MR. PLOWDEN: Thank you. Good morning. Again, I'll repeat the comments of earlier speakers. We appreciate this opportunity to present our views to you on the upcoming trade talks. We particularly thank Commissioner Combs and her staff for the accommodations that they've made to us over the last few weeks in preparing for our testimony and these accommodations here today. I represent the American Peanut Shellers Association. Our organization is a trade association representing most of the commercial peanut shellers in the United States. The U.S. is the third largest producer of peanuts in the world; however, we are the largest producer of edible peanuts. Both China and India produce more peanuts than we do, but most of their crop is crushed into oil. They are, however, a significant producer of edible peanuts, but not quite as large as we are.

Most of our crop -- most of the United States crop is used for edible purposes in confectionery, peanut butter, and salted nuts. The United States is a major exporter of edible peanuts in the world trade, although in the last few years, it is not the largest exporter. At one time we did occupy the number one position, but we no longer are number one. But we are a major exporter.

We recognize that today, this next round of trade talks, is in a very, very early stage and we don't know what other countries' proposals may be with respect to peanuts. However, there are two issues that are fairly clear today that we'd like to present to you.

We are also convinced - and I want to emphasize this as much as I can - that the next round of international trade negotiations will be vital with respect to the peanut industry. The health -- future health of the industry - and I include that in that term, not only our group but growers and manufacturers as well - will be influenced by the results of this next round.

The two issues I want to mention today are conflicting United States policies and unscientific European trade -- I'm told to call them standards. I see them as barriers. But I guess to be polite, they would be called standards. Both of these are going to adversely affect the United States peanut industry.

First, the conflicting United States policies. Our country has favored free trade. Most of the speakers here today also favor free trade. And pursuant to that policy, we've opened our borders to significant quantities of lower world-priced edible peanuts. These imports enter in the form of either raw peanuts, kernels or in-shell, peanut butter or peanut paste - which is essentially a primitive form of peanut butter - and also, importantly and somewhat overlooked, as an ingredient in confections; candy coming into the United States that already has peanuts in it.

The United States also maintains a domestic quota peanut program, which, in essence, requires peanut shellers to purchase only domestic quota peanuts for domestic edible use. Those domestic peanuts are supported at a price of -- a national price of $600 per ton. Therefore, on the one hand, we're faced with a government policy that allows world-priced peanuts into the United States, which are roughly $350 per ton, and another policy that requires us to purchase for our uses much higher priced peanuts.

Let me emphasize that today my goal is not to disagree with either one of these policies. Advocates can make a good argument for either. Rather, my point is to point out to you that we can't survive with both. Our industry cannot compete with $350 per ton world market peanuts if we, by law - in essence, by law - have to purchase $610 per ton peanuts for our competing product.

I'm sure most of you-all have heard the story of the fellow selling watermelons, and he was losing money on each one and he decided his solution was to make it up on volume. And so he was going to buy a bigger truck to make it up on volume. We simply can't get a large enough truck to make 610 competitive with 350. I want to emphasize one more time, I'm not criticizing either one of these policies, but they're in conflict and we can't survive with the expansion of both of them.

Let me touch a moment on the unscientific trade barriers in the EU. The European Union is our largest export market for edible peanuts. It has implemented an aflatoxin import standard applicable to peanuts, and, frankly, applicable to other products as well, that is not scientific based and is quite detrimental to trade.

Rather than discuss the technical details of that restriction or standard here, I've taken the liberty of attaching an appendix to my testimony that I hope will give you the technical background that you may need with respect to that issue.

The restrictions, suffice it to say, are much more stringent than those required in the United States and those required or set by international standard-setting bodies. Meeting the EU standards is very, very difficult and detrimental to the United States peanut industry, but that difficulty is compounded by the sampling and testing systems that are in use in the EU. If United States peanuts are tested here in the U.S. by a USDA-approved laboratory and certified as meeting even those standards that the EU has set -- which, again, we think are not scientifically based. But even if we were allowed to have the peanuts tested in the United States under those standards, we would have the assurance that when those peanuts reach Europe, they would be accepted.

The situation now is that it tested -- the EU will not recognize USDA-approved labs, and it's therefore tested in the EU. And if for some reason they fail when they get there, the U.S. shipper is faced with a quantity of peanuts overseas with very, very few alternatives with respect to that product. If we were allowed to test them here, even if they failed, we would have a number of other alternatives that we could practically use and operate in a fashion that would allow us to mitigate, at least, the consequences of this unscientific standard.

In summary, it would be our hope that eventually the EU standard could be brought in line with the Codex Alimentarius standard, which is the international standard-setting or standard-recommending body. We would hope that that standard could be brought in line with what they have concluded is appropriate. But in the interim we would hope that our representatives could negotiate an agreement with the EU so that the sampling and testing could be done in USDA-approved labs before leaving American ports.

Let me just say finally that we know we're looking at a number of years of tasks before us and before you. We're willing and anxious to be of assistance wherever we can. If we continue on this conflicting course, I'm afraid that we will see the United States peanut industry move offshore, which would be a tragedy for American peanut growers, our industry, manufacturers, and I think for the American consuming public. So we wish you well and we'll be of assistance whenever we can.

If I could respond to any questions, I'd be happy to. Otherwise I'll yield whatever time, if any, I have to the next speaker.

MR. GALVIN: Mr. Plowden, thank you. I realize this is a bit of a loaded question, but do you have any suggestions for us on how we go about trying to resolve what you describe as that conflicting U.S. policy?

MR. PLOWDEN: Well, I would have a couple of comments, with the caveat, Mr. Galvin, that none of this be considered as association policy. But somehow, if we're going to open the borders to imports, which we have done either through granting other countries access or, as I say, using peanuts in other products that come into the United States, we have to find a mechanism that protects the American farmer price wise but does not penalize the customer of that product and give that customer, our people and manufacturers, an uncompetitive product.

And that's a policy decision that I'm sure Congress will have to look at. It has found that solution with many, many other agriculture products, as you know. When in its wisdom it has decided that agriculture needs some support - not necessarily subsidy, but some support - it has made the political decision in a way that did not, at the same time, make that product uncompetitive in its marketplace.

So I don't want to try to suggest a specific solution. There are a number that have been kicked around in Congress, but I think the basic guideline has to be that if we are to compete in this U.S. market, then we have to have a competitively priced product. Now, I'm not

proposing here today that the peanut farmer needs to simply cut his price or cut his income to the level of world market; that's a decision that undoubtedly will be made in Congress over time with a lot of input from a number of people. But whatever that solution is, it's got to make that product price competitive.

For many, many years before NAFTA and GATT -- before NAFTA and the latest round of GATT, there were essentially no imports of peanuts allowed into the United States. So there was not a competing product that was lower priced. We don't have that today, after both NAFTA and GATT, so creative minds are going to have to find a way to deal with that new reality.

And I'm not proposing here today that the way to solve that problem is to simply cut farm income, but farm income will be cut unless we find an answer to it, because the product can't be sold.

MR. GALVIN: Thank you very much.

MR. ACETO: Just one quick question.Who was the practical beneficiary of this European standard being set? Are they meeting their demands --

MR. PLOWDEN: I don't really think it's the typical situation where you have somebody being protected, frankly, because the EU does not grow peanuts. I think it is a product of an unrealistic fear with regard to food safety that seems to be sweeping throughout Europe. We have had some success in -- particularly in Codex, in getting a standard that is scientifically based and frankly is similar to the standard in the U.S., and work is continuing. Both USTR and the USDA have been most helpful in that regard, and we just hope we can continue to make progress with respect to the standard.

But if we can't -- in the meantime, if we can find some practical help in, say -- you probably know, if you sample any large fungible group of products, even the sample itself is going to vary unless you sample the entire product. And therefore, you destroy the product in the sampling process. So you're going to have variations.

We need a situation where we can sample it at the earliest point, where the owner has the most possible alternatives with respect to that sample. Right now we're sampling at the last possible point. Thank you.

MR. PURCELL: Okay. Thank you very much.

We've been going pretty steady here for an hour and a half. It's 10:30. We're going to take about a five-minute break, and let's all plan on being here at 10:35. Yeah. Back in here at 10:35. Thank you.

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