03/15/2017 01:00 PM House RESOURCES

         HB  46-PROCURE AK FISH/AG PROD.; ALASKA GROWN                                                                      
                                                                                                                                
4:10:44 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  JOSEPHSON announced  that the  first order  of business                                                               
would be  HOUSE BILL NO.  46, "An Act  relating to the  state and                                                               
municipal  procurement  preferences   for  agricultural  products                                                               
harvested  in  the  state and  fisheries  products  harvested  or                                                               
processed  in the  state;  relating  to the  sale  of milk,  milk                                                               
products, raw milk,  and raw milk products; and  providing for an                                                               
effective date."   [Before the  committee was  Sponsor Substitute                                                               
for House Bill 46, read across the House floor on 3/8/17.]                                                                      
                                                                                                                                
4:10:51 PM                                                                                                                    
                                                                                                                                
CO-CHAIR GERAN TARR, Alaska State  Legislature, as prime sponsor,                                                               
informed  the   committee  HB  46  amends   the  Alaska  products                                                               
preference statute  and gives receipt  authority to  the Division                                                               
of Agriculture,  Department of Natural  Resources (DNR),  so that                                                               
it may market  the Alaska Grown logo on certain  items to support                                                               
its  operations.   She  said  a short  history  of  the topic  is                                                               
included  in the  committee packet,  noting that  there are  many                                                               
organizations  in the  state interested  in agriculture  issues -                                                               
including  the Alaska  Farm Bureau,  Inc. (Farm  Bureau) and  the                                                               
Alaska Food  Policy Council -  that are working on  food security                                                               
and  improving opportunities  in the  agriculture industry.   The                                                               
organizations  brought  to  her  attention  the  Alaska  products                                                               
procurement  preference statute  [AS 29.71.040],  which currently                                                               
establishes a 7 percent preference.                                                                                             
                                                                                                                                
CO-CHAIR  TARR explained  state  procurement  rules require  that                                                               
purchases using state dollars must  be for the lowest cost items.                                                               
However, the product preference  statute was enacted to recognize                                                               
that Alaska  Grown agricultural and fisheries  products cost more                                                               
than those purchased  Outside due to economies of  scale and food                                                               
distribution systems.   To complete  the research needed  for the                                                               
bill, in 2014  she submitted an audit request  to the Legislative                                                               
Budget  and  Audit Committee,  and  the  audit [provided  in  the                                                               
committee  packet,  labeled  Audit  Control  Number  02-30080-15,                                                               
7/10/15, 2015], concluded that the  existing 7 percent preference                                                               
is  not enough  of a  deferential to  provide an  opportunity for                                                               
purchasing Alaska Grown products, and  she gave an example.  Page                                                               
20  [Exhibit 5]  of  the  audit showed  prices  for Alaska  Grown                                                               
products compared  to non-Alaska  items may be  up to  30 percent                                                               
more.  The  audit also concluded that  the procurement preference                                                               
statute  is  not  well-understood,  and  the  sponsor,  with  the                                                               
guidance of the Farm Bureau, seeks  to ensure more farmers are on                                                               
the  list of  vendors  and  to keep  information  current on  the                                                               
availability  of their  products.   As  an  aside, Co-Chair  Tarr                                                               
noted that a  state procurement officer is working  to update the                                                               
request  for proposal  (RFP) to  clarify  the product  preference                                                               
statute and thereby encourage proposals from local applicants.                                                                  
                                                                                                                                
CO-CHAIR TARR, returning to the  bill, stressed that individuals,                                                               
the state, and municipalities spend  billions of dollars on food,                                                               
and  purchasing  food  produced  in  Alaska  is  good  for  local                                                               
economies, local  businesses, and is healthier.   Because relying                                                               
on  sales at  farmers'  markets is  a  challenge, Alaska  farmers                                                               
broaden   their  customer   base   through  community   supported                                                               
agriculture (CSA)  programs.  However,  if the state were  to act                                                               
as an "anchor tenant" and  significantly increase demand, farmers                                                               
could grow  more and rely  on a contract  from a state  entity to                                                               
purchase their fresh  produce.  Thus, [sections 2-5]  of the bill                                                               
raise preference percentages from 7  percent to 15 percent, which                                                               
may enable  business owners to  provide high volumes  of products                                                               
for a stable  customer.  Turning attention to [section  1] of the                                                               
bill, she  said all the  state agencies are  seeking efficiencies                                                               
and methods  to decrease  state funding.   However, DNR  does not                                                               
have receipt  authority, and  thus receives  no benefit  from the                                                               
licenses it grants to private businesses  for the use of the very                                                               
popular Alaska  Grown logo; the  bill gives DNR the  authority to                                                               
market merchandise directly through  the Division of Agriculture,                                                               
in  the  same  manner  as  the  Division  of  Parks  and  Outdoor                                                               
Recreation (Alaska State Parks), DNR.                                                                                           
                                                                                                                                
4:21:47 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  PARISH  asked  how much  more  economic  activity                                                               
would result from  local food purchases that would  be enabled by                                                               
the legislation.                                                                                                                
                                                                                                                                
CO-CHAIR TARR responded that if  Alaskans bought $5 more per week                                                               
of  Alaska Grown  products,  it would  bring  an additional  $188                                                               
million into the Alaska economy.   Currently, Alaskans spend over                                                               
$4.5 billion each year on food,  but spend only 5 percent on food                                                               
produced in  the state.  At  one point Alaskans produced  over 50                                                               
percent of  the food consumed  in the state,  and now there  is a                                                               
renewed  interest in  supporting local  farmers through  sales at                                                               
farmers' markets.                                                                                                               
                                                                                                                                
REPRESENTATIVE  BIRCH  asked  for clarification  on  whether  the                                                               
state, school  districts, and municipalities are  required to pay                                                               
a 15 percent premium on affected products.                                                                                      
                                                                                                                                
CO-CHAIR   TARR   said  there   is   no   requirement  that   the                                                               
aforementioned  entities  would  have to  purchase  Alaska  Grown                                                               
products,  or  to  purchase  a   15  percent  volume  of  certain                                                               
products; the  bill permits  said entities  to choose  other than                                                               
the lowest cost item if it is an Alaskan Grown product.                                                                         
                                                                                                                                
REPRESENTATIVE  BIRCH estimated  a  15  percent preference  would                                                               
cost  entities "$100  million  in  mark-ups, if  you  will."   He                                                               
opined the merits  of Alaska Grown products  sell themselves, and                                                               
he cautioned against  compelling the state, a  municipality, or a                                                               
school district to pay a premium and jeopardize its budget.                                                                     
                                                                                                                                
CO-CHAIR  TARR agreed  that entities  should not  be required  to                                                               
participate.                                                                                                                    
                                                                                                                                
4:26:34 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE JOHNSON  asked for  an estimate  on the  volume of                                                               
products   that   are  purchased   at   7   percent  "above   the                                                               
competition."                                                                                                                   
                                                                                                                                
CO-CHAIR TARR  returned attention to  page 20 [Exhibit 5]  of the                                                               
above referenced audit,  and pointed out the  amount purchased at                                                               
7  percent is  minimal  because 7  percent is  too  low, and  she                                                               
further  described  the  preference  program.    [To  provide  an                                                               
example  of why  7 percent  is too  low] she  explained that  the                                                               
audit indicated that the price  for Alaska Grown broccoli is over                                                               
30  percent higher  than broccoli  from an  Outside source.   Her                                                               
research indicated  that the increase  to 15 percent  would allow                                                               
entities to  "spend a  few dollars more  to purchase  this Alaska                                                               
Grown product."                                                                                                                 
                                                                                                                                
REPRESENTATIVE  DRUMMOND   observed  that  denser   products  are                                                               
cheaper; in  fact, Alaska  Grown potatoes  are almost  50 percent                                                               
cheaper than  imported.  She  stated her support and  related her                                                               
experience that  Alaska procurement  preference is  unlawful when                                                               
pertaining to products that are  not manufactured in Alaska.  She                                                               
added  that Alaska  Grown products  are healthier,  and with  the                                                               
price savings  on carrots, cabbages, and  potatoes, buyers should                                                               
be able to make up for the difference in price.                                                                                 
                                                                                                                                
REPRESENTATIVE RAUSCHER expressed his interest in the bill.                                                                     
                                                                                                                                
REPRESENTATIVE  JOHNSON  directed  attention  to  Section  5  and                                                               
questioned  whether a  15 percent  preference needs  to apply  to                                                               
fish.                                                                                                                           
                                                                                                                                
CO-CHAIR TARR explained both  fisheries and agricultural products                                                               
are  in the  same  section  of existing  statute,  so  yes.   She                                                               
recalled there was a special  grant program for school districts'                                                               
lunch  programs, which  was expanded  to  include fish  products;                                                               
however, grant dollars were applied to both.                                                                                    
                                                                                                                                
REPRESENTATIVE   JOHNSON   cautioned   against   the   government                                                               
supplementing its  income by competing against  local businesses,                                                               
because  the government  is  an unfair  competitor  to a  private                                                               
individual.  Her general stance is  that it is an unfair business                                                               
practice for government to compete against a private individual.                                                                
                                                                                                                                
CO-CHAIR TARR  acknowledged the same concern  arose pertaining to                                                               
previous legislation  affecting Alaska State Parks.   She pointed                                                               
out  private  manufacturers  would  produce  products  for  state                                                               
entities to market  at a slight increase in price.   In addition,                                                               
a  strong  marketing  program  raises   interest  in  aspects  of                                                               
government such as state parks.                                                                                                 
                                                                                                                                
4:35:44 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE TALERICO also  recalled the legislature's approval                                                               
last year  of the  [marketing receipt]  license for  Alaska State                                                               
Parks and acknowledged [the state  marketing of merchandise] is a                                                               
sensitive issue.                                                                                                                
                                                                                                                                
CO-CHAIR  TARR  informed the  committee  the  Alaska State  Parks                                                               
legislation  was chosen  as  a model  for HB  46  because it  was                                                               
highly  scrutinized; however,  any program  is subject  to future                                                               
review.   She related how  interest in agriculture  has increased                                                               
in the past 20 years.                                                                                                           
                                                                                                                                
REPRESENTATIVE BIRCH inquired as to  what revenues are derived by                                                               
the state from [agriculture].                                                                                                   
                                                                                                                                
CO-CHAIR TARR  replied that the Plant  Materials Center, Division                                                               
of Agriculture,  DNR, provides  inspections of  forestry products                                                               
for export and inspections of  seed potatoes, which are necessary                                                               
to ensure seed potatoes are disease-free.                                                                                       
                                                                                                                                
REPRESENTATIVE BIRCH  directed attention to  the bill on  page 2,                                                               
line 2, which read [in part]:                                                                                                   
                                                                                                                                
     from either an Alaska bidder or a person that employs                                                                      
     prisoners                                                                                                                  
                                                                                                                                
REPRESENTATIVE  BIRCH  inquired  as  to the  "backstory"  of  the                                                               
foregoing language.                                                                                                             
                                                                                                                                
CO-CHAIR  TARR  advised  at  one  time  the  state  had  stronger                                                               
programs  for people  incarcerated  and  working in  correctional                                                               
industries.   For  example, there  are people  working in  a meat                                                               
packing facility and there is  a program for low-risk individuals                                                               
to work in fishing processing on the Kenai Peninsula.                                                                           
                                                                                                                                
REPRESENTATIVE PARISH  asked for  affirmation that in  section 1,                                                               
the bill provides  the commissioner of DNR with  the authority to                                                               
sell  Alaska   Grown  trademarked  goods,  and   to  license  the                                                               
trademark, for a  fee, to private businesses in  order to provide                                                               
an incentive to market the trademark.                                                                                           
                                                                                                                                
CO-CHAIR  TARR  clarified  that a  marketer  must  have  specific                                                               
receipt authority [in order to market trademarked merchandise].                                                                 
                                                                                                                                
4:41:19 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE PARISH  continued that  the remainder of  the bill                                                               
provides authority  to municipalities, schools, and  the state to                                                               
purchase  Alaska  Grown  products  at  a  slightly  higher  price                                                               
differential.   He questioned the  sponsor's 30  percent estimate                                                               
pertaining  to  the  growth of  local  economies,  because  local                                                               
economies  would  not grow  only  by  $750  million, due  to  the                                                               
"multiplier  effect after  that"; in  fact, there  would be  more                                                               
farmers able to purchase goods and  services, and he asked if the                                                               
multiplier, and the number of jobs created thereby, are known.                                                                  
                                                                                                                                
CO-CHAIR TARR  observed that  a firm  would need  to be  hired to                                                               
assess the  multiplier effect; however,  the factors  provided in                                                               
the  sponsor statement  reflect statewide  Alaska purchasing  for                                                               
individuals, institutions, municipalities,  and school districts.                                                               
She spoke of the potential  benefit [of increased agriculture and                                                               
fisheries] on the  younger generation of Alaskans,  and those who                                                               
live and work in agriculture.                                                                                                   
                                                                                                                                
REPRESENTATIVE JOHNSON  redirected attention to the  bill on page                                                               
2,  line  2  [text  previously provided]  and  asked  whether  AS                                                               
33.30.191(b) relates to Alaskan prisoners.                                                                                      
                                                                                                                                
CO-CHAIR TARR said yes.                                                                                                         
                                                                                                                                
REPRESENTATIVE  RAUSCHER inquired  as to  the DNR  commissioner's                                                               
opinion of the bill.                                                                                                            
                                                                                                                                
CO-CHAIR TARR said  the commissioner of DNR, the  director of the                                                               
Division  of Agriculture,  and staff  have indicated  support for                                                               
the bill.                                                                                                                       
                                                                                                                                
4:45:18 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  RAUSCHER asked  how many  prisoners are  employed                                                               
statewide.                                                                                                                      
                                                                                                                                
CO-CHAIR TARR  explained there  are fewer  programs of  this type                                                               
than in the past due to  budget cuts; she added that the programs                                                               
provide  training  for  prisoners  and would  hopefully  lead  to                                                               
gainful employment and less recidivism.                                                                                         
                                                                                                                                
REPRESENTATIVE  RAUSCHER reported  Sutton has  utilized prisoners                                                               
and agreed they need an opportunity to work in society.                                                                         
                                                                                                                                
REPRESENTATIVE DRUMMOND, speaking as  a graphic designer, assured                                                               
the committee the Alaska Grown  logo produced for the Division of                                                               
Agriculture earned a  high price, and added  that digital artwork                                                               
deteriorates and  requires money  to maintain  its quality.   She                                                               
stated the fact  that Alaska only produces 5 percent  of the food                                                               
consumed in the  state is a food safety and  food security issue,                                                               
and importing vegetables over many miles is a nutritional issue.                                                                
                                                                                                                                
CO-CHAIR TARR agreed that food security  is a critical issue.  In                                                               
response  to  Representative  Birch, she  said  brewery  products                                                               
carry  the Made  in  Alaska brand  and are  not  an Alaska  Grown                                                               
product.                                                                                                                        
                                                                                                                                
4:50:42 PM                                                                                                                    
                                                                                                                                
JOHANNA HERRON, Development  Specialist, Division of Agriculture,                                                               
DNR,  agreed that  food security  is  an issue,  along with  food                                                               
safety, which is  enhanced by the consumption  of local products.                                                               
She pointed  out that the  state has  many small growers  who are                                                               
unable to  buy marketing  materials due  to their  expense and/or                                                               
inconvenience; in  the past, the division  has supplied marketing                                                               
materials - such as twist ties  and stickers - from its budget or                                                               
through  federal  funds,  and  does  not  seek  to  compete  with                                                               
[private]  marketers.    The  goals  of the  bill  are:    enable                                                               
consumers to  differentiate between local and  nonlocal products;                                                               
supply marketing materials; provide a  method for the division to                                                               
recover the costs of administering the program.                                                                                 
                                                                                                                                
4:52:24 PM                                                                                                                    
                                                                                                                                
BRYCE  WRIGLEY,   President,  Alaska  Farm  Bureau,   Inc.  (Farm                                                               
Bureau), informed the committee he  is also a producer farming in                                                               
Delta  Junction, and  expressed his  support for  both components                                                               
within HB  46.  In  response to Representative  Parish's question                                                               
about  a  multiplier of  economic  benefit,  he said  agriculture                                                               
earns one  of the highest  multipliers of any  industry, however,                                                               
the  economic impact  is  contingent upon  how  closed the  local                                                               
economy  is, the  flow of  commerce,  and the  types of  products                                                               
available.    He advised  that  in  most  of  the Lower  48,  the                                                               
multiplier  used  is   4-5  and  can  be  as  high   as  8.    He                                                               
characterized Alaska  as a  closed economic  system and  said the                                                               
Farm Bureau uses  a conservative multiplier of  2.13 to determine                                                               
the value of  local products, thus $2.5 billion  may be increased                                                               
by  $750  million  potential  farm  gate  sales,  which  after  a                                                               
multiplier  is  applied,  grows   to  $1.6  billion  in  economic                                                               
activity.   Mr.  Wrigley added  that the  bill would  also create                                                               
many  jobs and  opportunities  for youth  to  participate in  the                                                               
expansion  of the  market for  agricultural products.   The  Farm                                                               
Bureau's goal  is to  create a more  sustainable and  secure food                                                               
future for Alaska, and he  cautioned about the devastating effect                                                               
of a  natural disaster; for example,  in 1989 access to  the Port                                                               
of Anchorage froze  for one week and supplies in  the stores were                                                               
depleted, and  in 2012  the Alaska Highway  was flooded  for four                                                               
days, which  affected food  supplies in  Fairbanks.   However, he                                                               
pointed out  that after  a return to  normal, worries  about food                                                               
security are forgotten, and Alaska  remains very vulnerable in an                                                               
emergency.                                                                                                                      
                                                                                                                                
MR.  WRIGLEY said  the  bill is  one component  in  an effort  to                                                               
stabilize  and secure  a  local food  system  that will  generate                                                               
jobs, encourage stability in  rural areas, provide opportunities,                                                               
and  secure food  safety in  an  emergency.   Turning to  product                                                               
preference, he  cautioned that  although there  is a  cost, local                                                               
food in Alaska is a  strategic resource unique to Alaska, because                                                               
every   3-4   years   an  event   occurs   that   threatens   the                                                               
transportation  of  food.    He  stressed  the  state's  greatest                                                               
challenge  is access  to markets,  and product  preference is  an                                                               
opportunity  for  producers  to  access markets  that  have  been                                                               
dominated by distribution  lines from the Lower  48; reaching the                                                               
goal of 25 percent of food  coming from local markets and flowing                                                               
into the  food chain would ensure  that in an emergency  the food                                                               
supply would  be maintained.   Mr. Wrigley advised that  if small                                                               
producers are  unable to gain  access to distribution  lines, the                                                               
state's buying  power is  necessary; in  fact, most  other states                                                               
have local marketing programs to  promote and foster local foods.                                                               
He concluded  that the  state's influence  in providing  a market                                                               
larger than  the farmers' markets  will lead to more  planting by                                                               
growers.  Finally, he said the  Farm Bureau is very interested in                                                               
having the Division of Agriculture  hold receipt authority, as it                                                               
is very expensive  for individual farmers and  business owners to                                                               
purchase logo items.                                                                                                            
                                                                                                                                
5:03:47 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE RAUSCHER  asked what  percentage of  products that                                                               
are grown in Alaska is currently sold in supermarkets.                                                                          
                                                                                                                                
MR.  WRIGLEY said  he  was unsure;  5 percent  is  used, but  1-2                                                               
percent is closer,  he opined, and even fewer  participate in the                                                               
Alaska  Grown program.   In  further  response to  Representative                                                               
Rauscher, he stated most supermarkets  do not carry Alaska Grown,                                                               
and  a few  chains carry  produce, but  less in  meat, milk,  and                                                               
flour products.  Most of the  products from his business are sold                                                               
in mom and  pop stores or state chain  groceries; although larger                                                               
chains express interest, it remains  a challenge to have products                                                               
distributed by large chain supermarkets.                                                                                        
                                                                                                                                
REPRESENTATIVE RAUSCHER  asked how much more  products would cost                                                               
at a local store in a rural area.                                                                                               
                                                                                                                                
MR.  WRIGLEY restated  some  items are  less  expensive, such  as                                                               
potatoes and  cabbage.  In  villages, grocery stores  are private                                                               
businesses  and   rural  areas  must  deal   with  transportation                                                               
constraints,  and he  gave  an example.    Currently, some  local                                                               
producers  are   working  with  major  suppliers   on  access  to                                                               
distribution lines to villages.                                                                                                 
                                                                                                                                
REPRESENTATIVE  JOHNSON expressed  her  support  of the  division                                                               
director and the Alaska Grown program.                                                                                          
                                                                                                                                
5:12:25 PM                                                                                                                    
                                                                                                                                
AUTHUR KEYES,  Director, Division  of Agriculture,  Department of                                                               
Natural Resources (DNR), stated that  HB 46 provides a tremendous                                                               
opportunity for agriculture.                                                                                                    
                                                                                                                                
5:13:13 PM                                                                                                                    
                                                                                                                                
CO-CHAIR JOSEPHSON announced HB 46 was held over.