My name is Robert E. McLendon. I operate a diversified farm in Leary, Georgia, but my primary crops are cotton and peanuts. I currently serve as Chairman of the National Cotton Council's Executive Committee.
On behalf of the entire cotton industry, I would like to commend you for holding these hearings on farm programs and express our appreciation for this opportunity to testify.
Most of the fundamental aspects of my testimony today are similar to the message I delivered to this committee last July:
- financial difficulties continue for farmers across the country, with prices too low to cover production costs;
- budget authority for agriculture is not sufficient; and
- the FAIR Act remains inadequate to protect farmers during times of extremely low prices.
Since last July, the Cotton Council has worked, through its seven segments, from producers to manufacturers, to develop additional consensus recommendations for this committee. With the sharp jump in input and production costs we have seen recently, it is even more important that we craft an improved safety net for cotton farmers.
Mr. Chairman, I look forward to discussing these specific recommendations with you today.
First, I want to emphasize that the primary focus of our testimony is on recommendations for amending commodity titles. However, until amendments to long term agricultural policy are enacted, it is very important that Congress continue to address the immediate, short-term financial needs of producers.
For the short term, we urge Congress to continue to provide relief similar to the emergency assistance enacted during the last three marketing years. Specifically, we urge Congress to:
- Supplement existing AMTA payments with additional marketing loss payments at the highest rates possible;
- Allow producers to receive these supplemental payments on the higher of existing crop bases or an average of recent planting history, provided adequate funds are available; and
- Mitigate the impact of limitations on supplemental payments, enabling producers to qualify for total payments of not less than the amount of AMTA and marketing loss payments received for the 2000 crop.
Mr. Chairman, we also favor the continuation of assistance to help offset the impact of low cottonseed prices.
Our discussions within the Council on longer-term farm policy have focused on the level of support that is necessary for cotton producers to continue to compete, given rapidly escalating costs of production and inputs and the cotton and textile policies of our competitors. In general, there is support within the Council for a number of different policy concepts that I will outline here today.
Mr. Chairman, cotton's three step competitiveness provisions, coupled with the marketing loan program and the issuance of marketing certificates, continue to play a central role for cotton. These provisions have enabled our industry to compete worldwide under most market conditions and have helped prevent excessive stock accumulations. We urge their continuation in new farm policy.Beyond these fundamental components, our approach is to indicate what level of support we need and what mechanisms we can support. Until CBO provides an official "score,"we cannot know with certainty the impact of these proposals on overall budget levels or on our commitments within the World Trade Organization. Therefore, we would prefer they be understood as supportable concepts as opposed to our final recommendations with respect to every detail.
Because of the need to provide adequate income support in a cost-effective manner and meet our international trade commitments at the same time, the National Cotton Council proposes new farm policy that relies on a combination of coupled and decoupled payments.
This new program would feature improved support levels. Our goal is income support from programs and the market that will provide cotton producers with a return equivalent to what they have received in recent years from all sources, including emergency assistance.
We encourage as much reliance on decoupled, AMTA-like payments as feasible. Additionally, we recommend some type of counter cyclical income support that is as coupled and as commodity-specific as practical without exceeding the amber box ceiling agreed to by the United States in the WTO.
- Our members can support crop-specific payments that are triggered when the price of a covered commodity falls below a specified threshold. (This is similar to the target price concept in 1990 farm law);
- Our members can support crop-specific payments, triggered when revenue for a covered commodity falls below a specified threshold (This is similar to a modified SIP program); and
- If necessary to comply with U.S. obligations under WTO, we can support a market-basket approach, whereby payments are triggered when gross revenue for a specified number of commodities falls below a threshold level. However, under a market basket approach there would undoubtedly be years in which the revenue for an individual commodity would be out-of-sync with the market basket of commodities, we have a few more concerns with this approach than more commodity-specific approaches.
All of these programs share the important common advantages of (1) cost effectiveness as compared to a purely fixed payment program and (2) predictability as compared to the emergency assistance packages Congress has approved during the past three years.
Again, Mr. Chairman, I want to stress that we support a coupled approach to support as an addition to the current AMTA mechanism, not as a complete replacement for it.
As a part of revising commodity titles, we encourage you to retain as much cropping flexibility as possible. We support base acreage provisions that offer farmers the choice of keeping their current payment base or opting for an updated payment base. We also urge continuation of assistance to offset low cottonseed prices.
And, importantly, and we urge you to eliminate payment limits or, at a minimum:
- retain the 3-entity rule;
- retain provisions for CCC loan redemptions with marketing certificates; and
- provide for separate and reasonable limits for each category of benefits.
The National Cotton Council remains opposed to payment limits in any form. They are both counterproductive and discriminatory. Limiting farm program benefits on the basis of size tends to disadvantage the larger, more efficient farming units, causing them to be broken up into smaller units that are less efficient and less capable of surviving in a global market when, and if, subsidies are discontinued.
Moreover, crops such as cotton, with a relatively high cost of production, are especially disadvantaged by payment limits since their imposition results in a smaller percentage of a cotton farmer's output being eligible for benefits.
Mr. Chairman, continuation of the marketing loan program is a central component of our recommendations today. We cannot, however, indicate we have industry consensus on the loan rate. Our producer members favor a somewhat higher loan than the capped 51.92 cent level under current law, but other segments of our industry have reservations about raising the loan rate. Our leadership continues to discuss this matter, and we believe we will be able to provide a timely recommendation with respect to loan formulas and/or rates during the course of new farm bill discussions.
In closing, I would like to summarize our recommendations for Extra Long Staple (ELS) cotton policy.
The Council supports continuation of the ELS non-recourse loan program without amendment. We also support continuation of the ELS competitiveness provisions that were authorized in the FY 2000 Agricultural Appropriations Bill, but support full funding for that program. Finally, we support establishment of some form of counter-cyclical payments commensurate with those that may be established for upland cotton. We believe a price objective for American Pima cotton, in the neighborhood of $1.00/pound, including returns from the market plus counter cyclical payments, would be commensurate with an 80 cent price objective for upland.
While cost estimates for the proposed ELS program have not yet been completed, NCC economists believe it would not add appreciably to total farm program costs but would help to maintain equity among alternative crops in the western cotton producing region.
Mr. Chairman, that concludes our farm policy recommendations for upland and ELS cotton. With the help of my colleagues, I would be pleased to respond to any questions the panel might have.