STATEMENT OF DON HUTCHENS

EXECUTIVE DIRECTOR

NEBRASKA CORN BOARD

BEFORE THE

UNITED STATES SENATE COMMITTEE

ON AGRICULTURE, NUTRITION, AND FORESTRY

JULY 20, 2000

Mr. Chairman and Members of the Committee, thank you for the invitation to share with you the impacts of escalating energy prices on agriculture and more specifically on the farmers who I represent in Nebraska. I want to say at the outset that I not only represent the 30,000 corn producers in Nebraska in my professional responsibilities, but I am also a producer myself. It was during Senator Kerrey's term as Governor of Nebraska that I left full-time farming so I could help influence the future of agriculture in the Nebraska Department of Agriculture. I thought 1985 was a difficult time to be in agriculture, it was also a difficult time in representing the industry that I feel so strongly about. I'm somewhat familiar with difficult times in agriculture; my father, now 91, still resides on the home place. I am concerned that if there are not dramatic changes in agriculture policy we may be on the brink of yet another agriculture depression.

By now I'm sure you have all heard from your constituents in the states you collectively represent how bad energy prices are hitting the various segments of the economy. I'm here today to say that the industry that will be impacted the most and least capable to pass the costs of higher energy along is the American farmer.

If I leave you with nothing else today let me leave you with this: I believe the effort that you on this committee and in Congress put forward to provide agriculture with $5.4 billion of market loss payments may all be lost to the increased cost of energy. This means that the money will not be used to pay existing bills, or to pay down mortgages or operating notes; it won't be used to buy capital goods, and it won't be used towards their children's education. Agriculture producers will incur an additional $4-$6 billion due to higher energy costs. Producers in irrigating states like Nebraska will be using more energy to keep crops growing, but those additional costs will not be passed on to the rest of us when we buy a loaf of bread or a pound of meat in the supermarket. Everyone else in the food chain will add to the cost of processing and transportation to cover additional energy costs, but not the American farmer. According to the Economic Research Service of USDA, net cash income is forecast to drop $5.2 billion due primarily to high energy costs and low commodity prices.

Nebraska irrigators have no choice but to continue irrigating to be eligible for crop insurance. Maximizing bushels will be the only means of income through the Loan Deficiency Program. Typical irrigators in Nebraska spend $20 per acre for fuel to irrigate, but the cost could exceed $50 per acre this year.

Irrigated or not, farmers across America are hit hard with higher energy costs. Farm Bureau President Bob Stallman of Texas says fuel prices will push farm expenditures up an additional $3 billion, which doesn't even consider additional volume used due to drought conditions. Diesel

fuel per gallon has risen from $0.70 to $1.10, while gasoline has gone from $1.15 to as high as $1.83 and propane prices have increased from $0.53 to $0.78.

In Nebraska the increased costs for diesel fuel under our drought conditions could cost the typical producer $6,620 on one well compared to $2,172 last year. Nebraska is home to approximately 79,000 irrigation wells. The four highest cost factors in corn production in my area of the United States are energy, fertilizer, seed and chemicals. All of these use large amounts of gas, diesel, natural gas and electricity. Every aspect of agriculture is dependent on energy, from the delivery of inputs, the inputs themselves, the custom hire, the planting and harvesting, and the transportation of bulk commodities and live animals. Since my wife's family is also heavily into agriculture, particularly in livestock in western Nebraska, I can tell you that every truckload of cattle or hogs that leaves their farm costs an additional $50 charged by the trucker for higher fuel costs. That's a total of $2,250 that comes out of their bottom line.

Over the last few years, agriculture and the industries that serve agriculture have worked hard to reduce the energy dependence of our food production. Equipment today uses less fuel per hour than a few years ago, and farmers have made great strides to use minimum and no tillage practices to reduce energy use and conserve water and soil. Our use of genetically enhanced crops has helped to reduce field applications. But, there is no way around the fact that it takes hard work and fuel to provide this country and other parts of the world with the most abundant, highest quality and cheapest food supply. I would also like to say that those very farmers and ranchers paid for all the cost of adapting this technology.

The news has changed in the countryside from gas and diesel prices to the escalating price and availability of natural gas. As you know, natural gas prices are tracking with the rest of the energy prices and natural gas is the predominate ingredient in anhydrous ammonia. Natural gas prices have nearly doubled in the last year to their highest levels in more than a decade. Wholesale natural gas prices are now at about $4.44 for a million BTU, compared with $2.39 one year ago. The production of fertilizer is not the only demand for natural gas, but also the generation of electricity; especially this summer, electricity needs are draining the natural gas reserves. My fear is that along with the additional costs for gas and diesel, farmers will be hit this fall and spring with record prices for anhydrous ammonia. Already the gulf price of anhydrous ammonia has risen from $140 a ton to $210, and then you have an additional $35 a ton to get it to the Midwest. Nebraska, Iowa and Illinois used nearly 40% of the United States demand for anhydrous ammonia last year. Doubling of the price could have profound impacts on farmers.

While it looks green for the most part across the Corn Belt, except for the drought conditions in Nebraska and in the Southeastern United States, the real color is red. Prices for corn and soybeans have shown little incentive for forward pricing, cost of production continues to increase and optimism is hard to find among my neighbors in south central Nebraska. High-energy costs have damaged the spirit of many producers this year, it has been one more issue for them to try to overcome.

If I were in your seat I would have to ask what is it that you can do to help this small part of the American population. It seems that every time you turn around farmers and ranchers need your help, and that is exactly what they need. I would like to share just a few suggestions on what might provide some incentive for those independent producers to continue to do what they do best….growing food for the rest of us to enjoy.

First related to energy, 99 percent of the farmers in Nebraska tell us to do everything possible to develop and expand this domestically produced fuel called ethanol. Contrary to what the American Petroleum Institute says, ethanol is not the root of all evil and Congress should pursue aggressive legislation that reduces our dependence on foreign crude and expands the market for ethanol, while using our corn supply in the process.

Expand the domestic production of natural gas, even if it takes tax incentives or the need to increase our imports of natural gas. Farmers cannot handle a double whammy of increased fuel and fertilizer costs next year.

Expand the market for Biodiesel. We have the capability to take technology to a new level and use soy-oil and ethanol far more than we do today.

Expand tax breaks for farmers and ranchers' fuel needs and for adapting lower energy use standards.

Seriously consider the impacts of EPA's action on reducing sulfur content in diesel to 15 ppm versus the 500 ppm that are used on the farm today. The implications may hit farmers harder than anyone else. Farmer owned refiners that produce diesel and market it through the cooperative system may not be able to meet these standards or costs due to size. It appears a 50 ppm cap versus a 15 ppm cap may help agriculture.

More study and research on the impacts of Carbon Sequestration, to determine if we can pay farmers for carbon storage. Or can we provide farmers a green payment for continuing to practice sound environment farming that protects the soil, air and water that we all enjoy.

In the big picture, if commodity prices were high enough for farmers to afford to pay increased energy prices then the problem for you and for the farmers would not be so severe. What can you do to help?

Stop wrangling over FAST TRACK negotiating authority. Let's get on with the business of exporting. We told farmers to produce for the marketplace but when we did that the marketplace was not open for business. We continue to plead for more money in programs like the Market Access Program and the Foreign Market Development Program.

Serious sanction reform is needed so we can export into new markets that we previously have been shut out of. I respect the work of USTR Charlene Barshefsky, but we need to continue to put agriculture at center stage. We cannot lose markets in countries like India due to poor trade negotiations. The balance of trade that agriculture represents is far too important to ignore.

Finalize the PNTR vote in the Senate for China. We don't have time in agriculture to wait while other countries like Australia and Europe steal markets away from us.

Simplify farm storage programs and announce them early so farmers can work with lenders and the agri-business industry. Expecting farmers to put 25% down with net cash income dropping does not pencil into the cash flow. Farmers waited 4 months for the announcement of the program.

Expand CRP and payments. It reduces the use of fossil fuels, it's great for the environment and for the habitat.

Create a Farmer Owned Reserve for grain and a Strategic Reserve for Ethanol.

Other options have to be considered in drafting new farm legislation. Farmers' share of the increasing food dollar continues to drop. Farmers need to have you listen to their ideas and consider changes to farm legislation like the Flexible Fallow Program.

I want to thank you again for considering the impacts of high energy costs on production agriculture. This dilemma could not have come at a worse time for Nebraska farmers. Too many young people are walking away from production agriculture while the debt continues to mount for those remaining. The spirit to look forward to a better year ahead is slipping through many a farmers hands. The commitments by Congress to provide agriculture a safety net of market loss payments this year may ultimately only cover the increased costs of energy.