But, in effect, most people that evaluate this, as you are kind of indicating, it is an option to drill and very much like a surface transaction. Chairman STARK. Are most leases characteristically renewable for a long time if somebody does drill, or if they add a little money? Mr. STAFFORD. No, they are held by production. Chairman STARK. You have to get oil out to keep things going? Mr. STAFFORD. Right. In some parts of the United States, there are lawsuits going on about very shallow, marginal production holding vast acreages. In Kansas, for example, that is the situation, and in parts of Louisiana, also, where one gas well, that is very shallow that is paying very marginal income. It is being held until the time is right to develop further. As you know, a great many major oil companies were concentrating overseas, now they are coming back into a great many States, and they have held a great deal of the land from time to time by rather limited production, but the focus is changing. Chairman STARK. Thank you very much. I appreciate your testi mony. Mr. STAFFORD. Thank you. Chairman STARK. Next we have a panel of witnesses, Ms. Carole Ann Whittaker, president, Jojoba Growers Association; A. Kelley Shooter, president, Agricultural Investments, Inc.; and Lawrence R. Knowles, senior vice president, Southwest Jojoba Co., Pacific Agricultural Services, Inc. I would like to welcome all of you to the committee, and, Ms. Whittaker, you may proceed. Unless you prefer to go in some order, of course, I will ask you, Dr. Whittaker, to proceed with your testimony. We have your testimony which will, in its entirety, appear in the record, but you may summarize or add to it in any way you desire. STATEMENT OF CAROLE ANN WHITTAKER, PRESIDENT, JOJOBA GROWERS ASSOCIATION MS. WHITTAKER. Thank you, Mr. Chairman. From the text which introduces H.R. 5199, it appears clear that the purpose of that bill is to require jojoba farming syndicates to capitalize preproductive costs. The point I make is that the wording of the bill, as proposed, I don't believe will accomplish that pur pose. Chairman STARK. Can't win 'em all, right? MS. WHITTAKER. The difficulty is that we are introducing words that have to do with bush and shrub, and jojoba is a bush or shrub. We mention that fruit and nut crops whether or not edible are included and jojoba is inedible, but the difficulty is that it is still not a fruit or nut. Chairman STARK. I will give you a little extra time, but I just want to ask; there are some experts in your industry who disagree. I just wanted to ask you on that point, this newspaper, Jojoba Happenings, or whatever, is an official publication of the Jojoba Growers Association, is it not? MS. WHITTAKER. No, it is not. Chairman STARK. That is what it says. MS. WHITTAKER. It is published in affiliation with the Jojoba Growers Association. Chairman STARK. It says on the masterhead "Official Publication of the Jojoba Growers Association," official publication. At any rate, in the January-February issue of, I assume, this year, but there masthead doesn't show it, but in one of the January-February issues on-let me give you the right citation. Take my word, that it is in here, there is a recipe for Billy's jojoba cookies. I will just quote the first few items. It starts with one-half cups of butter flavored Crisco; three-quarters cups of ground jojoba beans; one-and-a-quarter cups of brown sugar; teaspoon of vanilla; so forth and so on. Without getting into it-I am a little out of my field-but you cream the Crisco shortening and so forth and so on, and while the cookies are still hot, you remove them-I assume with the ground jojoba beans in there. Now, I can't believe that this newspaper is going to poison its readers, and so I have it on good authority that indeed jojoba beans are edible. I haven't made the cookies yet, but that is my next step. MS. WHITTAKER. Please don't. [Laughter.] Mr. Chairman, I don't have editorial control over all the content of the paper, and if you read the next issue of Jojoba Happenings― following the one from which you are quoting-you would see there a letter from Dr. Verbiscar of Anner Biosciences which clarifies that issue and says unequivocally that jojoba is very toxic, the meal is very toxic. There was an article, it was in an article in an issue in 1983, a year and a half ago, in which I likewise made the comment, after an American Oil Chemist Society meeting that jojoba meal is toxic. There is a little bit of myth that goes along with jojoba in which people have referred to it as being an appetite suppressant, and this is something which has crept into the mythology. It is incorrect. Chairman STARK. Well, proceed. I just MS. WHITTAKER. Jojoba is most definitely inedible, and I would not suggest you eat jojoba cookies, because cooking the meal makes it more toxic than simply eating the beans. But the point I am making here, Mr. Chairman, is that if this bill is to pass, it would be better if the bill were clear to everybody. Chairman STARK. Go right ahead. MS. WHITTAKER. Thank you. Second, I would like to see it clarified that this legislation is new legislation and not a clarification of the 1976 Tax Reform Act, and that is because people, jojoba syndicates, have in good faith taken deductions on preproductive costs and from our indications-you will see attachments there of the testimony given to the IRS-it is simply unclear what the intent of Congress would have been in 1976 had there been any jojoba farming syndicates in existence at the time. Third, and the most important point, is at this stage of the game, in 1984, does Congress really wish or intend to require jojoba farming syndicates to capitalize preproductive costs? Obviously, the issue you must deal with is to increase revenues for the government. We understand that that is a difficulty. On the other side, we would implore that you look hard in evaluating jojoba as an industry. It is extremely difficult to commercialize and domesticate new crops. It usually requires something on the order of 100 years to domesticate new crops. In order to do so successfully, it frequently requires government assistance. It requires using tax revenue dollars to commercialize new crops. I think that it is unheard of for farmers and growers to take on the risks of developing a new crop. We have a very peculiar case here where entrepreneurs, growers, and investors have raised the capital, an immense amount of capital, to establish large-scale plantations, and we have made extraordinary, unheard-of progress in bringing this new crop very, very close to commercialization. Now, the tax benefits have been helpful and have provided an incentive and reduced the risk to those investors. If these benefits are taken away, it will make our task much more difficult and may well shift the burden and expense of domesticating and commercializing jojoba back onto the Government and back on to tax revenue dollars. There is quite a bit of background that would lead us to believe that it is the intent of Congress that jojoba should become a commercialized crop. We see it in the Critical Agricultural Materials Act, signed recently by President Reagan. We see three National Academy of Science studies, NSF studies, USDA studies, et cetera, which all lead us to believe that the Nation feels that it is in its interest to domesticate this crop, and I am saying we are doing it in a very cost effective manner. I believe that that would summarize my points. We thank you very much for this opportunity to make our views known. We would be very happy to conduct onsite tours of plantations for you and your staff members, so you can understand what it is we are doing and trying to do. Chairman STARK. Thank you very much. [The prepared statement follows:] STATEMENT Of Carole AnnN WHITTAKER, PH.D., PRESIDENT, THE JOJOBA GROWERS ASSOCIATION From the text introducing H.R. 5199, one would perceive that the purpose of the Bill is to require capitalization of preproductive costs specifically for jojoba farming syndicates. The Bill purports to do so by amending Sec. 278 of the Internal Revenue Code by striking out the words "a grove, orchard or vineyard in which fruit or nuts are grown" and inserting in lieu thereof the words "a grove, orchard, vineyard or other tract of trees, bushes, shrubs, or vines in which fruit or nuts (whether or not edible) are grown.' Jojoba is a bush or shrub and is not edible. However, its seed, which is the crop which is harvested, is not a fruit nor a nut and, therefore, the proposed language of H.R. 5199 still does not include jojoba. The issue of whether jojoba seed is a fruit or nut was argued extensively by expert witnesses in comment letters to the Commissioner of the Internal Revenue Service and in public hearing testimony before an IRS panel regarding proposed regulations for Sec. 278. I refer you to that testimony and have included two papers as exhibits to this text which clearly state that jojoba seed is neither a fruit nor a nut. One paper is authored by a prominent professor of horticulture, the other by the Head of the Fruit Crops Laboratory of the USDA. I would suggest that if Congress intends to require jojoba farming syndicates to capitalize preproductive costs, the wording of the Bill should either include jojoba specifically or, if it is distasteful to single out a particular crop, then include all agricultural crops. Then the intent of Congress and meaning of the law will be clear to everyone. Secondly, if H.R. 5199 is passed, it is important that the legislative history makes it clear that H.R. 5199 is enacting a new law and is not an interpretation of the Tax Reform Act of 1976. Jojoba farming syndicates came into existence in 1979 and have expensed preproductive costs based upon their interpretation that jojoba seed is neither a fruit nor a nut as used in the wording or legislative history of the Tax Reform Act of 1976 relative to IRC Sec. 278. Furthermore, it is unclear what the intent of Congress would have been in 1976 regarding jojoba farming syndicates if there had been any in existence at the time. Again, I refer you to the comment letters and public hearing testimony presented to the Internal Revenue Service and have included those of the Jojoba Growers Association as exhibits to this text. Thirdly, and most importantly, the question is, Does the Congress really want to require the capitalization of preproductive costs for this new crop which is in its early stages of development? The commercialization of a new agricultural crop is typically a very lengthy process and frequently requires the support of government and the expenditure of tax revenues to be successful. It is uncommon for private industry and/or farmers to underwrite the cost of agronomic research, product research and formulation, or the development of processing equipment or systems necessary to commercialize a new agricultural crop. I suspect it is unheard of for farmers to undertake large-scale production of a crop for which the market looks promising but is still undeveloped. There are many reasons why jojoba should be developed as a new commercial agricultural crop. Perhaps the most important of these is that jojoba oil is a unique renewable resource which can be used in important industrial applications. Some of these, particularly as a superior high-temperature, high-pressure lubricant, may result in jojoba oil being designated as a strategic material as that term is defined by the Critial Agricultural Materials Act. Tax benefits are commonly provided as incentives to taxpayers to undertake the risk of developing resources for this Nation's well-being as exemplified by the tax laws affecting research and development expenditures or oil and gas exploration and development. The deductibility of preproductive costs for jojoba farming syndicates has provided an incentive to taxpayers to invest in jojoba by reducing the level of risk involved and has helped significantly in providing the capital necessary to develop large scale plantations. In five short years private investors, entrepreneurs and growers have made extraordinary progress in commercializing this new crop-and at very little cost to the government. A continuation or expansion of tax benefits for the development of jojoba would help insure our success. Alternatively, the removal of all tax benefits would make our task more difficult and may shift the financial burden of successfully commercializing jojoba to the U.S. Govenment. Moreover, the enactment of a bill such as H.R. 5199 would appear to contradict the intent of Congress as already expressed in the Critical Agricultural Materials Act. IS JOJOBA A FRUIT OR A FRUIT CROP? (By Jules Janick, Ph.D., Department of Horticulture, Purdue University) The jojoba (Simmondsia chinensis Link) Schneider is a shrub native to the Sonoran Desert. The plant produces a liquid wax which may substitute for the oil of the endangered sperm whale. As a result considerable interest by agricultural scientist and entrepreneurs has been focused on the domestication and exploitation of this plant for agricultural use. The question of whether the jojoba "bean" which contains high quantities of the liquid wax is a fruit in the potential sense or whether it can be considered a fruit in the horticultural sense or even in common parlance, or whether the jojoba plant can be considered a fruit crop in agricultural usage has become an issue because of a Technical Advisory Memorandum and a Proposed Regulation Amending Section 278 by the Internal Revenue Department. The word fruit has various definitions. Webster's International Dictionary (2nd edition) gives 9 definitions (Appendix A). The word fruit, in an agricultural context has two senses: a botanical meaning referring to a ripened ovary of a seed plant (see definition 8 of Webster) or a horticulural or vernacular meaning which refers to a type of horticultural commodity in the context of fruit, vegetable, nut, or ornamental (see definition 2 of Webster). Other meanings of the word fruit are not germaine because they are literary or obsolete, but are listed as follows: Definition 1: any product of plant growth as the "fruit of the land"; Definition 3: a course of a meal; Definition 4: any fruit-bearing plant (obsolete); Definition 5: the offspring of animals as the "fruit of the womb"; Definition 7: British slang for fellow; Definition 9: a flavor of wine There are three questions at issue: (1) Is the jojoba organ, which is harvested for its liquid wax and sometimes referred to as a "bean," a fruit in the botanical sense? (2) Is the jojoba organ described above a fruit in the horticultural sense or in common parlance as an apple or a strawberry is so considered. (3) Is the jojoba plant a fruit crop in an agricultural sense and so referred to by agriculturists, agricultural scientists, or plant scientists. IS THE JOJOBA "BEAN" A BOTANICAL FRUIT? A current and widely-used text (Helena Curtis. 1983. Biology (4th ed.), Worth Publ., New York) defines fruit and seed as follows: Fruit. In angiosperms [seed plants] a mature ripened ovary or group of ovaries and associated structures; contains the seeds. Seed.-A complex organ formed by the maturation of the ovule of seed plants following fertilization; upon germination, a seed develops into a new sporophyte; generally consists of seed coat, embryo, and a food reserve. This botanical definition is noncontroversial. The essence of the definition is that the botanical fruit is derived from mature ovular tissue which either contains seed or is potentially capable of containing seed. The botanical seed, a mature ovule is a separate structure produced within the ovary. It usually results from fertilization of an egg cell with a sperm nuclei produced in pollen and is a separate organ within the ovary. A further description of fruits and seeds that follows is from my horticultural text (Jules Janick. 1979. Horticultural Science (3rd ed.) W.H. Freeman & Co., San Francisco). The fruit The botanical term "fruit" refers to the nature ovary and other flower parts associated with it. Thus, it may include the receptacle as well as the withered remnants of the petals, sepals, stamens, and stylar portions of the pistil. It also includes any seeds contained in the ovary. The structure of the fruit is related to the structure of the flower. Fruits are classified, according to the number of ovaries incorporated in the structure, as simple, aggregate, or multiple fruits. They may also be classified by the nature and structure of the ovary wall; their ability to split apart when ripe (dehiscence), as well as the manner in which this occurs; and the way in which the seed is attached to the Ovary. Simple fruits.-The majority of flowering plants have fruits composed of a single ovary. These are referred to as simple fruits. In the mature fruit (when the enclosed seed is fully developed) the ovary wall may be fleshy (composed of large portions of living succulent parenchyma) or dry (made up of nonliving selerenchyma cells with lignified or suberized walls). The ovary wall, or pericarp, is composed of three distinct layers. These are, from outer to inner layer, the exocarp, mesocarp, and endocarp. When the entire pericarp of simple fruits is fleshy, the fruit is referred to as a berry (not the same as the horticultural term for the edible portion of some "small fruits"). The tomato, grape, and pepper are berry fruits. The muskmelon is a berry (specifically, a pepo) with a hard rind made up of exocarp and receptable tissue. Citrus fruits are also berries but of a sort called hesperidium: the rind is made up of exocarp and mesocarp, and the edible juicy portion is endocarp. Simple fleshy fruits having a stony endocarp (such as peach, cherry, plum, and olive) are known as drupes (or stone fruits). The skin of these fruits is the exocarp: the fleshy edible portion is the mesocarp. Simple fleshy fruits in which the inner portion of the pericarp forms a dry paper-like "core" are known as pomes (apple, pear, and quince, for example). The dry, dehiscent, simple fruits include such types as pods (pea), follicles (milk weed), capsules (jimson weed), or siliques (crucifers). The dry simple fruits that do not dehisce when ripe include achenes (sunflower), caryopses (corn), samaras (maple), schizocarps (carrot), and nuts (walnut). Aggregate fruits.—Each aggregate fruit is derived from a flower having many pistils on a common receptacle. The individual fruits of the aggregate may be drupes |