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Senator Pryor and I have also introduced S. 550, a bill that would establish the Federal Gain Storage Insurance Corporation, that would go a long way in providing a permanent program of protection for our farmers against elevator failures. During the coming year, Congress and the President must join hands in coming to grips with the elevator failure crises before us. I wish to commend Senator Pryor for introducing S. 596 and I urge everyone to give this bill their support.
DALE BUMPERS. Senator INGRAM. We'll try to get back over and see that they don't do anything to us.
Senator PRYOR. Thank you, Kent, so very much, Bob, thanks so very much.
I think, too, it would be a good point in this record to keep the record somewhat intact, to read a recent statement from the General Accounting Office relative to elevators generally in our country.
According to a statement by Brian Crowley of the U.S. General Accounting Office recently, and I would like to make this quote from his statement.
The best overall and latest available data on past bankruptcies indicate that about 2 percent of the approximately 10,000 grain warehouses nationwide have gone bankrupt since-between 1974 and 1979. To estimate how many warehouses might be in financial trouble we applied certain financial ratios and self-developed criteria to data reported to USDA by a random sample of 400 grain warehouses under Federal jurisdiction.
We found that 19 of these warehouses or 4.75 percent of the sample warehouses met our criteria for being in financial trouble. Based on these results we estimate that about 300 warehouses may be financially unsound.
At the 95-percent confidence level this number could range from 173 to 427 warehouses in some degree of financial trouble. About 36 percent of grain warehouses are subject to only state requirements which range from nonexistence to very stringent.
Senator PRYOR. I thought at that point in the record it might be appropriate to submit that statement from the U.S. General Accounting Office.
Our next witness this morning is Steve Bernard. Steve, would you come forward? And, also John Stipe, our friend from Forrest City.
Mr. BERNARD. Senator, I have another one or two persons here that would like to say a short word or two.
Senator PRYOR. Well, bring them up.
Senator PRYOR. All right. We won't go very much on formality this morning, because what we're after is getting information. So anyway we can get it we're going to try to do it.
STATEMENT OF STEVE BERNARD Mr. BERNARD. Well, the first thing I want to do is thank you for your interest in agriculture, and a special thanks for being here today and for sponsoring this act. I understand that it has been named the Equitable Farm Compensation Act of 1983, and all you people in the audience, that's the name that they've given the bill to compensate the farmers who have lost grain in these elevators with CCC surplus commodities.
I would also like to point out that we have several farmers here from Missouri, Tennessee, and from the northeast corner of Arkansas.
Senator PRYOR. We welcome them here.
Mr. BERNARD. And, they, too, have a special interest in this legislation because they've also suffered a loss. As you no doubt know, this legislation is No. 1 on my list, and I'd like to point out some of the good features that I see in this bill.
But before I do that I want to tell you that I've talked to farmers in several States, and I've yet to find any farmer that's opposed to this legislation. Some of the good features that I see in the bill, it provides immediate relief for a number of farmers that will be forced out of business without its passage or some other miracle happening
Second, there's no cash or credit required on the part of the Government, as payment will be made in surplus grain. Third, it reduces our surplus, and it would help stop our storage expense.
Next, I think it's going to allow the farmers involved to pay off a portion of their carryover debts from PCA, FmHA, private lenders and various suppliers. It creates an income tax base and I think the simplicity of the bill is one of the good features of it.
If you will, I would like to mention each of these just a little bit. First, my knowledge of the loss is rather localized in that we had 10 farmers to lose grain in the St. Francis and Lee and Crittenden County areas. I'd like to follow their path a little bit since this loss occurred in 1979.
We've had one farmer since the 1982 harvest that has declared bankruptcy. He's in the chapter 11. We've had another farmer that's simply given up and knows that he can't continue. He and his employees are now numbered among the unemployed.
We've had two other farmers that are having extreme difficulty in obtaining financing for the 1983 crop, and as of this date haven't obtained operating loans. And, to start out with 10 people, that means 40 percent of them are in serious trouble. The remaining six, myself included, have managed to stay in business and as of today we plan to operate another year.
I've been told by the farmers here from Tennessee, Missouri, and northeast Arkansas that they are experiencing the same results. I have a specific example I want to mention. We had one man that lost $168,000 worth of grain. Unfortunately this loss was combined with the escalating interest rates—and this was in August of 1980, and by August of 1981, he owed $26,000 interest on the $168,000. By August of 1982, he owed $224,000, and by August of this year he'll owe $255,000, with $87,000 of that being interest since 1980.
I know that we have surpluses and there are those people in the country who have made some outstanding crops in the last few years. But I'm sorry to say that these high yields haven't been the rule of thumb in this part of the country. This man has been unable to pay off any of this back debt.
It's sort of like pushing snow, it just keeps getting bigger and bigger, and bigger on him, and I'm sure that's going to come to a halt. As we all know, Senator, it's hard to farm successfully today when you sell your crops, and you can imagine what you do when you lose 100 percent of it after harvest.
This one man told me, he said you know, to go broke is very damaging to a person's life, however, when the cause of the failure is a result of someone's actions other than yourself it's especially trying.
The no-cash, no-credit feature of this bill brings to light the fact that there's a lot of talk in Washington relating to the deficit. This bill should be attractive to all lawmakers in Washington because it allows them an opportunity to help somebody that needs help without affecting the budget.
On reducing the surplus and stocking the storage it seems that the emphasis today is on reducing grain surpluses, and we've had a number of examples and reasons of reducing surplus. Senator Cochran and Senator Huddleston proposed that we give away this grain to foreign countries.
We've had one Senator suggest we give a bushel and sell a bushel at the same time. Senator Dole, on the 19th of this month proposed that we have a massive food distribution of dairy and grain products in the amount of $1 billion.
No doubt all of these will work in helping reduce the surplus, but we, the farmers that have lost this grain, feel as if we should have some preferential treatment when this grain is distributed. As far as the feature that will help pay off a portion of their bills, the FmHA, PCA's and so forth, I'd like to point out a majority of these bills will never be paid by these farmers without the passage of this or some similar legislation.
As a point of interest the good ole American spirit has prevailed because the lenders and the suppliers have been extremely liberal with their credit policies, trying to help these people stay in business. But in this case and any other case there does come a payday, and payday is now for these people.
If they're not able to pay we're going to have some staggering losses, not only by the farmers but by some of the suppliers and the banks and the PCA's and so forth. Income tax base, it will create some income tax. Most of the farmers have enough losses that they can carry forward without having to pay any tax this year.
But these dollars turn over several times, so I think that the income tax will be arrived from it in that the suppliers and so forth will be taxable. The simplicity is that the bill can be put into effect with a minimum amount of effort and legislation.
The only other thing I have to say in closing is that I'd like to point out that most of the farmers that suffered these losses are family-size operations. These are not the big 15,000- and 20,000-acre operations. They are the 500- to 1,500-acre farmers, and they are the very type people that we need to keep in business if we're going to keep our rural economy strong. Because they are the backbone of the economy.
Other than that I don't have anything that I would like to further say, other than to thank you for your support. We recognize you as the captain of our team, and we want to offer to help you in any way we can.
Would you like for these people-
Senator PRYOR. Yes, just to comment on some of the things you said, Steve, and then we'll call on your colleagues.
It was basically because of you and others that this bill is now in the Senate. But one of the only obstacles I know of to this bill's passage is the fact that it doesn't cost anything; it is simple; it helps many people; and it makes sense.
I know that sounds crazy. We have asked the U.S. Department of Agriculture, Mr. Block, and his people to comment on it. The only comment thus far-we've now asked him in writing to comment, but the oral comment was, and the only comment we could get and I quote—they said, “Well, it's interesting.”
I'm just hopeful after reading what we're up against here that they will go further and support this legislation. I have enough hope and optimism that commonsense is going to prevail. I just think they will ultimately support our legislation.
Would John Stipe like to make a comment at this time? Or, Steve, you could sort of call on your own individual panel there. John?
STATEMENT OF JOHN STIPE Mr. STIPE. Senator, I want to add my thanks to Steve's for your being here and for your showing interest in heading up this bill. I also want to thank you for the comment you made in the support you've given to the Secretary for Agriculture in the State Department. I think this is—has a lot of merit.
Senator, I further want to thank you for your recent assistance in helping the farmers of eastern Arkansas, and the whole Nation in our relations with other Government agencies, more particularly the SBA.
I appreciate your concern for agriculture and for your taking time to be here today. I want to express my appreciation as an individual who's concerned over the farmers of this area, more particularly those who have suffered loss through no fault of their own, through the grain bankruptcy the public warehouse bankruptcy happenings.
We still have them going on. It seems like maybe we've had more than our share of the total you mentioned earlier this morning, in our area, it has certainly been devastating to our total agriculture economy.
But when it's devastating to our agriculture economy it is certainly a tremendous hardship on the individual involved. When the individual farm family that Steve mentioned puts a lien on most of their assets, their total, what they work for their whole lifetime, to make one more crop, and then have this crop disappear through no fault of their own, it is a hard thing to swallow.
The tax treatment—the second point is the tax treatment on this. I think this has a lot of merit and a very interesting philosphy if you'll follow here. The grain coming out will be no expense or no addition to the Federal budget.
Now, I don't know where the money will go that comes out of the grain that will be released from the CCC for this bill, but if it turns over five times and these people are in a 20-percent-tax bracket that handle this money, it's a very unique way of moving surplus commodities into the Federal Treasury in the form of dollars.
You can get a one for one there on the five time turnover. The third point, why this particular industry-we, in national interest had several grain embargoes, and this, I think lead to a lot of the failures of the warehouses from 1976 on forward.
I think we, as citizens of the country, nonfarmers ourself, have a certain responsibility back to the farmers of-because of the national interest that was served through the grain embargos so to speak.
And, then fourth, you mentioned the unique point the other day of paralleling this idea with the FDIC. The banks and savings and loans serve a public interest. They have a public trust. The grain warehouses serve a public interest and they have a public trust.
We do not have the safeguards in the warehouses that we have in the banks and savings and loans. So I think this is a very good point to do this. When you put money in the bank you're putting not your total assets, but you're just putting your cash dollars that are available, and yet they're insured.
When a farmer puts his total production in a warehouse he's putting the equivalent sometimes of his total assets in this effort. So the degree of risk in the warehouse end of it is much greater than the degree of risk in the banking industry.
So, I think this is a very good parallel, Senator, that you drew there and I'd like to emphasize that.
It was mentioned earlier-I believe you mentioned earlier or someone did that it takes more than just a little while to overcome this when you don't have your total production go under and a warehouse has gone bankrupt. We've had warehouses in this area- I was thinking of one particularly in 1976, that went under, and a lot of farmers in that area did not loose their total production but they lost a portion of it.
Some of these have not recovered yet. They're still in business, understand, but they're still in debt because of the losses suffered back there, you see. So it takes awhile when you have less than a total wipe out to recover from these, and certainly when we have had four crop failures in 3 years it doesn't allow recovery in a very fast order.
Senator, this is all I have on this unless someone has some questions on it. I just want to, again, thank you for this assistance you've given the farmers, particularly in eastern Arkansas, and representing us in Washington.
Senator PRYOR. Thank you, John.
STATEMENT OF CHARLES ADAMS Mr. ADAMS. Senator, I've tried to think of what's negative about it, and I think the question is going to come up, should the Government give? And, I consider myself a basic conservative, and if you ask me should the Government give to bail out victims of bankruptcy I would say no.
But I think this is a unique situation and we've got to look at the world around us. We've got to take Chrysler as an outstanding example. The Government guarantees Government loans in New York City, et cetera, et cetera.