I'd like to tell you a little bit about the Millers' Association, our company and flour milling in general before discussing wheat quality, flour exports and international trade, transportation, and food safety regulations – four issues which challenge flour millers and impact wheat growers.

The North American Millers' Association has 45 members operating 173 wheat and corn mills in 34 states.  The Association's combined production exceeds 150 million pounds of product daily, which is about 90% of the total U.S. supply.

Fisher Mills is one of three operating subsidiaries of Fisher Companies.  The second subsidiary is Fisher Broadcasting, which owns and operates two television stations in Seattle and Portland, and twenty-four radio stations throughout Washington, Oregon, and Montana.  The third subsidiary is Fisher Properties, which owns and manages commercial real estate in the Puget Sound region.

Fisher Mills was founded in 1910 in Seattle, and over time has expanded to California, Oregon, and most recently to Idaho in partnership with Koch Agriculture of Wichita, Kansas.  By the end of 1998 Fisher Mills will be the 8th largest miller in the United States, manufacturing an average of 3.8 million pounds of flour a day.  That's equal to a loaf of bread every day for 1.5 million people.

Our specialty flours and bakery products are shipped to restaurants, bakeries, and food manufacturers throughout the western states.  If you live in one of these states, chances are on any given day you'll enjoy bread, pancakes, bakery items, pizza, tortillas, licorice, or other food items manufactured or distributed by Fisher Mills.

Flour milling is an increasingly exciting business these days.  Flour consumption per person has grown dramatically over the past few years and is at a post-war high. About half the food consumed in America is prepared outside of the home, whether served at a restaurant, pre-packaged for convenience, or prepared by a grocery store.  The significance for millers is that many of these prepared items use a grain-based product such as tortillas, bagels, or buns.  Providing the flour and flour products to meet this accelerating demand is one of the greatest challenges facing flour millers today.

 Let me add some thoughts about the relationship between growers and millers.  We believe growers and millers have much in common, and our fate is more closely linked than many understand.  After all, whether wheat is sold for export or local use, nearly all of it ends up as flour.

Growers and millers also share a desire for a healthy wheat market.  You may be surprised to learn that flour prices are determined in large part by wheat prices.  Our customers watch the wheat market and when wheat sells for less, our customers are on the phone asking for price adjustments.  To put it simply, when wheat prices decline, flour prices decline.

As manufacturers and sellers of flour we are the middleman between growers and consumers.  Millers are uniquely situated to help growers maximize both export and domestic market opportunities.
 
 

With that in mind let me address four challenges that affect millers and possibly growers: wheat quality, flour exports, transportation, and food safety regulations.
 
 

With respect to wheat quality, biotechnology holds much promise for growers and millers.  Both industries benefit from improving yield and disease resistance.  The Millers' Association financially supports this research and in this region provides funding to the Wheat Genetics and Disease Unit in Pullman, Washington.

Yet milling quality, baking characteristics and nutritional value must be equally important in research as yield and disease resistance.  Millers and their customers are keenly interested in flour consistency, uniformity, and biotechnology research that will address those needs.

A recent article suggested that many East and South Asia noodle manufacturers prefer Australian wheat because of the color and texture it provides.  Much U.S. wheat research today is focused on creating a variety that will match the characteristics of, and become competitive with, Australian wheat.

Our recent and admittedly limited experience tentatively shows that a key factor may NOT be the wheat, but the process for manufacturing the noodles.  Our company milled samples from Idaho's 377S variety and provided the flour to several noodle manufacturers.  Some loved it, some didn't.  This leads us to question not the variety, but how it is processed.  I would note that the 377S holds promise, and that we might have an opportunity to learn from our customers how to make better use of this variety.

As growers and millers anticipate research and biotechnology advances, we believe there are actions growers can take today that could increase their market opportunities.
In many instances wheat from neighboring fields has different milling and baking characteristics that legitimately matter little to the grower but are important to end users.  Storing those crops together ultimately can limit the marketability of the entire stored crop.

Segregating and storing grain by protein, class, and perhaps by variety can increase market opportunities.  Our customers are becoming increasingly focused on consistency and uniformity, and more knowledgeable about the impact of characteristics such as absorption and protein.  Millers, in turn, are increasingly looking for grains with specific characteristics.  Segregating grains can help growers respond more quickly and easily to a diversifying market.  It will also help them take advantage of market premiums offered when varieties with particular characteristics are in great demand. The federal government has assisted these actions in the past by providing low interest storage loans.

Our request of Congress on wheat quality is to increase financial support for wheat research and ensure that it involves and benefits both growers and end users.  We also request Congress make available and continue programs that help growers and elevator operators handle grains in a manner that increases market opportunities.

As a side note to wheat quality I'd like to mention a concern about the Conservation Reserve Program (CRP).  There is growing support to enroll expiring acres in the CRP in part to help farmers devastated by natural disasters.  Fisher Mills can support enrolling land which is environmentally sensitive or severely damaged by disasters and therefore truly in need of protection.  However we cannot support enrolling land that is capable of producing a quality crop.  We understand the value of CRP in assisting farmers facing difficult economic circumstances, but demand for grain-based products is growing and cannot be satisfied by idling productive land.

Another challenge millers face is declining flour exports and international trade.  Given that the U.S. milling industry is a world leader in milling technology and efficiency, and U.S. wheat is the best in the world, you might expect our country to be a world leader in flour exports.  Yet since 1995 U.S. flour exports have decreased 65%.

 A primary reason for this decline is foreign governments violating the spirit or letter of international trade agreements by providing subsidies, manipulating costs, and maintaining high tariffs and trade barriers.

The popular perception is that export subsidies were addressed in the Uruguay Round of GATT through an agreement to decrease funding of export subsidies in Europe and the U.S. by 35% in value and by 21% in tonnage over six years (1996-2002).  Our negotiators (although advised otherwise by our industry) expected those limitations would significantly restrict unfair subsidies.

The reality is quite the opposite.  Foreign use of unfair practices has increased since the implementation of the last agreement.  In fact, we believe that 100% of European Union (EU) flour exports are subsidized.  The EU's export increase of  36% in 1997, along with increases in other nation's exports, demonstrate that the U.S. is virtually the only party adhering to the spirit of the agreement.

How does this occur?  I will offer three examples.

Aggregation:  A country can continue and expand subsidies on any individual product as long as the aggregated category meets the assigned reductions in value and tonnage.  This enables the EU and Turkey, for example, to combine the value and tonnage of wheat and wheat products, then expand subsidies for flour and still meet the letter of the agreement.
 
 

High tariff protection: In the EU and Japan, for example tariffs and import bans create isolated markets where unusually high profits can be made.  These profits are then used to cross-subsidize exports and equipment.

Secret sweetheart deals: Dubai purchases Australian wheat at a low price for re-export as flour.  This "differential pricing" gives some foreign millers a hidden advantage in world markets.

It is imperative that in the next round of GATT talks the United States place the highest priority on eliminating export subsidies and other artificial price manipulations.  The result will be more U.S. wheat sold.

The Millers' Association proposes an international "Zero for Zero" agreement: zero subsidies and tariffs on wheat flour and its by-products.  Just as with industrial goods, producers would be prohibited from subsidizing exports.  In addition, protecting domestic markets with profits used to subsidize exports would be prohibited.  So too, would "sweetheart" deals between wheat boards and specific millers for cheap wheat bought and processed specifically to re-export as flour.
 

In the meantime, the U.S. should move immediately to create a "Subsidy Free Zone" in the Western Hemisphere.  Such an agreement could be an explicit section of the proposed Free Trade of the Americas Agreement.  This would prevent trade in flour and wheat products with countries that continue subsidies.  This would be consistent with our natural market advantage.  It would also increase the leverage we have over subsidizing nations and move all parties toward freer trade.

Fast Track authority is essential to achieving these outcomes.  Millers could very well argue that we have been victimized by such negotiating authority and oppose its continuation.  That is not our position.  We believe that Fast Track should be approved because overall it provides great benefits for the U.S.
 
 

Improved exports and trade also depend on a healthy IMF and other international financing operations.  Available financing which is insured or guaranteed will result in greater markets for wheat, flour, and other agricultural products.

Our request of Congress on export and international trade issues is to demand the Administration negotiate to close GATT loopholes that allow foreign export subsidies and other artificial price manipulations.  We also ask Congress to approve Fast Track and IMF funding and end automatic, unilateral trade sanctions regarding food products.

Transportation challenges and their impact on agriculture have been widely documented so I won't cover the familiar horror stories.  We do wish Members to understand that flour millers are doubly harmed by reduced freight mobility.  We are harmed when rail shipments of wheat are delayed or misrouted, and we are harmed when our rail and truck shipments of flour are delayed.  Our customers such as restaurants and bakeries are in time-sensitive businesses.  They need flour delivered in time to prepare and make available products such as muffins, bagels, and bread that consumers demand be fresh and available at certain times of the day.

It's popular these days to criticize the rail companies.  Unfortunately there is merit to many of the complaints.  We should remember, however, that some of these mergers were long overdue, resulted in unanticipated challenges, and that rail companies are working hard to resolve the challenges.

Our company is working patiently and cooperatively with the BN and UP to help smooth the kinks in the system.

Still, our patience runs thin, and we remain concerned about the ability of railroads to service our industry in the near and long term.  In April 1997 Fisher was assured a 22-day turnaround service between Blackfoot, Idaho and West Coast ports.  Today the turnaround service is 36 days.  That delay severely disrupts our manufacturing and our ability to service customers.  It also shifts more freight to a highway system which in many West Coast cities is already too congested for timely freight mobility.
 
 

The bottom line is that wheat growers and millers are highly dependent upon the rail system.  Our request of Congress on this issue is to remain vigilant and act when necessary to ensure the rail system becomes more efficient and responsive.  At some point Congress may need to consider further deregulation to free railroads from laws that often prevent creative solutions.

The last concern I'd like to address today is food safety regulations.  The milling industry has an outstanding record on this important issue.  We are highly regulated by federal and state agencies and our facilities are regularly inspected.

We don't object when sound, objective science supported by information based upon actual use warrants eliminating a chemical, pesticide or fumigant.  Unfortunately those decisions are too often based upon faulty research and emotional appeals.
 
 

The current implementation of the Food Quality Protection Act (FQPA) troubles us.  It appears the EPA is becoming more interested in using default assumptions, and not sound objective science, in implementing the FQPA.   At the same time the EPA is proving unable to quickly review and decide upon promising new products to replace allegedly unsafe products.

Congress and the public must be careful not to overreact to the well-intentioned activist zeal to eliminate chemicals, pesticides and fumigants.  Flour millers respect the concerns about the use of pesticides and fumigants. Yet some of those products are necessary for ensuring a safe food product and must not be eliminated until safe alternatives have been tested and proven effective. This is especially true of the fumigant methyl bromide.

Millers are experimenting widely with potential alternatives to methyl bromide.  We advocate and financially support aggressive research and testing for safe, effective replacements.  We are especially thankful to Senator Craig for his work in the Senate on the methyl bromide issue.
 
 

 At Fisher Mills fumigants are a last resort, a defensive measure.  Using a sports analogy, our "offense" is very effective and consists of several actions.  First, we accept only wheat with no insects.  We test every shipment and turn away any and all contaminated with insects.  Second, we construct and maintain physical barriers to prevent insects from entering our facilities  (for example, no holes in walls, tight seals around windows and doors).  Third, we train employees to conduct programs (for example, daily inspection of key equipment and locations in every facility) to prevent infestation.  Fourth, we practice good sanitation (for example, prompt removal of spillage that can serve as potential breeding habitat).  Fifth, we assist our grain suppliers in creating and maintaining anti-insect programs.

Our offense is very successful and has enabled us to eliminate the use of fumigants in some locations, and dramatically reduce the frequency of fumigation in other locations.

The resilience of insects sometimes requires fumigation to ensure our products meet and exceed food safety and quality standards.  It is critical that this tool remain an option for millers specifically and the agriculture industry generally.

Our request of Congress on food safety issues is first, please be diligent in holding federal agencies accountable for making decisions based on sound, objective science and reliable data.  Second, hold the EPA accountable for faster reviews and decisions on new chemicals, pesticides and fumigants.  Third, delay the ban of methyl bromide until a safe, effective alternative is discovered and registered.
 
To summarize, when wheat growers prosper, flour millers prosper.  Flour millers support efforts to assist wheat growers because the health of our businesses is so closely aligned.  Advancements in wheat quality, disease resistance and yield ultimately benefit millers.  An efficient transportation system that benefits growers will also benefit millers.

Similarly, when flour millers prosper, wheat growers will prosper.  Advances benefiting flour millers, such as export assistance and fair international trade agreements will result in more total wheat purchased and additional market opportunities for wheat growers.

I want to thank Senator Craig for this opportunity, and for the support he and his staff provide to wheat growers and users.