TESTIMONY OF ALLEN JOHNSON PRESIDENT, NATIONAL OILSEED PROCESSORS ASSOCIATION APRIL 12, 2000 Good Morning. Chairman Combest, Representative Stenholm, and Members of the Committee, thank you for this opportunity to be with you today. My name is Allen Johnson, President of the National Oilseed Processors Association (NOPA), which represents companies that operate oilseed processing plants. NOPA member companies have 73 plants in 23 states that process one or more of the 5 oilseeds that NOPA represents: soybean, sunflower seed, safflower seed, canola, and flaxseed. NOPA member companies process more than 1.6 billion bushels of oilseed annually, roughly 60% of the soybeans produced in the U.S. and employ more than 4,500 workers. In 1998, the total value of the U.S. industry's seed, meal, and oil production was about $30 billion, with nearly $11 billion of this being for exports. By far the most dominant seed to the U.S. industry is soybeans, representing about 89% of the U.S. oilseed production, 90% of U.S. oilseed crushing, 84% of U.S. vegetable oil production and 93% of U.S. protein meal. The U.S. agricultural economy is being seriously threatened for the first time in many years, in large part due to macro-economic conditions not entirely in the control of Congress, U.S. Department of Agriculture, producers, or agribusiness. U.S. farm income is closely tied to the ability of agricultural producers and processors to reach customers here and overseas. In fact, there is no other sector of the economy where the link between trade and prosperity is clearer than the agricultural sector. As the Committee reviews the Federal Agriculture Improvement and Reform (FAIR) Act and considers future agricultural policy in the new millennium, NOPA hopes you will seriously consider four guiding principles: (1) markets, not govemment, should control producers' planting decisions, (2) supply-management programs in whatever form are counterproductive and should be eliminated, (3) the United States needs an aggressive international trade policy, and (4) reforms to U.S. economic sanctions can help re establish the U.S. as a reliable supplier. 1996 Farm Policy Passage of the FAIR Act signaled one of the most dramatic shifts in agricultural policy in the last 60 years. The FAIR Act brought an end to acreage set-asides and government storage programs. The bill ended target prices, deficiency payments, and acreage reduction programs and gave farmers guaranteed fixed payments that decline over time. The FAIR Act ended the Federal Government's control over program crops in favor of allowing farmers the freedom to plant crops that present the most profit opportunity. Farmers can no longer be required to idle productive land because the Federal Government decided to limit the amount of acreage a producer could plant. Farm Policy Today Unrestricted planting flexibility enables producers to optimize crop selection and reduce operating costs, maximizing their profitability. Farm programs are designed to help farmers through tough times and provide a safety net during unusually low prices. The FAIR Act recognizes that the government can help farmers through tough times without trying to micromanage production decisions. The emergency payments over the last two years illustrate its flexibility. These emergency payments were not tied to current production decisions and did not unduly affect markets. When prices are low, we need to remind ourselves that markets are cyclical. We need a long-term view during the down times, so we do not have short-term fixes that turn out to be more harmful over the long-term. There is no easy solution to today's low prices. Demand will return, and U.S. agriculture must be in position to meet that demand. In the past, when the U.S. took land out of production in response to low prices, our competitors in Brazil, Argentina, and other countries simply expanded their acreage to take up the slack. When the U.S. raised its support prices in the early 1980's, farmers in other countries took advantage of the price floor set by the U.S. to expand their production. These policies provided a safety net not just to U.S. farmers but to the world's farmers. Under the FAIR Act, U.S. farmers face no government-mandated set-asides. As a result, farmers are free to shift to those crops offering the most profit potential. With the safety net of the marketing loan in place, U.S. farmers are guaranteed to receive the loan rate, even if world prices fall to lower levels. Therefore, farmers in other countries will be forced to respond to world market prices, while U.S. farmers are protected by loan deficiency payments from the lowest prices. Should world prices rise above U.S. loan rates, U.S. farmers will be able to receive the full benefit of those higher prices. Conservation Reserve Program (CRP) We must keep the Conservation Reserve Program (CRP) focused on protecting our most environmentally sensitive acreage. NOPA advocates: (1) (2) targeting the program's finite resources to those acres needing the most protection; and applying strict environmental-based criteria for new enrollments and reenrollments. Idling acreage has consistently failed to raise commodity prices for producers over any appreciable length of time. Expanding the Conservation Reserve Program to act as a supply-management tool instead of a well-targeted conservation program hinders the ability of U.S. agriculture to react and benefit when the agriculture economy improves. More importantly, further retirement of U.S. cropland impedes our competitive position by giving our competitors the opportunity to increase their market share and, in turn, increase their production and improve their infrastructure. As demand bounces back over the next several years, the question becomes "Who will meet that demand-U.S. soybean growers or South American growers?" We believe the Administration can be sensitive to the needs of the U.S. taxpayers, environmental community, agricultural industries, and a growing, hungry world population by targeting the CRP to the most environmental sensitive areas without increasing the statutory acreage cap. Future Policies Future farm programs must not distort commodity markets, overturn U.S. trade obligations negotiated in previous trade agreements, or imperil U.S. negotiating positions in future multilateral trade negotiations. A more aggressive international trade policy is essential. Today, U.S. oilseed producers rely on foreign markets to help bolster prices and income. In 1999, soybean and product exports accounted for an estimated 45% of U.S. soybean production. Increased trade opportunities for our industry, including an agreement on China's accession to the World Trade Organization, would have a positive impact. For example, the recent difference between China's domestic soybean oil price and the world market price has been about $170 per metric ton, which is equivalent to 85 cents per bushel of soybeans. When China's market opens, we want to be able to take advantage of it-not forfeit it to our competitors. We must also reform U.S. economic sanctions and re-establish the U.S. as a reliable supplier. Food sanctions are seldom effective. U.S. competitors do not observe the sanctions and simply increase their market share. Sanctions hurt farmers: the U.S. Department of Agriculture estimates that exports are about $500 million per year lower than they would be in the absence of unilateral economic sanctions. |