SPEAKERS CONTENTS INSERTS
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USDA'S RUSSIAN FOOD AID PROGRAM
COMMITTEE ON AGRICULTURE
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTH CONGRESS
OCTOBER 6, 1999
Serial No. 10636
Printed for the use of the Committee on Agriculture
COMMITTEE ON AGRICULTURE
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LARRY COMBEST, Texas, Chairman
BILL BARRETT, Nebraska,
JOHN A. BOEHNER, Ohio
THOMAS W. EWING, Illinois
BOB GOODLATTE, Virginia
RICHARD W. POMBO, California
CHARLES T. CANADY, Florida
NICK SMITH, Michigan
TERRY EVERETT, Alabama
FRANK D. LUCAS, Oklahoma
HELEN CHENOWETH-HAGE, Idaho
JOHN N. HOSTETTLER, Indiana
SAXBY CHAMBLISS, Georgia
RAY LaHOOD, Illinois
JERRY MORAN, Kansas
BOB SCHAFFER, Colorado
JOHN R. THUNE, South Dakota
WILLIAM L. JENKINS, Tennessee
JOHN COOKSEY, Louisiana
KEN CALVERT, California
GIL GUTKNECHT, Minnesota
BOB RILEY, Alabama
GREG WALDEN, Oregon
Page 3 PREV PAGE TOP OF DOCMICHAEL K. SIMPSON, Idaho
DOUG OSE, California
ROBIN HAYES, North Carolina
ERNIE FLETCHER, Kentucky
CHARLES W. STENHOLM, Texas,
Ranking Minority Member
GEORGE E. BROWN, Jr., California 1
GARY A. CONDIT, California
COLLIN C. PETERSON, Minnesota
CALVIN M. DOOLEY, California
EVA M. CLAYTON, North Carolina
DAVID MINGE, Minnesota
EARL F. HILLIARD, Alabama
EARL POMEROY, North Dakota
TIM HOLDEN, Pennsylvania
SANFORD D. BISHOP, Jr., Georgia
BENNIE G. THOMPSON, Mississippi
JOHN ELIAS BALDACCI, Maine
MARION BERRY, Arkansas
VIRGIL H. GOODE, Jr., Virginia
MIKE McINTYRE, North Carolina
DEBBIE STABENOW, Michigan
BOB ETHERIDGE, North Carolina
CHRISTOPHER JOHN, Louisiana
Page 4 PREV PAGE TOP OF DOCLEONARD L. BOSWELL, Iowa
DAVID D. PHELPS, Illinois
KEN LUCAS, Kentucky
MIKE THOMPSON, California
BARON P. HILL, Indiana
WILLIAM E. O'CONNER, JR., Staff Director
LANCE KOTSCHWAR, Chief Counsel
STEPHEN HATERIUS, Minority Staff Director
KEITH WILLIAMS, Communications Director
1\ Deceased July 16, 1999.
C O N T E N T S
Barrett, Hon. Bill, a Representative in Congress from the State of Nebraska, prepared statement
Combest, Hon. Larry, a Representative in Congress from the State of Texas, opening statement
Stabenow, Hon. Debbie, a Representative in Congress from the State of Michigan, prepared statement
Stenholm, Hon. Charles W., a Representative in Congress from the State of Texas, opening statement
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Curtis, Marc, president, American Soybean Association
Crane, Donald, executive vice-president, ACDI/VOCA
Glickman, Hon. Dan, Secretary, U.S. Department of Agriculture
Hardin, John Jr., past president, National Pork Producers Council
Kaptur, Hon. Marcy, a Representative in Congress from the State of Ohio
Peterson, Vincent, regional vice-president, U.S. Wheat Associates
Sharma, Rita, National Cattlemen's Beef Association
Teweles, Robert L., president, MayerSeed
Viadero, Roger, Inspector General, U.S. Department of Agriculture
American Seed Trade Association, statement
USDA'S RUSSIAN FOOD AID PROGRAM
Page 6 PREV PAGE TOP OF DOCWEDNESDAY, OCTOBER 6, 1999
House of Representatives,
Committee on Agriculture,
The committee met, pursuant to notice, at 10:02 a.m. in room 1300, Longworth House Office Building, Hon. Larry Combest (chairman of the committee) presiding.
Present: Representatives Barrett, Ewing, Goodlatte, Everett, Lucas of Oklahoma, LaHood, Moran, Thune, Gutknecht, Ose, Hayes, Stenholm, Peterson, Dooley, Minge, Hilliard, Bishop, Baldacci, Goode, Etheridge, Boswell, Phelps, Lucas of Kentucky, and Hill.
Staff present: William E. O'Conner, Jr., staff director; Tom Sell, deputy staff director; Lance Kotschwar, chief counsel; Lynn Gallagher, Wanda Worsham, clerk; Jason Vaillancourt, Callista Bisek, and Andy Baker.
OPENING STATEMENT OF HON. LARRY COMBEST, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS
The CHAIRMAN. The hearing of the House Agriculture Committee to review the U.S. Department of Agriculture's Russian Food Aid program will come to order.
On behalf of the committee, I am pleased to welcome all of the witnesses to this hearing. We will hear from Congresswoman Marcy Kaptur, Secretary of Agriculture Dan Glickman, and Roger Viadero, Inspector General at USDA , and various groups representing commodities that have been a part of the Food Aid Program with the Russian Federation.
U.S. farmers and ranchers produce the most abundant food supply in the world. While we cannot consume all that we produce in the United States, there is an ample supply of food that is available to help other countries in need of assistance for feeding their people. In November 1998, Secretary Glickman signed an agreement with the Russian Government to send approximately 3 million metric tons of food aid to Russia at an estimated value of approximately $1.2 billion.
Page 7 PREV PAGE TOP OF DOC To date, according to a report by the Inspector General of USDA, it appears that the current food program has been successful, and no significant problems have been found during the constant monitoring of the distribution of food throughout Russia. Last week, I was pleased to hear from Secretary Glickman that the U.S. Government has received an official request from Russia for additional food assistance for fiscal year 2000. I look forward to hearing more details today from the Secretary regarding the new program with Russia.
Since its inception in 1954, the Food for Peace Program, also known as Public Law 480, has provided agricultural assistance to countries all over the world. The program is designed to combat hunger and malnutrition, expand international trade and development, and expand export markets for U.S. agricultural commodities. On September 10, 1999, Secretary Glickman announced that the United States Government shipped a record 8.5 million metric tons of U.S. food aid around the world in fiscal year 1999.
While this food is helping to feed the hungry around the world, it is also benefitting U.S. farmers. This program and others operated by USDA have been an important part of USDA's efforts around the world.
I appreciate the Secretary's attendance today, and I will turn to Mr. Stenholm for any opening statement.
OPENING STATEMENT OF HON. CHARLES W. STENHOLM, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS
Mr. STENHOLM. Thank you, Mr. Chairman. Thank you for holding this hearing to review USDA's Food Aid Program to Russia.
I would begin by commending Secretary Glickman and all of the folks at USDA who have worked very hard to make this program work in the face of an extremely difficult political and economic climate in Russia. As the Inspector General points out in his testimony, FAS has avoided problems that occurred under past food aid agreements by acting quickly to improve monitoring efforts.
Page 8 PREV PAGE TOP OF DOC And I should point out that this monitoring effort has been greatly enhanced due to the efforts of the distinguished ranking Democrat of the Agricultural Appropriations Subcommittee who joins us today, and who we welcome to the committee.
The figures speak for themselves: 3.2 million metric tons of commodities with a value of $1.1 billion. According to the testimony we will hear today from various commodity groups, despite its immense size, the program was a success. And a new program could be even more successful if we apply what we have learned in the past year.
For example, this was the first time meat was included in Public Law 480 purchases. And there were some very frustrating delays that can hopefully be avoided with a year of experience under our belts. But we also need to look beyond the immediate objective of removing surplus products to ensure that the program helps us to develop the Russian market for future commercial sales.
As one agricultural commentator noted, we used to hang on every estimate of the grain harvest in the Soviet Union, trying to determine how great the need for imports might be. If we intend to supply the Russian market when it re-emerges as a commercial market, we need to begin work now, tailoring the quality of the product we provide to the requirements of the private sector in Russia, and proving that the United States is indeed a reliable supplier.
Furthermore, we need to involve the private sector in Russia through programs such as those carried out by ACDI and VOCA. But we must do so in a manner that does not jeopardize our ability to monitor and control delivery of the commodities. And finally, we need to continue to respond with targeted assistance to the humanitarian needs in areas of northern Russia.
With the many and varied objectives that drive our Food Aid Programs, it is not surprising that few of us are completely satisfied with the results of any such program.
Again, I commend the Secretary for his courage in meeting the challenge presented by Russia's request for food aid, and I look forward to working with him and you, Mr. Chairman, to assure that any program for the coming year is a successful one.
Page 9 PREV PAGE TOP OF DOC Thank you.
The CHAIRMAN. Thank you, Mr. Stenholm.
I would let members know that the Secretary has indicated he does have another commitment that he will have to make, and has to leave here by 12 o'clock. So with that in mind, we will hopefully be able to have as much of an opportunity as possible to have the Secretary's interaction on this issue.
Statements by Members for the record may be included at this time.
[The prepared statements of Mr. Barrett and Ms. Stabenow follow:]
PREPARED STATEMENT OF HON. BILL BARRETT, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NEBRASKA
Thank you, Mr. Chairman for holding this very important hearing to review the USDA Russian Food Aid Program. I also would like to thank Secretary Glickman for taking valuable time out of his schedule to join us today.
Public Law 480 seeks to expand foreign markets for U.S. agriculture products, combat hunger, and encourage economic development in developing countries. The program has also been a proven success in exporting excess U.S. grain supply.
As producers continue to face low commodity prices, this committee must continue to examine this program and ensure our colleagues that it is sound. By donating these large amounts of farm commodities, the U.S. market price may rebound sooner than later. That would be a great benefit to our Nation's agriculture producers. Most of the grain industry believes that this type of donation is needed to assist in controlling supply and to aid the local market. At times this donation process appears to be more of a crisis of a failed economy rather than people or animals facing starvation.
However, we must make certain that Russia is fulfilling the terms of the agreements before any additional aid is considered. We must also ensure that the intended recipients receive commodities and that the proceeds are properly accounted for.
Page 10 PREV PAGE TOP OF DOC I recall last year ships were lining Russian ports waiting to discharge. It is important that the Russian government organize a more-speedy delivery system once the vessels arrive in their ports. Whether this is simply a communication problem or an organization problem, it should be addressed.
We also should closely study the Russian economy as we consider a new program. It is extremely important that we fully understand the benefits that will be expected from the food aid program. We should also consider shipments that are relative to local market conditions.
It is critical that our American Embassy carry out their part in monitoring the process from beginning to end. The Embassy staff should continue to update the Department of Agriculture and Congress on their evaluations as they examine the situation in Russia.
Again, I would like to thank the Chairman for holding this hearing. I am anxious to hear from our distinguished panel of witnesses.
PREPARED STATEMENT OF HON. DEBBIE STABENOW, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MICHIGAN
Mr. Chairman, thank you for bringing the committee together today to discuss the U.S. Department of Agriculture's Russian Food Aid Program. I know that this is an issue of great interest to the agricultural community here in the United States and to the Russian Government. I would like to welcome our witnesses today, particularly Secretary Glickman.
As we all know, the U.S. provided Russia with a food aid package last year valued at $1.1 billion. I understand that the likelihood of another food aid package is contingent on whether the objectives of the previous aid package were met. I would appreciate an update from the Secretary about the status of these investigations.
Page 11 PREV PAGE TOP OF DOC I was pleased that last year's package included pork. I know that this commodity was welcomed in Russia and including it in the aid package certainly helped our producers here in the United States. As soon as the aid package announced, the prices immediately began to recover. I have heard from my Michigan pork producers again this year and they are anticipating another dip in prices. I have joined with several of my colleagues here on the committee and have urged the Secretary to consider including pork in this year's food aid package as a way of preventing another disastrous decline in prices. I understand that pork might not be included this year, as Russia is concerned about sustaining its own livestock industry. I would like to take this opportunity to urge Secretary Glickman to work with officials to find a solution, so that pork can be included in the Russian Food Aid Program.
The CHAIRMAN. Our colleague from Ohio has arrived, and I would call on Ms. Kaptur.
STATEMENT OF HON. MARCY KAPTUR, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF OHIO
Ms. KAPTUR. Good morning, Mr. Chairman. Thank you so very much for the opportunity to testify this morning, and to my good friend, Charlie Stenholm, the ranking member, and all the members of this very important committee.
I also want to thank you, Mr. Chairman, for allowing one of the appropriators to appear before you. It is very, very much appreciated.
I will submit my entire testimony, along with several documents, for the complete record. I would like to speak a little more informally this morning, if I might.
The CHAIRMAN. All the gentle lady's information that she wishes to submit will be made a part of the record.
Ms. KAPTUR. Thank you. We will provide for the document several documents, including letters of correspondence that we began last year relative to U.S. shipments of food aid to Russia, correspondence that we had with the administration and some of our experiences in that regard, several letters relating to private sector entities that have attempted to do business in Russia, several legislative proposals that we have been working on that we hope that the membership of the committee will consider.
Page 12 PREV PAGE TOP OF DOC I do not know whether my summarized testimony is before you, but I have five major points I would like to make this morning in order to respect your time, and to allow Secretary Glickman, our former colleague here, who has worked so very closely with us to try to improve this system, give him his chance up here at the microphone.
First, let me say that overall, I really believe that any food shipment, certainly to Russia, should be linked to U.S. foreign policy goals. What we discovered last year was a real disconnect between layers of the executive branch in regard to the ultimate impact of the monetized value of these food shipments in Russia and how they were going to be handled. I really believe that the food reserves of the United States, those that are handled through the Commodity Credit Corporation, represent the United States' most important development bank. And we had best pay greater attention to how they are disposed of, especially in emerging economies like Russia's.
In order to better respond to the farm crisis here in our country and meet the imperative of an emerging global geopolitical order, we must absolutely use every tool in our arsenal here in Congress to get the executive branch to more effectively link and expand the agricultural commodity shipments as a central element of U.S. foreign policy toward Russia. I cannot go into all the elements of that here this morning, but let me tell you that finally, the State Department knows how to spell agriculture, but I am not sure they can do it more than 1 day at a time.
But there is a real problem. We finally got receptivity at the National Security Council. We have had receptivity within the Department of Agriculture. But they are fighting a lonely battle inside the executive branch, and Congress needs to focus on this.
Let me just state for the record also, last year, the value of U.S.-provided food commodities to Russia far exceeded our traditional foreign assistance there. And most Members of Congress, and I can tell you, even those on the International Relations Committee, have not noted this. The value of this particular latest shipment was about a billion dollars. That is not small potatoes.
Page 13 PREV PAGE TOP OF DOC And there is without question an imperative need to better integrate this level of assistance into our overall policy objectives as the Russian economy transitions, certainly the economy in the rural part of Russia. So the first recommendation really deals with better linking foreign policy to agricultural commodity shipments.
The second point I wish to make is to remind the committee, and I do not think I have to do it on this committee, but to state for the record that we have to recognize the serious transitional problems that Russia faces in its agricultural sector. And our policy cannot continue to ignore the central role that agriculture must play in a reformed Russian economy, and I daresay in a reformed Ukrainian economy, reminding ourselves that central control of capital and labor that, beginning in agriculture and then spreading to other economic activities, underpinned the old Soviet economic order.
In fact, the collective system in the former Soviet Union laid the foundation for the social welfare state that emerged during this century. Simply, the earnings of the collective farms, which were at the top of the pyramid, were spread into social benefits that assisted in that country in everything from education to homes for invalids to health, and I daresay even to the distribution of bread to the needy.
The agricultural system was fundamental to the social and economic order. Though the future Russian agricultural system is more likely to transition to a trans-European model as opposed to anything that resembles the United States-Canadian systems, our interests as a country lie in promoting food security there, as well as in laying a foundation for future agricultural trade in a more modernized system.
Agriculture has not been in the central galaxy of policy objectives of the last two or three U.S. administrations relative to Russia. And I believe it must be put right in the center.
Third, we have several legislative initiatives that we would beg the committee's reviewing that would help to expand U.S. food shipments while using any proceeds generated to help reform the Russian agricultural economy. And I can tell you that there is a policy debate going on within the executive branch as to whether agriculture should even be on the table. The reason is because many people say we failed, that during this decade, the few things that we have tried to do have not worked.
Page 14 PREV PAGE TOP OF DOC Well, that is another whole hour lecture about why they have not worked and who was doing it and what they did. But the answer is not to not look at agriculture. The answer is to re-do what you did not do right in the first place.
So we have made several suggestions regarding modifying the Food for Progress Program, modifying the section 416(b) commodity donations, we have a Sense of Congress Resolution that we have drafted that we would ask for the committee's forbearance, regarding increased shipments and how those can be used to support a reformed agriculture sector in Russia.
Fourth, I wanted to just re-emphasize the importance of the monetization of these commodities as a more important tool and a recognized tool to assist in U.S. foreign policy objectives. When this food aid is received in a country like Russia, it becomes more than food, as it is used for the achievement of political objectives and strategic objectives inside those countries.
But let me tell you what happened with the recent $1 billion food shipment, I think it was about $800 million of commodities with transportation costs added to that. The vast majority of funds have been spent to shore up the Russian pension fund, which was at least $7 billion in arrears, somewhere between $7 billion and $16 billion. The European assistance was used for the same purpose.
Only $2.3 million, as I understand it, of the $800 million of monetized food transactions, was channeled to any type of agricultural reform, which should be at the center of what we are trying to accomplish with our Russian colleagues. Of the $2.3 million that was used or is being used for agricultural purposes, our testimony outlines what it is being used for.
Last August, a $20 million ACDI-VOCA fund, which was to be used for micro-enterprise credit to private farmers collapsed when the Russian ruble did, $20 million disappeared. And a part of this food shipment, after a great deal of pressure by members of this Congress, was to be used to restore that singular tiny fund, the only one being used to create a credit system in Russia. Only $1 million of this food shipment was used for that purpose, which means it is still $19 million short, and even at $20 million, it is extremely small in view of the lack of a credit system in agriculture in Russia.
Page 15 PREV PAGE TOP OF DOC The other $1 million or $1.3 million, whatever was left, was used to support the development of a cryogenic seed facility at Vavilov Research Academy in Pushkin, which is a place where over 350,000 varieties of seed are housed and are replanted. I visited there back in July, I think they had 7,000 varieties of potatoes alone. It is really a very interesting place.
But the point is, such a small portion was used, and none of it really directed toward agricultural reform. One of the recommendations we would have, and we state this on page 3 of our testimony, is that we need to employ a design in these food commodity shipments that creates a partnership in agricultural development, with a major portion of the proceeds of these food shipments going to a credit guarantee facility that reduces risk and encourages U.S. companies to sell agriculture equipment inputs, seeds and commodities to Russian buyers.
One of the letters we will submit for the record, and I summarized in the full testimony a paragraph from John Costello, the president of Citizens Network, essentially what this current shipment is doing is supporting the para-statal entities. I visited one of those when I was there during July, a monopolistic, a wheat processing company and bread baking company that provides for the 7 million people of the St. Petersburg area.
One of our objectives should be to try to transition that company to a truly private sector entity. It is not that now. But the point is, the bulk of the aid is going to places like that that really are not transitioning. And U.S. policy has to be more focused, I believe, on trying to contribute to the reform process, as well as just selling commodities through the Commodity Credit Corporation.
Finally, I would urge this committee to work with the International Relations Committee here in the Congress to, in the law, establish a regularized accounting regimen to track U.S. food shipments to nations without a rule of law, and assess whether shipments are achieving U.S. objectives for reform, certainly in the agricultural sector. You have a problem of the monetized commodities themselves, making sure that the value is properly established under regular accounting principles, making sure the commodities are delivered where they need to go. Tracking that alone is a major problem.
Page 16 PREV PAGE TOP OF DOC Then, in terms of where these dollars supposedly have been deposited in the general pension fund, and seed special accounts within the Russian Government, who is really tracking those deposits and transactions? And finally, I think we need a broader analysis, to what extent are these food shipments achieving reform, particularly in the Russian agricultural sector. I think the jury is still out on that.
And I would not recommend a cut-off of shipments. I would recommend a tighter linkage and a more concerted effort, working with the Secretary of Agriculture and other executive branch agencies to move agriculture into the mother lode of what is going on in terms of United States-Russian relations. Right now, that is not happening in a coherent way, in my opinion.
I think the U.S. Department of Agriculture has had to use the full extent of its own authority to get attention by our own embassy over in Russia, and I want to compliment our ambassador, Ambassador Collins, who as a result of our efforts has tried to make a difference there. But they cannot do it alone. They need our help.
Mr. Chairman and members of the committee, I thank you for allowing me this chance to testify. Believe me, we on the Appropriations side want to work closely with you. I really believe that the future of Russia depends on her successful transition in the agricultural sector. And we are all going to have to pull together with her to achieve that.
Thank you so very much for allowing me the time this morning.
[The prepared statement of Ms. Kaptur appears at the conclusion of the hearing.]
The CHAIRMAN. I thank the gentlewoman for her testimony. Obviously, she has not only a great deal of interest, but a great deal of knowledge about the subject. We appreciate your sharing that with us, and I assure you, we accept that invitation to work closely with you to achieve some of these goals.
Page 17 PREV PAGE TOP OF DOC I would just say that your statement about the State Department finally being able to spell agriculture is one that I may use many times in the future, but I will always give you credit for it. [Laughter.]
That is one of the best summations I have heard in some time.
I would ask members if there are any questions that you might have of our colleague?
Thank you very much.
Ms. KAPTUR. Thank you very much.
The CHAIRMAN. We would now invite the Secretary to the table. Again, we appreciate your coming. Please bring any of your associates that you wish; some of whom we recognize. If they participate, you may introduce them at any point, Mr. Secretary. We will turn this over to you.
STATEMENT OF HON. DAN GLICKMAN, SECRETARY OF AGRICULTURE
Secretary GLICKMAN. Thank you, Mr. Chairman, very much.
Most of you know Under Secretary Schumacher, who has been here as much or more than I have. I would like to introduce Mr. Richard Fritz, who is the General Sales Manager of the Commodity Credit Corporation, formerly head of the Oregon Wheat Commission, and took the position previously held by Chris Goldthwait, who is now our Ambassador to Chad.
In addition, I have Asif Chaudhry, who is the Assistant to the General Sales Manager. He was our former Agricultural Attache in our Embassy in Moscow for 3 years, and was the head of the assessment team that has recently reviewed the needs of Russian food. He will be prepared to talk about that. Next to him is Mary Chambliss, who is the Deputy Administrator of the Export Credit Program at USDA. I just might mention that she and her staff have just won a Hammer award from the National Performance Review for their efforts in food aid monetization effort.
Page 18 PREV PAGE TOP OF DOC I would like to you know what her team has done. In fiscal year 1997, we provided 1.3 million metric tons of food aid. In fiscal year 1998, we provided 1.8 million metric tons of food aid. This is across the world. In fiscal year 1999, we provided 9.8 million metric tons of food aid. And they have done this with a slight decrease in staffing, as well. She and her staff have done a tremendous job trying to move food assistance around the world.
Let me say that I am also pleased that our Inspector General is here with us. Roger Viadero has done an excellent job in many areas, but working with us and providing independent but helpful suggestions. He has made a big difference with the Foreign Agricultural Service in terms of how they are implementing and operating this program. He no doubt will tell you about both good and bad things associated with these efforts. But I think it is important to know that we are working with the Inspector General's office to try to make this program better.
While our aid has been met with overwhelming positive responses, I recognize that many have raised questions about it. Most serious are allegations, still primarily unsubstantiated, of misuse or diversion. As we consider a new Russian request for food assistance, which I received last week, our experience with the current program will carry great weight. We will also consider the findings of a food need assessment technical team that recently returned from Russia. And Mr. Chaudhry and Mr. Fritz will be glad to talk about that and supply you with that assessment afterwords.
I will demand continuous and thorough oversight and scrutiny on the current aid program. The performance of that program will be a key factor in determining whether the administration approves additional food aid to Russia.
Last fall, when the Russian Government presented the United States with a formal request for food assistance, we had a reasonably good assessment of the situation from USDA staff in Russia, the Russian Government and other sources. We knew that Russia faced a serious situation, the collapse of the ruble in August 1998, followed by the collapse of the banking system, dramatically eroded Russian purchasing power. In addition, Russian farmers harvested their poorest grain crops since World War II as production plunged approximately 40 million tons from the previous year to only 47 million tons, the lowest since 1946.
Page 19 PREV PAGE TOP OF DOC The decision on how best to respond to Russia's food aid request was not an easy one. But there was little question that we would respond. In terms of our own economic, strategic and national security interests, the United States has a major stake in supporting Russia's transition and building a closer relationship with it.
Likewise for agriculture, there was little doubt about our involvement. Until the ruble devaluation, Russia was a major commercial market, the tenth largest export market for U.S. agricultural products in the last few years. Russia was the leading export market in the world for U.S. poultry meat, and a leading market for pork.
All that ended with the Russian financial crisis. Within a few months of the ruble devaluation, Russian purchases of U.S. agricultural products had plummeted 80 to 90 percent. Russia had one problem and we had quite another. Russia needed a significant amount of food and we were not only in a position to provide a substantial assistance package, but such a response was clearly in the immediate interest of America's farmers and ranchers.
In early November last year, I announced the key elements of a major U.S. food assistance package for Russia. Negotiations continued with the Russian Government to formulate specific comprehensive agreements covering such issues as monitoring, transportation, exemption from Russian duties and taxes, delivery schedules and destinations, unpacking of products, monetization in the tracking of proceeds, and countless other essential details.
Accountability and the ability to monitor the movement of commodities and the proceeds generated from the sale of those commodities were the most critical issues for us, and not just at USDA, but in the administration in general. We would not proceed until we had the agreement and cooperation of the Russian Government in implementing a comprehensive and effective monitoring system, which I will discuss shortly.
First let me say a few things about the food aid package itself. As negotiated, the 1998 package totaled 3.2 million tons of U.S. commodities worth about $1 billion, including transportation costs. We are donating more than half the aid, and Russia is purchasing more than 1 million tons under Public Law 480, title I, long-term concessional sales. Most of the commodities are being monetized. Russia is selling the commodities at local prices and depositing the proceeds in the Russian pension fund.
Page 20 PREV PAGE TOP OF DOC However, private relief organizations such as the Red Cross, as well as the Russian Government, are distributing 500,000 tons of product in a humanitarian distribution effort targeted to particularly vulnerable groups in places such as orphanages, pensioners homes, and hospitals. As of October 1, USDA had purchased 95 percent of the food and commodities and 75 percent had been exported. Shipments under this package should be completed within the next few months.
The decision for us to respond was the right one for needy Russians, and it was a good one for American farmers already struggling with large surpluses and rock bottom prices. In this last year, farmers have experienced the lowest wheat prices in nearly a decade, the lowest corn prices in more than a decade, the lowest cattle prices in the 1990's, the lowest soybean prices in 27 years, and the lowest hog prices since the Great Depression.
The food aid package that emerged from negotiations with the Russians included products from each of these sectors and several important others; wheat, corn, soybeans and rice, soybean meal, beef, pork, poultry, seeds, nonfat dry milk, beans, lentils and vegetable oil. The 1.7 million tons of wheat donated under section 416(b) represent 6 percent of total U.S. wheat exports this year. 1.7 million tons that otherwise would not have been moved out of the domestic market.
The pork industry had also benefitted. In 1998, Russia was the fourth largest export market for U.S. pork, in that it was a commercial market. With the collapse of the ruble, sales withered, with U.S. pork likely to be replaced by pork from the European Union coming in under high subsidies or as EU food aid. The U.S. food aid packages maintained the U.S. presence with 50,000 tons of U.S. pork exported to Russia.
The food assistance we are providing is a temporary measure. It is not a substitute for commercial trade. We look forward to the recovery of the Russian economy and the resumption of Russia's normal commercial trade. But in the current situation, the food aid package is helping the Russian people through a difficult time, while maintaining the flow of U.S. products into Russia.
Page 21 PREV PAGE TOP OF DOC And by the way, it is not the total amount of assistance the Russians need. Food aid picks up actually a minority portion of what they need. There are commercial sales and other assistance going beyond this particular food assistance. Our effort is a measure of our long term commitment to this market.
Allow me to make a few specific comments on the monitoring effort. I think some of the points that our Inspector General will make, and some of the points that Marcy Kaptur made have a lot to do with what we have done in this area. Before shipments began, we wanted to make sure that we had agreements in place that would provide the highest level of competence that the aid would be properly monitored and distributed.
Since last spring, eight USDA staff from Washington were sent to augment our USDA staff in Russia. In fact, virtually the entire U.S. Government team in Russia, from the USDA, the State and Commerce Departments to AID, has had some role in oversight activity. Our ambassador to Russia has been actively involved on a day-to-day basis with this oversight.
Monitoring is a shared responsibility with extensive checks and balances on the Russian side as well to minimize opportunities for misuse or diversion. A United States-Russia joint working group meets weekly to discuss the progress of the program and resolve complications. In addition, our monitoring effort involves Russian Government officials at national, regional and local efforts and our monitors report that the cooperation on the Russian side has been good.
Within Russia, the monitoring is a serious, sustained, hands-on effort. For direct feeding programs, we are tracking commodities to the actual point of delivery to recipients, such as orphanages, homes for pensioners, and hospitals. For the monetized commodities, we have seen no signs of unexplained shortages at ports or mills. But as the Inspector General will talk about, there is a limit at which, when the money goes into the banking system, how much we can actually continue the monitoring at that point.
Page 22 PREV PAGE TOP OF DOC Mr. Chairman, we have all heard allegations of misuse or diversion in the program. I am concerned when I hear these allegations. So far, we have not seen any specific, credible evidence that commodities or proceeds from our current U.S. food aid package have been misused or diverted. And that is the package in 1998. There have been questions raised about one program we entered into during the 199394 period, problems that have occurred subsequent to that period of time, and the Inspector General will address that. Much of that is under active investigation.
I am especially pleased with the Inspector General's work on some of these issues. A member of his staff was able to accompany an inter-agency group to Moscow in May, and we welcomed his observations, which focused on matters such as financial guarantees, communication and documentation. These recommendations were communicated to the Moscow embassy staff at the time of the visit, and the staff began immediately to implement them.
Both the IG and the GAO have a standing invitation to join program staff in the ongoing working group meetings on the Food Aid Program here in Washington, and their attendance has been a positive addition.
The final subject I want to mention is the new request from Russia. Two weeks ago, we received a formal request from the Russian Government for another substantial food assistance package in the year ahead. That package is basically 5 million tons. It is a million tons of milling wheat, 3 million tons of feed grains, half of that 3 million tons is 1 1/2 million tons of feed wheat, and half of that is 1 1/2 million tons of corn. It is also 1 million tons of soybeans and/or soybean meal, and 40,000 tons of planting seeds. From our experience, by the way, in the seeds area, has been very positive in terms of getting those in the Russian agricultural economy to develop their economy further.
A number of considerations will come into play in reviewing this request. Last month, a U.S. technical level interagency team conducted a comprehensive food needs assessment. They will talk about it. We are reviewing the findings of this team and expect to have a clearer understanding of Russia's needs in a few weeks. But it is clear that they do have a substantial food and feed grains deficit. Just today, I saw a Reuters story which said the Agriculture Minister reported that their production is lower than he had previously estimated.
Page 23 PREV PAGE TOP OF DOC Of course, another key consideration is our experience with the current program. If an agreement is reached on additional aid, we will insist on similar monitoring measures. There are a number of other considerations. For example, we have to be careful not to reduce incentives for Russian farmers to produce food.
What Marcy Kaptur said is absolutely true. Our efforts have to be more than just providing food to the Russian economy. It has to be to try to build their agriculture infrastructure. We have an obligation to other trading nations to avoid actions that would disrupt international markets. And we will consult closely with other major food exporters, such as the EU, as we deal with these issues further.
We also want to make sure that all of our aid, food aid as well as non-food aid, helps the Russians move towards progressive economic and political reforms.
I want to close by saying that the United States and U.S. agriculture have a very large stake in Russia's success. Recently there was a story in the New York Times on July 12 which questioned whether the U.S. food aid package for Russia is too much, too late. And it was a fairly negative story.
I close by making the following points. The article seemed to think that as in the United States, we did this only for the benefit of American farmers, and there was not any larger perspective in what we were doing. As I said earlier, it is true that the aid shipments are a plus for American farmers severely squeezed by large commodity supplies and low prices. But it is also true that the surplus U.S. food is helping to feed hundreds of thousands of hungry Russians in difficult circumstances. Too much too late, I questioned? I wonder what question we would all be asking today had the United States and Europe turned our backs to Russia when they asked for help.
Thank you very much, Mr. Chairman. That concludes my statement.
[The prepared statement of Secretary Glickman appears at the conclusion of the hearing.]
Page 24 PREV PAGE TOP OF DOC The CHAIRMAN. Thank you, Mr. Secretary. You addressed some of the areas where I had questions.
I believe this is a journal vote, so we will try to keep this going in deference to the Secretary's time. So if some people want to go vote, they can go vote and come back.
In the request that just came before you that was announced on the 28th of September, will the new program be donations or Public Law 480 title I alone programs?
Secretary GLICKMAN. They asked for donations only. But that is something we will negotiate with them on.
The CHAIRMAN. What is the timetable in making the decision?
Secretary GLICKMAN. This is something that will be decided on an interagency basis. It is obviously not one that will hang around too long, but it will require a couple of things. One is the discussion of this food needs assessment, which we just have gotten, both inside the Department and throughout the inter-agency process, which means talking with the National Security Council and other people.
It will also, just because they have asked for the things they have asked for does not mean that that is what is provided. In terms of the commodities provided and the authorities used, we will obviously be in the position of sitting down with them and talking about those things, because we may not want to do it exactly as they requested. But I cannot give you a deadline thing. My judgment is that the decisions will be made, you know, in a couple of months would be my guess. And that is just a speculative guess right now. Maybe sooner.
But I think the other thing is, as you are well aware, there has been so much talk with respect to diversion of IMF funding and other things. I think the administration wants to be very careful in proceeding down a road of another request until we ensure that the oversight is as good as we can possibly make it.
Page 25 PREV PAGE TOP OF DOC The CHAIRMAN. Who actually provides that oversight?
Secretary GLICKNAN. Richard, would you want to talk a little bit about that?
Mr. FRITZ. There are several layers of oversight with regard to the current program. The FAS within USDA monitors the product from the point of export to discharge within Russia. At that point, the FAS monitors in Russia take over with a group of other employees within the U.S. industry to track the product from the port of entry through the process. Obviously, not 100 percent of that is tracked. But a majority of it is tracked by our monitors.
We have also hired an outside company to assist us with the paperwork and in monitor training and development. There are also agreements with the Russian Government that they will assist us in the monitoring efforts within the country.
The CHAIRMAN. Is that outside company a U.S. company or a Russian company?
Mr. FRITZ. It is a U.S. company, sir.
The CHAIRMAN. I realize you have not been on the job a long time, but from your awareness of it and discussions of it, do you feel comfortable that it is accurate?
Mr. FRITZ. I have been in Moscow and I have been outside in the regions looking at our monitoring efforts, talking to the monitors, visiting some of the sites, both the mills, the orphanages, some of the farms. And I am fully confident that the monitoring program that we have in place is doing an excellent job in assuring there is no diversion of either commodities or funds moving into the pension fund.
Secretary GLICKMAN. I would say, just to be honest with you, there is a limit to the amount of monitoring we can do. For example, once funds get into the banking system, it does become much more difficult to trace those funds, after monetization takes place. While we are comfortable that we are doing everything that can, there is no way that we are going to be able to be fool-proof once that fund gets into the banking system.
Page 26 PREV PAGE TOP OF DOC The CHAIRMAN. Let me go ahead and recognize Mr. Stenholm.
Mr. STENHOLM. It is my understanding that in the monetization of these commodities, it is required that the proceeds be deposited within the Russian pension fund within 120 days. According to your information, are they meeting that deadline?
Mr. FRITZ. If I may, the majority of the proceeds are to go into a special account, which are then transferred into the Russian pension fund. And they are meeting the timetable set forward, and in fact they are a little bit ahead of the time table in the flow of funds from the product into the pension fund. The remainder of the money from the seed monetization was actually going into the research facility. So not 100 percent is flowing into the pension fund.
Mr. STENHOLM. We will hear from other witnesses, and we have already heard suggestions of a different utilization of the monetized funds, other than the pension fund. Have you identified any other uses for the proceeds of these funds that might achieve our goals at the same time being acceptable to the Russians?
Mr. FRITZ. Do you mean for any additional package that may be provided?
Mr. STENHOLM. Yes, looking ahead to the new package, as to involvement of the private sector, perhaps more so as the suggestion Ms. Kaptur was making.
Mr. FRITZ. We have gone out and solicited from Members of Congress, from the private industry, from the Russian side and from others suggestions on what could be done or should be done if a second program is approved and the product is monetized. We are collecting that right now. We are examining those ideas, and we are ready to move forward on some of those.
But I must caution you that as we move toward individual projects, the monitoring and the amount of resources that are needed to track that is substantial. Personally, that is of concern, that we can make sure that any future program that is individual, smaller, more targeted, is also going to need greater oversight.
Page 27 PREV PAGE TOP OF DOC Mr. STENHOLM. Along that line, the private voluntary organizations, the five that you have selected that are functioning, what were some of the criteria that you used in the selection of the private voluntary organizations?
Secretary GLICKMAN. I would ask Mary Chambliss to respond to that.
Ms. CHAMBLISS. Certainly, Congressman.
We have established criteria for reviewing all private voluntary organization requests that come to us for a number of programs. In fact, we have developed them over the years with our colleagues in the private voluntary organizations. The kinds of things we look for particularly are an organization's experience in carrying out food aid programs of the same nature that they are saying they wish to undertake.
We also, because we certainly appreciate the difficulties of functioning in Russia, not only the size of the country, but the logistics that are very difficult, so we have looked for organizations that have experience in difficult food delivery mechanisms. So we basically look for experience criteria that we feel is most relevant to the goals they are trying to achieve. Those were the primary criteria.
Mr. STENHOLM. Do the private voluntary organizations have adequate monitoring abilities themselves? I am not sure quite how to ask that question. But it seems that as we look at other entities that the monitoring not only will require resources on our part, but also require some accountability on the part of the voluntary organization for accountability.
Ms. CHAMBLISS. It does quite a bit. That is another criteria. In fact, of course, when the private voluntary organization signs an agreement with the Commodity Credit Corporation, they enter into a legal obligation, if you will, to us, in terms of reporting and monitoring. We have developed again over the years with our experience reporting and monitoring experience. So we do rely on the PVOs. Obviously that is one of the factors we looked at in judging which PVOs we thought could function best in the Russian context. But it is their responsibility.
Page 28 PREV PAGE TOP OF DOC Now, we try to work with them to provide some administrative funding support. We can do that under our Food for Progress authority. We cannot necessarily under section 416. We have to try to manage the authorities so that they complement each other, in order to provide the resources. You are quite right, it requires resources for them just like it does for us when we do our monitoring. But that is one of the things we work with them, and we think they do a good job.
Mr. STENHOLM. Thank you.
Mr. OSE [presiding]. Thank you, Mr. Stenholm.
One of the questions I have deals with the memorandum dated August 13. Is that this panel or the next panel?
Mr. Secretary, there was an audit done regarding the trip on May 5 to 14, 1999. It was by the people who did the inter-agency trip to Russia to Timothy Galvin. Are you familiar with that?
Secretary GLICKMAN. Actually, the Inspector General is more familiar with it than I am. He is the one that I assume did that particular audit. You may want to ask him about that.
Mr. OSE. Okay, we will go to him with that one.
The second item, I noticed in the review dated October 5, 1999, by the CRS, that there is no request, and this is of particular interest to my district, there is no inclusion within the current Russian request for any rice or dairy products.
Secretary GLICKMAN. That is correct. And that was true in the last one. And also, there is no such request in this new one. Mary, do you want to comment on that?
Ms. CHAMBLISS. I might note that last year, the request, and Asif just confirmed it with me, because he was in Moscow during all these discussions, did include a wider array of commodities, and it did include a level of rice and a request for dairy. We went back and forth on the dairy, to be certain. They understood that what we have is a non-fat dairy product, not what they are used to. So we did some testing of the dairy to be certain it would work to meet their needs.
Page 29 PREV PAGE TOP OF DOC But there was a modest level request for those commodities last year.
Secretary GLICKMAN. But there is none to date, this year. But I would want to make clear that just because they requested X does not mean even if we approved the request, it means that we would have approved just what they requested. There would obviously be a negotiation involved in the commodities that would be provided.
Mr. OSE. In that regard, I am looking at a chart here regarding, I believe, last year's, or the previous request. It has Public Law 480, title I, Food for Progress, section 416(b). And in the right hand column, it details the amount exported. Do you have a copy of this?
Secretary GLICKMAN. Yes.
Mr. OSE. It shows the amount exported as opposed to the amount purchased. And I notice that we have not completed, for instance, any of the poultry, according to this chart, none of the poultry has been exported, less than half of the rice, under 10 percent of the beef, and less than 40 percent of the soybean mean. Perhaps Mary or Richard would comment.
Ms. CHAMBLISS. Surely, I would be glad to, Congressman. I happen to have data as of October 1. We put it up on our home page periodically, so you may have a different one. It is simply the time lag in terms of providing the commodities. For example, I cannot remember whether it was poultry or it was pork, but we worked out a delivery schedule with the Russians, and sometimes it covered over several months.
For example, I remember the dairy product, I think it was going to be two traunches in terms of how they could receive. Because we have gotten from the Russians detailed work plans for each of the commodities as to the timing of what commodities would go where within Russia. So what you simply have is, if you will, a continuing chart that will eventually show everything purchased exported. It is just meeting the time requirements in terms of their needs to import and use the commodities.
Page 30 PREV PAGE TOP OF DOC Mr. OSE. What is your web site address?
Ms. CHAMBLISS. It is www.fas.usda.gov. And when you or your staff get there, keep going until you find the specific Russia site, and we have a great deal of detail. And we do try to update it every time there is a significant change, Congressman.
Mr. OSE. All right. One of the items in here in this CRS report was that the proceeds from the sale of the monetized commodities are to be deposited into the Russian pension fund. Does that still hold?
Secretary GLICKMAN. Correct.
Mr. OSE. Has any money been deposited into the Russian pension fund?
Mr. FRITZ. Yes. Between the European and the U.S. programs, it was estimated there would be 18 billion rubles deposited within the pension fund. Approximately 11 billion of that was from the U.S. program. And as of today, we are at about 10 percent of that 11 billion figurein rubles.
Now, the lag is that once a product is discharged in Russia, they have 120 days to ship the product, monetize it and send the money back into the special account, which is then transferred to the Russian pension fund. So we are actually on schedule for that return of money into the pension fund.
Mr. OSE. So if I understand correctly, having shipped, again, going back to this commodity chart, having shipped, on a government-to-government basis, just under 79 percent of the total commodity demand, which equates to about 11 billion rubles. Roughly 10 percent of the proceeds for monetizing those commodities have been placed into the Russian pension fund account.
Mr. FRITZ. Basically that is right. Please remember that on your chart, we do not separate out those commodities which have been donated to vulnerable populations. And so there is 500,000 tons on this chart that has been donated through either the PVOs or directly government-to-government. So not 100 percent of those commodities on that list are being monetized.
Page 31 PREV PAGE TOP OF DOC Mr. OSE. So out of the 3.2 million metric tons, 500,000 has been donated?
Mr. FRITZ. That is correct.
Mr. OSE. So 2.7 million metric tons are within the monetization program?
Mr. FRITZ. Yes.
Mr. OSE. And of that, roughly 75 percent, a little bit more, has been exported.
Mr. FRITZ. Has been exported. And our export shipments have been heavy very recently. So there is a lot of product still in transit, or has not been discharged within the Russian federation.
Mr. OSE. What percentage is in transit?
Mr. FRITZ. I could not give you a figure off the top of my head. I am sorry, sir.
Mr. OSE. What percent has been actually delivered?
Mr. FRITZ. Forty percent, roughly.
Ms. CHAMBLISS. I seem to recall, and I will go back and check the numbers, because they do change continuously, I want to say about 40 percent. Particularly, we did a lot of the wheat donation. The numbers change continuously. Particularly a lot of the wheat, which is the largest single commodity moved earlier in the system. That included the donations, humanitarian feeding. But I seem to remember that it was about 45 percent or so had been delivered. But we will go back and check the numbers, Congressman, and provide them for you.
Mr. OSE. I will yield the Chair back to the chairman.
The CHAIRMAN [presiding]. Mr. Hilliard.
Mr. HILLIARD. I have no questions.
Page 32 PREV PAGE TOP OF DOC The CHAIRMAN. Mr. Goode.
Mr. GOODE. Just one, Mr. Chairman.
I would like to ask the Secretary, the IMF, we have made payments to that, and that makes payments to Russia. What if we gave them more? And I know they transfer the commodities and the grains we give them into cash. But what if the IMF got some of our foodstuffs and gave that to the countries of the world, rather than giving them cash? How would you feel about that?
Secretary GLICKMAN. I would ask our IMF expert here, Mr. Schumacher, to respond.
Mr. SCHUMACHER. I think, Mr. Goode, the way the international Breton Woods agreement was set up, the developed countries and undeveloped countries both contribute to IMF subscriptions. Then those are used in the IMF standby agreements that they do with different countries, particularly Russia. I have not heard of any proposals, regarding the IMF or the World Bank, to use commodities to provide that food assistance.
Secretary GLICKMAN. I would say this. One is that I think you would want the expertise of the peoplewe've been doing this for five decades, six decades. So there is a lot of experience involved from agriculture to agriculture. Even though there have been some problems, and this has not all gone without some mishap, by and large this runs better than what you might otherwise be reading in the paper and other types of programs. There is a lot more experience in doing it.
I do think, however, that this concept of monetization is something, there are a lot of places in the world where people are now looking at USDA and Mary Chambliss' shop and saying, why, you really are doing a great job in your foreign aid program. And I say, what foreign aid program? And they say, your monetization program, where you donate commodities, they are monetized, and then they are used for specific projects that we are jointly involved with. There is a tremendous amount of good work being done out there.
Page 33 PREV PAGE TOP OF DOC So I am not saying that that ought to replace other foreign aid or the IMF. I am just saying that the use of those monetized commodities can offer great help to countries around the world. I know Mr. Schumacher told me today about a program recentlywhat country was it?
Ms. SCHUMACHER. If I may, sir, in Yemen, where the ambassador came in to see us the other day and said that the food aid that you had authorized and appropriated and we have invested in Yemen was extraordinarily important to the social development of their poorer groups. Certainly the Russian contribution that we made to the Vavilov seed institute, where those people during World War II died, rather than eating the germplasm.
And also in the Dominican Republic, the food aid that came under wheat last year, 416(b), we are monetizing that to assist them in developing the marketing infrastructure that will assist, especially in both perishable and non-perishable goods, facilitate American exports. There have been a number of excellent monetizations that have taken place around the world. We may actually want to provide a report to Congress on some of our successes, and some of the problems with the monetization. Ms. Kaptur has articulated the need for doing that further in depth.
Secretary GLICKMAN. I would like to just say one thing. AID is a partner with USDA in these projects. And AID of course is part of that ''dreaded'' State Department, and I say that in quotations, because I really do not believe that, but I have to say that for the record. [Laughter]
But AID is of course the food assistance and foreign aid part of the State Department. Everything we have done in Russia has been done in coordination with them. Without them, we could not be doing the monitoring that we are doing.
The CHAIRMAN. Mr. Everett.
Mr. EVERETT. Thank you, Mr. Chairman.
Page 34 PREV PAGE TOP OF DOC Secretary Glickman, as you know, peanuts are one of the most nutritious plant sources of protein in the American diet. Peanut butter has an extremely long shelf life, and it is easily transportable. In the spring of 1993, I met with a delegation for the Russian Government. They seemed very positive and anxious about the chances of serving peanut butter to Russian school children. In 1992, prior to that, I met in Moscow with a group of government officials who also, after a test of that product, were very enthused about it.
I notice that you have not included peanuts in this most recent request. Given that there is going to be possibly 200,000 tons into the loan program, would this not be a win-win situation for us?
Secretary GLICKMAN. First of all, the request was one they had made of us. So as I said, we are not necessarily bound by their requests. We will be negotiating with them, and I think your point is well taken.
I do not know if we have discussed peanuts or peanut butter specifically over the last several years. But it certainly is worthwhile discussing with them.
Mr. EVERETT. Could I encourage you to take a look at including peanuts, peanut butter and peanut oil in this? I think you would admit, there are going to be a great many of those peanuts end up in the loan program this year. It seems to me this would be a very helpful thing.
Secretary GLICKMAN. We will discuss this. We do have to, to the extent possible, accommodate what their needs are. And in this request, they have clearly indicated their primary needs are in the feed grains, wheat and soybeans area. But that does not mean that we could not go outside of that.
Mr. EVERETT. And protein, there is no need for protein there?
Secretary GLICKMAN. They have not requested it. But they do have a deficit. One of the things our assessment team indicates is that it is a deficit in meat. But that would conceivably also be protein as well.
Page 35 PREV PAGE TOP OF DOC Mr. SCHUMACHER. Right, human protein.
Secretary GLICKMAN. Human protein. So it is worthwhile for us to discuss this with them.
Mr. EVERETT. Could I have your commitment that before it is finalized, that we could have some further conversations?
Secretary GLICKMAN. We will work with you on it, and see what we can do.
Mr. EVERETT. Thank you very much. Thank you, Mr. Chairman.
The CHAIRMAN. Mr. Phelps.
Mr. PHELPS. No questions.
The CHAIRMAN. Mr. Hill.
Mr. HILL. Mr. Secretary, perhaps you addressed this before I was here, but what is your latest assessment of Russia's upcoming supply and demand situation?
Secretary GLICKMAN. In terms of their supply situation, their agriculture minister this morning issuedwe have a copy of that Reuters
Mr. SCHUMACHER. Yes.
Secretary GLICKMAN. I just would read this for the record. He has stated, this is a Reuters story, it says Russia has lowered its 1999 grain harvest forecast to 57 to 58 million tons, and has asked the United States for aid to make up an expected shortfall, the deputy prime minister in charge of agriculture said. This announced the revised forecast down from a previous official forecast of 60 to 62 million tons at a news conference today.
And then we also, our assessment is about 55 million metric tons. So we are basically fairly close to their new assessment. Our assessment indicates that they have a deficit of approximately 8 to 9 million tons of various food assistance. That also includes meat, soybeans, as well as grains.
Page 36 PREV PAGE TOP OF DOC Mr. HILL. So what do you think this means for import meats?
Secretary GLICKMAN. They are going to need more food . And they are looking to us, at least, for a big part of that. That is the best I can tell you now. And what we have to do is, we have to make sure that this initial traunch has been done correctly and appropriately and there is no diversion or as little diversion as you can expect in these circumstances, that we have, two, the capability of monitoring the future requests and three, that we can work out with them, negotiate with them the substance of the requests. Because just because they have asked for X does not mean we have to supply it
And fourth, how this relates to all the other investigations going on with respect to the diversions of assistance to Russia beyond the food areas as well. All those things will have to be blended in with the package.
But you know, this Department over the years, since the Second World War, has supplied tens of millions of tons to Russia, and I expect we will probably continue to do so.
Mr. HILL. Thank you, Mr. Chairman. That's all the questions I have.
The CHAIRMAN. Mr. LaHood.
Mr. LAHOOD. Mr. Secretary, I wonder if I could put you on the spot. Knowing the fact that you are a good politician, you will decide whether you want to answer this or not. Some of us have worked very hard to get the Agriculture Appropriations conference report through the House. It is pending in the Senate, and I believe there will be a vote on it in the Senate. Are you going to recommend the President sign that?
Secretary GLICKMAN. Let me put it to you like this. We of course will evaluate the bill when it is done. You have not heard the word veto coming out of my mouth, the recommendation of a veto coming out of my mouth to date. But we are going to review the bill once it is done.
Page 37 PREV PAGE TOP OF DOC I have indicated a couple of concerns. One is that as the bill comes out, there is not adequate relief for the North Carolina flood and Hurricane Floyd-related relief. There is a $1.2 billion cap on disaster in the bill.
So if you presume that that figure, and that figure reasonably compensates for the drought and other pre-Floyd-related activities, then there will have to be a substantial proration if you include North Carolina flood and other 1999 disaster relief. Last year, remember, we had tremendous citrus damage in California in December. The bill says 1999 crop disaster relief. So we have to wait and see what that is before we will know what the final amount is.
So all I am saying is, that is a concern that may have to be addressed in a supplemental type of situation. But that is a very serious concern, because the level of damage is monumental. I was visited by the Governor of North Carolina yesterday, who went into great detail about the cataclysmic nature of the disaster in his State. Some places have had 35 inches of rain in a very short period of time. We have not seen that in this country anywhere, maybe in the Pacific Northwest some times. But not in farm country. That is one problem.
The second problem, which I have related, is the problem that there will be some people who will get a payment for income loss assistance who did not plant a crop at all. That is because the income loss assistance provisions are based on the AMTA payments. Now, Congress did in 1996 pass the AMTA payment provision. And we are not arguing for changing that for the normal AMTA payment.
But we have said that if you are going to give a special payment for people who have loss because of low prices, they ought to be people who have actually planted a crop this year. That is not in the bill, I wish it were in the bill. I wish there was some way to deal with that problem in the bill. I think it is going to be a problem for agriculture in the future.
Page 38 PREV PAGE TOP OF DOC But I would also note that Chairman Combest has said that he is going to re-examine a lot of these things next year. This is clearly one of the things that ought to be re-examined.
The other thing I would say, which I have said, is that I do not believe there is adequate funding for farm loans, particularly for emergency loans. You are going to have to be in a position to enact supplemental appropriations later in the year, if the disaster in farm loan funding proves to be insufficient. Those are three concerns that I have raised.
But I would have to say that I have not threatened, from my perspective, to date, any veto of this bill. But the President will not make a decision until the bill is finalized.
Mr. LAHOOD. Well, I appreciate your answer, and I appreciate your open-mindedness. I do not need to tell you, because I know you know it very well, it is an imperfect bill. And I know if Ms. Kaptur were here, she would be very vocal, because she was very vocal on the floor. But I would also say that there are people like the chairman of this committee and others who have indicated that they are willing to try and fix some of the things that may be wrong.
But for now, we have a lot of farmers who are in great economic distress. And this bill will be very helpful. I think if we need to step up for folks in the Carolinas in the next 30 days, there will be a lot of us that will be willing to go our leadership and certainly express that point of view.
But if we have a veto and a long delay and have to come back and re-do all these controversial issues like dairy and go through that whole thing again, our hard-hit farmers are going to be in a real mess, and some of them are going to go out of business. This bill really helps them, and does it in a very quick manner.
My time is quickly running out, but I do appreciate your open-mindedness about that. On September 24, 69 of us sent you a letter having to do with pork, which I raised with both you and Gus at the last hearing. And I know that you said Gus was going to be going to Russia. This letter simply says what I said at the last hearing that you were at, is that when we sold the 50,000 metric tons to Russia, there was a spike in pork prices here in this country. It can do a lot more than the SHOT program ever did for pork producers.
Page 39 PREV PAGE TOP OF DOC And I would want to encourage you again, you have just stated here today that Russia is looking for meat. Nothing better than good American pork to provide to them. That would certainly be a big assist to a lot of our pork producers in central Illinois and around this country, if we could provide an additional sale, as we did earlier in the year.
Now, I know you are going to tell me they have not asked for it. Well, so what. [Laughter.]
That has not stopped you in the past, right? It has not stopped you in the past. So I want to encourage you, 69 of our colleagues have encouraged you, to do all that you can to try and have a sale of the pork. Because it will be a big assist. We have had a lot of pork producers go out of business, and we are going to have more go out. This is something that can make a difference in pork prices.
I appreciate your indulgence, Mr. Chairman, to allow me to go just a little bit over. But if we could have the Secretary respond to that, I would appreciate it.
Secretary GLICKMAN. I would just say, I hear you loud and clear, Mr. LaHood. We responded last year, and as I said, while they have not requested any meat this year, it does not meet that that is not a subject for negotiation.
The CHAIRMAN. If the committee would indulge me, I will forego any further questions, so that we deal with this in a real time situation. Mr. Secretary, in regard to the initial question Mr. LaHood asked, there are just a couple of points that I want to make. Number one, in the hearing in which you sat right there, we were looking at the overall disaster package, at that point it was about $7.5 billion. It ended up at $8.7 billion.
Secretary GLICKMAN. Right.
The CHAIRMAN. The question was asked about the amount of money needed for disaster. The answer you gave was somewhere in a range between $800 million and $1.2 billion.
Page 40 PREV PAGE TOP OF DOC Secretary GLICKMAN. But that was pre
The CHAIRMAN. Well, I know. But there was never any discussion throughout the process in that meeting. Now, that question came up on the floor. And it is impossible to know how much is needed for a disaster until you have something to measure. It is very difficult to measure that when the water has not even receded. I have talked to my friends from North Carolina and those from areas that have been hit. In fact, I intend to be in North Carolina in the very near future, just looking at that from my own personal interests in regard to agriculture.
This goes well beyond just agriculture. This affects families, this affects businesses, this affects schools, it is just devastating from all indications. There is no way that this entire package could have been dealt with in an agriculture appropriations bill, when the water was still 12 feet high in some areas. There is going to have to be some relationship between the administration and the Congress on a supplemental bill that will go much beyond just agriculture.
I just want to make sure that in the discussions that went on, while it may not be specifically legislated, I do not believe that there was an intent for this to be an all-inclusive disaster bill for Hurricane Floyd, and that it was based upon those losses that we were relatively sure of in the northeast due to the drought. But this is so substantial, I think it is going to have to be well beyond that.
Second, the question of AMTA, and we discussed that here, and I appreciate your bringing that up again. The effort in this was to deliver this assistance as quickly as possible. That was the best way it could be done. Under all the estimates, surely there will be some who probably should not get the money. But in order to determine exactly who those are, and to change that so that that can be assessed, it probably meant a substantial delay in the amount of time that people who did need it would be getting it.
Page 41 PREV PAGE TOP OF DOC As you have indicated, I am very willing and have announced that we will be looking at this subject beginning the first of the year, three years before this farm bill expires. But I did want to make sure, so that there is not a misunderstanding because of the number of conversations that I and other members of this committee have had with our friends devastated by Hurricane Floyd. It has never been the intent that that bill was going to cover Hurricane Floyd. There is going to have to be something in addition.
Secretary GLICKMAN. I don't disagree with that. I would just like to reiterate, however, that because of the fact that the number is capped at $1.2 billion, means that we have to get the nationwide assessments in there. It is capped at $1.2 billion for farm disasters for 1999 crops, whether it is North Carolina or Kansas or Texas or Washington State or wherever.
It will not be as problematic as last year. Because as you remember, last year we had a multi-year disaster and a single year disaster, and we were into two funds, and frankly, it took us longer than I would have liked to have done. But this year, we do not have a multi-year problem. We only have a single year situation. So we can move it ahead faster.
What I want to make sure people understand is without supplemental North Carolina assistance, in one form or another, in one bill or another, there will probably have to be fairly significant prorating of those disaster payments. Now, how much? We do not know. For example, last year, there were estimates of the total amount of drought disasters at $4 billion, $5 billion, $6 billion, $8 billion and $10 billion. It ended up being that it was about, well, for the single year it was about $1.6 billion and we paid about 83 percent of that. So the proration was not as large as we thought it was, because the estimates were not quite as high when push came to shove.
Sometimes that happens with disasters, people overestimate the damage, and then when things come down, it is not quite as great. Maybe that will be the case, we do not know. I just wanted to make clear the point that without this additional funding, somewhere, some place, there could possibly be significant prorating.
Page 42 PREV PAGE TOP OF DOC The CHAIRMAN. And you point out the problem, and that is, we do not know how big it is yet.
Secretary GLICKMAN. I want to make sure North Carolina is eligible for anything that is in the bill. But it is all part of the $1.2 billion cap.
The CHAIRMAN. Yes. And again, I feel strongly there will probably some additional considerations.
Mr. BISHOP. Thank you very much, Mr. Chairman.
Thank you, Mr. Secretary, and I obviously would like to return to the subject matter raised by Mr. Everett, the subject of the peanuts to Russia. I, too, had an opportunity in 1993 to meet with the officials from the Russian school system who were interested in utilizing peanut butter and peanuts in the school lunch program over there. Also, I was very, very appreciative of the administration's agreement to include several billion dollars worth of peanuts in the Russian aid package back in 1993 and 1994, which was very helpful and very much appreciated by the southeastern, particularly Georgia, peanut growers.
But again, noticing the conspicuous absence of peanuts in this particular proposal, I wanted to ask the Secretary if there are some discretionary commodity provisions within title I and title II of Public Law 480 that would allow peanut butter products to be given as humanitarian aid, particularly processed peanut butter, which could very well be a dietary supplement, source of protein.
And whether or not it is possible, within the authority that you have, to utilize that. Particularly, would it be timely, given the fact that we have a bumper crop this year, and we are facing the possibility, although we do not know that it will happen, of having some assessments on growers because of the buy-back provisions.
So I would like to underscore Mr. Everett's comments and also you very stronglyand I have some correspondence on the way to you in that regardto tell us what you can do with regard to expanding the amount of processed, that is, peanut butter as well as peanut oil, to include in the package.
Page 43 PREV PAGE TOP OF DOC Secretary GLICKMAN. You are correct, peanuts are a high source of protein. And part of this has to be to get the donor and the donee on the same wave length. I think perhaps we might talk later about other efforts we can do with some of the peanut groups to try to jump start a little bit their involvement in acquainting the Russians again about this. But perhaps on the discretionary authority, Richard might talk about this for a second.
Mr. FRITZ. With regard to products like peanut butter, we generally like to work through the private voluntary organizations who have the ability to distribute and either direct the monetization.
There was one PVO that requested peanut butter for Russia several years ago. That was provided. I will say that the experience was not what we had hoped, and what we need to do is work with the industry for greater training and assistance with the Russians on storage and use of the product. And I would be happy to sit down with you and your staff and other members to explore that a little bit further.
Mr. BISHOP. Okay. Thank you.
The CHAIRMAN. Mr. Moran.
Mr. MORAN. Thank you, Mr. Chairman.
I would like to yield my time to the gentleman from Illinois for his follow-up questions.
Mr. LAHOOD. Mr. Secretary, I just want to clarify something that you said to the chairman. If the President were to sign the agriculture appropriations bill, which I hope he will, and I hope you will recommend that he does that, and again, I appreciate your open-mindedness on that, you are not saying that the additional AMTA payment to, say, producers in central Illinois would be held up while you determine what is happening in the Carolinas. Are you saying that?
Secretary GLICKMAN. No. No, no.
Page 44 PREV PAGE TOP OF DOC Mr. LAHOOD. Very good. That is what the chairman told me, and I want to make sure it is on the record.
Secretary GLICKMAN. No. AMTA payments will go out very quickly, like last year. What I said to the chairman was the disaster portion is capped at $1.2 billion. And that is complicated by the cap. Assuming that the total amount of the payable damages from the Government exceeds $1.2 billion, and we will not know that for a while, there will be a proration down. To the extent to which North Carolina disaster gets additional funding, that will reduce the need for that proration down.
And then we would have to determine, you see, I think I need to make this clear, since it is for damage of 1999 crops, we are not done with that damage assessment. In fact, you have places in the country that are still growing crops, like citrus in California and others. So what we would then have to decide to do, if we could, is whether we would make an advance estimate on that disaster part of it. Since it is a one year thing, I suppose we could. We would have to decide whether it is feasible to do that kind of thing or not.
But I would want to try to get that out as quickly as possible. But that is going to be tougher to get out instantaneously than the AMTAs.
Mr. LAHOOD. Before I yield back to Mr. Moran, Gus, did you make your trip to Russia?
Mr. SCHUMACHER. Mr. Fritz is leaving tonight for Russia. I am going to Helsinki next week to have some further discussions, and then I will probably go to Russia in November, the first week in November.
Mr. LAHOOD. We could box up some pork products to take along with you, if you would like, as samplers for them. [Laughter.]
Secretary GLICKMAN. He can take the bacon out, he just cannot bring it in. [Laughter.]
Page 45 PREV PAGE TOP OF DOC Mr. LAHOOD. Thank you, Mr. Moran. I am going to yield back to Mr. Moran.
Mr. MORAN. Mr. Chairman, I have no questions and yield my time.
Mr. OSE. Would the gentleman yield?
Mr. MORAN. I yield to the gentleman from California.
Mr. OSE. Mr. Chairman, I appreciate your indulgence here. I kind of panicked when I got up there earlier, I did not realize how far it was from here to there. [Laughter.]
I want to go back to a question I was trying to get some additional information on. Ms. Chambliss, you said roughly 40 percent of the tonnage has been delivered under this program.
Ms. CHAMBLISS. I said my recollection was probably about 45 percent had already arrived in Russia, but that is a very rough recollection. Obviously, we are looking behind to see if anyone on my staff has a better number. There does not seem to be at this moment. Maybe they do have.
It would take us a while to sort out. We have arrived, as of September 24, and again, we do update this weekly on our web page, just a little over 2 millions tons, if you will, had arrived. So actually, it is a higher percentage than I had recalled. Obviously I was remembering an earlier number. That is what has arrived.
It varies a lot by commodities. As I said, the wheat went early and in large shipments, so we have delivered about 1.3 million tons of that. So it does vary by commodity.
Mr. OSE. What I am trying to drive at is, someone has made a decision to tie the monetization of these commodities and the receipt from the sales of those that we give to the Russians to the Russian pension fund. I do not know who made that decision. Apparently it is part of the agreement with the Russian Government.
Page 46 PREV PAGE TOP OF DOC What I am trying to get at is, as product is delivered into Russia, and I have read Mr. Viadero's audit, and I have questions for him later, but as product is delivered into Russia and distributed, and it hits that 120-day window, is the money being placed in the Russian pension fund? According to Mr. Viadero's audit, on which you were copied, it is rather questionable whether we have the ability to ascertain whether or not that money is actually going into the pension fund.
Ms. CHAMBLISS. I am going to ask Asif Chaudhry, since he was in Russia. We do believe that we do have the ability, that we are monitoring. We have a Treasury attache in Moscow who has worked quite closely with the appropriate Russian ministries. But let me ask Mr. Chaudhry just to comment on that.
Mr. CHAUDHRY. Thank you. Congressman, actually, the proceeds are going into the pension fund through the special account, on time, in fact, ahead of schedule, based on the 120-day maximum window that they have from the time the commodities get there. This particular report that you referred to was done based on a visit in May. At that time, we had just started doing the program, and the commodities had just started arriving. None of the commodities had faced that 120-day maximum period at that time. That was the reason that at that time, there was a very small amount of money that was going into the pension fund.
So we do have the ability to monitor through the Department, the Russian Ministry of Finance, and through the local regional authorities who are receiving the money to the pension fund.
Mr. OSE. One of the paragraphs in here talks about an agreement between the Ministry of Finance and the Ministry of Trade and Ministry of Economics. They all three need to sign off on the guarantee for payment. Has that been accomplished?
Mr. CHAUDHRY. Of the 78 regions that were initially part of the program, 74 have signed agreements with the ministries to receive those commodities.
Page 47 PREV PAGE TOP OF DOC Mr. OSE. And all three ministries in those 74 districts, including the central government, have signed off on the guarantees?
Mr. CHAUDHRY. The guarantees have been signed between the ''oblast regions'' and the Ministry of Agriculture. The rest of the process is essentially just the signing off of what the Ministry of Agriculture has signed off on. I am not sure how much of that has been signed by the Ministry of Economy and others. But the main thing is, the agreement with the Ministry of Agriculture, which is honored by the Ministry of Finance, is to make sure that the guarantee is valid.
Mr. OSE. Mr. Chairman, the reason I ask these questions is that the contributions to the Russian pension fund are dependent upon having agreement from these various agencies. And if the agencies do not agree, then you cannot make the contribution which circumvents one of the intentions of the program, the Russian pension plan. So I appreciate your time and indulgence.
Mr. CHAUDHRY. Congressman, if I could just add a comment to this. The agreement we have with the Russian Government is a government-to-government agreement. The Russian Government has the obligation to the U.S. Government to make sure the proceeds get into the pension fund. This is a second tier guarantee for us to make sure that what the Federal Government has agreed with us and guaranteed to us will actually take place.
Mr. OSE. You can understand my skepticism as to the viability of these representations, given current events. That is why I am more than a little curious about this.
Ms. CHAMBLISS. Which is also why I think we had, if you will, the double guarantee. One, the oblasts have their commitment to the Russian Federal Government, which we are pleased to see 74 of them have consummated that agreement, and as best we can determine, are in fact making the necessary payments. But the Federal Government of Russia has an obligation to us that the dollar value of those proceeds will go into the pension fund. So at the end of the day, the Federal Government of Russia has that obligation to the United States to get those funds in there.
Page 48 PREV PAGE TOP OF DOC Mr. OSE. And theoretically, if they do not do that, we stop.
Ms. CHAMBLISS. The Federal Government has to be certain that they are there. Yes.
Mr. OSE. It gets to my central question, how do we determine, other than their telling us the money is there?
Ms. CHAMBLISS. We review the deposits, and we also are going to look as to how they are paying out the pension. That is another good indication.
The CHAIRMAN. Mr. Etheridge.
Mr. ETHERIDGE. Thank you, Mr. Chairman.
Mr. Secretary, let me thank you for being here also. I want to thank you for your efforts to improve the market for pork. In your last efforts, and Mr. LaHood mentioned it earlier, and I would encourage you to continue that effort, not only in this package with the Russians, but in your domestic as well as other packages you mentioned earlier, the problems with the pork industry is the worst since the Great Depression, and I would have to echo that. I think it is so important that you use every effort and leverage your Department has.
As you well know, eastern North Carolina today, that is an important part of our economy. For those of us on this committee and others, North Carolina has one of the most diverse agricultural economies in the country, second only to, I think, California. In the eastern part of the State, I want to visit the issue you raised earlier as it relates to the devastation from the floods, and remind folks that when they think of hurricanes, they usually think of the coastal areas being plummeted by rain and wind and water. Usually, in those waters, they are salt waters that tend to go away very quickly, you move in, you start cleaning up, et cetera.
In this case, some of the areas of eastern North Carolina have been under water for over 2 weeks. That water is contaminated by everything you can think of, conceivably, from human waste to animal waste to chemicals, et cetera. It is an area larger than most States. And the latest word is, and this is why, Mr. Chairman, I would invite every member of this committee who would like to come to eastern North Carolina, because the latest numbers from the Commission of Agriculture in North Carolina is that 25 percent of our farmers may not be in business next year in eastern North Carolina.
Page 49 PREV PAGE TOP OF DOC We were already suffering from the efforts of the drought, and we were eligible for that portion when Dennis hit and put about 20 inches, 18 to 20 inches of water, in portions of eastern North Carolina. Floyd came and dumped, and that number raised to about 33 inches. And then we had the substantive rains. All of it fell within about a 2-week period. I believe you said 36 inches, it is actually 37 inches in some parts. Flooding that has never been seen in the history of our State, some have said a 500-year flood, I do not know how you measure that, we were not here. But I assume the engineers have done that. [Laughter.]
And let me thank you for your efforts on behalf of our farmers. There is no question every farmer in this country needs help. They are in trouble. But in eastern North Carolina, the preliminary numbers that have come out would more than consume the dollars that are already in there for disaster. It is well above the $1.2 billion. And the real challenge we face is a lot of those farmers cannot get in the field and plant their fall crops for next year. If we do not act in this Congress, and maybe even some money in this bill, we will actually realize a 25 percent reduction and portion of our State will have a difficult time recovering for decades.
So I wanted to get that on the record, and I wanted to thank you for your efforts, and encourage every member of this committee to do what they can. Because I think, Mr. Secretary, we are at a point, and there are others who are affected by Floyd, but North Carolina really took the blunt of the blow. Virginia is affected, New Jersey and portions of New York. But a lot of their losses were business, some agriculture. In North Carolina, it is business and agriculture.
Before I ask you to comment on the flood portion again, I would remind this committee of the latest number I have seen that we may lose anywhere from 20,000 to 30,000 homes in eastern North Carolina that are going to have to be destroyed because of a variety of reasons, as recommended by the Director of FEMA over the last couple of days, and this number is growing. It may work out to be one of the worst disasters that we have faced in this country, maybe even our history. I hope you would comment again on the agricultural losses that you are aware of.
Page 50 PREV PAGE TOP OF DOC Secretary GLICKMAN. One thing I would tell you, Congressman, is that we estimate that compensable crop insurance payments will be somewhere between $200 million and $300 million. We are moving to get those dollars out, that is ongoing, that is unrelated to this bill. But your Governor came and pleaded with us to get this done in as non-bureaucratic way as possible, and I think he was kind of surprised at the level of crop insurance.
But your tobacco crop is largely insured, your cotton crop is substantially insured, soybeans are less insured, corn is fairly well insured. I mean, most of it is not insured in terms of total loss. But there is still about $200 million to $300 million, and we are going to get that out quickly. That will help.
Mr. ETHERIDGE. That will help. Thank you.
Secretary GLICKMAN. We also have the ECP program, the Emergency Conservation Program, where farmers can come in and get a variety of forms of assistance for cleanup. And those are grants, cleanup and that kind of thing. One thing I will tell you we have seen from this, this is something that I think needs to be fixed under law. People are most frustrated when they find out, except for what Congress does through the emergency program, or crop insurance, all we have got is the authority for low interest loans.
And they see that FEMA can go in on a means tested basis, provide up-front assistance for destruction of real property, and we do not have any USDA authority, when an emergency hits, to provide that authority for structures or equipment. That is where a lot of the immediate loss has taken place on. It is one of the things we are working with FEMA and the Congress to see legislatively.
Farmers will see that the homeowners will get assistance or small business will get assistance, except if they are farmers. Under the statute, they are exempted. So it is frustrating for people to see that all they can get is low interest loans under most circumstances.
Page 51 PREV PAGE TOP OF DOC Mr. ETHERIDGE. Mr. Secretary, thank you. I wanted to do this for the committee's benefit, because I think it would be great if we could go. I went on a farm the other day, I have been on a number of farms over the last 3 weeks, farmers are absolutely frustrated. And this is the only thing that will save them. What they are saying to me, I do not need another loan. I cannot afford to pay the ones I have.
So unless there are some grant opportunitiesI was on a farm where this farmer had diversified. He had chickens, his houses were flooded, he lost all those. He lost his house, he had tobacco, he lost eight barns, water took them. He had all his equipment around there, his tractors, they were all flooded. He may survive, but he may not. He said, unless I get some grants to help me with equipmenthe is larger than most of the small ones. But he absolutely will not make it.
And in some cases, I have been in communities where they lost their equipment, their crops. Because of the contamination on a lot of the crops, they are being told not to harvest them and bring them to market. And finally, and the most devastating thing of all to some of these farmers and small business people, their homes are gone. They were flooded to the roof in some cases, others part of it. But they have lost everything they have. And the most devastating thing that I have seen, looking in their face, they have lost their history, the family photographs, anything that tied them to their past. That is gone.
I have never faced this in my life, and I think we have a real challenge, that we have to work together to try to help save these folks. Because if they ever go off the farm, they will not go back. Thank you.
The CHAIRMAN. Mr. Thune.
Mr. THUNE. Thank you, Mr. Chairman, Mr. Secretary, and members of your team, for your responsiveness and always being available to answer questions that we have.
I would also add, one thing that would be very helpful is another 50,000 tons of U.S. pork going to Russia. But I just have, and maybe this is a simple question, but one thing I hear over and over and over in traveling across South Dakota, is why doesn't the United States, when we agree to assist other countries, give them something we have a lot of instead of something we do not have much of, at least under the budgetary constraints?
Page 52 PREV PAGE TOP OF DOC We are trying to figure out how to provide financial assistance to these countries. Why do we not substitute food aid? We have enormous stocks, we have bumper crops and this surplus problem. I realize that there is a need for financial aid there as well.
But it seems at least in the eyes of a lot of producers when you visit with them that that would be a very simple solution to reducing some of our surplus of food and addressing the same need. In a lot of respects, the dollars of assistance that we provide to other countries in the form of financial assistance I would assume ultimately goes toward food. I am curious what your thoughts are on that.
Secretary GLICKMAN. First of all, I would have to say, this fiscal year, we are about at 10 million metric tons of food and food assistance, compared to 1.8 million in the previous year and 1.8 million the previous year. So there is an attempt to try to deal with this.
So I think we are the most in 25 years, our food assistance this year. But you also have to consider, I would like to dump everything we have outside our borders some place. The Russians have specific needs as well. We try to negotiate with them to take more of what we want them to take. But ultimately, we have to give them what they think they need. That is the other thing. In addition to the supply on our side, we have the demand side. And the demand side is different needs in various parts in the world.
In addition to that, you have issues, for example, of commodity costs, transportation costs, perishability, logistics, who does it, who monitors it. The gentleman sitting behind me monitorsand he shouldeverything we do. Because these are assets of the Government. It would be like us giving dollars, except it is commodities instead of dollars. But they are commodities that we have taken possession of for whatever reason because of our programs. So we have to make sure that it is done in a sensible way.
Sometimes, it is just logistically impossible to do more than what we have done, given the nature of the fact that we rely on PVOs to do most of the actual work out there in the countryside. But saying that, the President has instructed us to just double and redouble and triple double our efforts to move this stuff wherever we can. And this year, we have moved about five times what we did in the previous few years.
Page 53 PREV PAGE TOP OF DOC I do not know whether anybody else would comment. Because I think it is a good question. I hear the same thing, too.
Mr. FRITZ. Congressman, if I may, one issue that we are always struggling with is, when we do donations of any type, we have to make sure that we are also not in the realm of commercial displacement. We do not want to put food in from the U.S. Government where an actual sale could have taken place. That is not healthy for the importer or the exporter. So that is something we watch very closely.
And we sign agreements with the foreign countries that we are not engaging in commercial displacement.
Mr. THUNE. And I appreciate your efforts. I am not trying to minimize that. I know that we have beefed that up, pumped that up considerably, to your credit, and to the administration's credit. But it just seems to me that this commodities for dollars exchange, if there are ways that, because we are consistently trying to pump financial aid into other countries around the world, and something we have plenty of, right now at least, is food commodities.
But I am just responding again, to something that I hear frequently from people as I traverse my district.
Secretary GLICKMAN. I would have to say that the value of commodities monetized and taken to countries that need help, and then having those monetized proceeds do something to build infrastructure or help people, that is a very effective way of providing assistance. Perhaps that is something that overall the Government needs to increase. We have found it to be successful in many parts of the world, working not only with ourselves, but with the AID. I know Gus has been involved with this.
Mr. SCHUMACHER. I had a meeting last week with some businessmen who were working with OPEC on investment in agribusiness in Russia. They may testify later, or they may send a letter over. One of them is investing in poultry. He started off with some hatchery eggs to get going, and he did not have the system in place, so he is selling these hatchery eggs into the countryside.
Page 54 PREV PAGE TOP OF DOC He commented to me that he was selling these about 1 ruble, 1.2 rubles apiece, before Mary and Mr. Fritz and Mr. Chaudhry and others started the feed assistance. Once the feed started coming in this summer, the demand went up so substantially, he started selling them for 2 to 3 rubles per hatchery egg. That, he said, is some indication, he was kind of kidding me, called it the Lippman index, his name is Sam Lippman, that following how the feed has been jump starting businesses in rural Russia, particularly among smaller producers.
So we hear about commercial displacement, I think in that case we are developing some, jump starting businesses deep into rural Russia.
Mr. THUNE. I appreciate all your answers. Mr. Chairman, I was going to yield the balance of my time to Mr. Ose, but since I have no time to yield, I apologize to him and yield to you.
The CHAIRMAN. The gentleman from Minnesota.
Mr. GUTKNECHT. Thank you, Mr. Chairman. I will try to yield some time to Mr. Ose. I apologize, I have another hearing going on at the same time. I thank the Secretary and all of his assistants for being here today. This is a very important issue.
I also am concerned about particularly pork, and getting more of it moved out of this country. So anything we can do in that regard is welcomed by our pork producers in the upper Midwest.
I also want to talk briefly about, and perhaps you can give us an update on concession sales of soybeans to Russia. Is that on the agenda? How are we doing in that regard?
Mr. FRITZ. For soybeans and soybean meal, basically, we have purchased almost 100 percent. There is some leeway, obviously.
Secretary GLICKMAN. Of the 1998 traunch.
Mr. FRITZ. Right. So that has been purchased and
Page 55 PREV PAGE TOP OF DOC Mr. GUTKNECHT. What's the amount of that?
Mr. FRITZ. The tonnage on meal was 300,000 metric tons that was agreed to and we have purchased 295,000. On soybeans, there is 200,000 in the agreement. We purchased a little over 188,000. Of the meal, of the 295,000 purchased, 119,000 has been exported. And on soybeans, although we have 188,000 purchased, we have actually exported a little bit more than that, at 190,000.
What happens is, when you load a vessel, you have a tolerance figure, plus or minus 5 percent. And in fact, we have loaded a little bit more. So the loadings actually outweigh what we show as purchases.
Mr. GUTKNECHT. Just one other point, then I will yield to my colleague from California. You have a very difficult job. And we had an interesting debate last night on the House floor about foreign aid. We have had hearings already about what has happened to some of the money, at least we believe that has happened to some of the money that has gone to Russia and wound up in various bank accounts being wired around the world, literally at the speed of light.
It certainly is not outside the realm of possibilities that some of this food aid could wind up being bartered for gold or whatever, and being manipulated by some of the cartels and the Mafia people that are still well entrenched in Russia. So I do not have an answer for you, but we are empathetic, and we do hope that you will try to monitor to make certain that the aid that we try to send to help people who are hungry actually helps the hungry people.
That is not a question as much as a comment, and we will try to work with you on this end to do what we can to make certain that that does not happen.
Secretary GLICKMAN. Not only do we agree with you, but we also believe before we got down a road of a second traunch of a significant amount of Russian assistance for food, we have to make sure that the questions that have been asked here and other places have been properly answered. That is, this overwhelming amount that we have agreed to give them has actually gotten to who we intended to give them to.
Page 56 PREV PAGE TOP OF DOC Mr. GUTKNECHT. With that, Mr. Chairman, I would yield the balance of my time to my colleague from California.
Mr. OSE. I thank my friend from the Midwest.
I want to go back to Ms. Chambliss, if I could. There is an item in this CRS report about a joint audit to be done during the October-December 1999 period. I presume the objective of the audit is to ascertain whether or not the program's objectives were met. What is the status of it? Being October 6, I am sure we are early. But is that audit going to be conducted, and when will it be finished?
Mr. FRITZ. Excuse me, Congressman, if I may, that was the initial time table, when we would have hired an outside company to do a financial audit of the program. The program got started a little bit later than we anticipated, and deliveries are going to extend through the end of this calendar year, we will be doing the audit early next year, beginning in January or February, hopefully. At this time, we have not hired an accounting firm to do that audit, but we are working with the CCC to assure that those funds are available to hire those auditors.
Mr. OSE. I only have less than a minute, I want to make sure I understand. We put the food stocks on a ship, we ship it to Russia, it is an American carrier. We offload there, our audit team tracks the food stocks in the distribution facility out to the 78 oblast. As I read the report, those oblast, or the destination, is a large facility for processing and the like.
The objective of the program, however, is to deliver those precursor food stocks to bakeries and the like who would then turn around and sell the finished product at the difference between the market price for the finished product and the cost of the inputs to the populace. That is how the food gets into the population. Then that incremental amount, prior to the markup by the bakery, goes into the pension funds?
Page 57 PREV PAGE TOP OF DOC Mr. FRITZ. Not quite. You are close.
Mr. OSE. Well, my time is expired.
Mr. CHAUDHRY. What goes into the pension fund is the approximate value of the commodities at port. Essentially what we do is, commodities get to Russia, get offloaded in the Port of St. Petersburg, and at that point, we determine the price and value for that traunch. That is what goes into the pension fund.
On top of that, if there is transportation and domestic handling charges, which is paid by the person who is receiving it, that is just expense that goes to whoever is going to transport it and handle it, and goes for that expense. What goes to the pension fund is strictly the port value of the commodities.
Mr. FRITZ. If I may, let me say, we would be happy to come up and sit down with you and go through this process step by step and bring one of our monitors with us, so that you can see how we are doing it, tracking things by the computer and tracking the proceeds back, and actually visiting with one of our monitors who has been on site.
Mr. OSE. I do have a passing interest in that.
Mr. FRITZ. We would be happy to do that.
Mr. OSE. I appreciate that. Thank you, Mr. Chairman.
The CHAIRMAN. Are there other members who might wish to ask questions for the Secretary while he is here?
Mr. Secretary, we got you out on time. Thank you very much for coming.
Secretary GLICKMAN. Thank you. I appreciate it.
The CHAIRMAN. I would now ask that the Honorable Roger Viadero, who is the Inspector General, U.S. Department of Agriculture, please come to the table and proceed when ready.
STATEMENT OF ROGER C. VIADERO, INSPECTOR GENERAL, U.S. DEPARTMENT OF AGRICULTURE; ACCOMPANIED BY JAMES R. EBBITT, ASSISTANT INSPECTOR GENERAL FOR AUDIT
Page 58 PREV PAGE TOP OF DOC
Mr. VIADERO. Thank you, sir.
Mr. Chairman and members of the committee, I appreciate the opportunity to be here today to testify about our work on food aid assistance to Russia. With me is James R. Ebbitt, the Assistant Inspector General for Audit.
I have prepared a statement which I would like to submit for the record, and summarize the prepared statement here this morning.
The CHAIRMAN. Your entire statement and any other information you have will be made part of the record.
Mr. VIADERO. Thank you, sir.
Recently the media has been reporting possible money laundering through U.S. banks of funds provided by the U.S. Government to the Russian Federation. In the last several weeks, there have even been unconfirmed reports that funds derived from USDA-donated commodities have been diverted and ended up in these money laundering schemes.
Because of the adverse impact these schemes may have on the USDA program, we have been monitoring the situation, and we have kept the Secretary and you at the Congress informed as to the information which we have gathered. I will briefly discuss the scope of our prior and current work.
Since 1994, my office has evaluated various aspects of the Department's $1.9 billion in food aid assistance to the newly independent states of the former Soviet Union. In response to our recommendations, the Department took actions to strengthen controls in future programs over the accountability for the commodities and monetization proceeds and oversight of cooperating sponsors.
In December, 1998, the governments of the United States and Russia entered into two food aid agreements, which would provide over 3 million metric tons of wheat and various other commodities to the Russian Government. According to FAS, the program goals of these two massive food aid assistance agreements were to provide contributions to the Russian pension fund and to distribute food directly to the most needy groups.
Page 59 PREV PAGE TOP OF DOC The estimated total cost of all the agreements is in excess of $1 billion. The commodities are estimated to have cost $746 million, and their monetized proceeds are estimated to total approximately $403 million.
Beginning in December 1998, we monitored FAS' efforts to implement procedures to minimize potential misuse and improper losses of commodities. In February 1999, we recommended that, among other things, FAS increase the size and effectiveness of its monitoring staff in Moscow, verify the financial integrity of any private Russian institutions which would handle monetized proceeds, and assign the Moscow FAS monitoring staff responsibility to track the deposits going into the Russian pension fund.
Mr. Chairman, I would like to submit a copy of both our February 25 memorandum to FAS and their response for the record.
Now I would like to discuss our trip to Moscow in May of 1999. OIG participated with FAS on a U.S. Government interagency team trip to Russia to observe the implementation of food aid agreements. I emphasize that our participation on this interagency team was solely and exclusively as an observer. We were able to corroborate much of the information which FAS had been providing to us regarding its monitoring efforts. We documented our observations on this trip in a memorandum to FAS dated August 13, 1999.
With your permission, Mr. Chairman, I would like to submit our trip memorandum for the record. And while we believe that FAS has made a significant effort to establish controls and strengthen monitoring efforts, we can provide no assurance that the controls are in fact fully in place and/or working.
Earlier in our testimony, we discussed ongoing media allegations about possible illegal laundering through American banks of proceeds from the USDA food aid assistance program. With one exception, which I will discuss, we have no evidence, nor do we have any direct knowledge, of any money laundering involving the USDA Food Aid Program funds. However, we would emphasize that due to the breakdowns of internal control procedures that we have reported earlier in 1992 and in 1993 food aid assistance programs, we cannot say with any absolute assurance that such money laundering did not occur nor is it not occurring as we speak.
Page 60 PREV PAGE TOP OF DOC Also due to problems in the Russian banking system, and limitations in FAS' current monitoring efforts, we can provide no assurance regarding the current program. The exception I refer to involves a private voluntary organization called the Fund for Democracy and Development, or FDD. FDD received $19.6 million in USDA commodities under four agreements in 1993 and 1994. One of the agreements authorized FDD to monetize $13.8 million in commodities.
The net proceeds total $3.7 million. Recently FAS gave my office a stack of document, showing a questionable transfer of monetized proceeds. At this time, we are conducting an active criminal investigation into this matter. FAS became aware of this questionable transfer in late 1998, but did not notify us until recently.
FDD and other parties made attempts to recover the funds. In a letter dated April 6, 1999, FDD notified FAS that it had recovered half of the questionable transfer, and these funds had been deposited in one of its U.S. bank accounts. Currently, we have been unable to confirm the recovery of these funds and do not have any information as to the whereabouts of the other half of the transferred amount. We are continuing to monitor FAS' effort to recover these funds.
Mr. Chairman, because of the recent rash of media articles alleging money laundering between Russian and American banks, FAS needs to be particularly wary of proceeds from the sale of USDA commodities flowing through the Russian banking system. FAS needs to provide even greater assurance to the Congress and the Department that the financial control procedures it has established are in fact in place and are in fact working effectively.
The next few months will be critical. Thus far, only $30.3 million, or just a little bit more than 7 1/2 percent of the estimated total proceeds of $403 million have been forwarded to the Russian pension fund. Most of these proceeds have not yet been transferred.
Mr. Chairman, I would like to thank you for the opportunity to present the issues that we have identified under the Russian food aid agreements. Our goal has always been to ensure the successful accomplishment and financial integrity of these agreements.
Page 61 PREV PAGE TOP OF DOC This concludes my prepared statement, Mr. Chairman. I would be happy to answer any questions you or other members may have.
[The prepared statement of Mr. Viadero appears at the conclusion of the hearing.]
The CHAIRMAN. Thank you very much.
Mr. GUTKNECHT. Mr. Chairman, I think that was a very candid report. And essentially, what you just told us was that we cannot be assured that anywe have no assurances that the previous transfers did not get expropriated by certain people, and right now we have no assurance that in the future they will not, either. Is that basically what you just told us?
Mr. VIADERO. Yes, sir. And in line with that, it was mentioned on a previous panel regarding the sign-offs or guarantees of the 78 oblast, 74 of the 78 have signed on. As part of the agreement, though, all of these issues cannot stand as being affirmed until the Minister of Finance signs off.
And in a memo dated October 1st, 1999, we received this this morning, and I quote, this is a response from FAS regarding the trip memorandum. ''The Ministry of Finance has not yet officially approved any of the contracts. The reason for the delay is the frequent change of administration in the ministry since this program began.''
From the audit side of the house and also the investigation side of the house, until they sign off on it, we are sort of hanging out there.
Mr. GUTKNECHT. I yield the balance of my time to Mr. Ose, if you want.
The CHAIRMAN. Is this a conspiracy? [Laughter.]
Mr. OSE. Mr. Chairman, you are still in charge.
Page 62 PREV PAGE TOP OF DOC The CHAIRMAN. Please proceed, Mr. Ose.
Mr. OSE. Mr. Viadero, number one, I want to thank you for coming. I have read extensively your memorandum of August 13. And I want to go through it generically at first, and then specifically as time allows.
There are a number of comments in here. Page 2, the itinerary did not give us an opportunity to review or track processing of funds from the final recipients to the Russian Government pension fund, which you just alluded to. The legal attache at the American embassy enjoys a very good working relationship. Page 4, we had a brief opportunity to inspect documentation regarding controls, and based on our limited analysis, based on our limited observations, be working to provide some reasonable assurance, we believe, may help.
You can understand my skepticism with this kind of wording. I am not used to seeing that in an audit, if you will. I like clean audits.
Mr. VIADERO. This was just an evaluation, sir, not an audit.
Mr. OSE. Okay. Here is the essential dilemma I have. Reading your material here, there are places where your team was not allowed to go, you did not have access.
Mr. VIADERO. That is correct.
Mr. OSE. In effect, you were able to follow the food stocks in the ships to the port. Food stocks get offloaded off the ships into the elevator. Can you go in the elevator? Were you able to go into the elevator?
Mr. VIADERO. Yes, sir, we did in some cases.
Mr. OSE. Food stocks go through the elevator to the processor. Were you able to go to the processor?
Mr. VIADERO. In some cases.
Mr. OSE. When it was put onto the trucks for distribution, were you able to ride the trucks on even a sampling of the distributions to their ultimate destination?
Page 63 PREV PAGE TOP OF DOC Mr. VIADERO. No, sir. That is why I reemphasize my statements that until we can see it, I cannot come back and report to you folks here any guarantees on this.
If I can, Mr. Ose, I look at this as, put in terms of the everyday man, let us say we are the police here, and we have the radar unit. The problem is, they have the radar detectors, and they know when we are coming. We have language differences, we have transportation differences. We need people from Russia or we need Russian nationals to assist us. We need Russian nationals to get us around town.
So very little we would do there can be done as a normal audit could be done in this country.
Mr. OSE. Let me just try and define the scope of the problem, as I understand it. We have a little over 3.2 million metric tons of food stocks going to Russia. And the initial team was comprised of three people. And that has been supplemented to an additional five, so you now have eight people watching 3.2 million metric tons of food stocks going to 78 oblasts or distribution systems that we don't have access to. Is that an accurate statement?
Mr. VIADERO. That is correct, sir. That is why earlier, I believe it was March 1999, we met with members of the Appropriations Committee on the amount of money it will take to do a complete job. We submitted a request for a little over $5 million to get this job done, to go in and give us some reasonable, again I use the term reasonable, assurance that in fact the controls are in place and they are working.
Mr. OSE. Mr. Chairman, my time expired. I yield back.
Mr. PHELPS. Mr. Chairman, I will yield my time to Mr. Ose if he would like. I am a good listener.
The CHAIRMAN. Please go right ahead.
Mr. OSE. Thank you, Mr. Phelps.
Page 64 PREV PAGE TOP OF DOC So once the product leaves the terminal, into the distribution facility headed to ultimately the bakery or wherever, we have lost track. I mean, physically we are just not able to stay with it, either from lack of staffing or the dispersion pattern, if you will, of the product.
Mr. VIADERO. On the trip in question, we were not allowed to do that. That is correct.
Mr. OSE. So we do not know where the product, the raw product, ultimately went.
Mr. VIADERO. That is correct. We have a paper trail. We did not observe this. We have no independent verification through observation or even vouching through the records that it did get there.
Mr. OSE. So we do not even know if it was sold in the form of finished product that would ultimately contribute back to the Russian pension fund.
Mr. VIADERO. We have no physical observation of that, yes, sir.
Mr. OSE. When you look at Russia, that is a very large country, geographically. The 78 oblasts, are they all west of the Urals, east of the Urals?
Mr. VIADERO. It is my understanding that are all over the entire country. I would use a point of reference, Vladivostok on their east coast, right through the borders in the northern Atlantic.
Mr. OSE. There was a suggestion that the product would go into St. Petersburg, but you are suggesting here that maybe it goes into St. Petersburg and Vladivostok, maybe Murmansk?
Mr. VIADERO. It goes into both.
Mr. OSE. So you come at it from both the east and the west, depending on the closest point. But then it seems implicit in your testimony that once it leaves Vladivostok or St. Petersburg, we don't know, basically?
Page 65 PREV PAGE TOP OF DOC Mr. VIADERO. Essentially, that is correct, yes, sir.
Mr. OSE. There were some recommendations that you made subsequent to your trip to Russia, to FAS, to correct these procedures, if I recall.
Mr. VIADERO. Yes, sir.
Mr. OSE. Have those corrections been made? They address these flaws. I am wondering whether FAS has made those corrections from an audit standpoint.
Mr. VIADERO. I will give you a general answer, and I will ask Mr. Ebbitt to give you a more specific answer on this. Generally, FAS has been responsive. They are moving. And they continue to move with us. We do not necessarily see ourselves as the big bad wolf within the Department.
We see ourselves in this case, both wearing our audit investigatory hat as well as management consultant hat, if you will, just for better practices.
Mr. EBBITT. If I could, Congressman, I would second that. FAS has been very responsive in reacting to our suggestions. We made our first suggestions in February of this year, and you are correct, when the program first started, they were planning on using three monitors. Our first reaction out of the box was, that is simply not enough people. You cannot follow these commodities with three people.
There is a number of things in this program that are better now than in the 199293 cycle. One of the first things that FAS has done is working with the Russian-U.S. group, they know the price before it leaves the United States shore. That was an issue that we did not know in the last program. As a result of that, we did not know how much money we should anticipate once the commodity got to Russia.
Second, when it does arrive on the shore in Russia, there is a person from CCC there, so that we verify receipt of the commodity on the Russian shore, the same as when it left the United States. It is at that point in time, Congressman, that while FAS has a number ofthey have established a number of controls to try and track these commodities. Again, they have increased monitors now to eight plus they are using some embassy staff, plus they have commitments from attaches around Russia for assistance there.
Page 66 PREV PAGE TOP OF DOC But again, you have all these shipments coming in. Even with or 10 people, you cannot physically track them all. So you have to depend on a sampling process and then you depend upon a strong record keeping program. With the sampling process, with record keeping, FAS has got to demand that these records come in on time. With those, too, you hope that you establish a reasonable control process.
The bottom line, however, is, since you are not physically tracking every commodity shipment, obviously you cannot provide absolute assurance.
Mr. OSE. Mr. Chairman, I see my time is about to expire. I want to just make one point.
On page 9 of your memorandum from August 13, under subparagraph (f), it talks about the working group meeting with the European Union and Moscow representatives regularly. However, your audit or your report finds no documentation of the substance of these meetings, other than entries showing dates and times of the meetings. So in terms of identifying problems within the system of distribution, we do not know who attended these meetings, we do not know what was discussed, and we do not know what decisions were reached.
Mr. VIADERO. That is correct, sir.
Mr. EBBITT. That is correct at the time we were there. I do not know if FAS addresses that in their October 1 response or not. But they have responded to some of our issues, as Roger just indicated, just today. So we need to study this to see what else they are telling us.
Mr. OSE. I thank the chairman for his indulgence.
The CHAIRMAN. On the Chair's time, let me ask Mr. Fritz, if you would, to come back up to the table. Obviously, this has a lot to do with your agency and the monitoring and so forth. I just wanted to see if there was any part of this discussion in which you would like to engage.
Page 67 PREV PAGE TOP OF DOC Mr. FRITZ. There are a few points. First of all, I would like to thank the Inspector General's office, because they have made excellent suggestions to us in both management and oversight. We are trying to implement those.
One of the things I want to be sure of is that we are talking about a trip report and not an audit, and two is, denied access I think is of concern to me. Because I do not think, and correct me if I am wrong, where we asked for access to a particular locale and were denied, but they accompanied us on a trip that was set up prior to, or excuse me, during the entire process of auditing.
We also do have monitors scattered around the country who do visit these oblasts. It is not that a product comes into Vladivostok and gets distributed and is never followed. Our people actually are on a heavy travel schedule with a foreign service national from the embassy, two people going out to these oblasts to view the commodity and to collect paperwork and to interview those people throughout the system. So I just wanted to be clear on that.
The CHAIRMAN. Mr. Stenholm.
Mr. STENHOLM. Mr. Viadero, is it more difficult to ensure accountability in a monetization program benefiting the Russian private sector, rather than one benefiting the Russian pension fund, in your opinion?
Mr. VIADERO. Well, sir, in my opinion, and again my background being both investigations and accounting, one of the lacking issues in the Russian Federation is any type of accounting standards as we generally recognize them here. That is a big issue on the accounting side.
If we were to compare, and if I can, and please correct me, I am sure you will if I am not right. If we look at the PVO, the private voluntary organizations, as compared to the pension system, after contacting several people in large international banks, the larger portion of the banking community would only put trust in the pension fund. The pension fund seems to have the greatest amount of controls on it.
Page 68 PREV PAGE TOP OF DOC Other banking or other establishments, institutions in Russia, have much less credibility with organizations than does the pension fund. So the pension fund seems to be the most heavily monitored in the Russian Federation.
Now, when we did our reviews, and basing our last PVO review on the work we did a few years ago, we found PVOs with excellent records. We found PVOs with less than stellar records, one of which, as we discussed in the testimony, is a subject of an active criminal investigation by my office. And I am not trying to avoid the question, I just do not know really where to put this until you get in there and do an evaluation of both the internal controls to include the accounting and systems controls, that they have over these banking systems.
Mr. STENHOLM. And I appreciate that answer, because I think all of us understand how difficult it is to establish a business relationship with a country and within a country of which most of the rules that we normally go by are totally foreign to them. Therefore, that has meant a recurring problem that we sometimes have a difficult time recognizing. Again, I am not pointing any fingers of fault.
I guess I would be curious, with everything that you know, both about the system there that you have just described, about the value of this program to producers in this country, i.e., we have the supplies and we have to move them, et cetera, if you had to rate on a scale of zero to 10, with 10 being an absolute perfect accountability system and one of which you are very happy with, and zero being one of which you would basically recommend to us that we walk away from any, any, business relationship whatsoever with Russia, what number would you put on it. Based on your knowledge, based on you and your Department's investigation thus far in trying to be accountable to the taxpayers for that which you do?
Mr. VIADERO. I do not want to take a middle of the road answer. But I will give it about a 5, right in the middle, only because I cannot give you any assurances, and I can make no assertions as to what controls are in place, and in fact, are they working, if they are in place. On the other hand, we see and believe FAS, we consider FAS to be more than credible in this. We did our trip report, we visited with people in the Russian Federation, who were attempting to make the change. They are attempting.
Page 69 PREV PAGE TOP OF DOC So this is not Roger Viadero the CPA speaking, this is Roger Viadero with his 51 years of gray hair, more thinning hair than I even have gray hair now
Mr. STENHOLM. Well, that is the Roger I am asking the question of.
Mr. VIADERO. I would give it a 5.
Mr. STENHOLM. Well, that is better than a 4, isn't it? [Laughter.]
You have pretty well stated, and the Department, FSA, others, have indicated appreciation for your cooperation with them. And I assume by that it is when you find something you believe could be improved, they have shown a willingness to make those corrections. Are you finding a receptivity on the Russian side for listening to what I could call common sense approaches? Do you find a receptivity there or not?
Mr. VIADERO. To be honest with you, Mr. Stenholm, I do not know. I would like to have the opportunity to go over. As you recall, their version of an inspector genera is called a control officer. Back in 1995, my office hosted five of these people. They basically stayed with us for a little over 2 weeks.
When you get into the accounting and investigatory side, regardless of where you are at, you still have the basic premise of the mission, of the job. They seemed like they wanted to do the right thing. They seemed like they wanted to do it.
We have been over on other audits, and my auditors have visited with them. Again, they want to do the right thing.
Now, I have no other assurances other than that, but I myself would like to go with the Secretary or Mr. Schumacher over there and visit on this issue. I guess there are two great Americans to quote from here, and again, taking the middle of the aisle, but one Republican and one Democrat, President Eisenhower said ''The unaudited or the uninspected deteriorates.'' And right now, we have no audit, we have no inspection. And I have no guarantees to offer you.
Page 70 PREV PAGE TOP OF DOC On the other side, we have a former Vice President and Secretary of Agriculture, Henry A. Wallace, who said that so long as we have hunger, we have no food surplus. And I think of both those statements, sitting in the chair that I do. Because we have hungry people and we have a surplus, I guess we do not have a surplus if there are hungry people.
On the other side, the accountant comes out in methere is a lot of conflict in here, Mr. Stenholm. [Laughter.]
Mr. VIADERO. The accountant comes out in me, and I just ask two questions: are the controls in place, and are they working. On paper, we see this wonderful control system. But until we can go in there and observe it and test it and validate it, I can offer no assurance that the systems are working as designed.
Mr. STENHOLM. Thank you. If we could just tie one arm behind your back, we could probably have gotten a good answer. [Laughter.]
Mr. VIADERO. Well, I am from New York. That is a regional haphazardness. [Laughter.]
The CHAIRMAN. We should have given you 10 minutes5 for each conflict. [Laughter.]
Are there other questions that members have? Mr. Phelps.
Mr. PHELPS. Mr. Chairman, real quickly.
Essentially, and this will probably require an answer from the Department, ultimately, I guess in the future we should say, I know there are costs related to delivering food to Russia and other countries we are trying to help. So whatever the shipping costs would be is on one column.
So essentially we are saying if we actually do the right job, when we donate food, and we want to get it to the right people, what is the price tag going to be to be sure that we can? I am not saying you have the answer. But you mentioned a while ago, you need $5 million to do a job at least halfway decent to do what you think should be done. So ultimately, when we give a gift, we are going to have to put multi-million dollars with it to make sure it reaches beyond maybe what the government that we are giving it to can distribute it in a credible way.
Page 71 PREV PAGE TOP OF DOC Mr. VIADERO. Or perhaps when the bill comes forward, dedicate a percentage or a fixed fee of that for the audit and follow up on it. That would be a great help. I have a small organization and I am not going to cry poor, but we did not fare too well this year in appropriation. We are downsizing again. I have lost over 150 people here in 5 years. It would greatly help if we had the funds to get this done, and do the proper job, and report back to you.
Mr. PHELPS. That is my point, it becomes a greater philosophical question for us in the House and Congress to weigh all that, and then to try to come back and question a report for how valid it is, when you do not have the resources to work with anyway is a moot question as far as I am concerned.
The CHAIRMAN. Mr. Ose.
Mr. OSE. Mr. Chairman, I just want to express my appreciation for the Chair's indulgence this morning. I will do the rest of this privately.
The CHAIRMAN. I thank the gentleman. The gentleman is on a very good line of questions.
Thank you very much.
Mr. VIADERO. Thank you, Mr. Chairman.
The CHAIRMAN. We appreciate it very much.
We will now have the next panel, Mr. Marc Curtis, Mr. Robert Teweles, Ms. Rita Sharma, Mr. John Hardin, Jr., Mr. Vincent Peterson, and Mr. Donald Crane.
Thank you very much. We will start as you were introduced and just go down the table. Mr. Curtis, we will begin with you.
STATEMENT OF MARC CURTIS, PRESIDENT, AMERICAN SOYBEAN ASSOCIATION
Mr. CURTIS. Thank you, Mr. Chairman and members of the committee.
Page 72 PREV PAGE TOP OF DOC I am Marc Curtis. I am a soybean, corn and rice producer from Leland, MS. I currently serve as president of the American Soybean Association, which represents 32,000 producer-members on national issues of importance to all soybean farmers. ASA appreciates the opportunity to appear before you today, and commends you for holding this hearing on the important issue of Russian food aid.
Before discussing our interests in expanding food assistance for soybeans and soy products to Russia, Mr. Chairman, I would like to comment briefly on the compelling need for soy food aid this year. There is no question that food assistance must be a key part of efforts by Congress and the administration to respond to continuing low prices for soybeans and other farm commodities. Soybean prices have declined from season average $7.35 per bushel in 1996 to an estimated $4.80 per bushel for the 1999 crop.
U.S. commercial exports in 1999 are projected to be about $50 billion, down from $60 billion just in 1997. Since nearly 50 percent of annual U.S. soybean production must be exported, to prevent a build-up of supplies, food aid is essential to make up the shortfall.
ASA recognized this situation early this year, and presented Secretary Glickman in March with a 21 page list of potential markets where $1 billion in soybeans, soybean meal and soybean oil could be sold on concessional terms or donated under existing USDA authorities. This list was developed jointly with the National Oilseed Processors Association to ensure to the greatest extent possible that commercial exports would not be displaced. The Secretary was very receptive to our proposal, and directed USDA's export credits staff to review our list and develop an appropriate initiative.
Throughout the summer, ASA has worked with Department officials, industry and representatives of the food aid community to identify markets and soy products that will maximize the positive impact of food aid on U.S. soybean prices and producer income. In addition to the initiatives developed by USDA, ASA and private voluntary organizations are actively working to finalize proposals to export soybeans and soy products to 21 countries. Beyond these projects, we are already discussing how we can work with PVOs to introduce high value soy products, including soy flour, textured vegetable protein and protein concentrates and isolates in the diets of countries which cannot afford animal protein.
Page 73 PREV PAGE TOP OF DOC In July, ASA met again with Secretary Glickman to appraise him of our efforts and to discuss the timing of the concessional sales and purchase and donation program for soybeans and soy products in 19992000. The Secretary confirmed that preparations for an expanded initiative in our sector had been completed and that he would expect to move forward as soon as the Department confirmed that soybean production and supplies would substantially exceed domestic and export demand in the coming marketing season.
As you know, Mr. Chairman, we are now into this year's soybean harvest. The last USDA Supply and Disappearance Report projected a near record soybean crop of more than 2.8 billion bushels, and an increase in soybean carryover to over 500 million bushels in September 2000. Soybean prices are now sliding toward harvest low levels. From our perspective, there is no reason to delay announcing a substantial food aid program to expand soy exports in the coming year. We very much hope the Department will make such a determination in the next few days, and begin moving product under the plans already developed.
Turning specifically to food assistance for Russia, ASA strongly supports an expanded program for fiscal year 2000. We would like to see Russia's request for 1 million metric tons of soybeans and soybean meal and 100,000 tons of soybean oil accepted by the U.S. Government. Prior to its collapse, the Soviet Union was a major importer of soybeans, averaging 1.2 million metric tons annually in the 1980's. The U.S. farmer benefitted greatly during this period, as the USSR provided large subsidies to producers and consumers to achieve and maintain a high level of livestock production and consumption.
In the early 1990's, the GSM-102 program to the USSR began to shrink and was ultimately discontinued when the USSR was dissolved. In 1993, the last year of substantial U.S. commodity exports to Russia, Public Law 480 financed approximately 700,000 metric tons of soybeans. The economic decline in the Russian agricultural sector exacerbated a liquidity crisis, causing a shortage of grains and oilseeds for processing, particularly into feed. Feed, livestock and poultry production plummeted throughout Russia.
Page 74 PREV PAGE TOP OF DOC Russian urban centers then became major markets for frozen chicken leg quarters, primarily imported from the United States and indirectly benefiting U.S. soybean growers. While poultry and meat exports never made up fully for the millions of tons lost in grain exports, it was a significant market until the ruble devaluation drove up the cost of food imports. U.S. poultry exports to Russia have since declined sharply.
In fiscal year 1999, Russia received 200,000 metric tons of soybeans and 300,000 metric tons of soybean meal under the Public Law 480 title I component of the 3.1 million ton U.S. food aid package. The Russians were from the beginning keen to include soybeans and soybean products in their food assistance package for the following reasons: Number 1, their oilseed crushing and feed milling facilities needed raw materials, such as soybeans and soybean meal, to operate and survive. Local livestock industries needed feedstuffs to increase local production of meat and eggs, and a small but growing industry that processes soybeans for direct human consumption, particularly by the poor, needed soybeans.
One of our board members, Corwin Fee, from Knoxville, IA, recently returned from Moscow, where he met with several processors. Some of them told Mr. Fee that U.S. soybeans allow them to run their plants and put people to work for the first time in over a year. These processors were very eager to receive more soybeans from the United States this year, as they have seen an economic activity start to revive their sector.
Through its USDA and national check-off funded offices in Moscow, ASA is capitalizing on the opportunity presented by the Russian food aid package. We are helping the Russians improve their economic performance and development through technical assistance and management instruction. They respond very well to these programs and are eager to continue both imports and the technical exchanges. This type of development activity will facilitate graduation of the Russian market from food aid to concessional sales.
Again, we urge the U.S. Government to respond favorably to Russia's request for food aid in 2000, including the 1 million tons of soybeans and meal, and 100,000 tons of oil. Without U.S. Government financial assistance, there would be no exports to Russia. Without these substantial exports to Russia, more soybeans will remain in the United States, depressing market prices and soybean producer income. This is clearly a win-win situation for both Russia and our producers
Page 75 PREV PAGE TOP OF DOC Thank you, Mr. Chairman.
[The prepared statement of Mr. Curtis appears at the conclusion of the hearing.]
The CHAIRMAN. Thank you very much, Mr. Curtis.
We are apparently going to have about two votes in a row. Rather than getting started and having to interrupt you, the committee will stand in recess for about 15 minutes until we return. Thank you.
The CHAIRMAN. The committee will reconvene. That should be the last vote for a while, so we will continue now.
STATEMENT OF ROBERT L. TEWELES, PRESIDENT, MAYERSEED
Mr. TEWELES. Thank you, Mr. Chairman, for the opportunity to be here.
This past season, we facilitated the shipment of 15,000 tons of corn and vegetable seed to Russia. From what I have heard today, it was a small part of the big picture, but it was huge for our industry, and far and away the largest export of seed in the seed industry.
You have my statement available, so I am going to vary a little bit from what my report had said, just to add to it. To make a long story short, seed had never been included in the past in any gift given away. It had always been money. And then the foreign country would go and invest the money in seed that they bought elsewhere.
In spite of the terribly late approval, the seed was purchased from 57 different seed companies $2.5 million under budget. The seed was shipped and arrived on time, and from what we could tell, no seed entered the world market, in other words, was black-marketed out of Russia, and sold elsewhere in the world. The seed industry is a small fraternity, and we quickly learn if something like that is taking place.
Page 76 PREV PAGE TOP OF DOC The seed grew and performed well. I was back on my third trip to Russia several weeks ago and participated in the harvest. From what we have been told by our Russian counterparts, the monetization is progressing on schedule. And all parties, the U.S. seedsmen, the USDA, the Russian Government and the Russian farmers are pleased with the seed aid part of the Food for Progress Program. It was an unqualified success.
From my observations during my recent visit to Russia, Russian farms, and from what I hear, the Russians are still short of seed and will be unable to plant their acreage unless they receive more assistance. Our original objective still stands. We have an opportunity to help a neighbor in need. And we have the resources to do so.
Our original proposal last year incorporated the concept of, you give a person a fish and you feed him for a day, you teach him to fish and you feed him for a lifetime. When we got to Russia, we quickly learned, in talking about that concept with our Russian counterparts, that they said, that is ridiculous, we know how to fish as well as you Americans do, we have been farming longer than you have. On the contrary, what we would like for you to give us is a spin casting reel that is new and modern, and a facility in which to repair them when they break.
I think that was the bottom line to what we learned. If there is another Seed Aid program, I would like to respectfully suggest that we build on our success with what we have learned this past year. Following are several changes for your consideration.
Number 1, the Russians have the needs and are eager to cooperate. We have world class assets, cultural practices, genetics, technology and financial inputs and the manpower to help. More important, my colleagues in agriculture have grown up with and endorse the concept of helping a neighbor in need, and at the same time, trying to build a base for future agricultural markets for U.S. goods.
Number 2, seed is a foundation to agricultural production. But seed alone is just the tip of the iceberg for agricultural reform in Russia. Let me talk about silage. When we were there, we found that the Russians were planting 8 to 10 seeds per meter. In the United States, we plant 4 to 6 seeds per meter. By planting so many seeds, they make the corn compete with other plants and the ear is smaller. They tell us they want larger ears, but the planting practice prohibits that from happening.
Page 77 PREV PAGE TOP OF DOC They plant 6 meters deep. We plant 2 meters deep. Watching the program, when we talked with the farmers about this, they said, yes, they understood, but they are told by central planning how to do their agricultural practices. We need to cooperate with them to develop a different strategy to succeed. Seed is different than grain. It is a commodity.
Seed is a living organism, and its adaptation is critical. Grain can be recleaned or sent to the elevator, but poor seed can result in crop failure, which can result in a revolution of hungry population and an enormous amount of embarrassment to the United States. We must develop the skills and the discipline to understand the difference between high quality, adapted seed, and not opt for the lowest price offered, as we do in grains.
Grain, commodities, poultry, soybeans, et cetera, can be consumed 365 days a year. Seed is time sensitive. Mother Nature determines the time schedule. Last year's program was not approved until January-February, too late to allow us to properly indoctrinate the Russian farmers on optimum usage of U.S. seed. We urge an acceleration of decision making process to allow us to do the professional job that we all want to do.
Number 3, from my experience and observation, it is clear that the job of assessing a neighbor to re-energize their agriculture is a complicated assignment, requiring a broad base of skills. Paramount above all others is the ability to work with and establish trust between our countries and the folks doing the work. Without doing the strong relationships, the money will be spent, but success may not follow. Understanding that USDA personnel are regularly rotated, it is incumbent on agriculture leadership to develop a means to develop a partnership with private industry which will commit a consistent team of professionals to establish the relationship with their Russian counterparts, and to learn the know the Russian conditions and to maximize the reform process.
In closing, feeding ones self is the most basic of needs. We, the United States, have the products and the skills to make a difference in the world, an opportunity that all good people dream to participate in. We in the seed business are ready and urge your help in putting us to work.
Page 78 PREV PAGE TOP OF DOC Thank you.
[The prepared statement of Mr. Teweles appears at the conclusion of the hearing.]
The CHAIRMAN. Thank you.
STATEMENT OF RITA SHARMA, SEEDSTOCK PRODUCER, NATIONAL CATTLEMEN'S BEEF ASSOCIATION
Ms. SHARMA. Thank you, Chairman Combest, for holding hearings regarding Russian food aid.
NCBA commends your continuing efforts to improve international marketing opportunities for U.S. agricultural products. I am Rita Sharma, a seedstock producer from Williamsport, IN, and a member of the National Cattlemen's Beef Association. Beef exports account for more than 12 percent of the value and 8 to 9 percent of the volume of wholesale beef sales. With 96 percent of the world's population living outside the United States, our ability to improve these numbers demands aggressive pursuit of foreign trade.
As an industry, we have worked to expand exports of beef and variety meats. But as our foreign market share increases, so does our dependency on consistent and predictable access to world markets. One need only to review the impact of economic turmoil in key Asian export markets on beef prices to understand the dilemma.
But chaotic economic and political conditions in Russia during early 1998 were the impetus for the Russian Food Aid package. The Food Aid package for Russia announced by USDA in November, 1998, included 120,000 metric tons of U.S. beef to be sold to Russia under Public Law 480. At the time the Russian Food Aid package was announced, head cattle prices were near 10 year lows, and market hog prices were in a steep dive. It seemed that matching U.S. commodities with Russian consumer needs was a win-win solution that would benefit both countries.
Page 79 PREV PAGE TOP OF DOC Unfortunately, purchases of beef for the Russian program were slow in developing. In fairness, we understand, this was the first time that beef had been included in Public Law 480 purchases. To date, only 44,500 metric tons of beef, or 37 percent of allotted total, has been purchased and shipped.
The beef industry urges continued pressure on Russia to include beef, and especially beef variety meats in future purchases. Although beef prices have rebounded significantly, prices for beef byproducts are still struggling to recover. Maintaining a presence in the Russian market during their economic hard times is critical to establishing and maintaining a long lasting business relationship.
This strategy has paid dividends in other markets. In 1995, the U.S. maintained a presence in the Mexican beef market, using GSM-102 credit guarantees during their economic crisis. Two years later, sales of U.S. beef and beef variety meats set record levels. Mexico continues to be our second largest and fastest growing market. Whether facing financial crises in Russia and Asia, or negotiating increased market access in the United States, it is clear that Congress and the administration must have a unified strategy to systematically attack the trade problems of U.S. agriculture.
In the opening discussions of the Seattle ministerial meeting, the United States must hold its trading partners to commitments agreed to in previous trade agreements, and make certain that the elimination of trade barriers is a top priority in the negotiations.
Mr. Chairman and members of the committee, it is quite likely that one or more of you have been to Russia. I am fairly certain, though, that if you went, you were greeted in a manner suitable to your official capacity. Let me assure you that if all you were exposed to is Moscow and staged photo opportunities, then you have not seen the Russia that I have seen. Existence in Russia for the majority of the citizens bears little resemblance to the official government line.
Page 80 PREV PAGE TOP OF DOC What we consider to be the most basic necessities of life, clean, safe food, potable water, reasonable medical care, and heat, are virtually non-existent for the majority of Russia's citizens. Logic would dictate that addressing the issue of hunger in Russia would benefit us in two ways. First, hungry people are desperate people who can become dangerous people. Second, these actions will help reduce food surpluses which currently plague our agricultural community. It is a win for us on so many fronts: humanitarian, political, and economic.
The National Cattlemen's Beef Association is prepared to participate in the process of evaluating critical trade issues within the beef industry, and looks forward to providing additional input as Congress addresses this and other critical trade issues.
Thank you for the opportunity to present this information.
[The prepared statement of Ms. Sharma appears at the conclusion of the hearing.]
The CHAIRMAN. Thank you very much.
STATEMENT OF JOHN HARDIN, JR., PAST PRESIDENT, NATIONAL PORK PRODUCERS COUNCIL
Mr. HARDIN. Thank you, Mr. Chairman.
It is a pleasure to be before you again today. I am a former president of the National Pork Producers Council, a former chairman of the U.S. Meat Exporters Federation. I have served on the Agribusiness Advisory Committee to the Gore-Chernomyrdin Commission. I am currently a member of the Food Security Advisory Task Force to USAID, and I serve on the APEC.
It is a pleasure to be here today to express our views for pork producers on the Food Aid program to the Russian Federation. This summer, USDA tendered for shipment for humanitarian food aid to the Russian Federation 50,000 metric tons of pork. Bids were submitted and awarded for the entire 50,000 metric tons. This pork is filling a vital need for food in the Russian Federation and has translated into much-needed price help for my fellow pork producers.
Page 81 PREV PAGE TOP OF DOC When the bids were accepted, cash hog prices increased by over $10 per hundredweight for a brief period of time. Russian consumers need additional pork food aid. When Boris Yeltsin visited our hog farm in 1989, the domestic supply of pork in Russia was about 4 million metric tons. Today, it is about 42 or 43 percent of that. During this same time period, per capita consumption of pork has dropped from about 26.5 kilograms per person down to less than 12.
Until the collapse of the Russian ruble, the Russian Federation was the third, in terms of volume, largest export market for U.S. pork. However, so far in 1999, our exports to Russia are down 96 percent in volume over the same period in 1998. Because of the unmet need for pork, U.S. pork producers are urging the administration to make, at a minimum, an additional 50,000 metric tons of pork and pork products available for humanitarian assistance for delivery in late 1999 and early 2000.
In fact, we believe that the present global situation warrants up to an additional 150,000 metric tons of pork and pork product food aid for the Russian Federation and other countries that need assistance.
You heard from a number of the members of this committee today who have asked for additional food aid packages to include pork. Last week, 69 Members of the House and over 30 Members of the Senate wrote to Secretary Glickman urging just these changes. Including more pork in food aid packages is of critical importance to our pork producers, in order to prevent a repeat of last year's disastrous fall in hog prices. As you and Mr. Stenholm are aware, U.S. live hog prices reached all-time low levels last year, and U.S. pork producers have lost about $4 billion in equity in the last 22 months.
While hog prices rebounded somewhat this summer, pork in cold storage remains at record levels and prices are forecasted to decline to disturbingly low levels again. I must underscore that time is of the essence here. Yes, we would appreciate food aid tenders in January or February. But to avert another serious drop in live hog prices, USDA needs to be able to tender for pork as soon as possible.
Page 82 PREV PAGE TOP OF DOC The loss in equity for pork producers is contributing to an on-going consolidation in our industry. On September 29, Tyson Foods signed an intent to sell to Smithfield. This acquisition follows closely the similarly publicized proposed acquisition of Murphy Farms, and gain highlights the urgent need to address and resolve the economic crisis that continues to plague the pork industry.
We stand on a precipice of losing thousands of independent family pork producers if action is not taken to drive live hog prices higher. Pork food aid will not only assist independent family producers on the brink of financial ruin, but will also strengthen U.S. cattle and poultry prices, because of higher U.S. hog prices that will come from more pork aid.
Again, I want to emphasize that timing is critical. The Secretary announced that the first food aid package would be sent to Russia in November 1998. Unfortunately, that pork component was not finalized until July 1999. Although we recognize this is a massive undertaking, we urge the Secretary to expedite the completion of this. And I would emphasize, given the testimony you heard this morning, that to this point, there have been no improprieties associated with the current U.S. Food Aid Program. We must not now embargo further food aid shipments at a time when there is a large unmet demand for food in the Russian Federation.
The humanitarian assistance programs that Congress has created should be important tools in the arsenal of America's farmers. The programs can meet needs of foreign markets, and stabilize domestic prices if they are used at the right time. And now is the right time for another food aid package that includes pork and pork producers. It is imperative that USDA tender the additional pork food aid as soon as possible.
Thank you for your attention.
[The prepared statement of Mr. Hardin appears at the conclusion of the hearing.]
Page 83 PREV PAGE TOP OF DOC The CHAIRMAN. Thank you, Mr. Hardin.
STATEMENT OF VINCENT PETERSON, REGIONAL VICE-PRESIDENT, EUROPEAN REGION, U.S. WHEAT ASSOCIATES
Mr. PETERSON. Thank you, Mr. Chairman, and Congressman Stenholm and members. I want to thank you very much for the opportunity to be here with you today. I work for U.S. Wheat Associates, you may well be familiar with the organization. We represent about 90 percent of the wheat production in the United States, organized through State wheat commissions. Those 19 commissions have about 13 States represented on this committee, I believe.
I am the regional vice-president for U.S. Wheat. I am based in Rotterdam, the Netherlands, and responsible there for wheat export market development in Europe and in the former Soviet Union and Israel. Wheat producers feel the subject is of such vital importance to not only them and their livelihoods and the industry that they have asked me to come back from Europe just for today for this hearing.
In your opening remarks, between the two Congressmen, the chairman and Congressman Stenholm, summarized all my conclusions. That will cut out at least 1 minute of my presentation. I would divide my comments into about three areas. One is to discuss just a little bit the need for wheat donations this year. Second, to make a few comments about how we view the operational part of the program with regard to donations to Russia. And then perhaps a few closing suggestions for consideration for this coming year.
There have been some questions about need, and that question will continue to evolve around throughout the time as the Secretary and his team evaluates this subject. The clear and unequivocal answer to that is, yes, there is definitely a need for the donations we did last year, as well as this coming year. Last year was very simple. They had a 40 percent reduction in wheat production within the country. And even that, combined with about 8 million tons of stocks carried over put their deficit at about 8 or 9 million tons, just in the wheat area last year.
Page 84 PREV PAGE TOP OF DOC This year, the EU agricultural commissioner, Franz Fischler, has made the determination that because of improved production in Russia, they will not need donations of commodities. I believe he is right in the analysis that the production is slightly bigger, but his conclusion that they do not need is completely, completely inaccurate. Their production will be up about 4 million tons this year in wheat to 31 million tons. But their carryover stocks are virtually non-existent, perhaps no more than 1 million tons, and spread out amongst a geography and population of a country that size, that is virtually nothing.
Their total supply of wheat on hand is going to be 10 percent lower this year than last year, when we had such a disastrous situation. So the marketplace definitely tells us there is a need for wheat and a need for a new program.
The other side of that equation is, what is the political circumstance. I do not have to tell this group that the political issues are sometimes more difficult than the market issues to sort out. In Russia right now, we see symptoms of a severely bruised national ego. We have an office in Moscow, we follow the opinion polls, we see the newspapers, we see what is on the television. Right now, 60 percent of the Russian citizens say, no, they do not want more donated programs.
Newspaper articles are headlined, Russia will be choking on American grain this year, or that it is a U.S. plot to make the Russians dependent upon American commodities. When we talk to the people that we deal with, those in the industry and those at the highest level of government, those that really have a practical outlook on this, they know the realities of the circumstance. The problem is, they are going to have to deal with Duma, parliamentary elections this December, and a presidential election next summer. So I do not have the easy answer to the political side, other than they are going to have to deal with this at their end.
I did want to say that, let's be clear about the need for food. This is not, in the wheat business, necessarily a great humanitarian food crisis or disaster, much like you would see in Somalia or Sudan or Ethiopia. This is really the symptoms of an economic failure, and an economic failure through the system from the farm to the consumers to the industries and to the employment sectors. In our case, these food programs can provide well-needed economic assistance.
Page 85 PREV PAGE TOP OF DOC A couple of comments, just on the program operations. I want to preface this to say that this is with the recognition that this is an enormous program, something that probably is unprecedented in its scope and in its management by the U.S. Department of Agriculture. I think with that in mind, some of the comments I do have to say are not in any form meant to be critical, but to provide some guidance, perhaps, for what we might do.
This year, the program was very successful. Receivers say they were generally happy with the distribution channels. They received supplies that were very helpful to them. It helped stabilize prices and markets and supplies to the industry.
Since we are a little short on time, I want to go through just a couple of negatives. Because of the lateness of the program this year, we had a very late start. In fact, the first wheat shipments did not arrive until the very end of April and into May. That may be one of the reasons it is difficult for USDA at this point to answer all the questions about the remittances of funds, because the program really now is just getting the wheat to the mills and the mills to the bakeries, so we are a little delayed on that. We need to improve that a little bit this year, to make the program more responsive to the timing and the needs of the private sector.
As was mentioned earlier, people need to eat 12 months a year. To cram a program into just a several month period is probably not the best way to run that.
For the next year, I would like to just say, since I have a red light, we are very interested in the program. It should be targeted towards the private sector, as I mentioned several times. And creating uses for the funding in the form that will help our agriculture and agricultural trade with Russia would be highly supported by wheat producers.
Thank you very much.
[The prepared statement of Mr. Peterson appears at the conclusion of the hearing.]
Page 86 PREV PAGE TOP OF DOC The CHAIRMAN. Thank you. We are having peanuts delivered to you, this is lunch here. [Laughter.]
STATEMENT OF DONALD R. CRANE, EXECUTIVE VICE-PRESIDENT, ACDI/VOCA
Mr. CRANE. Mr. Chairman, Ranking Member Stenholm and members of the committee, I would like to thank you for this opportunity to participate in this panel this morning.
I am Donald Crane, executive vice-president of ACDI/VOCA. ACDI/VOCA is a private non-profit international development organization. Our members are U.S. agricultural cooperatives operating throughout the United States, such as Sunkist, Farmland Industries, Southern States, Agway, CoBank, to name a few. We are affiliated with the National Council of Farmer Cooperatives and the Farm Credit Council.
As an organization, we are committed to expanding economic opportunities in developing economies and emerging democracies worldwide. Currently, we are serving clients in some 35 countries around the world, 16 of them in Eastern Europe and the former Soviet Union. A key means by which we provide our technical assistance are the 800 or so volunteers that we put in the field each year.
We have also pioneered many creative food assistance programs to advance our mission. We believe that such programs can help meet the needs of recipient countries today, and at the same time, help to build future export markets for U.S. commodities, farm supplies and equipment.
ACDI/VOCA has been operating in Russia and the former Soviet Union since 1991. Our farmer-to-farmer program there has fielded some 640 volunteers. These are your constituents. They come from every State of the Union and every walk of life.
Page 87 PREV PAGE TOP OF DOC We have also participated in the consultancy services for Russian entrepreneurship, which is providing assistance to small and medium scale enterprises in 12 oblasts, all the way from western Russia to the Russian Far East. We have been working with two rural finance projects, the Mobilizing Agricultural Credit Project and the Sakhalin Micro-Credit Project.
And in keeping with the theme of today's hearing, ACDI/VOCA has demonstrated that food aid monetization programs for Russia can be done in a responsible fashion. We believe that accountability for such programs has two dimensions. On the one hand, you have to sell the commodity and receive a full and fair payment for the sale, and on the other, you have to have responsible use of the local currency proceeds that come from that sale.
Recently, we developed a mechanism for a $10 million monetization on behalf of the United States Poultry and Egg Export Council, which resulted in full and prompt payment, and also has led to the startup of the poultry demonstration project being operated by USPEEC. We believe that partnerships with commodity associations can improve the quality of monetization programs, and is an excellent means to develop a path for recipients from aid to commercial markets for U.S. commodities.
As an example, as you heard earlier this morning, ASA has been working closely with PVOs in a number of countries to help ensure responsible use of soybeans and soy products and monetization programs.
The second dimension I talked about, responsible use of local currency proceeds, can have major impact on the Russian agricultural sector. Agriculture, we believe, will be the engine of growth in Russia, but private sector agriculture is still quite fragile. There is virtually no production credit delivery system, in particularly.
ACDI/VOCA, using monetization funds from USDA, coupled with USAID program assistance, has established the Russian-American loan program to provide loans to rural credit cooperatives. We have created a rigorous transparent methodology for accrediting these cooperatives, evaluating their loan portfolios, and monitoring credit operations and loan administration.
Page 88 PREV PAGE TOP OF DOC Interest rates are market-based and collateral is required. Cooperatives that fall below 90 percent in loan repayments are ineligible for further funding. This is a model that works, with full accountability. But additional capital is needed, and future food aid monetization can be used responsibly to fill that gap.
In conclusion, food aid can work in Russia, especially monetization programs, if done in a business-like fashion, and with full awareness of the potential pitfalls.
[The prepared statement of Mr. Crane appears at the conclusion of the hearing.]
The CHAIRMAN. The electronic voting machines are not working. We are having to record our votes manually. They are calling the roll, and that takes a while. They will notify us when they get down to the letter R, and then we are going to have to go over and wait around.
I am thinking by that time, and that should be a while, we should probably be through. If we are not, we are going to be through then. [Laughter.]
So I think we should have ample time.
Let me first start with Mr. Teweles. How deep do they plant corn in Russia?
Mr. TEWELES. They plant it 6 to 8 meters deep.
The CHAIRMAN. Meters?
Mr. TEWELES. Centimeters, excuse me.
The CHAIRMAN. I was going to say, that is the reason that stuff will not grow. It will not grow 6 meters tall when it is on top of the ground. [Laughter.]
Mr. TEWELES. Thank you for your help.
The CHAIRMAN. Thank you.
Page 89 PREV PAGE TOP OF DOC Mr. TEWELES. American corn was very vigorous, though. [Laughter.]
The CHAIRMAN. Yes, that is some good corn.
Ms. Sharma and Mr. Hardin, of that sale last year, I believe it was 120,000 metric tons of beef and 50,000 metric tons of pork, and you said only about 37 percent has been purchased.
Ms. SHARMA. About 37 percent of the beef was actually shipped. The contract was actually authorized by USDA in December, 1998. The first shipment arrived in St. Petersburg early September, 1999. It was approximately 24,000 metric tons.
Then immediately after that, a contract was let for another approximately metric tons. They wanted to purchase more, but beef prices were in a rebound phase at that particular point in time. So we are hopeful that the authorization for funding will continue through 2001 and allow us to complete that.
The Russian market is especially important to us from the standpoint of variety meats. Variety meats and hide and offal, as they call it, accounts for 20 percent of the market price of a live beef animal. Yet they are not extremely popular in this country. But when you have a market that does use them in great numbers, it can have a tremendous impact. As a matter of fact, the figure is $36 increase in the value of a live calf.
The CHAIRMAN. Were all the 50,000 metric tons of pork taken?
Mr. HARDIN. Yes, it was all taken very quickly.
The CHAIRMAN. Mr. Teweles, how much of a market is Russia for American seed trade?
Mr. TEWELES. Less than 1 percent. It was very, very modest.
The CHAIRMAN. One of the things that we always like about these programs, in addition to the fact that it does rid us of some commodities that we need to be rid of, is that it does, we think, establish markets for the future. They become familiar with the product, it is a good entry into that market. I would be very hopeful.
Page 90 PREV PAGE TOP OF DOC I noticed that the Secretary mentioned part of this request was for seed.
Mr. TEWELES. Yes, sir.
The CHAIRMAN. The current request.
Mr. TEWELES. I listened quite intently, and he said 40,000 metric tons.
The CHAIRMAN. And that compares with what?
Mr. TEWELES. Fifteen thousand previously.
The CHAIRMAN. And wheat and feed grains and soybeans. It was noted, beef and pork were not on there, but we would like to see them take some of that as well. But we do think that it creates a market, and they become familiar with the product. They also hopefully become familiar with the fact that we can ship it.
All of you, to some extent mentioned, but I would like to get an answer from the entire panel, if I could, without huge detail, but it would certainly suggest that you may want to follow up. From your experiences in this in the past, what suggestions would you have of a way that we might make this program work smoother, from each of your experiences? I know, Mr. Teweles, you said it was an unqualified success.
But if there are suggestions that you might have about how we can make this work better, please state them. What would your suggestions be to USDA, in addition to what some of you have already indicated?
Mr. CURTIS. Mr. Chairman, this is really ASA's first time in working in detail in a program that we have proposed ourselves and asked the Department to work in. As I said in my statement, back in early spring, we proposed a concessional sale and donation program to the Secretary that he accepted and went to work on immediately.
The one thing that has surprised us is how long it has taken to complete that process. In fact, it is not completed yet. If there is anything we could do to suggest to improve the program, it would be work with the Department to ease the approval process in getting the product out to the needy people.
Page 91 PREV PAGE TOP OF DOC Ms. SHARMA. I believe that I would suggest two things, personally. First of all, the transportation and distribution system in the Soviet Union is absolutely abysmal. There is food in many parts of the country, but you cannot get it from one place to another without spoilage.
As far as the beef that goes into the system, we have to look at the fact that unfortunately, many of the people who would like to buy it do not have the cash to buy it. It is a loan program as far as making the beef available for poor consumption, but if you actually are in the markets in the former Soviet Union, in Russia and such, the preferred currency of commerce is the U.S. dollar. And if you do not have it, you do not buy a whole lot.
Mr. TEWELES. Thank you for the opportunity. I think first and foremost is the timeliness, as my other colleagues here have said. We got through by the skin of our chinny-chin-chin last year, and if we can start out earlier, we can provide a product with more backup to the users when it arrives in Russia.
Number 2, seed is only the tip of the iceberg, and we would strongly urge that we develop a method of extension service to teach them how to plant the seeds and how to harvest them.
Silage people who came with us last time said, you must pack the silage when you are filling a silage bin. They said yes, they nodded, and they were running a Caterpillar tractor over the silage bit with tracks this wide, so they were not packing it, they did not understand the concept. When we talked to them, they nodded their head, but we got nowhere. We need to incorporate some extension service, teach them how to do this.
Mr. HARDIN. We think that a lot of the bugs with regard to pork have been worked out. It is really a matter of making a decision to move and to move on time. I think that is probably the most important thing, at least. In response to this business that none was officially requested, we are already receiving private inquiries from Russian processors about pork. The demand is there. It is just a matter of working through that.
Page 92 PREV PAGE TOP OF DOC Mr. PETERSON. I would say from the wheat perspective, we could design a program that would be more responsive to the market demands in Russia. I think one of the things we tend to forget, and maybe even the Russian Government tends to forget, wheat is predominantly purchased over there to make bread. Sometimes we have not responded necessarily with the qualities of wheat that would probably do the best for their industries.
But beyond operational things like that, I think sometimes trying to address bit macroeconomic problems like the pension fund perhaps does not allow us to recognize what we might be able to use in a selfish way with agriculture, to try to help our agribusiness, develop trade patterns with Russia, with Russian businesses that are growing. And maybe there is some creativity that we could use to design some uses of those funds to guarantee purchases of equipment, of other commodities, things that would really benefit our industry as well as develop long-term contacts and continuity with the Russian side.
Mr. CRANE. I would make two comments. First, I would like to echo Congresswoman Kaptur's remarks this morning that we need to focus the resources of the program on the development of the agriculture sector of Russia. That is the big picture item.
Second, to the extent that we can get the benefits of these programs down to the community level as quickly as possible, they are more beneficial. And I mean that both in terms of getting the commodity down to community level as well as the benefits of development programs that result from the sale of commodities.
The CHAIRMAN. Thank you all.
Mr. STENHOLM. Thank you, Mr. Chairman. I thank all the panelists for coming and giving some very helpful information and testimony today.
Mr. Peterson, do the Russian folks feel the same way about the Europeans and their food aid as you mentioned they do towards us?
Page 93 PREV PAGE TOP OF DOC Mr. PETERSON. Yes, I believe so. In the press that we have followed, it would appear that they sort of lump western food aid together. I think we get singled out a little bit more, we are a little more prominent than the European side.
But I think they do include them in the bad group, yes.
Mr. STENHOLM. How do you square the needs that are being, obviously the needs are there, but yet the public sentiment is against help, but yet, Mr. Hardin, you say you are being contacted now by folks in the meat industry that are willing and very receptive to it. How do you square that, any of you?
Mr. HARDIN. Well, I think, as has already been said, there is a lot of heartburn in Russia about their national identity. But the need is translated into economic needs, and the reality that the sausages, to take one example, are entirely different than they were 6 or 9 or 10 months ago, as we are now seeing more fat in products that really are not good in the food the Russians are eating.
But I am not sure they always translate the differences in what they see with the changes in these food aid programs.
Mr. TEWELES. We ran into just a minor idea that seemed to feed on what we are talking about here. A number of the farmers that we talked with objected to the use of the term humanitarian aid. They said, we are prideful people. And if we could coin a new phrase, I think it would not put egg on the face quite the same way.
Mr. STENHOLM. I think you have put your finger on a very important aspect right there. I think that is something that we often overlook in our own rhetoric and how we utilize these programs. I think I must make the observation that most of the folks that you represent out there in the country are opposed to foreign aid. If we could just change that word, it would help us, those of us who have to vote for the money to provide the assistance.
Page 94 PREV PAGE TOP OF DOC Mr. Teweles, you made a comment that reminded me of one of the first hearings that I attended when I got here 20 years ago, and some subsequent work that we got involved in, in which I must admit has not been the kind of success that we need. That is the recognition, as we attempt to build up the infrastructure, the agriculture and utilize this for purposes of being helpful, not just as a relief or a current problem that we get into in this country, which is always only temporary, that we have never as a country been able to mobilize all of our forces to work together as our competitors do.
The Europeans are masters at turn-key jobs. Rather than selling chickens, processed, or pork, processed, they sell the feed, the feed mill, the processing mill, everybody in Europe seems to get involved. And not just Europe, others who have ''foreign operations'' have been much better at utilizing both the private and the public sector for purposes of doing what I have heard each of you in your own different ways talk about that need to be done.
And as you continue to work within your own respective entities, I would encourage you to work with each other and to also listen to the critics that we have heard today, and the problems that we have, and offer your input to them, as well as to this committee. Because there is a golden opportunity out there that we are missing. We have a wonderful opportunity in the next WTO round to make some of these corrections.
I have always stated that in trade negotiations, it is awfully important that whatever we negotiate and agree to, that the U.S. Government stand shoulder to shoulder with our producers, whatever it is we are talking about, in seeing that we live up to the letter and spirit of what we have agreed to. We have been reluctant to do that for all kinds of reasons.
Ms. Sharma, you mentioned that many in agriculture believe that in past GATT and WTO negotiations, agriculture has not been made enough of a priority.
Ms. SHARMA. Yes.
Mr. STENHOLM. I agree with you. And I suspect that everybody at the table would agree with that.
Page 95 PREV PAGE TOP OF DOC Ms. SHARMA. Or it has been a bargaining chip that has been used to agriculture's disadvantage.
Mr. STENHOLM. We have always been in on the takeoff, but sometimes, we get thrown out, with a parachute, and we are never in on the landing.
We have another opportunity coming up now. And I know this committee, where we have been derelict in the past, that we are going to try to do a much better job, and we will appreciate your help, as I know you have already indicated, through some organized effort, where agriculture is going to be, so that we are not only in on the takeoff, but also in on the landing.
USTR recently announced its intention to pursue early implementation of trade liberalization in eight sectors in the trade negotiations. Agriculture is not among those eight. I would like to ask each of you representing commodity groups whether you agree with Ms. Sharma's statement and what effect, if any, USTR's decision to pursue early implementation in the eight non-agriculture sectors will have on the perception that agriculture is not being accorded the priority it is due in WTO.
Mr. CURTIS. Mr. Stenholm, if I may, soybean producers are very much concerned about an early harvest. I believe that is what you are referring to. We have voiced our concern about that.
In all honesty, the last communications I had with the administration was that they had abandoned those efforts. Now, that may not be true. Hopefully it is, if not, we need to pursue it further.
We also believe that agriculture needs to be a key priority in the coming WTO negotiations. And it is also our belief that Congress needs to show that it is concerned about this, and illustrate in some dramatic fashion that it is concerned about it, and wants to pursue it, and wants to push the administration to do something about it.
Page 96 PREV PAGE TOP OF DOC I would suggest to this committee that maybe one way of doing that is to, once again, address sanctions reform and pass that, and illustrate to our trading partners that not only do we expect them to open their markets, but that we are going to be a reliable supplier for those markets once they are opened up.
I believe that would illustrate to USTR that the Congress is very much concerned about agriculture's position in the next round of WTO.
Mr. TEWELES. Another good question. We in the seed industry are thwarted from a number of our exports by some of the import regulations around the world. And obviously, we would be ready, willing and able to participate in any way we can in reforming of these procedures.
Ms. SHARMA. I believe that those of us in agriculture are opposed to the fact that many issues within WTO are exposed to the symptoms of early harvest. And that agriculture and certain other issues, such as technological issues, are left on the table until much later than those that are dealt with at an early time.
Mr. HARDIN. Congressman Stenholm, the last APEC meeting, we talked about early harvest early, and we talked about it late and at great length. The pork industry has been in opposition to this all along. The only comfort that we might take is if the administration would maintain the commitment that this would all fall away unless everyone else agreed in the final situation.
Just very quickly, you know, the European Union subsidized 750,000 tons of pork exports last year. Having been through the Geneva Round, I tell you what, another little percentage decrease is not going to get it for us. In addition to market access, we have to make some major move on export subsidies to give our producers a chance to compete.
Mr. STENHOLM. If I could ask the last two to just be very brief. We do have a vote now and we are going to have to leave.
Page 97 PREV PAGE TOP OF DOC Mr. PETERSON. Wheat producers I think are clearly on record that we cannot leave the agricultural subjects a second seat in the WTO. We have the same problem the pork producers have, and 750,000 tons, we have about 17 million tons of subsidized European wheat exports every year to contend with.
Mr. CRANE. As you know, the agricultural cooperatives are involved in a wide range of different commodities, each with their own issues. But I do not think there is any dissension from the notion that agriculture needs a higher profile in the discussions.
Mr. STENHOLM. Mr. Chairman, let me just say to each and every one of them at the table, it is so critical that we start thinking outside the box, as the term goes. We cannot permit business as usual and status quo to continue in negotiations with Europe or anybody else, or within ourselves, if we hope to avert what we now have going on in production agriculture, and what we are going to continue to have in this world as we are participating in it.
The CHAIRMAN. Thank you, Mr. Stenholm. I thank all of you for being here. I would just mention that on October 20, the full committee is having a hearing to review the administration's preparations for Seattle. We have invited Secretary Glickman and Ambassador Barshefsky, and hopefully they will be here. We do have a big interest in that.
We thank all the witnesses for attending today. I think this has been most productive. Take the peanuts with you, we have plenty more. [Laughter.]
The hearing is adjourned.
[Whereupon, at 1:45 p.m, the committee was adjourned, to reconvene at the call of the Chair.]
[Material submitted for inclusion in the record follows:]
Statement of Hon. Dan Glickman
Page 98 PREV PAGE TOP OF DOC Mr. Chairman, members of the committee, I am pleased to appear before the Committee to discuss U.S. food aid to Russia.
While our aid has been met with overwhelmingly positive responses from U.S. farmers and ranchers, U.S. and international humanitarian organizations, and from within Russia, I recognize many have raised questions about it. Most serious, perhaps, are allegations from some sources still unsubstantiatedof misuse or diversion. As we consider a new Russian request for additional food assistance, our experience with the current program will carry great weight. We also will consider the findings of a food needs assessment technical team that spent a few weeks traveling throughout Russia last month looking at the crops, livestock, transportation, and storage situation.
RESPONDING TO RUSSIA'S 1998 REQUEST FOR ASSISTANCE
Last fall, when the Russian Government presented the United States, as well as the European Union, with a formal request for food assistance, we had a reasonably good assessment of the situation from U.S. Department of Agriculture staff in Russia, the Russian Government, and other sources.
We knew that Russia faced a serious situation with uncertain consequences. The collapse of the ruble in August 1998, followed by the collapse of the banking system, dramatically eroded purchasing power and disrupted the Russian system for paying for imports. Russia could no longer afford large-scale imports with devalued rubles. Some prices within Russia were out of reach of many consumers, and the Government stopped repaying its debts, exacerbating the country's serious economic problems.
In addition to the financial crisis, Russian farmers were harvesting their poorest grain crop since World War II, as production plunged about 40 million tons from the previous year to only 47 million tons. Before long, the U.S. and international press were reporting on potential food shortages and hunger, especially among the poor, the elderly, children, and those in isolated regions, such as the Russian Far East.
Page 99 PREV PAGE TOP OF DOC The decision on how best to respond to Russia's request for food assistance was not an easy one. But there was little question that we would respond.
To many young Americans, it may seem lie a long time since the fall of the Berlin Wall and the end of the Cold War. In fact, Russia is barely 8 years into a difficult transition from an authoritarian, centrally planned economy to some semblance of a democratic, market economy. In terms of our own economic, strategic, and national security interests, the United States has a major stake in supporting this transition and building a closer relationship.
For agriculture, too, there was little doubt about getting involved. The fact is that we are and we have been involved. We should remember that until the ruble devaluation, Russia was a major commercial marketthe 10th largest export market for U.S. agricultural products in the last few years. Exports to Russia reached $1.3 billion in fiscal 1997, and were nearly as high in both 1996 and 1998. Russia was the largest export market in the world for U.S. poultry meat, a leading market for pork, and an important market for a number of other products. We were seeing strong increases in exports of U.S. red meats, fresh fruits and vegetables, and processed foods.
All of that ended with Russia's financial crisis. Within a few months of the ruble devaluation, Russian purchases of U.S. agricultural products had plummeted 8090 percent.
Russia had one problem, and we had quite another. Russia needed a significant amount of food, and we were not only in a position to provide a substantial assistance package, but such a response was clearly in the immediate interests of American farmers and ranchers.
WHAT THE FOOD AID PACKAGE PROVIDED AND HOW IT HAS HELPED
In early November last year, following consultations with U.S. commodity groups and extended discussions in Moscow led by USDA's General Sales Manager, I announced the key elements of a major U.S. food assistance package for Russia. Negotiations continued with the Russian Government to formulate specific, comprehensive agreements, covering such issues as monitoring, transportation, exemption from Russian duties and taxes, delivery schedules and destinations, unpacking of products, monetization and the tracking of proceeds, and countless other essential details.
Page 100 PREV PAGE TOP OF DOC Accountability and the ability to monitor the movement of commodities and the proceeds generated from the sale of those commodities were the most critical issues for us. We were determined not to proceed until we had the agreement and cooperation of the Russian government in implementing a comprehensive and effective monitoring system, which I will discuss in a few minutes.
But, first, let me say a few things about the food aid package itself As negotiated, the final package totals 3.2 million tons of U.S. commodities valued at $1 billion, including transportation costs, We are donating more than half the aid, and Russia is purchasing more than 1 million tons under P.L. 480, title I.
As you know, most of the commodities are being monetizedRussia is selling the commodities at local prices and depositing the proceeds in the Russian Pension Fund. However, private relief organizations, such as the American Red Cross, and the Russian Government are distributing 500,000 tons of products in a humanitarian distribution effort targeted to particularly vulnerable groups in settings such as orphanages, pensioners homes, and hospitals.
As of October 1, USDA has purchased 95 percent of the food and commodities, with 75 percent already exported. Shipments under this package should be completed in the next few months. Of the $1 billion package, we have reserved about $130 million to fund the additional cost of shipment on U.S. flag vessels to ensure that we ship 75 percent of the tonnage on U.S. flagship vessels.
The food aid we are providing is helping to feed hundreds of thousands of needy Russians. It has increased available supplies, provided additional confidence in food security, and slowed price increases. The need was especially clear this summer. By July 1, Russian grain stocks had dwindled to about a 2-week supply. U.S. and European food aid helped prevent a critical situation from developing this summer. Without the aid, many Russian mills, bakeries, and processing plants would not be producing food today, and many Russiansespecially the elderly and the poorwould not be able to afford the food that is available.
Page 101 PREV PAGE TOP OF DOC We specifically targeted a portion of the package32 percentto provide assistance for Russian farmersfeed grains and oilseeds to help Russia's ailing livestock sector, and 15,000 tons of vegetable and corn seeds to help improve production.
IMPORTANCE OF COMMODITY SHIPMENTS FOR U.S. AGRICULTURE
The decision to respond was the right one for needy Russians, and it was a good one for American farmers already struggling with large surpluses and rock-bottom prices. In this last year, farmers have experienced the lowest wheat prices in nearly a decade, the lowest corn prices in more than a decade, the lowest cattle prices in the 1990's, the lowest soybean prices in 27 years, and the lowest hog prices since the Great Depression.
The food aid package that emerged from negotiations with the Russians included products from each of these sectors and several morewheat, corn, soybeans and meal, rice, beef, pork, poultry, seeds, and nonfat dry milk, beans, lentils, and vegetable oil.
The 1.7 million tons of wheat donated under section 416(b) of the Agricultural Act of 1999 to Russia represents 6 percent of total U.S. wheat exports this year1.7 million tons that otherwise would not have been moved out of the domestic market. It includes the two classes in the largest oversupply, Hard Red Winter and Soft Red Winter wheat. Of a total of nearly 6 million tons of U.S. wheat donations and concessional sales programmed worldwide for fiscal 1999, Russia was the largest recipient.
The U.S. pork industry also benefited. In 1998, Russia was the fourth largest export market for U.S. porka commercial market. Our 1998 exports totaled a little over 41,000 metric tons. With the collapse of the ruble, sales withered, with U.S. pork likely to be replaced by pork from the European Union coming in under very high subsidies and the EU's food aid effort. The U.S. food aid package is maintaining the U.S. presence, with 50,000 tons of U.S. pork exported to Russia.
Let me take a moment here to give some well-deserved credit to USDA employees for their dedication and hard work on this food aid package. The magnitude, complexity, and in many cases lack of precedent for these agreements imposed extraordinary demands on their time, commitment, and creativity.
Page 102 PREV PAGE TOP OF DOC The food assistance we are providing is a temporary measure. It is not a substitute or a replacement for commercial trade. We look forward to the recovery of the Russian economy, renewed purchasing power, and the resumption of Russia's normal commercial trade. But in the current situation, the food aid package is helping the Russia people through a difficult time, while maintaining the flow of U.S. products into Russia. It is a measure of our long-term commitment to this market.
REVIEWING THE MONITORING EFFORT
I want to make a few specific comments on the monitoring effort. We worked very hard and tirelessly with the Russians in planning this food aid package. Before shipments began, we wanted to be sure we had agreements in place that would provide the highest level of confidence that the aid would be properly monitored and distributed.
Since last spring, eight USDA staffers from Washington were sent to augment our USDA staff in Russia. In fact, virtually the entire U.S. government team in Russiafrom the State and Commerce Departments to the U.S. Agency for International Developmenthas had some role in oversight activity. I want to thank Ambassador Collins for his support of our efforts.
Monitoring is also a shared responsibility with extensive checks and balances on the Russian side to minimize opportunities for misuse or diversion. A U.S.-Russian Joint Working Group made up of representatives of the U.S. Embassy and the Russian Government meets weekly to discuss the progress of the food aid program and resolve any complications that arise. In addition, our monitoring effort involves Russian ministries at the national level, as well as regional and local governments that receive the aid. Our monitors report that the cooperation on the Russian side has been very good.
Within Russia, the monitoring is a serious, sustained, hands-on effort. For direct feeding programs, we are tracking commodities to the actual point of delivery to recipients, such as orphanages, homes for pensioners, and hospitals. For the monetized commodities, we have seen no signs of unexplained shortages at ports or mills.
Page 103 PREV PAGE TOP OF DOC Mr. Chairman, we have all heard allegations of misuse or diversion in this program. I am personally concerned whenever I hear these allegations. So far, no one has presented us with any evidence that commodities or proceeds from our large current U.S. food aid package have been misused or diverted.
For this reason, I am especially pleased to have Inspector General Viadero testifying here today to address some of these questions. We are happy that a member of the IG staff was able to accompany an interagency group on the May trip to Moscow, and we welcomed his observations from this visit, which focused on matters such as financial guarantees, communications and documentation. These recommendations were communicated to the Moscow embassy staff at the time of the visit, and the staff immediately began to implement them.
Both the IG and the General Accounting Office have a standing invitation to join program staff in the ongoing working group meetings on the food aid program here in Washington, and their participation has been a positive addition.
LOOKING AHEAD: A NEW REQUEST FROM RUSSIA
The final subject I want to mention is the new request from Russia. Two weeks ago, we received a formal request from the Russia Government for another substantial food assistance package in the year ahead. A number of considerations will come into play in reviewing this request.
Last month, a U.S. technical-level interagency team spent a few weeks in Russia conducting a comprehensive food needs assessment. Several USDA commodity specialists were included on the team. Among other things, team members analyzed the current supply and demand situation for commodities by region, the status of Russia's agri-food sector, and issues of transportation and storage. We are reviewing the findings of the interagency team and expect to have a clearer understanding of Russia's needs in a few weeks.
Of course, another key consideration is our experience with the current program. We continue to monitor closely the current food aid package to be sure that it is meeting its objectives. If an agreement is reached on additional aid, we will insist on similar monitoring measures.
Page 104 PREV PAGE TOP OF DOC There are a number of other considerations, as there were in the case of the current food aid package. For example, we have to be careful not to reduce incentives for Russian farmers to produce food. We also have an obligation to other trading nations to avoid actions that would disrupt international markets, and we would consult closely with the EU and other major food exporters.
The United States and U.S. agriculture have a very large stake in Russia's success. So this, too, must be part of our deliberations. Although it is premature to discuss a timetable at this point, we intend to move as quickly as possible in considering this request.
Mr. Chairman, in responding to Russia's need for food aid under the current package and in working with the EU in that effortwe did what had to be done. We were in a position to help because of large U.S. commodity surpluses. Nevertheless, we proceeded carefully, aware of the problems a food aid package of this size would present, and aware of the difficulties we might face within Russia. We carefully set up a monitoring system, and the Russians worked with us.
We have a lot to show for these efforts. That concludes my statement Mr. Chairman, I would be happy to answer any questions from the committee.
Testimony of Roger C. Viadero
I appreciate the opportunity to be here today to testify about our work on food aid assistance to Russia. I will discuss briefly our work related to the 1992-93 food aid assistance program to the Newly Independent State (NIS) of the former Soviet Union and then describe our current efforts on the 1999 Russian food aid assistance program. With me today is James R. Ebbitt, Assistant Inspector General for Audit.
Recently the media has been reporting possible money laundering through U.S. banks of funds provided by the U.S. Government to the Russian Federation. In the last several weeks, there have even been unconfirmed reports that funds derived from USDA-donated commodities have been diverted and ended up in these money laundering schemes. Some of the articles have alleged that there may have been illegal diversion of or unapproved uses of these U.S. agricultural commodities provided under the food aid assistance agreements. While we have not been able to confirm the kinds of widespread abuse some of these articles allege for either the earlier 199293 program or the current program, we are very concerned about these allegations. Because of the adverse impact they may have on the U.S. Department of Agriculture program, we have been monitoring the situation and we have kept the Secretary and the Congress informed as to the information that we have gathered.
Page 105 PREV PAGE TOP OF DOC To set the stage for a discussion of our work on the current program, I would like to briefly discuss our earlier work.
OIG'S EARLIER EFFORTS
Since 1994, my office has been involved in evaluating various aspects of the Department's $1.9 billion in food aid assistance to the Newly Independent States (NIS) of the former Soviet Union. We have issued six reports describing the results of our reviews. Our prior reports on the earlier food aid agreements identified that cooperating sponsors (either foreign governments or private voluntary organizations) did not comply with their agreements; they (1) did not file required logistical and financial reports, (2)-did not effectively control accountability for the commodities they received, and (3) improperly used monetized proceeds. (The sales process of converting commodities to cash is called ''monetization.'') In addition, we found that the Department needed to strengthen its management controls over the food assistance program primarily through stronger monitoring. In response to our recommendations, changes made on the early 1990's programs served as a point to build from in 1999.
1999 RUSSIAN FOOD AID AGREEMENTS
In November 1998 the Governments of the United States of America and the Russian Federation announced negotiations on providing American food assistance to the Russian Federation. As a result of these negotiations, the two Governments entered into two food aid assistance agreements in December 1998 under the authority of Public Law 480, title I, and section 416(b). Donations of 1.5 million metric tons (mt) of wheat were provided to the Russian Government under section 416(b), and an additional 1.5 million metric tons of various commodities were financed under P.L. 480, title I, under concessional terms. Subsequently, agreements were signed with private voluntary organizations (PVO) operating in Russia to donate approximately 100,000 mt of various commodities. Amendments to the P.L. 480, title I, and section 416(b) agreements were signed in February, March, and May-1999. These amendments reallocated some commodities and clarified agreement costs on transportation.
Page 106 PREV PAGE TOP OF DOC According to FAS, the program goals of these two massive food aid assistance agreements were (1) to provide contributions to the Russian pension fund and (2) to provide food directly to the most needy groups. The estimated total cost for all the agreements is in excess of $1.0 billion; the estimated total cost of the commodities is $746 million. (These figures are as of September 21, 1999.) 2.6 million mt of the commodities were authorized to be monetized with estimated proceeds totaling approximately $403 million.
OIG'S INVOLVEMENT IN MONITORING THE IMPLEMENTATION OF THE 1999 RUSSIAN FOOD AID AGREEMENTS
Because of the issues raised during our reviews of the Russian food aid assistance in 199293 and because of the magnitude of food aid assistance (in excess of $1 billion) to the Russian Federation, we decided to take a proactive approach in monitoring the implementation of these new agreements. Beginning in December 1998, my staff initiated meetings with FAS Export Credit officials to obtain specific details about implementation of the agreements, particularly FAS' efforts to implement procedures to minimize potential misuse and improper losses of commodities (in our reports on the 19921993 agreements, for example, we recommended that FAS strengthen controls over inventory accountability). Beginning in January 1999, members of my staff have regularly attended the weekly (currently biweekly) meetings of the USDA Washington, DC, working group, which includes Foreign Agricultural Service and Farm Service Agency staff.
We wanted to make sure that the concerns we noted in our previous reviews would be addressed in this program. FAS needed to make sure that there were strong accounting controls over the flow of monetized proceeds, and it needed to be concerned about the financial viability and integrity of the Russian financial institutions that these funds would be flowing through. Reports of the recent collapse of a number of Russian financial institutions and questionable transfer of program funds out of Russia heightened these concerns.
OIG'S COMMENTS ON FAS' MONITORING PLAN
Page 107 PREV PAGE TOP OF DOC In our meetings with the FAS General Sales Manager and his Export Credit staff, we agreed to provide our comments on FAS' monitoring plan, dated January 19, 1999. In our February 25, 1999, memorandum to FAS, we commended its efforts in developing the monitoring plan (FAS had no such a plan for its 19921993 food aid assistance), and we raised our concerns to FAS to strengthen its monitoring process. Mr. Chairman, with your concurrence, we would like to submit for the record a copy of our February 25, 1999, memorandum to the FAS General Sales Manager.
In our February 25 memorandum, we recommended that FAS (1) immediately increase the size of its monitoring staff detailed to Russia, (2) quickly sign specific agreements with or get commitments from other government and private entities who said they would commit staff to assist in the monitoring, and (3) work with the Commodity Credit Corporation (or other funding sources) and the assisting agencies to develop specific budgets for the monitoring efforts. We also recommended that FAS ensure that qualified staff were selected and trained if contracted local personnel were used in the monitoring efforts. Since approved workplans (submitted by the Russian Government showing the distribution of the commodities) are critical in tracking and monitoring all shipments of commodities, we recommended that FAS develop a system to ensure that no purchase authorizations or shipping tenders were issued without approved workplans and that the most up-to-date workplans were then circulated and coordinated with all FAS monitoring staff.
We also made a number of recommendations to strengthen the monitoring process itself. For example, we recommended establishing threshold criteria for referring any significant discrepancies for immediate consideration to the Moscow Bilateral Working Group. (The Moscow Bilateral Working Group is composed of representatives from U.S. Government agencies at the Moscow U.S. Embassy and from Russian Federation Government agencies.) FAS needed to establish timely reporting requirements and ensure that all related tracking reports were properly reconciled to the original shipment reports. FAS needed to specify a minimum level of spotchecks or onsite visits to be made as shipments arrived and were transported in Russia and a selection methodology for selecting sites for such monitoring visits.
Page 108 PREV PAGE TOP OF DOC In the sensitive area of accounting for the proceeds from the monetized commodities, we recommended that FAS (a) immediately determine from the Russian Government where (or with whom) the ''Special Account'' would be established in which monetized proceeds would be deposited and (b) verify the financial viability and integrity of the institution, if a private Russian banking institution was used. Concerning deposits to the Pension Fund, we suggested that the monitoring plan specify that for each shipment, the Moscow FAS monitoring staff be responsible to track the deposits made to the Special Account (and eventually to the Russia Pension Fund) and to reconcile these deposits against the estimated rouble value approved by the USDA Minister Counselor for Agricultural Affairs. FAS also needed some assurance from the Russian Federation as to the disposition of monetized proceeds to the Pension Fund.
FURTHER ACTIONS BY FAS TO CLARIFY AND STRENGTHEN ITS MONITORING PLAN
Over the months since January of this year, we obtained additional information from FAS officials and from the USDA Washington, DC, working group as to how FAS was strengthening its monitoring efforts and its team in Russia. In addition to the original three onsite staff (including the Minister Counselor for Agricultural Affairs), FAS decided to detail five additional USDA employees to Russia. FAS announced that it was contracting with a private consulting firm to provide training to its monitoring team and to provide administrative support to its Moscow monitoring team. FAS officials stated that it was working with the accounting officials of the Commodity Credit Corporation to resolve the budget and interagency funding issues related to funding the monitoring efforts. And FAS officials also announced that it was increasing the number of onsite monitoring visits, possibly to as much as 1520 percent of the shipments.
On May 3, 1999, FAS formally responded to our February 25 memorandum, officially confirming many of the actions that I have just discussed. With your permission Mr. Chairman, we would like to submit FAS' response for the record. In response to our concern about strengthening its monitoring team, FAS stated that it had detailed five USDA employees to its monitoring team in Russia (in addition to its three staff that were previously onsite in Russia) and agreed to continually evaluate the size of its monitoring team in order to ensure adequate accountability. FAS reported that the Russian Interior Ministry had formed a special force that could provide extensive additional monitoring effort. FAS had worked with the U.S. Ambassador to the Russian Federation to establish a ''country team'' approach to its monitoring effort, ensuring that all American officers connected with the U.S. Embassy would conduct monitoring visits, if possible. FAS had also exchanged memorandums with the U.S. Agency for International Development regarding its support of the monitoring effort. In addition, FAS had established an operating budget of $2 million for fiscal year 1999 to fund the current monitoring plan. FAS agreed to develop criteria in selecting contract personnel to be used in the monitoring and had developed guidelines for performing onsite inspections to ensure consistency in monitoring activities among all personnel.
Page 109 PREV PAGE TOP OF DOC FAS also assured us that the Minister Counselor for Agricultural Affairs would ensure that all revised and approved workplans were distributed to the appropriate parties; furthermore, FAS had begun to put some of this information on its Internet Home Page so that it would be available to all interested parties. FAS stated that no freight tenders or invitations to bid would be issued without approved workplans that had been reviewed by either the General Sales Manager or the Deputy Administrator for Export Credits. In clarifying the amount of monitoring, FAS stated that it planned to monitor as many ship arrivals and discharges as possible, and it planned to monitor substantially more than 10 percent of shipments to Russia. Its monitoring team had developed a standard report to be used on all monitoring visits by all personnel.
In addition, FAS stated that it would require its monitors to review original records as part of onsite visits and would be coordinating the onsite visits to match the delivery of the commodities to their destinations or recipients.
As for the financial accounting concerns we raised, FAS stated that it, the Moscow Bilateral Working Group and the Treasury Attache at the U.S. Embassy would continue to work on the necessary financial reports. FAS assured us that the Minister Counselor for Agricultural Affairs would be responsible for reconciling deposits into the Special Account against the estimated rouble proceeds for each shipment. According to FAS' response, the Special Account will reside only with the Russian Treasury and the Central Bank in Moscow; that is, the Special Account will not be established in a private Russian banking institution. FAS also assured my office that the Minister Counselor for Agricultural Affairs would verify the final disposition of any funds remaining in the Special Account when the program ends.
In addition, FAS agreed with our reporting concerns; all significant discrepancies will be immediately transmitted to the monitoring team headquarters for analysis and resolution, and reports will be required to be submitted in a timely manner.
Page 110 PREV PAGE TOP OF DOC As shown in its written response, FAS addressed as many of our concerns and issues that we had raised on its initial monitoring plan. Now I would like to discuss our trip to Moscow in May 1999 to observe the implementation of the food aid agreements.
OIG'S PARTICIPATION IN THE U.S. GOVERNMENT INTERAGENCY TEAM TRIP
Earlier this year, FAS invited OIG to participate with a U.S. Government Interagency Team trip to Russia. The trip occurred from May 3 to May 14. Because one of the primary objectives for this trip was to monitor and evaluate the implementation of the food aid agreements between the two Governments and because we had already raised concerns about the implementation of the 19921993 food aid agreements, we believed our presence on the team could be beneficial.
I would like to emphasize that our participation on this Interagency Team was as an observer. The trip was of a short duration and did not plan or allow for completion of audit fieldwork. The itinerary, established by FAS, included a variety of meetings with representatives from private and Government (American, Russian, and European Union) entities and site visits to Russian grain terminals and other processing plants and to a senior citizens' facility where we were able to observe many of the controls and procedures that the Russian Federation had established. Furthermore, we did not have an opportunity to review or track the processing of the monetized proceeds to the Russian Government Pension Fund, interview FAS' onsite monitors, or review FAS' tracking records other than those provided in the information packet provided to the Interagency Team members. Nevertheless, my representative on this Interagency Team trip was able to corroborate much of the information that FAS had been providing us on its monitoring efforts including the utilization of the U.S. Embassy staff in its efforts and the coordination of its efforts with entities in the Russian Federation.
We documented our observations on this trip in a memorandum to FAS dated August 13, 1999. With your permission Mr. Chairman, I would like to submit our trip memorandum for the record. In summary, we reported on a number of positive efforts that FAS had made to ensure that the goals of the food aid assistance agreementsto provide funds to the Russian Pension Fund and to provide food to the most needy recipientswere being carried out. We observed what appeared to be a high level of commitment to the agreements at all levels and among all parties, from Russian Government officials to FAS monitors. Based on our limited opportunity to inspect the controls and documents at the grain warehouses and mills and at a social welfare institution, we concluded that the controls appeared to be providing some reasonable assurance that the commodities were being used for the intended purposes and were getting to the intended recipients. Additionally, we found that the staff of the Moscow U.S. Embassy were coordinating their efforts to provide the necessary monitoring of the program. Finally, we observed that a good working relationship had been established between FAS and the European Union (EU) staff in Moscow.
Page 111 PREV PAGE TOP OF DOC Mr. Chairman, we caution, however, that our comments are based on interviews and very limited record reviews and physical observations. While we believe that FAS has made a significant effort to establish controls, from our short visit there we cannot provide assurance that the controls are fully in place and working.
Our trip memorandum did provide some recommendations to FAS on strengthening its food aid program monitoring efforts. We suggested that the Moscow Bilateral Working Group document more completely the information it uses to make decisions (such as changes in the distribution plans) and the followup work it performs based on these decisions; it was unclear, for example, whether the Group had performed adequate followup to ensure that the Russian Ministry of Agriculture had processed all of the financial guarantees. In the event that any of the regional governments and corporations did not pay for the commodities received, these financial guarantees would have allowed recovery of the sales proceeds by authorizing the Russian Finance Ministry to offset these accounts payable against funds due to the regions from the Russian Government. In addition, this Working Group needed to better define, coordinate, and document assistance in monitoring the food aid effort received from other Russian ministries and the European Union Moscow representatives to ensure that its monitoring efforts were being carried out efficiently and effectively. FAS itself needed to ensure that changes to the food aid distribution plans were controlled, that its tracking reports contained clear, complete, and accurate information, and that local Russian media representatives were aware that food distribution information was available on the Internet. Finally, in order to ensure better utilization of its monitoring resources, FAS needed to determine the specific level (and approach) of shipment monitoring that would be acceptable.
To summarize Mr. Chairman, we concluded from our limited observations on this Interagency Team trip and our limited review of FAS' documents, that FAS had made a significant leap forward in implementing adequate controls and monitoring procedures to ensure that the food aid programs are being properly carried out. As we pointed out previously, our reports on the earlier 19921993 food aid agreements noted a general lack of adequate accountability controls and at best a very nascent monitoring process. Under the current food aid agreements, FAS has acted quickly to supplement its monitoring efforts and has willingly modified its monitoring plan to resolve the concerns raised by my office and other parties, including other members of this Congress. FAS needs to sharpen the focus of its monitoring efforts and determine whether its resources are being used most efficiently, but as we have observed, all involved parties appear committed to ensuring that the program goals are properly carried.
Page 112 PREV PAGE TOP OF DOCUSDA FOOD AID ASSISTANCE PROCEEDS AND TRANSFER OF FUNDS ABROAD
Earlier in our testimony, we discussed ongoing media allegations about possible illegal ''laundering'' through American banks of proceeds from the USDA food aid assistance program. FAS needs to be ever vigilant to prevent this from happening, but with one exception which I will discuss, we have no evidence nor do we have any direct knowledge of any money laundering involving USDA food aid program funds. However, we would also emphasize that, due to the breakdowns of internal control procedures (and in some cases, the absence of adequate control procedures) under the 199293 food aid assistance program that we had previously reported on, we cannot say with absolute assurance that such money laundering involving proceeds from earlier monetized USDA-donated commodities did not occur or is not occurring. Regarding the current program, because of the problems in the Russian banking system and because the FAS current level monitoring effort cannot provide absolute assurance such money laundering schemes are not occurring, we also cannot provide this assurance.
The exception I referred to involves a private voluntary organization (PVO) called the Fund for Democracy and Development (FDD). Recently, FAS provided to my office a stack of copies of cablegrams and letters showing a questionable transfer of proceeds derived from USDA-donated commodities from a banking institution in Russia to a foreign banking institution. We are conducting a criminal investigation of this matter. FDD is headquartered in Washington, DC, and had received $19.6 million in USDA commodities under four FAS commodity donation agreements in fiscal years 1993 and 1994 to carry out both humanitarian and developmental programs in Russia. One of the agreements authorized monetization of the commodities (which had a Commodity Credit Corporation-acquisition cost of $13.8 million) with the proceeds to be used by FDD for approved developmental projects in Russia. The net sales proceeds from the monetized commodities totaled approximately $3.7-million.
FAS became aware of this questionable transfer in late 1998, but did not notify us until recently. FDD and other parties made attempts to recover the funds. In a letter dated April-6, 1999, FDD notified FAS that it had recovered 50 percent of the questionable transfer and that the recovered funds were deposited in a FDD U.S. bank account. Currently, we have been unable to confirm the recovery of these funds and do not have any information as to the whereabouts of the other half of the transferred amount. We are continuing to monitor FAS' efforts to track and recover these funds.
Page 113 PREV PAGE TOP OF DOCSUGGESTIONS FOR FUTURE CONSIDERATION
Mr. Chairman, through the completion of the current Russian food aid agreements, we will continue to participate in the FAS' Washington, DC, working group, to provide timely feedback to FAS officials on sensitive issues and concerns, and to provide other assistance, if requested. A large portion of the USDA commodities were purchased and shipped as of September of this year. FAS will need to be vigilant in monitoring the final shipments of the USDA commodities, particularly in guaranteeing that the commodities are received by the intended recipients and in guaranteeing that all the monetary proceeds from the sale of these commodities under the 1999 food aid agreements are eventually deposited in the Russian Pension Fund. The next few months will be just as critical since the majority of the sales proceeds from the monetized commodities will eventually be transferred to the Special Account and, then, to the Russian Pension Fund. As of September 3, 1999, only approximately $30.3-million of the estimated total proceeds of $403 million had been forwarded to the Russian Pension Fund. (The estimated total proceeds of $403 million were calculated as of April 13, 1999.)
Because of the recent rash of media articles alleging illegal transfer of funds or money laundering from Russia involving both Russian and American banking institutions, FAS needs to be particularly wary of proceeds from the sale of commodities flowing through the Russian banking system. FAS needs to provide even greater assurance to both you and the Department that the financial control procedures that it has established are in place and are working effectively to detect any fraud, waste, or abuse. FAS' Moscow working group will need to work closely with the Government of the Russian Federation to ensure that funds are not diverted or seized as the funds flow through its banking system and to ensure the financial institutions handling the funds are reputable. FAS' monitors will need to closely scrutinize and track the flow of the funds by reconciling the biweekly financial reports against the agreed-to sale prices and the amount of commodities shipped. FAS will need to monitor the sales proceeds, and, if necessary, follow up with the Russian Ministry of Agriculture and its brokers to ensure timely receipt. In the event that receipts are not forthcoming or not timely, FAS will need to work closely with the Russian Federation Government, particularly the Ministry of Finance, to invoke the financial guarantees that were agreed to by all participants. Lastly, FAS will need to continue monitoring the shipments by performing onsite inspections and reconciling the tracking reports.
Page 114 PREV PAGE TOP OF DOC Mr. Chairman, thank you for the opportunity to present the issues that we identified under the prior Russian food aid agreements and our observations and views on the current food aid agreements. Our goal has always been to ensure the successful accomplishment and the financial integrity of these agreements. This concludes my prepared statement Mr. Chairman. I will be happy to answer any questions you may have.
Testimony of John Hardin, Jr.
Mr. Chairman and Members of the Committee:
I am John Hardin, Jr., a pork producer from Danville, IN. I am a past president of the National Pork Producers Council (NPPC) and a past chairman of the United States Meat Export Federation. I currently serve on NPPC's Trade Committee and am a representative on the Agricultural Policy Advisory Committee to the United States Trade Representative and the Secretary of Agriculture. I very much appreciate the opportunity to appear today on behalf of U.S. pork producers to express our views on the food aid program for the Russian Federation.
The National Pork Producers Council is a national association representing 44 affiliated states that annually generate approximately $11 billion in farm gate sales (although farm gate sales were reduced to approximately $9 billion in 1998 as a result of the lowest prices in history in deflated dollars). According to a recent Iowa State University study, the U.S. pork industry supports an estimated 600,000 domestic jobs and generates more than $64 billion annually in total economic activity. With 10.9 million litters being fed out annually, U.S. pork producers consume 1.065 billion bushels of corn valued at $2.558 billion. Feed supplements and additives represent another $2.522 billion of purchased inputs from U.S. suppliers which help support U.S. soybean prices, the U.S. soybean processing industry, local elevators and transportation services based in rural areas.
I would like to commend Secretary Glickman and his staff for their hard work in putting together the first food aid package for the Russian Federation. We pork producers realize that this was no small task and required innovative use of humanitarian assistance programs and staff time. The Secretary was careful in the development of this package to recognize the potential for misuse of the food aid. Because of that thoroughness, no impropriety has been found in the use of the assistance package.
Page 115 PREV PAGE TOP OF DOC This summer the U.S. Department of Agriculture tendered for shipment as humanitarian food aid to the Russian Federation 50,000 metric tons (mt) of pork. Bids for over 50,000 mt were submitted and USDA awarded the entire 50,000 mt. This pork is filling a vital need for food in the Russian Federation and translated into much needed price help for U.S. pork producers. When the bids were accepted, cash hog prices increased by over $10 per hundredweight. As this summer's results readily illustrate, pork and pork product food aid is a win-win-win situation because it benefits U.S. pork producers, U.S. meat packers, and foreign recipients.
The need for pork food aid in the Russian Federation has not dissipated after the most recent package. Since 1990, the total apparent domestic supply of pork in the Russian Federation has declined sharply from almost 4 million mt to 1.7 million mt. During this same period, per capita consumption of pork dropped from 26.5 kilograms per person to 11.8 kilograms per person. Until the devaluation of the Russian Ruble, the Russian Federation was the third largest export market for U.S. pork. However, our exports to Russia in 1999 are down 96 percent in volume terms when compared to 1998. In addition to the Russian Federation, many other countries, such as Romania, currently are running huge pork protein deficiencies and are compelling candidates for U.S. pork and pork product food aid.
Because of this unmet need for pork, U.S. pork producers are urging the Administration to make at a minimum an additional 50,000 mt of pork and pork products available as humanitarian assistance for delivery in late 1999 and early 2000. In fact, we believe that the present global situation warrants up to an additional 150,000 mt of pork and pork product food aid. This assistance could be for the Russian Federation and other countries that need assistance.
Many Members of Congress, including many members of this committee, have requested that the Administration initiate another food aid package that includes pork. Last week, 69 Members of the House and over 30 Members of the Senate wrote to Secretary Glickman urging that another 50,000 mt to 150,000 mt of pork food aid be sent to nations in need, especially Russia.
Page 116 PREV PAGE TOP OF DOC Including more pork in a food aid package is of critical importance to U.S. pork producers in order to prevent a repeat of last year's disastrous live hog prices. As you all are aware, U.S. live hog prices reached all time low levels last year and U.S. pork producers have lost over $4 billion in equity in the past 22 months. While hog prices rebounded somewhat in the summer, pork in cold storage has been at record levels and prices, as reflected in the September Hogs and Pigs Report, are forecast to decline to disturbingly low levels again. I must underscore that time is of the essence here. Yes, we would appreciate pork food aid tenders in January or February but to avert another serious drop in live hog prices, USDA needs to tender for pork as soon as possible.
The loss of equity by pork producers is contributing to the ongoing consolidation of the pork industry. On September 29, Tyson Foods, one of the largest pork producers in the country, signed a letter of intent to sell its pork group to Smithfield Foods. This acquisition, similar to the highly publicized proposed acquisition of Murphy Family Farms, again highlights the urgent need to address and resolve the economic crisis that continues to plague pork producers. We stand on the precipice of losing thousands of independent, family pork producers in the United Statesif action is not taken to drive prices for live hogs higher. Pork food aid will not only assist independent, family producers on the brink of financial ruin but also will strengthen U.S. cattle and poultry prices because of the higher U.S. live hog prices that will result from more pork food aid.
The European Union has been extremely aggressive in addressing the pork protein deficit in the Russian Federation. Data compiled by USDA show that during GATT year 199899, the EU has subsidized more than 750,000 metric tons of pork exports on a global basis, with the Russian Federation and the republics of the Former Soviet Union targeted very heavily. Further, the EU is currently shipping pork to the Russian Federation as part of a 100,000 metric ton pork food aid program.
Page 117 PREV PAGE TOP OF DOC Again, I must emphasize that timing is critical here. The Secretary announced that the first food aid package would be sent to the Russian Federation in November 1998. Unfortunately, the pork component of that package was not finalized until July 1999. Although we recognize that this was a massive undertaking involving disparate parts of USDA, we urge the Secretary to expedite the completion of a second food aid package. Based on the expertise that USDA developed in the first food aid program, the second food aid program certainly can be completed within a much shorter time period.
There have been no improprieties associated with the U.S. food aid program. We must not now embargo further food aid shipments at a time when there is large unmet demand for food in the Russian Federation and when U.S. producers are on the brink of collapse.
The humanitarian assistance programs that Congress has created should be important tools in the arsenal of America's farmers. The programs can meet food needs in foreign markets and stabilize domestic prices if they are used at the right time. Now is the right time for another food aid package which includes pork and pork products. In order to prevent U.S. live hog prices from again descending to unacceptably low levels and causing further dislocations in the pork sector, it is imperative that USDA tender for additional pork food aid as soon as possible.
Thank you for your attention.
Statement of Robert L. Teweles
A. MayerSeed entered into discussions with the Foreign Agricultural Service (FAS) about the Russian Federation's request for 1,000 metric tons of vegetable seeds and 14,000 metric tons of hybrid seed corn.
B. MayerSeed responded with a proposal to FAS.
Page 118 PREV PAGE TOP OF DOC C. After discussions and negotiations with FAS and Russian authorities, MayerSeed was awarded the contract with the Farm Service Agency.
D. MayerSeed executed the contract and followed up with two trips to Russia to participate in the distribution of the seed and observe the growing and harvesting of the crops.
E. In conclusion, with the help of FAS, the high quality seed arrived on time; was planted in a timely manner and produced fully competitive results. All parties, the Russian agricultural sector, the USDA and the U.S. seed trade have labeled the seed aid program a success!
II. OBJECTIVES OF THE SEED AID PORTION OF FOOD FOR PROGRESS
A. To help a neighbor in need by providing the Russians with sufficient seed so that they were able to plant all their available acres in spring 1999.
B. To assist the Russian government and Russian agriculture to build a technically sound and financially successful agricultural base to enable Russia to feed its people.
C. To demonstrate to the U.S. government (State Department, USDA and USAID) that the U.S. and the U.S. seed industry were capable of exporting quality seed to meet all conditions of the importing country . . . on budget.
D. To assist the U.S. seed industry to reduce its burdensome inventory.
III. EXECUTION OF THE CONTRACT
A. The seed (seed corn and vegetable seed) was shipped on time . . . and arrived in St. Petersburg on time. The quality exceeded contract goals.
B. The price of the seed purchased by KCCO was significantly below budget.
C. Fifty-seven U.S. seed companies, from the largest to the smallest, participated.
Page 119 PREV PAGE TOP OF DOC D. Not all U.S. seed corn genetics are adapted to Russian conditions. A cadre of international genetics experts was assembled to screen all hybrids offered to verify the genetic adaptability.
E. The U.S. government agencies (FAS, KCCO, the U.S. embassy in Moscow, Plant Protection and Quarantine, Iowa State University Seed Lab) and state agencies (California, Iowa, Indiana, Michigan, Minnesota and Wisconsin Departments of Agriculture) and the American Seed Trade Association were unilaterally supportive and helpful in cutting through the bureaucracy to allow us to complete an extremely complicated contract on time. A seed export of this magnitude was never before attempted, and much plowing of new ground was necessary.
F. The shipment was followed by the visit of two U.S. seed teams to Russia to assist in the distribution of the seed to the Russian farms and to observe the actual seed growing and witness the harvest.
IV. THE OUTCOME
A. From the beginning to the end, this first of its kind seed aid program has been successful.
B. The seed was purchased and shipped at $2,567,989.08 (12 percent) under budget. The cost of the seed is conceptually noteworthy. Heretofore, some private U.S. exports of seed to the Soviet Union were unsuccessful and resulted in poor crops in the Soviet Union and poor relations between the U.S. and the Soviet Union. What is more, previous gifts funded by the USDA were for commodities. The lowest bid purchase policy did not adversely affect the result (lesser quality grain could be recleaned). The quality of the seed is directly related to the price. All of the participants in this seed aid program (including FAS and KCCO) learned that the quality specifications required for success vary greatly between commodity and planting seed. Accordingly, the purchase conditions were structured to assure that quality seed, and not the lowest priced seed, was purchased.
Page 120 PREV PAGE TOP OF DOC C. The Russians commented favorably about the quality of the seed and the vigor with which it germinated and grew under the cold, wet Russian conditions. In addition, at nearly every Russian farm visited, we were told that the seed had been calibrated (graded) far better than Russian seedresulting in the most accurate planting rate and field emergence that they had seen.
D. Although Russian growing conditions (location, climate, equipment, et cetera.) are more severe and difficult than in the U.S., the American seed was generally competitive with Russian seed for producing vegetables and silage corn.
E. Post delivery visits by the USDA embassy personnel and the U.S. seed team determined that most of the seed was, in fact, planted in spring 1999, and that to our knowledge, no seed was exported by the Russians for cash or barter.
F. According to Roskhleboprodukt, the Russian consignee which distributed the seed, the monetization process is well underway and is expected to be completed on the schedule developed by the joint U.S.-Russian planning team.
G. We established a dialogue with the Russian farmers, Russian seed companies, Russian Ministry of Agriculture officials and university personnel about the Russian capabilities and needs and what the U.S. is capable of providing. Together we discussed building the cooperative foundation to assist the Russians to plan and implement a strong agricultural base on which to anchor their economy.
V. WHAT HAVE WE LEARNED?
A. Seed can be a successful tool for the State Department and other governmental organizations to conduct foreign policy. U.S. agriculture leads the world in genetics, technology, equipment and agronomic practices. This strong asset can be an advantage for any country agriculturally less advanced than the U.S. Providing seed rather than cash results in more direct involvement of U.S. agriculture and more control over the results.
Page 121 PREV PAGE TOP OF DOC B. If the Russian leadership commits to make their agriculture more productive and if the Russians, in turn, request our help and if the U.S. agrees to cooperate, what we have seen in our last two visits leads us to be confident that Russian silage production can be increased by 20 percent with minimal added cost. Providing seed assistance to the Russians is only a band-aid, but can lead to other opportunities. Likely the same increases in productivity can be seen for other Ag interests (livestock, dairy, oil production, etc.). If the above scenario comes to pass, the following observations can be drawn:
(1) Leadership is a fundamental ingredient for success. Without a commitment and agreement to the objectives on the part of both the U.S. and Russian high level policy makers, comprehensive success will be elusive.
(2) To improve agricultural methods, it will be necessary to involve Russian leadership in the testing, demonstration and documentation of the effectiveness of improved practices.
(3) It takes time and consistency to build the trust necessary for a successful working relationship. More than once during the seed team's September 1999 visit, our Russian counterparts said ''You have come back to visit the Russian farms, just as you promised. Now we can have serious discussions.'' Thus the U.S. must assign a specific team comprised of both private business people and government experts which will, in turn, commit to the time, travel and expenditures to build relationships and long-term success. (Note: It is the writer's opinion that such seed teams be assigned to specific global regions, i.e. one team for the CIS countries; one team to the African countries, etc., thereby experience learned in one country will positively impact adjoining countries. Consistency is all importantbuild a team and keep it in place.)
(4) The Russians continually requested seed maturity of FAO 150250. The U.S. will never be able to provide or sell large quantities of early maturing hybrids. The maturities that we provided, FAO 150400, were later than requested, but their performance was competitive.
Page 122 PREV PAGE TOP OF DOC C. If the seed aid program is repeated, we have the following recommendations:
(1) Seed must be shipped so as to arrive in January/February.
(2) Limit the number of hybrids shipped.
(3) Tags should be printed in Russian.
(4) Variety descriptions should be included.
(5) The exporting company must have a dialogue with the consignee so as to coordinate all the obvious logistics of shipment and distribution.
(6) Shipping the seed is only one aspect of the success of this program. Appropriate follow-up and agronomic training must be incorporated into the initiative.
D. This Food for Progress Program is referred to in Russia as a humanitarian aid project. Many Russians we met objected to this label as demeaning. It offends their pride. A less charged project name would be useful.
In closing, the 1999 seed aid segment of the Russian Food for Progress Program was an unqualified success. We, in agriculture, have the products, the technology and the manpower to make a huge contribution to help prevent food shortages in Russia.
Time and time again, the grassroots people of Russian agriculture acknowledged U.S. agricultural leadership . . . and requested our assistance. Due to poor growing conditions in 1999, we assume they will need seed aid again in 2000. We submit that such comprehensive assistance can make a significant contribution to global economic stabilization and world peace. We respectfully seek your support in building on our success.
Statement of Rita Sharma
Thank you Chairman Combest and the members of the Committee for holding hearings regarding Russian Food Aid. NCBA commends your continuing efforts to improve the export outlook for U.S. agricultural products. I am Rita Sharma, a seedstock producer from Williamsport, IN and a member of the National Cattlemen's Beef Association,
Page 123 PREV PAGE TOP OF DOC Importance of Trade: Beef producers have traditionally avoided supply management and price support programs, and therefore, had the Freedom to Farm as well as freedom to fail. Cattle producers add value to grain produced by our neighbors by feeding it through our livestock. NCBA commends the Administration for including increased amounts of beef in the 1999 package of food aid for Russia.
Livestock producers are constantly fighting for a larger share of the domestic market. However, our ''home'' market contains less than five percent of the world's population. Our greatest potential for expanding market share is in international trade and as we continue striving to improve our efficiency, productivity and our commodity, we are becoming increasingly dependent on the rest of the world to buy our products to ensure economic growth. We, as an industry, have worked hard to promote beef exports which now account for more than 12 percent of the value of wholesale beef sales. On a tonnage basis, we export 8 to 9 percent of what we produce.
As this dependency has grown, so have the effects of political and economic strife in our key export markets on the volatility of U.S. cattle prices. The 1998 calendar yeara year of recession in most Asian marketswas the first time that more than one million metric tons of U.S. beef and beef variety meats have been exported. Compared to 1997, exports of beef and beef variety meats during 1998 increased of 4.75 percent on a volume basis but declined 5.44 percent on a value basis as U.S. beef prices declined and international customers shifted to a lower-price mix of beef products.
As an industry, we have worked to expand exports of beef and beef variety meats from approximately $500 million dollars twenty years ago to approximately $3 billion todaya six-fold increase. During the first seven months of 1999, beef exports increased 7.2 percent on a volume basis and nearly 8.5 percent on a value basis compared to the same time in 1998, and the value of U.S. beef and beef variety meats exported during the first seven months of 1999 totaled more than $1.78 billion. This certainly is encouraging, but highlights the importance of taking advantage of every opportunity to move beef into international trade.
Page 124 PREV PAGE TOP OF DOC The U.S. beef industry has worked hard to expand sales of our product in the young, fast growing, overseas economies. In spite of record U.S. meat exports and efforts of most commodity organizations to expand exports, prices for nearly all U.S. agricultural products remain very low.
There is a perception among many in agriculture that past GATT and WTO rounds often traded agricultural priorities for other priorities and left U.S. crop and livestock producers facing high tariffs and a host of non-tariff trade barriers in foreign markets while liberally opening U.S. markets to imports. One of the underlying premises of the 1996 Freedom to Farm bill was that aggressive pursuit of growing export markets would be a critical strategy to replace the safety net of traditional farm programs. We firmly believe this to be true. Eliminating trade barriers is critical to the next round of international trade negotiations.
Importance of Beef By-Products: It is a little-known fact that by-product values (hide and variety meats like beef tongues, hearts and livers) account for nearly 20 percent of the value of a market steer or heifer. Between late-1996 and mid-1999 the value of beef by products declined by more than $3/cwt.a loss of $36 for each of the nearly 28.7 million steers and heifers marketed annually during 1998 and 1999or a loss to the beef industry of more than $1 billion annually.
The decline in beef by-product values was directly attributable to declining hide values normally exported to Korea, Indonesia and Malaysia (all were suffering deep financial crises) and variety meats that are also primarily exported to Asian markets and to Russia (also in deep recessions).
Economic and Political Climate: The Russian food aid program emerged from volatile and chaotic economic and political conditions in Russia. The impetus for the Russian food aid package began during early 1998 with the free-fall of the Russian ruble. The ruble plunged to less than one-half its exchange rate just three weeks earlier, deepening the economic crisis that was threatening to unseat President Boris Yeltsin. Analysts were predicting that the sinking ruble could trigger hyperinflation. In August 1998, the exchange rate had been 6.31 rubles to the dollar nearly three times the black market exchange rate of 19 rubles to the dollar.
Page 125 PREV PAGE TOP OF DOC Supermarket shelves were emptying and the economy worsening every day. The main Russian share index fell to a record low and prices jumped 15 percent during August 1998the fastest rise in any month since January 1995. Russian imports declined 80 percent and most importers postponed purchases until better times.
Food prices, both imported and domestic, increased 10 to 50 percent. Panic buying cleared the shelves of products like salt and sugar in some parts of Moscow. The financial crisis made forecasts of domestic beef and pork production and red meat imports impossible.
The Communists were the largest party in the Duma and many advocated a return to command-economy measures, including currency controls and soft credits. Another group was promoting a radical stabilization program including giving control of monetary policy to a non-government currency board empowered to automatically set interest rates according to the level of foreign currency reserves held at a fixed exchange rate.
The acting prime minister proposed monetary inflation to help Russia meet its growing bills and proposed backing the ruble with the country's gold and foreign reserves. He proposed an economic dictatorship and promised a free-floating ruble, but did not advocate a currency board. It is against this backdrop of political instability and economic uncertainty that USDA proposed the Russian food aid program.
Russian Food Aid Program: The food aid package for Russia announced by USDA during the first week of November 1998 was to include at least 120,000 metric tons of beef and 50,000 metric tons of pork. The $626 million aid package including more than 3.1 million metric tons of a wide range of U.S. commodities was finally settled upon after Russia agreed to exempt aid shipments of all customs duties.
Under the agreement, U.S. beef was sold to Russia under the P.L. 480, Title I program. This program allows the U.S. government to loan Russia money to purchase food under terms more favorable than commercial credit. An extra $60 million in transportation costs was also financed under the P.L. 480 arrangement. The food aid shipments were expected (optimistically as it turned out) to begin in December 1998.
Page 126 PREV PAGE TOP OF DOC At the time the Russian food aid package was initiated, fed cattle prices were generally re-testing 10-year lows established in 1996 below $60/cwt. and market hog prices were in their now-much-publicized dive to the teens/cwt. and below. Matching surplus U.S. commodities at bargain-basement prices with Russian consumer shortages and hyper-inflating prices was a win-win solution that would benefit both countries.
Purchases of beef and pork for the Russian food aid program were very slow in developing. In fairness to USDA, this was the first time that beef and pork had been included in P.L. 480 purchases more traditionally accustomed to dealing with standardized quality standards of grains and other bulk commodities. The problems caused by this situations combined with shifting political sands in Russia, a shortage of U.S. ships, the complexities in finding alternative transportation and a U.S. meat industry wrestling with a steep learning curve relative to bidding for P.L. 480 tenders resulted in longer than anticipated time to complete the purchases.
On July 22, 1999 (more than 6 months later than originally anticipated), Russia purchased 23,969.5 metric tons (mt) of frozen beef under its Public Law 480, title I program. The purchase included the following:
2-piece boneless chucks5,814.68 mt, Beef chuck, shoulder clod4,635.04 mt, Beef hearts2,655.04 mt, Beef livers10,864.74 mt.
The first 18 containers of beef and beef variety meats purchased under USDA's food-aid program arrived in St. Petersburg on Friday September 3, 1999 aboard the Dutch feeder ship Sea Nordica used by Sea-Land to deliver containers from Rotterdam to St. Petersburg. The rest of the shipment in arrived in St. Petersburg partly by vessel (U.S. port-Rotterdam-St. Petersburg) and partly in containers by train sections. Customs clearance took place in St. Petersburg and the product was delivered in accordance with the Food Aid agreement.
Additional orders for U.S. beef for Russian food-aid package were specified in an invitation to purchase released August 27, 1999 and awarded September 14, 1999. The commodity tender was for 96,030 metric tons of beef including 2-piece boneless chucks, beef chuck shoulder clods, livers and hearts. By this time beef prices had recovered significantly above late 1998 levels and Russia was able to purchase only 20,478.95 metric tons of U.S. beef products as part of the Russian food-aid package. The majority of the most recent purchase consisted of two-piece chucks, but also included 1,000 metric tons of offal (hearts and livers), but no shoulder clods.
Page 127 PREV PAGE TOP OF DOC Indications are that Russia may still be able to use the remainder of its unused fiscal 1999 pork and beef allocation in fiscal 2000. The beef industry urges continued support by Congress and the Administration for the Russian purchasing agency to include beef, and especially beef variety meats, in future purchases. Although beef prices have rebounded significantly, prices for beef by-products have only begun to recover (see graph). Most of the improvement in beef by-product values can be directly attributed to purchases for the Russian food aid program.
Loyalty Pays Dividends: The U.S. was not the only country interested in supplying food aid to Russia. The European Union (EU) Commissioners also provided aid to Russia after being subjected to intensive lobbying by the EU meat industries. During 1997, Russia was the largest market for EU beef and beef variety meats, importing 44 percent of EU exports by product weight. Russia was also the largest market for EU pork and pork variety meats purchasing 31 percent of EU exports by product weight.
EU exporters faced huge losses in their largest export market as a result of the Russian economic crisis and EU traders have became even more reliant on Russian markets after depressed demand in Asia. The European Farm Unions organization warned that the Commission must be prepared to act immediately once Russia resumed imports, saying ''it is only a matter of time.'' Combined with other statements about the lack of effect on EU prices from a 50 percent hike in pork export subsidies, the underlying call for extra subsidies for Russia became louder.
Maintaining a U.S. presence in the Russian market in the face of large and increasing EU export subsidies is critical for long-term market growth. Prior to 1998, Russia was the second largest market for U.S. beef variety meats. Demand for beef, as well as variety meats, was projected to climb as the Russian economy grew and disposable consumer income increased. In addition, keeping a presence in the Russian market during economic hard times is critical to establishing and maintaining business relationshipsalong with building a reputation as a reliable supplier and trading partnerwhen commercial trade resumes.
Page 128 PREV PAGE TOP OF DOC This market strategy has paid dividends in other markets experiencing difficult financial times. For example, in 1995, the U.S. maintained a presence in the Mexican beef market using GSM-102 credit guarantees during a recession following peso devaluation. Two years later, sales of U.S. beef and beef variety meats set record levels. Mexico continues to be our second largest and fastest growing market.
During 1998, the U.S. again used the GSM-102 credit program for purchases of beef and hides by Korea. Through the first seven months of 1999 commercial sales have exceeded all expectations (increasing 86 percent in tonnage and 74 percent in value above depressed sales during the same time in1998) as the economy recovered faster than predicted.
A Clear Plan: Whether facing financial crises in Russia and Asia or negotiating increased market access in the EU, it is clear that Congress and the Administration must have a unified strategy to systematically attack the trade problems of U.S. agriculture. Expanding access for U.S. agriculture is a critical part of the upcoming negotiations. The inability to secure approval of negotiating authority prior to the Seattle Ministerial meeting is testimony to this void. Agricultural producers are justifiably concerned about sending a team to the negotiating table that has a track record of in-fighting among Congressional and Administrative ranks rather than engaging the opposition.
The U.S. must hold its trading partners to commitments agreed to in previous trade agreements or risk losing public support for additional trade negotiation authority. Without fast track authority, the U.S. will lose the initiative in gaining access to emerging markets and enforcing existing trade agreements.
The National Cattlemen's Beef Association is prepared to participate in the process of evaluating critical trade issues within the beef industry. NCBA looks forward to providing additional input as the U.S. addresses other trade issues, including accession of China to the WTO and approving legislation to provide authority for negotiating additional trade agreements. Thank you for the opportunity to present this information
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Statement of Vincent Peterson
I am Vince Peterson, regional vice-president for the European Region of U.S. Wheat Associates. My office is located in Rotterdam, the Netherlands. I would like to thank you for the opportunity to share with you today some of our observations of the U.S. commodity donation program to Russia.
I am going to divide my comments into three specific areas:
1. The ''need'' for wheat donations in Russia
2. The operation of the current program.
3. Suggestions for a second initiative that has been recently requested by Russia.
The ''need'' for wheat: Many current discussions, both of the present and future programs, continue to evolve around the question, ''Does Russia need donated wheat?'' The answer is ''Yes'', but this question needs to be looked at from two different perspectives: Economic and Political.
The Marketplace: From the perspective of the marketplace, in this past year, it is well known that Russia experienced a dramatic reduction in wheat production, down almost 40 percent, to 27 mmt from 44 mmt in 199798. In calculating total available supplies, including carryover stocks1998 provided their market with 9 mmt less wheat than in the previous year (35 mmt vs. 46 mmt in 1997). Despite cutting their domestic consumption of wheat, primarily in reduced animal feeding, Russia was left with a food wheat deficit of more that 3.0 mmt.
Exacerbating this situation was the fact that, from the time the U.S. and Russian governments announced that they were negotiating the first donation package during the fall of 1998, exports of Russian wheat to neighboring countries skyrocketed. At the same time as domestic Russian wheat prices were at extreme, artificially low levels ($40 to $50 per ton) because of the collapse of the Ruble in the late summer of 1998. USDA carries this export figure at 1.20 mmtbut other sources put the number closer to 2.0 mmt. The effect here then of the donation programs (both U.S. and EU combined) was like the 'meteor hitting the ocean' ... a big hit in the middle then causes floods in all surrounding countries. For a period of six months, Russian wheat flooded the Caucasus markets (and others)driving domestic prices lower and in some casesdisrupting some U.S. commercial sales that may have otherwise been made to those markets.
Page 130 PREV PAGE TOP OF DOC This total deficit was ultimately filled by the U.S. and EU support programs.
You may have seen recently that EU Agricultural Commissioner, Franz Fischler, has concluded that Russia does not require additional donations, as their crop output has improved. This is, in part, true. According to USDA estimates, Russian wheat production is expected to rise by 4 mmt, from last year's 27 mmt level to 31 mmt. Some private forecasters even predict a slightly higher harvest output. But in considering this increase, three very important elements are being ignored:
1. Russia began this year's campaign with virtually depleted carryover stocks, estimated at only 1.0 mmt. Even when these stocks are combined with their improved production, the total availability of wheat to the domestic market is actually 3 mmt lower than last year, 32 mmt vs. 35 mmt in 199899.
2. Because of poor weather and inadequate farm inputs, domestic sources in Russia tell us that no more that 55 percent of Russia's wheat crop will qualify as food grade wheat. The balance must be fed to animals. Again, our domestic trade sources estimate that Russian import requirements will be between 2 and 2.5 mmteven considering that the U.S. and EU current donation program wheat has just arrived during this past spring and summer.
3. Because of the commodity export flight last year, regional authorities have essentially embargoed wheat shipments from leaving their regionthis may mean more domestic feeding of wheat at the local levelsand an even more difficult time for urban mills to access domestic wheat.
In total, Russian market needs are greater this year than they were last year.
The Politics: In looking at the political side of this question in Russiayou will find a mixture of opinion. In the newspapers and on the streetsstrong nationalist sentiments are accusing the Americans of ''force feeding'' Russiaand say that they will be ''choking on American grain'' this year if there are new donations. Opinion polls released in the local paper show that 60 percent of the Russian citizenry are opposed to more U.S. donations. There is no question that this sentiment is driven by a bruised national prideas most citizens cannot answer the follow-up question: ''If you don't want American grain, what will you eat this year?''
Page 131 PREV PAGE TOP OF DOC The grain industry that we maintain close contact with, on the other hand, speak out quite strongly that donations are neededfor the purposes of supply, price and economic stabilization in the markets and country (including bread supplies and prices to the consumer)particularly as next winter and spring come around, and domestic supplies will again be very scarce.
These sensitivities are compounded by the upcoming elections scheduled for the Duma this December, and for the Presidency, next summer.
But in the end, yes, Russia badly needed donations. Perhaps it was not as much a humanitarian need, people facing mass starvation like you might see in Ethiopia or Sudan, but more a crisis of a failed economythe inability of the economy to provide adequate food supply logistics to the country.
This year, 1999/2000, again, there is a ''need'' for wheat. There are even areas in the Northern tiers of the country through Siberia where a humanitarian effort may be necessary to provide wheat (or flour) to specific regions. But, in our opinion, the crux of the problem is still the result of their economic failure. A failure at the farm level, where no capital is available for equipment and crop inputs. And finally, a failure in the urban areas where output and employment lags, wages aren't paid, and there is a capital shortage throughout the grain marketing/processing/consumer chain.
How did the program work this year? We do have to recognize that this was a very large program (1.7 mmt of wheat, which has nearly all been shipped) and the efforts to coordinate and monitor this volume, along with the other U.S. commodities, in a difficult environment like Russia, surely is monumental.
There have been both good and bad outcomes from this effort.
On the plus side: These shipments provided the domestic milling industry with access to badly needed inventories, at a time when purchasing the wheat remaining in the domestic market was nearly impossible. These stocks were sold at current Russian domestic priceswhich were quite cheap, by international standards at the time.
Page 132 PREV PAGE TOP OF DOC These supplies most certainly allowed the domestic milling industry to continue to operate, provide flour to the bakeries and bread to the consumers, and ultimately, hold the line on price increases.
While the vast majority of the shipments came to the larger metropolitan areas (i.e. St. Petersburg and Moscow whose industries were perhaps better placed to continue to operate even without donations), donated wheat supplies did reach some areas where actual humanitarian needs existed.
Generally, the Russian industry thought the distribution channels functioned well. And, from what we can see and learn, it would appear that the payments and collections of funds from the proceeds of the sale of the wheat were quite secure, and most likely, did not fall into the disappearance schemes that have plagued other financial circles this year.
From the long term outlook and perspective of the U.S. and the U.S. wheat producer, supplying this wheat to the Russian market is being used by U.S. Wheat Associates to promote commercial relationshipswhere some of these donation customers might eventually become commercial customers.
And let's be honest, at a time when world trade in wheat is somewhat stagnant and competition remains fierce, the reduction in U.S. wheat inventories through this program had a direct economic benefit to the U.S. market and price structure.
On the negative side: In recognizing the magnitude of the program, I'll try not to be excessively critical, except to point out some problem areas that may be considered for the second campaign. Because of their nature, these comments are little longer and more detailed than the ''positive side'' comments.
I'll just mention briefly that the timing and logistics of this year's program was not ideal. The first U.S. wheat shipment arrived in Russia only on April 29, 1999and even today, there are 5 vessels waiting to discharge in the Port of St. Petersburg. The fact that these shipments did not arrive on some kind of regular intervals is compounded by having the port now blocked at the same time that new crop wheat is available domestically in Russia.
Page 133 PREV PAGE TOP OF DOC As a premise, the administration of this program in Russia, essentially, re-empowered the old central government structurewhose position had been in decline in power and importance for a number of years. Most of the wheat delivered to the market passed through the control of theses central authoritieswho in addition to receiving a commission or 'handling fee' for their effortsheld the ultimate control on the logistics and distribution of the commodities within the country. I mention this only as, for years, public and private projects in Russian have been targeted at developing the private sector, establishing a viable grain marketing system, and encouraging growth in this sector. The current program essentially eliminated the private sector from this process. This requires some thought for future programs. As it would be desirable to have more private sector activity generated by this programattention, of course, must be paid to the monitoring and control functions, that are, unfortunately, probably easier to administrate through the old central system. In the end, it may be a fact of life that the old-central system is the only entity capable of carrying a program of this magnitude.
As a market development toolin the pursuit of using this program to the advantage of the U.S. to create eventual Russian commercial purchases of wheat in future yearswe fell somewhat short. This may not have been an expressed goal of the donation program in the first place, but failing to recognize the opportunity that this program affords the U.S. in this area makes the tremendous budget expenditure seem underutilized. Closer attention could be paid to tailoring wheat quality to the requirements of the private sector market in Russiawhich is the ultimate purchaser of this wheat. Some of the HRW wheat that we supplied this year was viewed as 'border line' milling quality. Some of our wheat met Russian feed wheat standards. If in the future, we should apply the idea of ''economic assistance'' to this program rather than ''famine relief'' where 'beggars can't be choosers'I think you would find that the local domestic market in Russia, in many cases, would pay the price difference between the lower quality and the more desirable U.S. wheats. U.S. Wheat Associates would be please to consult with the Russian and U.S. agencies to identify qualities required by the end user.
Page 134 PREV PAGE TOP OF DOC Along the lines of the above comments, this year, the program has been referred to as ''Food Aid''yet some restrictions on the type of 'food' produced from our wheat limited the market possibilities for the wheat. If the premise, ''Agricultural Commodity Economic Assistance''or something similarcould be applied, you would find that U.S. wheat of various classes and qualities being in demand. Let the wheat move to the market of it's highest and best usewithout restriction. If higher quality HRS/HRW is demanded by the milling industry; or Durum by the pasta industry; or, if U.S. soft wheats are demanded by the feed or other processing industriesallow the market to pull the correct wheat to the proper end use. By specific example this year, some HRW of particularly borderline quality by Russian standards was requested by the feed industrybut the requirements of the program allowed the wheat to be processed only in a flour millwho had a difficult time using that specific wheat. ''Food'' can take any number of forms. Wheat fed to animals to produce meat and dairy products should be viewed as a completely acceptable contribution to Russia's economic system.
I would support the Russian request that feed wheat be included this year. SRW has been somewhat disadvantaged by export market flow patterns in recent years, it's price is currently from $10 to perhaps $20/mt below good milling/baking quality HRW, and is in a competitive price range with EU soft wheat. Russia is big user of wheat for animal feedin recent years 9 to 11 mmt per year.
As a matter of coordination, there was an extreme lack of information flowing from the U.S. side to the Russian sidewith regards to actual shipments: What vessel is being loaded? Who is it intended for? When is it due? What are the quality certificate results? etc etc These are the normal kinds of questions that wheat buyers need the answers to in order to plan their logistics, inventories, and quality position in the mill. Even though these are ''donations'', the end user is still paying his good money for the wheatand deserves to have this information as far in advance as possible. Here, the Cooperators like U.S. Wheat Associates are willing to try to provide this service to the receiversbut we had to search and pry through all departments at USDA to find and collect this information in order to pass it on to the receivers. USW probably held the only source of complete information. It was interesting when a flourmill from St. Petersburg would call our office and ask ''What's the status on our shipments?''while on the other phone, an U.S. Government rep would call our office and ask, ''What's the status on our shipments?'' With so many calls of this nature, we had no alternative but to take the time to find out.
Page 135 PREV PAGE TOP OF DOC Following are some of our concerns that have been shared with USDA. Some of the issues have been largely resolved:
There have been some problems with the acceptability of the 416b wheat that began arriving at the end of April. While the wheat meets purchase specs, the resultant flour's low gluten percentage, compared to Russian standards, has caused problems with downstream marketing. Extremely high falling numbers have made automated bread production difficult. There have also been problems with oily wheat in tankers, residual fumigation, additional costs due to lightering tankers, damage from multiple handling, and communication problems. Taken together, these problems are creating an unwanted image of U.S. wheat quality that is not helpful to our long-term market development prospects.
The mills are now using additives, such as barley malt, to deal with the falling number problem. Unfortunately, some mills have partly addressed this problem by purchasing Canadian or German wheat to blend with our donated wheat! However, there are some additional steps that can be taken that will help.
1. Advance grade certificates. While loading documents are presumably being provided to Russian authorities, they are not finding their way to the millers. Thus, the millers have no clue as to what quality of wheat they will receive until after each ship arrives. At a minimum, FGIS could give FAS copies of the grade certificates at loading, to be forwarded to the millers either through our USW Moscow office or through FAS Moscow. A copy to USW would be extremely useful.
2. Advance samples. Could a portion of the FGIS file sample for each ship be mailed ahead for the millers to analyze? Or, could FGIS run a falling number test on the sample and provide that information up the chain? Or both?
3. Revise purchase specs. We suggest that FSA include a longer term and a reasonable falling number range in their purchase specs? Another spec change that would help would be to go to 11.5 percent protein, which should only add about $45 per ton at current spreads.
Page 136 PREV PAGE TOP OF DOC 4. Direct lightering. In St. Petersburg, the largest mill in Russia is accessible by barge. Yet, when our first tankers were lightered by barge, those barges were then unloaded into rail cars. Realizing that there is an issue of accounting control here that railroad scales facilitate, but recommend that consideration of whether this step and its concomitant damage and cost, could be eliminated. A more effective step, of course, would be to refuse tankers that cannot berth at destination.
5. Hold inspection. FGIS inspects ship holds and certifies them as clean before loading. Yet the first vessels that arrived in the Russian Far East had wheat-oil clumps, and one shipload had to be held in bins and aerated several days before milling to reduced the oil smell that had permeated it. FGIS personnel need to be cautioned to do a particularly thorough inspection job on tankers.
6. Work with USW. Our Moscow office has strong relationships with the major millers and has the expertise to deal with technical problems. We believe a better job of communicating with the Cooperators on the spot would be useful.
Summary: I am supportive of a new donation initiative to Russia this year. There is a ''need'' for wheat in two areas: One, in a form that will provide ''economic assistance'' to the agricultural/food chain; and, two, for humanitarian relief in selected Northern areas which can be precisely identified.
The program will continue to provide positive benefits to the Russian and U.S. industries on several fronts: Domestic wheat supplies are still logistically tight in Russia. U.S. supplies will allow the Russian industry access to inventories at prevailing domestic market pricespromoting and encouraging economic activity throughout the food chainproviding well needed stability to this segment of their economy. Outright donations to particularly disadvantaged regions will provide specific relief to food shortages in those areas. The expansion of U.S. exports to Russia provides a positive contribution to a U.S. farm economy that is suffering at present; and, the U.S. program can be used effectively to establish long term commercial markets for U.S. products in Russia.
Page 137 PREV PAGE TOP OF DOC In considering a new program, some thought should be given to: Clearly identifying the program according to the benefits expected: Agricultural Commodity Economic Assistancenot Food Aid; drawing the private sector into greater participation through the functional use of the program where and if possible; better crafting of program logistics so that shipments coincide with the needs of the market; and exploiting the long term market development and trade benefits to the U.S. that can result from this program through the use of Cooperators already in place in Russia.
Testimony of Donald R. Crane
Mr. Chairman, ranking Member Stenholm, Members of the Committee:
I appreciate the opportunity to make this presentation to the Committee on Agriculture and to discuss with you the Russian Food Aid Program. Properly managed, this program has the potential both to meet the food security needs of Russia and to generate funds that can be responsibly used to promote economic development addressing the underlying need for food aid.
My name is Donald C. Crane, executive vice-president, ACDI/VOCA here in Washington. ACDI/VOCA is a private, nonprofit international development organization providing high-quality technical expertise at the request of farmers, agribusinesses and cooperatives abroad. We provide services to clients in 35 countries around the world, 16 of them in Eastern Europe and the former Soviet Union. We are committed to expanding economic opportunities in developing economies and emerging democracies worldwide. We have pioneered many creative food assistance programs to advance this mission.
A key means of providing this expertise is through the use of U.S. agricultural volunteers. ACDI/VOCA is the premier volunteer organization, sending 8001000 volunteers per year from all parts of America all over the world. Our volunteers are your constituents, and they are outstanding representatives of American agriculture.
Page 138 PREV PAGE TOP OF DOC We are a membership organization; some of our members are Sunkist, Farmland Industries, Southern States Cooperatives, Harvest States, Agway, CoBank, and we are affiliated with the National Council of Farmer Cooperatives and the Farm Credit Council.
ACDI/VOCA has been in Russia since 1991. Beginning with two grants under the NIS Farmer-to-Farmer program, we have provided 640 American volunteers to work with Russian partners at all levels of the food system. Through the Consulting Services for Russian Entrepreneurship and Entrepreneurial Business Services, ACDI/VOCA and its implementation partners Winrock International and Center for Institutional Reform and the Informal Sector have supported the growth of small and medium-sized enterprises in 12 oblasts from western Russia to the Far East. In addition, ACDI/VOCA implements two rural finance programs in Russia, the Mobilizing Agricultural Credit Project which provides loans to rural credit cooperatives who on-lend to their members and the new Sakhalin Micro-Credit Project.
From this long-term experience, ACDI/VOCA has learned many lessons and has put in place policies and procedures which address key issues of agriculture and rural enterprises. Primary among these lessons is that the revitalization of Russian agriculture is a complex and long-term task. It requires the development of a policy framework and economic reforms, restructuring of farm and food processing enterprises, the creation of a system of service and financial institutions that support agriculture, and the individual efforts of farms and agricultural entrepreneurs to increase productivity and profits. ACDI/VOCA believes that no issue is more limiting and severe than the lack of producer access to financing at affordable rates. Farmers lack the capital required to restore productivity, thus limiting their capacity to take advantage of any policy reforms that may occur.
MONETIZED FOOD ASSISTANCE
ACDI/VOCA has had extensive experience in monetization of U.S. government food aid programs, both Title II of PL 480 and the Food for Progress program. From the beginning we have used a two-pronged approach. The first is to approach the monetization (or sale) as a business event that needs to be dealt with in a business-like approach. Sales of food, for better or worse, have an important impact on the marketing system of the receiving country. We want to insure that not only do we ''do no harm'' but that we use the monetization transaction as a means of developing the internal markets of recipient countries. The second prong is to use the sales proceeds in ways that improve the agricultural sector of the recipient country. In the countries we are involved in, and this includes Russia, the agricultural sector is the engine of growth. Ignore that, and your development efforts are doomed to failure.
Page 139 PREV PAGE TOP OF DOC Monetized food assistance can play a very significant role in helping Russia to meet the current shortfalls of an agricultural sector in transition from state farms to private farmers while contributing resources to the necessary restructuring of the industry. At the same time, American farmers benefit from the immediate use of their farm commodities as well as the long-term development of commercial markets. Monetization by private voluntary organizations (PVOs) can be highly effective because:
While direct feeding plays an important role in certain situations, monetizing food aid commodities through the market is more sustainable in the long run.
Monetization helps the U.S. agricultural economy through the sale of U.S. farm commodities.
Monetization can generate commercial exports markets for U.S. agricultural commodities, farm supplies and equipment.
Monetization generates local currency for development assistance projects, which enhance food security.
Monetization by PVOs avoids many problems inherent in government-to-government programs:
Commodity is more effectively used because of reliance on the market.
There is closer oversight of how the proceeds are used.
More targeted use of proceeds assures greater food security impact.
We believe that monetization in Russia by PVOs with strong monetization experience in difficult environments can be undertaken successfully with minimal or no losses. There have been some very difficult times experienced by U.S. PVOs in Russia, but we have learned from those experiences. For example, ACDI/VOCA developed a successful mechanism for the Russian monetization that we recently undertook on behalf of the U.S. Poultry and Egg Export Council under the Food for Progress Program. The sale was done in a manner which assured that we were paid and paid promptly in foreign exchange, and the USAPEEC project is now well underway.
Page 140 PREV PAGE TOP OF DOC This procedure recognized that in selling in Russia it is necessary to be cautious and to develop payment mechanisms that assure this prompt and full payment. The point we want to make here is that PVOs with a business orientation and an understanding of the weaknesses in the Russian financial system can make these food programs work.
I noted above the desirability of monetizing through private sector markets. We have worked with USDA/FAS under Food for Progress in Russia and other countries, and they have been fully supportive of our efforts to stimulate the development of private markets. The functioning of these private markets is an essential prerequisite to the future flow of U.S. commercial agricultural exports into Russia.
The PVOs have a productive partnership with the American Soybean Association. ASA has worked closely with PVOs, sharing their technical and market knowledge and supporting project development. We believe this partnership is an excellent model as many countries move from being food aid recipients to commercial markets for U.S. commodities. We welcome the opportunity to assist this important transition.
AGRICULTURAL CREDIT PROGRAM
The issues relating to accountability inherent in monetization of food aid in Russia are two-fold. The first, discussed above, involves the sales transaction itself. The second relates to use of the sales proceeds. While this too presents challenges in any country, we have demonstrated that a well-designed program, with proper oversight and accountability can be largely assured. Some examples are provided below.
Fundamentally, the problems confronted by Russian producers are similar to those faced by farmers around the world. Agriculture is viewed as a high-risk, low-return venture by traditional banking institutions. Capital tends to flow to the commercial centers and economic sectors where a broader range of financing opportunities can be found. Currently, the lack of working capital at the producer level is acute. Inability to use land as collateral, lack of business experience of farmers and inexperience of lending institutions in making loans to small private farmers contribute to the problem. Consequently, the need exists to create and maintain an institution capable of working with agriculture to reduce risk, enhance profitability, and normalize a flow of capital to rural communities. These economic circumstances driving the need to mobilize capital to support an agricultural finance system in Russia are similar to those found in the U.S. when the Farm Credit System was established. While Russia faces unique circumstances that make it impossible to implant any existing system, the issues are not substantially different from those that have been successfully addressed through the development of cooperative financial institutions in many countries.
Page 141 PREV PAGE TOP OF DOC Since 1992, Russia has shown considerable interest in credit cooperatives. Much research and debate has been conducted regarding the most appropriate model for Russia. No external model exactly fits the Russian legal, policy and cultural context. ACDI/VOCA believes strongly that the timing for the establishment of cooperative financial institutions is now. There is a production credit delivery system vacuum, and Russian producers are struggling to identify sources of capital. Credit cooperatives have been developed, but they lack the financial resources to sustain these institutions. While the legal environment is still cumbersome, credit cooperatives are able to form and legally operate within a complex matrix of laws, policies and instructions.
ACDI/VOCA has established the Russian-American Loan Program with the Rural Credit Cooperative Development Foundation (RCCDF). This program, with the support of the U.S. Department of Agriculture, the Russian Ministry of Agriculture and Food and RCCDF, has developed a system for providing loans to rural credit cooperatives who on-lend to their individual members. The U.S. Agency for International Development (USAID) has provided a cooperative agreement to implement the Mobilizing Agricultural Credit (MAC) Project which provides technical assistance in support of the development of the RCCDF and the Russian-American Loan Program.
The primary constraint to the development of rural credit cooperatives in Russia has been a lack of capital to make loans to creditworthy cooperatives and borrowers. Through the MAC project and the work of RCCDF staff, a rigorous, transparent methodology for accrediting cooperatives, evaluating their loan portfolios, monitoring credit operations and loan administration has been prepared. Interest rates are calculated using a market-based methodology and collateral is required for the loans. Cooperatives that fall to less than 90 percent current in their loan payments are ineligible for further funding until they are in full compliance with this requirement. However, additional capital is required to implement this lending procedure.
The RCCDF has received a small portion of the proceeds from the initial food aid program in Russia. Corn and pea seed were included in the initial food aid package and 7,500 tons of seed were monetized, with RCCDF as the designated recipient of the sales proceeds. To date, RCCDF has received 17.4 million rubles of an estimated 32 million rubles total proceeds ($1.25 million at current exchange rates). The balance is due by December, 1999. Of those funds, 3.5 million rubles have been loaned to five cooperatives that have met RCCDF's exacting accreditation procedures. Those cooperatives have made 28 loans to their members.
Page 142 PREV PAGE TOP OF DOC Thus, ACDI/VOCA has initiated a working model for rural credit. This type of credit institution has been established in the Republic of Georgia, Ukraine, and Kyrgyzstan. In each case, loan programs to farmers have maintained loan repayment rates of greater than 95 percent. In each case, loan capital was obtained through monetization of USDA food aid programs, and these programs were supported by USAID. The ability to provide capital that supports these positive and effective models of economic development in the region demonstrates the sound use of proceeds from food aid sales.
In Russia, ACDI/VOCA and RCCDF have prepared a working, transparent and effective methodology for using food aid proceeds for the development of a rural credit delivery mechanism. This model is adapted to local legal conditions, targets the farm population and could create paying agricultural customers for the seeds and other inputs needed for commercial production. Additional tranches of food aid for monetization could produce substantial capital that could be allocated to expanding working models of rural finance in a manner which assures accountability of U.S. food aid.
Statement of Marc Curtis
Good morning, Mr. Chairman, and members of the committee. I am Marc Curtis, a soybean, corn and rice producer from Leland, MS. I currently serve as president of the American Soybean Association, which represents 32,000 producer members on national issues of importance to all U.S. soybean farmers. ASA appreciates the opportunity to appear before you today, and commends you for holding this hearing on the important issue of Russian food aid.
Before discussing our interest in expanding food assistance for soybeans and soy products to Russia, Mr. Chairman, I would like to comment briefly on the compelling need for soy food aid this year. There is no question that food assistance must be a key part of efforts by Congress and the Administration to respond to continuing low prices for soybeans and other farm commodities. Soybean prices have declined from a season average $7.35 per bushel in 1996 to an estimated $4.80 per bushel for the 1999 crop.
Page 143 PREV PAGE TOP OF DOCU.S. commercial exports in 1999 are projected at about $50 billion, down from $60 billion in 1997. Since nearly 50%of annual U.S. soybean production must be exported to prevent a buildup of supplies, food aid is essential to make up the shortfall.
ASA recognized this situation early this year, and presented Secretary Glickman in March with a 21 page list of potential markets where $1 billion in soybeans, soybean meal and soybean oil could be sold on concessional terms or donated under existing USDA authorities. This list was developed jointly with the National Oilseed Processors Association to ensure to the greatest extent possible that commercial exports would not be displaced. The Secretary was very receptive to our proposal, and directed USDA's export credits staff to review our list and develop an appropriate initiative.
Throughout the summer, ASA has worked with Department officials, industry, and representatives of the food aid community to identify markets and soy products that will maximize the positive impact of food aid on U.S. soybean prices and producer income. In addition to the initiatives developed by USDA, ASA and Private Voluntary Organizations are actively working to finalize proposals to export soybeans and soy products to 21 countries. Beyond these projects, we are already discussing how we can work with PVOs to introduce high-value soy products, including soy flour, textured vegetable protein, and protein concentrates and isolates in the diets of countries which cannot afford animal protein.
In July, ASA met again with Secretary Glickman to apprise him of our efforts and to discuss the timing of a concessional sales and purchase and donation program for soybeans and soy products in 19992000. The Secretary confirmed that preparations for an expanded initiative in our sector had been completed, and that he would expect to move forward as soon as the Department confirmed that soybean production and supplies would substantially exceed domestic and export demand in the coming marketing season.
As you know, Mr. Chairman, we are now into this year's soybean harvest. The last USDA Supply and Disappearance Report projected a near record soybean crop of more than 2.8 billion bushels, and an increase in soybean carryover to over 500 million bushels in September 2000. Soybean prices are now sliding toward harvest low levels. From our perspective, there is no reason to delay announcing a substantial food aid program to expand soy exports in the coming year. We very much hope the Department will make such a determination in the next few days, and begin moving product under the plans already developed.
Page 144 PREV PAGE TOP OF DOC Turning specifically to food assistance for Russia, ASA strongly supports an expanded program for fiscal year 2000. We would like to see Russia's request for 1 million metric tons of soybeans and soybean meal and 100,000 tons of soybean oil accepted by the U.S. Government.
Prior to its collapse, the Soviet Union was a major importer of soybeans averaging 1.2 mmt annually in the 1980's. The U.S. farmer benefited greatly during this period as the USSR provided large subsidies to producers and consumers to achieve and maintain a high level of livestock production and consumption.
In the early 1990's the GSM-102 program to the USSR began to shrink and was ultimately discontinued when the USSR dissolved. In 1993, the last year of substantial U.S. commodity exports to Russia, P.L. 480 financed approximately 700,000 mt of soybeans. The economic decline in the Russian agricultural sector exacerbated a liquidity crisis, causing a shortage of grains and oilseeds for processing, particularly into feed. Feed, livestock and poultry production plummeted throughout Russia.
Russian urban centers then became major markets for frozen chicken leg quarters, primarily imported from the U.S. and indirectly benefiting U.S. soybean growers. While poultry meat exports never made up fully for the millions of tons of lost grain exports, it was a significant market, until the ruble devaluation drove up the cost of food imports. U.S. poultry exports to Russia have since declined sharply.
In fiscal year 1999, Russia received 200,000 mt of soybeans and 300,000 mt of soybean meal under the P.L. 480 title I component of the 3.1 million ton U.S. food aid package. The Russians were, from the beginning, keen to include soybeans and soybean products in their food assistance package for the following reasons:
1. Their oilseed crushing and feed milling facilities needed raw materials, such as soybeans and soybean meal, to operate and survive;
Page 145 PREV PAGE TOP OF DOC 2. Local livestock industries needed feedstuffs to increase local production of meat and eggs; and;
3. A small but growing industry that processes soybeans for direct human consumption, particularly by the poor, needed soybeans.
One of our Board members, Corwin Fee, from Knoxville, IA recently returned from Moscow where he met with several processors. Some of them told Mr. Fee that U.S. soybeans allowed them to run their plants and put people to work for the first time in over a year. These processors are very eager to receive more soybeans from the U.S. this year, as they have seen economic activity start to revive in their sector.
Through its USDA and national check-off funded office in Moscow, ASA is capitalizing on the opportunity presented by the Russia food aid package. We are helping the Russians improve their economic performance and development through technical assistance and management instruction. They respond very well to these programs, and are eager to continue both the imports and the technical exchanges. This type of development activity will facilitate graduation of the Russian market from food aid to commercial sales.
Again, we urge the U.S. Government to respond favorably to Russia's request for food aid in fiscal year 2000, including 1 million tons of soybeans and soybean meal and 100,000 tons of soybean oil. Without U.S. Government financial assistance, there would be no exports to Russia. Without these substantial exports to Russia, more soybeans will remain in the U.S., depressing market prices and soybean producer income. This is clearly a win-win situation for both Russia and our producers.
Thank you Mr. Chairman and members of the committee, for the opportunity to testify today at this important and timely hearing.
Statement of the American Seed Trade Association
Page 146 PREV PAGE TOP OF DOC The American Seed Trade Association would like to go on record in full support of the Russian Food Aid Program. The inclusion of seed into this package was a major success for both Russia and for U.S. seed companies.
We are excited that our members were given the opportunity to ship seeds to Russia under this program. We followed up the seed donation program with three technical assistance missions to several areas where the seed was delivered and planted. These missions were designed to monitor the seed shipments and plantings, provide technical assistance, establish relationships and to assess the overall program.
As a result of our missions we found the Russians were very happy with the seed they received and with the U.S. industry follow up. Following is a translation of the Krestyanskiye Vedomosti newspaper, No. 29, July 19, 1999.
''Belgorod oblast. Seeds of high yield varieties of green peas, which were received by the Open Joint Stock (Krasnogvardeysk cannery) as humanitarian aid from the United States and were planted in the vegetable farms of oblast, have been returned to the processors in kind of a good crop. This allowed to keep the canning plant running at full capacity and to increase volume of production 3.5 times compared with last year. Owing to increased volumes of production, the plant could pay all its debts to the state budgets of all levels and to pay off all its wage payments/liabilities.''
In addition to the much needed assistance provided to Russia, this program also benefited U.S. seed companies during a time of generally low prices in the U.S. Following is a quote from one of the participating seed companies to the broker: ''I was so impressed that you chose to work with so many smaller companies to put
this all together.''
Page 147 PREV PAGE TOP OF DOC In closing, the American Seed Trade Association would like to commend USDA for the success of the Food Aid Shipment. This program assisted Russia after a devastating harvest last year, it increased demand of U.S. seed and it acted as a catalyst for the U.S. seed industry to develop linkages into Russia. Furthermore, the American Seed Trade Association fully supports future Food Aid Programs to Russia.