Charlie Stenholm

Mr. STENHOLM

Mr. STENHOLM. Reclaiming my time, Mr. Chairman, I would ask the gentleman who gains?

Mr. STENHOLM. I yield to the gentleman from Wisconsin.

Mr. STENHOLM. Mr. Chairman, in understandable efforts to simplify a complex issue, many continue to characterize Option 1-B, the option chosen by the Department, as reform and Option 1-A as the status quo. This characterization is simply incorrect. Option 1-A is not the status quo. For many years, it was the goal of the upper Midwest dairy organizations to encourage a consolidation of milk marketing orders, so much so that the farm bills requirements for consolidation was that region's main accomplishment in the dairy section of that bill. Option 1-A would accomplish that goal to the same degree as Option 1- B. Under the old rhetoric, then, even with Option 1-A, the final decision would be a significant accomplishment. But apparently the debate has shifted, and we are faced with a new measure of success. It was a goal of the upper Midwest to bring an end to the accepted notion that each orders Class I differential is related to its distance from Eau Claire, Wisconsin. Option 1-A recognizes three surplus zones as the basis for determining Class I prices. In Texas, this result itself means a significant lowering of the differential and, therefore, prices received by producers. Option 1-A will reduce income from Texas producers as well as producers in many other parts of the Nation. So, again, under the old rhetoric and the old standards of success for the upper Midwest, Option 1-A represents a significant victory and a change from the status quo. Now, the gentleman from Alabama is totally correct. The intent of this amendment is, for some reason, the folks in the upper Midwest continue to believe that it will help them to take away something from producers in the South or other regions of the country. I do not understand the logic of that because it will not work that way. Even if they should be successful, the marketplace will not allow that to happen. So I would encourage our colleagues to vote down this amendment, another amendment, well-intentioned, and the representatives from the upper Midwest are doing an excellent job of representing that particular interest. The rest of the dairy industry in the whole United States happens to differ and disagree with them, but that is what this floor is for. That is what we are here for. That is what the Committee on Agriculture did, we debated this amendment and we defeated it overwhelmingly in the Committee on Agriculture.

Mr. STENHOLM. Mr. Chairman, here again, it is important that we stay focused on the bill. When we talk about one basing point, Eau Claire, Wisconsin, in the bill in both 1-A and 1-B, we change that, for the reasons of which the gentleman has accurately expressed that it no longer is applicable. That is done. That is what the Secretary recommended. We are changing the basing point to 3 in order that the Federal order and the manner in which it, as the gentleman has just accurately described, Class I, II, III, IV milk is priced fairly region-to-region, with some consideration being given to distances in order that the market system may work fairly for each of our 50 States. That is what this is all about. The amendment of the gentleman from Wisconsin is another what we call a gutting amendment, because it attempts to undo that. It attempts to say that we are going to have one giant, big order, and for those that believe that that is the way it ought to be, I respect that. It is a very logical feeling from those that somehow believe that they are being unfairly treated with the current system. But I would encourage the dairy farmers in the upper Midwest to listen carefully to their leadership, to look carefully as to whether or not if they should win, would they truly be better off? I think the answer is a clear no, a clear no. But, those who offer the amendment believe that it is a clear yes, and that is why we have votes on this floor. I remind my colleagues again, particularly those from the upper Midwest, your dairy farmers voted 96.1 percent to accept the Federal order. Now, many of them perhaps prefer 1-B over 1-A, and that is a perfectly logical position for some to have in that region, given what they think they believe. But I will submit to you that there is very little proof anywhere that individual dairy farmers anywhere in the United States will do better if we vote this system out or particularly if we support this amendment. So I would encourage a ``no'' vote on this amendment. The base bill takes into consideration most of what is being discussed and desired by this amendment, but not all. I would urge a no vote.

Mr. STENHOLM. Mr. Chairman, will the gentleman yield?

Mr. STENHOLM. Mr. Chairman, oftentimes when we get into discussions like we have been going through on this amendment, I am reminded of the infamous words of Will Rogers when he observed that it ain't people's ignorance that bothers me so much. It is them knowing so much that is the problem. When we start talking about the advantages and disadvantages of various dairymen in various regions, the numbers just do not hold up. Several times today we have had it pointed out that the problem is with the Class I differentials. In the average mailbox price, which is what farmers put in their pockets every week, the average mailbox price last year for the whole year of 1998, in the upper Midwest, was $15.29 in the region where the gentlemen who offered this amendment do reside, $15.29; in the area of Texas where they object to the system of which we have a different advantage, $14.82, 47 cents less. Now, there are all kinds of different reasons for this. The complexities of the federal order have been discussed and quite amusedly because it is very complex, designed to be so because it is designed to do one thing and one thing only and that is price milk fairly, component by component, so that the farmers and the consumers within an order are treated fairly by something that can be repetitive week after week, month after month, year after year. I am well aware that there will always be some of us farmers that will feel like that we are being wronged by our cooperative, and that is true. Sometimes cooperative management is like individual farm management in which they do not make all the right decisions; but I really question, and I guess my opposition to this amendment as to most of the amendments today and something that we offer, as the gentleman said, when this vote is cast dairy farmers will know and recognize who is on their side. Most of the dairy farmers in the region in which the gentlemen are talking have already spoken loudly and clearly in a referendum that they prefer the federal order system, works and all, they prefer 1-B over 1-A; but the bottom line is if farmers anywhere, any time, in the future, are going to do anything about price, it is going to have to come through cooperative effort, in the traditional sense in which cooperatives will do a better job of working for our dairy farmers than they currently are and in a nontraditional sense in which those of corporate America who have opposed parts of this legislation today are going to have a change of heart and to realize that cooperative effort can also mean them working with dairy farmers in order to see that the efficiencies of the marketplace will reward the producers as it does the consumers today. That is what this is all about. I hope we will oppose this amendment, as we did the previous Dooley amendment, and we will continue in the quest of passing 1402.

Mr. STENHOLM. Mr. Chairman, I demand a recorded vote, and pending that, I make the point of order that a quorum is not present.

Mr. STENHOLM. Mr. Chairman, I yield myself such time as I may consume. Mr. Chairman, I urge the strongest opposition to the Dooley amendment. It is basically whether my colleagues are going to vote with dairy farmers, as they have already told us by a 90 percent vote that they agree with my basic amendment, they oppose the Dooley amendment. I hope my colleagues will stick with the dairy farmers of America all across this Nation overwhelmingly. Ninety percent say let us stick with my amendment. Oppose the Dooley amendment. Support H.R. 1402.

Mr. STENHOLM. Mr. Chairman, I yield myself such time as I may consume. Let me make another point for all of our colleagues here. There is nothing in my amendment that precludes any dairy farmer or any cooperative from negotiating a better price for fluid milk. Nothing in the amendment keeps them from doing that. What they cannot do is negotiate a price that is less than, less than the order price. That is why I oppose the Dooley amendment. I will make a few observations. This is interesting to me, because California dairy producers do not vote in Federal referenda because they have a much better referendum in California, or at least that is what California dairy farmers say. Again, we have a very divided industry, and we have been through this for a long time. It is split almost fifty-fifty, between dairy farmers in California that have a different opinion. But it is interesting, when we heard a moment ago that the price of milk can be produced for $11 in California, and we talk about consumers, well, the consumer price for milk in Los Angeles is $2.99 as of September 22, 1999. In Dallas, Texas, it is $2.50. In Minneapolis, Minnesota, it is $2.99. Again, we have been hearing all about this profit, the pricing, and what we can and cannot let dairy farmers do. But the bottom line from the consumer standpoint, we cannot make a logical argument that the consumer is benefiting from the California price to the dairy farmer, but the dairy farmers in California that object to their system because they feel like they are being penalized is a valid one. Again, let me remind my colleagues that the order and the rules of the Federal order that we are discussing were overwhelmingly approved in every region of the country. California did not vote because they are not a part of the Federal order system. But every other region, 90 percent of the dairy farmers agreed that the federal order system, as imperfect as most of them believe it is, under the bill that we attempt to correct today or the order of the USDA recommendation, 96 percent, 98 percent in the southeast, in the northeast 90.5 percent, 93.1 percent of the producers all across the Nation agree. They agree with the basic tenet of the amendment that I offer of a pilot project. As the chairman said, we are willing to try this to see whether or not it might work, but to do it in a limiting way. To the argument of suggesting that this does not make sense, separating Class I and other classes, let me again remind my colleagues that the purpose of which I offer my amendment and the purpose of which the gentleman from California (Mr. Dooley) offers his are diabolically opposed. I feel very strongly that if we allow individuals to contract in dairy, which is much different than we have in cotton, and I belong to a few cooperatives myself, but in dairy, if one has a large number who choose to contract out for another extra nickel, and one has a balancing problem in one's region in which suddenly one has milk that has to be moved somewhere at a loss, the folks that have made the contract benefit from this, and every other dairy farmer within the cooperative will be hurt accordingly. Now, maybe that is not right. Some would say, and I guess the argument of those today and the proponents to my amendment say, that is the way it ought to be. But it is a fundamental change. I would submit to my colleagues, if they are concerned about dairy farmers, they cannot ignore the vote in August in which they said overwhelmingly we accept the warts of this because we believe doing without the program will do us more harm. Mr. Chairman, I reserve the balance of my time.

Mr. STENHOLM. Mr. Chairman, I claim the time in opposition to the amendment.

Mr. STENHOLM. Mr. Chairman, I yield myself the balance of my time. Mr. Chairman, I think one key point needs to be made. To all of those who oppose my amendment because of the complexities, because of the continuation of the Federal Market Order System, to those who also were interested in another referendum in the previous vote that we will be taking in just a moment, let me remind all of our colleagues, if they are concerned about what dairy farmers want us to do today, dairy farmers voted 90 percent plus in August to support the Federal Milk Marketing Order System, warts and all. I repeat, if Members are concerned about what dairy farmers want us to do today, they preferred Option 1B with the Federal order system versus nothing, which the advocates will have an amendment to eliminate all of the dairy program as the last amendment today. But the relevant point on this amendment, if Members are concerned about what dairy farmers in all regions of the country have already spoken loudly and clearly on in a referendum, in a vote, in which every dairy farmer, through their cooperative, had a chance to vote, they said, we prefer the Federal Market Order System versus nothing. That was the choice that was made. That point needs to be indelibly in our minds today because a lot of the rhetoric we have heard today is talking about something that somebody other than dairy farmers would like to see done. That is something that I hope we will keep in mind as we support my amendment. Personally, I am very nervous about even my amendment, the effect, but I am willing to try. That was the deal that I made with the gentleman from California (Mr. Dooley). I was willing to have an experiment, time-limited, to see whether or not we could use, in all milk other than Class 1, we could use forward contracting to enhance producer income. I am still willing to try that. I hope my colleagues will join with me in support of my amendment, oppose the Dooley amendment, and let us get on with passing H.R. 1402, which is the overwhelming opinion of the overwhelming majority of dairy farmers in the United States what we should do today.

Mr. STENHOLM. Mr. Chairman, it is the marketplace that makes the difference between Texas and the upper Midwest. It is the marketplace. It is not the Federal order that does that.

Mr. STENHOLM. Mr. Chairman, that is certainly my understanding, and that is the way in which I believe this body would have wanted us to progress.

Mr. STENHOLM

Mr. STENHOLM. Mr. Chairman, how much time do I have remaining?

Mr. STENHOLM. Mr. Chairman, I yield myself such time as I may consume. Mr. Chairman, the amendment Mr. Pombo and I offer today represents a step into forward contracting for dairy industry producers and handlers. At the outset, I want to point out to my colleagues that if the Pombo-Stenholm amendment is not adopted, then forward pricing will not likely come soon to the dairy industry. The committee's bill provision allows for a wide experiment where a more modest effort is justified. With the modifications we offer producer acceptance for the program can be secured. If the Pombo-Stenholm modifications are not adopted, producers will abandon forward pricing, and there will be no program. Mr. Chairman, by failing to make special account of the coordination challenges, the provisions reported by the Committee on Agriculture fails to fully take account of the milk marketing order system and the need of dairy producers to rely on cooperative effort to maximize their income. Mr. Chairman, dairy farmers are extremely vulnerable as stand alone price takers. Their product is uniquely perishable, and the system we have has grown out of the fact that the processing industry has the unique advantage where negotiations with producers are concerned. While one can say what they want about the appropriateness of the particulars of the milk market order system, one fact is clear, that milk marketing orders give dairy farmers an opportunity they would otherwise lack to engage in mutually beneficial cooperative action for price. Mr. Chairman, much of the debate of this bill focuses on the class 1 differentials. While the differentials matter in terms of promoting geographically diverse milk production, the key to the success of the milk marketing order program is it is focused on uniform prices. The idea that the orders promote the establishment of market-based prices that are paid uniformly to each producer regardless of the use to which his or her milk is put. Mr. Chairman, put quite simply, the committee's bill's provisions regarding forward pricing represents a fundamental threat to the uniform pricing feature of the Federal milk marketing order system. This development is troubling to me because without uniform pricing, producers will have little choice but to abandon the cooperative effort that has sustained the dairy production industry. Consider the situation where dairy producers have a choice between selling to a producers' cooperative or selling to a proprietary fluid milk processor. With the marketing system we have today, the producer can make a rational choice given the best opportunities available considering the farm's location and the location of the facilities. Because of uniform pricing there is an inducement to join the cooperative, consolidating with other producers in a manner that gives them the strength of common marketing. As a co-op, they together bear the additional costs of being prepared to process milk into a storable farm by building plants, of finding new markets, and of creating opportunities in other ways. If a fluid plant were permitted to use the forward-pricing provisions, however, then it could begin to offer prices that are below the Class I price required under the order system but above the price the cooperative pays, the cooperative which bears those costs which make it effective in strengthening the producer's market position. Mr. Chairman, it is easy to see what happens next. The rational producer has to do what is best for his or her operation, processors are restored to the position of being able to play each producer off against the other, and our system's effectiveness in promoting cooperative effort collapses. Mr. Chairman, I agree that forward pricing can be an important risk management tool. Our amendment is designed to allow its use by producers and handlers on milk other than Class I for 5 years. We believe this is a reasonable compromise. I urge my colleagues to oppose the Dooley amendment and support the Stenholm-Pombo amendment. Mr. Chairman, I reserve the balance of my time.

Mr. STENHOLM. Mr. Chairman, I ask unanimous consent that the gentleman from California (Mr. Pombo) be permitted to control 10 minutes of the time in support of the amendment.

Mr. STENHOLM. Mr. Chairman, I yield 1 minute to the gentleman from California (Mr. Pombo), the chairman of the Subcommittee on Livestock and Horticulture.

Mr. STENHOLM. Mr. Chairman, I yield myself 2 minutes. Mr. Chairman, let me attempt to make it as clear as we possibly can what that vote was in August, approved by from 90 percent to 100 percent of those who were voting in various referenda. Dairy farmers voted to impose upon themselves the Federal market order system. That was the vote, because if they had voted no, they would have joined with those who will later today and in some of the rhetoric already today are suggesting that dairy farmers do not want a Federal milk marketing order system. What most of this discussion is about is whether we have 1-A or 1-B, and I readily admit that the intricacies and the complexity of dairy market order makes for great fun on the floor of the House, but it does work for the purpose of which it was intended and that is to provide a stabilizing force for dairy products all over the United States. Now the issue of whether to have another vote, I hope we will not forget for a moment somebody will have to pay for that and that the people that will pay for that will again be dairy farmers through the system of which we will be asking to vote. Under normal circumstances, I would be in favor of that; but we have already voted. This is an amendment by those who oppose 1402, attempting to muddy the waters somewhat in a very sincere way, and I would just say to my colleagues: I hope that they will oppose this amendment, it is well-intended, it is unnecessary, it is costly, and it is being slightly misrepresented by those who advocate it from the standpoint of that vote in August because dairy farmers were confronted there with a vote of approving 1- B and the recommendation of USDA or having no Federal order in their region. Given that choice, they voted for the Federal order and support us in our endeavor to pass 1402 today.

Mr. STENHOLM. Mr. Chairman, I yield myself such time as I may consume. I would urge our colleagues to strongly oppose this amendment. Listen to the chairman of the full committee, the chairman of the subcommittee, me as the ranking member of the committee. The committee has acted on this. We recommend very strongly 1402, an overwhelming vote, not a unanimous vote. So I would urge the opposition to this amendment. Mr. Chairman, I yield back the balance of our time.

Mr. STENHOLM. Mr. Chairman, I yield 1 minute to the gentleman from New York (Mr. Sweeney).

Mr. STENHOLM. Mr. Chairman, I yield myself such time as I may consume. Mr. Chairman, I believe the gentleman from Wisconsin (Mr. Ryan) unintentionally misspoke concerning the vote that occurred. The farmers had a choice of the Secretary's proposal of 1-B or nothing was the choice that was voted on. Mr. Chairman, I yield to the gentleman.

Mr. STENHOLM. Mr. Chairman, I yield myself 1 minute. Mr. Chairman, we have heard some statements made that are not very factual. To suggest that dairy farmers have not already voted on this because their cooperatives have expressed themselves totally ignores two main facts. One, of all of the milk produced in the United States, 82 percent of it is produced by farmers who belong to cooperatives. It is very true that there are a few cooperatives that differ with this legislation, and they happen to be mostly from one region of the country; and I understand that. I hate to hear people continue to suggest that we are maintaining Soviet-style legislation because that is not true either under 1-A or 1-B, which is the argument today. That is not a true statement. Is it a Government program? Absolutely. Has it worked perfectly? Absolutely not. But it is the overwhelming consensus of opinion by those who commented on this some 4,217 dairy farmers and their organizations, 3,579 supported 1402.

Mr. STENHOLM. Mr. Chairman, I yield myself 3 minutes. Mr. Chairman, I want to repeat some of what the gentleman from Michigan (Mr. Smith) mentioned a moment ago because he was right on target. If we ask any farmer today, and we are going to talk a lot about this over the next several days and weeks, about the problem we are having with the price we are receiving, now I have done a lot of analyzing of what can farmers do to enhance price and it comes down to a pretty simple question. Either we farmers, whether it is dairy we talk about today or whether it is fruit, vegetables, beef producers, hog producers, the only thing that producers can do is to bind themselves together in order that they might become an economic unit that can have market power in this tremendously changing marketplace. My dairymen at home are telling me, the large dairies are saying, if the Dooley amendment should pass, we will have no choice but to do what the advocates of this amendment want done: allow a few producers to go cut their own deals to the expense of everybody else. That can already be done. That is the American system. But why should we make it the legal system more than it already is? That is the fundamental question. The proponents of this amendment really honestly believe that is what they want to do and I respect that. I respect that, but then I come back to the problem of which we are going to be called on to spend billions of dollars in a few days supplementing the income of corn producers, rice producers, cotton producers, wheat producers. Why? Because the price is too low. That is the fundamental choice; and why I point out to my colleagues, to those that want to forward contract under current law, they can already do so and they will be able to do so. It is called the future's market. Any producer that believes they would like to forward price because it is better may do so every day today. If one chooses to do that as an individual because one believes one can get a better price, one may do so. The problem with allowing one to do as this amendment suggests ignores the fact that our cooperatives play a very vital role for their dairy community that often gets overlooked by those who choose to contract out. It is called market balancing. Whenever one gets short- term surpluses of milk in any given regional order, somebody has to take that and move it some place at whatever cost it takes. That is what gets overlooked if this amendment should pass in the form in which they propose it to those who oppose the amendment. It will do irreparable harm to the dairy industry's quest at price enhancement, of taking what we now have and allowing dairy farmers to work with the processors, not against them, to get more of the consumers' price into the dairy farmers' pockets.

Mr. STENHOLM. Mr. Chairman, I yield 1 minute to the gentleman from Texas (Mr. Combest), chairman of the full House Committee on Agriculture.

Mr. STENHOLM. Mr. Chairman, I yield myself such time as I may consume. Mr. Chairman, I rise in strong support of H.R. 1402. Mr. Chairman, we have a considerable variety of federal programs meant to guarantee a healthy agricultural sector for our Nation. Year after year, Congress has reaffirmed its commitment to build, redesign and improve policies that promote it. The more I think about these different programs and their purposes, the more I come to the conclusion that the key to a strong system for farming and ranching is the maintenance of policies that support cooperative effort. I am very excited that we have the opportunity to debate this issue today. Because whether we are talking dairy or cotton or sheep or hogs or corn, the problem is price. We have to find ways for our producers to get more of the agricultural dollars, and the long-term solution from the producer standpoint is cooperation, cooperation in the traditional sense of cooperatives and cooperation now soon to be in a nontraditional sense in which corporate America recognizes it is in their best interest to do whatever is necessary to see that more of the consumer dollars go to the producer's pocket. Mr. Chairman, dairy farmers are extremely vulnerable as stand-alone price-takers. Being a highly perishable commodity, raw milk can be kept on the farm for only so long before it becomes worthless. This fact is what has given rise to the need for a federal pricing system. The federal milk marketing order system promotes the opportunity for dairy producers to get a fair deal from the processor and does so without setting strict, unaltered minimums. Instead, regulated prices fluctuate each month according to changes in the market. The key benefit of the program then is not in price enhancement but in the promise of uniformity that takes away the processor's opportunity to play one producer off against another. Mr. Chairman, this program promotes producer cooperation. Without that cooperation, the producer has little chance of bargaining for a fair deal with a processor who can wait while the milk deteriorates in the tank. With cooperation, we have a shot at a healthy dairy sector and we will continue to have a safe, abundant and reliable supply of milk. While most processors would not choose to conduct business in that way, and do not, the program then and the enhanced cooperation that results from situations in which some do is the problem we attempt to address today. The program then, and the enhanced cooperation that results, works to the benefit of the processor and of the consumer, as well as of the men and women who go out to the barn two and three times a day to get the cows milked. Mr. Chairman, in marking up this bill, the committee adopted an amendment to require forward pricing under the order program. While I opposed that amendment, it has become even more clear to me, since the committee acted, that the provision is a very fundamental challenge to the milk marketing system, and one that will undermine cooperative effort at the very time that we should be promoting it. At the appropriate time, I will offer an amendment to limit the program in a way that will allow forward contracting to go forward without crippling the system. Mr. Chairman, discussions of federal milk marketing orders nearly always divide along regional lines, and the rulemaking we debate today is no exception. The gentleman from Texas (Mr. Combest), and the gentleman from California (Mr. Pombo), chairman for the Subcommittee on Livestock and Horticulture, have done an excellent job of facilitating a fair debate on this matter; and I am grateful for their leadership in bringing the bill to the floor. Mr. Chairman, USDA did a great deal of work in developing the rule on milk marketing order reform. The farm bill required little more than a consolidation of orders, a reform which by itself was considered to be an important step at the time. In addition to providing for order consolidation, the Department has used this rulemaking as an opportunity to base manufacturing class prices on milk components rather than on Grade B prices, and it establishes several surplus production regions as basing points for determining minimum prices. H.R. 1402 is designed to preserve all of these reforms and to make reasonable adjustments to Class I price differentials. It represents responsible progress towards an improved system and should be viewed as such against the backdrop of our current program. I want to thank the chairman for allowing me the time to address the committee regarding this important legislation, and I am grateful for his assistance in helping move this bill forward. In spite of these accomplishments, there are two areas where USDA badly missed the mark. We need to pass H.R. 1402 to complete the reform process in a manner that does not adversely affect our nation's existing milk marketing system. Mr. Chairman, this bill is supported by dairy farmers from much of the United States because it is so important to ensuring a successful completion of the milk marketing order reform process directed by the 1996 Farm Bill. By requiring USDA to use Option 1A price differentials in implementing order reform, H.R. 1402 will fulfill the Farm Bill's mandate. It is clear that important portions of the Final Rule issued by the Administration lack the Congressional and public support needed to be sustainable. Mr. Chairman, this point was made abundantly clear by communications from Congress and public views filed during the comment period. Last year, nearly 240 Members of the House wrote to USDA expressing their support for Option 1A. According to USDA documents of the 4,217 public comments that were received regarding the Class I pricing structure, 3,579 of them were in favor of Option 1A. In spite of these overwhelming expressions of public sentiment, USDA did not listen. Its decision gives rise to the need for Congress to act further. Mr. Chairman, in understandable efforts to simplify a complex issue, many have characterized Option 1B--the option chosen by the Department--as reform, and Option 1A as the status quo. This characterization is simply incorrect. Mr. Chairman, Option 1A is not the status quo. For many years, it was a goal of Upper Midwest dairy organizations to encourage a consolidation of milk marketing orders--so much so that the Farm bill's requirement for consolidation was that region's main accomplishment in the Dairy section of that bill. Option 1A would accomplish that goal to the same degree as Option 1B. Under the old rhetoric then, even with Option 1A, the Final Decision would be a significant accomplishment. But apparently the debate has shifted and we are faced with a new measure of success. It was also a goal of the Upper Midwest to bring an end to the accepted notion that each Order's Class I differential is related to its distance from Eau Claire, Wisconsin. Option 1A recognizes three surplus zones as the basis for determining Class I prices. In Texas, this result itself means a significant lowering of the differential and therefore of prices received by producers. Option 1A will reduce income for Texas Producers as well as producers in many other parts of the nation. So, again, under the old rhetoric and the old standards of success for the Upper Midwest, Option 1A represents a significant victory and a change from the status quo. Mr. Chairman, producers who are supporting Option 1A were prepared to accept these changes in Federal Orders that would have made the system more equitable for the Upper Midwest. The Final Decision, however, will result in a substantial negative impact on dairy producer income in Texas and in many other areas. In short, the Final Decision goes too far and unduly threatens the value of dairy farm investment in the United States. Mr. Chairman, in addition to focussing on Class I differentials, I have devoted considerable attention to another controversy relating to the Final Rule: the manufacturing milk pricing formulas. Several witnesses at the Subcommittee on Livestock and Horticulture's hearings this year raised concern that these formulas will have a significant negative impact on all producer prices. For this reason, I offered an amendment that was adopted by the Agriculture Committee to provide an interim solution to this problem. Section 2 of the Committee substitute requires that USDA initiate a new rulemaking for developing Class III (cheese) and Class IV (butter & nonfat) pricing formulas. While that rulemaking is pending, the Final Decision's formula is modified in a manner that will partially ease the negative impact of the Final Rule's formula on dairy farmer income. Mr. Chairman, for many years, a problem with the Federal order system has been its incompatibility and risk management tools known as forward contracts. Such contracts are often used by producers of other agricultural commodities. In an effort to maintain a sensitivity to market forces, Federally regulated milk prices are reset each month in response to market movements. Finding a way to allow producers and handlers the option to enter into log-term price relationships without undermining that system has been a great challenge. During the Committee's consideration of H.R. 1402, Mr. Dooley offered an amendment that was adopted by the Committee to require USDA to allow forward pricing. I opposed the amendment at the time because I did not feel it contain sufficient safeguards, however I have been working closely with Chairman Pombo to develop improvements. To that end, we have developed an amendment that will allow forward pricing to go forward on a limited basis. Under the amendment, the forward pricing program would expire as of December 31, 2004, and would apply only to non-Class I milk. The amendment also requires USDA to submit an interim report to Congress on the operations of the program. Mr. Chairman, USDA did a great deal of work in developing the rule on milk marketing order reform. The farm bill required little more than a consolidation of orders--a reform which, by itself, was considered to be an important step at the time. In addition to providing for order consolidation, the Department has used this rulemaking as an opportunity to base manufacturing class prices on milk components rather than on Grade B prices, and to establish several surplus production regions as basing points for determining minimum prices. H.R. 1402 is designed to preserve all of these reforms and to make reasonable adjustments to Class I price differentials. It represents responsible progress towards an improved system and should be viewed as such against the backdrop of our current program. Again, Mr. Chairman, thank you for allowing me the time to address the Committee regarding this important legislation. I am grateful for your assistance in helping move this bill forward. Mr. Chairman, I reserve the balance of my time.