SEN. TOM HARKIN (D-IOWA): Committee will come to order. This morning we are pleased to welcome the Secretary of Agriculture Mike Johanns to explain and answer questions about the administration's proposals for the 2007 Farm Bill. We again welcome Deputy Secretary Chuck Conner, Chief Economist Keith Collins accompany the secretary.

You know we commonly refer to the "Farm Bill," when in fact that term captures only a fraction of what the legislation is called upon to address. All Americans have a stake in the Farm Bill. Its scope extends from helping agricultural producers to conserving our natural resources, promoting rural growth and jobs, alleviating hunger and improving nutrition, investing in food and agriculture research, and increasingly to securing our nation's energy future.

I want to thank you, Secretary Johanns and your team, for making proposals that challenge us to take a new look at issues and problems and to consider new approaches. We have a responsibility to write a Farm Bill which looks to the future, not one that clings to the status quo for the past.

Now we made a good deal of progress I think in the Farm Security and Rural Investment Act of 2002. But farm bills are written for a limited number of years for a good reason-- agriculture is among the most rapidly changing sectors of our economy. Policies that worked at one time may not be well-suited to a new era filled with critical new challenges and opportunities for farm families, rural communities and our entire nation. A core mission of the Farm Bill of course is promoting profitability and income potential in agriculture, and a degree of stability and predictability in our nation's food and agricultural system.

Americans have come to take for granted a plentiful, wholesome and affordable food supply, and it's in our nation's best interest to construct programs to help agricultural producers survive the vagaries of weather and markets.

But we also need a farm bill that looks much further ahead. It must be bold enough and creative enough to prepare for and master challenges and opportunities on the horizon. We are, as you have said many times, Mr. Secretary, in the midst of revolutionary changes in food and agriculture, most notably in farm-based renewable energy.

We put an energy title in the 2002 Farm Bill, and there's broad agreement that energy is perhaps the key driving force in this Farm Bill. I commend President Bush for his ambitious renewable energy objectives, although I have some concerns that the budget lacks the resources necessary to achieve those goals.

I also welcome your proposals, Mr. Secretary, to increase our investment in agricultural conservation, rural development and research, to help beginning farmers and ranchers, and to improve USDA's efforts in promoting nutrition and health and fighting hunger. We must do more in those areas.

So I guess my main question at the beginning is whether the administration's proposals, your proposals, are strong enough and will we be able to back them up and strengthen them with the budget that we have and the resources that we have? Again Mr. Secretary, I want to compliment you and your team on a really good proposal. I think there's a lot of stuff in there that we can work together with you on. I think it does chart a new, bold challenge to us here to work together to achieve those goals.

So again, the committee welcomes you and the valuable contribution of your proposals to our work in writing this new bill. I look forward to a good bipartisan working relationship with you and the administration with my colleagues here in Congress in drafting and enacting this vitally important legislation.

And with that I will turn to our distinguished former chairman and our ranking member, my good friend from Georgia, Senator Chambliss.

SEN. SAXBY CHAMBLISS (R-GEORGIA): Mr. Chairman, thank you for holding this hearing today, and as chairman as you know I dedicated much of 2006 to preparing for the reauthorization of the Farm Bill, and this committee spent many hours in field hearings listening to producers about their farm bill needs. Secretary Johanns held his own listening sessions around the country and points to those sessions in his development of the administration's Farm Bill proposals.

This hearing today is an important step towards the Farm Bill reauthorization in that it will allow us to explore the justification for the secretary's specific proposals and engage in a dialog about impacts the proposal could have on this nation's farmers, ranchers, rural communities and the agricultural economy.

Mr. Secretary, welcome We are always glad to have you back before the Ag Committee. Dr. Collins, Chuck, we're always pleased to see you here. Thank you for your efforts, and we appreciate you bringing new ideas to the table as Congress begins to debate the next Farm Bill.

My goal always has been to make certain that America's farmers' voices is heard and their concerns are addressed in this process. There are a lot of farmers, a number of ideas, and a variety of ways in which concerns can be addressed. Each senator on this committee represents an important part of ag country, and we will each have an important role in crafting the next Farm Bill.

When the 2002 Farm Bill was passed, the Congressional Budget Office estimated that we would spend $110.6 billion on commodity programs during fiscal years 2002 to 2008. I'm proud to say that because of the market-oriented direction in which that Farm Bill took us that we have spent much less than originally estimated. Farm Program spending under the 2002 Farm Bill is now expected to cost approximately $25.3 billion less than originally projected for fiscal years 2002 to 2008. And even if we take into account recently enacted disaster assistance packages, the 2002 Farm Bill has spent $19.2 billion less than expected.

These are impressive figures that we need to consider in constructing the next Farm Bill. The one thing that the 2002 Farm Bill did provide to our farmers and ranchers around America was a true safety net, and frankly, Mr. Secretary, with your proposals I see a tendency towards guaranteeing farmers payments versus providing that safety net. And I'm not sure what direction the committee is going to decide to go, but it does steer us away from providing a helping hand in the years when the farmers really have low yields, low prices, and it moves us in a direction of making sure that farmers get money from the federal government every year irrespective of whether or not they plant crops.

Certainly there are a lot of challenges ahead of us as we work to complete the Farm Bill before portions of it expire. But I trust that we can, Mr. Chairman, work in a bipartisan manner to reach a consensus that will prove beneficial for each of our states and our constituencies. And I thank you and look forward to the witnesses' testimony today.

SEN. HARKIN: Thank you very much, Senator Chambliss.

Secretary Johanns, again welcome to the committee. Your statement will be made a part of the record in its entirety. And please proceed as you so desire. They put 10 minutes on there, but don't worry too much about that. We want to hear your full explanation and of course I then will open it for questions and different rounds at that time. So Mr. Secretary, welcome.

SEC. JOHANNS: Well, thank you, Mr. Chairman. I have to tell you, it is an honor for me to be back in front of the committee. Members of the committee, I appreciate the opportunity to visit with you. This is the first time I'm appearing before the 110th Congress, and I feel, like I said, very honored to be able to be here and speak about the Farm Bill.

Our Department has worked very hard on these proposals, but for that matter farmers across the country did because of our listening sessions. I am submitting for the record a very extensive written statement, so I'm going to speak from an outline today and try to keep it to the point but fairly brief.

I would also mention that for the record, Mr. Chairman, we are submitting the book that contains our Farm Bill proposals, so that will be a part of the record. Thanks for acknowledging two people that were very key in developing our proposals. I could not have a better deputy than Chuck Conner, and I will tell you, Chuck has really led this effort in the Department.

V: (off-mike remark)

SEC. JOHANNS: Yeah, I know. I'll be careful. And then of course every time we had a question about analysis or background we turned to Dr. Collins. And my respect for Dr. Collins grows daily. He does a great job for us.

We also have with us a whole host of people, but I would mention one of our newest under secretaries, Mark Keenum, who I think is very familiar to the committee and he works in this area with our farm programs and also with our Foreign Ag Service.

And then Scott Steele if there's budget issues. Scott is here to address those.

Well, this journey to the Farm Bill proposals started pretty soon after I arrived a couple of years ago. We held 52 Farm Bill Forums across the United States, really on a nationwide basis. We received 4,000 comments. Our approach was always the same. It was an open microphone-- no prearranged testimony. We just said, we'll be in a given location. And farmers showed up. They would oftentimes drive hours to come to these forums and talk to us.

I do appreciate, Mr. Chairman, you were at a forum that I conducted in Iowa, and that was pretty typical of the forums we had across the country.

We received 4,000 comments. We did a summary of those comments that is actually contained in this binder, but we put it on the website, 41 summary papers, and then I turned to our chief economist, Keith Collins, and I said, identify themes.

And we worked together and tried to identify themes out of the comments, and these were published in five theme papers that have now been on our website for some period of time, filled with excellent information and, again, led by the folks in Keith's shop.

We then ended up with our Farm Bill proposals which is contained in this booklet, and as I said, we made that a part of the record.

Let me just be very clear, and I mentioned this when I was going through the confirmation process-- I have a history with the '02 bill. I was the lead governor for the Western Governors and the Midwest Governors. In fact, Tom Vilsack and I were co-lead governors for the Midwest Governors in the reauthorization of the '02 bill. I've said many times, I think it was the right policy for the times.

Commodity prices were low, exports had declined for several years in a row, and the debt-to-asset ratio was at about 15 percent. That was not the highest in history, but it was certainly a number that caught probably everybody's attention. It was the first-ever farm bill with an energy title, and it increased conservation spending by about 80 percent.

But times do change, and farm bills reflect the changing times. As the chairman indicated, that's why we pass them for a limited number of years and then reenact them so we can calibrate the changes that have occurred.

Today as we prepare for a new farm bill, commodity prices are strong for most program crops, and in some areas historically strong. Exports have increased every year to a record $68 billion. We think in '07 that number will actually get to $77 billion. That will be yet another record.

In all of the recordkeeping the USDA has ever done, I can tell you that we have the lowest debt-to-asset ratio in recorded history. It's now about 11 percent as of 2006, and the trend very definitely is in the right direction. And renewable energy is a significant contributor to the ag economy.

As we went around the country, we listened to stakeholders and we built proposals based upon principles of reform and also recognizing that fiscal responsibility was important. We knew at some point we would have a baseline number we would have to work with. The proposals we submit, I would respectfully suggest to the committee, are more predictable. These proposals are more market-oriented; they provide support when revenue was low.

Senator Chambliss, I'm very anxious to engage in a dialogue with you on some of the comments you made because actually we believe the proposals we are making provide a more predictable safety net for producers out there. But again I'll save that for our discussion.

We believe these proposals are more equitable. They distribute resources more equitably than previous farm bills have done, and we support growers of specialty crops, for example, who have had a small place in previous farm bills, but very small.

We also would respectfully suggest that these proposals are better able to withstand challenge. Again, many of you have an interest in of course all commodities; some have a very special interest because of state production in cotton. Well, we have a WTO Cotton Case. We can't ignore it. We are now, the case is final in terms of the ruling. Now they're trying to figure out whether we have complied with the ruling. That's what the most recent case is.

And we believe it wisely and effectively spends tax dollars.

Let me just touch with a tad bit of detail on some of the proposals. We are proposing to revise downward marketing loan rates. I mentioned that when we released this almost, well it was a week ago.

Here's how they were set. They were set based upon the market. We didn't go out there to try to just pick a number; we set them based upon market experience over the last five years of the '02 Farm Bill. The Olympic average: taking out the high year, taking out the low year, and basing it on the average of those five years.

The House approved a version of the '02 Farm Bill before it was sent over here to the Senate, and loan rates were established in that House-approved bill. We have proposed to cap loan rates based upon that number that had been through that process.

We now post about 8,000 daily prices, county prices, and you can do the math -- 8,000 times 365. I don't know if we post them on holidays or not, Chuck, but you do the math, we're up around 3 million posted county prices. It is no wonder you got into the country and farmers are saying, "Our county prices don't make sense, they don't compare with what's happening in the next county." And quite honestly it just invites problems. We are changing that from a daily posted price in our proposal to a monthly posted price.

We also increased direct payments by $5.5 billion. I can tell you without a doubt to the producer out there, this is more predictable. It is not tied to price for production, and although I'm not the trade lawyer, I can tell you that generally payments not tied to price or production do not run into the WTO challenges that you have in programs that are tied to price or production.

And for the young producer out there, if this proposal is adopted you take it to the bank.

Now lowering loan rates for four of the major commodities-- corn, wheat, rice and soybeans -- the net effect really isn't financial. But notwithstanding, we went out there and said, You know in the third, fourth and fifth year we should improve the safety net, so we identified $1 billion to raise those direct payments. If the projections are accurate, the loan rate impact here really isn't going to make any change in terms of the financial aspect. It's about a wash, and Keith may talk about that at some point.

We heard something very interesting out there relative to the countercyclical, and, Senator Chambliss, this might get to a part of your comments. This seemed counterintuitive to me, but we heard it in Kansas, we heard it in Nebraska, we heard it in other places. Farmers showed up and said, "You know the interesting thing about the '02 bill, I'm over-compensated when I don't need it, and I'm under-compensated when I do." And like I said, it sounded terribly counterintuitive to me.

Let me explain what those farmers were telling us. In years of high production, the price goes down typically, and the countercyclical kicks in. And if they've raised a crop -- in fact a big crop -- they were able to pick a day to lock in their LDP. And in one year it happened at a time where we had a two-month decline in price because of Hurricane Katrina, and prices came back. So they locked in very high LDPs.

Now let me take the other side of that. What about that statement that says, "In years where I need the safety net, the '02 bill isn't there." Some of you will really relate to this. What farmers were telling us there, and again we studied this and it bore out, in years where their production has been hit by drought or other circumstances, what tends to happen to price? The price goes up. It's a simple supply and demand phenomena. The countercyclical doesn't kick in. They don't get the countercyclical payment at a time when they are experiencing drought, their neighbors are experiencing drought, for example.

And I was told a thousand times out there, it's etched in my memory, "Mike, you can't LDP a crop you didn't raise. There are no loan deficiency payments on a crop you did not raise."

So at a time when the farmer needs us most, they have no safety net. Is it any wonder that groups are here almost on an annual basis saying, "We need a disaster program," and there's this annual debate, Should it be $2 billion, should it be $6 billion, should it be $4 billion?

Our approach to this addresses a very important part of that issue, and again it came from farmers. We provide a conservation-enhanced payment option. Let's say a farmer of a program crop out there looks at the Farm Bill and says, "You know, prices are strong, I don't think I am going to get a countercyclical or loan deficiency payment over the next five years. I'll get my direct, but I won't get these other programs. However, there are some conservation things that I've been interested in getting done. Is there a program that fits for me?"

Under the proposal we are making, the answer to that question is yes. Farm just the way you are, raise your corn, your wheat, your cotton, whatever you're raising. Work with us on conservation ideas for your farm, we will raise your direct payment 10 percent under our proposal.

And so we get a benefit, we assure that farmer an additional payment to assist in doing those conservation efforts. Totally voluntary. The farmer may look at it and say, "That's a good program for somebody, it is not a good program for me, and I'll stay with where I'm at." That's fine. No problem with that at all. We give farmers another option to look at.

We are also proposing to eliminate commodity program payments on land acquired through 1031 exchange. This does follow the land. Boy, I'll tell you what. You go out there, and all I needed to do to start a Farm Bill Forum debate was to start talking about 1031, and I'll tell you what-- you got a debate. Farmers see this as raising their cash rents and their land prices. And what we are saying is, we're not proposing to impact the tax code. You will still be free to do the 1031 exchange. We appreciate the jurisdictional issue here. What we are saying is, If you do that, then the cash commodity payments under Title 31 would not apply to that land; you would not receive those payments.

Now if I might make a few comments about some of the other changes we're proposing. I could spend hours on the commodity title; its complex, we know that. I'll let that come out in questions.

Let me talk about conservation. We are proposing an increase of $7.8 billion in our conservation programs. We heard from farmers, "We like conservation, your programs are so complicated they confuse us." They're right. They confuse us, to be very blunt about it. We are proposing simplification and consolidation. We are creating, proposing to create a new Environmental Quality Incentives Program which would include a regional water program.

Senator Harkin, you have led the debate on the Conservation Security Program. We are proposing more than doubling the funding in this area from about $300 million annually to $800 million. Most of the money for CSP under the current plan is way out there in the ninth and tenth year. It spikes up like this. We are proposing to level that out and increase the funding by $500 million.

If our proposals are accepted, we would be able to offer CSP on a nationwide basis. On a nationwide basis it would not be limited to watersheds like it is today. We believe over the time of ten years that we would increase acres from 15 million to 96 million, a substantial increase in what's proposing. And I have to tell you, it just works better for us. Trying to get out there in nine or ten years and then ramp that program up that dramatically, it would just work better, I think, for stakeholders and everyone if we could level that funding out over the next decade.

We are providing $1.6 billion in new funding in our proposal for renewable energy research development and production targeted at cellulosic ethanol. I am confident in telling you, I think corn will always be a part of our ethanol industry. It's got a tremendous footing in the market. It's been around a long time, really successful in the last couple of years. But if we are to meet our goals, if we are to meet that goal that the President talked in his State of the Union of reducing gasoline consumption by 20 percent in ten years, we need to move towards cellulosic.

But here's the positive thing about that. All of a sudden, ethanol goes from a corn-belt-based program to a national program. If you have biomass in your state, you have forest ground where literally you want to clean up what's laying on the floor of that forest, you could have a biomass program.

If you grow grass in your state -- the other thing I would mention, we've made a proposal on a conservation program where literally we would say, You have to meet your conservation goals, you have to deal with the nesting season, you have to do everything you said you would do to meet the environmental nesting requirements. But let's think about a program that would allow a harvest if you will of something from that conservation ground. And again I emphasize, in an environmentally sensitive way, complying with all the needs of the nesting birds out there. But again, it gives farmers another option.

We're providing $1 billion in loans and $500 million in grants for rural communities. We have a list we could provide, but across the United States we have 1,280-some hospitals if I remember the number correctly, 1,283 hospitals that have been designated rural-critical-access hospitals. These hospitals need to be rehabilitated. They need to be up to today's standards. These are in very rural areas. Senator Nelson, we would see these in our state, but you would see these across the country. Senator Roberts, you would see these in Kansas. These are hospitals that if that hospital closes healthcare disappears for miles and miles.

We are proposing -- we haven't had the money to finish these hospitals. We are proposing the financing for this loan program so that during the life of this Farm Bill we would do all 1,283 hospitals. And again, a very important program for healthcare.

We propose additional funding to deal with the backlog of infrastructure programs, and we're proposing some consolidation.

We are also targeting about $5 billion in funding to support our specialty crop farmers across the country. As I said, we did Farm Bill Forums across the United States. Our specialty crop farmers made it clear, they did not want to be a subsidized crop. They are not looking to be in Title I in terms of the cash subsidy. What they were looking for was increase in funding for research and phytosanitary and sanitary issues, market promotion, those kinds of things. And so we have identified funding here.

We have a number of proposals. We started every Farm Bill Forum with somebody from FFA, somebody from 4-H. I was in both programs growing up, they're great programs. They talked about the challenges of starting out, beginning farmers. We are proposing in the program crop area to enhance the direct payment for beginning farmers by 20 percent. We are also targeting part of our conservation programs and substantially improving our loan programs for beginning farmers. The improvement in the loan programs, the targeted enhancement in conservation would also apply to socially disadvantaged farmers.

Now we haven't defined "beginning farmers" in our proposal although there is a definition in our loan programs. But that would be one where we say to the committee chairman, we want to work through this and try to figure out how this program applies. But we propose these ideas because I think they make sense for the next generation of farmers.

And then I would also mention, and there's a lot of detail that I won't go into here, that we can certainly provide in response to questions. We're doing a number of things in our Food Assistance Programs that are very beneficial. For example, college savings, we're proposing that would not be computed as a part of your assets. Your retirement count, we're proposing that would not be figured in as a part of your assets.

So again, it should improve access.

We focused on this disaster assistance area, and a couple of things I would mention. One is the revenue based plan will simply work better. We are also proposing gap coverage. We went out to farmers, and they said, "You know, Mike, I can cover 70 percent, or whatever the number is. What do I do? Some farmers can't afford to lose that 30 percent and survive. Some can. Some can manage that risk, not a good deal but they can manage it. We are proposing to cover that gap in our crop insurance proposal. We are linking crop insurance participation to farm program participation, and we are consolidating ECP and EWT in one emergency landscape program in our proposal.

The final thing I will mention, overall I believe these proposals achieve a funding balance. If you look at the spending in the '02 Farm Bill, the spending to spending, this proposal spends about $10 billion less. If you add into that the disaster relief, it would be about $17 or $18 billion less. But apples to apples, $10 billion less.

However, if you just walked in and said, I like the '02 bill, let's just reauthorize it," and some have said that, maybe less and less now but some have said that. So if you just walked out on the Senate floor and got those votes and the House floor and just simply reauthorized it, this proposal actually spends $5 billion more. But most importantly, it fits within the President's plan to balance the budget within the next five years.

And I would argue to you, it has a more predictable safety net in terms of what farmers are trying to deal with, and that is especially true in those areas that have struggled through drought and those kinds of issues.

Let me just wrap up my comments and say, Mr. Chairman, I thought your comments were right on target. We do a Farm Bill every five years because it gives us an opportunity to ask ourselves, what's worked, what's not worked? We decided the best way of approaching that was to simply ask farmers that question and to try to fit our proposals and tailor them with that as our base.

So with that, again I'm pleased to be here. If I took a few more minutes than I thought I was going to, I apologize. As you can tell, I feel passionately about what we're doing, and I say finally I look forward to working with you and the committee on all of these important issues.

SEN. HARKIN: Well, Mr. Secretary, thank you very much. That was a very comprehensive and well-presented I think analysis of your Farm Bill proposal. It is a comprehensive bill, a lot of good things in there I think we should take a look at, but I think it's one on which we can work together as a committee and work with you on as we move ahead.

I, just a couple of comments on what you said there. I think you're right on target on doing something about monthly posted prices rather than the daily. I have a concern about the direct payments. If we're looking at a -- I don't know if it's going to get harder and harder to explain to our colleagues here, and I think the American people, why we should give a government check to someone who is doing very well, who is making a lot of money but we're going to give you a check anyway. That's why I, quite frankly I had some questions about this revenue assurance program as it was brought up in the past. The more I look at it, I think the more I like it. And I think it has a lot of promise. And again, I just say to my way of thinking I think that rather than bumping up direct payments maybe we ought to put more into revenue assurance. Again, that is a true countercyclical type program.

Now how that runs into WTO problems I'm not certain. We have to work that one out I think, but I think that's more saleable than just a direct payment again to a farmer who's doing very well.

The 1031 exchanges, you're right on target. I hear about that a lot. In fact I just want to say as an aside, I compliment you on all the hearings you had around the country. I went to the one in Iowa; you were right, it was wide open, no preset agenda, anybody could say what they wanted to say, and I thought it was really a good exchange.

But the 1031 exchanges, you're right on target on that.

On conservation, I know that there's an urge to simplify, and we do have to simplify, but there's a lot of specific things that we've tried to address in the past, whether it's WHIP or WRP or EQIP or CRP. All these address different aspects of conservation, and I'm not certain that sort of one size fits all. But within that framework whatever we can do to simplify, we should.

I again congratulate you and thank you for your proposal on getting rid of the watershed basis on the CSP program. I've heard a lot of not good comments on that one in the past simply because of the anomalies which it brings up and the inequities on that. So we can go to a true national basis on that.

We had some testimony in our hearings earlier on, and we're getting more information on proposals on how you do that, and we welcome any suggestions that you might have on that basis also.

I will say however, I think as much as I applaud your willingness to move ahead on CSP I think if you're going to use CSP for renewable energy and cellulose crops where they can harvest it in an environmentally sensitive manner I think CSP fits into that. And I'm not certain that amount of money that we have there will move farmers into that transition where they can grow those kind of crops. But that's for later discussion.

On rural development, I applaud your proposal on the hospitals. I think that's long overdue, something I wish we'd paid attention to in the past and we didn't.

The specialty crop program, while I think you're going down the right track on that I might have a question and a concern about how you want to do that. We started a program, a little pilot program in the 2002 Farm Bill, called Fruit and Vegetable Snack Program. We started with four states and 100 schools, 25 schools in each state, where kids were given free fresh fruits and vegetables. And it was just to see what would happen.

Well, what happened is, every single one of those 100 schools that started, not one has asked to drop out of the program. We are now up to 14 states if I'm not mistaken, and I don't know, somewhere between 500 and 700 schools. I can't get quite a good grip on exactly how many schools. But every state in which they have adopted this, the schools that aren't getting it are asking why they can't get it.

It is a way to get fresh fruits and vegetables to kids in elementary school. I've said before, my goal has been that in 10 years that every elementary school-kid in America gets free fresh fruits and vegetables at snacktime in their schools. And I hope that we can work on that as part of your program in looking at specialty crops.

The enhanced direct payments to beginning farmers, I think we should look at that. I have a little bit of concern about that in terms of the definition and who gets that and whether or not that ought to be balanced with long-term lower rate interest rates -- in other words, spreading things out over a longer period of time and that rather than just an up-front direct payment as such, but a balance between the two.

On Food Stamps, again I congratulate you for looking at the assets retirement. Senator Chambliss has a bill which pretty soon -- have you introduced it yet, nor not? I want to get on it. But -- it's ready to be dropped, working on the asset limit and stuff. I've looked it over, and I told my staff, Put me on that bill right away. But it tracks a lot of what you're saying.

And in crop insurance, we are going to have to take a look at that gap coverage, group coverage that you're talking about, and see how workable that is. I do believe that crop insurance should be strengthened. I think it provides again that safety net when you're talking about farmers may not get something when they don't have a crop. Well, that's what crop insurance is for. And we need to design it so that we do cover that gap you're talking about, that 30, 20 percent, 30 percent gap in there.

So all in all, I thank you very much for your presentation and for your recommendations. We look forward to working with you on it. I have one question that basically has to do with funding and energy. I think there is a consensus, Mr. Secretary, and you have said it in your statement, to move this Farm Bill aggressively in the energy area, in renewable energy.

But right now USDA is proposing about $160 million per year in funding for energy programs. Correct me if I'm wrong on that. Current authorizations for essentially the same programs total over $200 million per year, and appropriations from FY '03 through 2006 averaged about $175 million a year. So again, if I'm right on those numbers then why are we getting, why are you proposing less than recent appropriations or current authorizations, while at the same time the President is calling for a very aggressive and expanded research and development program on renewable fuels and bioenergy? So that's my question.

I'm looking at the figures, and they don't -- looks like we're spending more now and authorizing more now than what you're proposing.

SEC. JOHANNS: You're right in terms of spending authorization, but let me if I might just run through some numbers here that I have in front of me. The '02 Farm Bill provided mandatory funding of $14 million per year. It authorized an additional appropriation of $49 million annually through 2007. However, none of the additional $49 million of authority was ever appropriated. It never came to be.

A couple of other things to think about before I talk about our proposal. The '05 Energy Policy Act extended the authorization for appropriations to Fiscal Year 2015 and increased discretionary funding by $200 million. We're not proposing any change to that, so that is still there. We're not proposing that go away.

In addition, the USDA proposes an increase in mandatory funding from $14 million to $15 million a year, so actually a little bit better than what was in the '02 bill.

SEN. HARKIN: $14 to $50?

SEC. JOHANNS: $14 to $15, one, five, $14 to one-five, $15. Additionally the USDA's research title proposal also includes a major investment for bioenergy. It provides $50 million, five-zero, annually for bioenergy and biobased products research initiative. And this initiative was designed to be complimentary to the Biomass Research and Development Initiative.

Then finally our proposal would accelerate the development of technologies to better utilize low-value woody biomass by authorizing $15 million in annual mandatory funding for Forest Service research.

Now that's USDA which is a pretty aggressive program. I would also mention that we are also proposing a $2.1 billion loan guarantee program to assist in building cellulosic ethanol plants. And I would mention, this funding is targeted at the cellulosic area. But again not to take away from anything we might be doing out there now in corn-- we'll continue to do those things too.

The other thing I would mention, and this is an area I only want to mention because I'm not as familiar with the Energy Department budget as much as I would be here, but there's an energy initiative there that we work with the Energy Department on. So when you put the whole initiative together, Chairman, I think you will see that we have a very aggressive effort here. You add into it the loan guarantee program, and I think we can do some very, very exciting things with what we are proposing.

SEN. HARKIN: Well, Mr. Secretary, I'm sure my staff and others will absorb that and look at that. You're right on the $2.1 billion loan guarantee program. DOE has that. They can't administer anything. I mean, DOE, this is not what they've done in the past. They have no history of doing this. They've tried to do it. They can't seem to get it done. Well, we know how to do it -- "we" being Department of Agriculture, know how to do this. We've got a long history in doing this, and it's time that we step up to the plate, and I'm glad you did with the $2.1 billion. I think we ought to be out there -- as you know we've got to break this chicken and egg thing.

You know, you can get investors in corn ethanol plants now. That's no problem. You can raise a lot of equity on those. But cellulose?

SEC. JOHANNS: Different deal.

SEN. HARKIN: It's pretty difficult right now, and if there's no supply then you've got to put some loan guarantees out there for cellulose plants and for farmers to raise the crops they say, "Well why should we raise it? Where's the incentives, where's the market for us?" So we've got to do both together, and I think that's sort of what you're doing. But let me move ahead. I just want to ask one more question.

On the Conservation Security Program, your plan would provide an increase of $500 million over the next 10 years, spread the baseline funding from the two uncapped years in the baseline back to raise existing multiyear funding cap. Chuck, I'm finally understanding it, get to see what you were doing here.

Well, you're going in the right direction; it's just not enough, okay? But the President's budget released Monday would reduce spending for the Conservation Security Program in 2008 by $135 million and reduce the cap on CSP by $80 million between now and 2015. So there's kind of an inconsistency there.

And the second part of my question has to do with regulations. You're planning to take a whole year to redo the CSP regulations. I don't know why. Between that and the funding situation, this could mean the program might not enroll any new farmers or ranchers for two years. And yet farmers and ranchers like the program, they want to participate, we want to do better conservation on working lands, we want to move into bioenergy crops and this fits that perfectly. It seems to me it's an existing program, it shouldn't take you two years to get this done.

So that's two. How about the inconsistency in the President's budget, what you want to do, and why does it take two years to get, and can you collapse that down?

SEC. JOHANNS: Let me address the two years, and I'll ask Dr. Collins to visit with you about budget. The, it's going to take us some time to do some regulations here. Chairman, I would say this, if we can do it in a shorter period of time I will absolutely be committed to that.

SEN. HARKIN: Well, you can.

SEC. JOHANNS: You are right. Farmers told us they like this program. You referenced their consternation about this being limited to wetlands, and they would say, "Well my neighbor can get in it, I can't get in it," they felt some unfairness there. Or watersheds, not wetlands.

So whatever we can do to get those regulations done and do this program, and I think at the end of it you know there may be some things here that you want to talk to us about, but I think at the end of it we're going to have a better program, a more reasonably financed program, a program that we can build upon year after year after year instead of somebody worrying about the ninth year and the tenth year where this program skyrockets in terms of the funding available.

I would sincerely argue to you, I think some of the things, maybe not all but some of the things you'd like to accomplish are necessary. We have to get through that rulemaking process. In other words, the rulemaking process is necessary to get to those things. If we can do it more expeditiously, I'm all for moving government along, and we'll take a look at that. But we built something in, and that's where you're running into this issue about '08.

SEN. HARKIN: On the budget stuff I'll defer to later. I've taken too much time as it is right now. I'll defer to that later after everybody's had their rounds. We'll get back to that budget.

SEC. JOHANNS: Okay.

SEN. HARKIN: And I will now yield to my colleague Senator Chambliss.

SEN. CHAMBLISS: Thank you, Mr. Chairman. Mr. Secretary, let me make clear that our obligation as an oversight committee dictates that we direct criticism where we think it needs to go and we commend where we think we need to commend. And as you and I discussed privately, I commend you for thinking outside the box, and we've got to make significant changes in the way we approach agriculture in this country, in particular government participation.

My criticism though is really directed in a number of areas. I'm going to try to focus on a couple of them relative to your proposals because at the end of the day we both have the same goal in mind, and that's to make sure that we continue to provide the most abundant, the highest quality and the safest food supply of anybody in the world. We cannot let agriculture become a national security issue.

And the way we make sure that doesn't happen is, that we continue to have farmers all across America that produce that high quality of food product. Now in your testimony you've noted and as a criticism of the 2002 Farm Bill that only 9 percent of farms collected 54 percent of all government commodity payments. And that is true. But what you have not noted in that testimony is that that 9 percent of U.S. farmers represents 70 percent of farm gate output.

Now this 9 percent that USDA considers commercial farms combined with the next tier representing 25 percent of all farmers which are known as intermediate farms, consist of farm operators who report farming as their major occupation. The remaining farmers which are dubbed "rural residence farms" by USDA, represent 65 percent of all farms and receives only 16.9 percent of government payments under the current Farm Bill.

But those farm operators list their major occupation as something other than farmers. They are not the people who get dirt under their fingernails and drive the tractors every day. And while these rural residence farms contribute in a positive and significant way to our nation's agriculture diversity, it's fair to say that they do not incur the level of agricultural risk of those intermediate or commercial farmers who provide the bulk of the nation's commodities.

Now in the current Farm Bill, we have a $2.5 million threshold for farmers to be able to participate in farm programs. Now that $2.5 million is gross income on a farming operation, significantly different from the adjusted gross income and the level of $200,000 that you have proposed. In addition, the current Farm Bill says that will be a three-year average and that 75 percent of that $2.5 million has to come from farming operations. Major change from what you are now proposing.

I called up -- and under your proposal a farmer who exceeds that $200,000 limit gets no payments whatsoever in the subsequent year. I called an equipment dealer and said, Tell me what a piece of equipment costs. For example, what does a big tractor cost that somebody who's got 500 acres or more needs. John Deere 8330 is $130,000. Small tractors, $80,000. Four-row cotton-picker is $230,000. A corn combine with a grain-head is $260,000. With those numbers in Georgia, it wasn't that long ago you could buy a farm for that amount of money, and these folks are now having to pay that for equipment.

And I point that out because under your limit of $200,000 of adjusted gross income, a farmer would still have to make all of his equipment payments, he'd have to make all his land payments on any farm that he was purchasing, and yet if he had a pretty good year one year by the time he got to the next year he would not be able to participate in government programs.

And that's why is say that your proposal concentrates more on direct payments to folks as to whether or not they farm or not as the chairman referred to and does not provide that safety net.

I'm going to give you the example, or an example. Let's say that we pass this Farm Bill this year, it goes into effect October 1 when the fiscal year begins, and let's say you have a farmer in my part of the world who has a pretty good year this year. He participates in government programs under the cap that's set in place. He has an adjusted gross income in excess of $200,000 from which as I've already said he's got to make all these payments. But all of a sudden, he's exceeded your cap. So that means that next year he does not participate in government programs. He gets no payments under your proposal.

Now let's say next year when he needs those payments he has that drought you referred to or he has extreme wet conditions that you referred to, and he does need those payments -- all of a sudden because of this cap you've set he gets no income, he gets no help from the government. He's still got to make those farm payments, still got to make those equipment payments, still got to reimburse his banker. And granted, he's got the crop insurance program to work with, but what am I missing here? Where is that safety net we want to give to our folks under your proposal with that scenario?

SEC. JOHANNS: Very respectfully, here's what you're missing. This is, our proposal is a three-year average. So what you've laid out there in terms of one year, another year, is actually going to be substantially mitigated by a three-year average.

You know, I grew up on a farm. I appreciate there can be spectacular years followed by bad years. We understand that. The other thing I will tell you is this. If you take a look at adjusted gross income, the current law is $2.5 million. It is also based on AGI. It is an AGI limit just like what we are proposing at $2.5 million.

I will tell you at $2.5 million, and Keith always remembers numbers better than I do, but I think if I remember the numbers correctly, at $2.5 million you're really not impacting anybody to speak of. I think it's .0007 percent of the tax-filers in the United States would be impacted by that. It's, even under the proposal we're making we are impacting 2.3 percent of the tax-filers in the United States-- 2.3 percent, and it's actually when you figure out who actually is receiving payments, it's probably a much smaller number than even that.

But getting beyond that, Senator, I certainly appreciate also the cost of equipment. You're right. Equipment is expensive. If you are a major commercial farmer as we described it and as you've referenced, you go out and buy a new combine, you could pay $250,000, $300,000. If you put bells and whistles on it and it does the things we can do with current technology, these are very pricy operations.

However, if you go to schedule F on the tax return, which is titled Profit or Loss from Farming or-- also it's basically the form where you consolidate your profit and loss -- part I--you list all of your income. And then the Internal Revenue Service, through action by Congress, allows you to start deducting what you would deduct off that income. I could spend the next 10 minutes describing what you can deduct. It is a long, long list. It is items 12 through 34, everything from pension and profit sharing plans to rent, lease, repairs, seeds, employee benefit programs other than what's under pension and profit sharing. I mean, like I said, I could tie up a lot of the committee's time telling you what is computed in that, and I'm talking about AGI. I'm not talking about the gross income.

So you get to take all that away before you have to worry a bit about the proposal we're making. And then you get to line 34, and tell me where else you find this on anybody's tax return-- the Internal Revenue Service has six or five more spaces where you list other expenses. Everything else that wasn't listed somewhere else you get to list "other expenses" including machinery.

Now the other thing I want to devote a moment to was your question about the high cost of machinery. I don't deny it. Whether you're a farmer in Iowa or a farmer in Georgia, there is a cost of machinery. I asked for an example. I said, Assume for the purposes of discussion, when I spoke to somebody in our economist division, I said assume that a farmer spent $400,000 on equipment. How will that farmer's expense impact his AGI?

Now here's what would happen. You can do section 179 expenses. That will save you $108,000. Then on the balance, the $292,000 balance, you can take depreciation and based upon '06 numbers that would total $31,273. So now the farmer can plug in offsetting his income $139,273 for that $400,000 equipment purchase.

Now the other thing I would tell you is, that farmer, let's say he bought $400,000 worth of equipment. He probably didn't part with $400,000 cash. It was probably some trade-in value in the old equipment. I mean there's a number of things going on here. But the only point I will make to you is that when you really slice and dice this, we project, and Keith can explain how we do this, that we'll probably impact $1.5 billion over ten years.

But with the recognition that we are basing this on AGI, that the farmer gets to take all of these expenses off--

Again here's what I would respectfully suggest. By any definition in any part of the country, these folks are doing very well. My deputy said, these tend to be the wealthiest folks in the county. I don't know if that's the case or not, I don't live in every county, but I will tell you based on AGI these folks are in the top 2.3 percent of tax filers in the United States. And then slicing it even finer, those folks who receive farm programs it's even a smaller number of that.

Now there's probably some concern because we have people from all over the country here about, "Well, Mike, I hear you but this impacts my part of the country more than other parts of the country." I've asked Keith to look into that, and Keith is going to offer a thought or two, and if you don't mind I'd like to have Keith offer a thought. Keith?

DR. KEITH COLLINS: Mr. Secretary, I'll amplify your comments by perhaps providing a couple of numbers. I would say first of all, the universe of people that we're focused on here with this proposal is Schedule F filers, people who file a 1040 return and have a Schedule F. In 2004 there were a little over 2 million of those. Out of those 2 million, 85,000 -- that's a little bit different number than our book because we've got some more recent data from the Internal Revenue Service -- about 85,000 of those farm proprietors had adjusted gross incomes over $200,000. But now out of those 85,000, many of them didn't get farm program payments at all. So out of those 85,000, 25,000 received farm program payments.

So that means 25,000 or 1.3 percent of Schedule F filers received farm program payments. And they received 4.7 percent of all farm program payments made. Mr. Chambliss, you mentioned commercial farms receive 55 percent of all farm program payments. Well, this group receives 4.7 percent of all farm program payments.

I also should mention that there are other filers, those who do not participate in a material way in the operation of the farm. They file a 1040, they may not have a Schedule F, usually don't. They file a Form 4835. They are landlords. There's another 638,000 of those filers, and out of that there are 12,000, 13,000 of them that receive farm program payments. That's about 2 percent of all the 4835 filers in the United States.

In total when you add the Schedule F filers and the Form 4835 filers together, you've got about 2.7 million tax returns and about 38,000 of those or 1.4 percent have adjusted gross incomes above $200,000.

Now we had a little bit of difficulty getting complete estate data, but as the Secretary mentioned we do have some idea of how this cuts regionally. But primarily just from the Schedule F filing data. And if you look across the country where the most or highest proportion of Schedule F filers having adjusted gross income over $200,000 reside, it tends to be the northeastern states, states like New Jersey, Connecticut, Massachusetts. In fact, the state with the highest proportion of Schedule F returns over $200,000 AGI is the District of Columbia.

And 29 percent of tax returns with Schedule F are over $200,000 in AGI. Most of the states, particularly in the southern states, it's lower. Alabama, 4 percent of Schedule F filers have AGI over $200,000. Mississippi, 4.4 percent. Georgia is a little higher, 6.8 percent. But generally that's the way it works out. The coasts tend to be higher, the heavily populated states tend to be higher, and when you get into the Plains States, Kansas is 2.3 percent of Schedule F filers have AGI over $200,000. Then again, out of that 2.3 percent not all of those are getting farm program payments.

So I think while there's been a lot of alarm about this proposal, perhaps the heavy incidence of this proposal on commercial farmers, when we look at the data I think it turns out to be less than what probably most people expect. Thank you.

SEN. CHAMBLISS: Just very quickly, as a follow-up, if the $200,000 is a three-year average, Mr. Secretary, then you need to be clear in your book. Because I'm sitting here reading on page 21. It says $200,000 annually. It doesn't say anything about average. So you need to make that clear. And that helps some. It does say that you can have a couple of good years and throw in a bad year and you're still going to be eligible.

However, I'm also sitting here looking at Schedule F. Irrespective of whether you have the average of $200,000 or $2.5 million, you're still going to have to make these payments. Now you referred to Schedule F and here it is. And Chuck, you're shaking your head. Show me on here where it says you can deduct your farm land payments that you can deduct your equipment payments. These payments go on, and $200,000 is a lot of money. But when you are talking about somebody having to conduct a farming operation, whether it's a corporation, whether it's an individual or whether it's a trust, if he has $200,000 and has a $1 million worth of equipment plus the land to farm that on, there's no way he can do it.

But even irrespective of that, irrespective of whether it's somebody that has $1 million worth of payments, if he has a small amount of payments, he's still got to take it out of whatever that adjusted gross income is.

And Keith, your numbers bear out the fact that farmers do a pretty good job of taking a lot of expenses off of there. And I don't doubt that. But the fact is, $200,000 limit, even if it's over a three-year average period of time, is not going to allow your small farmer, your farmer who farms 500 acres the ability to participate.

And Keith, I you hit it on the head better than anything else. We're going to eliminate 85,000 farmers across America with that limit from being able to get a helping hand when times are tough, not in a good years but when times are tough. They are going to be eliminated.

My time is up. I've taken way more than I should, and I may have a chance to come back, Mr. Secretary, but I do have, Mr. Chairman, a list of questions that I'll submit for the record.

SEN. HARKIN: Without objection, we'll include those. We'll include anyone's questions that were not able to ask to send to the Secretary.

In order of arrival, we have Senator Nelson, Senator Crapo, Senator Roberts, Senator Lugar, Senator Salazar, Senator Klobuchar, Senator Cochran, Senator Brown, Senator Coleman, Senator Lincoln, Senator Stabenow. I'm told that Senator Nelson will yield his first position to Senator Crapo who needs to make another appointment. So I recognize Senator Crapo. We'll try to do six-minute rounds. I ask, Mr. Secretary, if you can help condense the answers a little bit. We'll try to get through at least a first round and get into a second round, but I'm committed to be here as long as we need to flesh out all the concerns that the Senators have on your proposal. Senator Crapo?

SEN. MIKE CRAPO (R-IDAHO): Thank you, Mr. Chairman, and thank you, Senator Nelson. I'm one of those who I'm sure like most of us have four hearings going on at this point and I need to get moving to another. And Mr. Secretary, I want to join with the comments of others who already today have commended you for thinking outside the box and submitting a very solid, good proposal to us for consideration.

By the nature of the way this works though, I'm going to focus on some areas where I do have disagreement in the few moments that I have. In fact I'm going to probably spend my entire time on just one of those, and that is the dairy program aspects of the proposal.

As you know, I've been a long-time opponent of the MILC program which I believe is regionally divisive, does not really provide an effective, fair or non-market-distorting safety net for our dairy farmers. And I'm disappointed that the administration has embraced this program in its proposal. In fact the USDA itself has identified a number of flaws in the past with the MILC program and in a report issued in 2004 the USDA found the MILC program conflicts with the dairy price support program and actually causes milk prices to stay lower longer for all dairy producers.

According to that report, without the MILC program the remaining dairy programs raise the all-milk price by 4 percent compared to about 1 percent with the MILC on average over five years.

And so I guess my question is, why given this understanding by the USDA with the problems we have with the MILC program, has the administration endorsed it as part of its proposal?

SEC. JOHANNS: As you know, to date we have supported the money for the MILC program. The President indicated he would, and we have, and we have honored that commitment. For many dairy farmers in the northeast, this is a safety net program. You can argue about whether it is effective, whether it's getting the job done, but it was put there, it's been financed over the past five years. We propose some changes much like we have proposed changes to a number of programs. We say it needs to be based upon the historical average. We propose that the rate be cut down from I think 34 percent to the last year the Farm Bill would be at 20 percent. But we've made those kinds of proposals all across our programs to try to make programs more market-oriented.

Here's what I would say when I thought about this. I certainly appreciate what you're saying and what you've quoted from some of our findings.

Once a safety net is put in place for people, however, it is very difficult to just snap your fingers and say, it goes away. That is going to cause some real pain out there. So we took an approach that basically says, we think we can put enough change in to this, enough reform into this, that for the life of this next Farm Bill it will step down and be a more market-oriented approach.

The final thing I would say on it, I've had a number of conversations with farmers and farmers in the MILC area. I do think, Senator, there is a growing discussion and consensus. Consensus is the wrong word. A growing discussion about how best to approach MILC programs in the future. I don't think it's ready for this Farm Bill. But I do believe as we head into the next five years with this in place, I do think that discussion will continue, and my hope is that good things will come out of it and we can take yet another step in the next Farm Bill.

SEN. CRAPO: Well, thank you for your answer. I disagree with your conclusions there. In fact I think we have a better safety net if we were to eliminate the MILC program. But I understand what you are saying.

I wanted to get two other quick questions in here, so if I could ask you to respond quickly to them I'd appreciate it because I'm running out of time already. The first is, you described some changes you are proposing to the MILC program, and my question is, do you anticipate that this revised MILC program will be classified as blue box or amber box under WTO rules?

SEC. JOHANNS: I'm not the trade person, and I'd feel a lot more comfortable if I could pass that question to Susan Schwab. But I do think there's a chance this is blue box.

SEN. CRAPO: I'll certainly ask her as well. If you could elaborate on that maybe when you get a chance to give me a fuller answer, I'd appreciate it.

The last question I want to stick with dairy but shift subjects quickly is on forward contracting. And it's not clear to me what the current position of the Department is on forward contracting. In the past the administration has supported it, as I do. And in fact there was a letter by Secretary Veneman to this committee stating the desire the Department have Congress extend that program. Do you continue to support the program? Does the Department continue to support it? If so, would you be willing to send us another letter indicating that support?

SEC. JOHANNS: I absolutely would. We support that. We have in the past. I don't know that we spent any time on that issue in the Farm Bill proposal.

SEN. CRAPO: Right.

SEC. JOHANNS: But we're so on the record there that -- but I'd be happy to do it again.

SEN. CRAPO: I'd appreciate that.

SEC. JOHANNS: I'd be glad to do it. I'll send that and copy the committee.

SEN. CRAPO: Well, thank you. Mr. Chairman, we did it with 15 seconds to spare.

SEN. HARKIN: Great example. Thank you very much, Senator Crapo. Now we go to Senator Nelson and then Senator Roberts then Senator Lugar and on.

SEN. E. BENJAMIN NELSON (D-NEBRASKA): Thank you, Mr. Chairman. Mr. Secretary, thank you for being here today, and a special thank you to the former chairman, ranking member, Senator Chambliss for conducting a field hearing out in Nebraska and for listening very carefully to those who grow their crops in rows and those who are engaged in agriculture with ranching and cow-calf operations. We appreciate it very much.

You know, Mr. Secretary, I've been watching the crop insurance program for some time as it relates to continuing drought, and the crop insurance program was never designed to try to have a loss for seven years in a row. And so the effect of that is that the base continues to shrink each year, so that if you have a crop or a drought going long enough in effect you're out of business for crop insurance. I hope that you'll take a very close look at the crop insurance program to see what we can do to avoid having that result.

Averaging over years might make somewhat of a difference, but there are some things that I think ought to be considered, and our staff would like to visit with you about that. I have a series of questions which I'll submit to you as well, but one of the things that's important I think in this Farm Bill is to stress what the purpose of it is. The purpose is obviously to get payments to agriculture in a fair and equitable way and one that complies with all the new requirements. But it's also to protect our agricultural production sources in the United States so that we don't have to rely on other countries for production of our food because we want to produce it here at home.

If we like relying on other countries and other parts of the world for 65 percent of our oil, we'll love importing 65 percent of our food and relying on other countries to provide it for us. We don't want to give away that. So really this Farm Bill is about protecting and the security of our food production here, not just safety but security of being able to produce it here at home so that we don't end up as a result of unfair trade practices, as a result of other imports, that we're not in the position where we have to rely on others for our food.

The second part of this is moving toward our own fuel security with a biofuels, with cellulosic, with ethanol and you and I know what the ethanol industry started as in Nebraska. When I was governor we had one plant; when I left we had seven, and you inherited that, and we've continued to progress along the way, and it's very encouraging that we're looking at switchgrass and other kinds of products that we can turn into our own fuel.

But it's about developing our fuel security as well, so my challenge I guess is -- and I tell you, I have no pride of authorship, but you probably wouldn't believe that -- but turning it into the Food and Fuel Security Act of 2007, because that's what it's about.

Now there will be some that will want another offer, another word, fiber, too. So I'll be bi or tripartisan, whatever it takes. But I think the emphasis has to be on producing and having the security of our food here at home. That's what these payments are about, keeping people in agriculture, bringing new people into agriculture. Someone said today that the average age of farmers in Nebraska went up from 55 to 56. It still seems pretty young to me, but I know the trend is not necessarily the way we want to go.

Or the number of farms that continue to decrease. So that's what this is all about, and I applaud your efforts to try to build a program that will really work toward fuel and food, the security of both, because that's really what this is all about.

I wondered if you might have any comments you might make on that suggestion.

SEC. JOHANNS: I like the suggestion, and I think it does focus on reality. You know if you think about how much we are involved in the fuel issues, and I believe there's a great opportunity to expand that on a nationwide basis. As I said in my opening comments, I really look forward to the day and envision the day when production of ethanol is a nationwide phenomena, where it does move out of the Corn Belt and we move into cellulosic ethanol. That's when every citizen can look at that and say, we are benefiting from that investment that was made by that Congress some years ago. I think it's exactly where we need to be headed.

We didn't try to name the bill. We only wanted to put our proposals out, but I do agree with your thought that it reflects reality.

And 20 percent of our corn crop now is essentially devoted to ethanol. That number is likely to continue growing. I hope a future secretary can come here and start giving you statistics as to how much of our biomass in the country is now being devoted to ethanol production because we've got a lot of it, and it is an untapped source of energy for this country.

SENATOR NELSON: Thank you. Thank you, Mr. Chairman. I outdid Senator Crapo. I left 20 seconds.

SEN. HARKIN: You sure did. Thank you very much, Senator Nelson.

Now we go to Senator Roberts.

SEN. PAT ROBERTS (R-KANSAS): Thank you. Thank you, Mr. Chairman, and thank you for holding this hearing, and thank you, Mr. Secretary, for coming before us. And as I said, the best way to write a Farm Bill or any bill is to sit on the wagon tongue and listen to farmers, and you certainly followed that advice. My word, you went to 52 listening sessions including one at the Kansas State Fair in Hutchinson and handled that very well.

We're running the numbers, and we're going to meet with you next week, and so I'm not going to be too pesky with you. I want to thank you for your healthcare efforts. I think you said 1,200, I think critical access hospitals. We have 84 in Kansas, the most of any state, and I want to thank you for that initiative.

I didn't vote for this last Farm Bill. I checked with staff, I checked the numbers out at Kansas State University, and seven out of the ten years previous to that bill the 2002 bill, we would not have received a payment. Those were some of the roughest years that we've had. And we've continued that. And why on earth would I support a Farm Bill that seven out of ten years when you really need the money you're not going to get the money?

And you said that basically in your testimony, but I want to repeat it. It's on page 6 of 12 in the Weisemeyer Report.-- payment for this Mr. Chairman, or at least I don't think I am. And if I am I sure as Hell don't want to talk about it. But at any rate, Jim Weisemeyer, if James Brown was the godfather of soul, he is the godfather of agriculture program policy. And on page 6 of 12 you say, "Well if you look at the current CCP and farmers told us this and when they told us this it seemed counterintuitive; I couldn't figure out what they were telling us. But when we looked at it, they were right. It's no wonder they were showing up asking for disaster aid; you can't LDP something you haven't grown, and they're right about that. But what tends to happen is, the prices go up and the CCP is not triggered, they're out. They're flat out. If they haven't raised a crop because of drought, they have literally lost on their LDP and literally lost on their CCP. Where is the safety net?"

And that's what a lot of people were asking at the end of the 2002 bill. Lord knows I don't want to extend that. And so we had to rely on crop insurance, and that's about all we had. And that's why you're going to be facing on the supplemental an emergency disaster bill for the three years of drought that we went through out on the Plains and your home state, my home state, and other areas out there. So I want to thank you for really figuring out what's wrong with the current program and how to fix it.

We have to remember the lessons we've learned. I know you've heard in the forums that the target price for wheat was too low. We get 4 cents of an increase; I'm not going to get into comparing the commodities. I don't want to do that. I could but I don't want to. But the 4 cents comes in the out years. Wheat growers aren't very happy about this.

And so we're going to have to work on that.

And I want to know how does this formula help the wheat producers who were essentially left out of the countercyclical program end of the 2002 Bill? You don't have to do that right now because I don't have time to get into it. But you could answer it for the record, and besides you're coming up to talk to me next week anyway.

Do you have any projections? And this would be for the number cruncher of all time and the fly specker over here, Dr. Collins. Do you have any projections that you could provide us as to how the countercyclical payments would have looked over the last five years compared to the current Farm Bill? I need to know that.

You have traditionally opposed ad hoc disaster payments encouraging the producer to buy crop insurance. As somebody who worked very hard in 2000 with Senator Bob Kerrey from Nebraska to create a program that provides the necessary risk management tools to producers--I am very concerned about the effects if your proposal on crop insurance, the last Farm Bill already robbed, they used this as a bank, $2 billion from crop insurance. How does taking additional money out of this risk management program help producers? I don't understand that.

As the $200,000 adjusted gross income cap plays out in reality, let's say that there are three brothers in Dodge City, Kansas, operating jointly as Three Brothers, Inc. That company has an AGI of $205,000. That means each brother receives about $68,333 as their share. Does your proposal really preclude any of the brothers from receiving Title I payments? Does the $200,000 limit apply to the AGI or the corporation or to each brother individually?

You also have a conservation enhancement payment under Title I. That's the one where you say you will increase the producers' direct payment by 10 percent if they forego a marketing assistance loan and countercyclical payment. And I understand that the conservation payments under Title II are not subject to the new AGI limit in your proposal.

So my question, is this proposal a commodity program or a conservation program? And which AGI limit would you propose applying to it?

Now that's the laundry list of questions that I had for you. We've got about 32 seconds. Obviously you can't answer that, so why don't we just reserve all that until you come up and talk to me next week. We'll have a good talk about it.

Keith, you said 85,000 farmers were eligible but only 35,000 actually got payments; is that right?

DR. COLLINS: Mr. Roberts, I said out of all of the schedule F filers, what we call farm proprietors, 85,000 had AGI above $200,000, and out of that 85,000, 25,000 actually got farm program payments.

SEN. ROBERTS: Yeah, but the other 60, with the way the farm program was set up, we didn't have a crop. So how can you file on Schedule F if you didn't have a crop and you're not going to get a payment?

DR. COLLINS: Well, this was 2004 data, Mr. Roberts.

SEN. ROBERTS: 2004?

DR. COLLINS: Correct. That's the latest IRS data we have.

SEN. ROBERTS: Yeah. Right in the middle of our drought. We had 2003, 4, 5, 6, and a blizzard. I mean the reason they didn't put it down on Schedule F is with the way this Farm Bill is written if you don't have a crop you don't get a payment, except for crop insurance. Or I guess that's my answer to it. The other thing is the 29 percent came from the District of Columbia. What's that all about?

DR. COLLINS: Apparently there are a lot of high AGI farm proprietors in the District of Columbia.

SEN. ROBERTS: Yeah. There are a lot of absentee landlords or something. By the way, if the members of Congress make about $170,000 and off-farm income counts, ain't going to be many members of Congress getting any farm program payments. I don't have a farm.

[Laughter.]

SEN. ROBERTS: Thank you, sir. And Mr. Secretary, thank you. And Chuck, it's good to see you and that guy with the glasses on his nose behind you. I appreciate his work too. And thank you, Mr. Secretary.

SEN. HARKIN: Thank you, Senator Roberts.

Now we turn to the person who really alerted us and the whole country I think to the promise of cellulose ethanol who really kind of charted the course and led the way, and that's Senator Lugar.

SEN. RICHARD LUGAR (R-INDIANA): Thank you very much, Mr. Chairman. Let me just join you and Senator Chambliss in commending the Secretary to begin with for this book. This is really a substantial contribution. Now I don't want to be derogatory to other Secretaries of Agriculture, but frequently we've had a suggestion, a pamphlet, and then disappearance. And I appreciate the fact that you are here, you have a book, you have Chuck Conner who came with me to Washington 30 years ago, and whose ministry in this thing I really respect so much. And Keith Collins who has done superb work really throughout this period of time in amassing statistics that are impressive. So this is important. Now I make that point because some of the agricultural press have commented that commendation has come here or there, but I think it ought to be very concerted. I'm one person that supports what you're doing, and even though we may argue over the specifics of this situation, this is a vast contribution.

Secondly, I wanted to commend you for sticking up for the fact that farmers throughout the last three decades have gained much of their growth through foreign trade. We've expanded our markets, we need to continue to do that. I appreciate all the disputes that are going on surrounding the WTO-- loss of jobs, outsourcing, all sorts of particular protections even of American agricultural commodities. But this really has to be something that is a mission for agriculture in the same way that secondly you've commended energy, the explosive possibilities of this are evident to any of us who are in farm country now. I'm amazed at the changes even in a short time in rural counties in our state. Tax revenues, deposits in the bank, hope for the local Chamber of Commerce. This is an extraordinary sociological phenomenon quite apart from whatever we're discussing with regard to individual farmers.

And it's just beginning. This is so significant. The world trade business and the energy revolution has intersected agriculture, that if we did nothing else but foster those two things we will do a great deal for most farmers in our country as well as most of our citizens.

Now let me just add with regard to the energy situation, I'm hopeful that specifically USDA can work in this bill or elsewhere with those who are going to try to get higher yields for corn or for beans or for whatever. We have all these static estimates, only so many acres, so many bushels. Now granted, the weather plays a big role, but the fact is that there hasn't been much of an incentive to get corn to 200 bushels to the acre on an average and 250 in a good year, or ditto to move ahead with beans.

In all of our lifetimes we've seen those kinds of adjustments but not for awhile. And I think that's very, very important for us. Likewise, with regard to corn ethanol, distillers dry grain, DDG, some people are working out markets for that. New deal. What a huge opportunity for income. Likewise a way of meeting some of the needs of people who are feeding livestock who need to try to think through how those proteins can come to their livestock.

The third thing I wanted to mention, the safety net item. I think very important, last Farm Bill I proposed a safety net situation and got 30 votes as an alternate Farm Bill. I have no brief for that particular situation, but others have thought through that and improved upon it a great deal. Our payments I believe ought to be to keep farmers in business and that I think can be done in part through what you're suggesting. I hope we'll be able to perfect that.

There are a lot of groups outside of agriculture deeply interested in the equities of that.

And speaking of equities, I commend your attempt to try to meet the criticism, not in agriculture, not in this committee, but of ordinary people in life who say why should a millionaire get subsidies from me, a modest taxpayer? There isn't any good reason for that. And we have got to think about some degree of social equity while we're thinking about subsidies, and some would say subsidies are not a good idea at all. I'm not going to go down that route, but I would just simply say that clearly there were limits to both the patience and the common sense of most people when it comes to subsidies and taxpayers and transfers of monies in America.

And I commend you and Keith for trying to get into that problem.

Now let me just add that the conservation that Senator Harkin has talked about is very important because that's our heritage. The land that I farm or that I hope that my sons will continue to farm will someday be farmed by other people. Hopefully it will able to be in better shape and we will have done better with the water resources, improve the land resources, kept White River from flooding more often, all the sorts of things that are very important for our heritage, the assets of our nation.

So we want to support those programs.

And finally, I would hope that at the end of the day all this bill costs the taxpayers of the country much less money. I pressure each of our committees would say, after all we're advocates for particular people-we are advocates for farmers. And I am a farmer in the sense that I own land, 604 acres. We've got corn and soybeans and trees out there. I take these programs very seriously. Someone suggested about recipients of payments, I am a recipient of payments. Conservation working group and so forth lists me and our farm, so I can read how much is coming into our farm.

So we understand these issues. But I'd just say simply that it's very important that we preserve the opportunity to farm for people not just family members. My sons are going to have that opportunity. But there are very few sons reportedly in our state who are going to have those opportunities. Just getting down to the payments issue, the dilemma is that the talented young farmers right now farming in Indiana, ,2000, 3,000, or 4,000 acres, may only own 50 or 100 of that. That's where the machinery is being utilized, and they are doing a pretty good job.

But the equity of this is uncertain I would say, and farmers still getting older and the ownership situation. You can't tackle all of that, but the fact that you have tried to get into those issues is tremendously important in terms of the continuity of agriculture.

So I will submit my questions for the record, but I want to take this time to make these comments. Thank you.

SEC. JOHANNS: Thanks for the comments. We appreciate it.

SEN. HARKIN: Thank you very much, Senator Lugar. And again thank you for your great leadership in this whole area. I look forward to working with you on this whole area of bioenergy and how we move ahead and couple that with conservation at the same time. I think it's doable. I just don't know exactly how to do it right now, but I hope we can accomplish that.

Let's see going down the list, Salazar, Klobuchar. Senator Klobuchar.

SEN. AMY KLOBUCHAR (D-MINNESOTA): Thank you, Chairman. Thank you, Secretary Johanns. And thank you for the visits you've made to our state. I know that Congressman Collin Peterson and I met with you when you were there at Farm Fest, and I appreciate the work you've done in our state.

Also, I appreciate the focus that you have on energy. Like Senator Harkin I am concerned about the investment that we want to make sure that when you look at the money we've put into oil companies, that if we're really going to develop our own homegrown energy that we have to make a better investment than this.

I also appreciate that you are talking about continuing the MILC program. We'd like to see it at the levels at least that it is currently and not a cut. But it is very important that we continue the MILC program as well as the sugar program.

But I thought I'd focus today on disaster assistance. You know Minnesota farmers have been hit with heavy losses for two consecutive years. We were hit with excess rain and flooding in 2005, and again with drought in 2006 and in some cases the same farms in both years. The combined costs of the disasters to Minnesota's farm economy was more than $700 million over both years. I've cosponsored the Emergency Farm Relief Act of 2007 that was introduced by Senator Conrad to compensate farmers for a portion of these losses.

As we look at the Emergency Supplemental Funding for the war in Iraq, which of course is to support our troops, I understand. But emergency funding for farmers is also important for rural America.

Given the fact that the 2002 Farm Bill commodity programs have cost something like $25 billion less than originally anticipated, why don't we see that kind of support for the $5 billion in disaster assistance for those farmers who suffered losses over the last two years?

SEN. JOHANNS: In the Farm Bill proposal we have, I would respectfully suggest to you that we have what I consider some excellent ideas in terms of how to deal with disaster. For example, Senator, there's just no question in my mind that the revenue-based countercyclical is going to work better for those individuals who have experienced disaster problems in a program crop, without a doubt, than what we have now; because what tends to happen in a disaster the price goes up, the current program is triggered by price, and they're out. And if they don't raise a crop, they don't get the loan deficiency payment under any circumstances. They really lose on a couple of accounts.

The second thing I would say is that one of the things we heard from farmers was that the gap that could insure whatever the number is, 70 percent of their crop or whatever -- but that 30 percent was a real problem for some farmers. For others it wasn't. You know, they didn't want to lose that needless to say, but they were at a point in their farming career where that would be a part of the risk that they could manage if they have to.

And so our gap coverage says, for those farmers who want to buy that gap coverage, let's make it available. Let's put that in our proposal. We've also proposed consolidating a couple of programs that we use a lot in disaster-- ECP and EWP -- which again I think we confused everybody about when these programs apply and when they don't. We're proposing a different approach.

Now in terms of the disasters that we've been dealing with, here's what I would say to you from our standpoint at the Department. We have reached out in so many ways. I was governor of a state just north of Senator Roberts' state in the same vicinity of your state. Out of the six years I was governor I think we had drought all six years. Had a couple of years a little bit better than the other-- very, very difficult situation. I will tell you that when the department stepped up with the dry fat milk program it was a huge help to our farmers. It's been criticized, and we've tried to be mindful of the criticism directed at that. But it really was a helpful program.

This last year we went out, we identified additional funding where literally we could block-grant it into the states, distribute it to dig wells deeper, buy feed for the animals, buy hay. It was a very, very flexible program, and again a program well-received. I feel strongly we need to somehow solve this disaster issue because it's an annual event here. How big? Should it happen, should it not happen, etcetera, how does a farmer ever plan on that? I mean that's no safety net. And farmers told me that was no safety net.

I really believe that working with the proposals we have and maybe there are some other ideas-there are some things that will really be a safety net for farmers in those disaster relief situations.

SEN. KLOBUCHAR: And I appreciate that and I'd appreciate support for the supplemental, Sen. Conrad's bill. The other piece of this is with crop insurance. My concern is that this is based on a countywide basis of loss and we have some big counties in Minnesota where you might have a part of a county where a farmer is totally wiped out and the rest of the county is fine. Have you looked at that again and refigured that for that situation?

SEC. JOHANNS: I'll ask Dr. Collins, who works this area to offer some thoughts on that.

DR. KEITH COLLINS: Senator, we have looked at that and we decided to go with the county basis because we already have in place county area crop insurance programs. We have GRP, group risk protection and GRIP, group income protection. If you look at the national enrollment in crop insurance, farmers who buy crop insurance policies have about $20 billion of the crop value not covered-that's the deductible part of their policy. We have county area policies in place already today that would cover about $3 billion out of that $20 billion deductible. So we already have on the ground a county area based policy that could be adopted that could cover the deductible portion of existing multiple-peril crop insurance policies. So that's the reason we went to the county basis because it takes years to develop a crop insurance program to determine the appropriate actuarial rating, and we already have done that over the last several years for the county-based areas.

Now I understand your concern, and it's a legitimate concern. And what you will find is that producers whose yields tend to correlate with the county, this will be a great benefit to them. For those producers whose yields don't correlate with the county, they're going to have to buy up higher levels of coverage with their individual crop policies. So it's true that there's some trade-offs there, and I think we went with the county basis because that was where we were best equipped to deal with it.

SEN. KLOBUCHAR: Well, thank you. And we look forward to working with you and I'll submit some additional questions in writing. Thank you, Mr. Chairman.

SEN. HARKIN: Thank you very much, Senator Klobuchar. Senator Cochran.

SEN. THAD COCHRAN (R-MISSISSIPPI): Mr. Chairman, thank you. Mr. Secretary, thank you and your staff for cooperating with our committee in being here to describe the proposal the administration is making for changes in the farm programs. We know this is a complicated and a wide-ranging effort, and we appreciate the hard work personally you've devoted to the process and your openness in terms of going around and talking and asking questions of people out in the country about what their thoughts are and what their impressions are of these proposals.

What I'm hearing from some of my friends in my state of Mississippi is that in cases of cotton and rice programs the changes that are proposed in the Farm Bill may very well end up in causing people to go out of farming, sell the land. And I wonder in that connection has there been any effort to do an economic income analysis or economic impact analysis of the program in terms of job losses, economic consequences, practical consequences as a result of these proposals if they are approved and enacted into law?

SEN. JOHANNS: I will ask Dr. Collins to talk more extensively about the economic analysis. Let me if I might though offer a thought. I was in your state recently. In fact our first stop when we unveiled this was in Mississippi. We had a great opportunity to talk to producers. It was a packed house. They were very, very interested in what we were doing.

But let me, if I might, just zero in on cotton because we were right there in the Delta. If you look at the adjustments that we have made to the loan rate in cotton for example, and then look at the increase that we have made in the direct payment, the increase in the direct payment is 65 percent. And again, it's hard to figure out the micro-level, the impact on each farmer in each state. But I can tell you in an overall picture the numbers are absolutely very close to each other.

But here's a couple of things, Senator, that I think are really important. First thing is, cotton is plagued like any other crop with weather issues and maybe especially true for cotton. If your irrigated cotton, you can withstand drought and that sort of thing. But if you're not, you're just praying that Mother Nature is going to be on your side this year.

The one thing about the direct payment I can tell you, that's the one thing you're not going to have to pray about. Maybe you should pray anyway, but I can tell you it's going to be there. It's a mandatory provision, approved. That young cotton farmer out there who's just getting started who has a mortgage payment, an equipment payment, etcetera, can take that to the bank. And under the current program if they lose a part of that crop again, they can't LDP a crop that they didn't raise. And if they have any up-tick in the price they are not going to get the countercyclical kicking in, and so they are really, really out. They are really on the losing side of what was supposed to be a safety net.

The second point I'd mention, and again I'm not the trade person so I'd even hesitate to bring this up other than its real. We aggressively defended our cotton program. We lost in the first stage. We aggressively defended it again; we lost in the second stage. Now there's a WTO panel, and the purpose of them being impaneled is to decide whether we have done what is necessary to comply with the ruling. That's the only purpose of the panel.

Somewhere in your deliberation time here between now and the time the Farm Bill will be passed, my expectation is you'll get a WTO ruling there. And then we'll know what that ruling is. But as I've said to cotton producers, "Folks, it is no safety net to go out there and suggest something that puts a bulls eye on your back. It is no safety net at all."

As a general proposition, if your direct payments are not linked to price or production they are green box, they are WTO-compliant.

Now I will tell you, Senator, we did not sit down to write a Farm Bill for the WTO. We sat down to write a Farm Bill that we thought was good policy, but again getting back to the case of cotton I can't ignore it, and none of us can because 80 percent of the cotton produced is exported. Like it, dislike it, pro-trade, anti-trade, I know all the debate but the reality is that on any given day we've got to be paying attention to selling 80 percent of our cotton production into that export market. We just are in a position where we've got to pay attention to how best to do this.

And I can tell you, I think when you sort it all out with that increase in direct payment with some of the things we're doing, I will promise you I can't tell you what happens to the individual farm out there; I can tell you in terms of the overall picture I believe this is a more secure, a more predictable safety net. And I'm not being critical of the '02 bill; I supported the '02 bill. Turn the clock back, I'd do it again. But times do change, and one of the changes here is we've got to pay attention, we need that export market for your cotton people.

So that's a long answer for, probably more than you want.

SEN. COCHRAN: Well, I think you're absolutely right, the export market is critical for agriculture generally but specifically for cotton. We understand that, and we appreciate your looking into it and trying to figure out what the consequences are going to be. I think to be fair with our constituents would be a mistake to over promise that we're going to fix this in a Farm Bill. I don't know that the votes are here to do that or the support from the administration is available to help us do that. And so I'm trying to figure out, what do we do now? How do we try to make a transition if the transition is needed from some traditional land use practices to something that could take the place of what we've seen in the past?

I grew up in an era as some of the others did, you know. Both my grandparents had farms. Those days are so different from where we are today though. My recollections as a young boy picking cotton and chopping cotton, that just, nobody does that anymore. You've got cotton pickers and mechanical. What you have is a labor force that's built up and a culture of people involved in providing the inputs-- fertilizers, seeds, and on and on and on. Businesses depend on this. And if this crop just disappears, it's going to have an enormous adverse economic consequence on the South and particularly on my state of Mississippi. And I just wonder if anybody's thought about that and thought about well, what are we going to do, just tell everybody good luck? Is there going to be any kind of effort to help with our transition if that occurs in some of these areas?

I'm worried about that. The use of economists, and this is not talking about Keith or anybody in particular, they talk about, "Well, there are going to be some financial dislocations." I've heard that one. I got to Washington and I heard it. What that means is, people are going to go broke! Some people are going to go broke, and it's going to be devastating. I just am curious to know if you've thought through that and what are we going to do about it?

SEN. JOHANNS: You know, I come from a different part of the country, but financial dislocation language doesn't impress me either. You know? I was very, very involved with farmers during the 1980 crisis, my lifetime, and hopefully in no one's lifetime do we see that again. We thought long and hard about it. I suppose, Senator, we could have walked into this committee and said, Well, we've done this because we have to comply with the WTO, we wish you the very best, not impacted direct payments, taken that money, sent it to the bottom line and had a big savings, and touted that all over the country that we got that big savings.

We didn't do that. We tried to figure out how best to approach this, and so that's why cotton is getting -- you know the other four major program crops starting in the third year going to the fifth year, they get a 7 percent increase. We're proposing 65 percent for cotton. So you add all of that up, and again I will suggest to you that I think we've got some great ideas here.

I have immense respect for you, like everybody on the committee. I know that you're trying to figure this out too, just like we have been trying to figure out, because we have to somehow decide how best to approach this because that export market is important.

I'd love to sit down with you or your staff or whoever you want me to sit down with, walk through the numbers, try to show you what we think these numbers mean, and you know just make the case because I think some of the very things you're debating in your mind today we've debated, we've tried to figure out how best to approach this.

I would again respectfully suggest, I think we've got a really good idea here and a good approach, and we're anxious to try to make the case. So I offer that to you. I'd be happy to do it. Your concerns are certainly our concerns.

SEN. COCHRAN: Well, we appreciate your response and your interest in working to try to find some answers to our questions. I compliment you on the conservation incentives. I like the idea that you're expanding the Wetlands Reserve Program, the Conservation Reserve Program. The Cellulosic Bioenergy Program is something that I think we'll be very interested in. These are all options for land use as well, and we just need to take advantage of the opportunities we have to help make ends meet as they say.

Thank you very much.

SEN. HARKIN: Thank you very much, Senator Cochran.

Senator Coleman.

SEN. NORM COLEMAN (R-MINNESOTA): Kind of like a blink of the eye here. I look to my right and Pat Roberts is chairing the House side I think there's an array of one, two, three, four five chairmen, former chairman of this committee. And, so I haven't been here that long. But I do have to say, Mr. Secretary, I do want to start out by thanking you. And I have some concerns and kind of the nature of this is that I'll kind of target in on those, and I don't even know in the time we have that I'll be able to get the responses. We'll have a further conversation.

But I want to thank you and your staff for your effort in this, for the work you've done on the ground, for your commitment to listen to the folks that this impacts, the farmers. I've said I have some questions, but I'm going back home and talk to the folks who got the dirt under their fingernails and let them tell me what's the impact of some of these changes.

But clearly you've done the ground work, you've thought outside the box. I mean you're trying to deal with that situation that says if you don't plant a crop where's the safety net? I Understand that. I have particular appreciation; I disagree with my colleague from Idaho about the MILC program, and yet I'll join him on forward contracting. We should work together on that.

I share the concerns many of us -- sugar I think you've done a good job maintaining the program. It's a no-cost-to-the-taxpayer program. I think we face some challenges in the future over some trade issues, and I think energy may be a solution.

And I applaud the strong commitment to energy. I think a lot of it has come out of this committee by the way, and I think that's important. On foreign relations, we had Alan Greenspan come before the committee, and he indicated we could be doing 60 billion gallons of cellulosic, 60 billion. A lot of us thought it was bold when we did 7.5 billion gallon renewable fuel, RFS for this country. We're going to 11 billion gallons if we do nothing in the next couple years, and what we get out of corn may be 15 to 17 billion. So you got 60 billion. But we got to get there, and you have that commitment. I share the commitment.

This is close to heart of the chairman, of conservation, what you're doing there. Rural development, I have a particular concern about critical access hospitals, and you touched on this. So I thought we had the most in the nation; Kansas may have, but we're pretty close. I visited probably almost half of them, and that is a difference. It's life and death, those 25-bed hospitals. So I applaud the work that goes on there.

Let me at least raise a few areas of concern. One is, we have a farm policy to protect farmers when prices are low, not when prices are high. We cut marketing loans by $4.7 billion. I think countercyclical cuts is $3.7 billion. I think these are two of the programs that help farmers on the downside. Then we have slight and temporary increases on direct payments.

My concern is, what if predictions are wrong and prices drop? I start with that concern. Are we going to need to pass unbudgeted emergency relief like we did in the 1990s? So I have that concern. Let me lay that out there. If we have time you can respond now or respond later.

I have, I got -- by the way, it's a big axe. If you look at the cuts, the overall cuts, and if you weigh it in totality, $3.7 billion from the current baseline below 2008, 2007, that's a lot of money to cut from the safety net. It's a heavy axe that we're doing there.

I have a particular concern, if I can, just about wheat. I want to put it on the table. Senator Roberts kind of mentioned that. You stated publicly that wheat growers didn't get a fair shake in the last Farm Bill, and so I'm wondering if you see a 4 cent increase in direct payment, that only comes in the out years as equitable and especially in light of the fact that I'm hearing from a lot of folks in the wheat industry that countercyclical programs don't do much for wheat.

And the particular concern I have is, on your countercyclical program you make it revenue-based rather than price-based, but what if -- I got folks in the Red River Valley -- if they lose their entire crop under their program and can't get payment if prices are high for farmers in other states that make their crop?

So the question would be, are we covering one of the strengths of this proposal is we're saying, hey, we're going to provide a safety net for folks who don't produce a crop. You know, the other end, I got folks who get wiped out and in the rest of the country they are making theirs, then my folks get left out. I presume that applies for others.

So help me understand how your proposal would help farmers who suffer complete crop loss, especially if the rest of the country has a good year. I could go on and one. If you can deal with the general proposition that a lot of this is based on a sense that we think prices are going forward. And God bless if they are.

I mean energy has made a difference. Energy is the future. Energy is the future. I do hope, I just have to say this, that we look at sugar. If we turn everything that's green into energy down the road, but exclude sugar, I think that's going to be a problem for our sugar growers an especially by the way as we look at NAFTA and some other things we have the prospect of a lot of sugar coming in this country. I'd hope we would look at energy, at ethanol as a way possibly to deal with the sugar that's coming in so we don't upset our program. That may be the safety valve, and I hope that we kind of look to the future in spite of some of the challenges of price we understand now.

I only got 24 seconds left. I'll make this statement. Let us continue the conversation. But I am very, very concerned about if we're wrong on the price bet that our farmers could face some big problems under this. But with that, let me say this is a forward thinking proposal. You've done the hard work. I'm very appreciative, and I look forward to working with you on this Farm Bill.

Thank you, Mr. Chairman.

SEN. HARKIN: Senator Coleman.

And now Senator Lincoln.

SEN. BLANCHE LINCOLN (D-ARKANSAS): Thank you, Mr. Chairman. Mr. Secretary, welcome to the committee. And thank you for joining us today with Dr. Collins and Mr. Conner.

Before I begin my round of questions, I would like to start by acknowledging what is certainly a very detailed proposal and one which it's obvious you put a great deal of passion into, and time as well, in your listening tour. We want to thank you for your work.

And certainly glad to know that you've listened to certainly a lot of farmers across the country who support the current Farm Bill and I presume as a result you propose maintaining some of the basic structures here as we've seen in the commodity titles, the marketing loan, the countercyclical, the direct payment, and you've mentioned some of your reasons for why you dealt with them as you have.

But I do have some serious questions and concerns, and I look forward to working with you in the months ahead to try and face those challenges that we all face across this country in terms of the diversity of our states, the diversity of this country, and the products and commodities that we grow. So that's important.

I'd just like to point out, from the questioning Senator Nelson brings up the issues of markets and how we meet those demands, and coupling that with Senator Chambliss's remarks and the idea, the possibility of losing those 85,000 farmers as a result of the means testing that you have placed in here, that production probably will shift overseas. And as it does, we will never see it again more than likely. So I'm hoping that Dr. Collins perhaps, or somebody might respond to us with an answer in writing where you anticipate the foreign countries that will compensate for any expected decline in our production of those commodities as you talk about those export markets.

And if so, which countries those might be? So if you all could provide that. And then in reference really to your AGI proposal, this recommendation kind of strikes me as somewhat inconsistent with the administration's approach to so many other policy initiatives in terms of ideas I suppose. I serve on the Finance Committee, and I find it interesting that when we passed legislation a few years back to stem the loss of manufacturing jobs in this country, to my knowledge no one in the administration raised any question about the size or the income of the manufacturer receiving the tax benefit. In fact, I think we wished that all the manufacturers were doing better economically than they were. And we had just lost about some 3 million manufacturing jobs.

But in any event, Congress and the administration thought it was important enough to step in and help manufacturers compete in a global marketplace. That's not always free and it's not always fair as we know. And we did so regardless of the manufacturer's size or income. I think the same is also true of the administration's approach of energy policy. I also sit on the Energy Committee. And I've been spending a lot of time lately reviewing our nation's policy. And of course see a lot of press about record profits from the nation's oil companies. As you are certainly likely to be aware, the government provides a considerable amount of assistance via the tax code and other incentives for the energy sector. And yet to my knowledge the administration has not proposed a means test for oil companies either.

I hear most often that this is due to our need for energy security and the necessity or the really necessary commitment to the pursuit of energy independence. And yet we haven't extended those tax credits for the renewable fuels in a way that wasn't in the President's budget anyway.

But I guess, Mr. Secretary, just an explanation or your comments in terms of to the committee why the administration supports means testing for farmers but not for oil companies or why we should support means testing for our farmers when they face the same if not more unlevel playing field in the global marketplace.

Now I know you've made the comment several times that you're not the trade person, and we're certainly aware of that. Nor was the Farm Bill written for trade purposes. And yet we cannot operate in a vacuum, and we know that. When we look at what it means to this country to not only working farm families but all working families to have a safe and more importantly affordable food supply of secure food and fiber supply produced here at home, it seems to me that it would be equally as high a priority in terms of the administration's policies and ideas of how they approach those things.

So maybe -- I don't know, you've got an idea of how that --?

SEC. JOHANNS: I'll offer a thought or two if I could.

SEN. LINCOLN: Sure. Um-hum.

SEC. JOHANNS: Let me if I might just start out, and you used the terminology "means testing." Keep in mind that the '02 Farm Bill embraced that approach. It is in the '02 Farm Bill. It's a much higher level, $2.5 million, and it impacts really a sliver of the tax filers in the United States because $2.5 million of adjusted gross income really is the wealthiest of the wealthy.

But $200,000 of adjusted gross income again is, if you examine what we are saying they can deduct under our tax code, they are getting a substantial benefit if you will because of tax policy adopted by Congress.

But then we go a step further in this area, and we say, we're going to not only recognize that, we're going to send cash. We're going to send a subsidy. We are going to say to hard-working families around the country that the money that you pay in taxes will be distributed into a formula that sends out a check to people who are raising these commodities.

Now personally I've said all along I think it is a wise federal policy to invest in agriculture. Not everybody agrees with me when I make that statement, but I believe it is a wise federal policy.

But when you look at the decision, is there a point at which you become successful enough that you graduate from the cash subsidy that we're sending, I think Congress has answered that question repeatedly. Since 1970 payment limits have been a fact of life. Payment limits have been a part of farm policy now for over 35 years, dating back I believe to the 1970 Farm Bill. And I'll just be very candid with you, and maybe there's somebody in this room who would disagree with me. You know what? They haven't worked, certainly not very well. Certainly not very well. I think the common belief is that there is a payment limit; but quite honestly there are so many opportunities to restructure, to redesign, to do this, that and the next thing.

So it's a vastly different approach than saying, here's a tax credit contained in a farm tax return, or if you raise oil or get oil or whatever, than literally distributing cash out of the Treasury. I believe it's just a vastly different approach.

SEN. LINCOLN: Well, it seems to be also that you're picking winners and losers, and I just don't think that's our business here. But hopefully we will have an opportunity to work with you a little more and see what we can't do to be a little bit more diverse in terms of our approach.

I'll wait for the second round, Mr. Chairman.

SEN. HARKIN: Thanks, Senator Lincoln.

Senator Stabenow.

SEN. DEBBIE STABENOW (D-MICHIGAN): Thank you, Mr. Chairman. And welcome, Mr. Secretary and Dr. Collins and Mr. Conner. Welcome. We appreciate all the hard work, and I would echo the sentiments about the way in which you presented information to us in the Farm Bill. I appreciate it very much.

When we look at agriculture in Michigan, it's our second largest industry, and in the Farm Bill I find myself needing to be interested as I've talked to the chairman about before in every single page because we have a great diversity of crops and everything from soybeans and corn and sugar beets to apples and cherries and milk and pork and beef and as well as Christmas trees. And we have everything.

But I want to focus, and I will be focused on every piece as a result of that, as well as rural development and premier land grant universities like Michigan State University, my alma mater, are in the state. So I care very much about all of the Farm Bill.

But I want to focus on 50 percent of the crops that have not been included in a substantial way in this Farm Bill, which are specialty crops. And I think it's important, and I appreciate the new focus that you have given. Senator Craig and I will be reintroducing shortly our specialty crops bill that we hope -- talked to the chairman about -- incorporating into a new title. And looking forward to working with the chairman and ranking member in committee to do that.

Let me speak to a couple of things related to specialty crops now because I think it's important that you have added certain provisions. I do think, and I want to just emphasize in the area of increased purchases for fruits and vegetables, for nutrition, which as you know is a win/win situation. We help our fruits and vegetable growers. We also help our children. We help seniors, we help others in terms of their nutrition.

I appreciate the proposed increase in Section 32 and the dollars that you have proposed, additional $200 million for '08, $225 million '09, etcetera. I just want to emphasize though that we attempted to do that. We put into the Farm Bill in 2002 what we thought was going to be an additional $200 million per year above current spending, which at that time was $180 to $200 million a year.

Unfortunately, instead of seeing an additional $200 million added, we've seen numbers like the '05 purchase, according to CRS, which was $135 million total, not with $200 million added to it. So it's important to me, and I want to create language however we create it, in the Farm Bill to make it clear that it is in fact additional no money, not the difference between $135 and $200 million. And I'm looking forward to working with you on that because the language in here is very positive. I just want to make sure it gets translated because it's a critical program, a critical program for our farmers. And I'd welcome your comment on that, Mr. Secretary.

But I also notice that you're not proposing to expand the specialty crop block grant program. I wonder if you might share why that would be the case as we look at expanding opportunities for specialty crops in the Farm Bill.

SEC. JOHANNS: Actually let me address that first issue. We agree with you. When I sat down with you, you pointed out to me that you felt like you had made a step forward only to find out that maybe you hadn't made any ground at all.

SEN. STABENOW: Right.

SEC. JOHANNS: So at page 172 of our book, when we referenced this additional funding we describe it as "provide new mandatory funding for the purchase of fruits and vegetables." And Senator Harkin mentioned the snack program. We are proposing to do this through the School Lunch Program. However, Senator, I can tell you that our attitude has been, if schools are using this to benefit the children maybe they do it through lunch, maybe through breakfast, maybe they do it through a snack -- we kind of view this, let the schools decide what program works best. So we try to work with you on that too.

But yes, we heard you, and we've included that.

Chuck, on the pilot program, Senator, is that what you were referring to?

SEN. STABENOW: There's a specialty crop grant program, block grant, that we had in the past.

SEC. JOHANNS: This, I guess what I would say is this. The additional funding here is about $5 billion as you know.

SEN. STABENOW: Right.

SEC. JOHANNS: It's a significant marker for specialty crop producers in the Farm Bill proposal. What we're proposing is, that money would be in the research area which we've significantly boosted. So I think what you are referencing is the pilot program, I think we've addressed. But through the research title--which specialty crop producers told us we really would like some assistance in funding for research, sanitary/phytosanitary, the purchases, and market promotion--and I think we hit all of those areas pretty substantially.

SEC. CHUCK CONNER: And I think, Senator, if I could, I believe the specialty crops block grant program as well was an authorization subject to appropriation. The programs Secretary Johanns has described would all involve mandatory funding taken directly out of the CCC, so we would not be subject to appropriations in that regard.

SEN. STABENOW: Thank you. This is certainly an important step forward for specialty crops. There's no question that research is a major piece to the commodity purchase, and we have other assistance as well-- tree assistance program, other things that are very important for specialty crops.

Let me just if I might just ask one more.

SEN. HARKIN: We got people that need to move, go to the second round. We will have a second round.

SEN. STABENOW: Absolutely, Mr. Chairman.

SEN. HARKIN: Now, Senator Thune. Well, Senator Thune left.

Senator Grassley.

SEN. CHARLES GRASSLEY (R-IOWA): Thank you, Mr. Chairman, and Mr. Secretary. First of all, I know you've, as every other member said, you've put hard work into your suggestions, and I think I ought to recognize that I'm aware of that hard work because you spent a great deal of time at the state fair of Iowa having a listening session, and I imagine that was one of more than 100 listening sessions you or your staff had around the country. So you're diligently taking notes at that meeting, and I presume this is a result of that. So thank you very much.

One of the things that everybody knows I've been interested in is working hard with Senator Dorgan on farm payment limitations. And I'm going to go through a series of questions, so if you could just make a note, a couple words would remind you of what I'm asking about.

I was wondering how you came to the number of $200,000 of adjusted gross income for someone not to receive farm payments down from the $2.5 million that is under current law. I'm happy to see that a payment limit section is in the Farm Bill proposal. I don't know how it's going to work out. We'll have a chance to study that before we work on legislation, but obviously I'm very much interested in payment limits. So one way or the other, your way or the Dorgan/Grassley way, we have to do something about payment limits so that 10 percent of the largest farmers don't get 72 percent of the benefits, not that that's the only problem.

The problem is a greater problem of the public relations for farmers. Only 2 percent of the population, when city people might question whether or not we ought to help big farmers get yet bigger so that they cut young people out from getting started farming or young people renting land, whatever the case might be, and it's all of the above. So that's one issue.

Along the same line though, I notice that you've increased the payment cap to $360,000 without eliminating generic certificates. And I'd be happy not to eliminate generic certificates, but I'd just like to have everybody that gets a generic certificate get a 1099 so that we know they're paying tax on it. We don't know that.

And everybody else that gets a farm payment gets benefit from a prior program, has a 1099, and so that's a major issue.

But the $360,000 and also increase in the direct payment to $110,000. Now I wasn't here, but I was told that you made an answer to Senator Roberts that this was in order to be WTO-compliant. Well, if you're WTO-compliant at $110,000, you're surely WTO-compliant at $40,000 it seems to me.

Also on another issue, I've been getting calls from farmers to see if they would be able to get out of the CRP contracts early. If you haven't commented on that for some other member, I'd like to hear that.

I'm concerned that through my discussions with farmers that they are concerned, as I am, about the huge concentration that we have seeing the livestock industry, the vertical integration, trying to control all aspects of livestock production. And I don't think the concentration is much different than it was 100 years ago -- well, 90 years ago -- when we passed the Packers and Stockyards Act. Not "we," but when Congress did. So I think it's fair that you ought to know that farmers get nervous when just four firms and now we're talking about Swift being sold off, slaughter 71 percent of all the livestock or cattle, 63 percent of the farmers. Is that much different than where we were 100 years ago?

Could you also comment on why there's no mention of consolidation in the Farm Bill proposal? Now maybe administrations don't generally do that because you want the marketplace to take care of it, but then we have the Packers and Stockyards Act, we have Congress acting when there was a problem of concentration at that time. Should we not be concerned about this if we're concerned about the institution of the family farm?

Thank you.

SEN. HARKIN: You got about a minute to answer all those questions.

SEC. JOHANNS: I'll run through it very quickly. Senator, I do appreciate your leadership in this really challenging area of payment limits. Here's kind of what it came down to if you look at the whole constellation of issues. The $360,000 which you point out that's what the limit would be, some would probably argue that's too much, some would probably say well it should be more than that. But that was a number that was familiar from the '02 Farm Bill. But really what the debate came down to is this. The most effective way to approach this and where you're going to have the most impact is as we have proposed.

These things have, I mentioned maybe before you arrived, we've had payment limits since 1970, and I'll just be very blunt. None of them have been very effective. New ideas come up, we get new laws, we issue new regulations, and all of a sudden everything just gets restructured, and people are writing stories the next year saying, how are they getting around the payment limits?

This is certain, it's straightforward to administer, and so that's how we arrived at that approach.

The CRP contracts, I am looking at that. In the next 60 to 90 days we'll have a lot better numbers as to what is going to happen out there in farm country. How much corn is going to be planted, and I can make an assessment as to whether we should release CRP acres early. I understand I can do that. The Secretary does have that power. I promise you, we're looking at it. And as those numbers come out, please continue the conversation with us.

We should have a decision I would say by early summer, maybe even a tad bit before that, but in that timeframe.

The concentration area, again a very complicated area. Our role in my judgment is administration of the Packers and Stockyards Act. And as a recent audit or investigation showed, not only is that our role, we need to be more forceful and do a better job there.

I have to tell you, I came from a state that had a constitutional ban on corporate farming. Just respectfully I would suggest we have to look at this area. That ban was thrown out recently by the Eighth Circuit Court of Appeals, lost at the District Court, lost at the Eighth Circuit. I think there's a petition for certiorari pending before the U.S. Supreme Court. Those efforts to try to regulate that kind of thing have fallen on disfavor. South Dakota lost their ban, etcetera. So bans and who can do this and who can't do this, I think it's just an area worth looking at. I won't offer any legal advice. I'm a lawyer, but I don't practice anymore. But I just again respectfully suggest that's an area you have to pay attention to if there's some thinking about this as farm bill policy is developed.

Generally we do take a position that market forces should regulate how things end up. That has just been my general view through the years, so I think I hit everything.

SEN. HARKIN: Pretty close. Thank you, Mr. Secretary.

Senator Leahy.

SEN. PATRICK LEAHY (D-VT): Thank you, Mr. Chairman. I don't try and, having spent a number of years as chairman of this committee I know how difficult it is sometimes to put one of these hearings together and to make it coherent, how difficult it is for the secretary. It's going to be. There have been times, Mr. Secretary -- this is going to come as a shock to you -- but there have been times over the years that a tad bit of parochialism has come into the questions here. Do you think Bob Gates or somebody like that has the trouble coming up here to explain the war and you have to understand, look around the diversity of this committee and try to figure what the parochial issue is for each of us. But I was pleased when I talked with you last night and with Mr. Conner who as I've said is well-known to this committee, and I actually appreciate all you've done, Mr. Secretary. I think as I said on the MILC program I'm glad to see it in here. I think though that it has been cut too much. It's one of the best, probably is the best targeted program USDA runs. It works with market forces to provide modest assistance when the prices are low. Now we have soaring feed costs and fuel costs and low milk prices. It's the worst possible time to cut it. It's the most targeted program you have in your Department.

I think the increased funding for EQIP is a good idea. I do not agree with eliminating the regional equity provision. This I authored in the 2002 Farm Bill. You have states that receive very little commodity program support, but having a $12 million base of conservation funding is a good public policy.

And I'm also concerned about the administration's plan to consolidate the farm and ranchland protection program that started in Vermont.

I also wish the administration would reverse its position and opposition to emergency disaster assistance. My state of Vermont is still trying to -- devastating floods have wiped out much of the corn/hay crop last spring, and we had a drought on top of it. We had the worst possible thing, creates a fuel crisis. I know Chairman Peterson in the House indicated some willingness to move disaster assistance. But I remember last year when we did this on the Iraq supplemental, we are faced with a veto threat. We're spending billions of dollars a month in Iraq for reconstruction there. I wish we could take just a tiny bit of what we're wasting in Iraq and spend it on our American farmers.

Now given the USDA's recommendation for continuance of MILC as part of the 2007 Farm Bill, do you support a one-month milk extension from August 31 to September 30th in order to assure there's not a lapse in the program?

SEC. JOHANNS: Senator, we do. In fact I was just asking Keith Collins. But I think we've built that in as we tried to figure out where we ended up on the baseline. But let me study that before I commit to that last statement. Let me make sure of that.

SEN. LEAHY: Good. Will you get back to me?

SEC. JOHANNS: Yeah.

SEN. LEAHY: Because obviously this is of great significance not only in my state but several others, and if you could give me a definitive response in that it would be very, very helpful. Do you agree that the MILC program is highly targeted to small and medium-sized dairy farmers?

SEC. JOHANNS: It definitely works for small and medium-sized farmers. There are publications out there where we have raised questions about the MILC program. But having said that in response to an earlier question from Senator Crapo, here's kind of my read on it and here's why we ended up.

We made changes pretty well across commodities equitably; it seemed fair to approach the MILC program the same. But probably the most important thing in terms of the decision to keep the program was it is a safety net that was put in place. Agriculture adjusts to that. And I just, we heard over and over again from farmers out there, "We like the structure, we'd like to see you try to keep the structure in place, here's where we think changes are necessary."

And so that kind of weighed on me, and I decided to keep the structure pretty well across the Farm Bill in the proposals we made including MILC. I think it's very difficult for farmers that we just walk in, boom, safety net's over, MILC program's gone. So we proposed to keep it.

SEN. LEAHY: Well, then in that regard, well thank you on that -- but in that regard, we touched on this just briefly last night when we talked, but 30-some-odd years in this committee I've supported a lot of commodity programs that don't affect my state at all. This is one of the very few that does, it's far more targeted than the others, and I must admit that I have a little bit of difficulty going back home explaining why I'm supporting things for Iowa or any of these other states and Vermont, a program that affects a state like mine, gets cut.

And lastly, will you look at this question of disaster assistance? Again, just think of going to a farmer in my state who's just been clobbered. They know we passed this assistance in the past. We know the administration has cut it out because they said we have to concentrate first on disaster assistance to Iraq. Explain that to a farmer in my state why it's far more important for reconstruction and emergency fuel assistance, everything else, in Iraq, than it is right here in our own country when it's our tax dollars going to it. So please, please look at this question of disaster assistance again. And you and I should chat further on that because I know my time is up.

SEC. JOHANNS: Okay. Thank you, Senator.

SEN. LEAHY: Thank you. And again thank you very much for your call last night. I do appreciate that very much and Mr. Conner's too.

SEC. CONNER: Sure.

SEN. HARKIN: Thank you very much.

Let's see now. I'll go to Senator Salazar.

SEN. KEN SALAZAR (D-COLORADO): Thank you very much, Senator Harkin. I have an opening statement and some questions, but I'll submit those for the record. And I assume that's without objection. And I would appreciate it, Mr. Secretary, if you would respond to my questions. Let me just first say to both you and the chairman that I very much appreciate the work that you have done on the rewrite of the 2007 Farm Bill. I think last year through many of the conversations that we had here in probably 10 or 12 Farm Bill listening sessions that I had in Colorado there was a sense that we would not be dealing with this issue here today in 2007. And it's through the leadership of Chairman Harkin as well as through your leadership and all the work you did last year that we're here today.

And just as a general comment, I will tell you that I appreciate the substance of what you've put into the Farm Bill. I do think as one senator from Colorado that it's something that we can work from. You obviously will have lots of input and back and forth as we go forward and we try to improve on the product that you have brought here to us today.

But let me just say thank you to you and to Mr. Conner and Dr. Collins and all the staff that have been involved in putting together this proposed Farm Bill. It gives us at least a framework from which to start on.

I want to ask a couple questions. The first questions has to do with energy. I think for all of us, Democrats and Republicans alike, this is one of the new great chapters of opportunity for rural America to bring rural America back into a place of vibrancy and certainly Nebraska with what you did in ethanol and some of the things there you were leading the way.

My question to you is this. I am concerned that we don't have the resources in here to be able to implement the vision that I think is a shared vision in America for how we can grow our way to energy independence. Senator Grassley and I for example are cosponsoring the resolution that says, 25 by 25 we ought to be able to grow 25 percent of our energy from renewable energy sources by the year 2025.

And I look at the budget that you have presented here, and it looks like its $978 million for the energy title over the time period of 2008 to 2017. But when I take that amount and say, what does that mean in terms of the 50 states and what they are going to get with respect to the grants and other programs articulated here, it essentially comes out to about $1 million a year. A million a year, Mr. Secretary, with all due respect, I don't think gets us to where we want to get, does not get us to where the President said that we ought to be getting with a 35 billion gallon renewable fuel standard I think by the year 2017.

And so I have this reaction without having studied this in great detail that this is highly insufficient if what we're going to do is to put an imperative on this energy opportunity that we have for rural America. So can you just respond to that? Is this adequate?

SEC. JOHANNS: Yeah. What I'll do for you, in earlier testimony I kind of walked down through all of the areas of the USDA budget where we've increased funding and then just a reminder to the committee that in addition to all of that we had added a loan guarantee program of $2.1 billion targeted at cellulosic.

But just suffice it to say when you look at our total energy proposals, and also recognizing we aren't proposing to change anything that you've done already -- that's in the bank if you will-- but if you look at everything we've targeted going forward, we have a very substantial energy package. And I'll detail and outline that for you in a letter to you, Senator, and copy the committee.

But part of what gets really confusing here is, if you look back for example and make comparisons, part of that money was discretionary. It never got funded. It never made it to the finish line. So even though it was theoretically there, it was never appropriated, and we never were able to work with it.

So --

SEN. SALAZAR: I would appreciate it. I imagine my colleagues on both sides of this committee would very much appreciate having a more robust explanation of what it is that we're doing with respect to investments on this part, on this title of the Farm Bill.

Let me ask you, I have two more quick questions and we have a lot of time. Coordination with respect to other agencies, Department of Energy. I just came from a hearing with Secretary Bodman talking about what he is doing there. How are we coordinating what we're doing here with the Department of Energy. Quick example, cellulosic ethanol, we heard from the experts at a conference we had a week ago that it's almost a dream too far away, not commercially feasible right now. How are you and DOE coordinating to make sure that as a country we are having the maximum impact on trying to achieve these visions that we have?

SEC. JOHANNS: Coordinate at every level. We've got people, I not only coordinate with my colleague on the cabinet but we have staff people --

SEN. SALAZAR: Is there a specific energy renewable energy working team that coordinates on an ongoing basis?

SEC. JOHANNS: I'll allow Keith if you don't mind to offer a few thoughts on that.

DR. COLLINS: Sure. Mr. Salazar there are several in fact. One is that USDA has created an Energy Council that's chaired by one of our under secretaries --

SEN. SALAZAR: DOE?

DR. COLLINS: DOE participates in the Energy Council. We also have a statutory group, the Biomass Research Development Act.

SEN. SALAZAR: If you can get me an overview of that coordination. It's important because it's important that our government know what one hand is doing so we know how we're moving forward together.

Last question before my time runs out, following up on Senator Leahy's comments on ag disaster assistance, Colorado is now under lots and lots of snow. We have 10,000 dead cows out in the Eastern Plains and it's a problem that's affecting Nebraska and other states. It's been a sore point frankly between us and the Senate and the administration, and I'd hope that you can get yourself, Secretary Johanns oR the administration, to support the Ag Disaster Emergency package so we can get that behind us and then concentrate on the good product that you have brought to us before and see how we can move forward and refine it and move it forward.

So just a request. And I thank you very much for being here today, and thank you again.

And as I said earlier, Chairman Harkin, I think a year, even six months ago, people were saying, there's not going to be a Farm Bill in 2007. And I want to just say again, congratulations because I think when you go through a program that's $100 billion program the way that we have and you have five years of experience, no matter how good the program is, no matter how visionary those people were who wrote it, you learn a lot in that five-year period. And it would not be happening if it hadn't been for your leadership, and I really appreciate it.

SEN. HARKIN: Well, you're overly generous. I appreciate that. We worked hard on that, we got a good bipartisan agreement on that. I think it's been -- and I commend the administration.

I think, Mr. Secretary you've come up with a good, sound proposal, and we'll work on it obviously. Not everybody agrees on different things in it obviously. We've got a lot of work to do here. But I am convinced we can come up with a good, progressive, forward-looking Farm Bill. I see certain things emerging. Obviously there are things we're going to have to work out, and there will be some contentious issues. I understand that. But I still think we're headed in the direction that we can all hopefully pull together on.

Senator Thune.

SEN. JOHN THUNE (R-SOUTH DAKOTA): Thank you, Mr. Chairman. And I would also echo my colleague from Colorado's comments about dealing with the disaster issue, if we can come to a resolution on that that deals with the last couple years of disasters in the Midwest then we could I think start with a clean slate so to speak as we tackle this next Farm Bill and contemplate how we deal with disasters going forward.

But I do want, Mr. Secretary, to thank you, Deputy Secretary Conner, Dr. Collins for what is a very good-faith effort that required a lot of thought, a lot of time, and a lot of input from people all over the country. And I appreciate your willingness to listen. Fifty-two meetings around the country many of which were attended by you, Mr. Secretary, I think speaks really well of your commitment to getting a good product that incorporates the input, the thoughts, the best ideas out there from our producers who ultimately have to live with and adhere to the policy that we enact here in the Congress. So thank you for what was a very time-intensive and laborious I'm sure process, but one that when you look at all the work that went into it and the product that you produced it was clear that there's a lot of work that did go into it and again, one that ultimately hopefully will be of great benefit to our producers.

Let me just make a couple of general observations about -- and again I won't get into specific questions. We'll have to do that. I do want to interact with my producer groups in South Dakota as they react to this and get their direct input so that as we move forward we can figure out what some of the regional impacts of the bill are and how we can put a bill together, assemble a bill hopefully by the August recess that is something everybody can be good, happy with and be able to vote out of the Congress and hopefully get signed and enacted into law.

But there are a couple of questions that I have at the moment, and you talked about -- one has to do with the budget. You talked about $10 billion reduction over the course of the bill, $18 billion if you include the disaster payments of the past Farm Bill. And the question has to do with this because it seems to me at least some of the assumptions you're making about prices going forward are maybe not optimistic, hopefully they are realistic in terms of where prices are going to be in the out years, but I recall going through when I was a member of the House of Representatives trying to get disaster relief enacted here coming to the administration with a proposal that essentially would say that we're achieving great savings in LDP and countercyclical payments from not making payments today as a result of higher prices. And I wanted to apply those savings toward disaster relief, and the answer is no way, you can't do that because in the out years of this Farm Bill we may not have these good prices and we have to have this reserve.

It looks to me like that's what you're doing here. You're assuming that these prices are going to stay at this level and therefore there's going to be all this money that would have been available under the previous Farm Bill that you can call savings. And so you're cutting back on some of the safety net type programs.

I guess I'd like to get you just to react to that because it seems to me that you are building assumptions in about prices in the out years here that could affect some of these programs if in fact we get into a time when prices drop precipitously.

SEC. JOHANNS: Here's what I would offer. Pretty soon here you will start exactly where we started. You will start with a baseline. And all decisions will be based upon what you do off that baseline. Here's how you will get the baseline. You'll just say, if we just did the '02 bill, kept every I dotted and every T crossed and changed nothing, what would that cost over the next five years as the 2007 Farm Bill? That's where your assumption is going to begin. That's where our assumption begins.

Computing into that, you're going to have to make some decisions, rational decisions based upon price projections. We didn't just pull these numbers out of the air to get the numbers to fit. That's the baseline you will start with, that's the baseline that we started with.

Here's how it shapes up. If you compared the actual spending that occurred from '02 to '07 in the Farm Bill that we have today, this proposal will spend about $10 billion less. Why? Because during a lot of that time you had very low prices. You paid out very large LDPs during the Katrina event, and those kinds of things happen. It's only been in the last year or so that you started to see those prices go back up.

When I came here two years ago, the discussion was, what will we possibly ever do with all this corn we have in reserve? Now that's not the discussion anymore.

Then if you did the '02 Farm Bill again, let's just say you said to me, Mike, I want the '02 Farm Bill again, I don't want any changes, no I undotted, no T uncrossed, and this proposal spends $5 billion more. It fits within the President's plan but it spends $5 billion more than that baseline.

And you will be finding that as you start to work through the numbers. You say we've cut the safety net? We really haven't. Here's why we haven't. If you look at cotton, the money that increases the direct payment is basically what we've done in terms of adjusting on loan rates. If you look at the other four major program crops which you grow some of them in your state -- wheat, corn, rice and soybeans -- an adjustment of the loan doesn't make any difference. It's basically a net wash financially. So we haven't really impacted that safety net, and you'll find that you won't impact it either.

On the other hand, if you say, you know what, I just want to keep all that the same, and I'm willing to take the money away from the enhanced direct payment for those four crops which is an additional 7 percent. In the third, fourth and fifth year you have just cost those producers $1 billion because we literally went out and found and identified that money recognizing that somewhere out there maybe ethanol isn't quite as strong, etcetera, so let's build up the direct payment. But the nice thing about it, if you approve that, your farmers can take it to the bank. It's done, it's mandatory, and they can plan on that money being there.

You take that out, you just cost those producers across the country $1 billion, and adjusting the loan rates I think you're going to find unless you make really radical adjustments you're going to find it's a net zero effect or basically a wash.

So it's not the reduction that maybe you think.

And last thing I'd say, Senator, and I'll offer this to everybody and I'm probably getting myself in trouble here, but I'm happy to come out and explain this or sit down with producers or your staff or whoever because it's complicated. And we'd be happy to try to do some things to try to get people out there to walk folks through what we've done here.

I think in a state like yours, because you're so similar to Nebraska, you're going to like what we did.

SEN. THUNE: Well, I hope you're right. I know the direct payment probably impacts differently across commodities. You know, a corn grower in western or middle of South Dakota probably-- I talked to one yesterday that said I get about $8 an acre on my direct payment, so increasing it by 20 percent isn't a big deal. But on the other hand, I think you have to weigh that versus the current program and what they would be with the current loan rates, what they'd be receiving.

So I guess the main thing is, is maintaining that, of course, the safety net for those down years hoping that in the future if renewable energy continues to drive corn prices high, we got good corn prices, although that gives the livestock guys upset. You don't want to go to a sale barn these days because you'll get the other side of high corn prices which I'm sure you're hearing as well.

But just a couple things I'll say -- I know my time is expired, but a couple other observations. One is, there's a concern that's been raised too about when you do the national target revenue per acre that going to a national doesn't take into consideration what I think you heard form Norm Coleman some of the regional or local conditions that might impact that if you had a really bad year in one area of the country.

And secondly, and this has to do with this whole issue raised earlier by my colleague from Arkansas, ironically I've always supported payment limits. And at the time I don't think the administration was in favor of it. Now the administration's coming out in favor of it and now my agricultural groups are saying they don't want them anymore. So I'm not sure who's being progressive and who's digressing here.

But there has been an evolution of thought on this, and I think even when you get out of some of the southern commodities you're going to hear from Farm Bureaus and corn grower organizations in my part of the country that might have some issue with that. But nevertheless, it is a good start. You jumpstart the process, and we look forward to working with you and Mr. Chairman look forward to working with you as we get this process underway. Thank you.

SEN. HARKIN: Thanks, Senator Thune.

Senator Casey.

SEN. ROBERT CASEY (D-PENNSYLVANIA): Mr. Chairman, thank you for putting together this hearing and for your great leadership of this committee on very difficult issues. I'm going to thank you, Mr. Secretary, for your public service and for the work that goes into putting together the budget proposals you and your team have announced.

I've got a couple of questions. I do want to focus, as Senator Leahy reminded us, some of us once in awhile get parochial. That's part of our job to focus a lot of attention on our home state, and I know you've spent a lot of time in the Commonwealth of Pennsylvania, and I know some of these issues will be familiar to you.

I want to speak in particular about dairy policy. I know you've been asked about this today. In our state we've got some 8,600 dairy farmers, a big part of our farm economy. And if there is one resounding and consistent question I heard from dairy farmers across the state over the last two years it's a very simple question, but I know dealing with it is particularly difficult.

What a lot of them said to me, very simply, and it's a question they've asked for many years is, why doesn't federal policy take into consideration or have a full understanding and a policy that reflects the true cost of production, what a dairy farmer and his or her family has to endure just to survive?

I know it's a very broad question and I also want to ask particular questions about the Milk Income Loss Contract. But I just wanted to get your thoughts generally on that very specific but I think very important question for dairy farmers.

SEC. JOHANNS: I grew up on a dairy farm in Senator Harkin's state, so I've been around dairy as long as I can remember, and I'll share a story with you. I went to the village where my great-grandfather came from, in Germany, a few years ago. And as we drove into this village, guess what was in the meadow? Dairy cows. So I guess we've been milking cows in my family for a long, long time. And I do have a familiarity here probably that is maybe even more than the average secretary would have because my background's there.

The proposals we've made in our current dairy policy are what I would describe as fairly modest. We keep the Milk Income Loss Program, probably surprised a few people by deciding to do that because we've put out some information questioning the program, but we do keep it.

We are making adjustments. It does go from a rate of 34 percent, stair steps down to 20 percent, and it's based upon historical production under our proposal. But that's really it with MILC.

We also keep the price support program at the current level. And that's really the main area where we have the ability to impact the dairy situation for farmers out there.

I was questioned by Senator Crapo, why did you keep the MILC program? I said, you know it is a safety net that was put there, and you just don't change that overnight. So my hope is that the dairy industry, because I do think there's conversation on what to do and I think they re going to have some proposals. I would encourage the dairy industry to keep that conversation going because here's what you'll find, Senator. There is a huge diversity of opinion in the dairy industry between your area of the country and as you move West.

As you move West, bigger operations, a lot of cows. It's just a different phenomena than what we would see in the Northeast. In my judgment, both are valuable. And we need to develop dairy policy that is helpful.

Last thing I'll mention, we get criticized a lot on the milk marketing order system because it's slow and cumbersome. And you know what? It's slow and cumbersome. I wish I could figure out a solution to that problem. I would make most dairy farmers more happy with this. It is a very cumbersome process, not because I've got people dragging their feet at the USDA. It's just the process is so cumbersome.

People are trying to get through these things, but by the time we get to a decision the issue that drove that is sometimes a year or two years old.

So boy, I'm really hoping the dairy industry can work with this committee and maybe have some ideas. I guess we'd try to be open to ideas. Of course we would. But what we've proposed here is fairly modest, and I think most of the people involved in dairy would agree with me.

SEN. CASEY: I appreciate that. One thing I'd ask you to do and certainly I'd want to make myself available at getting our schedules together is to spend some time in Pennsylvania listening to as you have I'm sure in the past, listening to our dairy farmers, and I hope we can do that.

Let me just ask you in particular about MILC, and I know when I say the income loss contract, how did you determine the reductions that would take place between FY '09 and FY '13 when you go from that 34 down to 20?

SEC. JOHANNS: Here's basically how we did it. Our approach was to try to be equitable as best we could across commodities. We had made adjustments in the marketing loan rates, again pretty well across the commodities based upon historical market prices over the life of the last two Farm Bills. We kind of put that in place. Then we looked at the Milk Income Loss Program and said, how can we make the case that they were treated abut the same? So that's really how we headed out there to do it, and that's how we ended up with this stair step process.

The thought was originally, maybe we should just reduce it straight out of the box. I wanted a more rational approach in terms of adjusting it over time, so we did it over the five years of the Farm Bill.

Here's another interesting issue, and I was talking to Senator Thune about the baseline. Here is your challenge with the MILC program. It isn't in the baseline. It's not funded out there. So when you sit down and say, I want the MILC program, you're going to have to convince your colleagues to find money somewhere to fund this program at whatever vehicle you want it funded at. It will be literally new money added to the baseline, and Senator Harkin has been through this. He's nodding his head. That's just the way it is. So.

SEN. CASEY: I look forward to working with you and with the committee and especially our chairman.

SEN. HARKIN: As I said earlier, I think where we have a lot of consensus on the committee to move ahead, but I said there are going to be some contentious issues, I think we just tapped one. Just has to do with different parts of the country and what we're going to do. Well, we'll just have to work something out some way. But with the budget constraints, Senator Casey, we really do have a problem here without it being in the baseline. How we resolve it, I don't know quite yet.

Okay, we'll start a second round. I'll keep myself to six minutes, and then go around again. Just a couple things. CSP, just keep in mind -- it's not a question -- but incentives, think about it as an incentive background for biomass and conservation together, biomass and conservation together. Think about it as an incentive.

Secondly, on the program that you and I talked about when you first came into my office, Section 9002, the biobased requirement purchasing requirement for the federal government, we put a provision in the Farm Bill, last Farm Bill -- it's in permanent law by the way -- that requires the federal government to purchase biobased products as long as they were equivalent in price, performance and availability. Last September you were very gracious to come over to the Department of Defense where we had a two-day fair or whatever you want to call it, exhibitors, 40-some companies came there to demonstrate the goods they had that were biobased that could be purchased by the Department of Defense.

You moved aggressively on this. I congratulate you for it at first, but again my question we're still at only six products. And what's happened? It seems to have from your initial endeavor to really move this, it seems to have slowed down greatly, and I don't know why.

And secondly, I looked in your book. You have a proposal for $18 million over 10 years, that's $1.8 million. That's a small increase from what we had. I just wonder if that's going to be adequate. So just briefly address yourself to Section 9002 and what you want to accomplish with that.

SEC. JOHANNS: Keith really spearheaded the regulations if I remember correctly on this, and Keith if you could -- I don't know how much of this you can remember, but if you can help with this one.

DR. COLLINS: Yes, Mr. Secretary.

Senator Harkin, I agree with you, it was a long time in getting the first proposed rule out. We had to get guidelines out first through a proposed and final rulemaking. As you indicate, we do have six items. Items are classes of biobased products with literally hundreds of branded products subsumed under an item. We have six items that have been designated for preferred procurement by final rule. That final rule requires us to give federal agencies a year after the promulgation of the final rule before the mandate takes effect. That mandate takes effect this March, March 2007, because the six items were designated by final rulemaking in March 2006.

We have two other proposed rules. The comment periods have closed; we're preparing the final rules now. We're discussing the final rules with Office of Management and Budget, and we hope very soon to be able to issue final rules on two rules which will designate an additional 20 items--again, 20 items being classes of biobased products. When we have those 20 items designated together with the original six, we will have something in the order of 600 manufacturers producing over 2,000 branded products that will then be designated by final rulemaking for preferred procurement under the program.

In addition to that, we have expanded greatly our outreach efforts to other federal agencies under our assistant secretary for administration who has taken a tremendously enthusiastic approach to reaching out to federal agencies to ensure that their own procurement regulations at each federal agency meet the requirements of the law and that they are up and ready to run in March of 2007.

SEN. HARKIN: I appreciate that. I do intend to use my position as chairman of this committee to call in the secretaries of Defense, Interior, and Commerce and a few others and ask them, why they are not implementing this part of the law. It applies to them, doesn't apply to the Department of Agriculture. Just for you for the rulemaking and get it coming up with the products. But we need to find out why the rest of the federal government's not focusing on this.

Now Gordon England, the assistant secretary or deputy secretary of Defense, gets it, and he was very promotive of this. But I just want you to know, I'll be calling up these other people too.

DR. COLLINS: You are correct though, we are required to have the federal acquisition regulation modified, but then in addition to that every federal agency that has their own procurement regulations have to modify those. At Agriculture we have a thing called AGAR [Agriculture Acquisition Regulations], which is equivalent to the FAR and we had to revise that as well.

Every federal agency has that obligation.

SEN. HARKIN: I know that. I intend to ask them too and call them up and ask them that. A lot of them don't even know about it.

Fruit and vegetable program, snack versus lunch. I noticed you geared towards the school lunch program there. Then later on you said schools should make the decision. But keep in mind that you can just keep putting more and more and more stuff in the school lunch program essentially. But as teachers told me and principals told me, kids come to school in the morning and they get the growlies right around about 9:00 in the morning. Or maybe they've had a sugared breakfast and then they crashed on that sugar and then what do they get? They go to the vending machine, eat cookies or something like that. So what's happened is with this snack program is they're able to get fresh fruits and vegetables, which get them through that. Evens them out. We've had all kinds of information about how they study better and everything.

I just want you to think about that in terms of how we move ahead on that.

And the question I have and I'm running out of time is, why do we not have a rule yet updating the school meal patterns to conform to the recent dietary guidelines? If you're going to move into school lunch programs, we don't have a rule yet, and I just wonder.

If you don't have an answer maybe you could submit it for the record.

SEC. JOHANNS: That's what I'll do, Senator. I'll submit that for the record if I could.

SEN. HARKIN: I appreciate that. I've got 17 seconds. I agree with you on changing the Food Stamp name program. That's good. And you said about providing a bonus or something like that to 25 percent or something if they buy fruits and vegetables. I don't know if you put that in or that's my own headwork.

But I need to know about technical problems. If you use your EBT card, and you go through and let's say you give a bonus to someone to buy fresh fruits and vegetables, what are the technical problems? What if we wanted to say, okay if you buy $10 worth of fruits and vegetables and swiped your card you'll get a bonus of 25 percent on that. I just need to know what technical problems. Again if you don't know, you can submit that.

SEC. JOHANNS: We'll get a technician to answer that. But just so the record is clear, our proposal, we have not submitted a proposal to bonus people. What we do have is a pilot sort of program working with states to try to find innovative solutions to obesity problems. Something like that could fit here.

SEN. HARKIN: Yeah. I hoped we'd look at that bonus problem.

Senator Lincoln.

SEN. LINCOLN: Thank you, Mr. Chairman. I just have I think three more questions and one comment, and I apologize for taking up all your time. Your comment in closing on the payment limitations, you noted that it has a history and certainly last year was prevalent in the 2002 Farm Bill, or the last time. That's true, but it was there as a compromise. And I will just make sure that just to go one step further, if you notice in that compromise it was stated that 75 percent or more of the adjusted gross income had to be derived from farming. That's been eliminated in what you have proposed.

And the problem with that is, when you look at AGIs as indicated on the federal tax forms, that means it would all be farm income and nonfarm income. The purpose of what we were trying to do in that compromise was, as I remember I think it was called the Scotty Pippin Rule, to make sure that people not to harm the farmers that were doing a good job in farming as they were supposed to, but to make sure that it wasn't directed to people who were nonfarm income and nonfarmers.

So I just would say I hope we can look at coming about at compromises and taking that into consideration and certainly not just assuming that all large farmers are old and greedy. The fact is, many of our large farmers are large because they have to be, and they have to farm in economy of scale to be competitive in a global marketplace.

Senator Grassley mentioned keeping farmers young. Many of our large farmers are young. They are the next generation. And the reason they farm large farms is because of the crops they grow in the areas that they live and those crops are what are suited to be grown there. And if they don't grow that economy of scale, they can't be competitive.

So I just hope that we'll take that into consideration. I know there's a lot of greedy people. But I hope we don't just assume that. There are greedy CEOs, greedy people in all professions. But just assuming that they're trying to circumvent laws or circumvent rules, I think is the wrong approach. I hope what we will do is look and see that diversity exists in all areas, and that this is one where if we're looking particularly -- and when I talk about marketplaces that's where I go to my next question.

Our own OMB director Rob Portman has stated many times that there's no economic sector more distorted than the world agriculture market. The fact is, all our farmers face a lopsided playing field, be they big, small or in between quite frankly. I wonder oftentimes why our administration continues to criticize the support we provide our farmers instead of focusing on foreign tariffs and subsidies that again are far, far higher and greater than anything we provide our producers.

So we look at what our farm families producing crops, Mr. Secretary, and I looked through your proposal and note there's $11 billion in cuts to the farm safety net. And that number jumps to about $13.5 billion if we include the crop insurance cuts. So if you offset it by adding back the direct payments, which you indicate is a part of what you're trying to provide in terms of relief, the direct payment increases in some of the other items, we're still looking at nearly an $8 billion cut to our farm families.

So I hope, well my question really is, in trying to accomplish what you're trying to accomplish in the context of this Farm Bill rewrite, I hope it's not from a side door, go back to Freedom to Farm, meaning unilaterally trying to disarm our farmers in an international global marketplace, particularly in the midst of a trade negotiation in terms of the WTO. I mean I would liek to see us encouraging our trading partners to step up to the negotiating table to reduce their tariffs and subsidies before giving away our farm as it's sometimes said or just throwing away the farm perhaps in those negotiations.

I know you're not the trade man, but nonetheless I think it's an important part of this equation.

SEC. JOHANNS: I appreciate your comments. Just so you know, we don't make an assessment about greedy or anything like that. I believe in all of agriculture. People sometimes ask me if I'm for the big guy, for the little guy. I say, look, I'm for farmers. I'm for ranchers. I'm for agriculture.

You're right. Some of a size that is required by the economic circumstances that they are dealing with. Some are smaller. But I believe in supporting agriculture. I would also make the case, Senator, that if you really look at the proposal, very respectfully, I believe we've improved the safety net.

Let me give you an example. And farmers told us about this. When Katrina hit, we had about a two-month interruption of transportation down the Mississippi that was significant. It lasted longer than that, but it rippled across America and it affected the corn and soybean price. The corn price dropped from about $2.00 a bushel to $1.55, $1.60. At that point in time, farmers locked in their LDP and they got $.40 to $.45 a bushel to do that, and you can do the math. Absolutely legal and appropriate under the 2002 Farm Bill.

But I don't think that's what Congress intended. I think Congress intended a true safety net where we would be there to help farmers when they needed the help. So when farmers are telling me this and then telling me, look, it was when I needed you most you weren't there because the price went up and I didn't get the countercyclical, I'm going, something isn't working very well here.

Again, what we tried to do is keep the structure, try to figure out how to operate this system better, try to recognize that it was safety net that farmers were focused on you know, and try to make proposals to Congress that were based upon that good policy.

And I was in Iowa, in Des Moines recently, and the release of this, and I talked about that LDP phenomena with Hurricane Katrina. You know what? The farmers were out in the audience nodding, and again it was entirely appropriate. I'm not suggesting anything other than I'm not sure that in the end that's what Congress headed out to do here. I think what Congress headed out to do was to provide a safety net.

And so I think we've provided a more secure safety net, a more predictable safety net, a safety net that farmers can plan on, and it is more in accordance with what I think Congress was trying to do with the '02 Farm Bill.

SEN. LINCOLN: Well, I think you kind of make the point too here that there's variables that we deal with in agriculture, much of which we have no control over.

SEC. JOHANNS: Yeah.

SEN. LINCOLN: And you point out Katrina and the weather that existed. We suffered from that, but we didn't get the disaster because we weren't in the area. But it still comes up the river, and it still comes across the-- you know, the weather patterns still comes straight up and blow down our rice and damage our cotton when it's getting ready to be harvested, along with the fact that the input costs, the energy costs were drastically high both starting then and through the following year. So there's a lot of that that occurs.

And I go back to something else Senator Grassley brought up. He talked about images being portrayed, and it seems like the Department of Agriculture is always concerned about the image of whether or not what you're doing is going to be portrayed in the press by certain groups as being something that it's not quite frankly.

But what I would say is that, you know, if you deeply cut the programs that have helped farmers when they need it, when you talk about the marketing loan rates and then you increase the direct payment slightly and temporarily, which pays a farmer regardless of what happens, even when prices are good and production is good.

Do you not think that's going to invite bad publicity if prices and productions turn out to be good in the future as they are predicted, but certainly not assured? Or that absolute calamity comes about and your billions and billions of dollars in emergency relief that we're all having to hassle about-- if those predictions turn out wrong it's kind of what Senator Thune was saying, price and production are bad. I mean --

SEC. JOHANNS: Here's what I would say, Senator, and again very respectfully, but your question does misstate our proposal. And I just have to put it out there for you.

SEN. LINCOLN: Um-hum.

SEC. JOHANNS: If you look at the adjustment in the loan rate for cotton, and go over to the full life of the Farm Bill, all five years, you will see that we increased their direct payment by 65 percent, 66 percent. And there it is. And it's more predictable for those cotton farmers. They know what they're going to get. They are not going to get cut out on that payment when their crop is short because they had dry conditions and aren't on irrigated land.

When you look at adjustment in the loan rates for the other four major commodities, it's basically a wash. It doesn't save any money. We're not getting those billions of dollars of savings that you're suggesting, not at all.

But we went out there and we said, Look, let's find a billion dollars that we can put out there for them to increase their direct payment. Again they can take it to the bank through the third, fourth and fifth year.

During the first couple of years, we've got very high prices, very high prices, and I will study the same thing that you'll be studying because in the end as I said to Senator Thune you're going to start exactly where we did-- what's in the baseline, what's out of the baseline; what's the '02 bill look like if we passed it for the next five years, and what baseline does that create?

And I will tell you, it's not a reduction. Run the baseline on the '02 bill, compare our proposals, we're $5 billion over.

So if you say, Mike, you've really made a nice presentation here but I like the '02 bill, I'm going to stick with it, I'm going to fight to get it passed, somewhere out there $5 billion has just been taken away from people because our proposal is $5 billion over the baseline.

SEN. LINCOLN: Well, I'm not so stuck in the gumbo as we call mud in the Delta to say that I have to have the '02 bill, but I do think and I hope that you'll be willing to work with us to come up with some compromises that may be more reflective of the diversity that exists. And we thank you, Mr. Secretary. Thank you, Mr. Chairman.

SEC. JOHANNS: Thank you, Senator.

SEN. HARKIN: I just have a few more, but I have to respond, Senator Lincoln. You cited Rob Portman as saying that the biggest distortions in trade were in agriculture. Is that what he said? Well, I like Rob Portman a lot; he's a fine guy. But I may have to call him up on that one. I happen to think the biggest distortions are in manufacturing where people are paid basically slave wages, where they're provided no kinds of retirement benefits or anything else, where they use child labor in many cases. I think those provide some of the biggest distortions in terms of our world trading agreement where we at least try to pay our workers a living wage and provide different benefits and things where they don't get that same thing in other countries and they're just undercutting us, a lot of times using child labor too. So I'd say that may be a bigger distortion than what we see in agricultural trade.

Mr. Secretary, the fastest growing segment of the food industry is organics-- 20 percent per year, going up right now. In the 2002 Farm Bill we started to address some of this in a couple of ways. There is this sort of valley of death as they say, if somebody wants to do organics and they've got program crops and program acres to grow organics you have to be certified for three years. I mean you have to do three years before you get your USDA certification. But they can't market it as organics.

So we tried to provide some funds in that bill to get them through that, and then to do some more research. What we provided was $3 million a year for research and extension. Your proposal has only $1 million a year. So the way I see it, that's a two-thirds cut in the fastest growing, an area where for a small amount of money we can provide niche markets for a lot of farmers all over this country and people who want to grow organics. So I'm just wondering why there's this back-off in your proposal.

SEC. JOHANNS: Our proposal is at page 166 of the book we've submitted, and it lists a whole bunch of initiatives under "organic," under the organic title, and I won't -- you know the hour is getting late and I won't detail those, but these basically were built upon suggestions that the organic industry had been touting or proposing.

So I think we hit everything, and the other thing I would mention is that if you look at our proposals we have mandatory funding there also-- again because there's this issue you can put a lot of discretionary money out there. It doesn't tend to get funded, and you look back five years later and say, well that was a nice idea, it didn't go anywhere because the money wasn't there.

If you look at our proposals, I think they are comprehensive. I think it's along the lines of what the organic industry wanted, plus there's mandatory money there that will help.

SEN. HARKIN: I think the mandatory is just in the market access program. That's the way I saw it.

SEC. JOHANNS: I'd have to study that a little more.

SEN. HARKIN: Well, we'll have to get into this because in your budget, in the budget it's $18 million over 10 years, and -- no that's not right.

SEC. JOHANNS: Yeah. It's 69.

SEN. HARKIN: Ten million. It's ten million over ten years.

SEC. CONNER: It's $61 million, Senator Harkin, I think over 10 years, and that is all mandatory funding in our bill I believe.

SEC. JOHANNS: Yeah. I think the organic industry, I'm not aware of whether they've weighed in on our proposal. But I'm thinking this is pretty close, plus it's mandatory money, and that as you know is always hard to come by.

SEN. HARKIN: Well, I'll look at it.

SEC. JOHANNS: Okay.

SEN. HARKIN: I thought it looked like you were cutting it from the $3 million which I thought was partly, was not very, a paltry sum anyway. I had a big meeting this weekend with a number of organic farmers in Iowa, had a big gathering there, and their need is for regional processing facilities. They need regional, small regional processing facilities to be able to take their goods there and have them regionally processed, packaged, whatever, and then put out. So I look forward to discussing that with you. But I've got to clear up the amount of money in organics. We've got to do more in organics.

SEC. JOHANNS: Um-hum.

SEN. HARKIN: We've got to provide more money. Mark tells me the organic research. What I'm talking about, an extension is cut, but the overall organic does go up. So, we'll take a look at that. We'll work on that.

One last thing -- and it is late and I appreciate your staying here so long-- that I had was, we'll work on the new food and nutrition program on the technical problems regarding how we give a bonus to Food Stamp recipients, work on that.

My last question is, again, looping back to where I started, my favorite subject, CSP.

SEC. JOHANNS: Okay.

SEN. HARKIN: Again, one more time, as I understand your plan to provide the increase of $500 million over the 10 years, we spread the baseline back. I understand all that. It is going in the right direction. But here's what I don't understand, Chuck.

The President's budget released Monday would reduce spending for the Conservation Security Program in 2008 by $135 million and reduce the cap on CSP by $80 million between now and 2015. So it seemed to me there's an inconsistency here, and if you can clear it up a little bit now or provide a more detailed analysis later on, I would appreciate it. Mr. Secretary. I just said Chuck because we'd been talking about this.

SEC. CONNER: Senator Harkin, I think to underscore what the Secretary had said earlier, the budget we submitted earlier this week does reflect all the current CSP contracts that we have already awarded and also provides some additional funding so that those same contract recipients can actually upgrade their contract if you will and receive additional assistance in exchange for additional conservation benefits.

We have not -- so that's built into the President's budget. Current contracts plus opportunities to upgrade those contracts with more conservation. Now beyond that --

SEN. HARKIN: Okay. No new contracts.

SEC. CONNER: That's right. As the Secretary has noted, we have in our book proposed in addition to the additional funding, we have proposed changes to some aspects of CSP. For that reason, we don't believe there's going to be new contracts awarded in this fiscal year, and therefore --

SEN. HARKIN: 2008.

SEC. CONNER: I'm sorry, in FY 2008. And for that reason have not included any of the additional increases to begin in that fiscal year. Obviously they would begin then in '09 and beyond with the adoption of a new Farm Bill proposal. But we, again I think the important point, Senator, we have covered the existing contracts, plus their opportunity for additional conservation dollars within those contracts.

SEN. HARKIN: Well again, as you can imagine I don't think that's acceptable for two years. We're going to go two years without one new contract. I just don't know why it would take so long to come up with rules and regulations. We have an existing program; we'll get a good idea probably soon by early summer the direction we're going on this. I think when you did the EQIP funds after the 2002 Farm Bill, that happened pretty rapidly. So I just think we just can't afford to have two years like that.

Well again, one more time, how does the $80 million reduction in the President's budget through 2015 square with the purported $500 million additional over the 10 years?

SEC. JOHANNS: Chairman, if I might offer a thought. We have our budget person here, and maybe if he can caucus with your folks to try to --

SEN. HARKIN: Okay.

SEC. JOHANNS: We can tie each other around the axle on these numbers, and I think we're successfully doing that. But go ahead, Keith. Maybe Keith can give us a --

DR. COLLINS: I can try very quickly, Mr. Harkin. First of all, we are not proposing a decrease in CSP funding in our budget request for 2008. For 2007 our CSP funding is $259 million.

SEN. HARKIN: That's right. I'm distinctly aware of that.

DR. COLLINS: Our budget request is $316 million. That's an increase. That's to do exactly what the deputy secretary Conner said, to fund existing contracts plus enhancements. The $80 million you're talking about is a decrease from our baseline level. And that decrease from the baseline level simply results from the fact that we're not holding additional enrollments in 2007 and 2008. So we're slightly below our baseline. But then we would make up for that in our Farm Bill proposal by adding the $500 million, pulling the out-year funding forward, and enrolling in the order of 10 to 11 million acres a year and going from 15.5 million acres today to 96.5 million acres in 2017.

SEN. HARKIN: Okay.

DR. COLLINS: And if I might say, the question of --

SEN. HARKIN: Then that seems to me from where I've been then that's $420 million. We'll just deduct the $80 million off it. (Laughs) You're right. We can get around the axle on this one. We'll work it out. We'll work it out. Let's see. Did I have anything I wanted to bring up? I think that really does it. You're very generous with your time, Mr. Secretary. Again I thank you for a very, as I said in the beginning, a very challenging and I think forward-looking proposal. I hope we can get to work on it soon, and my goal, along I hope with Congressman Peterson on the House side, is to get this thing put to bed and get it to the President sometime hopefully by September. I look forward to working with you on that.

SEC. JOHANNS: I look forward to working with you, Chairman. And we really appreciate your leadership in pulling this hearing together. I think this is what farm bill policy is all about. You get together and you start talking about the issues and try to figure out where to go. We're excited about our proposal. As you can tell I probably answered longer than I should have. I get fired up about the things that we've got here. But we do appreciate the hearing and the opportunity to visit with you and your committee.

SEN. HARKIN: Thank you very much, Mr. Secretary. The committee will stand adjourned subject to the call of the chair.