STATEMENT OF

MR. DENNIS WIESE

PRESIDENT

SOUTH DAKOTA FARMERS UNION

ON BEHALF OF THE

NATIONAL FARMERS UNION

BEFORE THE

SENATE AGRICULTURE, NUTRITION AND FORESTRY COMMITTEE

FEBRUARY 1, 2000

STATEMENT OF

MR. DENNIS WIESE, PRESIDENT

SOUTH DAKOTA FARMERS UNION

ON BEHALF OF THE

NATIONAL FARMERS UNION

BEFORE THE

SENATE AGRICULTURE, NUTRITION AND FORESTRY COMMITTEE

FEBRUARY 1, 2000

Mr. Chairman, Members of the Senate Agriculture, Nutrition and Forestry Committee, my name is Dennis Wiese. I serve as president of the South Dakota Farmers Union and member of the board of directors of the National Farmers Union. It is an honor to appear before this committee representing the 300,000 family farmer and rancher members of the National Farmers Union to offer our views concerning concentration within agriculture and important aspects of the Grain Inspection, Packers and Stockyards Administration (GIPSA). GIPSA has two primary responsibilities: the Packers and Stockyards Programs and the Federal Grain Inspection Service (FGIS).

Packers and Stockyards Administration

The Packers and Stockyards Administration of GIPSA is responsible for overseeing market competition in the livestock sector. In recent years, the levels of vertical integration and captive supply have grown rapidly and are major concerns for producers seeking competitive markets. Farmers and ranchers believe stepped-up enforcement of the Packers and Stockyards Act is key to restoring adequate levels of market competition necessary to maintain an independent producer livestock sector.

National Farmers Union supports a number of changes to improve the functioning of the Packers and Stockyards Administration. First, its authority should be expanded to include the poultry industry and livestock feedlots. Department of Agriculture attorneys should be allowed to try cases before the federal courts in addition to their current authority within the administrative court system. Funding for the Packers and Stockyards Administration should be increased to provide additional resources for investigation and enforcement. Violators of the Act should be liable for both compensatory and punitive damages.

In addition to modifications affecting the execution of the Act, Congress should establish a specific level of concentration within a sector or region that would automatically constitute an anti-competitive practice in violation of the Packers and Stockyards Act. Finally, Congress should prohibit packer ownership of livestock that provides direct market competition with independent producers, while adopting appropriate provisions to allow the formation and operation of producer-owned cooperatives.

In 1999, Congress approved legislation mandating that livestock prices be reported to increase the transparency and competitiveness in those markets. We applaud that effort, and urge continued oversight by the Congress as the Department of Agriculture implements the price reporting program.

Federal Grain Inspection Service

The Federal Grain Inspection Service has the responsibility to provide both official and unofficial grades for U.S. grain commodities sold into the domestic and export markets based on standards adopted by the agency. These standards provide the foundation for determining specified quality, cleanliness and intrinsic characteristics that are a component of U.S. grain sales contracts. In the absence of an appeal, FGIS grades become the basis for determining adjustments to the final settlement of sales agreements between farmers and merchandisers, and in transactions between the merchandising sector and domestic processors and overseas customers.

In order to ensure objectivity and accuracy in fulfilling this mission, FGIS engages in research and development activities to review and test new procedures, standards and technology, provides on-going education for inspectors, and engages in monitoring its performance and output against other grain inspection systems

A user fee system, that is periodically modified, has been established to recover a significant portion of the cost of the services provided by the FGIS. However, as with the majority of the marketing expenses associated with the grain sector, the grain producer directly or indirectly pays the cost of inspection services through adjustments to the price received at the farm-gate. The farmer thus has a strong vested interest in an efficiently run agency that adopts, consistently applies and enforces standards that enhance the marketability and competitiveness of U.S. grains to achieve the highest level of consumer satisfaction.

In the new decade, significant economic challenges confront grain producers that are related to the mission of the Federal Grain Inspection Service. These challenges include the traditional issues of agency service levels, modifications to standards, dispute settlement and user fees. In addition, FGIS must adapt to emerging considerations that are the result of increased competition for markets and market share. These issues include grain cleaning and new production and product technologies.

The issue of grain cleaning takes on new significance in a global market where many forms of intervention have been reduced that, in the past, have been used to offset market advantages associated with large-scale commodity cleaning requirements and operations. In addition, the increased market power associated with highly concentrated and integrated multinational merchandising and processing sectors allows these companies to play differing national marketing systems, i.e. those that require grain to be cleaned versus those that do not, against one another to the disadvantage of grain producers globally.

For example, the wheat marketing system in western Canada is dominated by a monopoly wheat board that has historically mandated that all wheat destined for overseas delivery be cleaned before shipment and that a high level of segregation by various characteristics be maintained from the farm through the export position. This has allowed Canada to claim a reputation, as a consistent supplier of higher quality wheat than is available from the U.S. even though both countries raise the same classes of the commodity and the same multinational merchandisers may ultimately market the wheat. When coupled with a differential pricing capacity, Canada claims it is able to gain premium prices in enough markets to outweigh the cost of cleaning. It may also provide a product that exceeds contract specifications, develops a high level of customer loyalty, maintains overall price competitiveness globally and produces higher market returns to its producers.

In the U.S., the wheat marketing system is based on meeting the minimum sales contract specifications. This is accomplished by blending of lower grades of wheat for which the merchandiser paid a discounted price to the producer with higher grades that generally do not receive a premium except in the case of protein levels. While the system is effective in creating a market for all grade levels at nearly all times, our reputation as a supplier of quality wheat suffers even when the number of complaints about grain shipments that fail to meet contract specifications is low.

For a period of time, the U.S. was able to utilize price discounts through export subsidies to offset a competitive quality disadvantage through the Export Enhancement Program (EEP) and other sales incentives. Ratification of the World Trade Organization created commitments to reduce and/or eliminate many of these programs.

We believe the U.S. should utilize a portion of the budget savings associated with those reductions to implement a grain cleaning pilot program to test the effectiveness of such a system, including its customer relation's impact.

Some may view this approach as an unnecessary and undesirable intervention on the part of government that is not supported by the marketplace. However many of those same opponents directly benefit from the business generated by the Canadian system and/or creates additional company profits by blending various grades of U.S. grains that have been purchased from the producer at a discount.

For the grain inspection service, wide-scale grain cleaning could potentially streamline the grading process, increase service efficiency and allow more focus on other difficult grading and inspection issues while lowering the cost of grain inspection to the producer.

Similarly, new technologies such as genetic manipulation of grain crops to achieve specific production and/or physical attributes raise serious grain inspection issues. These include certification as to the presence or absence of genetically modified organisms, product segregation, and the potential for, and vesting of liability in the event of miss-identification of bio-engineered crops.

Unless and until all nations reach agreement on the conditions of acceptance of these crops, and cost-effective, efficient testing procedures are developed consistent with such an agreement, regulatory agencies and producers will remain at risk. The FGIS in its certification role will be challenged in terms of its credibility. U.S. crop producers will ultimately bear the market risk of the technology through the imposition of domestic and international market barriers, price discounts and potential legal liability. The majority of economic benefits associated with biotechnology will flow to those with the greatest level of multinational integration and market power that can dictate the terms of both production and marketing.

We support Congressional action to ensure that producers of genetically enhanced agricultural products are held harmless from any legal liability that may result from the production or marketing of these products, and that producers should not be responsible for cost of any testing requirements that may be imposed. In addition, we support cooperative international efforts to ensure consumer confidence in the agricultural products they purchase, including the establishment of a labeling requirement to allow consumers the ability to make informed purchasing decisions. Finally, the market for genetically modified products is likely to require a much better system product segregation that currently exists in the U.S. We believe that USDA should implement an on-farm grain storage facility loan program and limited farmer owned reserve program. These initiatives would help ensure that adequate infrastructure exists to provide the level of identity preservation and stock diversity necessary to obtain the maximum market and production flexibility from these products.

Conclusion

In conclusion, the National Farmers Union supports changes to the Packers and Stockyards Act that expand administrative authority in both scope and litigation capacity, establishes punitive and compensatory liability for violators and ensures adequate funding for investigation and enforcement. Furthermore, Congress should establish a concentration threshold that would constitute anti-competitive practices in violation of the Act. In addition, we urge Congress to prohibit packer ownership of livestock in direct competition with independent producers.

Concerning the Federal Grain Inspection Service, the National Farmers Union seeks to ensure an objective and efficient grain inspection system. The system must be capable of addressing the traditional issues of service levels, grading standards, user fees and dispute resolution while also meeting new challenges and opportunities such as grain cleaning and the many issues concerning the production and marketing of genetically modified crops.

We support a pilot program to encourage the commercial cleaning of grain to meet customer needs and the competitive challenges faced by the grain industry. Furthermore, we believe Congress, USDA and the Federal Grain Inspection Service must address the issue of genetically modified crops in a way that reduces the market, financial and legal risk for producers and ensures consumer confidence in both our regulatory system and the agricultural products we place on the market. Specifically, we believe producers should not be financially liable for testing or future production and marketing consequences of GMO production. In addition, we support federal programs that will assist in the segregation of GMO and non-GMO production through a grain storage facility loan program and a farmer-owned reserve.

Mr. Chairman, on behalf of the members of the National Farmers Union, I thank you for the opportunity to share these thoughts with the committee today, and will respond to any questions at the appropriate time.