do not remain available to the countries which have made so much progress in feeding their populations in recent years, there is a very real danger that the accomplishments of the last decade may be jeopardized. And quite apart from the longer term objective of an approach to food self-sufficiency in the less-developed countries, there is the need that the United States be responsive on humanitarian grounds to situations involving genuine emergency, such as that growing out of the recent flood disasters in Pakistan. As I mentioned earlier, one of the reasons why AID is concerned about the shortage of fertilizer in the United States is that, over the years, AID-financed food grains have played an important role in the foreign assistance program. To some extent, financing food grains and financing fertilizers are alternatives. In order to alleviate the devastating effects which a complete cessation of the financing of fertilizer might have on some underdeveloped countries, there would unquestionably be appeals for correspondingly larger amounts of AIDfinanced food grains. As this committee appreciates, a ton of fertilizer can result in increased production of up to 5 tons of food grain. Even with the present prices of fertilizer, it makes economic sense to finance the fertilizer rather than the grain. Finally, the fact of the matter is that rice and other food grains are also in very short supply, and it is unrealistic to suppose that AID has the alternative option of financing increased quantities of grain to offset reductions in fertilizer. In conclusion, let me say that the representatives of AID have met with the Department of Agriculture to discuss the fertilizer shortage and to explore what constructive steps could be taken. We stand ready to work further with this committee, with the Department of Agriculture, with the Fertilizer Institute, or with any other concerned parties to deal with a problem in which we all have a vital interest. Mr. DE LA GARZA. Thank you very much. We appreciate your appearance and testimony today. I think we will just open up for questions while you and your associates are at the witness table. I see Mr. Teague is present. If there are no objections the chairman recognizes Mr. Teague, if you have any questions. Mr. TEAGUE. No questions at this time. Thank you. Mr. DE LA GARZA. Mr. Mayne? Mr. MAYNE. Mr. Campbell, in all of your statement, which is by the way an excellent one, I fail, however to find any discussion of price. Isn't that the essential question, isn't that the principal thing determining the availability of fertilizer abroad and here at home? Mr. CAMPBELL. It certainly is a very important factor in determining availability. As far as the price is concerned, I would like Mr. Schmeisser to comment on that. |