Introduction

Good morning. My name is Roger Johnson and I'm the North Dakota Agriculture Commissioner. I appreciate the opportunity to testify on farm bill issues today and would like to thank Senator Kent Conrad for his work in organizing this hearing.

Background

Agriculture is a leading industry in North Dakota and paramount in our history, present and future. Our state was built largely on agriculture, and it remains the cornerstone of our economy. Agriculture generates more than $3 billion in cash receipts, which turns over in our economy numerous times - from farms, to local businesses, to metropolitan centers.

We lead the nation in the production of nine different commodities: flaxseed, canola, durum wheat, pinto beans, sunflowers, spring wheat, barley, all dry edible beans, and honey. While many of these commodities leave the state bound for export to other domestic or foreign markets, many of the commodities are further processed here in North Dakota into a wide variety of food and other products.

North Dakota farmers process some of these commodities as members of new-generation cooperatives in the state, which now have more than 8,600 members.

While North Dakota farmers and ranchers are continually challenging themselves and their businesses to grow and meet the demands of the global marketplace and its customers, they also continue to rely on federal farm policy to provide basic support for the production of domestic commodities.

Premise of farm policy

As we debate the future of federal farm policy, I believe it is critical to repeatedly ask others and ourselves two very fundamental questions: Do we, as a nation, care if our food is produced in our country? And, if so, do we care whether family farmers and ranchers produce it?

If we want our food produced right here at home by family farmers and ranchers, then we certainly need a domestic farm policy that supports agriculture and rural America. And we as public policymakers, have a responsibility to craft public policy that meets the needs of our country.

I would offer the following guiding principles, which were developed by my counterparts around the country, as benchmarks as we continue the important work of crafting farm policy:

Profitability and Viability: A financially healthy and profitable agricultural sector is essential to the production of a safe, fresh, and affordable food supply for consumers in this country. Moreover, economically viable farming and ranching enterprises will enable producers to increase their efforts to maintain a healthy environment, protect our natural resources, and build stronger rural communities.

Level Playing Field: A financially healthy and competitive agricultural economy can only result from a fair marketplace - domestic and global - where efficient, productive farmers and ranchers have economic marketing and bidding power commensurate to their assets and production capabilities.

Non-Trade Distorting: American producers are among the most efficient in the world. Open international - and domestic - markets would not only benefit U.S. producers but also a foundation upon which U.S. agriculture relies.

Flexibility in Regulation: One size does not fit all. Government policies and programs should be flexible, and to the maximum extent possible, based on voluntary participation through incentive-based approaches.

Sound Science: The foundation of the agricultural sector has long been the development and adoption of science-based practices derived from reliable data and information. As business people, agricultural producers have looked to science for the best information possible to make decisions. Sound, peer-reviewed science policies and methodologies for assessing risk must be the standard for government regulations and international trading rules.

Maximum Delivery Through States: New and expanded programs should emphasize the role of states in terms of delivery. Particular emphasis should be placed on partnerships and pilot projects.

Farm Policy: Core Components

Our current farm bill was crafted on the premises that trade would be the engine of the new agricultural economy, that higher, sustained market prices would keep farmers in the black, and that our country would get out of the business of providing domestic support to agriculture.

Recent years in agriculture have demonstrated that the forecasts, predictions, and prophecies of the authors of Freedom to Farm have been left unfulfilled. Congress has been asked to come to the aid of agriculture in each of the last four years to cobble together emergency legislation to bolster support for farmers and ranchers in the absence of a safety net in domestic farm policy. Combined emergency spending and other authorized government programs have, on average, totaled approximately $20-30 billion during each of the past three years.

Is this level of agricultural spending necessary? Yes. Was congressional action and response appropriate? Yes. Can we or should we continue to ask Congress to authorize disaster spending at recent levels in the future? No. We should instead enact and deliver an adequate, predictable safety net to producers through a new farm program.

Rejection of the current farm program is not advocacy for a return to earlier farm programs. What is needed is a new approach to farm policy, incorporating positive elements of past farm bills, while taking strong measures to ensure viability and profitability in the agricultural sector.

Over the past two years, I have worked with my counterparts from around the country through the National Association of State Departments of Agriculture (NASDA) to develop recommendations for federal farm policy. NASDA's voice joins many others in this process, but I believe NASDA offers a truly unique perspective on farm policy. NASDA's membership transcends political parties, includes the gamut of agricultural production in this country, and represents a cross-section of demographics.

While there are a number of facets of farm legislation, NASDA - like many North Dakota farm organizations - believes that the new federal farm policy must contain three core components:
1. Counter-cyclical assistance
2. Cost of production insurance
3. Stewardship initiatives

1. Counter-cyclical assistance

First, the cornerstone of a new farm bill should be a counter-cyclical assistance payment plan for the producers of major field crops and milk. Counter-cyclical payments would replace the current system of fixed payments to producers of major field crops supplemented with annual, off-budget ad hoc disaster economic disaster payments.

Table 1 - Program crop costs of production and proposal support levels

Commodity
National Average Total Cost of Production (1998-1999)
Safety Net
90% Cost of Production
Safety Net
90% Cost of Production

Fixed (Base Acres and Yield) 10%
Counter-cyclical Variable (Actual production) 90%

Source: USDA-ERS and NASDA Interim Farm Policy Report, July 11, 2001

Rebalance loan rates based on cost of production

Our proposal would be based on a producer's actual production and could be administered as a separate payment at the end of the marketing year or by simply adjusting loan rates. Loan rates are proposed to be adjusted to the amount indicated in the last column of Table 1. Predictable payments would be made at times when market prices are inadequate and would be triggered if prices were below 90 percent of the average of the 1998 and 1999 economic costs of production. Government assistance should be counter-cyclical in nature to protect producer's incomes when prices are low, yet minimize market distortion and save taxpayers' money when prices are stronger.

We must use the trade tools we've negotiated

Counter-cyclical payments allow government support to be adjusted quickly, up or down, in response to market conditions. NASDA's counter-cyclical program is designed to meet all of the US "amber box" commitments under the World Trade Organization (WTO). And this action would demonstrate to our trading partners that the US is serious about using our trade agreements to help our farmers and about using all the tools available under WTO to, at a minimum, maintain U.S. market share.

These payments would be made on a 90/90 basis; they would cover 90 percent of a national average economic cost of production (as defined by USDA/ERS). The payments would be comprised of two components: variable and fixed. Up to 90 percent of the total payment would be variable and counter-cyclical to the market; the other 10 percent of the payment would be fixed and based on an updated five-year history (from 1996 to 2000) of base crop acres and yield. Low market prices would trigger higher payments; profitable markets would trigger lower, or no, variable payments.

The variable payment would be paid on actual production of each producer; thus coupling it, rather than decoupling it, from production. It would be calculated as the difference between actual average market prices and 90 percent of 90 percent (81%) of the total average cost of production. I believe, and NASDA concurs, that payments to producers should be linked to what a producer does on the land or with his/her production.

2. Cost of production insurance

Another integral component of a new federal farm program is an effective commodity insurance program with accountability to the American taxpayer. NASDA supports including a new, cost of production-based insurance program that would provide protection for up to 90 percent of a producer's documented cost of production. This would provide an additional risk management tool for farmers that is not currently offered through existing crop insurance products.

One of the benefits of cost of production-based insurance is its relatively straightforward structure. A participating farmer would be required to document all production expenses. Then, he would determine his gross income from sales of his crop and any government assistance payments he may have received. If that total income exceeded 90 percent of his documented cost of production, the producer would receive no indemnity payment. If, due to market conditions, weather, disease, or other events beyond the producer's control, his total gross income is less than 90 percent of his cost of production, he would receive an indemnity payment for the difference between his actual receipts and 90 percent of his cost of production.

Cost of production insurance would be available to all producers, including specialty crops, livestock and milk. There would also be incentives for beginning farmers.

I have included a number of examples in the appendix of my testimony, which walk through different scenarios for both cost of production insurance and counter-cyclical assistance.

3. Stewardship Initiative

A third core component of a new farm policy is conservation and stewardship. NASDA is proposing a new agricultural stewardship program to be included in the next farm bill.

The new program would be delivered via federal grant funding, with state departments of agriculture as the lead agency to administer the program. This would give state and local governments greater flexibility, tools and resources to implement agricultural conservation priorities. The program would build on existing delivery systems and infrastructure - not duplicate current programs.

The secretary of agriculture would provide agricultural stewardship grants annually to state departments of agriculture to provide assistance and support, cost-share payments, incentive payments, technical assistance and education to agricultural producers and landowners for environmental enhancements, best management practices, and air and water quality improvements addressing resource concerns.

Under this program, states would have maximum flexibility to (a) address threats to soil, air, water, and related natural resources including grazing land, wetlands, and wildlife habitat; (b) comply with state and federal environmental laws; and (c) make beneficial, cost-effective changes to cropping systems, grazing management, manure, nutrient, pest, or irrigation management, land uses, or other measures needed to conserve and improve soil, water, and related natural resources.

This new agricultural stewardship program would give states flexibility to address their most critical problems, increase local buy-in to find workable conservation and environmental solutions, emphasize preventive measures, simplify program delivery, and address the expanding list of new concerns and problems.

Agricultural Funding

New developments and realities continue to emerge with respect to funding for agriculture and other federal government programs.

NASDA crafted its farm policy recommendations based on what we - as commissioners, secretaries, and directors of agriculture - feel is needed to provide an adequate, reliable safety net for agriculture. The proposal we have offered exceeds the existing CBO baseline for agricultural spending over the next ten years; however, the proposal falls within the level of federal spending agriculture has seen over the past three or four years.

I have read with concern the recent OMB and CBO reports on the status of the budget surplus and its potential impact on federal spending and funding levels. NASDA was prepared to restructure our proposal to meet the budget guidelines earlier adopted by Congress of $106.8 billion in baseline spending over the next ten years and $63 billion on new spending over the same time period.

It appears that the $63 billion of new agricultural spending included in the 2002 budget resolution may be in jeopardy, which would leave us with only $106.8 billion for the next ten years. This is very bad news for agriculture, since without additional funding, Congress will only provide agricultural spending at current baseline levels, which does not include spending for emergency assistance as we've received in recent years. The bottom line is that we may not be able to deliver an adequate, reliable safety net to agriculture without an increase in funding from the federal government.

Conclusion

Farm policy is at a crossroads, and we have many choices before us. Do we continue down the path of primary reliance on trade and a friendly marketplace, in keeping with the philosophy of "getting government out of agriculture"? Or, do we recognize the importance of supporting family farmers and ranchers and rural America and craft a new, responsible public policy for agriculture? I choose the latter.

I believe we, as a country, must answer these two questions affirmatively: Do we, as a nation, care if our food is produced in our country? And, if so, do we care whether family farmers and ranchers produce it? And when we do say "yes," we must craft a farm policy that is predictable, dependable, and that provides an adequate safety net to allow well-run family farms and ranchers to survive and prosper.

I look forward to continuing debate on farm policy and to working with Congress, agricultural organizations, farmers and ranchers, and others as we develop the next farm bill for our country.

Thank you again for this opportunity to offer testimony on the farm bill. I would be happy to answer any questions you may have.