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Congressional Testimony

Opening Remarks of Thomas C. Dorr
Under Secretary for Rural Development

Before the Senate Finance Committee
Hearing in Des Moines, Iowa on the Rural Economy, Renewable Energy and the Role of our Cooperatives
August 26, 2003

Thank you Mr. Chairman.

Mr. Chairman, Members of the Committee, on behalf of the President and Secretary Veneman, I appreciate the opportunity to come before this committee to discuss with you ways in which the Federal government can help farmers and ranchers and other rural residents increase their incomes and improve their quality of life through effective cooperative organizations.

I am honored at the opportunity President Bush has given me, to be at the helm of a consortium of dynamic and progressive investment programs within USDA. Rural Development is really a Venture Capital Bank for rural America ... and we have two goals.

As an $86 billion bank, USDA Rural Development is by today's standards, a large bank. This year alone, we will invest nearly $16 billion in rural venture capital investments to build housing, support business development, and strengthen our rural infrastructure of community water, wastewater, electric, telecommunications and community facilities.

Since arriving at Rural Development, I quickly learned to understand the critical need to look at the effectiveness of the current cooperative model for assisting farmers and ranchers.

I believe we should move away from the decades old cooperative concepts toward a new concept of a cooperative, one that is attractive to investors. Existing tax rules applicable to investment in cooperatives need to be more flexible and favorable. As a former farmer I realize that current interpretations place an undue share of the tax burden on funds distributed as dividends to patrons. This tax treatment reduces the benefits of patronizing the cooperative and discourages patrons from seeking investments that could fund more and better services.

The traditional model and tax structure was developed with good intentions.

However, cooperatives are now struggling to convert the equity and dreams of many rural Americans into the kinds of economic opportunity they both need and desire.

We must approach economic development in rural America with the same foresight as you did when you authored the Value-Added Agricultural Product Development Grant program.

A good vehicle to diversify farmer investment is a cooperative that adds value to the products that farmers produce through processing, distribution, and perhaps even branding. This allows the farmer to capture some of the dollars now going to the middlemen between producers and consumers. At the end of this calendar year, nearly $100 million in grants will have been invested in value-added ventures, including nearly $10 million for Iowa ventures.

To build upon your efforts, USDA Rural Development announced yesterday over $21 million in renewable energy and energy efficiency systems improvement grants, which were authored by your Iowa colleague on the Senate Agriculture Committee Mr. Harkin, to help improve energy efficiency and create new renewable energy ventures.

As Under Secretary, I will be looking at ways to increase profitability for producers who use cooperatives as an investment vehicle. If we begin to look at cooperatives with the idea that they can serve not only as a form of security, but also as an investment vehicle that pays dividends to its members - one that is focused on creating an acceptable return on investment - we will have gone a long way to strengthening rural America.

Let me add that as a farmer, I understand that we probably can't get much better at farming. However we could perhaps do better at investing.

Most farmers have not used their asset base - their land - to its maximum return. Instead of just rolling that capital into the relatively low returns from farming, they could move some of their capital into other areas. This would simultaneously raise farm incomes - and enable more farmers to stay on the farm.

Today, cooperatives, like much of rural America, are facing serious challenges. They have equity needs and the companies they buy from and sell to are becoming larger, fewer in number, and more sophisticated at reducing costs and improving returns within their industry sector which can impact other participants in these industries.

Sweeping innovations in areas such as biotechnology, information services, and transportation have made many cooperative facilities and equipment obsolete. Foreign countries are using our technology to become lower cost producers of the same products we produce in rural areas. They are becoming competitors rather than customers.

My written testimony which I have submitted for the record provides a more in-depth assessment of my views related to improving the ability of our farmers and ranchers to utilize a cooperative structure, that with the right tax incentives, can improve their profitability and quality of life for their families.

Mr. Chairman, I want to offer my personal appreciation to you and to the Committee's Ranking Minority Member, Senator Baucus, for having spearheaded a bi-partisan effort to secure enactment of legislation covering these and other issues of importance to cooperatives. Rural Development stands ready to offer whatever support we can to proposals that improve the business environment for cooperatives and rural America.

I am happy to answer any questions you may have at this time.

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