SUBMITTED STATEMENTS, ARTICLES, AND LETTERS

STATEMENT OF HON. GEORGE MCGOVERN, A U.S. SENATOR FROM SOUTH DAKOTA

Let me welcome the witnesses to this seventh day of Oversight Hearings on the present-day crisis in American Agricultrre.

Today has been set aside specifically to receive testimony from the livestock industry. I note from the witness list that several of those scheduled to give testimony are from South Dakota. For them I have a special word of welcome, since your industry by far contributes the most in dollar receipts of yearly agricultural sales. To other witnesses, let me say that the Committee will give special attention to the testimony you give because your industry has been unduly depressed for the last four years. Though the last several 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 drastically low prices of the mid-1970's.

American cattlemen present a unique profile. You are independent, self-sufficient and in large measure prefer to "go it alone." You also have a strong philosophical base for these attitudes and I want you to know that the Congress considers this a commendable way for Americans to live. On the other hand, government has the responsibility of being helpful to an important industry that is in trouble. We are here today to hear your comments and suggestions. There is not a mem-. ber of this Committee who is not aware 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.

STATEMENT OF LAUREN CARLSON, FIRST VICE PRESIDENT, NATIONAL CATTLEMEN'S ASSOCIATION, DENVER, COLO.

My name is Lauren Carlson, and I live in Chokio, Minnesota, 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, Colorado. 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.

1 The NCA was created on September 1, 1977, by the consolidation of the American National Cattlemen's Association and the National Livestock Feeders Association and is the national spokesman for all segments of the nation's beef cattle industry-including cattle breeders, producers, and feeders. The NCA represents approximately 280,000 professional cattlemen throughout the country. Membership includes individual members as well as 52 affiliated State cattle associations and 13 affiiliated national breed organizations.

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 this cycle if you are to avoid the kinds of illadvised 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 build-up in our herds which became excessive, and prices eventually dropped in the latter part of 1973. Prices didn't just decline; they hit rock bottom. Tremendous financial losses to feeders and eventually producers resulted, and we entered the most recent liquidation phase of the cycle-a four-year period when most cattlemen lost money most of the time.

The beginning of the herd liquidation phase undoubtedly was hastened by a sudden doubling of feed costs in 1973 and 1974-something which was brought on in part by government actions in the export area, not just weather. This sudden run-up in costs and resulting very large financial losses magnified the severity of the liquidation period.

I also emphasize that the beef boycotts of 1973 and the ill-advised beef price freeze by the Nixon administration were extremely counter-productive. 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 :

1. 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 over-responded to favorable returns in the late 1960's and early 1970's, wheat producers over-responded to parity-level prices in 1975.

2. 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.

3. 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 itself-a 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.

A good many producers were forced out or elected to get out of the cattle business, particularly if they had alternative enterprises. Many of those who have survived have done so partly through their own good management and through not having become over-extended and overly leveraged during the profitable years.

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 the 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.

During the liquidation phase which extended from 1974 to 1978, some producers maintained cash flow only by selling off all or part of their basic herds. This herd reduction is a slow process, and, while it is going on, it adds to the total beef supply and compounds our price problems.

At any rate, the basic beef cow herd 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.

Incidentally, prices of fed cattle as of early 1978 were no higher than five years earlier in early 1973. So, in view of the intervening cost inflation, you can see that we still have a way to go in the adjustment process.

Per capita beef supplies will be decreasing during the next few years, so, assuming demand holds up, prices inevitably will increase. There are short term and seasonal changes in supplies and prices. But, as I have tried to explain, the biology of the cattle business is such that our basic production trends-in both directions-take a fairly long time, and no government action can change the biology and reproductive process of cattle.

When beef supplies are decreasing, it take years for the longer term trend to reverse itself, and when supplies are increasing, it takes years before the economic signals can bring a reversal of the supply trend.

During the period of 1974-77, when cattle prices were depressed most of the time, we also were hit by inflationary increases in costs-things like a tripling of fuel costs, a tripling of fertilizer costs, a doubling of feed costs, a 50% 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 over-liquidation of cow herds in several areas.

Now after recounting this history, let me remind you of some important points. During the liquidation period, a good many cattlemen complained about our industry's problems, but you never saw cattlemen begging for handouts. You never saw cattlemen asking for guaranteed profits. You never saw cattlemen asking for price supports or government controls. You never saw cattlemen threatening people with violence.

We acknowledge that most-not all, but most-of our problems were caused by our own over-production, our total industry's response to earlier profitable price and cost relationships. Now, we finally find ourselves at a point where we have weathered the cyclical economic storm, and hopefully we will see a return to profitability.

What we have done is look into the mirror and recognize that most of our problem has been ourselves-our own over-response 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 a period of inflation—which is

basically government-caused-it is particularly important that that same government not increase our costs needlessly. It is important that government not interfere needlessly with our resources and our production tools-with the technology which we need to remain competitive and produce at a profit.

In my opinion, we are seeing excessive regulation of our technical toolsregulations 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-the point that government itself is one of the greatest burdens to agriculture.

1. 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 problem is accentuated by union work rules and government regulations which reduce productivity and increase costs. In 1977, the labor costs involved in processing and marketing food totaled $58 billioncompared with a farm value of $56 billion. For the first time, the amount going to labor in the off-farm sector was greater than the amount going to farmers. There is no mysterious villain in higher food prices. The basic problem is inflation-prices chasing wages chasing prices.

2. 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. If present regulatory trends continue and we do not properly weigh benefits and risks, we eventually will have a significantly smaller, much more costly food supply. And there will be more displaced farmers and ranchers clamoring for government attention.

3. 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.

4. Fourth, some people in both the executive branch and the legislative branch think it is their responsibility to dictate diets to the American people. In the first place, I object to this on fundamental grounds. If, through education, the public is to be trusted to make choices in the polling place, then why isn't the public to be trusted to make choices in the super market? The government has a responsibility to encourage or finance research and information, but it certainly isn't politicians' job to dictate diets-particularly when they don't have an adequate scientific basis for their recommendations. I say it is time to take matters of diet and health out of the political arena and put them back into the scientific

arena.

We have virtually eliminated morbidity and mortality from nutritional deficiencies. Children now grow larger and stronger. Life expectancy of American people keeps increasing.

On an age-adjusted basis, heart disease mortality has been decreasing. Yet, there are some who would drastically alter our diets. They are ignoring the mounting scientific evidence that the diet-fat-cholesterol-heart disease hypothesis is invalid. Without proper evidence, and ignoring the fact that they may increase rather than decrease nutritional risks to the public, they talk about altering agricultural policy to conform with their particular ideas of nutrition.

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. And then the public should make its own choices and we in agriculture should respond to the resulting market stimuli. We must halt the move toward government becoming a food czar.

Government now is not just trying to inform people about what is good for them. It is trying to limit their ability to obtain what government thinks is not good for them-even though that action may not be based on sound science.

Meat now provides 43% of Americans' protein, 29% of their phosphorus, 31% of their iron, 45% of their niacin, 71% of their vitamin B-12-plus other essential nutrients. I think that our government had better look twice before it illadvisedly interferes with those kinds of nutrients for humans-to say nothing of interfering with the livelihoods of the largest part of American agriculture.

5. Fifth, and as just one more example of excessive government interference with food production, there are some people in Washington who realize that if they control the water of this country, they will control the land. The proposed 160-acre limitation on certain farms is one example of this. I say that water rights must remain in state hands and not become a federal political tool for land use planning and social reform.

If Congress is really concerned about the welfare of livestock producers, I think it has some oversight responsibilities. It has responsibilities to look at the administrative moves in the area of technology. It has responsibility to look at the executive budget for USDA and its obvious bent toward certain social goals rather than improving the efficiency of meat production and distribution.

It has the responsibility to see that diet-health theories based on a one-sided view do not become the basis of actions which dictate what we produce agriculturally. It has the responsibility to see that we do not have ill-advised interference with use of land and other resources.

Agriculture has been by far the most productive part of our economy, increasing its output per man-hour twice as rapidly as the rest of the economy. It is Congress' responsibility to see that this kind of efficiency is not needlessly reduced.

Cattlemen do not expect the taxpayers to guarantee a profit to everyone who wants to produce cattle-just as the taxpayers should not guarantee a profit to everyone who wants to operate a service station. But we do think government should help assure a fair opportunity to compete within the free market system-and government should not be a burden on our ability to improve our efficiency and help ourselves.

Speaking of self-help-we do believe we should have legislation which will permit a vote by a simple majority on the question of a self-help check-off for Beef Research and Information. Through funds which we would generate ourselves, we could sponsor needed economic research and information. And through such research and information, we could, for one thing, bring more stability to beef production and prices-without government controls or subsidies. In other words, we ourselves could attain more economic stability in our industry-in addition to seeing that needed nutrition and other research and information were developed.

As I have indicated, in most instances where government becomes involved. in our business, it causes more problems than it solves. But there are some problems which only government can address:

1. First-energy. Congress must quit playing political games and realistically address the energy problem. Agricultural producers use only 3 percent of the Nation's energy supplies, but adequate energy is essential for the mechanization and fertilizers and pesticides which modern agriculture requires if it is to produce food in adequate amounts at reasonable prices.

Congress should soon come forth with directions which guide research, set environmentally realistic pollution standards, reduce the inflationary effect of foreign energy dependence and set priorities on types and allocations of fuel. 2. Related to energy is the necessity of working toward a better balance of trade. Agriculture is the one area in our economy where we are more efficient than foreign producers. We obviously can and do produce far more food than we can