DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF ADMINISTRATION, STATE OF FLORIDA

 

SUGAR CANE GROWERS COOPERATIVE OF CASE NOS. 92-3038

FLORIDA, a Florida agricultural 92-3039

cooperative marketing association; ROTH 92-3040

FARMS, INC.; and WEDGWORTH FARMS. INC.,

and

FLORIDA SUGAR CANE LEAGUE, INC.; and

UNITED STATES SUGAR CORPORATION,

and

FLORIDA FRUIT AND VEGETABLE ASSOCIATION,

LEWIS POPE FARMS, W. E. SCHLECHTER &

SONS, INC., and HUNDLEY FARMS, INC.,

Petitioners

vs.

SOUTH FLORIDA WATER MANAGMENT DISTRICT,

an Agency of the State of Florida,

Respondent,

and

THE UNITED STATES OF AMERICA,

MICCOSUKEE TRIBE OF INDIANS, THE

FLORIDA DEPARTMENT OF ENVIRONMENTAL

PROTECTION, THE FLORIDA WILDLIFE

FEDERATION, THE FLORIDA AUDUDON SOCIETY

and THE SIERRA CLUB,

Respondent-Intervenors.

_________________________________________/

 

 

DEPOSITION OF: DR. F. LARRY LEISTRITZ

TAKEN: March 15, 1994

VOLUME 1

 

 

 

DEPOSITION OF: DR. F. LARRY LEISTRITZ

TAKEN AT THE INSTANCE OF: United States of America

Respondent-Intervenor

DATE: Tuesday, March 15, 1994

TIME: Commenced at 9:00 a.m.

Concluded at 5:30 p.m.

LOCATION: 315 South Calhoun Street

Tallahassee, Florida

REPORTED BY: ANITA M. PEKEROL, CCR, RPR,

CP, CM. Notary Public in

and for the State of

Florida at Large.

 

APPEARANCES:

REPRESENTING THE PETITIONERS SUGAR CANE GROWERS

COOPERATIVE OF FLORIDA a Florida agricultural

cooperative marketing association; ROTH FARMS,

INC. and WEDGEWORTH FORMS, INC.:

CAROLYN S. RAEPPLE, ESQUIRE

Hopping, Boyd, Green & Sams

123 South Calhoun Street

Post Office Box 6526

Tallahassee, Florida 32314

 

REPRESENTING RESPONDENT-INTERVENOR UNITED

STATES OF AMERICA:

KEITH E. SAXE, ESQUIRE

United States Department of Justice

601 Pennsylvania Avenue Northwest

Room 879

Post Office Box 663

Washington, D. C. 20044

 

ALSO PRESENT:

Lonnie L. Jones, Ph.D.

Ronald D. Lacewell

 

 

 

I_N_D_E_X _ _ _ _ _

 

WITNESS PAGE _______ ____

 

DR._F._LARRY_LEISTRITZ ___ __ _____ _________

 

Direct Examination by Mr. Saxe 5

 

CERTIFICATE_OF_REPORTER 89 ___________ __ ________

 

 

 

 

 

 

E_X_H_I_B_I_T_S _ _ _ _ _ _ _ _

 

DEPOSITION_EXHIBITS: __________ ________

 

NUMBER DESCRIPTION PAGE ______ ___________ ____

 

1 Memorandum from Eric Schubert to

Larry Leistritz, 2-2-94, and tables 37

2 Memorandum from Larry Leistritz to

Ron Luke, 2-6-94 49

4

 

1 P_R_O_C_E_E_D_I_N_G_S _ _ _ _ _ _ _ _ _ _ _

2 - - -

3 The following deposition of DR. F. LARRY

4 LEISTRITZ was taken on oral examination, pursuant to

5 notice, for purposes of discovery, for use as evidence,

6 and for such other uses and purposes as may be permitted

7 by the applicable and governing rules. Reading and

8 signing is not waived.

9 - - -

10 COURT REPORTER: Today is Tuesday, March

11 15, 1994. We are here on the case of Sugar Cane

12 Growers Cooperative of Florida, Florida Sugar

13 Cane League, Inc., and Florida Fruit and

14 Vegetable Association vs. South Florida Water

15 Management District and The United States of

16 America, et cetera, Case Nos. 92-3038, 3039 and

17 3040

18 In attendance today are Dr. Lonnie Jones,

19 attorney Keith Saxe, Ronald Lacewell, Dr. Larry

20 Leistritz and Carolyn Raepple, attorney. And

21 Anita Pekerol is the court reporter.

22 Thereupon,

23 DR. F. LARRY LEISTRITZ

24 was called as a witness, having been first duly sworn,

25 was examined and testified as follows:

5

 

1 DIRECT EXAMINATION

2 BY MR. SAXE:

3 Q Professor Leistritz, I'm Keith Saxe, with

4 the U. S. Department of Justice. I represent the United

5 States in this case. We have met before, of course,

6 when your deposition was taken last year by another

7 Federal attorney. I will be continuing that deposition

8 today. I will be taking your deposition today and

9 tomorrow, and, if necessary, at some future date to be

10 arranged.

11 I will ask you a series of questions. You

12 are under oath, and you are required to give me your

13 complete and honest answer to those questions, unless

14 your attorney instructs you not to answer.

15 If you don't understand a question, please

16 tell me so before you try to give an answer.

17 Do you understand those instructions?

18 A Yes.

19 Q The rules are, basically, the same as they

20 were at the last deposition.

21 A All right.

22 Q Professor Leistritz, have you reviewed the

23 deposition notice and the document production request

24 that was issued by the United States for this

25 deposition?

6

 

1 A Yes.

2 Q To your knowledge, have all of the

3 responsive documents in your possession been produced in

4 response to that, except for documents that have been

5 listed as privileged by your attorney and withheld?

6 A Yes.

7 Q Professor, by the way, I'll refer,

8 generally, to the Sugar Cane Growers Cooperative, Roth

9 Farms and Wedgworth Farms in this deposition as the

10 Cooperative.

11 Are you familiar with the witness

12 designation, expert witness designation, that has been

13 filed by the Cooperative, in which you are identified as

14 an expert witness in this case?

15 A Yes.

16 Q I'm going to refer you to a page of that

17 expert witness designation. If you would, take a look

18 at it.

19 MR. SAXE: Do you, by any chance, have

20 another copy of the witness designation?

21 MS. RAEPPLE: I might.

22 MR. SAXE: I think I've got copies of every

23 Post-It note, but I don't think I have a copy of

24 this one.

25

7

 

1 BY MR. SAXE:

2 Q Professor Leistritz, would you describe for

3 me, in your own words, please, what your understanding

4 is of what your role at trial in this case may be, your

5 testimonial role?

6 A It is my understanding, at this time, that

7 I am probably not going to be called as a witness. If I

8 were -- well, no.

9 Q When you say probably not going to be

10 called as a witness, do you understand that there is any

11 issue or topic that you might be called as a witness

12 about?

13 A I am not sure I understand the question.

14 Q Do you understand that you will certainly

15 not be called as a witness in the case?

16 A No. Are you asking if I were to be called,

17 what topics would I be knowledgeable about?

18 Q No. Actually, what I'm asking is, do you

19 understand that you might be called concerning any

20 matters in this case?

21 A Yes, I understand that I might be called.

22 Q I will refer you to paragraph B on your

23 witness designation, substance of facts and opinions.

24 You have reviewed that?

25 A Yes.

8

 

1 Q Does that describe the facts and opinions

2 regarding which you understand you might be called to

3 testify to at trial?

4 A Yes. That seems reasonable.

5 Q Are there any facts and opinions that you

6 have developed knowledge of, or opinions in this case,

7 that you understand you might be called to testify to

8 that are not listed on this witness list?

9 A I believe that the list covers what I would

10 be testifying about.

11 MS. RAEPPLE: Mr. Saxe, could I see the

12 designation?

13 MR. SAXE: Yes, sure.

14 BY MR. SAXE:

15 Q Professor Leistritz, I'm going to refer you

16 to a pleading in this case titled The Statement of

17 Ultimate Facts, Policy and Law by Petitioners Sugar Cane

18 Growers Cooperative, Roth and Wedgworth, which is dated

19 February 4, 1994. I would like you to look at page 7 of

20 this moving paper.

21 The paragraph at the top, Section 3, titled

22 Reliance of Farmers, would you read those first two

23 boldface paragraphs to yourself?

24 A Okay.

25 Q Can you tell me what facts and/or opinions

9

 

1 might you testify to at trial in support of the

2 allegations in those two paragraphs?

3 A I think my answer at this point is, I don't

4 know.

5 MR. SAXE: Do you have the witness

6 designation, or did I take it back?

7 MS. RAEPPLE: It is right here.

8 BY MR. SAXE:

9 Q Why don't you take a look at this and, if

10 you could, tell me, in your view, whether any of these

11 facts or opinions that are summarized on the witness

12 designation relate to the allegations in those

13 paragraphs, in your opinion?

14 A I would say that the testimony that I might

15 present, really, I would not anticipate relating very

16 directly to the statements here. I think that's a good

17 way to summarize it.

18 Q If you look at the bottom, there is a

19 paragraph 33-D referred to in Footnote 3. Why don't you

20 take a second and read that?

21 A All right. I think I have a question about

22 that footnote. It appears that perhaps the footnote

23 ends with "state law," although there is no period.

24 Should I understand that "state law" is the end of

25 the --

10

 

1 Q Why don't you assume, for purposes of my

2 question, that there should be a period after the last

3 word, "law," and that it has just been dropped.

4 Now that you have reviewed that, can you

5 tell me what, if any, facts or opinions you might

6 testify to at trial in support of the allegations in

7 Footnote 3, paragraph 33-D?

8 A I don't believe my testimony would really

9 relate to that statement. That really has not been the

10 thrust of the work that I have been asked to do.

11 Q Referring you, again, to the witness

12 designation, there are three paragraphs, entries, under

13 the subheading Substance of Facts and Opinions. Do you

14 understand that you may be called to testify to facts

15 and/or opinions concerning all of those entries?

16 A I am not quite sure how to respond to the

17 question. I have not really been given any specific

18 direction about my possible testimony.

19 In general, most of the work that I have

20 been involved in would relate to Number 1 at this point.

21 Q Okay. Then we'll save Number 1, and let's

22 focus on Number 2.

23 A All right.

24 Q Would you read that paragraph into the

25 record for me, please?

11

 

1 A "Number 2: In its current incomplete form,

2 the SWIM Plan does not determine the plan's probable

3 costs and benefits, and, therefore, does not comply with

4 Federally-accepted standards and principles for water

5 resources projects or state law requirements for

6 analysis of socioeconomic impacts of major

7 developments."

8 Q Would you tell me, please, what are

9 referred to by the Federally-accepted standards and

10 principles for water resources projects?

11 A Okay. There is a document, a rather

12 extensive document, with, basically, that title,

13 Principles and Standards for Water Resources Projects.

14 Q Any others?

15 A Other Federal standards and principles

16 would, of course, include, basically, NEPA, National

17 Environmental Policy and related analysis. Those would

18 be the two things that would come to mind immediately.

19 Q How about the phrase "state law

20 requirements for analysis of socioeconomic impacts of

21 major developments"? If you could, explain to me, in

22 your understanding, what those state law requirements

23 are.

24 A Okay. It is my understanding that the

25 State of Florida has some requirements relative to

12

 

1 economic and fiscal impact analysis for certain kinds of

2 development projects. I have not been asked to analyze

3 or review those in detail, however.

4 Q Have you formulated opinions about what the

5 state law requirements for analysis of socioeconomic

6 impacts of major developments are?

7 A For the State of Florida, no.

8 Q Have you formed opinions about what the

9 Federally-accepted standards and principles for water

10 resources projects are?

11 A Yes.

12 Q I'm going to show you a document that was

13 introduced as an exhibit in the deposition earlier this

14 month of Dr. Luke. It is Exhibit Number 1 to the Luke

15 deposition of March 4th and 5th.

16 Take a minute, if you would, to review the

17 document; especially pages 1 through 8.

18 Before you do that, excuse me and let me

19 interrupt you.

20 Have you seen this document before?

21 A No.

22 Q If you would, go ahead and review pages 1

23 through 8.

24 A All right.

25 (Brief pause.)

13

 

1 BY MR. SAXE:

2 Q You can stop right before the sentence that

3 says "inadequacies in the proposed SWIM Plan."

4 You indicated earlier that the Federal

5 principles and guidelines and NEPA were the

6 Federally-accepted standards and principles for water

7 resources projects. In your opinion, do the Federal

8 principles and guidelines and NEPA apply to the SWIM

9 Plan?

10 A I don't feel I know the answer to that

11 question, outside the scope of what I have been involved

12 in.

13 Q The document that you have just reviewed,

14 Exhibit 1, pages 1 through the middle of page 8, does

15 that describe, in your view, what is required under the

16 Federal principles and guidelines and NEPA?

17 A The section that you asked me to review,

18 essentially, appears to me to be a summary of the

19 principles and guidelines document.

20 Q Do you know any water resources projects

21 for which analyses have been done that do comply with

22 the Federally-accepted standards and principles for such

23 projects by the South Florida Water Management District?

24 In other words analyses, sufficient analyses, that have

25 been done by the district?

14

 

1 A I would like to ask you to repeat the

2 question.

3 Q Are you aware of any studies that have been

4 done by the South Florida Water Management District that

5 do, in your opinion, comply with the Federally-accepted

6 standards and principles for water resources projects?

7 A I am really not familiar with other studies

8 by the South Florida Water Management District, besides

9 the ones that we have reviewed relative to the SWIM Plan

10 before us.

11 Q And which studies are those that you have

12 reviewed?

13 A Well, primarily, the Hazen & Sawyer

14 reports.

15 Q And could you describe those, kind of name

16 those, roughly, for me which Hazen & Sawyer reports you

17 have reviewed?

18 A Okay. I believe that, essentially, there

19 was a draft report and a final report. But, basically,

20 Hazen & Sawyer's analysis of the effects of the SWIM

21 Plan on the agriculture in the EAA.

22 Q Would that be a draft and final report of

23 the 10-year evaluation?

24 A Yes.

25 Q And would it, also, be a draft and final

15

 

1 report of the 20-year evaluation by Hazen & Sawyer?

2 A Yes.

3 Q Are there any others that you have

4 reviewed?

5 A Those were the major documents.

6 Q And I take it, in your opinion, those

7 analyses did not comply with the Federally-accepted

8 standards and principles for water resources projects.

9 A I think my response would be that the Hazen

10 & Sawyer reports did not address the full range of steps

11 that are outlined in the principles and standards. It

12 is probably, also, reasonable to say that the Hazen &

13 Sawyer report was only intended to be one part of the

14 overall planning process. And, essentially, evaluation

15 of the effects of, in this case, basically, a certain

16 set of alternatives.

17 Q Do you know of any analyses of water

18 resources projects that have been done by any other

19 Florida, agency besides the South Florida Water

20 Management District, that do, in your opinion, comply

21 with the Federal principles and standards for water

22 resources projects?

23 A I am not familiar with studies conducted by

24 the Florida agencies.

25 Q Are you aware of any analyses that have

16

 

1 been performed by any agency in Florida, Federal or

2 State, for water resources projects that have complied

3 with the Federally-accepted standards and principles?

4 A Again, I'm not familiar with studies of

5 other projects.

6 Q Do you know of any analyses performed or

7 prepared by or on behalf of state or local agencies in

8 other states for water resources projects that have

9 complied with the Federally-accepted standards and

10 principles?

11 A Yes.

12 Q Could you identify one for me, please?

13 A Okay. The one that I would be most

14 familiar with is the planning process and series of

15 studies conducted with respect to the Garrison Diversion

16 Irrigation Project in North Dakota.

17 Q I'm sorry, in North Dakota?

18 A In North Dakota.

19 Q Was a formal report produced reflecting

20 that analysis?

21 A Yes. A whole series of reports and

22 planning documents.

23 Q Do you know whether those reports have been

24 produced or identified in your document production?

25 A You asked me if I was familiar with --

17

 

1 Q Yes, that's right. I am asking you a

2 different question.

3 A I think the answer to that is, no.

4 Q Are there any other analyses performed by

5 state agencies or local agencies, in states other than

6 Florida, for water resources projects that, in your

7 opinion, have complied with the Federally-accepted

8 standards and principles, besides the Garrison Diversion

9 Irrigation Project?

10 A My answer would be, yes.

11 Q Could you name another for me?

12 A Okay. Again, I'm not necessarily familiar

13 with these different projects or studies in great

14 detail. I am aware of a number of studies conducted by

15 the U. S. Bureau of Reclamation in North Dakota and

16 surrounding states for a variety of water development

17 projects.

18 Also, for instance, a whole series of

19 planning studies relative to water resources projects on

20 the Colorado River. Again, I would not profess intimate

21 familiarity with these studies.

22 Q Any others that come to mind?

23 A Those would be the ones that come most

24 immediately to mind.

25 Q The Garrison Diversion Irrigation Project,

18

 

1 what agency performed the analyses in that case?

2 A The U. S. Bureau of Reclamation, I believe,

3 is the lead agency.

4 Q Do you know of any analyses that have been

5 performed by state or local agencies, as opposed to

6 Federal agencies, for water resources projects outside

7 of Florida that comply with the Federally-accepted

8 standards and principles?

9 A Yes. In general terms, for instance, the

10 North Dakota State Water Commission has conducted a

11 variety of analyses and planning studies over the years.

12 Q Can you specify any of those that you are

13 familiar with, and, in your opinion, have complied with

14 the Federally-accepted standards and principles?

15 A Again, I would not at this point claim

16 detailed familiarity with any of those studies.

17 Q Do you know whether any of those studies

18 have been produced with your documents?

19 A No, I don't believe they have.

20 Q Do you know whether any of those studies

21 have been, specifically, identified in a list in your

22 document production?

23 A I would not think they have.

24 Q In your opinion, are state or local

25 agencies in North Dakota required to comply with the

19

 

1 Federally-accepted principles and standards for water

2 resources projects?

3 A That's my understanding.

4 Q Do you have an opinion as to why they're

5 required to comply with those Federally-accepted

6 standards and principles?

7 A I think my answer is, no. That is really

8 outside of the scope of my work in this case.

9 Q Are there any other requirements for the

10 analysis of socioeconomic impacts or the relationships

11 of cost and benefits that do apply to the SWIM Plan,

12 except for the Federally-accepted standards and

13 principles, and whatever those state law requirements

14 are that are referred to in this witness designation?

15 A It seems to me that the principles and

16 standards, and NEPA, and the state requirements would

17 pretty well cover it.

18 Q Have you been involved in any of the

19 analyses that have been performed by state or local

20 agencies for water resources projects that, in your

21 opinion, do comply with the Federally-accepted standards

22 and principles; personally involved?

23 A Yes.

24 Q Which ones would those be?

25 A I have been involved in several analyses on

20

 

1 behalf of the North Dakota State Water Commission.

2 Q Would those be among the North Dakota State

3 Water Commission studies that have been performed over

4 the years that you referred to earlier in your

5 testimony?

6 A Yes.

7 Q You indicated that you didn't really have

8 any specific recollection about the nature of those

9 studies. And I think your words were that you don't

10 presently have detailed knowledge, and that is fine. I

11 mean, I am not asking you to over-tax your powers of

12 recall. But could you tell me what your involvement in

13 those studies involved?

14 A Okay. Yes. Preparation, basically, of

15 socioeconomic impact analyses for various alternatives.

16 Or economic and demographic, what you might call,

17 baseline projections for different parts of the state.

18 Q Did those involve proposed actions by the

19 North Dakota State Water Commission?

20 A Yes.

21 Q Can you tell me what some of those proposed

22 actions were?

23 A Okay. The most recent thing that I was

24 involved in was, basically, a short study for the Water

25 Commission, based on one of their proposals to provide

21

 

1 municipal and industrial water to communities in the Red

2 River Valley of North Dakota, as part what is known as

3 the Garrison Diversion Project. And as part of that,

4 part of the Water Commission's effort, then we provided

5 economic and demographic projections, primarily,

6 population projections, for a number of communities in

7 the Red River Valley.

8 Q You have indicated that that was a proposal

9 to provide industrial and what other kind of water?

10 A And municipal water.

11 Q And when do you work on this analysis?

12 A As I recall, that would have been in the

13 summer of 1989.

14 Q Were you involved in defining the study

15 area for that analysis?

16 A Actually, the study area had already been

17 defined, so the answer is, no, I was not involved in

18 defining the study area.

19 Q But that analysis, in your view, did comply

20 with the Federal principles and guidelines, correct?

21 A Yes.

22 Q Do you recall whether you were involved in

23 the analysis of alternatives in your work on that

24 project?

25 A On that particular project, no.

22

 

1 Q Do you know whether alternatives to the

2 proposal to provide industrial and municipal water in

3 the Red River Valley were analyzed by the North Dakota

4 State Water Commission in that project?

5 A It is my understanding they were, yes.

6 Q Did you work with or rely on the services

7 of any demographers in that study?

8 A In that particular study, no.

9 Q Describe for me, in a little bit more

10 detail, if you would, what your socioeconomic impact

11 analysis and baseline analysis in that study involved.

12 A Okay. In that particular study, we were

13 developing population projections for municipalities and

14 I believe, also, counties, in the study area,

15 encompassing several valleys in the Red River Valley.

16 We, basically, used a demographic projection model; a

17 more technical term, "a cohort-survival model."

18 Q I'm sorry?

19 A A cohort, C-O-H-O-R-T, -survival model. We

20 developed projections, I believe, for about a 30-year

21 future projection horizon.

22 Q Did you quantify socioeconomic impacts in

23 that analysis?

24 A No.

25 Q You provided your work on population

23

 

1 projections to somebody else who was working on that?

2 A Yes.

3 Q Who did you provide it to?

4 A We provided our projections to the State

5 Water Commission.

6 Q Do you know whether the State Water

7 Commission quantified, or somebody else working on their

8 behalf quantified, socioeconomic impacts in that

9 analyses?

10 A I don't, specifically, know the answer to

11 that.

12 Q Are you familiar with any other aspects of

13 the full analysis that was done in that case?

14 A No.

15 Q So, you don't know whether the North Dakota

16 State Water Commission did a benefit cost analysis for

17 that project?

18 A No, not specifically. An answer would be

19 speculative.

20 Q Other than that proposed action involving

21 industrial and municipal water for the Red River Valley,

22 what other North Dakota State Water Commission projects

23 have you been personally involved in doing analysis for?

24 A We have, I have, been requested on a number

25 of occasions to, basically, provide, you know, economic

24

 

1 impact analyses, economic base data and information of

2 this sort to the Water Commission. In those cases, I

3 was only, generally, familiar with the subsequent use

4 that the Commission might be making of the information.

5 Q Can you name or describe for me one of the

6 proposed actions that was at issue in one of those

7 studies?

8 A Again, in many of these cases, I was not

9 familiar with the details of the analysis that they were

10 doing. They were asking me for very specific things,

11 which we had developed as part of our research program

12 at North Dakota State University. I was providing

13 information, models, multipliers and the like to them,

14 and was not particularly familiar with the specific

15 analyses that they were undertaking.

16 Q So, then, it would be fair to say that your

17 role in those analyses, and your knowledge of the

18 analysis in the total sense, was limited to certain

19 aspects of the analysis?

20 A Yes, that would be very fair.

21 Q We started in this line of questions

22 because I was interested in those analyses that had been

23 performed by the North Dakota Water Resources Commission

24 for water resources projects that, in your view,

25 complied with the Federal principles and guidelines.

25

 

1 And you have identified for me the one

2 involving the proposed provision of industrial and

3 municipal water to the Red River Valley. But there are

4 no other projects that you can enumerate for me that did

5 comply with the Federal principles and guidelines?

6 A I think I will ask you to restate the

7 question.

8 Q Let me do that for you. I'm sorry, it was

9 a long question.

10 Did the analysis that was performed by the

11 North Dakota State Water Commission for the proposed

12 action involving the provision of industrial and

13 municipal water to the Red River valley, in your view,

14 comply with the Federal principles and guidelines?

15 A To the extent that I am aware of what was

16 done, yes.

17 Q Was a report produced, that you are aware

18 of, that described the analysis performed by the North

19 Dakota Water Resources Commission, State Water

20 Commission?

21 A Yes.

22 Q Did you review that report?

23 A I have read the report, yes.

24 Q And, in your opinion, that report reflected

25 analysis that does comply with the Federal principles

26

 

1 and guidelines?

2 A Yes.

3 Q Are there any other reports of analysis

4 performed by the North Dakota State Water Commission for

5 proposed actions involving state water resources

6 projects that you have reviewed?

7 A Are there other reports by the State Water

8 Commission involving water resources projects that I

9 have reviewed?

10 Q Yes.

11 A Yes.

12 Q Do you remember whether any of those

13 complied, in your opinion, with the Federal principles

14 and guidelines?

15 A Yes.

16 Q Can you identify those reports for me?

17 A Okay. I would identify, primarily, a

18 series of reports relating to the previously referenced

19 Garrison Diversion Irrigation Project.

20 Q Let me just stop there for a moment. Did

21 the North Dakota State Water Commission perform analysis

22 in the Garrison Diversion Irrigation Project?

23 A That's my understanding.

24 Q You had indicated earlier that that

25 involved the U. S. Bureau of Reclamation; is that

27

 

1 correct?

2 A Yes.

3 Q The North Dakota State Water Commission

4 was, also, involved?

5 A That's my understanding, yes.

6 Q Did you know whether the North Dakota State

7 Water Commission was the lead agency in that project?

8 A I don't know precisely which agency was the

9 lead agency. Basically, there have been a series of

10 analyses over a span of something in excess of 20 years

11 now.

12 Q I understand. Well, we have the Garrison

13 Diversion and we have the Red River Valley Water

14 Project. Are there any other projects for which reports

15 were produced by the North Dakota State Water Commission

16 that, in your view, comply with the Federal principles

17 and guidelines, that you are aware of?

18 A None that I could describe in detail for

19 you today.

20 Q Referring, again, to paragraph 18-B-2, on

21 page 11 of the expert witness designation for Professor

22 Leistritz, would it be fair to say, in your view, that

23 it describes defects in the SWIM Plan?

24 A Yes.

25 Q I would like to refer you, once again, to

28

 

1 Exhibit 1 to the deposition of Dr. Ronald Luke. And if

2 you would, look at page 8, from the middle of the page

3 on. Just review that for a moment, please.

4 A Beginning with "inadequacies"?

5 Q Beginning with "inadequacies in the

6 proposed SWIM Plan."

7 MS. RAEPPLE: How many pages do you want

8 him to review?

9 MR. SAXE: Page 8 to the end of the

10 document.

11 MS. RAEPPLE: That is a pretty lengthy

12 document. Could we take a five or 10-minute

13 break while he does that?

14 MR. SAXE: Sure. How about a five-minute

15 break? He is a fast reader.

16 (Brief recess.)

17 BY MR. SAXE:

18 Q In the interest of time, let me revise my

19 previous request to you to review those pages of the

20 document and go at this another way.

21 I am interested in identifying what, in

22 your opinion, are the defects in the SWIM Plan that are

23 referred to in subparagraph B-2 of your witness

24 designation.

25 Now, Dr. Luke, in his deposition, tendered

29

 

1 this exhibit, tendered this document. He described it

2 as reflecting his opinions about defects in the SWIM

3 Plan, among other things.

4 You haven't reviewed this document before.

5 Is there a document that you have produced that

6 describes the defects in the SWIM Plan that you have

7 formulated opinions on?

8 A I have not been asked to review the SWIM

9 Plan, per se. In the early going of our work, I was

10 involved in reviewing the Hazen & Sawyer report.

11 Q In this statement of the facts and opinions

12 to which you may testify, it says, "In its current

13 incomplete form, the SWIM Plan does not determine the

14 plan's probable cost and benefits," et cetera.

15 Would it be fair to say that, in your

16 opinion, the Hazen & Sawyer report or the Hazen & Sawyer

17 analysis was the analysis that was performed on behalf

18 of the district that you have formulated critical

19 opinions about?

20 A Yes. The Hazen & Sawyer report is the only

21 major document that I have been asked to review.

22 Q Is there a document that you have produced

23 that summarizes the defects in the Hazen & Sawyer

24 report, in your opinion?

25 A I can't tell you a precise date, but,

30

 

1 basically, Dr. Luke, with the assistance of myself and

2 others, produced a review document some time back, like

3 a year or more ago, basically reviewing, critiquing the

4 Hazen & Sawyer study.

5 Q Do you know whether that referred to the

6 Hazen & Sawyer 10-year study?

7 A A review document was prepared, which I

8 feel comfortable was related to the 10-year study.

9 Whether a document was subsequently prepared relative to

10 the subsequent 20-year study, I am not sure at this

11 point.

12 Q Did the document that was prepared in

13 reference to the 10-year study reflect your opinion

14 about the defects in the Hazen & Sawyer 20-year report?

15 A I am sure one of the criticisms of the

16 10-year study was the short planning horizon, shorter

17 than we thought appropriate. There were, however,

18 others, so that concern would be, to some extent,

19 addressed by a longer planning horizon, a 20-year study.

20 There were other concerns, however, that would not have

21 been reflected in the 20-year study.

22 Q So, so far as you are aware, there has been

23 no document prepared that summarizes the defects in the

24 Hazen & Sawyer 20-year contract completion report

25 prepared by you, or RPC, or Dr. Luke, or others working

31

 

1 for RPC or with RPC?

2 A I don't know.

3 Q Have you reviewed the Hazen & Sawyer

4 contract completion report for their 20-year analysis?

5 A Yes.

6 Q Let me refer you to paragraph B-1 on your

7 witness designation.

8 A All right.

9 Q It refers to socioeconomic impacts that

10 implementation of the SWIM Plan would result in?

11 A Yes.

12 Q Have you performed any analyses in

13 formulating your opinions that are reflected in this

14 paragraph?

15 A Yes.

16 Q Have you been involved in preparing an

17 economic impact analysis of the SWIM Plan?

18 A Yes.

19 Q I would like to ask you some questions

20 about that analysis.

21 A Okay.

22 Q And to give me a frame of reference, I am

23 going to ask you to refer, as we go over these

24 questions, to the Hazen & Sawyer contract completion

25 report.

32

 

1 BY MR. SAXE: Do you, by any chance, have a

2 copy handy for Professor Leistritz? I think I

3 can dig up an extra one, but I would have to pull

4 off some Post-It notes and stuff. If it is a

5 hassle, I can readily clean this one up.

6 MS. RAEPPLE: I don't have it with me. I

7 can have it delivered.

8 MR. SAXE: Let me just pull these off.

9 BY MR. SAXE:

10 Q Professor Leistritz, I am showing you the

11 contract completion report for the South Florida Water

12 Management District's 20-year evaluation by Hazen &

13 Sawyer, dated August 1993. I am removing some Post-It

14 notes. Here you go.

15 A Okay.

16 Q Is it fair to say that you, and when I say

17 you, I mean, you and RPC and others working to assist

18 Dr. Luke in the preparation of his opinions for trial,

19 performed an economic impact analysis that was in many

20 ways similar to that performed by Hazen & Sawyer and

21 reported in this contract completion report?

22 A Yes.

23 Q I would like you to turn to Section 7 of

24 this report.

25 A Okay.

33

 

1 Q Section 7.1, on page 7-1. I think you are

2 probably at Appendix 7.

3 A Okay, okay.

4 Q It is closer to the front of the document.

5 A Yes. Section 7.

6 Q That's correct.

7 A Yes.

8 Q Section 7.1 says there are seven factors

9 that measure the economic contribution of an industry.

10 And then it lists a number of factors for measuring

11 economic contribution. Would you review those briefly,

12 please?

13 A All right.

14 Q Do you agree that these are seven factors

15 that measure the economic contribution of the

16 agricultural industry in South Florida?

17 A Yes.

18 Q Are there any that are missing from this

19 list?

20 A These appear to be some of the very

21 commonly used indicators of economic impact or economic

22 contribution.

23 Q Are there any factors that measure the

24 economic contribution of the agricultural industry in

25 the EAA that you or RPC analyzed that are not listed

34

 

1 here?

2 A It seems to me that these are probably the

3 major indicators that were analyzed.

4 Q Are there any factors not listed here that,

5 in your opinion, Hazen & Sawyer should have analyzed to

6 comply with the Federal principles and guidelines in the

7 measurement of the economic contribution of the

8 agricultural industry in the EAA?

9 A Again, it seems to me that these are some

10 of the generally accepted major indicators for measuring

11 economic contribution.

12 Q So, would it be fair to say that, in your

13 opinion, there are no missing factors that Hazen &

14 Sawyer should have considered in measuring the economic

15 contribution of the agricultural industry in the EAA?

16 Missing in the sense that they're not listed here?

17 A I don't see any substantial omissions.

18 Q At the bottom of the page, there are two

19 sentences. It says, "The value of sales and earnings

20 are not additive. They represent a different measure of

21 economic contribution."

22 Do you agree with those statements?

23 A Yes.

24 Q On the next page, Section 7.2, methodology

25 for estimating economic impacts. If you would, read the

35

 

1 first paragraph to yourself.

2 A All right.

3 Q Is there anything in that paragraph that

4 you disagree with?

5 A I guess I would probably not agree with the

6 criteria for land being removed from or going out of

7 agricultural production.

8 Q Is that the sentence, "If the sales of a

9 product could not cover at least the cash cost from

10 producing the product, then production of the product

11 ceases on the model farm"?

12 A Yes.

13 Q In the analysis that RPC, and I use RPC

14 broadly, in the analysis that RPC performed, how was

15 that handled?

16 A Okay. As I understand it, in the analysis

17 that RPC performed, the land would go off production at

18 the point where returns were not covering, basically,

19 the full cost of production, including capital

20 replacement; whereas, Hazen & Sawyer is not taking the

21 land out of production until revenues no longer cover

22 what they call the cash cost. They're saying capital

23 replacement is not a cash cost, as I understand it.

24 Q Is it your opinion that land would go out

25 of production when it could not fully cover capital

36

 

1 replacement?

2 A Yes.

3 Q And what is the basis for that?

4 A The basis for that is kind of the economic

5 principal that investors, entrepreneurs, managers, would

6 need to recover their full cost of production in order

7 to stay in production, as economists say, in the long

8 run.

9 Q In your view, land would go out of

10 production in the first year when the owner could not

11 fully cover capital replacement?

12 A That's my understanding of how the RPC

13 modeling addressed the issue, yes.

14 Q And, in your opinion, that is the correct

15 way to address the issue?

16 A Yes.

17 Q And that, in your opinion, would be because

18 in that first year when the owner could not fully cover

19 capital replacement costs, the owner would perceive that

20 they would not be able to cover capital replacement

21 costs in the future, as well?

22 A Right.

23 Q What would that perception be based on, in

24 your view?

25 A That would be based on the producer having

37

 

1 access to the same general type of information that is

2 reflected in the models. Which is to say that the

3 adverse experience that is being experienced in year one

4 is not seen as temporary aberration, but rather a

5 long-term trend.

6 Q Professor Leistritz, let me get this marked

7 as an exhibit.

8 (Deposition Exhibit 1 marked for

9 identification.)

10 BY MR. SAXE:

11 Q Professor Leistritz, I'm handing you what

12 has been marked as Exhibit Number 1. If you would, take

13 a look at that document. You might show it to Ms.

14 Raepple first.

15 A All right.

16 Q If you would, could you identify this

17 document for the record for me?

18 A Yes, this is a memo from Eric Schubert, an

19 RPC employee, to me, copies to Ron Luke and Ed Warren,

20 also, of RPC, dated February 2nd.

21 Q Have you seen this document before,

22 Professor Leistritz?

23 A Yes.

24 Q Would you explain for me what this

25 memorandum was about?

38

 

1 A Okay. The memorandum, basically, addresses

2 the issue that was addressed in your previous question.

3 That is, the appropriate assumptions for land being

4 removed from agricultural production in the EAA, in the

5 face of declining net returns from agricultural

6 production.

7 Q Does this reflect a request from Eric

8 Schubert to you to answer certain questions?

9 A Yes.

10 Q Are those questions described in the second

11 paragraph, under the heading "The timing and conditions

12 of agricultural land leaving production"?

13 A Yes. Yes.

14 Q Looking at the bottom paragraph on page 1,

15 four lines down there is a question: "Does this reflect

16 the true experience of farmers?"

17 Did you formulate an opinion about the

18 answer to that question?

19 A Yes.

20 Q What was that opinion?

21 A That opinion, in fact, was summarized in a

22 memo to --

23 MR. SAXE: Let me mark another one, and see

24 if this is what you are looking for.

25 Would you mark that, please?

39

 

1 (Deposition Exhibit 2 marked for

2 identification.)

3 THE WITNESS: That is the one, yes.

4 BY MR. SAXE:

5 Q Professor Leistritz, referring to what has

6 been marked as Exhibit Number 2, would you identify that

7 for the record for me, please?

8 A Yes. This is a memo from myself to Ron

9 Luke, dated February 6, 1994, responding to the memo

10 from Eric Schubert.

11 Q Going back to the question, "Does this

12 reflect the true experience of farmers," did that refer

13 to the preceding sentence, which reads, on Exhibit 1,

14 "Hazen & Sawyer claims that a farm would operate for a

15 number of years when a farm is losing money, but is

16 covering operating costs by eating depreciation on farm

17 equipment." Then it says, "Does this reflect the true

18 experience of farmers?"

19 In your opinion, does that reflect the true

20 experience of farmers?

21 A Yes. The memo of February 6th attempts to

22 address that issue. And, basically, what we're saying

23 is that in order to be economically viable, the revenue

24 must be sufficient to cover all costs of production and

25 provide a positive residual return of the land and risk.

40

 

1 The costs that must be covered include a capital

2 replacement charge, also often termed depreciation, and

3 it enumerates other costs.

4 Q Can depreciation, also, be considered as a

5 return to investment in machinery?

6 A Not in the usual sense of economic

7 analysis. The depreciation, essentially, can be termed

8 "capital replacement cost."

9 Most investors would want to not only be

10 able to replace their equipment, but, also, in addition,

11 to have some sort of "positive return on their

12 investment." The depreciation is, generally, seen as

13 the cost of replacing the capital goods; the tractors,

14 that sort of thing.

15 Q Do you know how Hazen & Sawyer accounted

16 for depreciation in their analysis? Handled

17 depreciation in their analysis?

18 A Okay. It was my understanding, from

19 reading the report, that they would treat depreciation

20 in the way that I just described. The issue, I think,

21 was the issue of what costs had to be covered in order

22 for the land to stay in production. And they were

23 saying that depreciation did not have to be covered.

24 Did not have to be covered in order for the land to stay

25 in production.

41

 

1 Q Independent of the land use change criteria

2 and the role of depreciation in it, do you know whether

3 Hazen & Sawyer allowed an expense for depreciation in

4 their analysis?

5 A Yes. It is my understanding that they

6 allowed depreciation as one of the expenses of

7 production.

8 Q And how did they calculate depreciation?

9 A I can't describe it to you in detail,

10 certainly without reference to their report. I guess

11 that's the best answer I can give.

12 Q Did you form an opinion of whether Hazen

13 and Sawyer's calculation of depreciation was defective?

14 A I don't recall, on reviewing the report,

15 having questions or concerns about the way in which they

16 calculated depreciation charges.

17 Q How does a farmer know whether he or she is

18 in an aberrational situation involving an inability to

19 cover capital replacement costs, or a long-term trend?

20 A That is, of course, a very good question.

21 And one could say that is what makes management, in this

22 case farm management, a challenge.

23 Q Other than the challenging nature of making

24 that determination for a farmer, is it fair to say that

25 a farmer's decision to leave production would be based

42

 

1 on his or her estimation of whether the first year's

2 inability to cover capital replacement was an aberration

3 or a long-term trend?

4 A Yes. It all goes back to the

5 decision-maker, in this case the farm manager's

6 assessment. Their expectation or their assessment of

7 the future. Which, of course, farm operators often have

8 various sources of market outlook information and other

9 kinds of economic information which they consult, to a

10 greater or lesser extent, prior to making decisions.

11 Q In Exhibit 2, the sentence in the bottom

12 paragraph, above the footnotes, four lines down, it

13 says, "If the information embodied in our models is

14 generally available to the industry, then a producer

15 facing such a negative return situation would understand

16 that the outlook was for residual returns to become even

17 more negative in the future."

18 Have I read that correctly?

19 A Yes.

20 Q What is this information embodied in our

21 models? What information?

22 A In other words, the projections of future

23 prices for the product, likely trends in costs, yields

24 and the like.

25 Q When you say "and the like," could you be

43

 

1 more specific?

2 A Well, all of the various factors that enter

3 into the projections of returns, costs and, hence, net

4 returns from these different agricultural enterprises in

5 the EAA; including prices, yields, major factors in

6 determining gross receipts. A whole array of components

7 on the cost side.

8 Q On the cost side, would that be what you

9 referred to earlier as market outlook information?

10 A The market outlook information would relate

11 to product prices and, hence, to gross revenue. The

12 costs, the whole array of fertilizer, pesticides,

13 herbicides assessments.

14 Q And is that information embodied in the RPC

15 model?

16 A Right.

17 Q Given the historical profit and growth in

18 the EAA for sugar production, would you say that sugar

19 growers should be optimistic or pessimistic about the

20 future outlook?

21 A I guess that would depend on various

22 possible changes in water management, in international

23 sugar policy and the whole array of forces that affect

24 the industry.

25 Q In RPC's analysis, land was taken out of

44

 

1 production in the first year when the model farm owner

2 was unable to cover capital replacement costs; is that

3 correct?

4 A Yes.

5 Q Would that reflect an assumption that in

6 that first year, when the model farm owner was unable to

7 cover capital replacement costs, he or she would

8 perceive that the future outlook for residual returns

9 was negative?

10 A Yes.

11 Q What was that assumption based on in the

12 analysis? The assumption that in the first year where

13 there were negative residual returns that the perceived

14 outlook would be negative?

15 A It is, I guess, based on going back to the

16 principle that profitable production implies the need to

17 cover full cost of production.

18 And, also, based on the assumption that the

19 farm operators, the decision-makers in this case, have

20 access to information regarding the future outlook for

21 the different factors that are going to affect their

22 returns and their costs; such that at the point where

23 returns are no longer covering the full cost of

24 production, they have information available that allows

25 them to formulate accurate expectations. In this case,

45

 

1 accurate expectations that the future is only going to

2 have less favorable returns.

3 Q What information did RPC assume would yield

4 the conclusion in the mind of such a farmer that the

5 future outlook was negative, specifically?

6 A Well, basically, the factors that would

7 affect sugar prices, the knowledge, the schedule of

8 assessments, this sort of thing. And a producer's

9 experience relative to the different costs of

10 production.

11 Q So, would it be fair to say that RPC

12 assumed that in the first year where a model farm was

13 unable to cover capital replacement costs, all revenues

14 would be expected to decline in the future?

15 A I think I'll ask you to repeat the

16 question, sir.

17 Q Did RPC assume that in the first year when

18 a model farm was unable to cover capital replacement,

19 that the information would indicate that all revenue

20 would be expected to decline in the future?

21 A I think what the model is indicating is

22 that net revenues are expected to decline in the future.

23 Q Net revenues being revenue minus costs?

24 A Yes.

25 Q So, what I'm asking you is, was there an

46

 

1 assumption made about the revenue side of that equation?

2 Was there an assumption made about whether revenues

3 would decrease in the future?

4 A I believe the most appropriate way for me

5 to answer the question is to say that I have not been

6 intimately involved in all of the dimensions of the RPC

7 modeling, so I should not speculate on the precise

8 assumptions relative to the revenue and so on.

9 Q So, then, would it be fair to say that you

10 don't have an opinion about whether RPC assumed revenues

11 would decline after the first year in which a model farm

12 was unable to cover capital replacement costs?

13 A I think that is fair, yes.

14 Q Do you have an opinion about whether RPC

15 assumed that costs would increase after the first year

16 in which a model farm became unable to cover capital

17 replacement costs?

18 A Let me respond by saying that, in general,

19 it is my understanding that the model incorporates

20 assumptions of cost, of increasing costs, and I believe

21 revenues that are probably stable in nominal dollars, so

22 that the model definitely embodies assumptions that lead

23 to declining net revenue.

24 Q When you say revenues that are stable in

25 nominal terms, are those revenues declining in real

47

 

1 terms?

2 A With an assumption of a positive rate of

3 inflation, which I'm sure is still incorporated in the

4 analysis, then if revenue is constant in nominal terms,

5 it would be, by definition, declining in real terms,

6 because real in this case relates to inflation adjusted

7 or deflated dollars.

8 Q Would you be testifying to any opinions

9 about the basis for the assumption on the future trend

10 in revenues being stable in nominal terms, but declining

11 in real terms?

12 A I don't think so.

13 Q Would you have formulated any opinion that

14 you would be testifying to concerning the future trend

15 in costs as increasing?

16 A I don't believe so.

17 Q Do you have opinions about the assumption

18 made in RPC's analysis whereby land is taken out of

19 production as soon as total revenue is less than total

20 cost? Do you have an opinion about the soundness of

21 that assumption?

22 A Yes.

23 Q What is that opinion?

24 A Well, my opinion is that that is a

25 reasonable assumption.

48

 

1 Q And to the extent that you haven't already

2 indicated, what is that based on?

3 A Again, really based on the economic

4 principle of the need to cover all costs of production.

5 Q Are you familiar with any other areas and

6 instances in the country where farmers have encountered

7 residual returns that render them unable to fully cover

8 capital replacement costs?

9 A Yes.

10 Q In what areas of the country are you

11 familiar with such situations?

12 A In the Northern Great Plains region,

13 basically, North Dakota and adjacent states, there

14 certainly have been years over the last decade when

15 producers have been in that situation.

16 Q Any others, besides the Northern Great

17 Plains, that you are familiar with?

18 A Well, certainly, that would be the area

19 that I would be most familiar with.

20 Q Have you analyzed responses of farmers in

21 the Northern Great Plains to such situations?

22 A Yes.

23 Q In your analysis, have farmers ever

24 continued to farm even though they can't cover all of

25 their fixed costs?

49

 

1 A Have farmers continued to farm even though,

2 at least in individual years, they were not able to

3 cover their fixed costs? Yes, indeed.

4 Q So, in your analysis, there have been

5 instances where farmers have not taken land out of

6 production in the first year where they were rendered

7 unable to fully cover capital replacement costs?

8 A Yes.

9 Q What differentiated those situations from

10 the situations that farmers in the EAA would be facing,

11 in your opinion?

12 A The expectation that at some time in the

13 foreseeable future, the economic conditions in farming

14 in that region, that is, the Northern Plains, would

15 improve, such that they would be able to cover their

16 costs.

17 Q Why would farmers', in the EAA,

18 expectations not be as optimistic as farmers in the

19 midwest about the future ability to cover capital

20 replacement costs?

21 A The assumption with respect to the EAA is

22 that producers there will be familiar with or will,

23 essentially, have an assessment of future market

24 conditions and cost conditions that are consistent with

25 the assumptions that are built into the model.

50

 

1 Q Well, would it be fair to say that farmers

2 in the EAA, in RPC's assumption, would have no reason to

3 be optimistic in a way that farmers in the midwest have

4 sometimes had in your analysis?

5 A Yes.

6 Q Is that assumption taken simply as an

7 axiom, or is it based on some rationale, or any other

8 alternative that you might care to supply to that

9 answer?

10 A I guess maybe I'll ask you to restate the

11 question.

12 Q Is there a rationale for the assumption

13 that farmers in the EAA would have reason to be

14 pessimistic about the future trend in residual returns

15 that would explain why they would behave differently

16 than farmers in the midwest facing the same situation?

17 A Probably one thing that I could point to

18 would be the fact that producers in the midwest, dealing

19 in wheat, small grains and feed grains, have

20 traditionally been dealing in commodities, whose prices,

21 at least partially, are determined by international --

22 well, there have, at least at times, seemed to be

23 reasons to think that "international market conditions

24 might improve" and things of that nature. And perhaps

25 the EAA producers are dealing with a situation where

51

 

1 their product price is more controlled by government

2 policy.

3 Q Okay, let's take that for a moment, and

4 I'll assume that is not an exhaustive list.

5 So, then, would it be fair to say that that

6 rationale involves what you referred to earlier as the

7 stable real price for raw sugar?

8 A Yes.

9 Q If you would, turn to page 4-4 in the

10 contract completion report for the 20-year Hazen &

11 Sawyer study.

12 A All right.

13 (Discussion off the record.)

14 MR. SAXE: Carolyn, the United States would

15 propose a stipulation. Rather than marking three

16 volumes of the Hazen & Sawyer 20-year contract

17 completion report as an exhibit in this case,

18 that it be stipulated that these are the same

19 three volumes as were marked as Exhibits 3, 4 and

20 5 in the Luke deposition of March 4th and 5th.

21 MS. RAEPPLE: That's fine.

22 BY MR. SAXE:

23 Q Professor Leistritz, the second paragraph

24 refers to the sugar program and to the prices supported

25 by the Federal Government. Are these the factors that

52

 

1 you alluded to earlier in describing the stable real

2 price? Or, excuse me, the stable nominal price of

3 sugar?

4 A Yes.

5 Q There is a sentence at the end of this

6 paragraph, the last sentence in paragraph 2. Would you

7 read that into the record for me, please?

8 A Okay. This is the sentence that begins

9 with "however"?

10 Q Yes, sir.

11 A "However, given that farm programs to

12 support farm income have existed for the past 58 years,

13 and that international trade agreements may not affect

14 sugar prices in the near term, it is not unreasonable to

15 assume that they will continue in their present form

16 through the 1990s."

17 Q Would you agree with that statement?

18 A I guess that they, in this case, refer to

19 farm programs, and, more specifically, to the sugar

20 program. So, yes, I think that is, basically, then what

21 Hazen & Sawyer is assuming, which is, also, consistent

22 with what was assumed in the RPC analysis. That the

23 sugar program, essentially, continues in the present

24 form through the 1990s, as I read it.

25 Q Do you have an opinion on whether the

53

 

1 current sugar price support program is operated to

2 prevent defaults on non-recourse loans to sugar

3 producers?

4 A I think I would answer by saying that I

5 have not really been asked to formulate opinions about

6 the sugar program, so I think my answer is, I don't

7 know.

8 Q So, then, would it be fair to say that you

9 don't know or you don't have an opinion on whether the

10 assumption about stable nominal price and declining real

11 prices is likely to occur or not likely to occur?

12 A Yes.

13 Q Is it true that North Dakota wheat farmers

14 are replacing wheat with sugar beets?

15 A In the Red River Valley of eastern North

16 Dakota, we produce a substantial acreage of sugar beets.

17 In the area that is suited for sugar beet production,

18 sugar beets, in recent years, have been probably a more

19 profitable crop than wheat.

20 It is my understanding that our acreage in

21 the Red River Valley area is relatively stable. I don't

22 believe we have had any kind of major changes in acreage

23 in recent years. There are year-to-year fluctuations,

24 but in recent years sugar beets have been a more

25 profitable crop than wheat, certainly.

54

 

1 Q Do you know whether farmers in other areas,

2 wheat farmers in other areas, have been switching to

3 sugar beets?

4 A I guess I don't have an opinion about sugar

5 beet acreage trends in other areas of the country.

6 Q In your opinion, does the switching that

7 has occurred in North Dakota from wheat to sugar beets

8 reflect optimism about the sugar market?

9 A Yes.

10 Q Do you think that a North Dakota farmer

11 would rather have a government price support program

12 like that for sugar or have a government program like

13 that for wheat?

14 A I don't think I have an opinion on that.

15 Q Do you know how many sugar farmers elected

16 to terminate production in 1981 in the EAA?

17 A No.

18 Q Do you know whether sugar farmers in the

19 EAA in 1981 had negative returns, residual returns?

20 A No, I don't.

21 Q Hypothetically, if sugar farmers in the EAA

22 had negative residual returns in 1981, and significant

23 numbers of them did not take land out of sugar

24 production, why might they not have done so, in your

25 view?

55

 

1 A The reason they would not do so would be

2 that their expectation with regard to future returns was

3 that future returns would be more favorable.

4 Q And what would cause them to have been

5 optimistic in 1981 that, in your opinion, would be

6 different at some point in the next 20 years in a

7 similar circumstance?

8 A I guess I have to say I'm not familiar with

9 the circumstances that were extant in 1981.

10 Q In referring to Exhibit 2, can you give me

11 any real life examples of significant numbers of farms

12 or farmers electing to take land out of production in

13 the first year where they were unable to fully cover

14 capital replacement costs?

15 A In North Dakota, we had, I guess, probably

16 several thousand producers who enrolled part or all of

17 their land into a government program called Conservation

18 Reserve Program. This would be during the period 1986,

19 roughly, through 1990. Something approaching three

20 million acres were then taken out of agricultural

21 production and put into the Conservation Reserve Program

22 during that period.

23 Q Did you say three million acres?

24 A Yes.

25 Q Can you explain why the farmers or owners

56

 

1 of those three million acres made that election in that

2 circumstance?

3 A Well, yes. Based on a survey of quite a

4 number of these people that we conducted in 1988, I

5 guess it was, basically, these producers were seeing the

6 government Conservation Reserve Program as offering a

7 higher return in net income to them from their land than

8 they had anticipated being able to achieve by farming or

9 renting the land. And/or they, also, saw the

10 Conservation Reserve Program as offering a lower level

11 of risk, compared to continuing to farm the land.

12 Q Did farmers associated with those three

13 million acres have to liquidate the farming operation

14 under that circumstance?

15 A In some cases, as near as we could

16 determine, enrolling land in the Conservation Reserve

17 Program was part of an overall plan to, basically,

18 liquidate the farming operation, get out of farming.

19 In some cases, it was part of a plan to,

20 basically, retire. In other cases, it was part of a

21 plan to get out of farming and look for another

22 occupation. And in many cases, it was a situation where

23 some producers put part of their land into the CRP. And

24 CRP is shorthand for Conservation Reserve Program.

25 In many cases, the producer enrolled part

57

 

1 of their land in the Conservation Reserve Program and

2 continued to farm the rest.

3 Q What is the relative proportions that

4 you -- did you make any determination, or do you have

5 any basis for --

6 A We do, and I would have to look at the

7 research report that we prepared.

8 Q Well, did the majority liquidate?

9 A I would say, no. The majority were

10 enrolling a portion of their land in Conservation

11 Reserve, and continuing to farm the remainder.

12 Q What happened to the land where the farmers

13 did liquidate?

14 A What happened, the land was placed in the

15 Conservation Reserve Program, and it is, basically, the

16 same, regardless of what the owner-operator chose to do.

17 That is, the land, via the directives of the program, is

18 placed in a permanent cover; basically, grass. And the

19 owner-operator, also, has responsibilities to control

20 weeds and this sort of thing.

21 Q When you say permanent, would that be for

22 the duration of the contract?

23 A Yes, a 10-year contract.

24 Q So, it would actually be a 10-year period,

25 not a permanent period?

58

 

1 A Right.

2 Q What, in your opinion, will happen to the

3 CRP acreage when the contracts expire?

4 A I think the appropriate answer is, I don't

5 know. I might add that an awful lot of folks up in our

6 part of the country are asking that question these days.

7 Q Let me ask it this way: Is the

8 determination that those folks will have to make, in

9 fact, the same type of determination that the farmers in

10 the EAA have to make when residual returns render them

11 unable to cover capital costs; namely, what the future

12 outlook is for the residual returns?

13 A Yes.

14 Q What would you, as a resource economist,

15 with expertise in that kind of subject matter, think

16 would be likely of those CRP farmers if they are fully

17 rational and have good information?

18 A I would anticipate that the landowners

19 would, basically, take a look at the different

20 alternatives at the point that the contract expires.

21 You know, one alternative is to return the

22 land to crop production. If, in fact, crop prices are

23 high, net returns from crop production are more

24 favorable than from other uses of the land. Much of the

25 land very likely might return to crop production.

59

 

1 Another factor or another option would be

2 for the producer to leave the land in grass, utilizing

3 it for grazing and/or hay production.

4 So, these choices, I would anticipate,

5 would be really based on the producer's outlook and

6 expectation relative to net returns from different uses

7 at the point in time when they need to make that

8 decision.

9 Q In your opinion, given what you know now

10 about those factors, what would be the rational decision

11 to make if the contract were to expire this year?

12 A It would seem to me, and, again, I'll

13 reflect on the situation of the Conservation Reserve

14 Program acres in North Dakota, which would be the area

15 that I would have some understanding of, it would seem

16 to me that the rational decision is going to depend

17 on -- some will probably put the land back into crop

18 production, others might very well leave it in

19 grassland. But then they would be utilizing it for

20 livestock production in one way or another as pasture or

21 hay land.

22 Q Which would be the sounder decision, in

23 your opinion?

24 A It would depend on the characteristics of

25 the land. It would, also, depend on the situation for

60

 

1 the farm operator.

2 Q Do you know how much farmers were paid per

3 acre to enroll in the CRP in North Dakota?

4 A Again, those statistics are available in

5 considerable detail. It strikes me that at the time,

6 when much of the land was being signed up, it was

7 perhaps on the order of $40. It strikes me that an

8 awful lot of it was in the range of 35 to $45.

9 Q Do you know how that amount compared with

10 the farmers' net returns to lands at that time?

11 A Well, many of them, at least taking into

12 account the perceptions of the risk and so on, many

13 producers saw this as a better return, a more favorable

14 return, than what they could obtain by farming or

15 renting the land.

16 Q Do you know how that figure, I think you

17 used 35 to $40 an acre, compared with their variable

18 costs at the time?

19 A Not off the cuff, no.

20 Q Fixed costs?

21 A Well, again, that would differ by the part

22 of the state. It would differ by what crops were being

23 produced and so on. But, in general, the CRP payments

24 were often equal or greater than what was being

25 experienced for net returns for the crop production.

61

 

1 Q Do you know what became of the land placed

2 in the Land Bank of several years ago after contracts

3 expired?

4 A In the Land Bank in North Dakota, we can

5 tell you in general terms. And, in general terms, these

6 contracts were expiring in the early 1970s, I guess. A

7 high percentage of that land went back into crop

8 production. That was a period of relatively high crop

9 prices.

10 That which did not go back into crop

11 production, apparently, was used for hay and

12 pastureland. I have not seen any kind of a statistical

13 study to say what the percentages were in North Dakota,

14 or, for that matter, nationwide. But, in general terms,

15 in North Dakota, a very substantial percentage went back

16 into crop production.

17 Q Going back to Exhibit Number 2, and the

18 sentence, "A reasonable response by the producer would

19 be to liquidate the farming operation under such

20 circumstances," at the bottom of the first page and the

21 top of the second page, I asked you earlier about any

22 real life examples, and you gave me the CRP example in

23 North Dakota.

24 Are there any others, that you are aware

25 of?

62

 

1 A Okay.

2 Q Would you like me to clarify the question?

3 A Yes.

4 Q Let me do that.

5 Other than land availing itself to the CRP

6 program in North Dakota, are you familiar with any

7 examples, real life examples, where significant acreage

8 has elected to liquidate production in the first year

9 where it is faced with an inability to fully cover

10 capital replacement costs?

11 A I guess the question seems to have two

12 parts. One part is, can we identify major instances

13 where agricultural production was not able to cover full

14 costs and leave a residual return to land and

15 management?

16 And then the second part of that question

17 would be, in those cases are there examples of,

18 basically, people liquidating in the first year?

19 As I read it, again, it is kind of an

20 empirical question, I don't believe that in our major

21 crop producing areas, for instance, in the Northern

22 Great Plains, we have really had extended periods when

23 production would not, basically, cover costs and leave

24 some positive return to land and management.

25 Q When you say extended periods, my question

63

 

1 is examples of instances where significant acreage left

2 production in the first year, where the farmer or owner

3 was unable to fully cover capital costs. So, I'm not

4 sure, when you say extended periods, if you are

5 answering my question. Would you like me to restate the

6 question?

7 A I guess my answer should be, no, I don't

8 know. That is, I would not be able to demonstrate

9 instances of major amounts of land leaving production

10 after one year of returns inadequate to cover costs.

11 Q How about significant amounts of acreage

12 leaving production. When you say major, I'm not sure if

13 maybe we're getting hung up on the qualifier.

14 Are you aware of any examples where what,

15 in your opinion, would be a significant volume of

16 acreage in production left production in the first year,

17 where there was an inability to fully cover capital

18 replacement costs?

19 A Again, I guess that the answer should be,

20 no, I don't know of specific examples.

21 Q Returning, again, to this Exhibit Number 2,

22 the sentence, "A reasonable response by the producer,"

23 the example that you gave me involved a government

24 program, where the producer was paid to take land out of

25 production.

64

 

1 A Yes.

2 Q In your opinion, might a reasonable

3 response by a producer to liquidate depend, to some

4 extent, on the availability of a government program such

5 as CRP?

6 A Oh, yes, that would definitely have an

7 effect.

8 Q Might a producer reasonably decide to

9 liquidate even where there were no such government

10 program paying the producer to take land out of

11 production?

12 A In a situation where returns don't cover

13 costs, that remains the rational response.

14 Q In order for a producer's election to

15 liquidate in such circumstances, namely, the first year

16 where they're unable to fully cover capital replacement

17 costs, to reasonably make that election, would it

18 require that there be some market available for the

19 assets that would be liquidated?

20 A Okay. The availability of a market for the

21 assets certainly would have an influence on a decision

22 to liquidate. Yes, machinery and that sort of thing.

23 If there was a "strong market" for those assets, that

24 would be a positive for liquidating, versus if it is

25 perceived that there is very little market. Some

65

 

1 economists would say, with very little salvage value to

2 some of those investments, that would favor a decision

3 to let's hang in there and see if things get better.

4 Q Which investments would have to be

5 liquidated in the EAA in the instance of sugar

6 production?

7 A Well, the producer's major capital

8 investments would include land, if it is owned. And

9 then the various production equipment, machinery, the

10 different tractors, tillage equipment and so on.

11 Q Did RPC make an assumption about the

12 existence of a market for the land in the first year

13 where a model farm became unable to fully cover capital

14 costs?

15 A I think the appropriate answer is -- maybe

16 the appropriate answer is, I don't know.

17 Q In your view, would RPC have had to make

18 such an assumption in order to soundly handle land going

19 out of production in the way it did? Namely, that it

20 went out of production in the first year, where it was

21 unable to fully cover capital replacement costs?

22 A I think the answer has to be, yes. That

23 is, some kind of assumption has to be made.

24 Q What kind of assumption would have to be

25 made in order for that to be a reasonable treatment of

66

 

1 the land use change criteria?

2 A You are asking for my opinion of the

3 assumption that one would make about the marketability

4 of the land at a point where the returns from production

5 no longer covered the full cost of production?

6 Q That's right.

7 A It seems to me that the assumption that I

8 would make under those conditions would be that the land

9 would, basically, have a zero value as an agricultural

10 asset, because agricultural production no longer

11 provides any positive return to the land.

12 Q What kind of market would there have to be

13 for land having zero market value?

14 A Again, I guess you are asking for my

15 opinion. It seems to me, logically, that there are two

16 possibilities. One is, the land simply stands idle,

17 because in a situation where agricultural production can

18 no longer cover the cost of production, no one wants to

19 farm it.

20 And we, of course, have had, historically,

21 some examples of that kind of situation in different

22 parts of the country.

23 But the other possibility is that the land

24 goes into some other non-agricultural use, I'm not sure

25 what that is, in the EAA.

67

 

1 In northern Minnesota, returning to forest

2 was an alternative use that happened to substantial

3 amounts of land a couple of generations ago.

4 Q Would it be correct to say that RPC had to

5 assume, in its treatment of the criterion for land

6 leaving production, based on the inability to fully

7 cover capital replacement costs, that in that first

8 year, where that situation obtained, the land value fell

9 to zero?

10 A I think I'll ask you to restate the

11 question.

12 Q Would it be correct that RPC's treatment of

13 land leaving production in the first year, where there

14 was an inability to fully cover capital replacement

15 costs, included the assumption that in that year the

16 land value fell to zero?

17 A It doesn't seem to me that the assumption

18 of the land value falling to zero is critical to the RPC

19 model. It does, however, seem to me to be a logical

20 conclusion, given a situation of an outlook for returns

21 from production not covering costs.

22 Q With respect to the market for machinery

23 and equipment, in order for a producer to reasonably

24 decide to liquidate in the first year, where he or she

25 was unable to fully cover capital replacement costs,

68

 

1 would there have to be some market for the equipment and

2 the machinery?

3 A Certainly, some market for the equipment

4 and machinery would be a factor that would certainly

5 favor and encourage liquidating. The lack of a market

6 for the equipment and machinery would work against a

7 decision to liquidate immediately.

8 Q What price would a producer have to be able

9 to obtain for the equipment and machinery in order for

10 it to still be a reasonable decision to leave production

11 in the first year, where he or she was unable to fully

12 cover capital replacement costs?

13 A What price would they need to be able to

14 receive? It seems to me that probably the answer to

15 that should be that they should be able to obtain a

16 price equal to the undepreciated value of the machinery.

17 Q So, then, would it be fair to say that, in

18 your opinion, a producer, faced with zero land value,

19 and a market price reflecting the undepreciated value of

20 the machinery and equipment, would reasonably decide to

21 leave production in the first year, where he or she was

22 unable to fully cover capital replacement costs?

23 A Yes. Given an expectation that if they

24 don't expect things to get significantly better in the

25 foreseeable future, then that would be a very rational

69

 

1 decision.

2 Q Describe for me, again, in your own words,

3 how you describe the price that a producer would have to

4 be able to obtain for the machinery and equipment in

5 such an instance to reasonably decide to leave

6 production. Was it undepreciated? How did you --

7 A What I said was the undepreciated value.

8 That is, the value at which it is carried on the books,

9 so to speak. Acquisition cost, less previous

10 depreciation.

11 Q If a producer could not get the

12 undepreciated value of machinery and equipment at that

13 instance, might the producer reasonably elect to

14 continue in production, even though it had encountered

15 the first year in which it was unable to fully cover

16 capital replacement costs?

17 A The question is, might it be rational to

18 continue in production, even though not covering capital

19 replacement costs, if, in fact, the machinery assets of

20 this sort have very little "salvage value"?

21 Q Well, not necessarily very little salvage

22 value. Salvage value less than the undepreciated value

23 of the machinery and equipment.

24 A I think the answer probably should be, yes,

25 under some circumstances it might appear reasonable to.

70

 

1 The answer should be, yes.

2 Q Is there a relationship between the

3 shortfall in the market price for the machinery and

4 equipment and the shortfall in covering capital

5 replacement costs that govern whether it is a reasonable

6 decision to continue to produce or take it out of

7 production?

8 A The basic thing is, as I tried to outline

9 in the memo, is, basically, what costs are seen as fixed

10 and what costs are seen as variable. So that in a

11 short-run situation where we produce, we can cover

12 variable costs. But at some point, with a longer

13 planning horizon, all costs can be seen as variable.

14 Q And what determines the relationship

15 between the length of the planning horizon and whether

16 capital replacement costs are treated as variable or

17 fixed?

18 A Well, basically, the point at which one has

19 to, in fact, make capital replacement decisions. It

20 seems to me that the difficult issue is that while farm

21 machinery has a multiple year, useful life, a typical

22 farm probably does not start at year one with all new

23 machinery, such that nothing needs to be replaced until

24 a year or quite a ways down the road. Rather,

25 typically, some sort of capital replacement decisions

71

 

1 seem to come up almost annually.

2 Q If a farmer did have all new machinery and

3 equipment, would the farmer still leave production in

4 the first year if they were unable to fully cover

5 capital replacement costs?

6 A I guess that would depend on the question

7 that you previously asked about what are the

8 possibilities for recovering -- what can we obtain by

9 liquidating our assets?

10 Q As increasing numbers of sugar farmers go

11 out of production, do you know what would happen to the

12 price of their used machinery and equipment?

13 A One way to answer would be to say, no, I

14 don't know what would happen.

15 If you are asking for an opinion --

16 Q Yes.

17 A -- then, again, at least two factors would

18 be applicable. One would be how many people are going

19 out of production; hence, how much equipment are they

20 likely to be liquidating?

21 A second factor would be to what extent is

22 this machinery or equipment specialized for sugar

23 production, as opposed to being usable for producing

24 other crops.

25 Some of the equipment used in the sugar

72

 

1 cane production is, obviously, highly-specialized.

2 Other items of equipment probably can readily be used by

3 other types, you know, vegetable growers, outside of the

4 EAA and so on.

5 Q Do you have an opinion about what would

6 happen in the EAA to the market prices for used sugar

7 machinery and equipment in circumstances where

8 increasing numbers of sugar farmers were liquidating?

9 A If substantial numbers were liquidating,

10 then one would anticipate that prices for the equipment

11 that is highly-specialized for sugar production, my

12 opinion would be that those prices would tend to be

13 depressed; more so than the equipment, tractors and the

14 like, that might be readily used for other kinds of

15 agricultural production.

16 Q Do you have an opinion about the types of

17 machinery and equipment that are used in sugar

18 production with respect to how much of it is

19 highly-specialized and how much of it is transferable to

20 other crop production?