[House Hearing, 106 Congress]
[From the U.S. Government Publishing Office]
THE AGING OF AGRICULTURE: EMPOWERING
YOUNG FARMERS TO GROW FOR THE FUTURE
=======================================================================
HEARING
before the
SUBCOMMITTEE ON EMPOWERMENT
and
SUBCOMMITTEE ON RURAL ENTERPRISES,
BUSINESS OPPORTUNITIES, AND
SPECIAL SMALL BUSINESS PROBLEMS
of the
COMMITTEE ON SMALL BUSINESS
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTH CONGRESS
FIRST SESSION
__________
WASHINGTON, DC, NOVEMBER 3, 1999
__________
Serial No. 106-40
__________
Printed for the use of the Committee on Small Business
U.S. GOVERNMENT PRINTING OFFICE
65-504 WASHINGTON : 2001 ________________________________________________________________________
For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington, DC
20402
COMMITTEE ON SMALL BUSINESS
JAMES M. TALENT, Missouri, Chairman
LARRY COMBEST, Texas NYDIA M. VELAZQUEZ, New York
JOEL HEFLEY, Colorado JUANITA MILLENDER-McCONDALD,
DONALD A. MANZULLO, Illinois California
ROSCOE G. BARTLETT, Maryland DANNY K. DAVIS, Illinois
FRANK A. LoBIONDO, New Jersey CAROLYN McCARTHY, New York
SUE W. KELLY, New York BILL PASCRELL, New Jersey
STEVEN J. CHABOT, Ohio RUBEN HINOJOSA, Texas
PHIL ENGLISH, Pennsylvania DONNA M. CHRISTIAN-CHRISTENSEN,
DAVID M. McINTOSH, Indiana Virgin Islands
RICK HILL, Montana ROBERT A. BRADY, Pennsylvania
JOSEPH R. PITTS, Pennsylvania TOM UDALL, New Mexico
JOHN E. SWEENEY, New York DENNIS MOORE, Kansas
PATRICK J. TOOMEY, Pennsylvania STEPHANIE TUBBS JONES, Ohio
JIM DeMINT, South Carolina CHARLES A. GONZALEZ, Texas
EDWARD PEASE, Indiana DAVID D. PHELPS, Illinois
JOHN THUNE, South Dakota GRACE F. NAPOLITANO, California
MARY BONO, California BRIAN BAIRD, Washington
MARK UDALL, Colorado
SHELLEY BERKLEY, Nevada
Harry Katrichis, Chief Counsel
Michael Day, Minority Staff Director
------
Subcommittee on Empowerment
JOSEPH R. PITTS, Pennsylvania, Chairman
PHIL ENGLISH, Pennsylvania JUANITA MILLENDER-McDONALD,
JIM DeMINT, South Carolina California
FRANK A. LoBIONDO, New Jersey DENNIS MOORE, Kansas
EDWARD PEASE, Indiana STEPHANIE TUBBS JONES, Ohio
TOM UDALL, New Mexico
Stephanie O'Donnell, Professional Staff Member
CONTENTS
----------
Page
Hearing held on November 3, 1999................................. 1
Witnesses
Brown, D. Scott, Program Director, Food and Agriculture Policy
Research Institute (FAPRI)..................................... 6
Young, John, Farmer, Groffton, NH................................ 8
Cornwell, Lynn, Vice President, National Cattleman's Beef
Association.................................................... 10
Ecker, Terry, Farmer, Elmo, MO................................... 12
Gross, Steve, Farmer, Manchester, PA............................. 14
Cobb, Bruce, Farmer, Bridgeton, NJ............................... 16
Johnson, Baron, Farmer, Johnson Bros., Inc....................... 18
Smith, Gary, Executive Director, Chester County Development
Council........................................................ 29
Baker, John, Iowa Beginning, Farmers Center...................... 32
Offutt, Susan, Administrator, Economic Research Service, US
Department of Agriculture...................................... 34
Appendix
Opening statements:
Talent, Hon. James M......................................... 39
Pitts, Hon. Joseph R......................................... 42
LoBiondo, Hon. Frank A....................................... 46
Prepared statements:
Brown, D. Scott.............................................. 47
Cornwell, Lynn............................................... 52
Ecker, Terry................................................. 55
Gross, Steve................................................. 58
Cobb, Bruce.................................................. 65
Johnson, Baron............................................... 71
Smith, Gary.................................................. 77
Baker, John.................................................. 126
Offutt, Susan................................................ 129
Additional Information:
Article ``In Consideration of Farming''...................... 133
THE AGING OF AGRICULTURE: EMPOWERING YOUNG FARMERS TO GROW FOR THE
FUTURE
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WEDNESDAY, NOVEMBER 3, 1999
House of Representatives, Subcommittee on
Empowerment, of the Committee on Small
Business, Jointly With the Subcommittee on
Rural Enterprises, Business Opportunities and
Special Small Business Problems, of the
Committee on Small Business,
Washington, DC.
The Subcommittees met, pursuant to call, at 2 p.m., in Room
2360, Rayburn House Office Building, Hon. Joseph R. Pitts
[Chairman of the Subcommittee on Empowerment] presiding.
Chairman Pitts. Good morning, ladies and gentlemen. Thank
you for joining us here today for the first joint hearing of
the Subcommittee on Empowerment and the Subcommittee on Rural
Enterprises, Business Opportunities and Special Small Business
Problems. The focus of today's hearing is the aging of
agriculture: empowering young producers to grow for the future.
Before I proceed with my opening remarks, I would like to
note that the Chairman of the Committee on Small Business, the
gentleman from Missouri, Mr. Talent, is joining us today, and I
am pleased to yield to him for any opening comments he would
like to make.
Mr. Talent. Mr. Chairman, I appreciate that, and I want to
thank you and Mr. LoBiondo for inviting me to join you in
welcoming the participants of this joint hearing of the two
Subcommittees on a subject that is very important. I think it
is going to become increasingly important for the future of
agriculture and an opportunity for people in agriculture. The
trend towards an agricultural system with the average age of
the operators of our farms nearing 55 years is of great concern
to many in the agricultural community. I share the concerns of
that community and applaud Mr. Pitts and Mr. LoBiondo for their
willingness and desire to address this issue.
I am proud of Missouri's agriculture industry and recognize
the importance of agricultural and agribusiness to the economy
of Missouri. In fact, Missouri has a large number of farms,
110,000 of them, making Missouri second only to Texas in states
with the most farms. As of 1996, more than 400,000 workers or a
full 15 percent of our labor force back home was employed in
agriculture. Missouri is also ranked in the top 10 producing
States of all major crops and livestock except citrus, and we
are working on that. Along with this accomplishment,
agriculture contributed over $5 billion in cash farm receipts
to the economy of Missouri in 1997.
Unfortunately, 1998 and 1999 have brought low prices and
adverse production conditions to Missouri as well as all over
the country. A summer-long drought throughout Missouri
devastating much of the corn and soy bean crop, combined with a
strong U.S. dollar, economic turmoil in Asia, and the large
global grain and livestock supplies, we have the ingredients
for a recipe for disaster.
The tillers of the soil and the husbandry of livestock have
always been honored professions. Thomas Jefferson wrote in 1803
that agriculture is the first in utility and ought to be the
first in respect. I agree with that spirit and admiration for
the profession of food and fiber production. In my years of
interaction with Missouri's farmers and ranchers, I have
learned that agriculture, specifically production agriculture,
is much more than just an occupation. It is a way of life from
which much satisfaction is gained from the creation of
something of value from the tiniest of seeds. American
producers take pride in the fact that they provide the most
abundant, the most affordable, and safest food supply in the
world.
Our producers have a long and honorable tradition of
creating a legacy and way of life for posterity. The
generational family ownership of the farm, passing down and
sharing of the family small business from one generation to the
next is a great source of honor and tradition which has been
celebrated throughout American history. The University of
Missouri Agricultural School, arguably the most innovative and
forward-thinking agricultural school in the Nation, in 1976
began recognizing farms which had been family legacies for over
100 years through its Century Farm Program. To date, over 2,800
Missouri family farm legacies have been recognized as century
farms.
The blood, sweat, and tears which have fertilized these
family legacies are the same stones upon which our Nation is
built. Yet this great tradition of the continuance of family
farm legacies has been short-circuited. Last August, the House
Committee on Small Business held two field events focusing on
agricultural, tax, regulatory, and trade issues critical to the
agricultural community. One concern that was voiced at both of
these hearings was the lack of youth entrance into production
agriculture. Producers at the hearings told stories of the
barriers of entry into agriculture for young people, the most
hated of which was the estate tax. I wholeheartedly agree that
this tax may be the single most harmful obstacle to the
tradition of passing the farm down to the next generation. Why
should producers work to create, sustain, and preserve this
legacy only to force their loved ones to visit the undertaker
and Uncle Sam on the same day? Why should the government
penalize America's original small business owners for wanting
to pass their heritage and way of life onto their children?
Beyond this discouraging tax policy, young people have to
observe the reality that there has not always been a direct
relationship between the hard work and intelligent management
of the farm by their parents and the profitability of their
farm. They realize that Mother Nature is not always
sympathetic. The world commodity market is well out of their
control, and even during decent years their parents only made a
small percentage return on their investment. As a result, young
people often decide that it would be easier and more attractive
not to enter the family business.
In these hearings that we had in Missouri, I looked at
panels like the ones that we have here--which, by the way, I
want to say that we have a big sprinkling of young people here
on this panel, so I don't want to suggest otherwise, but we had
panels in Missouri on the future of the family farm. A number
of the witnesses were farmers in their fifties. I wondered at
the time whether we could have hearings like that 15 or 20
years from now because as producers leave their farms, their
children are not going into the farming business, and we might
not be able to constitute a panel like that in a few years if
we don't do something.
Of course, the climate cannot be controlled and the effects
can only be slightly mitigated, but something can be done to
provide a brighter outlook on the marketing side of the
equation. Over and over producers tell me that the key to the
future of our agricultural legacy is for producers to become
price makers instead of price takers. They have to be empowered
to begin finding waysto remove themselves from the oppression
often of the world commodity market. This will be accomplished through
the establishment of producer-owned, value-added processing in the
creation of other alternative marketing systems. We must provide
producers with the effective technical assistance, engineering,
business planning, marketing, organizational assistance to begin
developing their own processing and marketing system.
We all know the old parable that a farmer once shared with
me: If you feed a person fish, he will eat once; if you teach a
person to fish, he will eat for the rest of his life. If we can
provide our young farmers and ranchers with appropriate
assistance, then they will have the tools to reach up the
agriculture value chain. Only when that is accomplished will
they have the ingredient that is needed to regrow and grow
again rural America.
Once again, I am pleased that the House Committee on Small
Business has the opportunity to listen to the concerns of
agriculture, America's original small business. I want to thank
again Mr. Pitts and Mr. LoBiondo and recognize Mr. Phelps also
for his consistent work and advocacy on this issue. I am
looking forward to the hearing and thank you, Mr. Chairman, for
allowing me to participate.
Chairman Pitts. Thank you, Mr. Chairman.
[Mr. Talent's statement may be found in the appendix.]
Chairman Pitts. As Mr. Talent noted, we are here today to
discuss an issue that is of great concern in the agricultural
community, the lack of young people entering production
agriculture. According to the most recent Census of
Agriculture, the average age of American farmers is 54.3 years
of age and there seems to be a shortage of young people waiting
to succeed our aging farmers as they prepare for retirement.
Unfortunately, this shortage means that many of our seasoned
farmers with decades of farming experience have fewer people to
pass on their legacy to and to benefit from their accumulated
years of agricultural experience. Older farmers who are looking
towards retirement often find their children are not interested
in taking over the family farm, or if they are interested, they
are discouraged by the difficulties inherent in the transfer of
a farm from one generation to the next.
I have many farmers in my district, the 16th Congressional
District of Pennsylvania, Chester and Lancaster Counties. These
hard-working Pennsylvania farmers farm about 560,000 acres for
a total of nearly 6,000 farms. Over the years they have given
me insight into some of the reasons why young people are more
reluctant to enter farming. Many who grew up on farms are aware
of the tax burden they will face when taking over the family
farm. In addition to onerous estate and capital gains taxes,
the lack of capital is another obstacle facing young people who
want to go into production agriculture.
There is no question that farming is a difficult lifestyle
involving long hours of work, unpredictable weather patterns,
natural disasters, and fluctuating crop prices. These
uncontrollable risks are intrinsic to agriculture and a reality
that farmers deal with daily. However, it is the other
impediments, the ones that we have the power to change, such as
taxes, regulatory barriers, global market access, that are most
discouraging to aspiring producers.
I expect that some of the witnesses here today will share
some of the same concerns as my constituents. This hearing will
allow members of the two Subcommittees to hear firsthand the
problems facing aspiring farmers in rural America and then
explore some possible solutions. I am pleased to welcome our
witnesses. We look to them for insight into the state of
agriculture today and the outlook of our changing rural
economy. Young producers like those of our first panel
represent the future of agriculture, and many are from the
congressional districts of the Members sitting on this dais. I
thank them for traveling to Washington, D.C., for this hearing
and look forward to their testimony.
Dr. Scott Brown is the program director at the Food and
Agricultural Policy Research Institute, based out of the
University of Missouri at Columbia. Mr. John Young is a farmer
from Groffton, New Hampshire. Mr. Lynn Cornwell is the Vice
President of the National Cattlemen's Beef Association and is
from Glasgow, Montana. Mr. Terry Ecker is a farmer from Elmo,
Missouri. Mr. Steve Gross is a farmer from Manchester,
Pennsylvania. Mr. Bruce Cobb is a farmer from Bridgeton, New
Jersey. Mr. Baron Johnson is a farmer from Inman, South
Carolina.
Our second panel consists of experts who will share their
experiences with programs designed to empower young farmers to
begin and sustain agricultural enterprises. Many of these
programs give hope to a generation of aspiring farmers while
providing concrete practical solutions to overcoming some of
the obstacles existing in agriculture today. I am pleased to
welcome our witnesses on the second panel, Mr. Gary Smith, who
is from my district, the executive director of the Chester
County Development Council; Mr. John Baker, from the Beginning
Farmers Center at Iowa State University; and Ms. Susan Offutt,
the Administrator of the Economic Research Service at the U.S.
Department of Agriculture. So we thank all of you for joining
us today.
Small farm and ranch enterprises are the backbone of rural
America, and it is my hope that this hearing will provide us
with useful information and recommendations about how to
sustain this strong segment of our rural economy and to
preserve the rich American tradition of production agriculture.
[Mr. Pitts' statement may be found in the appendix.]
Chairman Pitts. Now I will turn the mike over to the
distinguished Chairman of the Subcommittee on Rural
Enterprises, Business Opportunities, and Special Small Business
Problems, my friend from New Jersey Mr. LoBiondo, for his
opening comments.
Mr. LoBiondo. Thank you very much. I would like to thank my
colleagues, Congressman Pitts and Congressman Talent, for
helping to arrange this. I am absolutely thrilled to co-chair
this hearing and to have the opportunity to hear from those of
you who are in the real world of agriculture every day, to help
outline for us some of the problems. Hopefully we can share
this information with a number of our colleagues to let them
know there is a real problem, that we think it should be
emphasized so we can look to start to find solutions. And I
want to thank each of you for being here today, for taking
valuable time from your schedules to help us better understand
what you are facing on a day-to-day basis. Thank you.
Chairman Pitts. Thank you.
[Mr. LoBiondo's statement may be found in the appendix.]
Chairman Pitts. Since Mrs. Christensen, the Ranking Member
of the Rural Enterprises Subcommittee, is unable to join us
today, I would like to now turn the mike over to my friend from
Illinois, Mr. Phelps, for his opening comments.
Mr. Phelps. Thank you, Mr. Chairman, and thank all of you
for having this hearing and making it available to us, and each
and every one of the panelists for your participation today. We
appreciate your input. I know that as a member not only of the
Small Business Committee but also the Agriculture Committee, I
am pleased to be able to participate in a hearing that ties the
two together so well. It is my hope that this hearing will
allow the Small Business Committee to continue our discussion
on the future of farms and what we as the small business
community can do to help.
My congressional district covers 27 counties in central and
southern Illinois. Every one of the communities I represent is
deeply impacted when agriculture experiences tough times. These
indeed are some of the toughest in recent memory. Today's
hearing will focus on America's aging farmer population and the
implications for rural communities and the future of the family
farm. We will look at some of the roadblocks the younger
farmers face and what we can do to break down those barriers.
Some of the possibilities we will be discussing include greater
access to capital, alternative marketing strategies, estate
taxes, capital gains taxes, state and local grants, USDA
programs and the linking of the older producers with younger
producers.
Our panel this afternoon includes representatives from the
Department of Agriculture, farmers, members of the academic
research community, and farm industry representatives.
When the future of rural America is threatened, an entire
way of life is endangered. Our purpose today is to generate a
discussion about what we can do to keep our heartland alive,
help it grow and become even stronger. I would again like to
thank the Chairman for the recognizing the importance of this
issue, and I look forward to hearing the testimony of our
distinguished panelists. Thank you, Mr. Chairman.
Chairman Pitts. Thank you, Mr. Phelps.
We will now go to the witnesses. Each of you will have 5
minutes for your statements. We will use the lights for your
convenience.
Dr. Scott Brown.
STATEMENT OF D. SCOTT BROWN, PROGRAM DIRECTOR, FOOD AND
AGRICULTURE POLICY RESEARCH INSTITUTE (FAPRI)
Dr. Brown. Thank you, Mr. Chairman, for the opportunity to
appear before these Subcommittees to provide information
concerning the current state of U.S. agriculture. The Food and
Agricultural Policy Research Institute is a joint project
between the University of Missouri and Iowa State University.
Furthermore, we have formal relationships with Texas A&M
University to examine market and policy changes at the farm
level, and with the University of Arkansas to analyze the world
rice market, and with Arizona State University to examine the
fruit and vegetable sectors.
During 1999, attention continues to be focused on the
downward pressure on prices for many of the major agricultural
commodities. This is occurring at the same time that some
regions of the country have experienced severe drought
conditions, with the combination of the two putting even
greater pressure on some producers. In regards to the lower
prices, no single cause can be identified, but rather a
combination of fundamental developments in the supply and
demands of the commodities.
World grain and oilseed prices are continuing to be
pressured by large production levels that would allow stocks to
rebuild from their very tight levels of 1995 and 1996. The
higher production is due both to increased area and generally
favorable yields. In response to the strong price signals in
1995 and 1996, the area devoted to major crops has shown a
significant increase. For the 1996 to 1998 period, world wheat
area averaged 3.4 percent above the 1991 to 1994 period. A
similar story can be seen in other crops as well. Likewise,
world red meat production is 14 percent higher over the 1997 to
1999 period relative to the 1990 to 1992 period.
Coupled with increased area, world markets have also seen
generally favorable yields since 1995. World coarse grains have
seen 3 successive years of above average yields. In the past 30
years we can find only one example, the 1984 to 1987 period,
where there were as many consecutive years above trend yields.
Price pressure due to increased supplies is not isolated to
the crops markets. For livestock the most notable example is
pork. After seeing strong prices in 1996 and much of 1997, pork
producers responded with increased herds and additional
production. For 1999, pork production is expected to remain at
historically high levels. As a result the annual average price
is projected to be as much as 40 percent below the 1997 number.
Barring any major production problems, crop and livestock
prices will average substantially lower in 1999 and 2000 than
what was observed in the 1991 to 1995 period. However we must
remember that prices in those years were well above historical
levels. In addition, those prices brought increased area that,
together with good yields, resulted in more production. The
additional supplies have fallen upon a demand picture that has
been weakened as a result of the general economic problems
centered around the Asian crisis. Both additional supplies and
weak demand for agricultural commodities are responsible for
the lower prices we face today.
Our current estimate of commodity prices through 2005 shows
continued weakness in many cases. Corn prices, for example, are
expected to average $2.25 over the next 5-year period, far less
than 1996 average of $2.71. It should be noted that our
projections are conditioned on average yields that result from
normal weather patterns. If yields were to deviate from these
averages, prices would move accordingly. Wheat and soybean
prices over the same period are also expected to average far
below the 1996 level.
Pork prices are also expected to remain below historical
averages over the 2000 and 2005 period. FAPRI projects pork
prices will average slightly more than $42 per hundredweight
over the period which, would be the lowest level observed for
many years. Structural change will continue to be one of the
big drivers in the pork industry.
Other areas of agriculture are expected to see higher
prices over the next few years. The beef industry is expected
to see prices over the next 5-year period that will be near
those seen during the early 1990s. That is the result of the
cattle cycle producing less beef production.
Although many commodity prices are at low levels, 1999 U.S.
net farm income is currently expected to exceed $48 billion.
That is $4 billion higher than the 1998 level. Even though some
commodities like beef are showing higher commodity prices, the
increase in farm income expected in 1999 can be traced in large
part to increased government payments occurring as a result of
the recent agricultural appropriations bill. Farm income in
1999 is still expected to fall over $6 billion from the record
level obtained in 1996. Yet it remains above the average of the
1991 to 1995 period by over $5 billion.
One crucial point regarding the outlook for farm income is
that unless additional government payments are legislated for
2000, our current estimate of farm income would suggest a
decline of over 15 percent to near $40 billion for next year.
This decline in farm income would only add to the current
stress seen in agriculture.
While the news sounds rather bleak, and certain regions are
under tremendous stress, the U.S. agricultural economy as a
whole is still in much better shape than the early to mid-
1980s. Income levels are well above those of the earlier
period, and debt-to-asset ratios have remained at relatively
low levels.
In closing, Mr. Chairman, I would like to thank you for the
opportunity to address these Subcommittees and welcome any
questions.
Chairman Pitts. Thank you.
[Mr. Brown's statement may be found in the appendix.]
Chairman Pitts. We will proceed to all of the witnesses
before the Members ask questions.
Mr. John Young.
STATEMENT OF JOHN YOUNG, FARMER, GROFFTON, NEW HAMPSHIRE
Mr. Young. Thank you, Mr. Chairman. I am a fourth-
generation apple farmer from New England. I have been raising
apples for 37 years. My great-grandfather established orchards
in the New Haven area of Connecticut back in the 1880s. My
grandfather, father, uncles, and cousins had five separate
orchard operations covering some 600 acres. At this time only
57 acres remains with only one person making a full-time living
raising apples.
Today I will tell you a little bit about the family and why
I believe that the family farm is on a decline, at least in our
area of the country. What has happened to these five orchards?
There are 16 cousins in my generation, and only one is still
farming full time. My farm, which was the sixth owned by the
Youngs, has been downsized to the point that I raise apples
mostly as a hobby and part time.
My written testimony will give more complete details of
what has happened, but to summarize quickly, after the death of
my grandfather, the five heirs could not find a way for either
party to buy out the other. There was little or no retirement
fund set aside, so the decision was to liquidate. Low
profitability, tax laws, and inflated land values made it
impossible for the younger family members to continue. My
father's orchard as well as his brother's in New York were sold
because of a lack of interest in continuing by my brother and
the cousins of my generation. Long hours caused because of lack
of availability of farm labor at affordable rates, no guarantee
of a paycheck because of weather or low prices, the inability
to secure additional capital to expand, and the need to
liquidate assets for retirement of the older generation all
played a part in these orchards closing.
The one still being operated by my cousin has been
downsized. By downsizing he has done away with hired labor. By
selling assets he has done away with the need for bank
financing. The question is, will this orchard survive into the
next generation? It will be very difficult to pay inheritance
taxes to satisfy the two nonfarm brothers with this smaller
operation.
My orchards started in 1962, expanded from 35 acres of
orchard to over 150. We had production at over 50,000 bushels
of apples. Low profitability and the lack of available credit
to make major expansion as well as the cost of that expansion
due to the inflated land values in southern New Hampshire
forced the sale of that farm rather than passing it on to my
four sons. Of the 20 offspring in the Young family who could be
farming today, only one does it full time.
What is the state of family farms? I think that we need to
look at the size. In our area of the country, small part-time
operators, those who are not hiring outside help, are
increasing in numbers. They sell virtually 100 percent of their
product directly to the consumers, and they rely primarily on a
job off the farm to support their families. The farms that fall
into the middle categories, the medium farms, by that I mean
farms that employ anywhere from one worker to in the
neighborhood of 25, are by and large not financially viable--
they are not making it financially, and they are dipping into
assets yearly in order to stay in business.
The large family farm, and what I refer to that in the
orchard industry or in our area is one that has between 25 and
100 full-time employees, when you get to seasonality, there may
be anywhere from another 150 to 250 or 300, they may have gross
sales in the $1 million to the $5 million range. These
operations are successful. They generally are run by family
members, and each one of the family members has an area that is
their expertise: accounting, sales, or production. This group
of farms is successful as long as they don't need to hire
outside management. This is the area where more young people
are going into more than anywhere else.
Why didn't our young generation go into the farm on the
Young family? One, lack of profitability. Unlike most other
businesses, farms produce product without knowing what the
price will bring. Long hours and seasonal schedules. In our
case, the lack of available farm labor at reasonable prices
makes it virtually impossible for employers, the owners of the
farms, to work 40-hour weeks. No way to pass on the purchase of
the properties due to the Federal inheritance taxes and no
retirement benefits. Somehow the coupling of money put back
into a farm has to be woven into a retirement plan that you can
draw on the same as a person can draw on a Roth IRA.
What would I suggest to the Committee? I would suggest to
the Committee or Congress to expand the availability of
financing this, an area that is crucial. It is interesting to
note that traditionally the Farmers Home Administration has
been the Federal lender to farms. In our area the perception
that if you get a loan from the Small Business Administration,
it is a start, it is a wonderful beginning, it is positive. If
you get a loan from the Farmers Home Administration, it is the
next step to bankruptcy. It is an odd perception, but it is
quite prevalent, at least in our area.
Availability of labor. I would urge the committee and
Congress to endorse and support legislation which makes
available seasonal labor through foreign worker programs.
Changes to inheritance taxes need to be made and control of
imports. In our industry we are competing in a worldwide
market. My grandfather used to say that you only needed one
crop in three to stay in business. That was his advice to me
when I was first starting. He said, don't expect to get rich
every year, you only need one crop in three to make a living.
That isn't true anymore. If we have a crop failure in New
England generally, and a grower happens to be lucky enough to
have a good crop, and there is a chance for him to make a good
profit, the imports take over, and we immediately lose that
opportunity to make the one in three that my grandfather would
have referred to.
Fourth, I would speak to the reduction of the paperwork
burden. Government continues to pass the burden onto the
employer. We created an I-9 system which passes the job of
controlling our borders from the Immigration Service onto the
farmer. We have created a reporting process for new hires,
which is a paperwork burden that is collecting minuscule
amounts of money for the deadbeat dad program. Government
continues to pass on its job to the employer community, and the
small employers and the small farmers cannot do that.
Mr. Chairman, I thank you for the opportunity to testify,
and I will answer any questions.
Chairman Pitts. Thank you, and you can enter your full
written testimony into the record, if you would do that,
please.
[Mr. Young's statement may be found in the appendix.]
Chairman Pitts. The next witness is Mr. Lynn Cornwell, Vice
President of the National Cattlemen's Beef Association.
STATEMENT OF LYNN CORNWELL, VICE PRESIDENT, NATIONAL
CATTLEMEN'S BEEF ASSOCIATION
Mr. Cornwell. Chairman Pitts, Chairman LoBiondo, members of
the Subcommittee, thank you for the opportunity to share my
thoughts on the aging of agriculture and the factors that
currently inhibit young farmers and ranchers from entering my
profession. Those of us involved in agriculture often overlook
the important work done by this Committee to ensure the
viability of America's small businesses, and I commend all of
you for your efforts to find ways for young men and women to
succeed in the business of producing food and fiber for our
Nation and for the world.
I am Lynn Cornwell, vice president of the National
Cattlemen's Beef Association. I am a rancher from Glasgow,
Montana, third-generation, and constituent of Congressman Rick
Hill. I am excited to be here today. I am on my way back to
Montana after spending the last few days in New York City at
NCBA's beef summit, a 1-day summit held for beef marketers,
which includes retailers, food manufacturers, and food service
operators. A key aspect of our summit was to review our
industry's outlook and the economic factors that seemed to
indicate beef demand might be stabilizing for the first time in
more than 20 years.
According to the industry analysts, preliminary beef demand
data for the first three quarters of 1999 has increased 4.59
percent during the third quarter of 1999 compared to demand
during the same period last year. The rate of decline for beef
demand has been slowing since 1996, according to the Beef
Demand Index, which is calculated by leading independent
economics and industry experts using the USDA per capita beef
consumption data and the USDA choice retail beef prices
adjusted for inflation.
In short, for the first time in two decades the light at
the end of the tunnel is growing brighter for cattle men and
women. And while we are eager to tackle the challenge of
increasing demand, our industry also faces the challenge that
is the focus of today's hearing, an aging population of
agricultural producers. One needs only to review the average
age data of the past few agricultural censuses to recognize the
trend.
I am not sure there is a clear-cut solution to enable and
encourage young people to get involved in production
agriculture. But in reflecting on my own thoughts relative to
the challenges that those of us currently in the business face,
I think there are some obstacle issues that certainly pose a
risk to beginning farmers and ranchers.
First, there is a constant battle against the loss of
equity. This is due in part to lack of business opportunity and
shrinking returns on investment. While we are seeing improved
outlook on the demand side that will hopefully translate into
sustained higher market prices, the beef industry has
experienced nearly $4 billion in lost equity over the last 4
years.
As farm and ranch kids finish their education and, speaking
as a parent, hopefully become smarter, they begin to think,
``Why would I want to return to a lifestyle that requires me to
work 16 to 20 hours a day and earn a measly $1,000 a month?''
The present net return to investment in the cattle business in
my part of the country is less than 1 percent.
In many parts of the country, farm and ranch values are
doubling or tripling. In the case of ranches at least, this is
not because their income potential has substantially grown, but
because folks with the resources are willing to pay handsomely
for their own isolated corner of the world. For young people
trying to buy their way in, they must compete against those who
are not concerned with a ranch's productivity. They simply are
investing in real estate.
Speaking of estates, for young men and women facing the
prospect of inheriting the family operation, the tax
implications are horrible. Death taxes are one of the leading
causes of breakups of farms and ranches. NCBA recently
celebrated its 100th anniversary. As part of that celebration,
we recognized the industry's centennial operations. One of the
common costs and concerns of these families, not to mention the
industry's younger participants, is the prospect of buying
their heritage back from the Federal government when death hits
a loved one. Many families are forced to sell out. If the
operation happens to be located near an urban or suburban area,
the farm or ranch often ends up in the hands of the developers.
Open space is lost, habitat is lost, and, worst of all, one
more agricultural family is forced out of their business and
way of life. The death tax must go, and NCBA commends Congress
for the progress it is making in this regard.
Federal and state regulatory burdens also discourage a new
generation of producers. Issues such as endangered species,
clean water, Federal grazing, booming wildlife populations, et
cetera, all impact livestock operations. Water quality and ESA
habitat issues are reducing/removing many livestock management
options and making remaining options increasingly expensive.
Many operations are choosing to sell out to bigger, more
diverse corporate holdings.
Kids see Dad going to public meetings and having to spend
an ever increasing amount of time, energy, and resources on
private land issues in local, state, and federal forums just to
protect what he has. Forget trying to expand. It has gotten to
the point that you need to have a permit or license to do
almost anything. Young people need to see a decided decrease in
the command and control policies of this country.
Young people also face a daunting choice of opportunities
off the farm. Corporate America is recruiting hard in rural
areas to find employees that possess a strong work ethic. The
lure of salaries and benefits that corporate America can
provide is strong. Technology also contributes to the view
beyond the farm gate. The Internet brings the world much closer
to rural kids at a much earlier age and is having an impact on
their life's goals.
Mr. Chairman, I could go on and on but I think my point is
made. Agriculture needs to find ways to compete for the hearts
and minds of young people. I am grateful to you for the
opportunity to share my thoughts and look forward to working
with you on solutions that will help us achieve our mutual
goals. Thank you.
Chairman Pitts. Thank you very much, Mr. Cornwell.
[Mr. Cornwell's statement may be found in the appendix.]
Chairman Pitts. Now Mr. Terry Ecker, a farmer from Elmo,
Missouri.
STATEMENT OF TERRY ECKER, FARMER, ELMO, MISSOURI
Mr. Ecker. Thank you, Mr. Chairman. My name is Terry Ecker,
and I am a fourth-generation farmer from northwest Missouri. My
family and I raise corn, soy beans, and tend a cow-calf
operation. My farm is located about 120 miles north of Kansas
City near the town of Elmo in Nodaway County. I am testifying
on behalf of the Missouri Farm Bureau, where I am past chairman
of the State Young Farmer and Rancher Committee. I have also
served as past vice chairman of the American Farm Bureau Young
Farmer and Rancher Committee, and I am currently serving on the
Missouri Soybean Merchandising Council. I would like to thank
you for this opportunity to share my views on some of the
challenges facing younger agriculture producers. A special
thanks to Chairman Talent for his interest in agriculture and
efforts to focus on restoring profitability to family farmers.
I am 36 years old, married and college-educated. Upon
graduating from college, I spent 3 years in the agriculture
field, and then the opportunity arose for me to purchase a farm
next to my family's farm. So with the help of my father, I did
that. My father and I worked out an arrangement in which I
trade my labor for a share in his equipment. This agreement has
worked well, and today, 10 years later, my father is nearing
retirement.
My father stills owns about 60 to 70 percent of the
equipment, and at some point I will have to decide whether to
borrow the money to purchase the equipment or purchase some
other equipment. This crossroad is familiar to many young
producers. The decision is even more difficult with low
commodity prices. It is hard to seriously consider equipment
purchases with a $1.50 per bushel corn. To put this in
perspective, trading our equipment for just a new tractor and a
combine would cost about $120,000 to $150,000, and that still
wouldn't give us the latest technology.
Having said that, my reason for turning to farming has not
changed. Farming is a way of life that I love. There aren't
many occupations that allow family members to work side by
side.
Difficulties in succeeding as a young agriculture producer.
As a young producer I have made the following observations of
why it is difficult for young producers to get started. First
and foremost is capital. It has become virtually impossible to
enter production agriculture without the assistance of family
members who are already farming. Young people are long on
labor, but short on capital. I was the youngest full-time
farmer in my township 10 years ago when I started farming.
Today at the age of 36, I am still the youngest farmer in my
township.
Land availability. There is only so much land available,
and it is difficult for young producers to compete with
established producers. Rental rates may be too high to cash
flow, or younger producers are often forced to farm land that
is marginally productive.
A third area would be risk management. Young producers with
low equity could be wiped out in a single year. Risk management
is critical to younger producers who can not afford significant
income losses.
I did not expect to get rich when I started farming, but I
did expect to have a decent standard of living. Today I see my
college friends doing well in their careers. They have 40-hour
workweeks, retirement plans and health care packages. They are
buying homes, cars, and have a sense of financial security. I
see my prices going down, input cost going up, and equity
evaporating. So I often ask myself at what point do I become a
fool and should seek opportunities outside of agriculture.
Empowering producers to restore profitability. This Nation
has been blessed with a climate and a natural resource base
that allows us to feed our population and much of the world.
Yet it is disheartening to see some of the Nation's brightest
children avoiding the return to the farm. Today, given the
weakness of the U.S. farm economy, many parents are
discouraging their children from returning to the farm, farms
which have been in the family for generations. Think about it.
We don't see recruiters at colleges line up students to return
to farming.
There is no single action that will brighten the future of
the family farm, but I would encourage Congress to consider
actions that collectively could stem the tide for rural
America. Some of these are tax incentives. State and Federal
tax codes punish farmers with estate and capital gains, forcing
older farmers to retain land. Policymakers need to think
outside the box for ways to use the tax code to assist farmers.
For example, many farmers and their spouses are forced to work
at least part-time off the farm. Is there a way to possibly
provide a tax credit for a portion of this off farm income?
Adding values to commodities. Missouri now provides farmers
with a tax credit for participating in cooperative efforts that
add value to agriculture commodities. This provides an
excellent example of how we can move toward selling products
rather than commodities.
Federal loan programs. The Farm Service Agency operates
several direct loan guarantee programs that can be helpful to
farmers. Excessive paperwork and reporting requirements may be
preventing rural banks from participating in Federal assistance
programs. To this end it would be helpful for Congress to
review the requirements placed on banks to participate and
utilize FSA loan programs.
Risk management is another area. Congressional actions to
revise the Federal crop insurance program are absolutely
critical. The current program simply does not work and results
in farmers' reliance on ad hoc disaster assistance. As a farmer
I would rather have access to markets than a disaster payment.
For example, under the package recently packaged by Congress, I
will receive $4.70 an acre on some of the farmland that I farm.
This money would be better spent to help develop markets for
producers of every size.
Mr. Chairman, I spend quite a bit of time in the cab of my
tractor thinking about the future. I continue to dream of
taking over the family farm. But my fear is that the continued
low farm economy will force many young producers such as myself
to take advantages of opportunities off the farm, and from
where I sit, I hope it doesn't come to that. Thank you.
Chairman Pitts. Thank you, Mr. Ecker, for that compelling
testimony.
[Mr. Ecker's statement may be found in the appendix.]
Chairman Pitts. Now, Mr. Steve Gross, a farmer from
Manchester, Pennsylvania.
STATEMENT OF STEVE GROSS, FARMER, MANCHESTER, PENNSYLVANIA
Mr. Gross. Thank you, Mr. Chairman. First, I would like to
say it is an honor to be here, and I appreciate the opportunity
to give my testimony. I am a 31-year-old farmer from
Manchester, Pennsylvania, which is just due north of Baltimore.
My brother and I are involved in a partnership and work closely
with my father. We farm about 1,200 acres. We raise cattle and
hogs. We recently opened a store due to the declining prices we
were receiving from our cattle and our hogs. We tried to sell
our own beef and pork through our store to recapture some of
the profit which we have seen decline over the past 3 years, as
stated by some of the earlier people. The costs of--the average
price per year that we receive for our steers has gone down
every year, yet our costs have continued to rise.
There are many barriers that we face as a young agriculture
producer. One is the estate tax. My family and I worked hard to
build an operation. We paid taxes as we were building it. And
then when someone dies, we are punished again. A lot of that
land, especially in our area, the reason that it is assessed so
high is due to causes outside of agriculture, development
pressures like was stated here. Farms are stated--the estate
tax is based on what the farm is worth, and the value is raised
on outside pressures.
The capital gains ties closely into that industry. A lot of
older farmers, especially in our area, that would like to sell
some of their farmland or assets to beginning farmers have to
consider the capital gains when they sell their farms. My
brother and I, for example, were negotiating with an older
gentleman on purchasing his farm. When he figured the capital
gains cost and what he would need for his health and retirement
in case he would go into the nursing home, it made it
infeasible for both him to sell it to us and for us to afford
it.
Another dilemma I see in agriculture is the need for health
insurance deduction. People that I went to school with and
worked with professionally all have health insurance as part of
their package. They don't pay tax on that. The farmer, being
self-employed, they only get to deduct a third of our health
insurance every year. I understand that is to be phased out
over the years, but that is costing me $4,500 a year right now,
and I am only deducting a third of it. I would urge you to
think about immediate fully deductible health insurance
premiums paid by the young farmer.
Another problem that I perceive in agriculture is financial
assistance. I understand there is going to be some talk here
about aggie bonds here later. I myself looked into aggie bonds
in our State several years ago, and there is a very good
program there. However, because my father had a farm and I had
some cattle and some farming experience, I was told that I did
not qualify, which I thought was unfair.
When I look around my local community, I hear about
different industries and how--I will use Starbucks Coffee as an
example. They got low-interest money from our State and from
the county development authorities because they were going to
build in a new area and expand. Yet myself, I wasn't eligible
for that. So I looked at FHA for a loan, and as an earlier
person stated, it was one step away from bankruptcy. The
paperwork to get a low-interest loan states that you have to
first prove you have been turned down by other lending
institutions. Yet when I look at my competitors, other
industries such as Starbucks Coffee, they do not have to prove
that they have been turned down by other industries to receive
low-interest loans.
So this needs to be looked at a little bit. Instead of
providing low-interest loans to someone who is already in
trouble, maybe we should be rewarding people who have already
managed their assets properly.
Another thing that is really big in our area is farmland
preservation. However, the objective of farmland preservation
should not be just to preserve land, but to preserve farming
businesses and maintain characteristics that are ensured to
continue the economic development of farming.
Just in closing I would like to touch a little bit on the
trade issue. I spoke earlier in my testimony that I had opened
a store and we were selling our meat locally. One reason we did
that was because our local grocery store was advertising
Argentina beef and putting it on sale. From my reading and
research, they use practices there that have been outlawed and
regulated in this country for years, certain medicines and
feeding practices that we don't allow here. That ties into a
little bit of the trade issue that needs to be looked at. Yet
where is free trade necessarily fair trade? If I have
regulations and restrictions that prevent me from being the
cheapest producer of a product, of course it is going to be
produced overseas where it is cheaper.
I would like to thank you for the opportunity to testify
today.
Chairman Pitts. Thank you, Mr. Gross. Again we will enter
your whole written statement into the record.
[Mr. Gross's statement may be found in the appendix.]
Chairman Pitts. The next witness is Bruce Cobb, a farmer
from Bridgeton, New Jersey.
I would like to recognize Congressman LoBiondo.
Mr. LoBiondo. Thank you. I would like to take the
opportunity to introduce our next panel member. It is Mr. Bruce
Cobb from Shiloh, New Jersey. Bruce is in the 2nd Congressional
District, which I represent. I am pleased that he is here
today.
Bruce owns and manages ARC Greenhouses, which is located in
Shiloh, and his business is unique in that he produces
hydroponically-grown herbs and specialty grains for
professional chefs and cooks. Bruce is a member of the
Cumberland County Board of Agriculture, the New Jersey Farm
Bureau, the Agricultural Development Corporation, the
Cumberland County Community Agriculture Advisory Board. And I
would like to add that not long ago I had the opportunity to
visit and see Bruce's operation firsthand. I was both delighted
and amazed to see how innovative Bruce has been with his
operation. He is very dedicated and a committed member of our
agriculture community. I want to thank you for being here
today.
STATEMENT OF BRUCE COBB, FARMER, BRIDGETON, NEW JERSEY
Mr. Cobb. Thank you for having me. I would like to tell you
a little bit more about what we do than Mr. LoBiondo just said.
I think it would put my testimony in perspective. We are a
business that is 15 years old. It is a first-generation farm.
It is a small farm. Our revenues are between $1 and $1.5
million a year. We grow specialty lettuces. We grow with
recirculating hydroponic systems. There are four or five things
that we try to do, and that is grow in a protected environment.
We actually add sunlight. We light our greenhouses all year-
round so that we have a reliable supply week in and week out.
We schedule our crops so that we harvest daily, weekly, so that
we can have our product picked fresh to fill that day's orders.
We recirculate all of our nutrient solutions so we don't have a
negative impact on the environment. Our business philosophy in
a nutshell is just to be a consistent supplier of high-quality
product.
We employ a tremendous amount of technology. We have to
move millions of gallons of water each day. We generate all of
our own electricity. We use the hot water from the cooler
generators to heat our greenhouses. We use electricity to light
our greenhouses and run the pumps. We use hundreds of computers
that we have designed and built. Our intensive methods produce
a very high quantity of food in a very small area. For example,
our 2 acres of greenhouses in southern New Jersey produce about
the same amount as 23 acres of prime land in the Imperial
Valley.
What I have understood that we have been asked to respond
to the questions is why are not more young people attracted to
agriculture, and what can be done to attract more young people
to agriculture, and what can we do to help the people that are
in agriculture continue to be successful or make them
successful?
I think that simply the economics of the reality of farming
today keep people from entering agriculture. The ultimate
consideration from one who puts money up to go into a business
is are they going to get a fair return on their investment and
sweat equity. A typical business model today for farming, you
buy some land, you buy a tractor, and you raise some animals,
and you sell them to someone else who does the work of
packaging, marketing, and does all of the sales work. The
farmer raises a commodity and the marketer essentially picks
the price. So the marketer can always find someone else either
here or in another country willing to grow the product for
something less. That is the job of the buyer, and they do it
well. In other words, on the average, commodity farming will
always be a marginal business; therefore, young people who
decide not to enter this type of business are making a wise
decision.
I think to attract more people to agriculture, people have
to have a higher regard for agriculture in general. Then a
higher percentage of entrepreneurs would enter agriculture.
Young people start farms, software companies. Both businesses
are hard. Both require brains, motivation, luck, ability, the
whole gamut. All businesses are hard. But people don't
understand that there are somany opportunities in farming and,
therefore, aren't attracted to farming. People having attributes to run
a successful business are attracted to other types of companies. So I
think it is a communications problem.
I think it is something that you could help us out with,
and that is to get the word out that there are lots of
opportunities in farming, and the government can use your
communication and your abilities to get that word out.
There has been a lot of talk about capital. All new
businesses require capital. It takes convincing people to
obtain capital. So part of being able to run a successful
business is also being able to obtain that capital. I don't
know if we need a whole lot of programs because I believe that
a person who is capable of running a business can also get the
necessary capital because they can prove to somebody that they
are going to get a good return on their investment, not
marginal return on their investment.
The biggest thing that you can do is--the elimination of
the inheritance taxes. I think the family farm, most farming
entrepreneurs are funded by family funds. I think that is the
most important thing you can do. If you would really like to
promote agriculture entrepreneurship, then only eliminate
inheritance taxes on farms. That would really help.
I would like to hit a couple of things that you could do
for us right now. I see I am running out of time. One is the
Social Security test. We have a lot of older people that work
for us that get upset when they get their Social Security wages
cut; people that have worked for other companies for 35 years
and want to be productive a little bit more into their
lifetime, and they feel they are being cut by the government so
that they get taxed at a higher rate.
The INS. We have many workers from Mexican descent, and we
are always scared there is going to be an INS raid. We don't
want our employees lined up against the wall and quizzed. We
want them treated like the human beings that they are, and we
want to have regulations that allow us to have a good reliable
work force. So let's get these regulations for the INS so it is
off the back of the people.
Minimum wage I won't hit on. I think that we need to reduce
the wage taxes on people entering agriculture, young people
right now. They are just paying--the 15 percent on the little
bit they make is too much.
I would have one suggestion that I would like to spend a
little bit longer than I have, but that is product labeling. As
you already understand our business, we try to have a
relationship with our customer. They know where our product was
grown that they buy from us.
One of the problems right now there is no truth in
labeling. My herbs are up against somebody else's herbs, and by
reading both people's packages of herbs, you would think that
they said ``packed by,'' that implies that it was grown by, and
that is not true. Packed by and grown by. It is the person that
grew the product that has all of the sweat equity and all of
the hard work and all of the risks into that product, not the
person that bought it and packed it. They only had title for it
for a very short period of time.
So product labeling would help us with the negative effects
that the FQPA is going to have on the U.S. farmers. Product
labeling in a nutshell will help farmers with the costs
associated with FQPA; promote free trade, because people will
know what they are buying. It will educate consumers to buy
local. It will let the marketplace push down the amount of
pesticide use, and not costly regulations because people will
know that if it was grown in the United States, it has less
pesticides on it. It will increase opportunities for
entrepreneurs and attract investment in U.S. agriculture. It
will give farmers the help they need in moving from a commodity
to a brand name. It will give the farmers the power to fight
the large corporations that control the whole retail food
distribution in this country. And product labeling will benefit
all farmers and all consumers, and product labeling will
release a wave of farmer entrepreneurship in this country.
Thank you very much.
Chairman Pitts. Thank you, Mr. Cobb.
[Mr. Cobb's statement may be found in the appendix.]
Chairman Pitts. Mr. DeMint.
Mr. DeMint. Thank you, Mr. Chairman. It is my pleasure to
introduce a constituent from my district, Mr. Baron Johnson,
who has come here today from Inman, South Carolina. Mr. Johnson
is a peach, apple, and small fruits grower in my district, and
he is a fourth-generation farmer, so he knows something about
transferring of farms from one generation to the next.
South Carolina has the best peaches in the world, and Mr.
Johnson is a big part of making that happen. We thank you for
being here and look forward to your testimony, Mr. Johnson.
STATEMENT OF BARON JOHNSON, FARMER, JOHNSON BROS., INC., INMAN,
SOUTH CAROLINA
Mr. Johnson. Thank you. I want to thank you, especially
you, Mr. DeMint, for this opportunity to appear before you
today. I am a 24-year-old peach, apple, and small fruit grower
from upstate South Carolina located between Atlanta, Georgia,
and Charlotte, North Carolina. I am a fourth-generation peach
farmer, but we found it increasingly difficult to keep on doing
what my family has done for so many years. Because it is more
difficult to commercially farm peaches, we have gone from 600
acres total down to less than 200. I am attempting to diversify
by trying to start a small berry farm with blueberries,
blackberries, and raspberries. I farm peaches and apples with
my family full time and farm my berries at nights and on
weekends.
My comments today are developed with my particular farming
expertise in mind, but in talking with other people, they have
some of the same problems as I do.
A farm is just like any business with inputs and outputs.
In order to stay in business, the cash coming in has to exceed
the expenses. With peaches, the cost of all inputs has gone up
consistently year after year; however, what the farmer gets
back for his crop has not gone up in as many as 15 to 20 years.
We can't set the prices, we have to get what we are given. The
cost of land, equipment, labor and chemicals has continued to
increase, making it virtually impossible to start a new farm
from nothing.
To get into farming you either have to be born into it,
marry into it, or inherit it. A young person coming out of high
school or college wanting to start farming probably has no
collateral to put down on the loan, and that makes it difficult
to get a loan at all or at a decent interest rate.
Currently, I am paying 10 and 15 percent interest on a line
of credit and loan, which makes it very hard to pay anything
toward principal to start getting out of debt. Because it takes
3 to 5 years with tree crops to get a good first crop, you have
to have a second job that can sustain you for the first 3 to 5
years when have you zero cash flow in. In the fruit business,
we have found that you must start out small and build over
time. However, in many of the row crop operations in the State,
the narrow profit margin has accelerated the trend for those
farms to become larger to take advantage of the economies of
scale. This trend helps lower cost of production, but it makes
it even more difficult for young farmers to get started.
We produce a crop that is extremely labor-intensive. We
also live in an area that has a low unemployment rate, and we
need programs to help us gain access to additional labor
supplies at no additional cost. We don't need additional
regulations to add costs without adding any benefits. There is
enough of those already.
The agricultural economy is also increasingly dependent on
world markets and international trade. It is virtually
impossible to compete with imported crops. It seems common
sense not to import a commodity while they are fresh and in
season here to compete with our own local growers. We need
means of praising farmers and the safest food supply in the
world. We need to encourage the public to support local farms
rather than tell them if they eat fresh fruit, they will be
exposed to pesticides. The public needs to be educated about
pesticides, what they are, why we need them, and the realistic
probability of residues, and realistically how much residue it
would take to actually make somebody sick.
Let me close with a few comments that come from experience.
In commercial peach packing, the broker, freight company,
grocery store warehouse, and grocery store all make money. Why
can't the farmer make a profit? The gap between what the farmer
gets and what the grocery store gets is too big. For instance,
if the grocery store is asking $1.59 a pound, this equals $40 a
box. The farmer probably gets 40 to 45 cents a pound, which is
$10 a box. Most other countries spend 30 to 60 percent of their
disposable income on food, and we spend 10 to 12. The farmer
has got to be able to grow his product, manage his farm and
realize a profit in the end, and it is just not happening.
Federal, state, and local governments compound the
frustration that farmers feel by providing incentives for other
businesses to locate next to our farm, drive up land prices,
but will not consider the same incentive package for the start-
up of a small agricultural business. BMW came in 20 minutes
down the road from us. South Carolina Port Authority bought the
land and leased it to them for $1 a year. We can't compete with
that.
The bottom line to getting young people into agriculture
comes down to making a profit. If young people cannot find a
way to make a profit in agriculture, they will find other
professions. The net result will be the loss of thousands of
small businesses and no young people replacing these lost
farmers. If this continues to happen, we will be importing more
and more food of sources of unknown origin and unknown
production practices. Thank you.
Chairman Pitts. Thank you, Mr. Johnson, for that excellent
testimony.
[Mr. Johnson's statement may be found in the appendix.]
Chairman Pitts. We thank all of you for your testimony. It
has been extremely informative.
Now, if you will indulge the Members, we would like to ask
the panel some questions. We will limit each Member to 5
minutes per round.
I will start with a question for Dr. Brown. Dr. Brown, it
is obvious from the testimony from the panel that farm income
has been static or greatly reduced. Yet I haven't noticed my
grocery bill getting any lower. What is happening to the profit
margin that the producers are receiving? If the money isn't
going to the farmers' pocket, where is it going, and what can
be done to increase the profit margin?
Dr. Brown. One of the things that we need to look at is how
productive we have been in agriculture over the past several
years. That is one of the reasons that I do think when you look
at many agriculture commodities, the prices have remained
fairly constant. We have been very good at producing an ample
supply of food and have kept prices fairly flat in nominal
terms.
When you look at what is happening when we go to the
grocery store, yes, we do see prices over time have crept up.
Part of that can be associated with some of the additional
costs that must be borne by other players that are in that food
chain. Wages for the folks to transport that food, to put it on
the shelf, all have increased over time. So we have seen some
costs for those additional players in the system increase.
Whether or not the kinds of margins that we see in place in
some commodities today more than take care of that additional
cost is a question that should be addressed.
Chairman Pitts. Mr. Young, you mentioned off-the-farm
income, to maintain the farm. Is it often necessary for you or
your spouse to hold a second job to make ends meet? Is this a
common practice for young farmers?
Mr. Young. Well, in New England and New Hampshire, the only
segment of the agricultural industry that is increasing in
numbers are people that really earn their living off the farm,
and they are doing their agriculture, farming, as a part-time
operation, and they are doing it because they love to farm.
They can't really afford to do it, but they are really earning
their living on the outside.
Also the other component that makes that work, is that they
have taken the middleman out. They are into some niche or some
retail area in which they can deliver their product directly to
the consumer. Those are the people in our area that are
successful. The ones that are in the middle category in size of
farming are the ones that are really hurting and really
declining.
Chairman Pitts. Mr. Cornwell, you and several other
panelists mentioned estate taxes, the death tax. We have a bill
introduced in Congress that would provide for the elimination
for both estate and capital gains tax if a farm pledged to stay
in farming, if they were in a state program, or if they would
sign an affidavit that the farm would stay in farming. What is
your opinion of this type of approach for some kind of tax
relief?
Mr. Cornwell. That would be great, Mr. Chairman. I know the
National Cattlemen have worked hand in hand with a lot of
Members of this Committee to see that that gets done. We were
disappointed that we didn't get the bill signed, but at any
rate, I think that would have a direct impact on the livestock
industry. I know it would have. If those ranchers were just
allowed to stay in business, that would be great.
I will give you an example. There was a ranch that was a
neighbor to our family operation in northern Montana that sold
about 2 months ago just because the younger generation couldn't
pay--I think the ranch was valued at about $8 million. It was a
fairly large operation, and the taxes were over $3 million, and
so the people that were operating the ranch were my age, two
brothers. They liquidated the cow herd and at an auction sold
the ranch because they couldn't pay the taxes. That ranch had
an annual operating budget of about $800,000 and employed about
eight family members. So that operation is gone, and I don't
know what is going to happen to it.
Chairman Pitts. One other troubling aspect of the death
taxes is that when you liquidate assets, when you have to sell
assets to pay death taxes, there is a limit then to what you
can borrow when you have to go to the bank to borrow; is that
correct?
Mr. Cornwell. That is correct.
Chairman Pitts. Mr. Ecker, you suggest that tax credits
should be developed to aid young farmers. What are the best
structured tax incentives that would benefit young farmers, in
your opinion?
Mr. Ecker. Well, if there would be something on payroll
taxes that a spouse or the young farmer pays in connection with
his off-farm job, some type of tax credit that he could apply
fromhis off-farm job to his farm income would be one way.
Another way is, just like I mentioned, on our new generation
cooperatives in Missouri. We are now getting a tax credit. If you
invest in that cooperative, you are going to get a tax credit of 50
percent, that is what it looks like it is going to be now, of what your
investment was that you can carry forward I think it is 5 years, or you
can even carry it back a few years, which is a good benefit.
Chairman Pitts. Thank you. My time is up.
Mr. LoBiondo.
Mr. LoBiondo. Thank you. I have just a couple of questions.
We talk about the product labeling. Let me just explore that
for a moment. You were running out of time when were you
talking about that. Are you finding that beside the problem of
folks not realizing that maybe the product wasn't grown by the
people who are sort of portraying it that way--when we get into
this area of EPA and labels and the pesticides, do you find
that at this stage of the game what EPA is looking to do is
going to further hurt your ability to grow and produce?
Mr. Cobb. Absolutely. It is going to be a real detriment to
the average U.S. farmer. We try not to grow with pesticides,
but that is for a marketing thing, not because I am against
pesticides. However, buyers, their job is to buy at the best
price. They will just buy from people that are able to use
those pesticides in Mexico or Israel or wherever, and they will
get better quality, and it will be shipped in overnight. We
will not be able to play on the same playing field.
Mr. LoBiondo. So basically what would happen--correct me if
I am wrong--is that our farmers would be denied the use of
certain labels; the same chemical manufacturers here in the
United States would ship and sell those labels to Argentina,
Chile, wherever it may be; our farmers will have a difficult
time staying in business; and people will be getting more
pesticide than they would have if they were eating American-
grown food?
Mr. Cobb. That is absolutely correct.
Mr. LoBiondo. Kind of insanity, isn't it?
Thank you, Mr. Chairman.
Chairman Pitts. What would you put on the label?
Mr. Cobb. Years ago when you bought strawberries in a
quart, you knew that Mr. Jones down the street had the best
quality strawberries, so you bought Mr. Jones' strawberries. So
you should put down the name of the person that grew that
product and the farm. With the Internet, everybody has more
information nowadays. So why shouldn't they know exactly where
their product came from? They would give people real faith in
what they ate.
We are going to promote open houses. If you want to come
see our operation, you can come visit us one Saturday every
quarter. I think people would like to do that. They like to see
where their food came from.
Mr. LoBiondo. Let me just take off on that for a minute,
too. Right now nothing stops you from putting your name on your
label and selling it, but is the problem that somebody either
cross-country or down the street can, in fact, put a label on
the product that is somewhat misleading or downright
misleading?
Mr. Cobb. Absolutely. Two issues. One is where the product
was grown, and the other is improper labeling or truth in
labeling, as I will put it. A lot of packages--you can go out
and look at tomatoes. A lot of specialty things say, ``Packed
by ABC Company.'' You would think that the ABC Company was the
person that grew it, not it came from Chile.
So yes, there are two issues there. We do label all of our
products that go out the door. We think that is important. But
I think other farmers should do that as well because that
builds a strong farming industry, and that is important to me.
Mr. LoBiondo. So in our supermarkets a consumer can go into
a produce aisle and find a container that is labeled ``Packaged
by ABC Corporation'' and think that it is grown by ABC
Corporation in Hometown, USA, and actually that product could
have been imported from Argentina, Bolivia, Colombia, or
wherever it may be.
Mr. Cobb. Almost all of competitors in the herb business
you could find will say that is true.
Mr. LoBiondo. Thank you.
Chairman Pitts. Mr. DeMint.
Mr. DeMint. I will direct my question to Mr. Johnson, but I
would like comments from some of the rest of you, too.
Congress is considering raising the minimum wage. I would
just like to know if that is going to be a help to you, Mr.
Johnson.
Mr. Johnson. It is going to cut into a profit margin that
is not there now. Labor is our biggest thing. We have several
guys that stay year-round. You have to prune peach trees, thin
them, spray them. There are things to be done all year long. If
the price of labor went up, that would cause our payroll to go
up, the taxes to go up and everything. Not just that, but the
products that we buy in, they will have more in them, and they
will go up. The price of what we get back for our commodity has
not gone up in years and years. So it would not help us at all.
Mr. DeMint. Any other comments about minimum wage?
Mr. Cobb. May I respond to that? I hope you understand that
if you raise minimum wage, you reduce the number of jobs for
minimum wage for low-skilled people. That is what you do,
because as I put up greenhouses,--if the minimum wage goes up
$1, I will spend money, capital, to reduce the labor input that
I need. So the only people that lose in minimum wage jobs are
the people that you are trying to help in the first place.
Minimum wage jobs teach people. They give them the
opportunity to teach people how to show up for work everyday,
which is a skill that, unbeknownst to me, a lot of people don't
have in this world. They give people pride. They let people get
off the public welfare rolls. We have three people that are
now--have started the minimum wage job, have now moved up to
becoming U.S. citizens. They are making considerably more than
the minimum wage. If they didn't have that opportunity 5 or 6
years ago, they would not be productive citizens now.
You are hurting the people that you are trying to help. We
don't expect people to stay on minimum-wage jobs around our
place. We expect them to get trained and move on and move on up
the ladder, because that is what America is about. Any increase
in minimum wage will increase capital input, which will reduce
the number of jobs.
Mr. Cornwell. Minimum wage would have a pretty minimal
effect in the livestock industry. Most of our people are
individual family operations, and a lot of them don't hire
help. But even in the feed yards, a lot of the feed yards have
indicated to us that they don't have a lot of people at those
levels now. I would say that it would have minimal effect.
Mr. Gross. Minimum wage in my area is more of a training
wage. I do not have migrant laborers like the other two, but
high school children or people that attend my church ask for
their children to have a job on my farm when they are in high
school, 16 or 15 years of age.
The whole theory behind the minimum wage, my understanding
is that is a training wage. That essentially--not only do they
get the minimum wage, but they get a little responsibility,
learn to show up to work on time, like he referred to. They
don't stay full-time, they move on and leave my farm and go to
a college or another profession. So it would hurt me, as he
indicated. I will use more technology if minimum wage is
raised.
Mr. Young. I think, speaking from my industry in New
England, there are very few minimum wage earners in the apple
industry in the Northeast. But you can believe that if a person
is being paid $7 an hour, and minimum wage goes up 50 cents, he
is going to expect a raise. So there is going to be an effect,
but there is not going to be many people that are going to
directly receive it because they are earning the minimum wage
now.
I think it would be a significant cost that would impact
the industry, another one that we probably don't need, because
what we are trying to do is raise the bottom, and the bottom is
not who is going to be raised, but somebody significantly above
the bottom.
Mr. DeMint. Thank you, Mr. Chairman.
Chairman Pitts. Mr. Sweeney.
Mr. Sweeney. Thank you, Mr. Chairman. I want to thank you
and commend both you and Mr. LoBiondo for conducting these
hearings, and the panelists for participating with your very
compelling testimony.
I also want to apologize. I have been running in and out
because I am in the middle of a Banking Markup. It is kind of
an interesting day for me because the banking hearing is about
debt relief for foreign nations, about a billion and a half
dollars. As I sit here representing a district that is
substantially agricultural--and the hub of our economy is
really agriculture--and I go through the pain and the anguish
of the family farmers in my district every day talking about
how we overregulate, how we overtax, and the Catch-22 that you
all have done a better job talking about it than I could. It
really has an effect on you.
I would ask first if I could submit a formal statement to
the record and ask a couple of questions, if I might.
Mr. Young, I am from your part of the world. Upstate New
York is not dissimilar from New Hampshire. You spoke about the
need for family farmers to seek outside income. You said in
response to a question from Congressman Pitts that it was now
more the trend that the family farm income really wasn't from
the farm as much as it was from the outside income.
What kind of effect, and other panelists might want to
answer this as well, what kind of effect does that have on
production and on our guarantee that we are going to have fresh
viable products and produce or whatever for the areas that we
live in, or does it have an effect?
Mr. Young. Well, we are having an increase in numbers of
farms, but they are small farms. They probably won't
necessarily stay in business forever. These are not the kinds
of operations that can be passed on to family members. They are
the kinds of operations that are relying on their living, and
they are only doing it because they love farming.
It is interesting. Before we downsized my farm, and
basically I am just doing it as a hobby now, we went out and
started a travel agency so my wife would have a place to go to
work, because she had worked the 25 plus years that I had been
on the farm. Today my oldest son who was on the farm with me
manages a travel agency. My youngest son, who never actually
worked on the farm, is actually working as an agriculture
consultant for one of the grower organizations in New England.
So we are staying in agriculture to some degree, but we are
relying on income off the farm.
Mr. Sweeney. I presume when we are dealing with perishable
goods, as dairy are and other products are, it is going to have
a negative effect both for the consumer and for the community
at large to not be able to ensure that you can purchase or buy
those products freshly locally. Would you agree with that?
Mr. Young. Well, to some degree the importation of things
such as apple juice concentrate from China has taken the bottom
out of the market. Over the years when we have had crop
failures, we could generally get 4 to 5 cents a pound for juice
apples. This year the top you can get is 3\3/4\ because of the
importation of foreign concentrate.
It is very difficult to maintain an industry when we lose
the basic financial structure under it due to imports that are
coming in that are being grown differently.
Mr. Sweeney. As I believe Mr. Cobb pointed out, there are
different rules in trade policy. We could have a long
discussion on that. I will try to get to some more here. I have
a lot of them.
For Steve Gross, I just wanted to ask you, you mentioned
that you are in partnership with your brother and your parents.
Have you thought about what is going to happen to the land once
your parents retire, what the implications are? Have you done
those kind of calculations?
Mr. Gross. I can't give you the hard figures or the number,
but I will just speak from my mind. Due to the development in
our area, increasing in industry and in housing, land prices
have skyrocketed, especially in the last 10 years since I have
been out of college. We have done some preliminary estate
planning, and we have transferred some farmland. My grandfather
did transfer a farm to my brother and I, which we purchased.
However, the bulk of our family assets, which my father and
grandfather owned together, would have an assessed value in the
millions.
The estate tax from just when my grandfather passes away to
my father and mother's share, we have had some preliminary
meetings with consultants, accountants and everything, and it
is going to be about $57,000 that we have to come up with in a
year just to pay the tax after we have a funeral when my
grandfather passes away. So how are we going to transfer our
largest asset then from my mother and father to my brother and
I? We are not sure yet. There are a number of tools at our
disposal, but it is something that is going to have to be
worked at. If something would happen to them, if they were to
precede my grandfather in death, we would be in real trouble.
Mr. Sweeney. I see my time is up. I just wanted to say that
I think one of the most important things we need to do in
Congress is to get the story that each of you have told out to
America so they understand your plight as well.
Thank you, Mr. Chairman.
Chairman Pitts. Thank you.
Mr. Thune.
Mr. Thune. Thank you, Mr. Chairman and members of the
panel.
How many on the panel here participate in Federal farm
programs? A couple. If we had to look at things that we could
change in the Federal farm policy that we have today, what
would those things be, in your estimation? Mr. Ecker or Lynn,
if you want to--either way.
Mr. Ecker. When we passed Freedom to Farm Act, which I am
for Freedom to Farm Act, there were promises made that we would
open markets, regulatory reform and such along those lines, and
it really hasn't happened. I would a lot rather sell my product
for a reasonable price than receive a government payment. And
so I think that we need to look at opening our marketsand just
regulatory and tax reform, which would help lower our cost of
production so we would be more competitive with other countries.
Mr. Cornwell. Thanks, Congressman.
I think that we need to keep government involvement to a
minimum. It sends out mixed signals to a lot of producers. And
when you have support prices for a lot of commodities, it makes
a lot of lazy farmers out of some people, and it actually
guarantees some people to be in business that shouldn't be.
But I guess what I am saying is we ought to be kind of
careful on these government programs.
Mr. Thune. The reason that I ask that is there is a lot of
discussion going on. I serve on the Agriculture Committee, and
there are hearings scheduled after the first of the year which
would examine the wide range of Federal farm programs as to
what changes or improvements might be made. It seems to me at
least today that there are a lot of problems in creating
additional surpluses and it is aggravating a problem that we
already have, which further depresses prices.
I look at my area of the country, and we are predominantly
a lot of small towns. I have 200 or thereabouts towns with
fewer than 200 people. As all of those towns and the population
base shrinks, there are fewer and fewer farmers and ranchers on
the land, less population, which impacts education, which
impacts health care and all of these other things. What we are
seeing is the family farm goes by the wayside, and so does the
community that it supports. There are a lot of sociological
implications that go along with that.
But if there were things that we could do to keep young
people in farming--and some of the things that had been
mentioned, getting rid of the death tax, obviously, to allow
those operations to be passed on. But say, for example, you are
a farmer, somebody who wants to get into the business, and you
don't have the benefit of having a family that is currently
farming that can pass on that estate. What are the barriers to
entry, and what could we do to remove them?
Mr. Cornwell. The cost of capital is too high for young
farmers that want to get in the business. I think there ought
to be some kind of incentive or form of a low-interest loan or
things to good qualified borrowers that would allow people to
either expand their operations or get into the business.
Mr. Thune. To what degree--go ahead.
Mr. Gross. Farming is very unique. It is capital-intense
with little return on the investment. Terry alluded to earlier
a new combine at $120,000 or a used one, whatever, he would
only use that machine 6 or 8 weeks out of the year. If he was
going to spend that money in industry where he would run that
machine and use that $120,000 for 365 days a year and put two
or three shifts on it, it would be a lot different. So the
capital intensity is there. We need some kind of break. There
are things to do.
Mr. Thune. Let me, if I--I know, at least my understanding
is, Mr. Ecker, that you are associated in some way with value-
added-type enterprises. That to me, again, seems, from my point
of view--and where I come from, we are a long way from terminal
markets, and anything that we can do to add value to the
product along the way. What things could we do in terms of
incentives? Is there a role for us to play to encourage or
stimulate or in some way enhance value-added agricultural
opportunities out there?
Mr. Ecker. In the state of Missouri, two ethanol plants
broke ground, costing me $13,000. As a young producer I cannot
take that out of my budget. But this year the Missouri General
Assembly passed tax incentives. So if I invest this $13,000, I
am going to get $6,500 back in tax credits. Now, I can justify
that because it is reducing my costs, so therefore I am going
to gain on the other end because as I sell my corn through this
ethanol plant, I am going to get a better return on my
investment because I am going to get a value-added product sold
that way.
Mr. Thune. That is something done by the State of Missouri?
Mr. Ecker. Yes.
Mr. Thune. If I might have one additional question, and Dr.
Brown, this might be a question to you, too, or others who
would care to comment on this. One of the things that people in
my region of the country are honing in on right now, in terms
of the issues that are impacting agriculture, is the whole
issue of concentration. And to what degree does--those of you
who sell your products, you have fewer and fewer buyers, it
seems like, at every level up the chain. What is your
assessment as to what degree that impacts the future prosperity
of agriculture?
Dr. Brown. I think we are going to see a lot of debate
about concentration in the coming year. We at FAPRI, as you may
know, are in the business to try to evaluate alternative
policies. We will stand ready if there is any kind of movement
to curb concentration or so forth to try to help to analyze
what that may mean to producers. Take hogs, for example. A lot
of these smaller mid-sized producers are going to continue to
find markets very hard to come by. This concentration is going
to make those markets even less available than they are today.
So one of the things that producers are going to have to look
at very hard is where the market will be a year or two down the
road. Ten years ago I may have had three or four options of
where I am going to sell my hogs. Today I may have one. We want
to make certain that producers are in the position that 2 or 3
years down the road, those markets are still there.
Mr. Cobb. May I respond to that as well? I was just reading
on the front page of The Packer or The Produce News that eight
companies, food distribution companies, Safeway one of the
examples, eight of those people now control 40 percent of the
distribution, retail food distribution, in this country.
Product labeling will help the farmer have some power
against the buyer because right now the extra job is to get it
at the lowest price. If we can't get our name to the consumer
and we have that roadblock in front of us, we will never make
it. It will not be possible.
Mr. Thune. I appreciate all of your answers. I think it is
true, whether it is grain buyers or meat packers or whatever,
there are fewer and fewer. That does limit your options, and
ultimately it has a direct impact on price.
Incidently, I am very much in favor of your idea about
labeling. It certainly applies to products that come in my
region of the country, and I am sure Mr. Cornwell would agree
that beef would be a good idea to help market our product there
as well. Thank you for your answers.
Mr. Cornwell. Price reporting is going to help, too.
Mr. Thune. Right, and we have made some progress on that.
Thank you, Mr. Chairman.
Chairman Pitts. Thank you.
Mr. Moore.
Mr. Moore. Thank you, Mr. Chairman.
I want to apologize to the Committee and to the panel
members. I was, and, in fact, I am still, in a Banking
Committee hearing. I have been involved in their markup, and I
just came in.
I did want to ask Mr. Gross a question or two. I have
reviewed your written testimony, sir. You indicate the primary
issue that always comes to mind is the need to eliminate estate
taxes. You say in your written testimony, death tax elimination
is the Farm Bureau's top tax priority. Is that correct, sir?
Mr. Gross. Yes.
Mr. Moore. If elimination of death taxes is not in the
immediate future, not in the foreseeable future at least, would
you be interested in legislation that would increase the tax
credit, say, from $675,000 to $3 million? Would that be
helpful?
Mr. Gross. Yes, but we would like it to be generated
towards the family farms. There is some room for negotiation in
there. Credit should be given to people like myself or Mr.
Ecker, who are helping the family farm generate that farm,
build the assets, as maybe opposed to all farm heirs--have
other jobs.
Like, for example, I have a sister who is a doctor. She has
stated that she would not be interested in our farm and the
assets. However--so if the assets were passed to her,--the
estate tax could apply. If it stays into farming, then I would
support that, yes.
Mr. Moore. But your indication is through your written
testimony that you wanted the estate tax itself eliminated?
Mr. Gross. Yes, I think so, yes.
Mr. Moore. But you would be generally supportive of a bill
that would increase a credit, say, to $3 million. Wouldn't that
cover the great majority of farmers in this country, don't you
think?
Mr. Gross. Yes.
Mr. Moore. And small business as well?
Mr. Gross. Yes.
Mr. Moore. I have a bill that does that. I may send you a
copy of that. Thank you.
Chairman Pitts. I can't resist this question. If you were
faced with a bill that would raise the minimum wage by $1 over
3 years, but in that bill also you would repeal the death tax
and have 100 percent deductibility for health insurance, how
would you vote? Anybody care to comment?
Mr. Gross. I would probably vote in favor of it.
Mr. Thune. Is the Chairman looking for suggestions?
Chairman Pitts. You have been an excellent panel. We thank
you for your testimony. We would like to stay here and continue
with questions, but we have another panel. Thank you very much
for your testimony. If you would submit your written comments,
we will enter them into the record.
I would like to call the second panel to testify. Before
turning the chair over to Mr. LoBiondo, I would like to
introduce the first witness. Our second panel is composed of
Mr. Gary Smith, Ms. Susan Offutt, and John Baker. John Baker is
from the Iowa Beginning Farmer Center. Susan Offutt is the
Administrator of the Economic Research Service for the U.S.
Department of Agriculture.
The first witness I want to introduce is one of my
constituents, Mr. Gary Smith. He is the executive director of
the Chester County Development Council. I think that he has
served in that position for about 24 years. The Chester County
Development Council is a private nonprofit economic development
organization in Chester County, Pennsylvania. He is a cattle
farmer. He has a great deal of experience and expertise. I
worked with him for many years when I was in the State
legislature.
It is a real pleasure, Gary, to welcome you. At this time
if you would make your statement, and I will turn the chair
over to Chairman LoBiondo.
STATEMENT OF GARY SMITH, EXECUTIVE DIRECTOR, CHESTER COUNTY
DEVELOPMENT COUNCIL
Mr. Smith. Thank you, Mr. Chairman. Good afternoon,
Chairman Pitts and also Chairman LoBiondo and members of
the Joint Subcommittee. It is certainly a privilege to be here
this afternoon to give you some thoughts and reflections about
this important issue here facing this country.
My name is Gary Smith. I am Executive Director of the
Chester County Development Council. We are a nonprofit
organization that serves the economic development needs for
Chester County, Pennsylvania, for the past 40 years. I have had
the privilege of serving as the executive director for 24 of
those years and during my tenure have been able to watch a lot
of corporate investment come throughout Chester County. I have
also been chagrined that economic development as a profession,
which I practice on a daily basis, often fails to consider
agricultural development as an integral part of our economy.
On a personal note, I have been born and raised on our
family farm on 111 acres in West Bradford Township, Chester
County. My father was a fourth-generation dairy farmer that
immigrated here from northern Ireland. We successfully manage
today a registered Holstein cattle herd for many years and
until my father passed away 14 years ago, at which time I have
managed to maintain a registered herd, polled Hereford cow-calf
operation, a purebred herd of 50 animals, and also raise
various crops on our family farm, and continued my occupation
off the farm as well.
I have been involved in creating and sitting on many
agricultural organizations that support and enhance the
profession of farming within our suburban marketplace. I also
have had the unique experience to draw on since I work with
both the economic development and agricultural development
community on a daily basis. I want to bring to you this morning
or this afternoon a few of my personal commitments and passions
that have drawn this committee together in looking at the
future of farming within this country.
I believe that we need to integrate economic development
and agricultural preservation to be incorporated into a
seamless process. Managing the affairs of our organization of
12 members, staff members and operating budget of 1 million
dollars, completely supported by the private sector, I have
observed that our profession in the general sense of the word
provides an abundance of economic development services to a
wide array of companies that are dotted across our landscape.
Unfortunately, agriculture has been perceived merely as open
space within the growing suburban community. Many public
policymakers have considered sound preservation programs in
order to preserve open space, i.e., farming; however no one is
paying any attention to preserve the occupation, the
livelihood, and the professional development of the farmer.
Chairman Pitts, you and your like-minded colleagues have
shown tremendous leadership capabilities as an ally of farming,
particularly in the area of estate planning and reforms that
minimize inheritance taxes which have been imposed upon passing
on family farms. This has been a significant step in the right
direction towards maintaining stability and continuity in
preserving the family farms.
Farming is a business. I emphasize it is a business. It is
a business without walls. Unlike the corner gas station or the
office building or the industrial factory, it functions as an
economic unit within itself with certain fixed costs as well as
variable costs that are beyond the farm entrepreneurs' control.
We need to deliver a system here in this country that is more
attuned to helping a farmer with technology improvements, with
production improvements, and with succession planning as a
consequence. We in Chester County propose to establish an
agriculture development council initiative as our response to
this need.
Since I have been personally burdened with the farm issues
for many, many years, I have attempted to create new loan
initiatives, particularly for Pennsylvania farmers. I currently
administer over 26 different low-interest loan programs for
businesses and industries throughout our service area. There
are no loan programs available for farmers in Pennsylvania, as
Mr. Gross, a farmer witness, here indicated. With this in mind,
I became aware of existing Federal legislation that also would
enable Pennsylvania to create new loan programs and take
advantage of programs which other States have taken control of.
I began writing editorials in farm journals to get the
attention of our Ridge administration, and to his credit,
unlike the three previous administrations which had deaf ears
to farming in Pennsylvania, the Ridge administration was truly
open-minded. They invited me to come and convince senior
policymakers that there was actually a need to create a new
program. Now Pennsylvania is proud to offer the Next Generation
Farm Loan Program, which is being marketed throughout the
Commonwealth. I am proud to say that we have many projects that
are being used or are using this program.
Allow me to update you on farming as we experience it here
in Pennsylvania. Farming is the number one industry in
Pennsylvania. Agriculture in southeast Pennsylvania, where
Chester County is located, is tremendously productive, growing
42 percent of the State's market value on 23 percent of the
State's farms, 16 percent of the State's farmlands. Chester
County is number two in agricultural production after Lancaster
County, which is also part of Congressman Pitts' constituency.
Unfortunately, Chester County as well as Pennsylvania as a
whole has twice as many farm operators over the age of 70 than
under the age of 35. Since Chester County farms cover about
175,000 acres or about 36 percent of the land area of our
county, it has an amassed revenue base of $342 million,
according to USDA statistics. Despite the importance of
agriculture in the region, we are losing farms and farmlands at
an alarming rate. From 1960 to 1992, the region lost 28 percent
of its farms, and total farm acreage declined by 21 percent.
Chester County is losing over 8 acres a day in farm ground.
It is clear that a set of interrelated barriers are at work
to adversely affect the viability of agriculture. They include
the following: One, the shortage of beginning farmers to
replace retirees; two, the increasing valuation of farmlands
for nonfarming purposes; three, the increasing inability of
farmers to attract low-interest guaranteed loans; and the
difficulties with intergenerational farm transfers; five, the
decline in beginning farmers with the technological knowledge
to succeed economically and commercially.
Given these factors, there are three new initiatives we
would like to talk about: One, the loan issues. Expand the
funding which is a vitally important issue; two, to permit Farm
Service Agency guarantees on aggie bonds; three, exempt aggie
bonds from the volume cap on industrial development bonds.
Also, there are some other issues I want to talk about, but
I have written testimony to provide you this, farm succession
issues which we need: One, provide concerted assistance to
retiring farmers to facilitate transfer of farms; two, to
encourage collaboration among farmland preservation
organizations and agricultural development agencies that
benefit beginning farmers; and we are looking at beginning
farmers skills issues, sponsor programs that provide beginning
farmers with prerequisite skills.
Today I would like to conclude my comments by just
suggesting the following. I would like to say in conclusion I
contend that young farmers need to be encouraged to examine a
range of succession strategies as they seek the continuation of
their farm business, strategies that consider less capital-
intensive farming practices and more communication among
partners upon marketing opportunities, ongoing skill
acquisitions, and better low-interest loan guarantee programs.
Thank you for the opportunity and thank you so much for the
commitment to the future of young farmers in this country.
[Mr. Smith's statement may be found in the appendix.]
Mr. LoBiondo [presiding]. We want to thank you very much
for your testimony, and all of your written testimony will be
submitted for the record.
Next we welcome John Baker, Iowa Beginning Farmer Center.
John, thank you for being here.
STATEMENT OF JOHN BAKER, IOWA BEGINNING FARMERS CENTER
Mr. Baker. Thank you. Honorable Members of the House, it is
indeed a privilege and an honor to appear before you today, and
I want to thank you for it. I am an attorney, and I work for
Iowa State University. I work for the Extension Service. I am
the staff attorney at Iowa Concern Hotline, which is an
information and referral hotline open to all Iowans. I answer
the legal questions that come in. I am also the administrator
of the Beginning Farmer Center, which is a legislatively-
created center to look at the issues surrounding helping young
people get into agriculture. It was created in 1994. It was the
first beginning farmer center in the Nation. Other States have
had some success in passing out legislation. And it was funded
by the Iowa Legislature.
In addition to my duties, I am also the coordinator for the
National Farm Transition Network. It is a network of some 20
organizations. The purpose of the network is to support
programs that foster the next generation of farmers and
ranchers. We cover about 25 different States. There is a
program in Pennsylvania, the Pennsylvania Farm Link, that has
been in existence for several years that is a member of the
national network.
I believe the most important question facing American
agriculture today is whether or not there will be another
generation of independently owned and operated farms and
ranches. We will solve the problem that we have in the farm
economy. We always have, and we will again. But if we only
solve that problem for the immediate short term, and we don't
look to the next generation, I would argue that we have
accomplished very little.
I think this is an issue that is coming to the fore, and it
is being recognized by many American farmers. Certainly in Iowa
we have had an increase in the average age of farmers with a
decrease in the number of farmers. In 1980, we had about
120,000 farms. We are down to about 96,000, and there is some
estimate that we will lose about another 6,000 within the next
1 to 2 years. So it is a big issue.
I would also like to commend to you an article written by a
farm wife, Ms. Allison Berryhill. I provided that in my written
material to you. It was in the Sunday Des Moines Register. It
was called ``In Consideration of Farming.'' She concluded, she
lamented the fact that her children probably won't farm. She
related the tale of a number of farmers in their community,
nearAtlantic, Iowa, in southwest Iowa, who are no longer
farming. She wound up this poignant article with a statement that said,
``We are still farming the land, but we have altered our production. I
don't think we are raising farmers anymore.''
[The information may be found in the appendix.]
Mr. Baker. I think that is something that many farmers feel
today.
The Beginning Farmer Center is engaged in a variety of
activities to assist beginning farmers. We conduct seminars
around the State. We have developed a Farm Savvy manual. I have
provided you with an outline of that manual. We have done
research into issues surrounding farm business succession
plans, and we are going to in January of next year start a
longitudinal study of several hundred Iowa farmers about their
farm business succession planning, and if funds can be found,
we hope to replicate that study all across the Nation.
I work more on the micro level with existing farmers,
trying to figure out how to bring people into their farm
businesses. So I would like to spend a little bit of my time
talking about that, and then I would also like to make a few
recommendations.
I think there are several issues barriers facing young
farmers. I think number one is the insufficient farm exit
strategies of existing farmers. I have the opportunity to put
on several seminars every year on farm business estate planning
and business succession planning. The average age of the people
that show up at those are probably 60 plus years old, and they
have no estate plan and no business succession plan.
The other phenomenon that I see out there is called
``farmer boy.'' Farmer boy is that 55-year-old farmer who has
no managerial authority on the family farm, that is still under
the control and ownership of the 80-year-old father.
So those are the kinds of exit strategies: Insufficient
entry strategy; two, overreliance on borrowing money to buy
your way into farming. If you want to get into farming quick,
borrow a lot of money, and if you want to get out of farming
quick, borrow a lot of money; three, difficulty in obtaining
appropriate financial, managerial, and production assistance;
four, lack of community support. As my previous speaker Mr.
Smith mentioned, we don't look at agriculture as an economic
opportunity; five, difficulty in identifying entry points into
farming unless, as one of the previous speakers said, you are
born into it; six, the inability to acquire capital. At least
in Iowa we still have a very active agriculture lending in our
banks.
If I may be so bold, I would recommend to you several
different recommendations. Unlike some of the previous
speakers, these will not deal with Federal gift and estate tax,
nor with capital gains tax. They deal with the income tax. In
Iowa we have a standing joke that an Iowa farmer would rather
die than pay taxes, so they do. And we don't bring young people
in. I think that we could use the Income Tax Code to incent
that. For instance, we could provide a $20,000 income tax
credit on the first $20,000 of income for the lease or sale--or
lease of farm business assets to a beginning farmer; likewise,
a tax credit to the beginning farmer.
In terms of value-retained or value-added closely held
enterprises, I think we should provide low-interest loans or
no-interest loans to them, provided they make an opportunity
for a young farmer.
Finally, I think that it would be appropriate for the USDA
to provide matching grant funds to organizations such as Farm
Link of Pennsylvania or the Beginning Farmer Center or any of
these other programs to help link aspiring beginning farmers
with landowners, farmers, and ranchers.
Thank you for your attention to my remarks, and I would be
happy to answer any questions.
Mr. LoBiondo. Thank you very much.
[Mr. Baker's statement may be found in the appendix.]
Mr. LoBiondo. Since the vote is in progress, we are going
to have to take a recess. Our best guess is that we have
probably three votes. I apologize for the delay. This is
something that is sort of out of our control, but we will be
back as soon as we can.
[Recess--4:25 p.m.]
Mr. LoBiondo [presiding]. All right. We will come back to
order and, once again, apologies for some of these things are
out of our control.
Next we will hear from Susan Offutt who is the
administrator for Economic Research Service for the U.S.
Department of Agriculture. Welcome.
STATEMENT OF SUSAN OFFUTT, ADMINISTRATOR, ECONOMIC RESEARCH
SERVICE, U.S. DEPARTMENT OF AGRICULTURE
Ms. Offutt. Thank you, Mr. Chairman. I am pleased to be
here today, to discuss the aging of agriculture and the
participation of young producers in farming.
One of the most remarkable trends in the United States has
been its transformation from a largely agrarian society with a
third of the population living on farms in the 1920s to a
highly urbanized society today with fewer than 2 percent of the
population on farms.
At the same time farm numbers have declined by two-thirds,
the remaining farm population is slowly aging. The most recent
agricultural census determined the average age of farmers to be
54.3 years. Because such findings may lead to speculation about
the future of farming in America, it is useful to look more
closely at those who farm, those who wish to farm, and to try
to understand the reasons people enter and leave farming.
Over the past 4 decades, the average age of American
farmers has crept up from 51.3 years in 1964. Today's farmer,
at age 54, is about the same age as most self-employed small
businessmen in the U.S. The average age has risen over time as
farmers have decided to work longer, reflecting the fact that,
like the rest of the U.S. population, they are healthier longer
than their counterparts decades ago. The average age also rises
as the composition of the farm population changes, with
relatively fewer young people than in the past.
It is also the case that the agricultural census data,
which are the numbers that the committees had access to,
overstates the average age of the farmers. The census counts
one operator per farm, usually the eldest member of a farming
family. So a father, aged 60, would be counted as the farmer,
the farm operator; but his son, perhaps 36 years old, expecting
to take over the farm, would not be counted in the census at
all. That is appropriate since it is a farm census, not a
population census, but it does lead to the exclusion of this
younger group of people who are full-time farmers in the
calculation of the average. So farmers appear older than they
probably are.
The next census is going to count everybody on the farm; I
can report that to you. But it is the case that the number of
young entrants has fallen over time. About 10 years ago about
70,000 people entered farming--not all of them young, by the
way--and today probably 60,000 do every year.
And as I said, there are probably more people, young
people, in farming than the numbers show. We know this because
the Department of Labor that collects data on participation in
the labor force finds that many more people report that their
full-time occupation as farming than USDA counts as farm
operators. So we don't know exactly the size of that
difference, but itseems likely that at least some of them are
this next generation of farming. They are not lost to us, we are just
trying to count them in a different way.
But still it is the case that the traditional pool of new
entrants into farming, white males in their 20s who grew up on
farms, is declining. It was about three-quarters of a million
people in 1990; it is probably down to about 365,000-some
today. And of course this shrinkage is due to the fact that
there are fewer farms; but also, like everybody else in the
economy, farm families have fewer children, so the pool is
smaller. But even so, the typical path to farming is entry
through the family farm business which was mainly the point of
the discussions today.
But there is an alternative path called the agricultural
ladder in which--people work on farms, become tenants, and then
turn into owner-operators. There is reason to suspect that path
to farm participation in farming may make a comeback because of
the increase in minority farmers. The census counted about a 10
percent increase in minority farmers over the last one, that
brings their numbers to about 50,000 and they tend to enter
farming by starting as hired labor on a farm.
The net result of entry and exit into the farm sector over
the decades has, of course, been fewer farmers, although the
total number has appeared to stabilized; it is about 2 million
over the last two censuses. What has generally happened is that
several farmers are replaced by one more productive farmer.
That is one farmer who produces as much as the others, but with
lower labor input, just his own.
Increases in labor productivity have been rapid enough to
maintain farm output in the face of these fairly steep declines
in the number of farmers. So what that means is that changes in
the age composition of the farm population, or its overall
size, have not and will likely not have adverse implications
for the Nation's food security. There will always be, we
believe, enough farmers to produce what we need to eat.
However, it is the case that these shifts in the nature and
the age distribution of the farm population raise concerns
about the structure and composition of farm and rural
communities. Let me just briefly talk a little bit about the
barriers to entry into farming.
You heard a lot about barriers in the first panel and I
think the story is familiar, but I want to emphasize the
relative attractiveness of farm versus nonfarm earnings when a
young person decides what profession to undertake. When the
nonfarm economy is robust, as it has been for the past 10
years, young people opt for higher but also more stable nonfarm
income and employment. That may be particularly true in
traditional farming regions in the U.S. and the Upper Midwest,
in the Plains, where the populations tend to be highly
educated. When the economy puts a premium on highly skilled
labor, those who are more educated do better. And it seems
likely in the past decade that has been an added inducement for
people to choose off-farm employment over farm employment.
But it is also true that good times in the off-farm economy
may actually encourage entry into farming. That is because farm
families, like most families in the U.S., have two earners. So
it may be the case that when a couple is confident about their
ability to earn off-farm, they feel they can take on the risk
of having one of the earners be a farm operator.
So the impact of the farm economy versus the nonfarm
economy can cut both ways. But once you decide you want to be a
farmer, that is not the end of it. As we heard, access to
capital is the largest barrier. Farm businesses have relatively
high capital requirements. The estimate is, it takes about a
half a million dollars in assets to support a farm household.
That is a lot of capital.
Where do you get it? You can use your own, it comes from
your family, you can have it provided by others, or you can
borrow it. Up to this point you have heard mostly from people
who enter farming with their own capital; that is, it is
transferred to them through their family, and those are the
kinds of farmers that tend to survive and, not surprisingly, do
better early on.
There is another class of people, though, who don't have
very much, if any, of their own capital for farming and they
have to borrow it or they have to try and acquire it in other
ways by leasing land, for example, or machinery, but otherwise
get access. Borrowing is probably the familiar route, but there
are other ways to get one's hands on the level of assets needed
to be successful in farming these days. But there are
considerably fewer people who enter farming with low levels of
assets, so that is pretty good evidence that it is a
significant barrier to entry.
We have already had discussion about the influence of
federal and state policies on the entry of young people into
farming. The Taxpayer Relief Act of 1997 was, in fact, a
significant event. Our analysis shows that the changes do
indeed make it easier to transfer the family farm across
generations by reducing the likelihood that the farm or some of
its assets will need to be sold to pay State taxes. That law
probably reduced by about 40 percent the number of farmers who
even had to worry about filing for estate tax. So it did
already have a significant effect on the burden of inheritance
taxes, although it but by no means reduced it to zero.
These people who enter farming without capital from their
family very often have sources of credit from Federal lending.
The Farm Service Agency under the Agricultural Credit
Improvement Act of 1992 created a beginning farmer down payment
farm ownership loan program, and it required the agency to
target a percentage of its farm operating and ownership loans
to beginning farmers and ranchers.
Over the last 5 years FSA has in fact provided loans
totalling $2.5 billion to more than 34,000 beginning farmers
and ranchers and in many regions of the country that is a
quarter of all small farmers in the region. So these FSA loans
reach a large audience. And in addition to the subsidized
Federal loans that you heard about, aggie bonds are then used
to underwrite subsidized State loans.
The Secretary, under the 1992 act, has an advisory
committee on beginning farmers, and they reported to him and he
is considering their recommendations which go to changes in tax
law and pick up many of the themes that you heard from your
first panel.
Thank you. I would be happy to answer questions.
[Ms. Offutt's statement may be found in the appendix.]
Mr. LoBiondo. I think Mr. Congressman Phelps has a few
questions. I just have one very quick question for both of you.
And let me say that the other members of the Committee will be
submitting questions in writing because of the way our schedule
got so messed up here today.
But if I could ask you, What is the one most important
thing that we as a Congress, as Washington, could do for the ag
community?
Mr. Baker. In my opinion, it would be to take a look at the
Federal income tax code and use income tax incentives to bring
a younger person into a farming business at an early point.
I get the opportunity to put on farm and estate and
business planning seminars, and the majority of people that
come to those seminars are 65 or older. They have no business
cessation plan, no escape plan. The way most Iowa farmers get
out of farming, they made that decision within the last week
because the harvest is over and they want to be out by March.
They spent 40 years building a business and they want to spend
4 months moving it. It just doesn't happen.
And the income tax code, in my opinion, would incent people
to bring that labor, that young person into the business at an
early point and cause that transition to take place over a
period oftime. All of the statistics and studies show that
small businesses, the sooner you transfer the management, the better
the likelihood that the business will succeed to the next generation;
and when you have the 70-year-old farmer that has turned over no
managerial control to his son, there is a very high probability that
that farm business will go out of existence.
Mr. LoBiondo. Thank you. Do you have an opinion on that?
Ms. Offutt. The research we do, which is based on national
research about farmers, shows that compared to the 1930s, the
circumstances of farming today are so diverse and so varied
that there probably is no one thing that will help everyone.
Mr. LoBiondo. That is fair.
Ms. Offutt. I don't mean that to be a nonanswer.
Mr. LoBiondo. That is okay.
Congressman Phelps.
Mr. Phelps. Sorry I had to leave early on, and it is just
one of those days. In looking at your testimony, I guess try to
sum up concern of what both of you said--try, and in one
question, it looks like the large-scale industrialized
agricultural movement trends of consolidation and those sorts
of things are--I don't know what your study or recommendations
or impact showed about the whole rural setting, the problems
that for every job loss and farm we have, there are those small
businesses that are impacted, which I think makes it so
appropriate for us to talk about this in the same setting.
Do you think the economy of farming will be affected?
I know you, Ms. Offutt, you mentioned in your statement
about the productivity and the food is still going to be
available; but it seems like, if this trend continues, we are
going to see impact on rural life even being more depressed.
What is your estimation of what you found in your studies?
Ms. Offutt. Well, as I said, the census this time showed
that the total number of farms today in the U.S. is about the
same as it was 5 years ago. That is really the first time in
decades that we have seen a level--leveling off of the decrease
in the total number of farms.
Now, a very small percentage of those farms produce most of
what we eat, as you said. But a lot of other people are
involved in farming for a diversity of reasons, but they are
successful, and not in the sense that they are all big
corporations who are sending food overseas, but because they
found ways to be successful where they live and in the
communities where they live.
I will leave for you an article in a periodical we just
published today about what makes small farms successful in
every region in the country. There are ways to help people
succeed on their own terms that will keep them farming on the
land.
Mr. Phelps. And, Mr. Baker, I know that you have covered
your experience in your State and what you supervise on farm
and other features along that theme. It looks like you have to
take into account how--the blending of entering and exiting the
occupation in terms of what is happening today. So how is the
transfer to the farm in the financial picture arranged?
Mr. LoBiondo. Excuse me for just a minute, Congressman, we
have two options here quickly. We are either going to have the
option of asking you all to wait while we go vote again or we
can adjourn the hearing and submit questions in writing.
Mr. Phelps. I think they have waited long enough.
Mr. LoBiondo. If it is okay with you, Congressman Phelps,
we will submit the question in writing and ask for a written
response, so we don't hold our panel members up anymore.
Without objection, I will leave the record open for 5
legislative days.
And with that, I want to thank you very much, and this
hearing is adjourned.
[Whereupon, at 4:44 p.m., the subcommittees were
adjourned.]
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