THE STATE OF AMERICAN AGRICULTURE MONDAY, MARCH 6, 1978 U.S. SENATE, COMMITTEE ON AGRICULTURE, NUTRITION, AND FORESTRY, Washington, D.C. The committee met, pursuant to notice, at 9 a.m., in room 322, Russell Senate Office Building, Hon. George McGovern presiding. Present: Senators McGovern, Allen, Melcher, Hodges, Dole, and Young. STATEMENT OF HON. GEORGE MCGOVERN, A U.S. SENATOR FROM SOUTH DAKOTA Senator McGOVERN. I want to welcome witnesses to this seventh day of oversight hearings on the present-day crisis in American agricul ture. Today has been set aside specifically to hear testimony from the livestock industry. I want to take note, especially, that there are several witnesses this morning from my State and for them I have a special word of welcome because that industry contributes by far the most in dollars in receipts of our agricultural sales in South Dakota, but all the witnesses are important. Let me say that the committee will give special attention to the testimony you give because we are very much aware that your industry has been unduly depressed for the last several years. Although the last few weeks have shown a marked strengthening in both the steer and calf markets, it is safe to say that you have many billions of dollars to go to recoup the low prices of the mid-seventies. American cattlemen present a unique profile. You are very independent, self-sufficient, and in large measure prefer to "go it alone." You also have a strong philosophical base for those attitudes and I want you to know that the Congress considers this a commendable way for Americans to live. On the other hand, the Government has the responsibility of being helpful when an important industry is in trouble. We are here today to hear your comments and your advice and suggestions to the committee. I think it is safe to say that there is not a member of this committee who is unaware of the bad years you have had ranging from low prices to high imports. The import question has shown some progress with Finance Committee hearings last week on bills bearing my name as well as proposals of other Senators. We are here today to hear other aspects of the problems which affect the industry. With that brief statement, I welcome our first witness, Mr. Lauren Carlson, first vice president of the National Cattlemen's Association, accompanied by Bill McMillan, vice president, Government Affairs, who has been before this committee on many occasions. Mr. Carlson and Mr. McMillan, we are pleased and proud to welcome you to the committee hearings this morning. STATEMENT OF LAUREN CARLSON, FIRST VICE PRESIDENT, NATIONAL CATTLEMEN'S ASSOCIATION, DENVER, COLO., ACCOMPANIED BY BILL MCMILLAN, VICE PRESIDENT, GOVERNMENT AFFAIRS Mr. CARLSON. Thank you, Mr. Chairman. In the interest of time, I am going to excerpt out of our statement. However, I would like to have the entire statement recorded.* Senator McGOVERN. We will see that the entire statement is recorded. I wanted to say, Mr. Carlson, that before the date for this hearing was set, I committed myself to another engagement this forenoon, but before I leave, I understand Senator Melcher will be here and Senator Allen and other members of the committee. If I leave at some point, you will understand the reason why. My name is Lauren Carlson, and I live in Chokio, Minn., where I operate a family cattle feeding business. Our operations also include crop production-including corn, soybeans, wheat, sunflowers and alfalfa. I currently serve as first vice president of the National Cattlemen's Association, which is headquartered in Denver, Colo. Through its 64 affiliated State cattlemen's associations and breed affiliates, NCA represents more than 280,000 cattlemen all across the Nation. These cattlemen own most of the beef cattle in the country. The inventory value of our cattle is almost $30 billion. As most of you know, agriculture is the largest industry in this country, and the beef cattle industry is the largest segment of agriculture-accounting for about 20 percent of cash receipts from all farm marketings. I appreciate the opportunity to appear before this committee and to comment on the agricultural situation in the United States. My comments will focus on the beef cattle business, but there are some parallels which can be drawn for all of agriculture. First, let me take you back to 1967 and 1968. It is necessary to do this because the beef cattle business has a long production and price cycle-running about 10 or 11 years in total. To discuss our business at any one point in time requires that we establish that point within the framework of the entire cattle cycle. It is essential that you understand *See p. 221 for the prepared statement of Mr. Carlson. this cycle if you are to avoid the kinds of ill-advised action which, in the past, have only compounded our problems. At one stage of the long-term cycle, cattle numbers are built up, as hundreds of thousands of individual producers react to favorable price-cost relationships and collectively increase the size of the total basic herd. Eventually, cattle numbers become too large, prices drop, producers suffer financial losses, and there is a liquidation of basic herds-which compounds the beef supply problem temporarily. After numbers are reduced enough, prices begin to rise again, and basic herds are rebuilt. Unfortunately for us, the best cure for low prices is low prices. That is, low prices bring about needed supply adjustments. Similarly, the best cure for high prices is high prices. That is, high prices and profits bring supply increases, which then moderate prices to consumers. We don't like large fluctuations in supplies and prices any more than the public does, but we think that the public's best long-term interest has been and will be served by the free market system-with adjustments in supply and allocations of resources made in response to market demands rather than Government dictates. Now, going back to 1967-68 again-at that time we were just completing the liquidation phase of the sixth cattle cycle in recorded industry history. Unlike the recent situation, that particular liquidation period was not so traumatic. Production remained fairly stable, and demand caught up with supplies. Prices did decline during this period, but not in a devastating way. Also, we were not having the kind of cost inflation that we have experienced in recent years. During the years 1969 through 1972, we saw demand for beef grow, as both population and real incomes increased. Also, some people in Government were saying that there eventually would be a protein shortage unless production was increased. Furthermore, tax laws at that time were stimulating cattle production, as many doctors, lawyers and others invested in the cattle business in some way. At any rate, we had a cyclical buildup in our herds which became. excessive, and prices eventually dropped in the latter part of 1973. Prices didn't just decline; they hit rockbottom. Tremendous financial losses to feeders and eventually producers resulted, and we entered the most recent liquidation phase of the cycle-a 4-year period when most cattlemen lost money most of the time. I also emphasize that the beef boycotts of 1973 and the ill-advised beef price freeze by the Nixon administration were extremely counterproductive. A truck strike in early 1974 further interfered with beef movement. These events had the effect of shattering normal beef price and production patterns, and eventually hurt consumers as well as cattlemen. My point in reviewing this particular phase of cattle industry history is to reemphasize certain things which Congress and the public. as well as those of us in agriculture must recognize : First, production of agricultural commodities is inherently cyclical-as hundreds of thousands of individual producers make production decisions, in response to cost and price relationships. Just as we overresponded to favorable returns in the late 1960's and early 1970's, wheat producers overresponded to parity-level prices in 1975. Second, agriculture is not a margin-added business. It is not like the manufacturing and merchandising of branded products, where one generally does not overproduce at least not for long-and can increase margins to cover increases in costs. In an agricultural commodity business, we can recover sharp increases in costs only through supply adjustments which eventually bring price increases. And, in the case of beef cattle-with a longer biological life cycle than in other commodities-those adjustments take a considerable period of time. Third, if we do not have complete Government control of agriculture, we are going to have free market changes in supplies and prices. When as was the case in the early 1970's-Government interferes with the market mechanism through things like the price freeze, problems for producers and eventually the public are increased-not alleviated. Since the cattle crash of late 1973, the beef cattle business has been slowly pulling itself out of the depression in which it found itselfa situation which involved financial losses of $30 billion. This included a loss of $20 billion in the inventory value of our cattle and about $10 billion in operating losses among producers and feeders. I don't believe there are very many industries which could sustain such losses and still exist. Many have been able to survive only by large borrowings on appreciating land values. They may have gone into the liquidation phase relatively free of debt, but now they have substantial borrowings to repay. It is imperative that they have an opportunity to recover their losses and rebuild equity during the hoped-for period of increasing prices in the next several years. At any rate, the basic beef cowherd is now down about 15 percent from its peak level in 1975, and today we are getting supplies back into better balance with demand. Our total industry still is not profitable, but hopefully it will become so before too long. During the period of 1974-77, when cattle prices were depressed most of the time, we also were hit by inflationary increases in coststhings like a tripling of fuel costs, a tripling of fertilizer costs, a doubling of feed costs, a 50-percent increase in labor costs. These increases came at a time when we could least afford it, and, unlike most businesses, we could not immediately pass these increases on. Furthermore, many cattlemen were severely hurt by drought, which brought about overliquidation of cowherds in many areas. What we have done is look into the mirror and recognize that most of our problem has been ourselves-our own overresponse to previous profits. Now, if we are willing to look into the mirror and acknowledge those problems, I think that those in Government should look into the mirror and recognize what they have done to cause and to compound the problems of livestock producers. The problems of economic cycles and weather eventually correct themselves. But there is one problem that seems only to get worse. And that is the problem of ill-advised and excessive Government interference with a business like ours. One thing to keep in mind is that price is only half of the equation of profit or loss. Production costs are equally important. In my opinion, we are seeing excessive regulation of our technical tools-regulations which seem to be based too much on speculative risk and not enough on sound scientific evidence and judgment. As a matter of fact, things have gone so far that there now are more people making a living from cancer than there are dying of cancer. Within the administrative and regulatory branches of Government-including USDA, EPA, FDA, OSHA and Interior-we are seeing actions and proposals which can eventually result in the socialization of food production and marketing. Some of the moves are made in the name of protection of the public and the environment, but it appears that the motivation is basically one of restructuring our society and agriculture. I say that those who are advocating these excessive Federal controls over land and water and other resources should acknowledge to the public what the results would be-namely, the eventual destruction of commercial agriculture as we know it, and a greatly increased cost of food to the public. Let me elaborate further on my basic point: First, there is the problem of inflation-caused largely by Government in the first place. This not only increases our basic livestock production costs. It also causes farm-to-market price spreads to keep widening-further squeezing the share of the food dollar available to the farmer and rancher. By far the biggest reason for widening margins and higher food prices in recent years has been the increase in labor costs-which account for about half of the total price spread. This problems is accentuated by union work rules and Government regulations which reduce productivity and increase costs. There is no mysterious villain in higher food prices. The basic problem is inflation-prices chasing wages chasing prices. Second, as one example of excessive interference with our technology, I remind you of the FDA's current proposals to sharply restrict use of antibiotics in livestock feeds-a move which could eventually cost consumers many billions of dollars as well as make it tougher for us to compete in producing food. It appears to us that repeated research and a 25-year record of safety are being largely ignored, while FDA administrators act mostly on the basis of speculation and opinion. I think it is Congress' responsibility to demand scientific answers to the questions raised on a speculative basis-before a valuable tool is removed from use. Third, we are seeing Government-through splinter legislative and regulatory actions-move toward Federal control of both private and public land use. In their zeal, some people in the executive branch fail to see the value of food production and multiple use of public lands in the West-uses which include livestock grazing. In their zeal, they don't recognize the unique value of the ruminant animal to convert solar energy and plant energy into protein and food energy for humans. I think it is Congress' responsibility to review this situation carefully and to amend legislation as needed. We need more human nutrition research, and people need nutritional guidelines, but these should be developed by impartial scientists like the Food and Nutrition Board of the National Academy of Sciences. Fifth, and as just one more example of excessive Government interference with food production, there are some people in Washington |