Mr. Chairman, Senator Harkin and Members of the Committee, I am Allen Anderson, Senior Vice President of Harvest States Cooperative, based in St. Paul, Minnesota. Although I was invited to appear before you today as Chairman of the Midwest Area River Coalition 2000 (MARC 2000), headquartered in St. Louis, Missouri, the views expressed also represent those of the National Council of Farmer Cooperatives (NCFC). Accompanying me here today is Christopher Brescia, President of MARC 2000. Thank you for the opportunity to submit our organization's views on the importance of transportation to the agricultural sector of our economy.

The National Council of Farmer Cooperatives is a national association of cooperative businesses owned and controlled by farmers. Its membership includes more than 110 major farmer marketing, supply, and credit cooperatives, and state councils of cooperatives.

MARC 2000 represents members who generate over $125 Billion in economic activity from the Midwest and conservatively employ or self-employ more than 150,000 individuals in 21 states. Our members reach from Minnesota to Louisiana on the Mississippi River, from Chicago to St. Louis on the Illinois River and from Sioux City to St. Louis on the Missouri River.

We are as diverse as the Midwest economy. We are farmer cooperatives, corn and soybean producers, elevator operators, processors, seed companies, farm equipment manufacturers, agricultural retailers, fertilizer manufacturers, agricultural insurance and financial services entities, shippers, short-line rail companies, river terminal operators, towboat operators, and port authorities, just to name some of the principal areas of economic activity.

MARC 2000 was created six years ago to raise awareness and help coordinate activity in the Upper Midwest in support of river infrastructure modernization. While our membership is diverse, we are united in wanting the Mississippi River system sustained as an economic growth generator for the future. We are committed to increasing the

cost-effectiveness and efficiency of the waterway transportation system as a means of supporting our national competitiveness in a global market.

The Mississippi River system has been the main catalyst in the transformation of Middle America from a raw frontier to a socially and economically mature society. Yet, as early as 1934, certain elements of our society challenged the viability of the waterway transportation system. The ensuing 64 years have proven those detractors wrong. As a nation, we encouraged river-based economic growth and it has created hundreds of thousands of jobs in areas where opportunities were limited. This visionary thinking has helped our region support the survival and growth of rural communities by offering opportunities to those who did not want to or could not move to urban locations to secure their family's future. From Minneapolis to New Orleans, public infrastructure investments on the river have supported agriculture and other industries and spurred somewhere between $22 - $30 Billion in private investment.

We are currently at another threshold. A vision for the future is needed to continue the standard of living and quality of life that was nurtured from the development of a waterway transportation system years ago. Our agricultural economy in the Midwest -- one that is the envy of the world -- developed in part because of the stimulus created by the construction of a waterway transportation system on the Mississippi River.

Today, other emerging economies in the world are poised not only to duplicate our success, but improve theirs beyond our own capabilities. China is moving forward with $12 Billion in investments to help develop power generation, flood control and navigation on its principal rivers. Europe is moving ahead with over $26 Billion in investments. Brazil, Argentina and others in South and Central America are expanding their agricultural capacity through, among other ways, inland navigation infrastructure investments.

We are here today to suggest that the transportation highway for over 60% of our agricultural exports and many agricultural inputs (fertilizer) is in steady and inexorable decline.

Why should we be concerned? According to the Hudson Institute, world population exceeded 5.8 billion in 1996 and is expected to peak at 8.5 billion around the year 2035. The majority of the world's population growth is in developing countries and will occur at income levels that can generate significant gains in demand for agricultural products as diets diversify and include more meats and other higher valued products.

We have the ability in the United States to grow the grain to feed the world. USDA predicts the 1998 corn acreage planted to be 80.8 million acres, up from the 1997 acreage of 80.2 million acres. The 1998 soybean acreage is estimated at 72 million acres, up from 70.9 million acres in 1997. Yields are on the rise too. According to U.S. Feed Grains Council estimates, corn yields will increase by 2 ½ bushels/acre over the next 5 years and 3 bushels/acre thereafter. That translates to roughly a 2% increase annually in corn yields over the next decade.

The U.S. Feed Grains Council also projects that while domestic use for coarse grains will expand just slightly for the decade, export markets, in contrast, could grow nearly 29 million tons and account for more than 47% of the market growth during the next decade. World trade in grains, led by coarse grains, is projected to grow the fastest among bulk commodities. The total value of U.S. agricultural exports is projected to rise from $57.3 billion in fiscal year 1997 to $62.6 billion in fiscal year 2000 and approach $85 billion in 2007 according to USDA.

USDA also indicates that in the case of corn specifically, exports are projected to increase more than the gains in total domestic use. In the year 2000, corn exports should match the previous record high of 2.4 billion bushels and then surpass 3 billion bushels by 2007. A key factor underpinning this growth is the assumption that China develops into a significant net importer of corn. In contrast to wheat and soybeans where there are more alternative supplies, the United States will emerge as the major source to meet the world's growing import demand for corn.

The Federal Agricultural Improvement Reform (FAIR) Act of 1996 shifted our agricultural sector into a market-based structure that has changed the way farmers do business. Producers have already expanded their thinking, looking at the world market growth described earlier as a target market rather than simply exporting residual production.

For example, Pattison Brothers in Fayette, Iowa recognized that in the rapidly changing world of agriculture there was an opportunity to capitalize on specialty grain and made changes in their operation accordingly. The elevator is working with waxy corn, high-oil corn, and organic corn as well as 10 different varieties of soybeans including organic soybeans. With a river terminal at Clayton, Iowa, and a country elevator at Fayette, Iowa, Pattison Brothers can ship by container or bulk via barge, rail or truck. Another example of capitalizing on speciality grains comes from the Ursa Farmers Co-op in Warsaw, Illinois. After installing a new cleaner, they found a Japanese buyer wanting a specific variety of food-grade soybean for tofu manufacturing and willing to pay 75 cent-per-bushel premium. The Co-op had the ability to preserve the bean's identity in storage and contracted with growers for 60,000 bushels or one barge load in 1996. In 1997, that had grown to two barge loads, representing the production capacity of 2,500 acres. This trend towards specialty grain exports is projected to increase exponentially.

One of the trade-offs the agriculture community accepted with the new farm policy was a phase out of government payments in exchange for assistance in the areas of marketing and exporting. Farmers are growing for customers all over the world now instead of for the government. However, capturing emerging market shares and planting specifically for the global market not only requires policies and programs designed to give U.S. producers access to foreign markets and help counter subsidized foreign competition, but also a modern, efficient transportation system that provides reliable and competitive rates. If the government turns its back on these program needs and specifically the Mississippi River, we will in effect be creating our own barriers to export markets.

The infrastructure permitting water bulk commodity movement on the Mississippi River is over 50 years old and will be unable to handle the 70% corn growth and 30% soybean growth projected over the next 20 years. The Corps of Engineers predicts that by the year 2050 over 46% of the traffic on the Upper Mississippi River and over 40% of the traffic on the Illinois Waterway will be made up of corn. The infrastructure system that transformed the Midwest into a vibrant and thriving region is not capable of taking us into the next century. The locks are too short and cause too many hours of delays that we cannot afford. The Midwest agricultural economy will lose market opportunities unless members of this Committee and a majority of your colleagues make modernization of the transportation infrastructure a top priority.

The Lock and Dam system on the Upper Mississippi River was built in the 1930's in an astounding six years. Twenty-seven dams with lock chambers provide a reliable and generally predictable corridor for our exports. The most modern lock and dam system on the Mississippi River, Melvin Price Locks and Dam, took 29 years to complete from the beginning of a needs study to the opening of the new lock. While I understand the budget challenges of today make efficient resource allocation to address these needs problematic, please do not underestimate the great importance this system holds for agriculture in America.

What do we have to lose if the infrastructure needs of the Mississippi and Illinois Rivers are not addressed in an expeditious fashion? Currently, according to the U.S. Army Corps of Engineers, in an average year, the availability of the river system in the Midwest for the movement of bulk commodities saves our nation over $600 million per year in transportation savings (versus the cost of alternative modes) for those products moved on the Upper Mississippi River System. An additional $900 million is saved in the form of lower rates on other modes due to the competition created by the river. It costs the federal government about $100 million per year to operate the system, for a net savings of $1.4 Billion.

Agricultural producers in the region account for $671 million of those savings. Let's be perfectly clear about what that means, $671 million stays in the rural communities producing the agriculture products. According to USDA farmer spending patterns, these dollars, on an annual basis are likely to be divided accordingly:

• $235 million spent at feed stores
• $ 80 million spent on equipment purchases
• $ 67 million spent on hiring labor to work on the farm
• $ 40 million spent paying for rented land
• $ 20 million spent purchasing fuel
• $ 20 million payed in taxes
• $ 20 million used to pay off loans and put into savings
• $189 million on other items and services

These spending patterns are supportive of other economic ripple-effect data produced for MARC 2000 by the independent accounting firm of Price Waterhouse. In a 1994 analysis, Price Waterhouse indicated that the movement of bulk commodities from and into the Upper Mississippi River system supported over 400,000 full or part-time jobs. These jobs generate almost $4 Billion in individual income and produce anywhere from a conservative estimate of $11 Billion to a possible $14 Billion in revenue for our economy. Tax receipts of roughly $700 million fill federal, state and local coffers. The entire inland navigation system returns $6 dollars to the federal treasury for every dollar spent on current operations, maintenance and construction.

In addition, our nation saves other resources by using river transportation. Barges, on average, emit 35-60% fewer pollutants than other forms of transportation. A preliminary analysis for the Corps of Engineers estimates that $100-$300 million is saved annually in foregone air emission clean up due to river transportation. One modal shift analysis from the Minnesota Department of Transportation also showed that moving cargo off of the river and onto rail would increase fuel use by 331%, air emissions would jump 470% and probable accidents would increase 290%.

These are all of the reasons why we need to be concerned. If we continue down this path of indifference towards our river infrastructure, we will lose transportation efficiencies,

continued economic growth -- especially in rural America, thousands of jobs, and significant environmental benefits.

The data presented today illustrates that the inland waterway system positively affects our region's economy far beyond the direct beneficiaries of waterway transportation and producers. As many as 60 percent of the beneficiaries enjoy an economic ripple effect

from farmers and their transportation expenditures and countless others reap benefits that are often overlooked and rarely quantified.

Regrettably, it is not until we have a disaster that the weaknesses in our transportation systems become evident. In 1993, flooding closed the Mississippi River. Essential commodities heading south for export or north for distribution were unable to proceed beyond St. Louis, holding hostage agriculture, manufacturing facilities, cement producers, steel mills and many others awaiting raw materials. The damage was not just confined to the five Upper Mississippi River states, but were felt as far south as New Orleans, where ocean-going freighters in the Gulf were left stranded awaiting cargo for world customers.

In 1995, our production bonanza in the Midwest and tremendous worldwide demand was neutralized by insufficient capacity on both rail and water to move products. Part of that capacity problem was attributed to a lack of barge availability (which has been rectified in the opposite direction now), but another part was infrastructure capacity limitations -- i.e., short locks. Traffic delays on the river system caused by double lockages at key points in the system add time to freight movement. Time and equipment utilization is factored into barge freight rates. An average freight movement at 150% of tariff from McGregor, IA translates into $0.27/bushel of corn ($0.25/bushel of soybean). When tariffs rose to over 300% in 1995, that cost to move the same bushel of corn rose to $0.54/bushel. Most of the benefits from a strong global demand were evaporated because of our domestic inefficiencies. The profits that our farmers were hoping to capitalize on vanished due to high transportation costs caused, in part, by short, inefficient lock chambers.

World-wide demand is expected to return to those high levels we saw in 1995 as is our production. We can ill afford to allow inadequate transportation infrastructure to render the U.S. as an unreliable supplier. Without cost-effective and competitive transportation rates, producers will lose their advantage in competing for market share. Generally, our transportation rates are what has allowed us to dominate the market against lower cost producers in the global market. Growing delay costs on the river system will quickly erode our ability to compete.

Recommendations

The reason we are here today and why virtually every major agricultural shipper in the Midwest belongs to MARC 2000 is that we are concerned that the old way of doing business needs to change. We cannot afford 15-year construction cycles for new locks on the Mississippi River. We cannot afford to wait and let the situation get worse before we decide to address problem areas.

The Corps of Engineers has been engaged in a six-year feasibility study to determine the optimal investment schedule for addressing these concerns. Insufficient priority is being paid to the global demand picture, dramatic emerging technologies and biotechnological advancements, and the strategic decisions of our global competitors.

We can ill afford band-aid approaches that under estimate export growth and add costs to the system in the short-run before replacement locks are provided. This strategy will usher in the beginning of the decline no differently than the failed fuel tax policy, rejected by the Senate (82-12) and eventually by Congress in 1993, would have emasculated our competitive advantage. Alternatives that institutionalize higher risk and less safe transportation practices on the river will offset the environmental and social benefits that accrue to moving bulk commodities on the river.

The risk of not being ahead of the curve with infrastructure investments is so great that immediate and timely action should out-weigh any model-driven schedule that cannot come close to projecting the peaks and valleys of agricultural markets. Longer locks at the pinch points of the Upper Mississippi and Illinois Rivers will be needed at some point. The sooner we take care of that need, the sooner our global competitors understand we are serious about maintaining our pre-eminence in world agricultural trade and our customers will realize we are determined to remain a reliable supplier.

MARC 2000 and NCFC urge the Senate Agriculture Committee to press upon the Corps of Engineers, the Administration and your colleagues to recognize the overriding significance of modernizing the Upper Mississippi and Illinois Rivers. The delicate balance facing production agriculture and the Midwest standard of living is predicated on competitive, complementary, cost-effective and reliable transportation systems. We do not know yet what will be recommended by the Corps of Engineers, but we do know that it will likely be too little too late. Given the budget priorities of this nation, competition for funds and the imminence of this priority, we would ask this Committee to set a vision for Congress and the Administration that builds on the public/private partnership exemplified in the 1996 FAIR Act.

Thank you for your consideration of this very important issue.