[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]
HEARING TO REVIEW THE STATE OF THE POULTRY INDUSTRY
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON
LIVESTOCK, DAIRY, AND POULTRY
OF THE
COMMITTEE ON AGRICULTURE
HOUSE OF REPRESENTATIVES
ONE HUNDRED TWELFTH CONGRESS
FIRST SESSION
__________
APRIL 13, 2011
__________
Serial No. 112-11
Printed for the use of the Committee on Agriculture
agriculture.house.gov
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COMMITTEE ON AGRICULTURE
FRANK D. LUCAS, Oklahoma, Chairman
BOB GOODLATTE, Virginia, COLLIN C. PETERSON, Minnesota,
Vice Chairman Ranking Minority Member
TIMOTHY V. JOHNSON, Illinois TIM HOLDEN, Pennsylvania
STEVE KING, Iowa MIKE McINTYRE, North Carolina
RANDY NEUGEBAUER, Texas LEONARD L. BOSWELL, Iowa
K. MICHAEL CONAWAY, Texas JOE BACA, California
JEFF FORTENBERRY, Nebraska DENNIS A. CARDOZA, California
JEAN SCHMIDT, Ohio DAVID SCOTT, Georgia
GLENN THOMPSON, Pennsylvania HENRY CUELLAR, Texas
THOMAS J. ROONEY, Florida JIM COSTA, California
MARLIN A. STUTZMAN, Indiana TIMOTHY J. WALZ, Minnesota
BOB GIBBS, Ohio KURT SCHRADER, Oregon
AUSTIN SCOTT, Georgia LARRY KISSELL, North Carolina
STEPHEN LEE FINCHER, Tennessee WILLIAM L. OWENS, New York
SCOTT R. TIPTON, Colorado CHELLIE PINGREE, Maine
STEVE SOUTHERLAND II, Florida JOE COURTNEY, Connecticut
ERIC A. ``RICK'' CRAWFORD, Arkansas PETER WELCH, Vermont
MARTHA ROBY, Alabama MARCIA L. FUDGE, Ohio
TIM HUELSKAMP, Kansas GREGORIO KILILI CAMACHO SABLAN,
SCOTT DesJARLAIS, Tennessee Northern Mariana Islands
RENEE L. ELLMERS, North Carolina TERRI A. SEWELL, Alabama
CHRISTOPHER P. GIBSON, New York JAMES P. McGOVERN, Massachusetts
RANDY HULTGREN, Illinois
VICKY HARTZLER, Missouri
ROBERT T. SCHILLING, Illinois
REID J. RIBBLE, Wisconsin
______
Professional Staff
Nicole Scott, Staff Director
Kevin J. Kramp, Chief Counsel
Tamara Hinton, Communications Director
Robert L. Larew, Minority Staff Director
______
Subcommittee on Livestock, Dairy, and Poultry
THOMAS J. ROONEY, Florida, Chairman
BOB GOODLATTE, Virginia DENNIS A. CARDOZA, California,
STEVE KING, Iowa Ranking Minority Member
RANDY NEUGEBAUER, Texas DAVID SCOTT, Georgia
K. MICHAEL CONAWAY, Texas JOE COURTNEY, Connecticut
STEPHEN LEE FINCHER, Tennessee TIM HOLDEN, Pennsylvania
TIM HUELSKAMP, Kansas LEONARD L. BOSWELL, Iowa
SCOTT DesJARLAIS, Tennessee JOE BACA, California
CHRISTOPHER P. GIBSON, New York KURT SCHRADER, Oregon
REID J. RIBBLE, Wisconsin WILLIAM L. OWENS, New York
Michelle Weber, Subcommittee Staff Director
(ii)
C O N T E N T S
----------
Page
Cardoza, Hon. Dennis A., a Representative in Congress from
California, opening statement.................................. 2
Goodlatte, Hon. Bob, a Representative in Congress from Virginia,
opening statement.............................................. 3
Rooney, Hon. Thomas J., a Representative in Congress from
Florida, opening statement..................................... 1
Prepared statement........................................... 2
Witnesses
King, Daniel M., Owner/Operator, Zenda Poultry LLC and Zenda View
Farm LLC, Harrisonburg, VA; on behalf of Virginia Poultry
Federation..................................................... 4
Prepared statement........................................... 5
Welch, Michael A., President and Chief Executive Officer,
Harrison Poultry, Inc., Bethlehem, GA; on behalf of National
Chicken Council................................................ 8
Prepared statement........................................... 10
Hill, Paul, Chairman of the Board, West Liberty Foods, Ellsworth,
IA; on behalf of National Turkey Federation.................... 14
Prepared statement........................................... 16
HEARING TO REVIEW THE STATE OF THE POULTRY INDUSTRY
----------
WEDNESDAY, APRIL 13, 2011
House of Representatives,
Subcommittee on Livestock, Dairy, and Poultry,
Committee on Agriculture,
Washington, D.C.
The Subcommittee met, pursuant to call, at 2:00 p.m., in
Room 1300, Longworth House Office Building, Hon. Thomas J.
Rooney [Chairman of the Subcommittee] presiding.
Members present: Representatives Rooney, Goodlatte,
Neugebauer, Huelskamp, DesJarlais, Cardoza, Scott, Courtney,
Schrader, and Owens.
Staff present: Patricia Barr, Tamara Hinton, John Konya,
Debbie Smith, Pete Thomson, Michelle Weber, Nathaniel B. Fretz,
Liz Friedlander, Mary Knigge, and Jamie Mitchell.
OPENING STATEMENT OF HON. THOMAS J. ROONEY, A REPRESENTATIVE IN
CONGRESS FROM FLORIDA
The Chairman. The hearing of the Subcommittee on Livestock,
Dairy and Poultry to review the state of the poultry industry
will come to order. I would like to thank my Ranking Member,
Mr. Cardoza, for working with me in preparing for today's
hearing. I would also like to welcome our witnesses and thank
them for taking the time out of their busy lives to be with us
here today and participate in this process.
Last week's hearing was structured to provide an update on
our nation's modern beef production sector. Today we will focus
on poultry. Because of the nature of the poultry community,
including the fact that we are examining production practices
for two species, the witnesses do not fall into categories as
neatly as our beef hearing. Nonetheless we have provided a
range of perspectives. Today we have a fairly typical size
chicken contract grower from the Shenandoah Valley; the
President of a single plant chicken integrator from Georgia;
and an individual from Iowa who is both a turkey integrator and
grower.
According to the latest USDA agricultural projections
report, poultry production is projected to rise the most among
the meats over the next decade as poultry is the most efficient
feed-to-meat converter. I look forward to hearing from our
witnesses about the good work they are doing to officially meet
the growing demand for wholesome, high-quality, nutritious,
protein products.
Our witnesses have been asked to provide a description of
the poultry production system from their perspective, discuss
the economic situation, as they see it today, and list some of
their public policy challenges. This is the second hearing in a
series that is intended to lay the foundation for the work of
the Livestock, Dairy, and Poultry Subcommittee during the 112th
Congress.
Last week's hearing naturally generated considerable
discussion about the proposed GIPSA rule, environmental
regulatory burdens and the effect of feed costs and
availability issues. I want to assure my colleagues that it is
our intent to thoroughly examine each of these important topics
in subsequent hearings.
As we move forward with this work, I encourage my
colleagues and others interested in the work of this
Subcommittee to share with me their thoughts about our agenda.
Again, thank you to our witnesses. I look forward to their
testimony, Members' questions and subsequent discussions.
[The prepared statement of Mr. Rooney follows:]
Prepared Statement of Hon. Thomas J. Rooney, a Representative in
Congress from Florida
Once again, I would like to thank my Ranking Member, Mr. Cardoza,
for working with me in preparing for this hearing today. I would also
like to welcome our witnesses and thank them for taking time out of
their busy lives to participate in this process.
Last week's hearing was structured to provide an update on our
nation's modern beef production sector. Today we will focus on poultry.
Because of the nature of the poultry community--including the fact we
are examining production practices for two species--the witnesses do
not fall into categories as neatly our beef hearing. Nonetheless, we
have provided a range of perspectives. Today we have a fairly
typically-sized chicken contract grower from the Shenandoah Valley, the
president of a single plant chicken integrator from Georgia, and an
individual from Iowa who is both a turkey integrator and a grower.
According to the latest USDA agricultural projections report,
poultry production is projected to rise the most among the meats over
the next decade, as poultry is the most efficient feed-to-meat
converter. I look forward to hearing from our witnesses about the good
work they are doing to efficiently meet the growing demand for
wholesome, high-quality, nutritious protein products.
Our witnesses have been asked to provide a description of the
poultry production system from their perspective, discuss the economic
situation as they see it today, and list some of their public policy
challenges. This is the second hearing in a series that is intended to
lay the foundation for the work of the Livestock, Dairy, and Poultry
Subcommittee during the 112th Congress. While last week's hearing
naturally generated considerable discussion about the proposed GIPSA
rule, environmental regulatory burdens, and the effect of feed cost and
availability issues, I want to assure my colleagues it is our intent to
thoroughly examine each of these important topics in subsequent
hearings.
As we move forward with this work, I encourage my colleagues and
others interested in the work of this Subcommittee to share with me
their thoughts about our agenda. Again, thank you to our witnesses. I
look forward to their testimony, Members' questions, and subsequent
discussion.
The Chairman. I would now like to recognize the Ranking
Member for his opening statement, Mr. Cardoza.
OPENING STATEMENT OF HON. DENNIS A. CARDOZA, A REPRESENTATIVE
IN CONGRESS FROM CALIFORNIA
Mr. Cardoza. Thank you Chairman Rooney. It is a pleasure to
be with you again today.
And thanks to everyone who is attending this hearing and
for the witnesses who are sharing with us their experience with
regard to this current state of the poultry industry.
The poultry industry is vital to the health of our country
and to my home State of California. The California poultry
industry alone provides jobs to over 25,000 people, not
including the tens of thousands of jobs from affiliated
industries. The poultry industry employees earn more than $250
million annually and contribute significantly to our overall
economy.
That is why I am very happy that we are holding this
hearing today to discuss the poultry production, its trends in
the industry, and the problems this Committee should focus on
as we move forward.
Although California is twelfth in the nation in broiler
production and sixth for turkey production, we still face a
tremendous number of challenges; among them, feed price
escalation, animal disease and welfare, air quality and
environmental issues and other issues that cost more every day
to manage.
As a Committee, we will work to promote policies that will
help the poultry industry grow and thrive. A strong poultry
industry provides affordable healthy food for our nation and
supplies thousands of jobs and decent wages to their workers.
Nonetheless, as we work to reduce the deficit spending that we
face as a country, we need to prioritize programs that are
economically efficient and effective and jettison those that
are not. We need to focus our resources on initiatives that
best help our producers and processors as a whole, and I look
forward to working with the Chairman to those ends.
The Chairman. Thank you, Mr. Cardoza.
The chair would request that other Members submit their
opening statements for the record so that witnesses may begin
their testimony and ensure that there is ample time for
questions.
I would like to welcome our panel of witnesses to the table
and to introduce Mr. King. I would like to yield to the former
Chairman of this Committee, Mr. Goodlatte.
OPENING STATEMENT OF HON. BOB GOODLATTE, A REPRESENTATIVE IN
CONGRESS FROM VIRGINIA
Mr. Goodlatte. Thank you, Mr. Chairman.
It gives me great satisfaction to welcome Mr. King as our
witness today. This is not the first time he has testified
before the Agriculture Committee. Dan King testified before the
Subcommittee in Staunton, Virginia, when we had a field hearing
prior to the writing of the last farm bill. And I know some of
the--in fact, many of the Members of the Committee were present
for that.
He and his immediate family own and rent 550 acres near
Harrisonburg, Virginia, where they raise corn, annual forages
and grass hay. Like many growers in the Shenandoah Valley and
in the country, I know that you are being confronted with many
challenges, from rising feed costs to increased compliance
costs due to regulations by the EPA. I look forward to hearing
your testimony about these important issues. And I thank you
for being here.
And Mr. Chairman, I thank you for yielding to me.
The Chairman. Thank you, Mr. Goodlatte.
Also joining us today is Mr. Michael Welch, President and
Chief Executive Officer of Harrison Poultry, Inc., in
Bethlehem, Georgia; Mr. Paul Hill, Chairman of the Board of
West Liberty Foods in Ellsworth, Iowa.
We will now go to Mr. King for his opening statement.
Mr. King, please begin when you are ready.
STATEMENT OF DANIEL M. KING, OWNER/OPERATOR, ZENDA POULTRY LLC
AND ZENDA VIEW FARM LLC,
HARRISONBURG, VA; ON BEHALF OF VIRGINIA POULTRY FEDERATION
Mr. King. Good afternoon, Chairman Rooney, Congressman
Cardoza, and Members of the Subcommittee.
I appreciate the opportunity and the invitation to be with
you this afternoon and look forward to a dialogue on a subject
that is dear to my heart.
As first-generation farmers my wife Janet and I have a lot
at stake in the future of the poultry industry because it was
this industry that primarily allowed us to achieve our dream of
being farmers. I would like to state that it takes a lot of
pride to realize that your farm, that our farm provides America
with a safe, affordable and environmentally responsible home-
grown supply of wholesome protein.
I have several topics I would just like to mention in my
statement. One of those I am concerned about is the GIPSA rule
and the changes that that would have to the contract that
governs my farm and the settlements that we receive from our
poultry enterprises. Philosophically, I feel like the
government should stay out of setting financial terms of
contracts between private parties, and I feel that there will
be many unintended consequences as we move forward with the
proposed changes.
I am a strong supporter of the tournament system. The
practice would be eliminated under the new rule, and I think
that that would be a detriment to the efficiency and future of
our industry. This removes incentives from producers to make
improvements to their houses to invest the time it takes to
provide the management necessary to be successful.
It would also make it more difficult for new growers to pay
for their investment of new houses because, generally, new
investments are more efficient than old. Removing the
tournament system would be detrimental to that new growth of
the industry which ultimately, would have a negative impact on
the length that this industry will be able to survive in the
current economic situation.
I would like to also state that I feel that it is high time
that our country develop a comprehensive energy policy. We have
talked a lot about that. You know, a couple years ago, we faced
some of the challenges that we face today. Unfortunately, from
my seat, when I look at the current situation, I don't know
that we are more prepared for this than we were the last time.
With many of my energy prices doubling, increasing by four-
fold, these costs are killing not only the American farmer, but
they are strangling the entire food delivery system.
It is critical that the government get out of the way of
energy production and adopt a comprehensive forward-looking
energy policy that allows U.S. companies to maximize the use of
U.S. energy. This country's economy will never be truly strong
again as long as we buy most of our energy abroad or burn our
food. In 2006, when I testified before the Agriculture
Committee, I was raising concerns then about what ethanol would
do to grain prices because the input cost on broilers,
basically 70 percent of that comes from feed costs. I was told
by a Member of the Committee then that we could have all the
ethanol we wanted and corn prices would never get above $3.50 a
bushel. So our country pursued an ethanol policy, and yesterday
on the Chicago Mercantile Exchange, the May contract forward
settled at $7.52. That does not make that Congressman a liar,
but truly we need to reevaluate the way we approach the energy
needs of this country.
I also would like to make a strong statement in support of
free trade. It is essential that we have access to all the
markets around the world because we raise a product that is
done in such an environmentally sensitive way that it is
important for the environment of the world that we access the
markets that are available to us.
And finally, I would just like to make a couple comments
about the environment. As a farmer, I get tired of going to
meetings where the environmentalists stand up and say we want
the farmer on the land, we know they are the best for the land,
and then the next 2 hours, they tell us how we can't do
anything that we have done in the past because we are the worst
stewards that ever existed. Let us not forget that Mother
Nature is not baseline zero. If all agriculture would go out of
the Chesapeake Bay, the Chesapeake Bay would not be pristine.
As a matter of fact, the use of most land in the Chesapeake Bay
watershed is most beneficial to the environment if it stays in
agricultural production.
The EPA, in my opinion, has overreached, and I would like
to encourage you to support commonsense approaches, because
ultimately it is our desire to be stewards of the land that
will govern our decisions, not over heavy-handed government
regulation. This will not be good for the Bay, and it will not
be good for the security of our nation's food supply.
Mr. Chairman, Congressman Cardoza, and Members of the
Subcommittee, thanks for your interest and support. It was a
delight to be with you here this afternoon.
[The prepared statement of Mr. King follows:]
Prepared Statement of Daniel M. King, Owner/Operator, Zenda Poultry LLC
and Zenda View Farm LLC, Harrisonburg, VA; on Behalf of Virginia
Poultry Federation
Good afternoon, Chairman Rooney, Congressman Cardoza, and Members
of the Subcommittee. Chairman Rooney, thank you for the invitation and
opportunity to share with you and the Committee my views on the state
of the poultry industry on behalf of the more than 400 poultry growers
that are members of the Virginia Poultry Federation. I appreciate the
privilege to discuss with you at this important hearing a number of
issues that are most troubling to poultry producers like me.
My name is Dan King. My wife Janet and I are first generation
farmers and the owners and operators of our family farm that trades as
Zenda View Farm LLC and Zenda Poultry LLC in Rockingham County,
Virginia. We raise crops, beef cattle, and broiler chickens. Our
operation is typical of many diversified farming operations in the
Shenandoah Valley of Virginia. We have three broiler houses with a
capacity for 31,000 broilers each and average seven flocks each year.
So our farm raises 650,000 broilers annually under contract with
George's Foods, Inc. of Springdale, Arkansas. This may sound like a lot
of chickens but we in reality are an average-sized operation in the
modern U.S. poultry industry. In fact, I take pride in the fact that my
farm produces enough chicken meat annually for 20,000 people to consume
the 82 pounds the average American consumer partakes of in a year.
My family farm is helping to provide Americans with a safe,
affordable and environmentally responsible homegrown supply of
wholesome protein and contributing to nutritional needs worldwide. This
would not be possible without our contract with a vertically integrated
poultry processing company, such as George's Foods, Inc. The contract
arrangements between my family farm and George's Foods has provided a
good, dependable income over the 24 years we have been growing
broilers.
Most, if not all, companies are currently suffering significant
financial loses. The cost-price squeeze between very high feed and
energy costs and relatively low prices received for broilers, parts,
and products has been ongoing since the fourth quarter of last year
and, according to a number of economists, may continue for some time
yet. Fortunately, we have been somewhat insulated from this market risk
and commodity price volatility. Our flock placement schedule has been
basically unaffected, with down time only slightly increased, and our
contract settlements have continued as prescribed in our contract.
USDA Should Not Over-Regulate Poultry Contracts
Having been a poultry producer for the past 24 years I have
witnessed the highs and the lows in the farm economy and the poultry
industry in particular. The integrated production contract has provided
us with a regular source of income while significantly shielding us
from the adverse impact of low commodity prices in a down poultry
market. In 2008 and again in recent months, the cost-price squeeze
between very high feed and energy costs and relatively low prices
received for broilers, parts, and products has caused most, if not all,
poultry companies to operate at a loss. During these times, I have
continued to be somewhat insulated from this market risk and commodity
price volatility.
I am very concerned about the proposed Grain Inspection, Packers &
Stockyards Administration's (GIPSA) regulation on poultry contracts.
Any regulatory measures by USDA should only seek to promote
transparency in contracts so that parties have a mutual and clear
understanding of the terms. The government should not set the financial
terms of contracts between private parties.
Unfortunately, the GIPSA regulation goes well beyond ensuring
transparency. The proposal establishes an unprecedented level of
government intervention in setting the financial terms of poultry
contracts. I am concerned that this level of government regulation will
have negative ramifications for the poultry industry in the United
States, and actually hurt poultry growers. Specific concerns are the
following:
The 2008 Farm Bill required GIPSA to address five areas
concerning poultry contracts. The 2010 GIPSA rule far exceeds
what was mandated in the farm bill.
Litigation--The rule is so vague in its terminology that it
will most certainly result in costly litigation.
Tournament System--The practical effect of the rule will be
elimination of better pay for better results. This removes
incentives that reward growers based on performance. It removes
incentives for investments in innovation necessary for the U.S.
poultry industry to remain competitive in the World market.
Greater Integration--The rule could lead to greater
integration of the poultry industry with a greater trend toward
fewer and larger contract farms and more company owned farms.
GIPSA should reconsider this massive regulatory intervention into
private contracts due to the harm it will cause to poultry farmers,
processors, and the U.S. food supply.
Comprehensive Energy Policy Needed
One of my biggest concerns as a poultry producer is the high cost
of energy. In 2002, we were paying about 65 cents per gallon for
propane gas, which is one of our biggest input costs. This winter it
was about $1.80 per gallon. Our average electricity bill has gone from
$525.00 a month to $835.00 a month. We us about 2,500 gallons of diesel
fuel, which in the past 10 years has increased fourfold from $0.80 to
$3.20 a gallon. The high cost of diesel impacts the cost of our
supplies, as well. These costs are killing the American farmer and
straining our entire food delivery system.
In 2008 I was meeting with a group of farms from around the country
in Nashville, Tennessee. One of our speakers was from the natural gas
industry. We spent ninety minutes looking at U.S. energy reserves and
the leasing and permitting process. After the presentation was over our
facilitator ask for questions or comments. A soft spoken farmer from
the back of the room muttered what I think was, ``We are being
shafted.'' The facilitator asks him to speak up to which he replied,
``We are being shafted by our own government.'' It is critical that
government get out of the way of energy production and adopt a
comprehensive, forward-looking energy policy that allows U.S. companies
to maximize the use of U.S. energy. This country's economy will never
be truly strong again as long as we buy most of our energy abroad or
burn our food.
Corn Ethanol Policy
As you know, the Federal Government has adopted mandates,
incentives, and trade barriers to prop up the U.S. ethanol industry,
which now diverts some 40 percent of the U.S. corn crop away from
traditional food uses to our gas tanks. These policies include the
Renewable Fuels Standard (RFS), which specifies the annual amount of
corn-based ethanol refiners must blend into gasoline; the so-called
``blender credit'' or VEETC, which provides refiners with a 45 cents
tax credit per gallon of ethanol used; and a 54 cents per gallon tariff
on foreign ethanol imports into the United States
Additionally, EPA recently approved a petition from the ethanol
industry to increase the allowable ethanol-gasoline blend from 10
percent to 15 percent in newer-model cars and light trucks, and the
ethanol industry has begun to press Congress for an expansion of the
RFS and additional new supports.
Feed is the poultry industry's largest input cost, at roughly 70
percent of total live costs. Industry feed costs have increased by
billions of dollars since the RFS began to ramp up in 2006. In 2008,
corn prices temporarily spiked to nearly $8 per bushel having been
consistently in the $3 per bushel range for years. Deflationary
influences of the recession caused corn prices to moderate, but they
have remained artificially inflated above historical market prices.
Unable immediately to pass high feed costs along to consumers due to
free market supply-demand dynamics the meat industry lost billions of
dollars and suffered significant job losses until production cuts
finally led to higher prices. Now per capita meat supplies are as low
as they have been since the 1980s and it is inevitable that consumers
will feel the pinch of higher food prices.
Just as the meat industry painfully adjusted to corn prices of
nearly $4 per bushel and regained profitability, and was poised for
growth, the October 2010 USDA crop report signified a short 2010 corn
crop. Corn prices quickly spiked to more than $5.50 per bushel and are
now more than $7.00. This along with the usual uncertainty about the
new year's crop make high corn prices a near certainty for months to
come. The ``stocks-to-use ratio''--an indicator of grain availability--
is at historically low levels.
These higher prices, exacerbated by ethanol policy threaten the
ongoing recovery in the meat and poultry sector. While processors must
initially eat the higher costs, Federal policies give the ethanol
industry an incentive to produce more ethanol when the market is
rationing a tight corn supply. This along with speculator investment
will inflate feed costs for the foreseeable future and jeopardize
poultry industry profitability and jobs, not to mention the impact of
food inflation on consumers during these difficult economic times.
Federal ethanol supports cost taxpayers billions of dollars while
causing economic harm to poultry and livestock industries that support
tens of thousands of Virginia jobs. The volume of oil replaced by corn
ethanol is low. The costs do not justify the benefits. Please support
adopted legislation to restrict or eliminate Federal support for
ethanol and oppose any bills that further prop up the industry through
Federal funding or other supports.
Free Trade Agreements
You might not think that international trade matters much to an
individual farmer like me, but it is vitally important to my industry
and, ultimately, to my success as a farmer. Export markets have played
an ever larger role in U.S. poultry production. As recently as 1990 the
U.S. exported only five percent of chicken production. Today, the U.S.
exports close to 20 percent of our chicken production. Access to
foreign markets is critical to the poultry industry. Let me just say
that in order to be competitive in the world marketplace, I encourage
Congress to take swift action on the various free trade agreements that
have been successfully negotiated. Let's not lose the opportunities for
prosperity that comes with trade and suffer the consequences of lost
international market-share.
Environmental Protection Agency Needs to Take a Time-Out
The final, but certainly not the least important, topic I'd like to
address is the environment. It has been said that farmers are the
original environmentalists and as a conservationist I know I care more
about and do more for the environment than most outspoken
environmentalists. We live where we work and we work where we live. My
farm has operated with a nutrient management plan since 1991. Over the
years, we have installed many conservation practices on our farm, at
considerable expense. Like most farmers, we are motivated more by a
natural, inborn desire to take care of our land and the streams running
through it than by heavy-handed government regulations. My family and I
take pride in being the best stewards we can be.
The Chesapeake Bay is a tremendous natural resource that deserves
our stewardship--but not in the heavy-handed regulatory manner proposed
by EPA through the recently adopted Chesapeake Bay Total Maximum Daily
Load (TMDL). Virginia's poultry industry has already spent millions of
dollars on voluntary initiatives and compliance with existing
regulations. The industry will continue to be a responsible
environmental steward. However, more burdensome government regulations
will be counterproductive by jeopardizing agricultural operations and
accelerating conversion of well-managed farmland to other, less
environmentally beneficial land uses.
The poultry industry questions EPA's authority for its mandates;
has concerns about the accuracy of Chesapeake Bay computerized
pollution loading models; is concerned about the lack of cost-benefit
and economic impact analysis; and criticized the agency for allowing
only 45 days for public comment and not fully documenting the basis for
the decisions made in the proposed TMDL. EPA should reconsider its
present course and allow states to chart a path forward that balances a
widely shared desire to improve the condition of the Bay while
preserving state prerogatives and avoiding detriment to agriculture and
Virginia's economy.
Farmers are willing to do more, but we are producing food for this
nation on thin margins and this TMDL could impose regulatory costs that
drive farmers out of business. That's not good for the Bay and it's not
good for the security of our nation's food supply.
Conclusion
Mr. Chairman, your interest and support for the poultry is most
appreciated. On behalf of the Virginia Poultry Federation, poultry
farmers look forward to working with you, Congressman Cardoza, and the
Members of the Subcommittee to improve the environment for poultry
production. And, not just for land, water, and air, but also the
economic environment.
The Chairman. Thank you, Mr. King.
Mr. Welch.
STATEMENT OF MICHAEL A. WELCH, PRESIDENT AND CHIEF EXECUTIVE
OFFICER, HARRISON POULTRY, INC.,
BETHLEHEM, GA; ON BEHALF OF NATIONAL CHICKEN
COUNCIL
Mr. Welch. Good afternoon, Chairman Rooney, Congressman
Cardoza, and Members of the Subcommittee.
I also thank you, Chairman Rooney, for the opportunity to
participate in this important and timely hearing on the issues
impacting the state of the poultry industry. On behalf of the
National Chicken Council, I appreciate your invitation to
provide comments and recommendations regarding a number of
issues and challenges confronting the chicken industry.
U.S. chicken producer/processors will certainly need the
Subcommittee's support if the chicken industry is to
successfully overcome the increasingly difficult issues and
challenge I will outline in my statement.
My name is Michael Welch, and I am the President and Chief
Executive Officer of Harrison Poultry in Bethlehem, Georgia. I
have been President of Harrison Poultry since 1992. Harrison
Poultry is a small privately-held company operating one
slaughter plant producing a variety of products.
More than 1,000 employees work hard every day to make
Harrison Poultry successful. Also, over 125 family farmers
contract to grow broilers and an additional 40 family farmers
contract to produce hatching eggs every week for the company-
owned hatchery. Each week, Harrison Poultry produces more than
6 million pounds of broilers on a liveweight basis.
Some of Harrison Poultry growers have been growing broilers
since Harrison Poultry become vertically integrated more than
40 years ago, even though the company contract is considered a
flock-to-flock arrangement.
Mr. Chairman, and Committee Members, as you can appreciate,
there are many issues impacting the state of the chicken
industry as I speak to you today. I have however limited my
statement to what the National Chicken Council considers its
top priorities. Permit me to note these priorities.
First, corn-based ethanol rules should be realigned. The
rules of the game for corn-based ethanol must be balanced and
the playing field should be leveled to permit chicken producers
and other animal agricultural producers to more fairly compete
for the limited supplies of corn this year and the next few
years at least. For more than 30 years, the ethanol industry
has had an opportunity to learn how to compete in the
marketplace. It is now time, actually well beyond a reasonable
time, for ethanol manufacturers to just say no to government
subsidies, government mandated usage and government protection
from foreign competition.
Also, it is time to seriously consider a safety valve to
adjust the Renewable Fuels Standard when there is a shortfall
in corn supply such as the current situation. Let us pray that
this fall's corn harvest is more than abundant.
In addition, USDA should implement as soon as possible a
plan to allow a reasonable number of good, productive cropland
acres to opt out of the Conservation Reserve Program. With this
crisis on the horizon, why must we wait until it is on our
doorstep.
Second, the proposed USDA GIPSA rule, the USDA Grain
Inspection, Packers, and Stockyards Administration proposed
rule addressing competition and contracting in the poultry and
livestock industry should be withdrawn. Congress should insist
that GIPSA adhere to the legislative mandates regarding the
type, scope and intent of any rule that is re-proposed and
implemented.
Third, is the three pending free trade agreements. Three
free trade agreements are pending and have been pending for far
too long. The National Chicken Council suggests, as have other
groups, that these agreements be called U.S. job creation
agreements.
Increased poultry exports, a result of implementing these
agreements, would definitely result in more jobs in the poultry
industry and more family farmers growing more poultry.
In conclusion, the National Chicken Council, its members
and the many allied industries that support poultry production,
processing and marketing look forward to working more closely
with the Subcommittee and others in Congress, so that poultry
producers have a better opportunity to successfully manage the
increasingly difficult challenges and issues.
Improving the state of the poultry industry not only helps
poultry companies and poultry farmers but, perhaps more
importantly, will allow consumers of poultry to continue to
enjoy an ongoing adequate supply of animal protein at
reasonable prices.
The number one issue in our industry that is creating the
financial havoc now is the ethanol situation. Our industry has
overcome adversity, challenges, droughts, high prices, low
prices, foreign embargoes, avian influenza, and we have
successfully competed at all times. We are unable to compete
against the U.S. Government in the triple mandate of requiring
ethanol production, subsidizing its use and protecting them
from foreign imports. And we really ask you to seriously
consider reviewing that.
That being said, thank you Chairman Rooney, Congressman
Cardoza, and Members of the Subcommittee for the opportunity to
share the recommendations of the National Chicken Council. I
request that both my written and oral statements be entered
into the record of the hearing and I look forward to your
questions.
[The prepared statement of Mr. Welch follows:]
Prepared Statement of Michael A. Welch, President and Chief Executive
Officer, Harrison Poultry, Inc., Bethlehem, GA; on Behalf of National
Chicken Council
Good afternoon, Chairman Rooney, Congressman Cardoza, and Members
of the Subcommittee. Thank you, Chairman Rooney, for the opportunity to
participate in this important and timely hearing on the issues
impacting the state of the poultry industry. On behalf of the National
Chicken Council, I appreciate your invitation to provide comments and
recommendations regarding a number of issues and challenges confronting
the chicken industry. U.S. chicken producer/processors will certainly
need the Subcommittee's support if the chicken industry is to
successfully overcome the increasingly difficult issues and challenges
I will outline in my statement. As a point of clarification, I will use
the word ``broiler'' and ``chicken'' interchangeably in my statement.
My name is Michael Welch and I am President and Chief Executive
Officer of Harrison Poultry in Bethlehem, Georgia. I have been
President of Harrison Poultry since 1992. Harrison Poultry is a small,
privately held company operating one slaughter plant producing a
variety of products that are carefully and specifically tailored to our
end-customer requirements. More than 1,000 employees work hard every
day to make Harrison Poultry successful. Also, over 125 family farmers
contract to grow broilers and an additional 40 family farmers contract
to produce hatching eggs for the company-owned hatchery. Each week
Harrison Poultry processes more than 6 million pounds of broilers on a
liveweight basis. Some of Harrison Poultry growers have been growing
broilers since Harrison Poultry became vertically-integrated more than
40 years ago, even though the company contract is considered a flock-
to-flock arrangement. Harrison Poultry and other companies in the
chicken industry provide good, steady income for family farmers across
the United States where broilers are produced.
Harrison Poultry is a proud member of the National Chicken Council;
and I, as a former Chairman of the organization, am pleased to present
this statement on behalf of the National Chicken Council. More than 95
percent of the young meat chicken (broilers) produced and processed in
the United States come from the Council's members.
Chicken Production and Increasing Feed Costs
Over the past 5 decades, broiler production has only decreased on
an annual basis three times: 2 years in the mid-1970s and in 2009. With
the very steady track-record of increasing production, the industry's
growth has offered increased opportunities for growers to expand their
operations and build their net worth. That strong track record of
growth is in very serious jeopardy because an over abundance of corn is
being diverted to fuel production and thus squeezing-out corn that
should be available for feed.
In 2010 almost 50 billion pounds, liveweight, of chickens were
produced using more than 55 million tons of feed for broilers and the
broiler breeder flocks that provide the fertile eggs for hatching. Of
the 55 million tons of feed, over 36 million tons or about 1.3 billion
bushels of corn or corn products were mixed into the finished feed. The
average cost of chicken feed before the corn price began to rapidly
escalate in mid-October 2006 was $139.20 per ton. Last month (March
2011) the same ton of feed cost over $300 per ton, a more than doubling
of cost. The vast majority of the run-up in feed costs was the result
of corn more than tripling in price since 2006. Last year the chicken
industry's feed bill was almost $13.0 billion compared with total feed
costs in 2006 of less than $7.0 billion. On a cumulative basis with the
higher feed costs, the chicken industry has had to pay over $23 billion
more for feed since October 2006.
Many years ago then Secretary of Agriculture Earl Butz referred to
chickens as ``condensed corn.'' When Secretary Butz was in office in
the early 1970s it took more than 2.25 pounds of feed to produce a
pound of liveweight chicken. Today the feed conversion is better than
1.9 to 1.0, with many companies having conversion ratios of better than
1.8 to 1.0. Except for farm-raised catfish, no farm-raised animal is a
better converter of feed to food than chicken. Nonetheless, even very
efficient feed conversion cannot mitigate the high corn prices and the
significant impact on the cost of producing chicken. Based on commodity
futures prices that reflect essentially only a pipeline quantity of
corn available as carryover stocks at the end of this current crop, it
appears there will be further escalation in the corn price. Therefore,
even higher feed costs are most likely for the rest of this year and
beyond. Also, not only will corn prices most likely be higher, the
volatility in corn prices will be much greater.
Why the Future Is Different Than the Past
Certain analysts have suggested that ``we have been here before.''
That is, animal agriculture, including the broiler industry, has
weathered high prices for feedgrains/oilseeds in years past and, for
the most part, has survived. It is true that there have been high feed
costs before now and, at certain times, the quick run-up in prices have
come upon the market unexpectedly. In the past, the problem has been a
1 year or so supply problem. But now, however, the situation is not
only supply-driven but also demand driven. U.S. animal agriculture has
not been here before. For example, a number of econometric models both
at universities and private analytical firms that analyze the animal
agriculture sector and forecast how the sector interrelates with the
feed complex have been reworked and have been significantly adjusted
because the previous models simply could not handle the new dynamics of
current and future scenarios. Government policy for corn-based ethanol
that subsidizes, mandates, and protects it from competition has changed
how ethanol reacts to normal market forces. This biofuel is a
relatively new dynamic that changes these econometric models. Corn used
for ethanol for the 2005/06 crop year was 1.6 billion bushels or 14
percent of total usage. For 2010/11 USDA is estimating almost 5 billion
bushels or about 37 percent of total corn usage. The increase in the
usage of corn for ethanol over these 5 years has tripled. Also, the
international demand for U.S. agricultural commodities must now take
into account the China factor. Chinese Government trade policy is often
difficult to predict. Nonetheless, China's rapidly growing need for
more agricultural imports seems somewhat evident. Many, if not most
agricultural commodity analysts, believe China is poised to become a
large net importer of corn on a consistent going-forward basis.
Increasing demand for corn is being placed on a limited supply.
USDA is predicting ending corn stocks for 2010/11 at 675 million
bushels which most analysts consider to be less than minimum pipeline
requirements. There is no cushion, no extra bushels in inventory to
carry the needs of the users of corn through the next crop year in the
event of a shortfall in this Fall's corn harvest. To assume an adequate
number of acres will be planted to corn this year and the next few
years and to further assume favorable weather conditions for crops this
year and the next few years are not assumptions the U.S. chicken
industry is prepared to make, nor should prudent U.S. Government
policymakers be willing to make.
Contingency Plan for Shortfall of Corn Long Over-Due
Since October 2008 when corn prices escalated to record high
levels, it has become more and more clear that the national policy
regarding corn-based ethanol has been heavily tilted toward using corn
for fuel rather than for food/feed. The need to re-balance the policy
is long overdue. Picking one market for corn to be the winner at the
expense of the loser should not be the function of government.
Mandating the use of ethanol, subsidizing its cost, and protecting
ethanol from competition is triple over-kill. Greater energy
independence is a worthy goal for the United States, but the negative
and unintended consequences of moving too far too fast with corn-based
ethanol have become overly evident. For the chicken industry, like
other animal agriculture producers, fewer pounds of product have been
produced and will not be produced in the foreseeable years. Consumers
who have sufficient income to devote to cover the higher costs of food
will reach deeper into their pocketbooks and pay the higher food
prices. Consumers in this country and around the world who cannot
continue to afford animal protein in their diets will have to shift to
other foods. However, with land being a limiting factor in the
production of food, it is most likely all foods will be higher in
price, whether of animal origin or not.
Foremost is the need for a credible, equitable, and workable plan-
of-action in the event of significant shortfall in the corn crop. I
suggest the United States is now experiencing a significant shortfall
in corn supplies. Unless there are perfect crop conditions this year to
plant, grow, and harvest a record quantity of corn, animal agriculture
will experience major disruptions while ethanol producers will continue
to outbid non-subsidized buyers of corn. The National Chicken Council
recommends a plan be implemented that would reduce the Renewable Fuels
Standard when the stocks-to-use ratio for corn drops to low levels,
like is now the situation.
With the weakened U.S. dollar, overseas buyers of U.S. commodities,
like corn, see these commodities as being relatively more affordable
than domestic buyers. Thus, it can reasonably be argued that U.S.
animal agriculture is the most vulnerable corn buyer with the shortfall
in corn. It is highly unlikely the current shortfall crisis will be a 1
year problem. The essentially non-existent stocks of corn means more
and more acres of corn will be required as will higher and higher corn
yields for the next 3 years or more. In addition to a contingency plan
that uses the ratio of corn-stocks-to-use as a trigger mechanism for
the Renewable Fuels Standard, the National Chicken Council also
recommends that USDA be required to implement a plan to permit non-
environmentally sensitive acres to be released from the Conservation
Reserve Program without penalty. More acres are needed, not just for
corn, but also for soybeans, wheat, cotton, and other crops that
compete with corn for acreage.
Ethanol Debacle
As I have noted chicken companies are increasingly being severely
impacted by the growing diversion of corn into government-subsidized
ethanol programs. This year's farm gate corn price will likely be three
times higher than the comparable price in 2005/06, the year prior to
implementation of the Renewable Fuels Standard (RFS) mandate.
Government policy requires that a fixed amount of corn-derived ethanol
be used in motor fuel every year. Taxpayers subsidize the program by
45 cents per gallon through the Volumetric Ethanol Excise Tax Credit
(VEETC) paid to fuel blenders. This credit will cost the Treasury over
$5.67 billion in lost revenue this year. Ethanol manufacturers are also
protected from foreign competition by an import tariff of 54 cents per
gallon plus another two percent ad valorem duty. The tariff sharply
limits the amount of ethanol imported from Brazil and Caribbean
counties, where it is normally produced more economically from sugar.
The ethanol industry has been subsidized for more than thirty years and
has a large guaranteed market through the biofuel mandate set by the
Energy Independence and Security Act (EISA) of 2007. Fuel blenders are
required to use 12.6 billion gallons of corn-derived ethanol in motor
fuel this year and 15 billion gallons by the year 2015. Yet, all this
ethanol is doing little to improve U.S. energy security, which is what
Congress intended to do with the 2007 Energy Act. Ethanol made from
corn is the only product that receives government subsidies, has a
mandate for usage, and is protected from foreign competition. Enough is
enough.
Proposed GIPSA Rule
In the 2008 Farm Bill Congress directed the U.S. Department of
Agriculture [USDA/Grain Inspection, Packers and Stockyards
Administration (GIPSA)] to develop criteria in five areas of poultry
and swine contracts. The five areas are:
Undue or unreasonable contractual preferences/advantages to/
for particular contracting parties.
Whether a live poultry dealer or swine contractor has
provided reasonable notice to a poultry grower or hog farmer of
any suspension of delivery of birds or hogs.
Reasonable requirements for additional capital investments
over the life of a contract.
Provide reasonable period of time for a poultry/swine grower
to remedy a breach of contract.
Reasonable terms for arbitration in poultry and swine
contracts.
When USDA published the proposed rule in the Federal Register on
June 22, 2010, interested parties were given 60 days to comment on the
rule. The very short comment period provided an insufficient time for a
serious and thorough analysis of the rule. Further, there was no
credible, adequate economic impact analysis accompanying the proposed
rule. Most egregious, the proposed rule went far beyond what Congress
had instructed USDA to consider. After significant debate, USDA
extended the comment period an additional 90 days.
Six areas in the proposed rule where GIPSA went beyond what
Congress instructed are as follows:
Onerous record-keeping requirements.
Redefines ``competitive injury'' requirements.
Redefines the term ``fairness''.
Additional capital investment requirement for grower to
recoup 80% of costs.
Modification in the payment system to growers.
Disclosure and online publication of contracts.
The rule, as proposed, would cost the broiler industry over $1
billion during the first 5 years, and further, would change the way
companies and growers do business that has been successfully conducted
for more than 5 decades. The vertically-integrated industry structure
with growout contracts with family farmers is a system that has been
successful and has made the U.S. chicken industry the most efficient
and economically-viable in the world. The rule would put the U.S.
chicken industry at a global disadvantage, as other countries would not
have to face these onerous requirements. The rule would create
uncertainty and cause unnecessary and costly regulatory and legal
burdens in the marketplace by making it much more difficult for
companies and contract growers to get competitive financing. In
addition, companies would not have the incentive to use capital to
improve and expand operations; rather there would be more of a
financial incentive to restructure their businesses to include their
own growout operations. USDA needs to withdraw the proposed rule and
start over with a proposed rule that reflects the Congressional mandate
and simple, logical common sense.
Time for Free Trade Agreements
President Obama in his 2010 State of the Union speech called for a
doubling of U.S. exports within 5 years. An important part of his
effort is to have Congress approve three pending trade agreements:
Colombia (signed in November 2006), Korea (signed in June 2007), and
Panama (signed in June 2007). The White House's primary argument for
passage of the free trade agreements (FTA) is that several hundred
thousand jobs would be created and the U.S. economy will be stimulated.
Under the Andean Trade Preference Act, Colombia faces no tariff
barriers on its agricultural exports to the United States. Approval of
the agreement would not change that situation but it would add almost
$1 billion of new U.S. agricultural exports to Colombia on an annual
basis. In 2010 U.S. poultry exports to Colombia were $21.3 million
compared with a 5 year (2005-2009) average of $13.2 million. When the
agreement is fully implemented, poultry exports are expected to
increase four-fold from the 5 year average to reach about $55 million.
For Korea almost $2 billion additional U.S. agricultural exports
will flow annually under the agreement. In 2010, U.S. poultry exports
to Korea were $91.9 million compared with the 5 year average (2005-
2009) being $51.0 million. Under the agreement, U.S. poultry exports
are forecast to triple compared with the 5 year average to reach over
$150 million.
U.S. agricultural exports to Panama are expected on an annual basis
to increase $200 million or more upon full implementation of the
agreement. Panamanian agricultural exports to the United States enter
with zero import tariffs under U.S. preference programs. U.S. poultry
exports to Panama in 2010 were $14.4 million compared with the 5 year
(2005-2009) average of $9.6 million. U.S. poultry exports are forecast
to more than double the 5 year average and reach about $20 million
sometime well before full implementation of the agreement.
Taken together these three markets could add over $150 million to
U.S. poultry exports, more than double the combined 5 year average.
That is, U.S. poultry exports are forecast to exceed $225 million
compared with $74 million for the 5 year average for the combined total
of these three countries.
With the United States two largest poultry export markets, Russia
and China, severely disrupted and curtailed from previous trade levels,
it is more important than ever to expand poultry sales to other world
markets. Further, Congressional approval of these FTAs will encourage
the U.S. Trade Representative to seek out and secure new trade
agreements with several interested countries. Passage of these trade
agreements would cost taxpayers essentially nothing but would create
several hundred thousand jobs in the United States while providing for
a more robust general economy. The White House stated it will bring the
trade agreements to Congress ``at an appropriate time.'' It is
difficult to think of a more appropriate time than now, especially if
more jobs and an improved economy are a top national priority.
Conclusion
While there are many issues impacting the state of the chicken
industry, I have limited my statement to what the National Chicken
Council considers to be top priorities. To summarize those priorities,
I note the following:
The rules of the game must be balanced and the playing field
should be leveled to permit chicken producers and other animal
agriculture producers to more fairly compete for the limited
supplies of corn in the next few years. Included in this effort
must be a safety-valve to adjust the Renewable Fuels Standard
when there is a shortfall in corn supplies. In addition, a plan
should be implemented to allow a reasonable number of good,
productive cropland to opt out of the Conservation Reserve
Program. This provision must be acted upon as soon as possible.
With respect to the USDA/Grain Inspection, Packers and
Stockyards Administration's proposed rule addressing
competition and contracting in the poultry and livestock
industries, USDA should withdraw its proposed rule and Congress
should insist that GIPSA adhere to the legislative mandate
regarding the type, scope, and intent of any rule that is
implemented.
Regarding the pending three free trade agreements, the
National Chicken Council suggests, as have other groups, that
these agreements be called U.S. job-creation agreements.
Increased poultry exports as the result of implementing these
agreements would definitely result in more jobs in the poultry
industry and more family farmers growing poultry.
The National Chicken Council, its members, and the many allied
industry companies that support poultry production, processing and
marketing look forward to working more closely with the Subcommittee
and others in Congress so that poultry producers have a better
opportunity to successfully manage the increasingly difficult
challenges and issues. Improving the state of the poultry industry not
only helps poultry companies and poultry farmers but, perhaps, more
importantly will allow consumers of poultry products to continue to
enjoy an ongoing, adequate supply of animal protein at reasonable
prices.
Thank you, Chairman Rooney, Congressman Cardoza, and Members of the
Subcommittee, for the opportunity to share the thoughts, comments, and
recommendations of the National Chicken Council. I request that my
statement be entered into the record of the hearing and I look forward
to your questions.
The Chairman. Thank you, Mr. Welch.
We will move on to Mr. Hill.
Mr. Hill.
STATEMENT OF PAUL HILL, CHAIRMAN OF THE BOARD, WEST LIBERTY
FOODS, ELLSWORTH, IA; ON BEHALF OF NATIONAL TURKEY FEDERATION
Mr. Hill. Good afternoon, Chairman Rooney, Congressman
Cardoza, and Members of the Subcommittee.
My name is Paul Hill, and I am Chairman of the Board of
West Liberty Foods in Iowa and a past Chairman of the National
Turkey Federation. Thank you for inviting me.
I have spent my entire life as a turkey farmer, raising
800,000 birds per year on my farm near Ellsworth, Iowa. And I
also am a corn farmer raising about 1,800 acres. For the last
15 years, I have been the Chairman of West Liberty Foods, a
meat and poultry processing co-op founded in 1996 by 47 family
farmers. West Liberty Foods now processes more than 200 million
pounds annually at our facility in West Liberty, and further
processes more than 240 million pounds at plants in Mount
Pleasant, Iowa and Tremonton, Utah. We employ more than 1,850
people and our company supplies more than 75 percent of all
turkey products sold in the Subway restaurant chain.
The industry utilizes several vertical integration models.
About 80 percent of the turkeys are raised on traditional
production contracts where processors provide turkeys, feed and
medication to growers and growers provide housing and expertise
and are compensated on a variety of factors. Roughly ten
percent of the turkeys are raised on marketing contracts where
the grower owns the turkeys and provides the feed, medicine and
housing before selling the turkeys to the processor at a
contracted price. And another ten percent are raised on
company-owned farms.
Three factors are key to producing healthy products
profitably: input costs, production discipline and consumer
demand. When all three are out of kilter, the results are
disastrous. This was the case when West Liberty was founded and
again during 2008 and 2009, and believe you me, it remains a
threat today.
Feed accounts for 70 percent of the cost of raising a
turkey and corn accounts for roughly 70 percent of the feed
ration. When feed costs increase dramatically and oversupply or
a general recession prevents us from passing increased costs
along, the industry loses money rapidly. This happened in 2008
when corn prices nearly quadrupled and feed costs reached a
point where cost increases had to be passed along.
With the onset of the recession, sales of high-value
products dropped significantly. It takes at least 6 months to
alter production plans and the oversupply situation kept
building. By late 2008, West Liberty Foods cut production 50
percent. Another cooperative shut its doors for 3 months, and a
cooperative in Nebraska closed completely. Industry production
dropped by 11 percent in 2 years, and it still took a $60
million bonus purchase by USDA to buy time for those cuts to be
felt in the market.
Turkey prices have increased, but no one expects major
production growth in 2011 and contraction will probably happen
this year. Feed costs are driving this situation; corn prices
have nearly doubled in the last year. Economists give
conflicting reasons why. But as a turkey grower and a corn
farmer, commonsense tells me it is ethanol policy.
When the Renewable Fuels Standard was implemented, corn
prices jumped from $2.50 per bushel to $8. Several good
harvests settled corn prices for a time, but ethanol mandates
force us to have record harvests every year. We just harvested
the third largest corn crop ever, and the stocks-to-use ratio
is near a record low.
Ethanol's share of the corn crop is almost 40 percent
today. Increased corn prices cost the turkey industry more than
$1 billion in 2007 and 2008, and the current situation is
almost as bad. We must quit pretending that ethanol isn't
hurting farmers, ranchers and consumers. Ethanol is dividing
rural America.
The corn farmer in me likes the prices, but the turkey
farmer in me sees the real damage. Ethanol policy needs
significant reform.
The blenders credit should go, and now is not the time for
new investment in ethanol infrastructure. But what we are
seeking is a safety net that reduces volatility. This isn't
about cheap feed. High prices hurt, but volatility hurts a lot
more and will prevent expansion in livestock and in poultry
production, but we can find common ground.
A second challenge is the proposed GIPSA marketing rule,
which creates long-term dangers for many family farmers. Three
issues are key: the competitive injury proposal, the provision
that requires processors to guarantee recovery of capital
investment, and the provision that discourages competing
contracts. Together they create significant new legal and
regulatory risk for the turkey processors who have production
contracts with family farmers. These contracts will become less
competitive. Exceptional growers will feel cheated as the new
regulation forces everyone to a lower common denominator.
Processors could reduce the number of farms on which they
raise turkeys or they could raise more turkeys on company-owned
farms. The USDA proposed this rule without conducting an
adequate economic assessment. Numerous private studies have
found a significant economic impact. The department now has
agreed to conduct an assessment but appears unwilling to submit
the study for public comment prior to publishing the final
rule.
Before closing, I must mention EPA's aggressive actions
against poultry and livestock farming. The agency seeks to
impose new requirements on farms in the Chesapeake Bay's
watershed, yet it is using outdated models. Nutrient loadings
in the Bay from ag lands decreased between 1985 and 2005, while
loadings from developed lands increased 16 percent. Funding for
EQIP in the next farm bill could help farmers further reduce
nutrient loadings. Meanwhile, EPA has been so stubborn on this
that NTF recently joined numerous other farm organizations in
suing over the initiative.
I have gone a bit over, but I thank you very much for
listening to me, and I would be happy to answer any questions.
[The prepared statement of Mr. Hill follows:]
Prepared Statement of Paul Hill, Chairman of the Board, West Liberty
Foods, Ellsworth, IA; on Behalf of National Turkey Federation
Good afternoon, Chairman Rooney, Ranking Member Cardoza, and
Members of the Subcommittee. My name is Paul Hill, and I am Chairman of
West Liberty Foods in West Liberty, Iowa, and a past Chairman of the
National Turkey Federation. I want to thank the Subcommittee for
inviting me to discuss the state of the U.S. turkey industry today and
the challenges we will face in the years ahead.
I am excited to be offering this testimony on behalf of my company
and the National Turkey Federation because I have had the opportunity
to watch the development of the modern turkey industry from several
different perspectives. I was raised on a turkey farm, and I have been
a turkey grower my entire adult life. I also am a corn farmer, raising
about 1,500 acres of corn each year. And, since 1996, I have been the
Chairman of a meat and poultry processing cooperative called West
Liberty Foods.
West Liberty Foods was created that year when 43 family turkey
farmers joined together to purchase the Oscar Mayer/Louis Rich turkey
plant in West Liberty from Kraft Foods, which had announced the plant's
closing earlier that year. It took an enormous leap of faith for those
43 families to join together to purchase the plant. The turkey industry
was in terrible economic shape back then. By the time we officially
opened our doors in early 1997, the industry was mired in one of its
worst slumps ever.
Over-production had depressed turkey prices. Grain supplies were
extremely tight, forcing feed prices to levels that seemed shockingly
high at the time. Not long after we began operating, the European Union
closed its borders to American turkey products, depriving us of the
number-one export market for turkey breast meat and further depressing
turkey prices already hovering near record lows.
It took the industry--and our company--nearly 18 months to pull out
of that slump. In the years that followed, West Liberty Foods was able
to grow and prosper. Today, we process more than 60 million pounds
annually at our facility in West Liberty, Iowa, and further process 200
millions pounds of product at the Mount Pleasant, Iowa, plant. We have
built a second further processing plant in Tremonton, Utah, where we
further process 165 million pounds of product. We employ more than
1,850 associates at the three plants. And, we're very proud to say our
company now supplies a majority of all the turkey products sold in
Subway restaurants.
We take considerable satisfaction in our success at West Liberty
Foods, and we remain committed to helping the turkey industry as a
whole grow and prosper. At the same time, we never let the lessons of
those first difficult months stray from our thoughts, because the
industry has suffered even deeper recessions during the last 15 years
and, because even in a period of relative prosperity, the threat of
economic hardship remains very real.
To help understand why the industry's economic situation remains so
tenuous, I need to discuss briefly the structure of the industry, how
it works and the fundamental conditions necessary for economic success.
Structure of the Turkey Industry
Most people would characterize the turkey industry as vertically
integrated and while the assessment is relatively accurate, it fails to
capture the diversity of operations that make up today's industry.
The industry is vertically integrated in the sense that the
individual processors make the decision about how many turkeys will be
raised and marketed, and growers raise birds in accordance with those
production plans. In many cases, the vertical integration follows the
classical model: the processor, or integrator, owns the turkeys
throughout their lifespan. The processor provides turkeys to a grower
and also supplies the feed and medication necessary to raise the bird
to a mature market weight. The grower in turn provides the housing and
his or her expertise in raising turkeys and is compensated by the
processor based on a variety of factors, including weight gain,
efficient use of feed and low mortality rates.
In other instances, turkeys are raised on a marketing contract. In
this situation, the grower owns the turkeys throughout their life cycle
and provides the feed and medicine, as well as the housing and
production expertise. The processor then purchases the turkeys at a
previously contracted price. Certain premiums may be paid based on
factors outlined in the contract.
Finally, some turkeys are raised on company-owned farms. In this
model, the company not only owns the turkeys throughout their life
cycle and provides feed and medicine; it also provides the housing and
employs growers to oversee the production.
Some companies exclusively use one model or another. At West
Liberty, we offer identical marketing contracts to all our growers,
regardless of whether they have an equity share in the cooperative or
not. But, it also is common for companies to use multiple production
models. Some will raise birds on production and marketing contracts
while others will utilize a mixture of production contracts and
company-owned farms.
Industry Profitability
Multiple factors affect the turkey industry's ability to sell
wholesome, nutritious, high-quality turkey products profitably at a
reasonable price to consumers, but three stand out: input costs,
production discipline and consumer demand. When all three are in line,
the industry can enjoy significant profitability. When at least two of
these factors are in place--production discipline and consumer demand--
as is the case today, the industry will experience at least some degree
of profitability. If two of the three are out of line, profitability
begins to suffer. When all three factors are askew, the economic
results are disastrous. This was the case when West Liberty Foods was
founded in 1996, and we experienced an even greater downturn in 2008
and 2009. And, it could be the case again within the next 12 months.
Let me explain why:
Input Costs. The road to profitability begins with production
costs. Feed is the most expensive of these inputs, accounting for 70
percent of the cost of raising a turkey. Turkeys are fed a mix of corn
and soybean meal, with corn accounting for roughly 70 percent of the
ration. When feed costs increase dramatically, the industry's profit
margins shrink accordingly. If there is an oversupply of turkey or all
meat proteins, or if the general economy cannot support passing the
increased feed costs to customers, then the industry begins to lose
money rapidly.
This certainly was the case in 2008 and 2009. Corn prices and the
resulting feed costs nearly quadrupled in a span of barely 2 years.
Smart hedging strategies kept feed costs manageable for much of 2007,
but by the end of that year production costs had reached a point where
virtually everyone in the turkey industry--and everyone else who
produced meat and poultry products--had to pass cost increases along.
It was at just this moment that the other two factors both came into
play.
Production Discipline. Economists are fond of saying about the meat
and poultry industry that ``nothing cures high prices like high
prices.'' By this they mean that when prices rise to a certain point,
livestock and poultry producers begin to increase production to take
advantage of the strong prices. This increased production eventually
reaches a point where the market has too much meat protein available,
or too much of a certain meat protein, and prices begin to fall. This
was the case in the mid-1990s when West Liberty Foods joined the turkey
industry. Feed costs were high then, too, but those high costs were the
result of specific global weather events and were relatively short
lived. It took the turkey industry, the pork industry and, to a lesser
extent, the beef and chicken industry longer to work through the
oversupply issue.
The situation in 2008 was different. The industry did not lose its
discipline. Real consumer demand for turkey and all meat proteins had
been rising for several years. There was no reason to believe that
consumers would not support another year of production increases, so
most companies made plans to grow more birds. The year began with most
industry observers anticipating an overall production increase of five
percent or more. It was at that moment that our final factor came into
play.
Consumer Demand. As the general economy slid into recession in
2008, it was dear by spring that the market was softening. We saw
turkey breast purchases at our largest customer, Subway, begin to
decline, and the reason was pretty straightforward. Turkey for years
had been one of Subway's biggest sellers, so the company understandably
had not felt the need to boost turkey sales further with special
promotions. Other products went on Subway's ``$5 Menu,'' and turkey
sales began to lag. Customer decisions in the collapsing economy were
being driven almost entirely by price.
One of our competitors summed up the situation best when he said,
``I'm putting all my breast meat in storage, and my turkey dogs are
flying off the shelves.''
Our most valuable product was not selling at the exact moment when
our feed costs were reaching record highs. It was the perfect storm.
By the time the economy went into complete meltdown that fall,
turkey companies already had begun changing their production plans.
But, turning the production ship around is a lengthy process. It takes
more than 4 months to raise a newly hatched poult into a full-grown
turkey ready for processing. If you add in the lead time to set the
eggs and hatch the poults, it takes a minimum of 6 months to fully
alter a company's production plans. During those 6 months of 2008, the
oversupply situation--especially for breast meat and whole turkeys--
just kept building.
The only bright spot during this period was exports, which consumed
more than ten percent of all turkey produced in the United States and
remained strong through most of 2008. Because Mexico, by far our
largest customer, continued to buy large quantities of thigh and
drumstick meat, dark meat prices were relatively healthy during this
period. Unfortunately, that cushioned the overall blow only slightly,
and by 2009 the global recession had begun to reduce our overseas sales
as well. In 2008, turkey exports were valued at $481.9 million and by
the end of 2009 the value was significantly reduced to $394.6 million.
Once production plans were altered in the second half of 2008, the
change was dramatic. At West Liberty Foods, we cut production 50
(that's five-zero) percent. Another cooperative, with whom we had a
marketing agreement at the time, shut its doors for 3 full months at
the beginning of 2009. A cooperative in Nebraska closed completely. We
were able to take on some of those growers at West Liberty Foods, and a
few found other processors to work with, but many families who had been
raising turkeys for generations had to quit the business entirely.
Initially, the production cutbacks did nothing to stop collapsing
breast meat prices, which according to USDA had fallen more than ten
percent, from $1.17 in 2006 to $1.05 by the end of 2009. It took a $60
million bonus purchase of turkey breast meat by USDA's Agricultural
Marketing Service to slow the bleeding and to buy the industry enough
time for the production cuts to be fully felt in the marketplace. This
bipartisan effort was begun at the end of the previous Administration
and completed by the current Agriculture Secretary, and it enjoyed
considerable support in Congress. All of us in the turkey industry are
grateful for this important effort during such a critical time.
Overall, the industry cut production by about nine percent in 2009
and by another two percent in 2010. Some individual companies may begin
to increase production slightly this year, but overall no one in our
industry expects any significant growth in 2011. In fact, further
contraction remains an equally likely possibility.
Future Challenges
The biggest reason the industry is not more optimistic in the face
of strong prices is feed costs. Corn and other feed prices have begun
to rise again, going from less than $4 per bushel for corn to more than
$7 per bushel in barely a year. As both a turkey producer and a corn
farmer, I will tell you there is one reason for those cost increases--
the Federal ethanol policy.
We can find a bunch of economists to give conflicting arguments as
to why feed costs have gone up, and I'll quote some of their statistics
in a minute, but you really only need old-fashioned common sense to
understand that the ethanol policy is driving these cost increases.
When the Renewable Fuels Standard (RFS) was implemented in 2006, corn
prices were around $2.50 per bushel. By the end of the first year of
the RFS, prices were well above $3 per bushel and as the RFS increased,
corn prices kept rising, ultimately topping out at $8 per bushel.
I know the arguments that speculative funds were what drove up corn
prices, and they played a role. But, what attracted those funds to the
corn market in the first place? The knowledge that the Federal
Government had created a guaranteed market for corn-based ethanol. It's
as close to a sure thing as you can get when it comes to a commodity
investment.
Ultimately, farmers responded by planting more corn, and we enjoyed
several years of very good harvests. Corn prices settled back a bit,
though they operate at a permanently higher plateau where around $3.50
per bushel now is the ``low end'' of the price range. But, there is a
major problem with this new dynamic. The market can only absorb the
ever-increasing demand for ethanol if we have ever-increasing corn
harvests. If the harvest is off only slightly, as was the case with the
crop just harvested, prices begin to soar. Think about it: we just
harvested the third-largest corn crop in U.S. history, and that hasn't
been sufficient to prevent a stocks-to-use ratio that is at or near its
record low.
There is one reason and one reason only for that: ethanol. As a
percentage of the total crop, feed usage is down considerably. Exports
and food consumption are in line with historical levels. But, ethanol's
share of the corn crop has increased from less than ten percent at the
beginning of the previous decade to almost 40 percent today.
The 2006 to 2008 run up in corn prices cost the turkey industry
more than $1 billion. See, I promised you some economist's statistics.
The current run-up in corn prices will have a significant price tag as
well. The ethanol debate has aroused a lot of emotion on all sides, and
I would like to cut through that and get to the essence of the issue:
First, we must quit pretending that ethanol hasn't had an impact on
livestock and poultry farmers as well as end consumers. It has and it
will continue to have one as long as our current policies are in place.
Second, the turkey industry isn't seeking to abolish all Federal
support for ethanol, and I think you will find the same is true for
others in the livestock and poultry industry. Some ethanol supports
clearly can be abolished. It's hard to understand why we need both an
RFS and a ``blender's'' tax credit. The RFS did more for ethanol
production in 30 days than the blender's credit did in 30 years. It's
time to let the blenders' credit expire. I think the livestock and
poultry industry would have grave concerns about a significant new
Federal investment in ``infrastructure'' for ethanol. Food security is
as important as fuel security, and our industry receives no
infrastructure subsidy from the Federal Government. With a guaranteed
market for their product, it would seem reasonable that the ethanol
industry should be profitable enough to begin developing its own
infrastructure.
What the turkey industry is looking for is reform of the existing
ethanol policy, a safety net that ensures that corn prices and
availability will be less volatile in the future.
This goes hand-in-hand with our third point. This isn't about cheap
feed. Yes, high prices hurt us, but the volatility hurts us worse. More
importantly, volatility hinders growth in the poultry and livestock
industry. I heard an economist say recently that high corn prices won't
hurt our industry as much this time around because we're better
prepared for it. That's true--up to a point. We're better prepared
because we've drastically cut production (even at a time when corn
prices were dropping), and production will not ramp back up in a
significant way as long as the specter of enormous feed cost swings
exists.
Finally, we have to recognize that ethanol is beginning to divide
rural America. Each side likes to portray this as a battle of family
farmers on their side against corporate interests on the other side.
The reality is that it is not just pitting large food companies against
large ethanol companies. It's pitting family farmers who raise corn
against family farmers who raise livestock and poultry. I see it in my
own community. I see it in my own operation. The corn farmer in me
likes the prices I've been getting in recent years, but the turkey
farmer in me sees the real economic damage being caused by huge
production cutbacks. We have to drop the ``us-or-them'' mentality and
find common ground. The turkey industry has been willing to seek
compromise since the RFS first was being debated. We put concrete
proposals on the table. We have never received a single proposal for
compromise from either corn farmers or the ethanol industry.
A second major challenge is the marketing rule proposed last summer
by USDA's Grain Inspection, Packers and Stockyards Administration
(GIPSA). Agency officials say the rule is designed to give family
farmers a level playing field when negotiating production and marketing
contracts. That may have been the intent but the rule as proposed
creates long-term dangers for many of the family farmers who raise
turkeys under contract.
Many of you all are familiar with this rule, so I will not address
it on a point-by-point basis, but I will call your attention to three
aspects of the rule that, taken together, create enormous potential
problems for all segments of the industry.
The first is the competitive injury provision that will make it
easier to sue or bring regulatory action against poultry processors.
The second is the provision that requires processors to virtually
guarantee growers they can recoup 80 percent of their capital
investments. The third is a series of provisions that would discourage
competitive contracts in which growers can receive premiums or
deductions based on the performance of the turkeys in their care.
Taken together these provisions create significant new legal and
regulatory risk for the poultry processors who raise about 80 percent
of all turkeys via a production contract with family farmers. The first
and most obvious outcome is that contracts will be less competitive and
compensation will become more uniform among growers. For some growers
this might be good news, but for those who were doing an outstanding
job and receiving premiums will justifiably feel cheated as a new
regulation forces everyone down to a lower common denominator. As I
mentioned earlier, West Liberty Foods is part of the ten percent of the
industry that raises turkeys through a uniform marketing contract, but
I spent many, many years as a contract grower, and I wanted the
opportunity to compete with other growers and to earn premiums for top
performance.
The bigger impact will come in the long term, though. The rule
creates greater economic and regulatory risk for the processors who
raise turkeys under production contracts. These processors will have to
find ways to minimize that risk, and since 80 percent of all turkeys
are raised under these contracts, how that risk is managed will have an
enormous impact on the industry. One conceivable option for processors
could include reducing over time the number of farms on which they
raise turkeys. It could prove safer to expand operations on those farms
with the best track record, and that poses a threat for growers whose
performance is far from poor but who may not meet the rigid criteria
necessary for processors to operate in a higher-risk world. Another
realistic option would be for more processors to raise turkeys on
company-owned farms. Right now such farms make up only ten percent of
turkey production, but it is easy to envision a scenario in which the
percentage is much higher a decade from now.
What is especially frustrating is that USDA promulgated this rule
without conducting an adequate economic assessment of its impact. A
study funded in part by the National Turkey Federation found an impact
of at least $361.6 million on the turkey industry alone. Other studies
found the impact might be even higher. Another study released by the
National Chicken Council concluded that the rule would cost the broiler
industry more than $1 billion over the next 5 years. Finally, a study
conducted by John Dunham and Associates showed job losses to the meat
and poultry industry at 104,000 and would reduce the national Gross
Domestic Product (GDP) by $14 billion.
USDA now has agreed to conduct an assessment, and that is a
positive development. However, no one at the department has committed
to submitting the study for public comment before finalizing the rule.
This is an essential step if there is to be any level of confidence
that the final rule truly has the interests of family farmers--as
opposed to the interests of lawyers who might try to sue on their
behalf--at heart.
No summary of challenges would be complete without mentioning the
Environmental Protection Agency's aggressive new stance against poultry
and livestock farming. The Chesapeake Bay Initiative is a prime
example. The Agency seeks to impose new Total Maximum Daily Load
requirements on farms that operate in the Bay's watershed, yet they are
doing so based on outdated and incorrect models. Put in plain language,
EPA doesn't know what's actually happening in the watershed, but it's
going to prescribe a solution anyway.
A poultry industry representative earlier this year told a House
Agriculture Subcommittee that EPA should recognize the industry's tools
and programs that are improving water quality in the Chesapeake Bay
watershed and across the nation. The results of the industry's action
in this watershed are reflected in EPA's estimates that between 1985
and 2005 nutrient loads from agriculture decreased to the Chesapeake
Bay, while nutrient loadings from developed lands increased by 16
percent.
Imposing burdensome mandates based on questionable data only
imposes more costs, paperwork and burdens on family farmers, while
achieving few real benefits for water quality.
EPA has proven so intransigent on this issue that NTF has recently
joined the American Farm Bureau Federation, the National Chicken
Council, U.S. Poultry and Egg Association, National Pork Producers
Council, National Corn Growers Association and many others in suing the
Agency over the initiative. This was not an easy decision for us.
Turkey farmers and processors are committed to being good environmental
stewards, as evidenced by our success in the Chesapeake Bay watershed
itself. This lawsuit was necessary not just to stop the Agency's
current action but to ensure that this wrong-headed approach is not
exported to other watersheds across the nation.
How Government Can Help
Though most people in the turkey industry prefer minimal government
involvement, there are ways Congress and the Executive Branch have been
helping and can continue to help ensure the continued economic
viability of the turkey industry.
A prime example would be in the work USDA's Natural Resources
Conservation Service had done with regard to the Chesapeake Bay. Their
research has demonstrated the significant flaws in EPA's modeling for
the Bay and could serve as the basis for a more balanced regulatory
approach that truly enhances the Bay.
AMS programs like the School Lunch Program and the 2009 bonus
purchase I referenced earlier are vital. The School Lunch Program and
other government feeding programs help provide school children and the
underprivileged with healthy, nutritious meals. The bonus purchase
program provides a mechanism for the government to purchase commodities
for those feeding programs at bargain prices while providing support
for an industry when it is struggling economically.
And, our partnership with the Federal Government on food safety is
vital for consumer confidence in our food supply. While industry and
the regulators don't always see eye-to-eye, the government's growing
commitment to working cooperatively with processors on a science-based,
risk-based inspection system has helped enhance the microbial profile
of our food supply, reduce foodborne illness and maintain consumer
confidence in what remains the world's safest food supply.
Thank you again for the opportunity to discuss the state of the
turkey industry. I will be happy to answer any questions you may have.
The Chairman. Thank you, Mr. Hill.
I will now move into questions. We will be called to vote
probably shortly, but we will try to get as far as we can and
then reconvene.
The chair would like to remind Members that they will be
recognized for questioning in order of seniority for Members
who were here at the start of the hearing. After that, Members
will be recognized in order of their arrival. I appreciate
Members' understanding.
I will begin questioning if I could with Mr. Hill, and then
if the other two witnesses want to weigh in, please feel free
to do so.
Mr. Hill, your testimony mentioned how our export markets
drive demand for products for which domestic demand is not as
high, such as dark meat. I understand it--as I understand it,
overseas consumers are willing to pay a premium for a lot of
livestock and poultry products that are not as valuable
domestically. Could you please talk about this for a moment,
and particularly how this situation fits with our pending trade
agreements? Then if the other gentlemen want to talk about
trade generally in their opinion, I would appreciate that as
well.
Mr. Hill. I was on a mission to Mexico with the National
Turkey Federation, a trade mission, a number of years ago,
about 3 years ago or so, and we sell a lot of dark meat to
Mexico. That is what we do with a lot of our dark meat. And we
had processors, Mexican processors in the room that were
saying, your price is too high, your price is too high, you got
to get it down, you got to get it down.
One of our guys stood up and he says, the Russians will
give me 10 cents more than you guys will.
The next day dark meat went up and Mexico started buying.
Now, you take Russia out of the equation, he couldn't say
that and they could beat us over the head.
I mean, competition, competition makes sense. The
governments in South America, the eastern governments in Asian
countries, they all eat more dark meat. We eat more white meat
in this country. Europe eats more white meat. We hated it years
ago when we lost our market in the European Union. That would
be a lovely market.
Are trade agreements important to us? Absolutely. And there
is a two-way street here, and it is simply because of the
difference in the peoples. But by the same token, white meat is
cheaper in Mexico, and in Chile, for example, because they like
the dark meat. So we have to figure out how to trade this stuff
around a bit, and we have to have competition.
The Chairman. Thank you. Any other witnesses want to weigh
in on it?
Mr. Welch. Yes, I would.
As Mr. Hill said, Russia is the big dog in the equation.
And got a lot of grief at the end of last year and early this
year about the disagreement over the treating of microorganisms
and their restricting chlorine, which is a perfect
antimicrobial, and so on. But we got all through that, and many
U.S. processors have switched to other products that perform
well.
I guess what got overlooked in the big picture was that
since 2001, when the quota for U.S. product was like 900,000
metric tons, it ended up this year a total of 350,000 metric
tons, non-country specific as it used to be. And so with their
attempting to enter the WTO and so forth, we should insist that
the quotas and the free trade exist between our countries, and
the benefit to the U.S. industry is tremendous. And as Mr. Hill
said, with the preferences for different parts of the chicken,
South America, because of lower labor costs, can produce
product cheaper than the United States, but they can't sell it
cheaper because they have no preference for white meat there.
So, their products tend to sell similar in price regardless of
whether it is the front half or back half of the chicken. So
America's dark meat is extremely competitive in the worldwide
marketplace, and we must insist on fair trade between the
groups.
The Chairman. Thank you.
And now turn to the Ranking Member, Mr. Cardoza.
Mr. Cardoza. Thank you very much, Chairman Rooney.
I want to start by indicating my support on two positions
that you have all indicated that are a problem, and that is the
GIPSA rule and EPA. The committee here in full Committee a few
weeks ago had Administrator Jackson of the EPA here. And I got
to tell you, as I told her that day, that it was a bipartisan
thrashing that I had never seen before in Congress because her
agency is just in my opinion out of control. I think it was a
unanimous feeling by all the Members of the Committee that that
was the case. I have never seen anyone who came before a
committee that got just absolutely uniform criticism for the
way their agency was conducting their operations.
I think the GIPSA rule is another example about how
government is not working for the industry or for consumers,
and we are going to have to take a tough look at that. And I am
hopeful that the Agriculture Department will in fact come to
some different conclusions as we move forward. The questions I
have, you all have indicated, and so have my farmers at home,
both beef and poultry, have indicated that high grain prices
affect them adversely. I had some folks yesterday come by--and
there is no question that it has. I am very sympathetic to
those changes.
I believe that there were fluctuations in the grain market,
however, before we had ethanol, and so I want to really get to
the root cause, and I want to ask a couple of questions that
have been on my mind. There were some folks from an ethanol
plant came by my office yesterday and indicated to me that most
of their product is being used as--the grain is being used as
byproduct for cow feed and other things. If that in fact is
being done, do we have a shortage of corn in the country
generally, or is it the ethanol, because if you are using the
byproduct again in feed and you are taking the starch out, but
you are using the by-product for the protein and other aspects,
is it really the corn and the ethanol production?
Mr. Hill. We can't use as much byproduct in poultry as you
could in your beef operation because the difference in the
stomach of the animal.
Mr. Cardoza. Right. And I understand that.
Mr. Hill. You understand that.
The other thing that you have to understand is we have
tremendous amounts of exports of the byproduct. And so the
byproduct from a cost standpoint doesn't work any better than
corn. In fact, right now, it is the other way, you might have
to use corn when you look at the cost of your ration. But in
poultry, we have to have corn. Corn is king. And you can use
some byproduct but very little.
Mr. Cardoza. I understand. I guess the point that I am
trying to make, and I am just trying to elicit--I am not trying
to make a point; I am trying to get information from you all.
And that is you just told me something else that is very
interesting, that the byproduct isn't all being used in feed;
it is being exported to different countries.
Mr. Hill. Yes, huge amounts are being exported.
Mr. Cardoza. So is it that we are feeding the rest of the
world, that is what is driving up corn prices, or if all the
byproduct were used here for cattle feed, for example, would
that offset what would otherwise be done? There is a zero-sum
game here, is what I am trying to say. And if you are using the
byproduct for corn feed--or for cattle feed, then you are not
buying corn on the market for that same feed. And so I am just
trying to understand if it is really the ethanol that is
causing it, or if it is a convenient place to be critical?
I personally believe that it is time to take off the
subsidies on ethanol myself, but I am just trying to get to the
facts of what really is happening in the real world.
Mr. Welch. Even if all of the DDGs, it is called, dry
distillers grain, is the byproduct, I am not in that business,
but 100 pounds of corn, \1/3\ of the volume goes into ethanol
and \1/3\ of it into the byproduct and \1/3\ of it flashes off
as CO2. And so you have only--you have reduced the
amount of volume by \2/3\ in the byproduct. And then the
nutritional element in the byproduct, for instance, a pound of
corn will have somewhere between 1,400 and 1,500 calories; a
pound of DDGs will only have about 1,200 calories. So what
happens? You have to--if you use the byproduct, you have to
supplement it with the best source of energy: calories as fat,
animal fat that is rendered, chicken fat or other fat. So even
though you try to bring the price down, fat is at record prices
high. Why? Because fat could be used as fuel also just like
ethanol. It is pulling the price back up.
And as Mr. Hill said, we--like in chickens, it doesn't
formulate for us anymore, meaning that the price they are
getting for it, because of exports, it throws it out of the
diet, and you are better off buying outrageously priced corn.
You are still better off.
Mr. King. Congressman Cardoza, I just add as a beef
producer as well, what happens with the commodity market, it is
priced off of the distillers and the corn glutens and all of
the byproducts are priced off of corn prices, soybean prices,
or whatever, and so there are no bargains to be found in
feeding any kind of livestock in today's commodity prices.
Mr. Cardoza. There is no question in my mind, and my time
is up. I just am still trying to figure out if it is a chicken
or an egg kind of situation. Is it the situation that ethanol
is driving this or that we have demand, and we are using a lot
more corn and other products, and it is hurting you all. No
question your industry is under a lot of pressure.
The Chairman. Thank you, Mr. Cardoza.
Mr. Goodlatte.
Mr. Goodlatte. Thank you, Mr. Chairman.
I would like to follow up on the gentleman from
California's questions about feed costs and feed availability.
Mr. Welch, you mentioned in your testimony the possibility
of adjusting the Renewable Fuels Standard and Conservation
Reserve Program as options for addressing the feed availability
challenge.
I would like to hear the rest of the panel's thoughts on
this subject. Mr. King, you hear a lot about that in the
Shenandoah Valley like I do. What impact do you think these
competing programs for your feed, or reducing the acreage
available for feed as in the case of the Conservation Reserve
Program, are doing to feed prices and availability.
Mr. King. As a conservationist, there is obviously some
ground that we don't want to go back into corn production. But
there is some ground that could go even if it was for a 1 year
exemption just to get the carry-over stocks back up. But as I
look at the solution to this, most of the solution to this
problem, other than the fact that I have a philosophical
problem with burning food, most of the solution is going to
come through technology. And one of the biggest concerns I
have, and part of it is because of the location of my
operation, is that we are seeing the environmental community
think that building soil fertility is evil.
And yet we have technology in corn that will give us at
this point year over year 10 to 15 percent increase in yields.
But when you have environmental regulations that won't allow
you to put the nutrients on the soil to produce that crop, you
are not going to get those yields out of thin air.
Illinois just did a research study where they found that
the triple stack corn that is available and most farmers are
planting increased yields by 15 percent an acre. It takes about
13 percent more nitrogen but 22 percent more phosphorus to get
that yield. And yet when we continue to make it impossible to
build our soil fertility so we can produce those kind of crops,
it is a Catch-22 that we have to get around.
Mr. Goodlatte. Okay. You just answered my next question.
Mr. King. I am sorry.
Mr. Goodlatte. That is okay.
I was going to get to that question, too. But if you could
comment on what your thoughts are on the incentives and the
mandates and the tariff barriers that the government imposes
that create a competitive advantage for the use of some of
those grains for energy as opposed to feed.
Mr. King. I have a hard time pitting one sector of the ag
economy against the other.
Mr. Goodlatte. I did not ask you to do that. I support
ethanol, too, as long as it is on a competitive playing field.
Mr. King. But philosophically, I think markets work better
than government subsidies. And, as an environmentalist, I want
the crop, the best crop going to ethanol. And quite frankly, it
is probably cane out of Brazil instead of corn out of Iowa. And
so I would suggest that we remove those barriers and that we
get the best alternatives possible.
I acknowledge that some ethanol is needed to get blends of
gasoline and that kind of thing, but we don't need to push this
to the level where we can't provide the world with the food and
fiber it needs as well.
Mr. Goodlatte. Thank you.
Mr. Hill, do you want to comment on that.
Mr. Hill. Oh, absolutely. What we need--we don't want to
pit food against fuel. And I went to all of our Iowa
Congressmen and Senators and cried wolf at the very beginning
because I said, you people have not put a safety net around
this. What happens if we have a super short crop, what happens
if we don't have enough, and you are subsidizing ethanol and
you have a mandate? Okay, so I can get along okay with the
subsidies; I can't get along with the mandate if there isn't
enough to go around. So I told them, I said, there is an easy
fix, and that is when the stocks-to-use ratio or whatever gets
below a billion bushels, you got to start cutting the ethanol
mandate, because you get down to 550 million bushels and that
is it, that is pipeline. So once you go below a billion, you
got a problem. And I said, if you would do that, there would be
none of this food-fuel stuff, because we all know we have to
eat.
Mr. Goodlatte. Thank you.
Just in my few seconds remaining, Mr. King, would you want
to comment on the situation you find yourself in right now with
regard to the EPA's TMDL, Total Maximum Daily Load requirement
and what impact it is having on operations like yours or will
have in the future?
Mr. King. I happen to have a farm that is located in the
Smith Creek watershed, which is one of the EPA's three showcase
watersheds for the Chesapeake Bay, and so I am getting up close
and personal with a whole lot of what you have just been
talking about. Quite honestly I was really struck the other day
when we were working with information from Virginia Tech that
did a program to try to get a handle on cost-benefit analysis.
In the Smith Creek watershed, 75 percent agriculture, 25
forestry is a fair breakdown. The nitrogen load that comes off
of our forestland equals the nitrogen load that comes off of
our hay land, which is basically equal acres. So why don't we
put buffers around the National Forest and get off the farmers
back? I mean, this idea that somehow agriculture is the problem
is not backed up by reality. And I have already done a lot of
things on my farm, and I will continue to do what makes sense.
I think that the TMDL model is flawed to begin with. And I
don't say that because I want it to say something else. I just
say that because as someone that has worked in environmental
issues and a former DEQ employee in the Commonwealth of
Virginia, I see major problems, and no one seems to want to be
open to it. And the final thing I would say on that is that we
have reduced what happens in our soil to a simple chemical
formula of NPK--Nitrogen, Phosphorous, and Potash. It is an
ecosystem where carbon interacts with it, where micronutrients
interact with it, and we have written regulations that will
make it impossible for us to meet the food needs of this
country if we don't wake up and see that there is more at play
than just NPK in our soils.
Mr. Goodlatte. Thank you, Mr. Chairman.
The Chairman. Mr. Scott.
Mr. Scott. Yes, very quickly. We are having very solid
debates here on the budget and cuts and so forth. I would like
to get each of your impressions on the impact of research, your
use of research, and the value of research from some of our
universities. What in your estimation would be the effect of
cuts in the USDA's research budget on your operations? How
valuable is research from our universities to y'alls
operations?
Mr. Hill. Well, I can speak for the turkey industry;
research is huge, because we do a lot of research on diseases.
Avian influenza would be one. I mean this is paramount. We
learned this just a few years ago with the outbreak that they
had over in Southeast Asia and some of the stuff that has
happened in this country. It is a big deal. We have to have
research, and the government gives us some good stuff. The
government is not all bad. We have to figure out how to work
together. And the EPA, we work with, we can work with them, but
it is an attitude that you have that what we are doing is bad
and we aren't. We are here to save this country, and they have
to develop a different attitude.
Mr. Scott. Anyone else on that.
Mr. Welch. Yes, Mr. Scott.
We rely heavily in Georgia on the University of Georgia.
The poultry science department is crucial to the activities of
especially disease and research. Additionally, in Georgia,
other Federal programs, the southeastern USDA lab in Athens and
the PDRC, Poultry Disease Research Center, are extremely
crucial to the science of our business. And Georgia is not just
the only one, University of Arkansas, the Auburn University,
are tremendous, tremendous factors in animal agriculture.
Mr. Scott. I am very concerned about helping with the
research and keeping that very important and kind of minimizing
these cuts. It would be very interesting if you feel that,
particularly with poultry, do you think it would have a
positive or negative effect on your ability to remain
competitive in the global market? How does our research and our
universities assist in making sure our poultry industry remains
top of the line in terms of competitive in the international
market?
Mr. Hill. We have the safest food in the world. Go through
the plants in the European Union, go through them in Russia, go
through them in Chile, go to them in Mexico. This is it. We are
the safest there is. We didn't happen by accident. We do
research, and we compete and we challenge each other, but we
also share. Food safety is paramount with what we do in
poultry.
Mr. Scott. I know we have to go vote, but I want to make
sure we have on the record that you all, each of you three feel
very strongly that if there are any reductions or cuts in our
university research, that it would be very, very minimum.
Mr. King. I would just add to that, Congressman, that the
government definitely has a role in research, but there is a
lot of good research out there that is done in the private
sector as well. And I would be naive to think I could sit here
and say, don't cut what is important to me but find someone
else to cut. As an American, I would simply say it is
imperative that we get our budget situation under control, and
if we are going to have to take some lumps along with everyone
else I don't think we should cry too loud. Research is a
wonderful thing. I am not boo-hooing over research. But we
can't continue down the path we are going and have a
sustainable economy.
Mr. Scott. Thank you, sir.
The Chairman. I want to thank the witnesses. As you may
know, we have been called to vote, and the other Members will
not be able to return, so we are going to adjourn. But I want
to thank you all for participating in this discussion on the
state of the industry for poultry. And with that, under the
rules of the Committee, the record of today's hearing will
remain open for 10 calendar days to receive additional material
and supplementary written responses from the witnesses to any
question posed by a Member.
This hearing on the Subcommittee on Livestock, Dairy, and
Poultry is adjourned.
[Whereupon, at 2:45 p.m., the Subcommittee was adjourned.]