down these barriers, or I fear our own farmers will seize the mantle of protectionism for themselves.

Let me conclude with this: Fruits and vegetables are more than simply an agricultural crop. Our products are key to health for millions of Americans. Today between 300,000 and 600,000 Americans die each year due to unhealthy eating and physical inactivity. Probably the greatest chance to exert some budgetary control of soaring health care costs is to invest in prevention of disease through healthy eating. The new dietary guidelines for the first time include an individual guideline urging all of us to eat 5 to 10 servings of fruits and vegetables a day. Now, let's not stop with that pamphlet on the shelf. Let's make sure that those guidelines are put into effect in every single program under the committee's jurisdiction.

I know this isn't solely an Agriculture Committee issue, but I urge you to take careful consideration of the unique opportunity presented by fruits and vegetables to transform our Nation's health.

Thank you, Mr. Chairman.

[The prepared statement of Mr. Stenzel appears at the conclusion of the hearing.]

The CHAIRMAN. Thank you.

Mr. Roney.

STATEMENT OF JACK RONEY, DIRECTOR OF ECONOMICS AND POLICY ANALYSIS, AMERICAN SUGAR ALLIANCE

Mr. RONEY. Thank you, Mr. Chairman. I am Jack Roney, director of economics for the American Sugar Alliance, the national coalition of growers, processors, and refiners of sugar beets, sugarcane, and corn for sweetener.

The American sugar farmers are among the most efficient in the world. Fully two-thirds of the world's sugar is produced at a higher cost per pound than in the United States. Because of our competitiveness, we support the goal of genuine global free trade in sugar. We have been on record since 1986 as supporting global free trade for sugar. American sugar farmers cannot compete with foreign governments, but we are perfectly willing to compete with foreign farmers in a truly free-trade environment.

We are concerned, however, that developments over the past couple of years may signal a dramatic reversal of direction for U.S. and world agricultural policies. The North American Free Trade Agreement of 1994, the multilateral Uruguay Round Agreement on Agriculture of 1995, and the more profound reforms of the 1996 farm bill in the United States seemed to presage a sea change: governments removing themselves from the agricultural marketplace. Developments since that time overwhelmingly suggest the opposite is occurring. Governments already heavily involved in their agricultural markets remain entrenched, and many governments that had begun to remove themselves have reversed direction.

U.S. and world commodity prices plunged to historic lows in real terms the past 2 years. Governments have rushed back into the marketplace to protect farm income or prices or both, buttress their rural economies, and ensure domestic food supply stability. Compliance with the NAFTA and with the Uruguay Round has been spot

ty, at best, and efforts to initiate another multilateral round of trade reforms through the WTO collapsed. Bilateral or regional trade agreements have tended to exclude key agricultural products. In the United States, the 1996 Freedom to Farm bill eliminated production constraints and traditional price supports, and sought to phase out U.S. commodity program spending over the next 7 years, from then current levels around $6 billion per year. Subsequently, production growth has far exceeded domestic and export demand for most major commodities, prices have collapsed, and the U.S. Government has rushed back in, appropriately, to prevent rural economies from collapsing. Government program spending, rather than phasing out, has exploded and will exceed $32 billion in fiscal year 2000.

So indicators in 1996 that that would be the last U.S. farm bill are showing signs of reversing direction. The 2003 farm bill could mark a return to more traditional agricultural policies.

The European Union, an agricultural powerhouse built on generous subsidies and a commitment to food security and preservation of the rural way of life, is showing little interest in further internal reform or in fostering another multilateral trade round. Its regional so-called free trade agreements, such as with Mexico, exclude sugar and most other sensitive agricultural commodities.

Many self-proclaimed free trade countries are having second thoughts in the face of low commodity prices and economic pain in rural areas. Examples among key sugar-producing countries that are coming to the aid of producers facing low prices and debt crises include, Mexico, Thailand, and even the supposed free trade paragon of Australia.

Turning specifically to the U.S. sugar situation, the low U.S. commodity prices caused a spillover of acreage from grains, oilseeds, and cotton to sugar beets and sugarcane that has increased sugar production, contributed to 20-year lows in U.S. sugar prices, and prompted the Government to make unprecedented purchases of sugar to reduce supplies. Though the cost of the purchases is minute relative to the overall agricultural spending, U.S. sugar policy is likely to register a net cost to the Government for the first time in nearly two decades.

U.S. sugar policy's problems are complex and far from isolated. Developments with other U.S. commodity prices, U.S. environmental policy decisions, import quota disputes, and the international and regional trade agreements are all variables that profoundly affect even the near-term outlook for American sugar farmers. Circumvention of our import quota by a product concocted in Canada called "stuffed molasses" must be addressed. The threat of massive quantities of subsidized sugar from Mexico flooding our market must be addressed. And the problem of oversupply of sugar and corn sweeteners must be address in both the United States and Mexico.

The domestic and trade policy challenges to the U.S. sugar industry are daunting but manageable. American sugar farmers are efficient by world standards. The industry is modern, dynamic, and highly competitive. American sugar farmers deserve to stay in business, and we will.

Efficient though we are, American sugar farmers cannot stay in business in the absence of at least a minimal U.S. sugar policy that prevents their displacement by subsidized foreign sugar. A U.S. sugar policy that adapts to changing international developments can and will be adopted. The continuing high level of foreign subsidies mandates that some form of U.S. sugar policy be maintained until multilateral trade negotiations yield the free trade paradigm which is the ultimate goal of efficient American sugar farmers. Thank you, Mr. Chairman.

[The prepared statement of Mr. Roney appears at the conclusion of the hearing.]

The CHAIRMAN. Thank you.

Mr. Brown.

STATEMENT OF BLAKE BROWN, ASSOCIATE PROFESSOR, DEPARTMENT OF AGRICULTURAL AND RESOURCE ECONOMICS, NORTH CAROLINA STATE UNIVERSITY,

Mr. BROWN. Good morning. I appreciate the opportunity to address this distinguished committee. While the Tobacco Program is not part of the farm bill, I hope this information will be useful as you contemplate the future of U.S. agricultural policy.

Tobacco is the Nation's sixth largest crop in terms of cash receipts and is produced in 20 States. Tobacco is an integral crop in parts of the South. About 90 percent of the Nation's tobacco is grown in seven States in the Southern region, led by North Carolina and Kentucky, followed by South Carolina, Tennessee, Virginia, Georgia, and Florida. Within the seven major tobacco-producing States in the Southern region, tobacco ranked first in terms of total crop cash receipts and second in terms of overall agricultural cash receipts during the 1992-96 period. The relative importance of tobacco in the Southern region is even more pronounced when net returns from tobacco are examined as a share of net farm income. Furthermore, tobacco has trailed only cotton as the Southern region's most important export commodity.

According to the 1997 census of agriculture, tobacco is grown on almost 90,000 farms, with an average tobacco acreage of 9.3 acres per farm. While consolidation of tobacco production is occurring, production in many parts of the South, particularly in the burley tobacco areas, remains concentrated on relatively small family farms. Average tobacco acreage per farm varies tremendously by tobacco type. Today, most Flue-cured tobacco farms average 35 to 40 acres of tobacco, compared to burley tobacco farmers which generally produce less than 10 acres of tobacco per farm.

Given the uncertainty facing the tobacco industry, most tobacco farmers are attempting to diversify their income base. However, few alternative agricultural enterprises can consistently rival the net return per acre of tobacco. In many cases, net returns from tobacco are utilized to finance diversification into other agricultural enterprises. Despite these diversification strategies, a large percentage of farms growing tobacco are still heavily dependent on returns from tobacco. Census data reveal that 73 percent of tobacco farmers derive at least 50 percent of their total farm sales from tobacco.

Under the U.S. Tobacco Program, tobacco farmers agreed to restrict supply via quotas in exchange for minimum price guarantees. Since U.S. tobacco has historically garnered significant market power in the global market for tobacco, the supply restrictions have been effective in substantially raising the price of U.S. tobacco above the price of other tobaccos on the world market. Price supports act not only as a safety net but, more importantly, as price targets that determine the levels at which national quotas must be set in order to achieve these prices. The price support system is financed solely by growers and tobacco buyers through a system of collection of no-net-cost assessments.

The effectiveness of the supply restrictions in raising U.S. tobacco prices depends critically on U.S. and foreign tobacco buyers being willing and able to continue to pay more for U.S. tobacco than they pay for competing tobacco such as those produced in Brazil, Argentina, Malawi, and Zimbabwe. Health concerns, the tobacco settlement, increased State and Federal cigarette excise taxes, and continued litigation against U.S. cigarette manufacturers have resulted in declines in U.S. cigarette consumption and consequent declines in the quantity of tobacco used by U.S. cigarette manufacturers. Declining U.S. cigarette exports have also contributed to the decline in domestic use of U.S. tobacco.

Equally significant is the intense_competition from foreign tobacco producers, particularly Brazil. Brazil, which produced hardly any tobacco in the 1970's, now produces and exports more Fluecured tobacco than the United States. Increasing competition has led to increased imports of foreign tobacco to the United States and declining exports of U.S. tobacco.

As a result of the decline in domestic demand and increasing global competition, the national Flue-cured tobacco quota has declined from an average of at 875 million pounds in the mid-1990's to 543 million pounds in the year 2000. The national burley tobacco quota has declined from an average of about 600 million pounds during the mid-1990's to 247 million pounds this year. Cash receipts from U.S. tobacco sales averaged about $2.7 billion for the period 1994 to 1997, but will likely be around $1.5 billion for the year 2000.

Solutions to this dilemma are not easy to find. Future use levels of U.S. tobacco by U.S. cigarette manufacturers are uncertain and depend greatly on the outcome of pending litigation as well as foreign tobacco production and prices. The decline in U.S. tobacco exports may be slowed or stopped temporarily by declines in Zimbabwean tobacco production or weather-related tobacco declines in other parts of the world. China's removal of their ban on imports of U.S. tobacco may also help curb or even temporarily reverse the decline in U.S. tobacco exports. Restoration of export promotion funds to tobacco, as are available for many other farm commodities, could help U.S. tobacco compete more favorably against foreign tobaccoes. Phase II funds from cigarette manufacturers and the funds made available by Congress in 1999 and again this year are helping tobacco farmers maintain their operations in the face of very low national quotas. Other remedies have long been discussed. Elimination of the Tobacco Program would result in substantial structural change in tobacco farming. Tobacco prices would fall to

ward the world price. The end result would be fewer but larger tobacco farmers producing more tobacco at lower and more volatile prices.

The problem of declining market power and demand for U.S. tobacco is not likely to disappear despite the possibility of temporary reprieves. As such, policymakers and farm leaders working to maintain and improve the incomes in tobacco-dependent communities will continue to face significant challenges.

Thank you.

[The prepared statement of Mr. Brown appears at the conclusion of the hearing.]

The CHAIRMAN. Thank you very much.

Mr. Pellett.

STATEMENT OF JIM PELLETT, VICE CHAIRMAN, AGRICULTURE POLICY COMMITTEE, NATIONAL CATTLEMEN'S BEEF ASSOCIATION

Mr. PELLETT. Mr. Chairman, I thank you for the opportunity to present this testimony to you and the members of the House Committee on Agriculture. I am Jim Pellett. I am president-elect of the Iowa Cattlemen's Association and currently serve as vice chairman of the Agriculture Policy Committee for the National Cattlemen's Beef Association.

Mr. Chairman, neither this committee nor NCBA takes the prospect of a new farm bill very lightly. We respectfully submit our testimony and our comments and are willing to look forward to working with you and this committee during the discussion, formulation, and debate on the farm policy.

The National Cattlemen's Beef Association and its predecessor organizations have long believed that market forces should determine the value and the price of beef cattle. Federal farm programs that subsidize agriculture often send confusing signals that can negatively impact the price and demand of all the commodities.

Congress fundamentally changed our Nation's agriculture system when it passed the Freedom to Farm. It thereby affirmed that producers should decide what to grow or plant. We believe that the role of the Government should be to ensure that private enterprise determines a producer's sustainability and survival.

Nonetheless, many believe that Freedom to Farm is a failure, and they cite the infusion of Government dollars into the agriculture sector over the past several years as evidence of this failure. The meltdown of the Asian economies, though, and the droughts that impacted cattle country have caused economic concerns that were not related to Freedom to Farm. The beef industry has recovered from much of this economic distress, while the rest of agriculture continues to experience some problems.

NCBA believes that the beef industry's recovery is due to the functioning of a market at work. Instead of believing that Government actions should drive the decisions that we beef producers make, we prefer to rely on the market signals of supply and demand to make the decisions that are in the best interest of our own businesses.

NCBA is also aware of past situations where assistance for one commodity sector has adversely impacted another. We understand