This system has survived two World Wars, the Great Depression, and cyclical years of droughts and floods. With major adjustments, the system should be able to continue as a strong financial lender to agriculture. It is needed more today under the present circumstances than at any time since the Great Depression of the 1930's. As the system has grown, the structure has become so large that at times it is like a large caterpillar struggling to move forward, but having trouble with its body moving in synchronization. I will not appear to qualify myself as able to articulate all the present problems facing the system. It is no secret, however, that many farmer-borrowers are dismayed by some practices the banks have instituted in the last few years. In particular, this year, they are concerned that the move toward centralization will lessen their control as farmer-owners of the system. Farmers and their cooperatives are understandably upset by recent events, including the increased loan costs experienced by the system. As the system tries to handle the massive losses of the district banks, outside investors have been less anxious to buy system securities and farmers are turning to insurance companies, commercial banks, and others for credit, as their loan rates are lower. The support of its farmer-owners is crucial for the survival of the system. Their backing will be needed for any necessary structural changes to the system. With the rates for borrowing increasing daily due to loan losses, financially stressed farmers are feeling alienated from their very own cooperative banking system. It is important to recognize that while the system provides onethird of the credit to farmers, it also provides two-thirds of the credit to agricultural cooperatives. It is vitally important to remember that servicing credit needs for cooperatives and farmers requires different areas of expertise and different flexibility. The banks for cooperatives have had the advantage of a one-tier structure, allowing it to respond more quickly to outside changes in the agricultural economy and cooperative business community. The system must act quickly to regroup as a more efficient organization and must take into account the various needs of its differentiated customer base. As far back as 1933, the Government has intervened in times of acute financial distress in the agricultural community. By then, the Federal land banks had paid off their original Government capital. Congress appropriated new capital and provided various measures to enable the banks to take on the Congress-decreed job of saving hundreds of thousands of farmers from foreclosures. Congress also provided the capital to establish an Emergency Federal Farm Mortgage Corporation for risky loans, to help the land banks. It also capitalized the banks for cooperatives and the production credit associations. And still, the Government got all of its capital back. The U.S. Government has promoted the stability of the Farm Credit System by increasing the amount of its capital through purchase of nonvoting stock, and sometimes by guarantees on farm loan bonds. While Government capital infusion may not be needed by the system at this time, it is important to realize that the system has met its objective of providing the lowest cost of financ ing available to its member-borrowers-as a private institution and, at times, in a close partnership with the Government. Again, I remind you, the structure may need some major changes but the underlying concept of farmers and cooperatives as borrowers and lenders is sound as proved by 60 years of excellent service to agriculture, to cooperatives, and to the entire economy. Lastly, while I have focused on the Farm Credit System, the National Cooperative Business Association and its members recognize that any plan developed during the next few months must encompass not only the system but all financial institutions with unhealthy agricultural loan portfolios. We call on the Farm Credit System, Farmers Home Administration, independent banks, and other involved parties to work together to devise a plan that will allow them to continue providing credit to their borrowers. We also urge Congress to address our deficit problem and to work with the administration to bring interest rates to a level that will keep farmers and agricultural marketing and supply cooperatives functioning and solvent. The National Cooperative Business Association will support the best contingency proposal put forth in the next few months to secure the stability of the Farm Credit System. On behalf of our cooperative members, we urge your support of all efforts to ensure the continued goal of the Farm Credit System of providing low-cost financing to struggling farmers and their cooperative businesses. Thank you very much. [The prepared statement of Mr. Williams appears at the conclusion of the hearing.] Mr. JONES of Tennessee. Thank you very much, Mr. Kohl, for a good statement. And I assure you, as I did Mr. Willis, your statement will be exposed to all the subcommittee members as well as anyone on the full committee who desires to see it. We appreciate your attendance and your testimony. Mr. KOHL. Thank you very much. Mr. JONES of Tennessee. Our next witness is Bobby Gray of the American Farmland Trust here in Washington, DC. Bob is a familiar figure to this subcommittee and to the full committee, as far as that goes. He was with a former member of the committee one time, and moved to greener grounds. Bob, you have done a good job where you are, and we appreciate the fact that you could take the time to be with us today. STATEMENT OF ROBERT J. GRAY, DIRECTOR, POLICY Mr. GRAY. Thank you very much, Mr. Chairman. I really appreciate the opportunity to testify this morning, and I would like to start out by reversing the accolades from the standpoint that I would like to really thank the members of this subcommittee for the leadership that you have shown in the area of conservation as far as the 1985 farm bill is concerned. I think I can speak for all the conservation groups, not only here in Washington but across the country, in telling you that we are extremely pleased with the conservation provisions in the farm bill. These are probably the most historic and widespread changes that have been made in conservation policy since the inception of the Soil Conservation Service in the 1930's. So we are extremely pleased with that; I would like to go on record in thanking you for your leadership, and the other members of this subcommittee, for doing the kind of work that you have done. One of the things that I wanted to talk about this morning that we think is important in an ongoing effort to make sure that conservation is linked as much as possible to all elements of agricultural policy-we feel that this has been done very well in the farm bill by integrating the commodity programs with conservation, by bringing the conservation reserve into the farm bill, and providing farmers with an opportunity to retire some of that highly-erodible land. Also, the sodbuster and swampbuster provisions are additional methods to tie the commodity programs with conservation. But as we look at credit, and as we realize very, very clearly in going around the country and talking with farmers and meeting with farm organizations, that there is no question that farmers are in a very, very severe economic crisis and the financial situation is a very difficult one for many of our farmers in this country. Our purpose, though, in looking at possible links between conservation and finances with farmers and the farming community is not at all to do any more damage or cause any more problems or any more hardships on farmers than they already have. But what we would like to do is think of some creative ways-if you take up a credit bill, and I'm sure that that's going to be your next item of business; you're going to be looking at ways that you can shore up either the Farm Credit System or the Farmers Home Administration, improve the credit situation out there-but if we could take some time at this period and look at some of the ideas that might work with working conservation and credit hand in hand, I think it would be extremely useful. I'd like to bring up just a couple or three points in that regard. As you know, Congressman Franklin introduced a provision in the farm bill, and a very similar provision was placed in the Senate portion of the farm bill, that allowed farmers the opportunitythat had high debts-to give conservation easements on certain highly erodible lands or wetlands that would reduce their overall mortgage and would replace that land, get that land back into a conserving use. We think that is a pretty good idea; it is an idea that needs more work, because it is not entirely clear in many instances how much, for example, a conservation easement—a cropping right, you might say-might be worth on some of this land. There is some work being done right now in Iowa and in Missouri, at the University of Missouri, and the Iowa Natural Heritage Foundation, a private nonprofit group in Iowa, has also done some work on this, and we think that there are some possibilities with this; because as you know, Mr. Chairman, there is going to be 25 or 30 million acres placed in the conservation reserve. But in addition to that, we're going to be looking at anywhere between another 25 and 40 million more acres of highly erodible land. And if conservation easements could be used in conjunction with credit, we think that this is something that might help the farmers and also achieve additional conservation items in agriculture and in the country. In addition to the conservation easement idea, a number of times the idea has also been raised about working conservation plans and systems in with the credit institutions. I think that this has some merit; it was raised a couple of years ago by Congressman Evans from Iowa, who felt that maybe the Farm Credit System should look at conservation plans when they were discussing loan applications with farmers. And it has been talked about in terms of the Farmers Home Administration; in fact, some legislation has been passed linking that. That is sort of a cumbersome approach, but there may be some additional things that we can do to ensure that farmers do look for conservation as they are working with a credit institution. One of the interesting things that we noted-as you remember, Mr. Chairman-a couple of years ago we interviewed over 700 farmers, 1-hour, in-depth interviews with them, and this was during a time when prices were certainly low and their costs were very high; it was very similar to the situation we're in now. They were just starting into that very difficult time that they've been in for the last 3 or 4 years. But we discussed with many farmers, including a number in western Tennessee and Illinois and Iowa and Colorado, and in Wisconsin, we discussed with them the idea of conservation plans and whether or not they felt that conservation actually paid for itself. And almost unanimously-it was really surprising how many of these farmers told us that conservation, good conservation, pays for itself in the long run. But as we know, the difficult problem right now is getting enough money in the hands of farmers so that they can operate. But we think there are some additional links here. We'd like to see them looked at, and we'd like to see them considered as this subcommittee moves along to look at a possible credit bill in the next few weeks. And my purpose in coming up here this morning was to sort of discuss some of these issues. We are going to be looking at them ourselves; we are going to be working with the other conservation groups. We wanted to let you know that that's what we were doing. We will be coming back to you with some additional ideas, and we hope that we can work together with this subcommittee and with your staff and maybe we can find some of these creative ways of linking conservation and credit. And I want to thank you for the opportunity to testify this morning. [The prepared statement of Mr. Gray appears at the conclusion of the hearing.] Mr. JONES of Tennessee. Thank you very much, Bob, and I can assure you that your entire statement will become a part of the record although you summarized, and we appreciate that very much. May I say again that we do appreciate the good work that you have done for conservation and the cooperative effort that you have put forth with this subcommittee and the Farmland Trust. Mr. GRAY. Thank you. Mr. JONES of Tennessee. Our final witness on panel No. 1, Mr. Fred Huenfeld of the National Organization for Raw Materials, Monroe, LA. Mr. Huenfeld, we are delighted that you are here. We are pleased that you could spend the time to be with us, and you may proceed. STATEMENT OF FRED HUENFELD, PRESIDENT, NATIONAL ORGANIZATION FOR RAW MATERIALS Mr. HUENFELD. Thank you very much, Mr. Chairman. Gentlemen, let me share with you 10 seconds, where I come from. I am a cotton farmer; I do legal work as trustee in bankruptcy. My business is fantastic as a bankruptcy trustee. I'm also in the real estate business. I guess I'm an agriculturist; I make more money off the farm than I do on the farm. I'm the president of the National Organization for Raw Materials. This is an economic think tank, internationally, that convinced Roosevelt in 1942 to mobilize the economy with fiscal policy, the same fiscal policy that this button on my lapel-that my forefathers fought the American Revolutionary War over, the right to own and operate a business in a competitive system for profit with Government interference only to the extent to protect the public, and have a balanced national economy. It's called private enterprise, free enterprise. It's not free trade market-oriented agriculture, which causes absolute collapse, if you want to live in a mud hut and walk to work, and that's what happens in those areas that do that. I just returned from Canada and visited with a young Canadian who was in Germany, trying to sell navy beans. Mr. Chairman, he was beat $100 a ton by Ethiopia, who had to pay their debt to the IMF, so they sold their navy beans at $100 a ton less than the Canadian could. And their people starve to death in Ethiopia. The same thing is happening in every foreign country. Brazil sold soybeans for $3 a bushel to their farmers last year to service debt to the IMF, and we don't recognize the problem. Now, gentlemen, I want to share with you briefly a perception that we-when I say "we," a number of farmers and businessmen around the United States-understand. It's called the American system of political economy that regulates the value of its money within its own economic system, just like each $1 of you do as a businessman with your personal checking account. You balance it. When we had this fiscal policy from 1813 to 1914 in America, $1 bought the same amount of food for 100 years. Abraham Lincoln understood it; that's why he said, "If England builds the rails, they've got the money, and we got the rails. But if we build the rails, we've got the money and the rails." In 1914 this Nation had zero public debt because of fiscal policy. In 1914, we changed that fiscal policy; by 1920, we owed $50 billion. By 1942, we owed $350 billion. At the end of World War II, which had balanced budgets in the United States for a 10-year period, from 1942 to 1952, we virtually paid for the war with no taxes and with savings from the American people because we monetized the renewable wealth. We structured our fiscal policy on the true value of the natural resources, Mr. Chairman; nature credits and man debits. You don't pay God back what comes from the land. You find this nugget of gold and you take it to the bank and you get a dollar bill as a |