DAN MORGAN: Hello, I'm Dan Morgan. We are a ranching family with operations located near Burwell, Nebraska. And for the past ten years, we have been heavily involved in the meat export business. We've been using our own cattle and our own products and shipping them directly to supermarkets, restaurants and gourmet shops in Japan. And also going to Europe where the product goes into Amsterdam and then into Paris. And starting next week, again selling here in the U.S.. We've also sold into several other Asian countries, but, frankly, the -- Asia has not been a pleasant place to do business lately. All of our products are processed in Omaha. Then we ship from Omaha directly to the west coast to go to Asia and from Omaha shipping directly to either Eastern ports to go into Europe or by air.

Establishing the contacts, producing the products, fabricating, and shipping and pricing and selling these products for their true value as compared to commodity product has been an education. This adventure was very successful until the Asian melt down and the recent European-American trade war.

In my opinion, the U.S. must move from a quantity supplier to a quality supplier of agricultural products. This requires a shift of thinking from producing large amounts of products to producing and marketing consumer products. All of the focus and discussion of increased trade and opening new markets by the USDA and USTR and many elected officials help big companies get bigger. In reality, the focus and discussion should be about small business growth.

Small businesses like ours where actual producers are able to take that product directly to the consumers.

The beef hormone issue in Europe is the perfect example of the need for change in thinking, negotiation, and pragmatism. There's a substantial inventory of this type of nonimplanted cattle raised in the U.S. and in particular in Nebraska. Let's also remember that 90 some odd percent of all of the beef that is shipped to the European countries comes from Nebraska. That is done in Omaha. So Nebraska plays an important role in that entire amount of discussion. The type and quality of product demanded by European consumers is produced here in Nebraska. We need to -- we as cattle producers need to have that ability to go directly to those consumers in Europe and sell them what they wish to buy. If the customer wants a red car, sell him a red car. That way we get ourselves outside of the commodity pricing system.

But with the present state of negotiations, the cattle industry and the U.S. government find themselves in a political nightmare in no-win situation. We should be talking about increasing quotas and reducing tariffs, but presently we have the possibility of losing the entire business.

To turn the situation around, I suggest that the United States admit that we won the World Court decision, but the United States because of consumer desires in Europe will export to Europe only high quality, nonimplanted cattle under the Hilton quota.

Secondly, increase the Hilton quota from approximately about 11,500 metric ton to 50,000 metric ton over the next five years.

Three, try to reduce the tariffs from 20 percent down to 10 percent over the next three or four years. Remember horse meat has an import tariff of 8 percent. Surely high quality, nonimplanted cattle produced in Nebraska should have a similar tariff as imported horse meat.

And another thing to do is establish another category into the quota system for high value specialty products. This product which is some of the meat that we happen to ship enters the country in less than container loads of product. For example, my products go by air to Amsterdam. Duties and tariffs are figured on CNF prices. We pay 20 percent tariff on air freight. My air freight is $1.50 a pound compared to consolidated ocean freight at .8 cents a pound. If we could reduce that tariff, if they could have a special area there for small amounts of product because we don't have consolidation capabilities to go by containers, that would increase the expansion for consumers on their side and also give me the ability to sell more product.

The testing of products that we've got right now on the hormone issue, all of the fees are based upon flat fees or batch fee prices. And I hope that my information is incorrect, but they're saying that we may have to ship samples of this product to Canada for testing on hormones or residues. Okay. If the testing is done on a flat fee, I'm going to end up paying .43 cents a pound for testing as compared to large companies who will shipping by container loads. They would then be able to pay about .8 cents a pound for their testing.

I got a red light on, but again, it's the same way in Japan. If we would be able to do some negotiations about less than container loads of product, that would substantially help us as small producers and small sellers. I don't want to use the term "small" in a negative sense but 40,000 pounds of a single product is a lot of meat to ship over at one time.

Again, in Japan all CNF or all tariffs are based on CNF prices and fixed fees both at warehouses, custom brokerage firms and all that sort of stuff. If we could come in with -- with something in smaller increments for less than container loads of shipments, you would see producers -- individual producers like ourselves be able to expand our markets very rapidly.

MICHAEL LEPORTE: Mr. Murphy.

JAMES MURPHY: Fascinating presentation. Very interesting. Explains one mystery to me. I was in Brussels recently. I saw on the menu duplication stated, dup. Nebraska, and I was fascinated as to how that got there. I must have been looking at one of your steaks.

DAN MORGAN: Well, if you were in a fancy restaurant, it was. While we're selling, for example, in Amsterdam, it is called cobay (ph.) style beef. We have taken the genetics from Japan, brought them to Nebraska, raising cattle, shipping them back. Shipping it now into Europe, going into the Japanese restaurants and the gourmet meat stores, and it sells incredibly well. You will be able to purchase that product in Kansas City next week. Your fillets bring $80 a pound.

JAMES MURPHY: Question for you here. You've identified what I think is a dilemma we struggle with. On one hand your point about selling the consumer what he wants is an obvious point. You have to do that to be successful.

On the other hand, the hormone case, we face the situation where ignoring the whole sound science issue. Clearly sound science is in our favor. Our science, their science, there's no question. And there's where you come to the rub. If we're going to -- obviously we have pursued strategy holding our feet to the fire on the sound science position. So it doesn't deny people like yourself selling into that quota and some have been doing that although we haven't been filling the quota. We have 11,000 ton.

DAN MORGAN: About 9,000.

JAMES MURPHY: So the option is there for people like yourself, for people who want to sell it. I just wanted to make sure you weren't suggesting that we abandon the sound science approach in our SPS decision.

DAN MORGAN: I do. You won the World Court decision. Wave the flag. I don't know if I believe the sound science first.

Secondly, the consumers in Europe have been, I'm not going to say brainwashed, but they have been told for years and years and years that this meat may be tainted. There is a tremendous fear for me as a cattle producer that if the quote, tainted meat, enters the marketplace, it may not sell. If it does not sell, the price of cattle in Nebraska -- live cattle market is going to collapse. We would then find ourselves as cattle producers selling our fed cattle on a world commodity price of which we cannot afford to do. The product will sell fine, but I certainly have a tremendous fear that it may not.

JAMES MURPHY: We, of course, try to address that by looking at a labeling option for a solution which we were considering for a while. Then the EU backed off and didn't think that they could go down that path. We were fairly confident if we could simply label, that the beef would move off the shelves pretty well.

DAN MORGAN: Well, it might -- would have. I used the word "pragmatic" in our negotiations. If we say that this particular piece of meat is labeled it was hormone implanted, the headline that was in Japan the middle of May was that U.S. beef is tainted. It will cause you cancer. This is when the Europeans started this round of things.

I had a container load of meat ready to go to Japan that was -- that order was cancelled because of the scare in Japan at that time; that U.S. meat is tainted. Well, if the issue blows over in two or three months, that order will come back around. But still there was another $60,000 and so we have to be careful about what we do in one country and how it affects our business relationship in another country.

JAMES MURPHY: Thank you.