And, again, anybody who wants to submit testimony or information for the records but is not doing a presentation is more than welcome to do that if you would please give the written material to Alan Hrapskwy. Wave to everybody, Alan, so they know you're still there.

With that, Herb Karst who is the Past President of the National Barley Growers Association.

MR. KARST: Thanks, Bruce, and welcome to our panelists and friends from Washington. We are glad to have you and be meeting with you on our turf for a change.

If agriculture is facing a crisis in international trade, then the barley industry should be the poster child of that crisis. We are at the mercy of the remnants of two huge dinosaurs from the nationalist grain policies of a past era, that is, state trading and the supply stimulating subsidies of foreign governments.

The past ten years have seen trade agreements that started world barley producers on a path to market-driven agriculture. But a close look at the present situation makes one realize that we are stuck half way, not even half way, to such a worthy goal. And we are left with few trade protections while the small curbs of the Uruguay Round placed on our competitors has been little deterrent in their ability to over produce and then to market and deliver it in a predatory manner.

Remember, the goal of the Uruguay Round was a coordinated pathway to a market-based world grain supply. However, these are the facts for barley: In 1994 and 1995, the European Union produced about 43 million metric tons of barley. Now, five years later, after the implementation of the last round, the production has skyrocketed to 53 million metric tons of barley, an increase of 10 million metric tons, or more than the total US production of about 8 million metric tons. And nearly all this increased production is reflected in higher carry over stocks and was produced at the time when the EU -- or the world prices were less than the EU Intervention price. Thus, this was production that the market was not calling for. Obviously, something has to be done to further curb the government's ability to use production stimulating subsidies.

The Uruguay Round also contained a negotiated reduction in export subsidies. In fact, the first five years of the agreement saw a world almost free of export subsidies for barley. But this only permitted the European Union to bankroll those unused subsidies, and now they are using excessive subsidies to get rid of the surplus production of the last two marketing years. It's incredible that within the last year, we saw subsidies of almost $80 per ton being used on barley, which is as much of the total value that that barley had in the world market. Incredible.

What has been the corresponding effect on US production of exports these past five years? Our production rose in the early years of implementation due to rising prices, but it has since fallen as prices have sunk below costs. What's alarming is in 1999, barley plantings are expected to decrease or did decrease about 17 percent. And yet even this drastic reduction in our ability to produce is expected to have no effect on barley prices. We're responding, we're doing the right things, but the market effect isn't there because of these other market impacts.

Also, as the European Union began to use the increased use of export subsidies, we have been almost completely shut out of world barley markets that we once enjoyed; those markets in North Africa, in the Middle East, and Central and South America. Thus, as markets weakened, we became a residual supplier in spite of our comparative advantage in production or in freight costs of these markets.

But is the EU the only reason US barley production is at the brink of extinction? No, but while the Uruguay Round at least tried to discipline these subsidies, it left an equally market distorting force virtually alone, and that is state trading. While the barley acres in Canada do respond to market forces as the Canadian farmer does bare risk in choosing which crop he plants, the Canadian Wheat Board uses its domestic powers to supply acquisition to pick which markets it chooses to dominate. With only its initial payment to bring any discipline to its pricing decisions, the Canadian Wheat Board has increased its sales into the high value US malting market while shorting at the same time its own feed barley lower value market. A state trading enterprise can do this because they can sell and guarantee quality without the discipline of the marketplace, without the disciplines of market risk, that is in getting the supplies, or the disciplines of freight costs. They can, because of monopoly, they can source that barley from anywhere within the state trading area to meet those market demands. Additionally, they can use nontariff barriers and varietal licensing, identity preservation and transportation allocation to virtually eliminate import competition within their own boundaries.

In summary, then, we must remind ourselves that the US producer is left defenseless, making planting decisions according to market prices while being at the mercy of domestic subsidies and the "cherry picking" by a state trading monopoly.

I have attached to my testimony today our "Zero for Zero" proposal that we feel is the only logical end to our problems. The Uruguay Round may have been the right path, but it was at the wrong pace. We must make a gigantic leap now for market-based agriculture or quit pretending that a slow negotiating process is either free or fair. Thank you.

MR. NELSON: Thanks, Herb. Panel?

MS. LAURITSEN: Yes, Herb, I would like to ask a question about the "Zero for Zero" proposal. Assuming that that is being proposed strictly for the barley rather than for other commodities, and my question is, if that is something we could reach agreement on with our other trading partners early on in negotiations, is that something that you support -- would be supported implemented immediately or would you want to wait until the end of the negotiations before getting the benefits of that?

MR. KARST: That's a bit of a difficult question, I'll try to answer your first part of the question first. The "Zero for Zero" proposal was actually an attempt by the US barley producers and the barley processors, the malt barley processors from the United States and Canada to arrive at some sort of blue print where we felt we wanted to be at the end of the next round, the millennium round.

Whether or not that would apply to other commodities is difficult for me to say. Obviously, barley has a lot different dynamics than other grains. For one thing, it is dominated by fewer countries, and I wouldn't be presumptuous enough to presume for the other commodities, whether or not, you know, that big drastic step to complete the elimination of tariffs, subsidies, and state trading dominance would be the answer for them. We certainly think it is for our industry.

Maybe I can also address Tim's earlier question about state trading. We feel -- we talked about transparency, but I think the only way you truly arrive at disciplines in state trading is by forcing state trading to be subject to competition both in the importing and exporting. That's the only way you get transparency. Outside of that, numbers can say anything you want, and there will always be the cry, "Major Grain companies don't open their books, why should we have to?" Our Zero for Zero" proposal suggests that we open state trading competition as the best way to arrive at those disciplines.

MR. GALVIN: I appreciate that comment. Let me say, too, that I think Herb is one of the leaders in agriculture today. We hear from him on a regular basis on both trade and farm policies.

And the thing I appreciate most is that your statements are always very forceful, but very thoughtful, as well, in terms of really laying out where we should go. We appreciate that very much.

One thing I find of great concern is that -- and you've eluded to this -- as you look at the EU production and ending stock levels, it's got to be a source of great concern. For example, you go back to the '94-'95 period, and they had something like five-and-a-half million tons, almost six million tons of ending stocks of barley. But that steadily increased now in the last few years, and now they're looking at something over 14 million tons, just huge, and I think just is going to hang like a wet blanket over the marketplace for the next couple of years, and I think is a real indication of some of the problems that we face.

If I could go back just a minute to the Canadian Wheat Board issue. Could you describe for us, say we were successful in getting the Canadians to phase out the wheat board over the next year, how do you think that would change the structure of the market, both in terms of their production and their exports to third countries as well as what they might send to us or what they might import from us in the way of barley?

MR. KARST: In the barley, we have an interesting example because we see competition in the feed barley, and let's look at what's happened in the feed barley in the last five years. Some of the basis for the hard cap edition, for instance, was the fact that feed barley prices were artificially low in Canada, and that they were throughout the eighties and early nineties. But what has happened is that competition in that market, and the wheat board has done an awful job, particularly '95 and '96, in marketing the barley, they lost their supplies of feed barley, the wheat board did, and the private industry has since dominated the barley market in Canada. Such that now, southern Alberta, under almost totally free feed barley market, has become one of the highest priced areas for feed barley in the whole North America.

I would perceive the same thing would happen if you saw competition in wheat and malted barley, that you might see some period of adjustment, but I think, ultimately, producers would be producing and market it according to the marketplace. Market rationalization would be such that eventually you would see the markets having to bid for the supplies that now the market knows are there. And under the long position, if you will, of the Canadian Wheat Board, they're incredibly long in the market place. They are a motivated seller from the time the first Canadian crop is planted and the market knows that. Thank you.