AMERICAN CROP PROTECTION ASSOCIATION
Mr. Chairman and Members of the Committee:
I am Jay Vroom, President of the American Crop Protection Association (ACPA). ACPA is a national trade association representing the manufacturers, distributors and formulators of virtually all crop protection chemicals and crop biotechnology products used in the United States. I appreciate the opportunity to testify before you this morning on agricultural input prices, along with four ACPA member companies represented here today. We're also pleased to appear alongside our colleagues from the American Seed Trade Association (ASTA).
Producing and marketing crop protection and the new array of biotechnology products involves a complex matrix of factors, including crops, competitive chemicals, soil/climate conditions, geographic region, dealer and distributor incentives, volume discounts, patent life, liability costs, minor use considerations, regulatory compliance, regulatory delays, transition to and reinvestment in “safer” products, research and development costs, and a multitude of other considerations, not the least of which is the impact of the uncertain and inconsistent implementation of the Food Quality Protection Act (FQPA).
Specific to the issue of biotech seed sales, our biotech member companies market seeds on a global basis. Considering their substantial investment in agricultural research, we strongly support protection of their intellectual property rights. The ability to recoup their investment costs based on the market value of their discovery is a right, long championed in the U.S. The GAO Report issued earlier this year comparing prices of biotech seeds indicated, for example, that a key reason that the price of biotech soybeans was lower in Argentina than in the U.S. was the lack of patent and other intellectual property protection for these products in Argentina, including the lax enforcement of seed laws there. The pricing differential between the two countries is a result of weak controls that encourage black market seed sales, not marketing practices by the technology providers. We appreciate your efforts on our behalf in the WTO dispute settlement proceedings against Argentina, where you urged the inclusion of intellectual property protection for biotechnology. As mentioned earlier, we are pleased that you have also invited testimony for this hearing from ASTA. ASTA's long standing expertise in plant variety protection laws here and around the world is parallel to ACPA's FIFRA knowledge, and the questions you wish to address at today's hearings will undoubtedly call on both areas of expertise.
We are pleased that our member company investments in research and development have provided a vast arsenal of insect, disease and weed control tools for American farmers. Yields of many crops in the U.S. have doubled and tripled since the introduction of modern pesticides and much of this increase is due to the effectiveness of these tools in controlling crop pests. As I address the Committee, I realize how easily we get caught up in the daily regulatory battles to register new products and promote responsible public policy. But I would like to take a moment to share with you some of our current achievements:
§ I brought with me today a copy of the year 2000 version of the “Crop Protection Reference,” a four-inch thick publication which lists virtually all the agricultural chemicals and uses in the U.S. Today we have an estimated 9000 plus tolerances on crops from wheat, soybeans, canola, barley to sunflowers, flax, zucchini and kiwi.
§ We recognize that there is still work to be done—some growers, especially minor use farmers, would like to have additional registrations. To that end, we work closely with growers, USDA, EPA and the NAFTA Technical Working Group to accommodate these needs when possible. For the last few years, for example, we have worked very closely with the canola growers in their quest for more pesticide tools in the U.S. Since this crop is relatively new in the U.S. compared to Canada, and the U.S.-planted acres is considerably smaller than in Canada, U.S. growers are eager to gain access to products which have already been registered across the border. We are pleased that our work with the growers and EPA are beginning to pay off. Since 1995, we have registered 10 tolerances for canola, and there are an additional 8 tolerances pending approval at EPA for FY 2000. In addition, credit is due to USDA's IR-4 program for their attention to and actions that have contributed solutions in this minor use area.
The challenges to this industry are many-fold. We are committed to servicing the American farmer by providing the best technology at the farm gate and supporting their farm and rural policy objectives in the legislative and regulatory arenas. We recognize that this Committee is addressing many of these
issues and we encourage Congress to help increase exports, build domestic demand, reduce agriculture’s regulatory burden, and provide affordable, workable risk management tools to growers.
Hopefully, Congress will enact Permanent Normal Trade Relations with China and support that country's accession to the WTO, which will help build new foreign demand for U.S. production. Reform of U.S. sanctions policy, improved agricultural trade policies in the WTO and retooled U.S. government export credit programs also would help boost exports. With this Committee’s leadership on crop insurance we now have a law which will increase affordable options for a broad array of producers and crops.
At this point, I would also like to thank the Chairman and Ranking Member for your support and oversight provided on implementation problems associated with the FQPA and a very special thanks to the 44 members of this Committee for cosponsoring Mr. Pombo's bill, H.R. 1592,"The Regulatory Fairness and Openness Act of 1999." We also credit the early FQPA-corrective legislative work of Mr. LaHood and his bill, H.R. 1334, for bringing FQPA problems to light and advancing solutions. ACPA is working very closely with the Implementation Working Group (IWG) to bring common sense and fairness to the implementation of FQPA. Likewise, the Committee is to be commended for the work you've done on oversight of Total Maximum Daily Load (TMDL) water quality regulation. All such efforts to bring reason, science, and transparency to agriculture's regulatory burden provide positive outcomes.
Recent years have certainly taken a toll on U.S. agriculture, with declining prices, natural disasters, and distressed world economies. Many U.S. farmers are experiencing serious financial problems. Congress has provided emergency assistance to farmers, but the pain continues to ripple throughout the farm economy, with ACPA members included. A recent report from Doane Agricultural Service indicates that total agricultural pesticide sales for all US crops for all pesticide types (including herbicides, insecticides, miticides, fungicides, plant growth regulators, and nematicides) dropped by nearly 10 per cent from $7.410 billion in 1998 to $6.691 billion in 1999. When the agriculture economy is stressed, our member companies are negatively impacted also.
This morning, I would like to address some of the key variables related to crop protection product pricing. These include:
· differences in product testing and registration standards between the United States and Canada
· pending efforts towards harmonization of such standards between the two countries
· EPA implementation of the 1996 Federal Food Quality Protection Act (FQPA) that has resulted in exacerbating differences in costs and availability of products between the US and other countries
· the 1999 USDA Study: “Pesticide Price Differentials Between Canada and the US;” public statements by the USEPA in support of some of our contentions
· the differences in terrain, climate, soil type, and even crop value, along with a host of other variables that contribute to different marketing strategies of crop protection compounds between different regions of North America.
· In the U.S., fewer than 1 in 20,000 compounds will make it from the discovery laboratory to the farm field; and only after that one chemical goes through 120 or more federally mandated tests over a period of ten years or more at a cost of upwards of $150 million.
· This time and cost is borne completely by the initial registrant before one cent can be generated in revenue.
· In Canada, a similar chemical would have to undergo sometimes very different batteries of tests and procedures. EPA implementation practices on FQPA are being exported to Canada, where worst case default decisions may be adopted in the name of harmonization. This regulatory approach, if adopted, will reduce the number of products available to growers on both sides of the border, and will impact the prices of remaining products.
· Also in Canada, the registration processes including testing and data requirements can at times be significantly different, at lesser cost, and with much less time between laboratory development and ultimate marketplace sales.
Under the North American Free Trade Agreement (NAFTA), the governments of Mexico, Canada and the United States formed the Technical Working Group (TWG) on Pesticides in 1996. The scope of work for the TWG has been to develop a coordinated pesticides regulatory framework among NAFTA partners to address trade irritants, build national regulatory/scientific capacity, share the review burden, and coordinate scientific and regulatory decisions on pesticides.
We support the goals of NAFTA TWG which include:
1) Sharing the work of pesticide regulation;
2) Harmonizing scientific and policy considerations for pesticide regulations;
3) Reducing trade barriers;
4) Maintaining current high levels of protection of public health and the environment while supporting the principles of sustainable pest management.
We believe that through this process, new product registrations can be expedited and duplication of studies and analysis can be reduced, ultimately providing greater market competition in both availability and pricing. In order to get there, however, we need to continue working through the TWG to harmonize guidelines, define the “core regulatory data set,” and streamline the EPA registration process
Unfortunately, politics has overtaken science at EPA. The Agency is regularly using theoretical “worst case” assumptions in risk assessments to decide the fate of pesticides. This was most visible last August when EPA unnecessarily cancelled 42 crop uses of two major products, methyl parathion and azinphos methyl, as well as earlier this month when they forced the unnecessary cancellation of the residential uses of chlorpyrifos. This will continue to happen until Congress or the courts force EPA to fix the way that it implements FQPA. The following describes some of ACPA’s concerns over current FQPA implementation:
· EPA is creating policy “on the fly” to implement FQPA. This has involved several major, sudden capricious reversals and decisions on individual products and on broader policies, without informing or consulting stakeholders. Instead of giving ample time to generate new data called for by FQPA, EPA penalizes pesticides for not having data …data EPA hasn’t even required!
· EPA is ignoring credible, reliable data about individual pesticides, and selectively using questionable data from other so-called studies to help make what is often largely a political case against products.
· EPA has not yet published current comprehensive data requirements needed to determine whether a pesticide meets FQPA’s new safety standards. As a result, pesticide companies must frequently guess which tests to conduct, how to conduct them, and then these may or may not satisfy EPA reviewers.
· EPA is making pesticide decisions before finalizing and publishing the science policies upon which the Agency says that it will base decisions.
· EPA’s estimates about pesticide exposure and risk are often inflated by unsupportable assumptions, judgments, models and data, which do not resemble reality. This causes EPA to significantly overestimate actual risk to farmers and consumers, forcing unnecessary cancellation of uses and products.
For example, the FQPA’s requirement for reliable exposure data on drinking water is being ignored by EPA and replaced with highly inaccurate, worst-case computer predictions. This use of inaccurate information is having a negative impact on the availability of new and old products for the pesticide user community.
Slow and unpredictable EPA registrations of new pesticides and new pesticide uses are a significant regulatory burden for the crop protection industry and our customers. Fewer new pesticides are available since many move at a glacial pace through EPA approval process, causing a bottleneck for new pesticide registrations.
EPA has been unable to keep pace with registration applications. Actual registration decision time is quite lengthy; on average, 4-5 years, which is far slower than in many other developed nations with rigorous safety reviews like ours. Availability (and presumably price) will suffer from lack of competition as new products/uses are prevented from a timely entry into the U.S. market. From the other end of the spectrum, wholesale losses of existing product label uses also diminish market competition unnecessarily. This will occur due to unscientific and overly conservative FQPA tolerance reassessments and related reregistration review processes by the EPA.
USDA and Agri-Food Canada Report “Pesticide Pricing Study on Differentials Between Canada and the United States”
“The Pesticide Price Differentials Between Canada and the U.S.” was released in the fall of 1999, as mandated in the U.S. – Canada Record of Understanding. The study was conducted by expert researchers at the North Carolina State University and University of Guelph in Ontario, Canada. The conclusions of the study show that on a cost-per-treated acre basis, Canadian farmers spend far more on chemical inputs in general than farmers in the northern plains states. Selective use of the data may misrepresent the author’s findings, and we feel it is important to look at the whole picture.
Some of the key conclusions are summarized below:
· Individual Northern US growers may have higher costs of production than Canadian counterparts, but these have much more to do with non-chemical issues such as land, labor and management costs.
· Some pesticide products have lower prices in Canadian provinces than similar products in North Dakota. Conversely, others are listed as being the opposite: lower priced in ND. The marketplace factors given for price differentials include: differences in patent protection length; differences in market size and costs; differences in farmer demands; differences in availability of alternative products.
· Availability is not generally a problem in either region, except in the case of products registered for canola. As we have stated in testimony before the N.D. state legislature, the reasons for this have much more to do with more recent demand for canola in the U.S. compared to historically higher demand for the crop in Canada and other parts of the world. However, the situation for canola is rapidly changing for the better.
· ND growers generally spend less on weed control products than their northern counterparts.
· Frequently used products in Manitoba and Saskatchewan differ from those frequently used in ND or MN.
· There is a difference of US $3 – 4 on a per treated acre basis, with ND growers spending less then growers in MB or SK.
· Overall, cost per treated acre in ND is significantly lower than in Canadian provinces.
· The percent difference that MB growers spend over ND growers by crop was: +209 percent for wheat, +169 percentfor barley, +41 percent for canola, +29 percent for potatoes.
Likewise, the latest data from Agriculture and Agri-Food Canada comparing fertilizer and fuel prices in North Dakota and Manitoba show variances –sometimes our growers pay more and sometimes their growers pay more. It varies by season, type of input and year. I have attached a copy of the relevant data from “Farm Income, Financial Conditions and Government Assistance Data Book” at the end of my testimony.
The pricing of pesticides takes into account many factors that encompass research and development costs, distribution and marketing costs, crop value and related liability, availability of competitive products, and available patent life.
Cost of Liability
Much has been said, Mr. Chairman, about the litigious society that the US has become. Much attention has been paid to the notion of tort reform, but little has been accomplished in changing the law or the practice of frivolous lawsuits.
U.S. agrochemical manufacturers know the facts of these conditions all too well. Our companies face a literal barrage of legal actions – both threatened and formally filed – covering the full range of liability exposures: product performance, environmental damage, personal injury, and so on. The business of being sued, and having to defend the underlying business – whether through rigorous court action or out of court settlement – is a real and growing cost center of our U.S. business. Some states are home to courts that encourage or allow more frivolous litigation than others, accounting for different underlying cost assumptions in different parts of our domestic markets.
Different crops vary widely in their overall per acre value. The potential liability that accompanies the marketing of pesticides on high valued crops forces registrants to pay special attention to conditions that might cause crop damage. These factors increase the costs of products on some crops. Highly competitive marketing strategies, including rebates, must also be accounted for in the pricing of products to growers.
Section 24(c) of the Federal Insecticide, Fungicide and Rodenticide Act (FIFRA) governs ways by which state governments can address special local needs (SLN) of an existing or imminent pest problem for which there is no available federally registered pesticide product. Last year, the N.D. Department of Agriculture transmitted memos to at least five crop protection manufacturers asking if there was interest in applying for 24(c) SLN for products they marketed in Canada which allegedly had same or similar formulations in North Dakota at different prices.
Recent actions by the North Dakota Department of Agriculture demonstrate the need to aggressively pursue government to government harmonization. Pricing and availability issues cannot be solved by individual state actions on individual products. Our regulatory bodies have an obligation to promulgate clear federal government rules and guidelines, so as to avoid confusion and disruption in the marketplace. We would like to work with this Committee to find some reasonable and workable solutions to the irritant issues to which these recent, unfortunate SLN actions have been devised to respond.
Mr. Chairman, thank again for the opportunity to share our views with the Committee. I will be pleased to respond to any questions.