Testimony of
Roger Johnson
Commissioner of Agriculture
State of North Dakota
21^st Century Commission on
Production Agriculture
Public Listening Session
Denver, Colorado
August 16, 1999

Thanks also to the State of Colorado and Commissioner Ament for hosting this public listening session. Part of my job this morning is to welcome all of you to this listening session. I will be very interested to hear your thoughts on current farm policy and the future direction of farm policy. But first, let me share some of my thoughts with you.

North Dakota’s Situation

When I was running for this office back in 1996, I spent considerable time out talking with folks around the state. One gentleman had some very strong feelings about me and said, "You’ll get elected when hell freezes over."

Well, I did get elected and the following winter was one of the worst on record in North Dakota. After the winter blizzards came serious spring flooding. We lost over 100,000 head of cattle during a time when cattle prices were in the trough of the cattle price cycle – producers were seeing negative returns in many cases.

Since then, we’ve been dealing with a continual series of natural disasters and over the course of the last two years, we’ve found ourselves in a low-price driven economic disaster in virtually all agricultural sectors. Maybe that gentleman knew something I didn’t!

The rash of natural disasters and production problems in North Dakota are not "normal" occurrences. We are home to some of the most productive agricultural land in the world and our state’s economy is driven by production agriculture and related agricultural businesses. We lead the nation in the production of durum and spring wheat, barley, sunflowers, pinto beans, dry edible beans, flaxseed, oats, navy beans, canola and rye. But that production doesn’t do much good when there aren’t adequate prices.

One of the largest problems affecting producers in North Dakota is the sheer lack of profitability in agriculture. In 1998, family living expenses exceeded net farm income in North Dakota for the third year in a row. (Attachment 1)

Our two largest agricultural industries – wheat and cattle – have brought in low and negative returns to producers for the past couple of years. (Attachments 2 & 3) The average return per beef cow for the years 1995 through 1998 was $3.00.

As you can see from the charts, this isn’t a problem that has arisen just this year. We have been experiencing the natural and price disasters for the past three years.

That is why we in North Dakota undertook a yearlong process of assessing our current situation and creating a plan and a vision for the future of agriculture in North Dakota.

North Dakota’s Commission on the Future of Agriculture unveiled its work plan last year – filled with the input of over sixty rural and farm organizations and more than 1,000 producers. The work plan includes 5 major goals and 54 specific recommendations for action, some of which have already been achieved.

We want to become the trusted provider of the highest quality food in the world with prosperous family farms, thriving rural communities, and world-class stewardship of resources. That is our vision for the future and we believe it is achievable. There are many things we can do and intend to do in our own state to make that happen. But, we also need a federal farm policy that creates an environment for that vision to flourish.

Effects of Current Farm Policy

How did the crisis in agriculture reach this level? I’ve spent considerable time thinking about that question, and the conclusion I’ve reached isn’t one I like.

While Freedom to Farm is not entirely to blame for the current crisis we face in agriculture, it certainly is doing nothing to help us work our way out of the crisis.

It says in your Status of Agriculture Report, "The new law is characterized as a transition to the market environment with farmers becoming more responsible for their own choice of risk management tools." Unfortunately, Congress has not yet provided adequate funding and workable programs to provide meaningful choices in risk management tools, specifically crop insurance. Congress also made it clear they wanted to eliminate ad hoc disaster programs, leaving producers with virtually no assistance in the face of natural catastrophes beyond their control.

This, in spite of the fact that Congress was forced to pass disaster relief last year to deal with both the natural and price-related disasters facing producers. It appears that Congress will pass a disaster relief package again this year – not so much because of the natural disasters occurring across the country, but more so because of the price disaster, the utter collapse of most commodity prices! (This alone, I would argue is prima facie political evidence of the failure of our current farm policy).

We remain hopeful that substantial crop insurance reform will pass Congress yet this year. However, it is difficult for me to conceive of a crop insurance program that can provide any kind of realistic long-term price protection for our farmers. So, crop insurance doesn’t solve the current price disaster we are facing, annual disaster bills certainly don’t solve this problem in the long term and Freedom to Farm (current farm policy) is clearly not solving the problem, or we wouldn’t be considering disaster legislation.

Freedom to Farm has also been touted as the farm bill that will get government out of agriculture. Any honest assessment of the situation, however, demonstrates that this policy has kept the government deeply involved, perhaps even increased their involvement in the affairs of our farmers and ranchers.

A fundamental problem with this farm policy is the discrepancy and variance between the marketing loan rate levels for cereal grains and oilseeds. The loan rate levels for oilseeds are at a much higher percentage of a producer’s cost of production, which provides a rather obvious and substantial incentive to produce oilseeds and conversely, a disincentive to plant cereal grains. To me, that doesn’t sound like a farm bill that relinquishes government control.

Further, because of the marketing loan program and its attendant LDP feature, producers are telling me they are making more frequent and frustrating trips to the county FSA offices than they did under the old farm program. Many of their trips are being made in the middle of the harvest when they ought to be farming, not playing footsie with this new "free market approach" farm policy.

I will say that the planting flexibility component of Freedom to Farm was a good move for American agriculture. I think most everyone agrees on that point. But planting flexibility really only works when other more profitable alternatives exist for farmers to consider. The problem right now is the market, for which farmers are supposed to plant, isn’t providing signals to grow anything. It is telling them to abandon farming, not to just grow something else.

Why the depressed market prices? Oversupply, overproduction, sagging economies, and dampened exports are the general explanations we hear over and over again.

Some say, "Let the free market work. Eventually, the market will work." Producers will just have to hang on long enough to ride out the severe and prolonged volatility of the marketplace. Unfortunately, it just isn’t possible for many family-sized farmers and ranchers to ride out market situations like the current one we’re in, especially after repeated years of natural disasters and production problems.

Using the less than adequate funds that Congress appropriated for the Export Enhancement Program and lifting food sanctions on less than a handful of countries won’t fix our problems, though it clearly ought to be done. Risk management isn’t the answer here, either. It is impossible for a family-sized operation to manage its way through an economic collapse of a large foreign country, significant overproduction in another country, and a devastating flood. It just isn’t realistic.

More fundamentally, in order for the current farm strategy to work, it must not only drive many of our farmers and ranchers from the business, but it must drive capital out of agriculture, reduce land values, and force land and resources out of the industry. It is not sufficient to just force producers to go broke – production itself must be reduced for this strategy to work. Land must be removed from production. And when higher prices return, the land must be brought back into production.

But the biologically-driven time line to bring land back into production argues that it will not happen unless there is reasonable certainty that the high prices will prevail long enough to recoup the huge financial and temporal costs of returning this land to production. That reasonable certainty can only exist when government provides such assurance or when few enough farms remain that they can control the supply.

I think it is unfortunate that we’ve let this policy and mentality "work" its way into the very fabric of Rural America, unraveling communities, farms and ranches, and peoples’ lives in the process. We’re losing the very social structure that this country was founded on. If we continue in this direction, our agrarian society will disappear before our eyes.

Farm Policy Must Be Changed

I would argue that our current farm policy needs to be changed. I believe that we have to do something to increase the opportunity for our producers to receive a fair price for their products.

One way to influence price is to control supply. Now, before eyes roll and arms cross, let me say that I’m not advocating a return to previous programs.

As a matter of national security, we need to have domestic farm policy that recognizes the inherent obligations of a government to provide its citizens with a safe, healthy, and adequate food supply. We must make sure that in the future we have the ability to develop and maintain those policies (which may be very different from current policies). We need to maintain that sovereign right, and we must recognize the sovereign rights of other countries to have the same capabilities. After all, what is more important for any country than its obligation to assure its citizens of a safe, healthy, and adequate food supply?

We also have a need to provide food security on an international level. I believe that an international food reserve program should be developed to increase that security. During productive, profitable years, some of that production should be held for use in lean years. All WTO countries should be responsible for sharing in the cost of the program. It should be separated from the market – closed off in times of low prices and utilized in times of high prices.

Certainly, we can all recognize that a Farmer Owned Reserve program, if employed only by the United States or any other single country, would impose a large burden on that country. But if all major food-producing countries were to share in such a system, its humanitarian benefits would accrue to all. It is really no new idea to suggest that food ought to be stored during the years of plenty for the lean years that inevitably will follow.

One of the valid arguments made when Freedom to Farm was debated in 1995 was that our federal government’s attempts to change and influence supply under old farm programs was becoming less and less effective. The goal was to try and stabilize prices to a sustainable level. The problem was that as we stored commodities and provided incentives to influence supplies, other major producing countries were snatching up the world market share.

I believe that we had the right strategy, but we employed that strategy on the wrong level. In order for such a program to work today, we must cooperate with other major producing nations – Australia, Canada, Argentina, European Union and others – to influence supplies so that prices can move to a higher, more profitable level.

Currently, the European Union (much to our chagrin) does try to influence supplies. Our federal government’s current position on the European Union’s use of subsidies is, "Hey you guys, you’d better cut that out…or else." Or else what? We have significantly reduced subsidies that are tied to production, as has Canada and other countries. And where has that gotten us? Absolutely nowhere.

I believe that in the end, the issue of supply will rule farm policy. Either governments will intervene to influence supply so that prices can maintain more stable levels, or the number of individual firms will decline to a handful so that they can collectively and successfully do the same thing.

That is why I am intrigued by US Senator Conrad’s recently introduced bill – the Farm Income and Trade Equity bill (FITE)– which is an alternative to our current farm program. Producers could either stay with "Freedom to Farm" or sign up for the "FITE" program. Economically, I don’t know of many producers who wouldn’t choose FITE.

Finally, let me impress upon you the absolute urgency of this crisis. If we sit around and do nothing but apply Band-Aids, while failing to recognize that our agricultural policies are fundamentally flawed, our family farmers and ranchers will be put out business before we know it. I truly believe that the future of our industry is at stake.

As you hear from producers and farm organizations today and throughout the coming months, I hope you think about the following questions: