TESTIMONY OF JAY VROOM

PRESIDENT

CROPLIFE AMERICA

BEFORE THE SUBCOMMITTEE ON PRODUCTION AND PRICE COMPETITIVENESS

JULY 18, 2002

Mr. Chairman and Members of the Committee:

I am Jay Vroom, President of the CropLife America (CLA). CLA 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 afternoon on pesticide harmonization issues.

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 reduced risk products, research and development costs, the state of the farm economy 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).

CLA 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. We are committed to serving 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.

I believe it is important to recognize the benefits of the U.S. crop protection industry and some of our major accomplishments. First and foremost is the vast array of tools we provide the American farmer. Today we have more than 9,000 product tolerances on crops from wheat, soybeans, cotton, rice and canola to sunflowers, barley, flax, and kiwi. We understand that some growers, especially minor use farmers, would like to have additional registrations and we'll continue to work closely with growers, USDA, EPA and the NAFTA Technical Working Group to accommodate these needs when economically possible and feasible under the prevailing regulatory regime. For the last several 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 comparatively new in the U.S. compared to Canada, and the U.S.-planted acreage is considerably smaller than in Canada, U.S. growers are eager to gain access to products, which have already been registered across the border.

Our work with the growers and EPA is beginning to pay off. Since 1995, a significant number of new pesticide uses have been registered for use on canola. In addition, credit is due to USDA's IR-4 program for its attention to and actions that have contributed solutions in this minor use area.

Recent years have certainly taken a toll on U.S. agriculture, with declining farm 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 CLA members included in the economic-pain quotient. In recent year, sales from CLA member companies declined to reflect the economic hardships in the farming community. The CLA 2001 industry survey shows that U.S. sales from the top six industry leaders declined by 9.84 percent in 2001, reflecting a continuing decline over the last several years. Add to this the pressures in our markets from the addition of new technology shifts and you can begin to understand that our industry's challenging economics track closely with the American farmers'.

Relative to the subject of this hearing, I would like to address some of the key variables related to pesticide product pricing.

U.S./Canada Registration Processes

An important factor in pricing differentials results from the significant differences in product testing and registration standards between the United States and Canada. At our own initiative, CLA formed a special Industry Working Group to help move the regulatory harmonization process forward. We have been working with EPA and their Canadian counterpart PMRA for the last several years to harmonize some of these requirements so that products on both sides of the border would be more equally available, and therefore likely to be more evenly priced.

Given two developed countries sharing a common border, there is no logical reason to have separate processes and reviews, and not to mutually accept scientific study reviews or even ultimate tolerance decisions. On one hand, our industry is criticized for having different prices in the U.S. and Canada, but on the other hand, we have to deal with two separate, autonomous regulatory systems. (Several years ago, Canada adopted an "Own-Use" program because prices were lower in the U.S. Now we hear from unhappy U.S. farmers that prices are cheaper in Canada.) Although frustrated, we continue to press the two governments through the NAFTA Technical Working Group for a more harmonized regulatory approach. We would further ask that Congress address this slow bureaucratic process in legislation that would mandate deadlines for completion the harmonization processes, including additional resources, if necessary. It is my understanding that legislation has been introduced in Canada, and is now working its way through Parliament, that increases PMRA' s regulatory harmonization efforts through the NAFTA.

There are potential and historic differences in protection of intellectual property protection between two sovereign countries like the U.S. and Canada. Certainly, even after the WTO TRIPS agreement latest amendments, real opportunities for patent life to be on different timetables exist between the U.S. and Canada. And proprietary registration data can be accorded different protection schemes and time frames--all challenging basic economic drivers.

There also marked differences in the current review times between the U.S. and Canada. For a non-reduced risk chemical in Canada, review times are 18 months plus screening time, whereas the EPA review times are running some 40-46 months. The unusually longer review times delay market entry, reduce the patent life and affect market decisions.

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 passes at least 120 or more federally mandated tests during a period of 10 years or more at a total invested cost in the product's development of upwards of $150 million. This time and cost is borne completely by the initial registrant before one cent can be generated in revenue.

EPA implementation practices on FQPA are being exported to Canada where worst cased 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 undoubtedly impact the prices of remaining products. The registration processes in Canada including, testing and data requirements, can be significantly different, sometimes resulting in lesser cost and time between laboratory development and ultimate marketplace sales.

NAFTA Technical Working Group

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 registration; 2) Harmonizing scientific and policy considerations for pesticide regulations; 3) Reducing trade barriers; and 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 "common data requirements," streamline the EPA registration process and achieve mutual acceptance of tolerances. Congressional oversight and mandated deadlines would help to bring new life to the governmental harmonization body.

We are concerned that some proposals currently under U.S. consideration could have an unintended consequence of inhibiting the long term objective of registration harmonization--and we hope that remedies for the near term price issues can be adopted that do not reverse the long term harmonization accomplishments already achieved.

"Pesticide Pricing Study on Differentials Between Canada and the United States"

In 1999 USDA and Agri-Food Canada conducted a comprehensive study of products and price differentials between the two countries, 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.

We believe that this governmental report reflects an accurate snapshot of pricing between the two countries, concluding that some pesticides are higher in the U.S., while others are higher in our neighboring country. Some of the key conclusions from the 1999 Report are summarized below:

· Individual Northern U.S. 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.

· 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 Manitoba growers spend above ND growers by crop was: +209 percent for wheat, +169 percent for barley, +41 percent for canola, +29 percent for potatoes.

· "The estimated impact of purchasing lower priced pesticides in either Manitoba or North Dakota using existing herbicide market shares is small on a per treated acre basis (usually less than US $0.50 per acre)."

We would support this data being updated by a credible governmental body, or its contractors, so a current and accurate assessment can be conducted. We are aware that various price studies have been circulated by different interest groups, but feel that the U.S./Canada joint study was more comprehensive, reflecting an unbiased look at prices in both countries. I would also refer the subcommittee to the February 26, 1999 GAO report on pesticide pricing in Canada and the U.S., which addresses the marketing complexities both within the U.S. and between the two countries.

Security

The security concerns of all Americans have escalated in the last ten months, as they should. Congress should take care in any legislative consideration to ensure that any action improves our domestic security and does not create unintended opportunity for "evil-doers." Pesticides are highly regulated and are securely managed today and we encourage that any proposed FIFRA changes keep security considerations in mind.

Cost of Liability

It is important to recognize what a litigious society the U.S. has become and how this burden is factored into market strategies in response to frivolous lawsuits.

U.S. agrochemical manufacturers understand these conditions all too well. Our companies face a literal barrage of threatened or formal legal actions covering the full range of liability exposures: product performance, environmental damage, personal injury, and so on. Having to defend the underlying business - whether through rigorous court action or out of court settlement - is a real and growing cost 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.

CLA Proposal: Supplemental Own-Use Label for Trade Irritants

Section 24(c) of the Federal Insecticide, Fungicide and Rodenticide Act 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. In fact, a few years ago, the ND Department of Agriculture contacted several crop protection manufacturers to see if there was interest in applying for 24(c) SLN for products they marketed in Canada, which had same or similar formulations in North Dakota at different prices.

CLA would support an interim legislative program that would bridge the gap until full regulatory harmonization takes effect, allowing farmers to import substantially similar Canadian pesticides for their own-use on the same crop. Given EPA's expertise and experience under FIFRA, we believe it is critical that EPA be the lead agency, ensuring pesticide safety and making determinations of substantial similarity. New heightened border security concerns would also indicate that EPA control and oversee the import of Canadian pesticides under this new authority, and that imports be limited to own-use, not distribution. We anticipate that this interim authority would phase out as regulatory harmonization is put into place. To ensure that pesticide registration harmonization becomes a reality and doesn't stall, we would support legislation to mandate deadlines for completion of the registration harmonization processes between the U.S. and Canada. Our regulatory bodies have an obligation to promulgate clear federal government rules and guidelines, so as to avoid confusion and disruption in the marketplace. And they have an obligation to implement those rules and guidelines in a way that will reduce or eliminate the trade irritant issues that have caused us all such unnecessary political strife in recent years.

Summary

The deepening frustrations around the pesticide price issues demonstrate the need to aggressively pursue government-to-government harmonization. Pricing and availability issues cannot be adequately solved by individual state actions on individual products, as mandated in S. 532. This bill would create a patchwork of differing state pesticide registration programs, in addition to other problems dealing with national security, intellectual property, liability and confidential business information.

In addition to the longer-term regulatory harmonization, CLA would support new trade irritant authority to relieve some of the immediate price and availability concerns while we move to a fully harmonized registration system.

The most important factor in our marketplace is a healthy customer. We hope that the issues at this hearing can be properly put in the larger and long term context--that we have a regulatory system that has enabled development and marketing of crop technology products over the last several decades that have contributed to the U.S. agricultural system being the envy of the world.

Thank you again for the opportunity to share our views with the Subcommittee. We look forward to working with the Chairman and other Senators to address the U.S./Canada harmonization concerns discussed here today.