Statement of Trudi Evans, President

National Barley Growers Association

Before the

Committee on Agriculture, Nutrition and Forestry

U.S. Senate

July 12, 2001

Mr. Chairman, it is a privilege to address this Committee on U.S. farm policy and how it affects our nation's barley producers. I am Trudi Evans, a farmer from Merrill, Oregon, and president of the National Barley Growers Association. The National Barley Growers Association, comprising board members from Minnesota, North Dakota, Montana, Idaho, Oregon and Washington, represents the interests of U.S. barley producers on issues affecting national agriculture policy.

Barley Production

The National Barley Growers have a unique story to communicate to the Committee today. Barley has become an "endangered" commodity in the United States. Barley acres and production have steadily declined from 13 million to 5.8 million over the course of the last 15 years. Barley production in 1999 reached a 25-year low and acreage was the lowest in 100 years.

Barley is a food crop as well as a feed grain. Currently, about one half of U.S. barley production is used for malting. Malting companies pay a premium for this high quality barley. Even with a premium price, however, malt barley production is decreasing due to higher loan rates for other program crops.

The infrastructure of the U.S. barley industry is threatened by this steady decline in acres. Malting barley demand remains constant at around 150 million bushels per year. Yet national barley production continues to decline. The domestic malting industry, whether buying barley from contracted or open market production, has always been most efficient when plants are located closest to the production areas. As U.S. barley acres continue to decline, the domestic malting industry may relocate plants near more stable production areas, taking plants, jobs and labor to Canada and Europe, where barley acres and a supply of malting barley are stable.

NBGA is a strong supporter of the increased planting flexibility provided by the 1996 Farm Bill. However, planting flexibility combined with loan rate provisions in the 1996 legislation is resulting in a sharp downturn in barley acres. Specifically, freezing loan rates and tying barley's loan rate to its feed value relationship to corn have placed barley production at a competitive disadvantage with other crops. NBGA wants the next Farm Bill to restore equity to the barley loan rate.

Our views on three key areas - the Marketing Loan Program, fixed and decoupled Production Flexibility Contract- or PFC-type payments, and a counter-cyclical income safety net program - comprise the balance of my statement.

1. Marketing Loans

Modification of the Marketing Loan Program is a top priority for the National Barley Growers.

Under section 132 of the current Farm Bill, the barley loan rate reflects only barley's feed value relationship to corn. Since the current Farm Bill caps the corn loan rate at $1.89 per bushel, and since a bushel of barley is only 48 pounds compared to 56 for corn, the barley loan rate is effectively capped at $1.68. This feed value relationship understates the market value of malting and food barley, which have averaged $0.53/bushel higher than feed barley over the last ten years. As I stated earlier, over half of annual U.S. barley production generates higher-value food quality barley malt.

Continuing to link the loan rates for barley and corn based on their respective feed value is inappropriate. The barley marketing loan must provide a safety net comparable to competing crops when prices fall below the loan level. The current feed-based linkage to corn is diverting acres from barley to wheat and oilseeds, which have higher relative loan rates.

The Farm Bill should direct the Secretary to calculate the barley loan rate using 85% of the most recent 5-year Olympic average of USDA's all-barley price, instead of only considering the value of barley's feed relationship to corn. The barley loan rate calculation should be independent of barley's value compared to corn. Furthermore, the next Farm Bill should provide that this loan rate calculation should be no lower than $2.04/bushel (derived from 85% of an average of a recent historical period of years using the all-barley season average price).

If this committee undertakes more comprehensive "rebalancing" of the loan rates of all loan-eligible crops in the next Farm Bill, NBGA supports increasing the proposed $2.04 floor level commensurate with the rebalancing ratio used for all commodities.

Barley growers also support using an "all-barley" price to determine loan repayment rates. Posted County Prices (PCPs) should be set at levels that do not encourage producers to forfeit feed barley in the event marketing loan gains would otherwise be higher than Loan Deficiency Payments (LDPs). In addition, producers should be allowed to lock in LDPs at any time after a crop is planted, with payment after determination of actual production.

Finally, Congress should abolish current federal payment limitations on marketing loan gains and LDPs so everyone can fully utilize this counter-cyclical program for all eligible production.

2. Production Flexibility Contract (PFC) Payments

The National Barley Growers support a decoupled, guaranteed, and fixed crop payment for the life of the next farm bill. Similar to PFC payments, the crop payment should be extended without regard to domestic price fluctuations, and should be decoupled from current and future production to avoid influencing planting decisions. The aggregate level of the annual PFC-type payment should be no less than the $5.6 billion fiscal year 1999 level. The next Farm Bill should maintain the allocation among the seven so-called AMTA crops (wheat, corn, sorghum, barley, oats, upland cotton, rice) at the levels established in the 1996 Farm Bill. Likewise, the Agriculture Committees should restore the barley PFC payment for the period of the next Farm Bill to the 27.2 cents/bushel affiliated with the 1999 Agriculture Marketing Transition Act (AMTA) level. Finally, in the event Congress includes payments for loan-eligible crops not included in the original AMTA formula, the Barley Growers support an offsetting increase in total annual funding.

3. Counter-Cyclical Supplemental Income Program

Low commodity prices have brought out the inadequacy of the current farm program safety net, including AMTA payments and the Marketing Loan Program. Producers of all commodities need an additional program that will provide income support payments when income or the per-acre return of a commodity sector declines. The recent emergency supplemental assistance programs have been extremely helpful - but they provide no long-term protection, which causes great uncertainty among producers and their lenders.

The National Barley Growers support creation of a counter-cyclical income support program based on projected shortfalls in commodity cash receipts. This program would replace current ad hoc emergency payments, and funding for this program should be in addition to the previously mentioned modifications to the Marketing Loan Program and continued AMTA-type payments.

The Barley Growers support a counter-cyclical program proposal put forth by the National Association of Wheat Growers. The program would trigger commodity-specific payments when market prices (including per-bushel or -unit farm program payments) are less than an established Market Support Level for each commodity. Once the Market Loss Support Payment is triggered, per-bushel or -unit payments would equal the difference between (1) the established Market Support Level for a commodity, and (2) the per-unit PFC-type payment and the higher of either the national average marketing loan level or the forecasted national average market price.

Per-bushel or -unit Market Support Levels are derived by dividing a commodity's total average production from 1995-1999 into the commodity's Gross Income and Total Support (cash receipts, LDPs or marketing loan gains, and AMTA and Market Loss Assistance payments) during the same five-year period. Based on this formula, barley's Market Support Level would be $2.72 per bushel.

If barley's established Market Support Level is $2.72 per bushel, the per bushel PFC-type payment is $0.27, and forecasted prices in a year are less than barley's national average marketing loan level of $2.04, barley producers would receive a Market Loss Support payment of $0.41 per bushel. The per unit Market Loss Support payment could be prorated in the event eligible payments would otherwise exceed the funding level allocated for the counter-cyclical program, or if a year's domestic support and counter-cyclical program spending were facing the $19.1 billion Uruguay Round limit on "amber" box spending.

After it is determined that a commodity is eligible for Market Loss Support payments, payments to eligible producers would be based on a farmer's barley acres and yields during a decoupled historical base period.

Other agriculture policy components critical to farm income

The National Barley Growers Association supports further examination of voluntary incentive-based "green payments" similar to the Conservation Security Act introduced in the House and by the Chairman of this Committee in the Senate. The program should provide payments in exchange for implementation of conservation practices, including improving water quality, soil erosion, and wildlife habitat. The program would support farm income, benefit the public at large, and would be classified as "green" box under WTO rules. Identification of funds and implementation of this program should be included with changes to the marketing loan program, PFC-type payments, and a counter-cyclical program. The Barley Growers support at least $1 billion in new annual funding for conservation incentive payments, although our priorities for new funding center around improvements to the Marketing Loan Program, decoupled program payments, and funding for a counter-cyclical program.

Domestic farm policy and income support programs are only part of the solution to the challenges facing barley growers. While recognizing the scope of today's hearing, some mention must be made of needed changes in trade policy. Even if barley growers receive higher loan rates and supplemental income assistance, these supports will not resolve long-term restraints on our export competitiveness, including the strength of the U.S. dollar, unfair foreign subsidies, false phytosanitary non-tariff barriers such as TCK, and unfair practices of monopolistic State Trading Enterprises. Barley growers understand the United States will never convince foreign competitors to reduce subsidy levels and tariffs without reducing our own trade distorting supports. However, when past agreements bind us to unfair levels relative to their spending limits, the rules must be changed.

Economic Loss Assistance for the 2001 Crop

Finally, it is critical to farmers and the farm economy for Congress to provide economic and income loss assistance for the 2001 crop of not less than the AMTA payment and supplemental economic loss assistance provided for the 1999 and 2000 crops. Without adequate emergency assistance for the current crop year, many farmers will be out of business before the next farm bill.

The Fiscal Year (FY) 2002 budget resolution provides $5.5 billion in additional agricultural assistance for crop year 2001 and an increase of $73.5 billion in the agriculture budget baseline through 2011. The budget resolution also provided flexibility in the use of the total sum of $79 billion. Because agricultural prices are not improving and production costs continue to escalate, NBGA believes it will be difficult to fully address the chronically ailing agriculture economy if Congress provides no more than $5.5 billion in assistance for the current crop year.

Although projections show a rise in farm income, this is largely due to the fact that analysis project livestock cash receipts to rise from $98.8 billion in 2000 to $106.6 billion in 2001. At the same time, cash receipts from crop sales are up less than $1 billion.

Further, producers continue to face historic low prices and income as well as increased input costs. In 2000, farm expenditures for fuel and oil, electricity, fertilizer and crop protection chemicals are estimated to increase farmers' cost $2.9 billion. This year, USDA estimates those expenses will rise an additional $2 billion to $3 billion while farm income continues to decrease. These issues affect every sector of agriculture.

We urge Congress to mandate that the Secretary of Agriculture make economic loss assistance for the 2001 crops in the form of a market loss assistance payment at the 1999 PFC payment rate as soon as practicable prior to the end of FY01.

We believe this additional assistance will help addresses the serious economic conditions in the farm sector and does not jeopardize the House and Senate Agriculture Committees' ability to develop effective new long-term farm policy in the near future.

Conclusion

In summary, barley growers support continuation and reformulation of the non-recourse marketing loan program giving barley a more equitable loan rate, continuation of annual decoupled PFC-type payments at no less than the fiscal year 1999 level, and development of a counter-cyclical program to supplement low market prices and farm income when needed.

Mr. Chairman, that concludes my statement. Thank you for the opportunity to appear before the Committee.