SPEAKERS CONTENTS INSERTS
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63–698 CC
2000
2000
REVIEW OF THE U.S. GRAIN STANDARDS ACT
HEARING
BEFORE THE
SUBCOMMITTEE ON
GENERAL FARM COMMODITIES, RESOURCE
CONSERVATION, AND CREDIT
OF THE
COMMITTEE ON AGRICULTURE
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTH CONGRESS
SECOND SESSION
MARCH 22, 2000
Serial No. 106–46
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Printed for the use of the Committee on Agriculture
COMMITTEE ON AGRICULTURE
LARRY COMBEST, Texas, Chairman
BILL BARRETT, Nebraska,
Vice Chairman
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
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KEN CALVERT, California
GIL GUTKNECHT, Minnesota
BOB RILEY, Alabama
GREG WALDEN, Oregon
MICHAEL K. SIMPSON, Idaho
DOUG OSE, California
ROBIN HAYES, North Carolina
ERNIE FLETCHER, Kentucky
CHARLES W. STENHOLM, Texas,
Ranking Minority Member
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
MIKE McINTYRE, North Carolina
DEBBIE STABENOW, Michigan
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BOB ETHERIDGE, North Carolina
CHRISTOPHER JOHN, Louisiana
LEONARD L. BOSWELL, Iowa
DAVID D. PHELPS, Illinois
KEN LUCAS, Kentucky
MIKE THOMPSON, California
BARON P. HILL, Indiana
JOE BACA, California
——— ———
Professional Staff
WILLIAM E. O'CONNER, JR., Staff Director
LANCE KOTSCHWAR, Chief Counsel
STEPHEN HATERIUS, Minority Staff Director
KEITH WILLIAMS, Communications Director
Subcommittee on General Farm Commodities, Resource Conservation, and Credit
BILL BARRETT, Nebraska, Chairman
JOHN A. BOEHNER, Ohio,
Vice Chairman
NICK SMITH, Michigan
FRANK D. LUCAS, Oklahoma
SAXBY CHAMBLISS, Georgia
JERRY MORAN, Kansas
JOHN R. THUNE, South Dakota
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WILLIAM L. JENKINS, Tennessee
DOUG OSE, California
ROBIN HAYES, North Carolina
DAVID MINGE, MN,
Ranking Minority Member
BENNIE G. THOMPSON, Mississippi
DAVID D. PHELPS, Illinois
BARON P. HILL, Indiana
EVA M. CLAYTON, North Carolina
EARL POMEROY, North Dakota
TIM HOLDEN, Pennsylvania
SANFORD D. BISHOP, Jr. Georgia
JOHN ELIAS BALDACCI, Maine
(ii)
C O N T E N T S
Barrett, Hon. Bill, a Representative in Congress from the State of Nebraska, opening statement
Minge, Hon. David, a Representative in Congress from the State of Minnesota, opening statement
Stenholm, Hon. Charles W., a Representative in Congress from the State of Texas, prepared statement
Witnesses
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Baker, James R., Administrator, Grain Inspection, Packers and Stockyards Administration, U.S. Department of Agriculture
Prepared statement
Cotter, W. Jerry, operations director, Port Authority of Corpus Christi, Corpus Christi, TX, on behalf of the North American Export Grain Association
Prepared statement
Hoelck, Gregory P., president, Hastings Grain Inspection, Inc., Hastings, NE, and president, American Association of Grain Inspection and Weighing Agencies
Prepared statement
Keith, Kendell, president, National Grain and Feed Association
Prepared statement
Petersen, Robert R., secretary, Transportation, Elevator, and Grain Merchants Association
Prepared statement
REVIEW THE UNITED STATES GRAIN STANDARDS ACT
WEDNESDAY, MARCH 22, 2000
House of Representatives,
Subcommittee on General Farm Commodities,
Resource Conservation, and Credit,
Committee on Agriculture,
Washington, DC.,
The subcommittee met, pursuant to call, at 10:08 a.m., in room 1300, Longworth House Office Building, Hon. Bill Barrett (chairman of the subcommittee) presiding.
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Present: Representatives Boehner, Moran, Jenkins, Minge, Phelps, and Pomeroy.
Staff present: Michael Neruda, subcommittee staff director; John Goldberg, professional staff; Gregory Zerzan, associate counsel; Wanda Worsham, chief clerk; Callista Bisek, schedular/clerk; and Anne Simmons, minority consultant.
OPENING STATEMENT OF HON. BILL BARRETT, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NEBRASKA
Mr. BARRETT. Today, the members of the Subcommittee on General Farm Commodities, Resource Conservation, and Credit and other Agriculture Committee members will receive testimony reviewing the reauthorization of the United States Grain Standards Act.
The subcommittee is meeting today to discuss the reauthorization of certain authorities of the Grain Inspection, Packers, and Stockyards Administration or GIPSA, specifically, the Federal Grain Inspection Service of this agency to collect fees to cover administrative and supervisory expenses associated with grain inspection, as well as fees for the testing of equipment utilized in performing official inspection, official weighing, or supervision of weighing of grain.
Also included in the legislation are authorities for the agency to invest these fees, and for appropriations as are necessary to supplement the fees.
This bill was last authorized in 1993, and the reauthorization submitted to the committee by the administration calls for a 10-year extension through September 2010. The uniting of the two previously-independent agencies, that is, FGIS and PNS, occurred in 1994 with the aim of increasing our competition in the global marketplace for U.S. agriculture.
On September 30, the reauthorization for the collection of fees by GIPSA will expire. Since approximately 80 percent of the grain inspection budget is obtained through the collection of fees and only 20 percent through appropriations, Congress will have to act or activities will cease.
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I welcome today Mr. James Baker, Administrator of the Grain Inspection, Packers and Stockyards Administration. Mr. Baker, I take this time to wish you well, as this may be the last time you will appear before this subcommittee.
It's been a pleasure working with you over the years. I commend you for your leadership and for letting your professional managers manage. I think that's very significant.
Accompanying Mr. Baker is Mr. Dave Shipman, Deputy Administrator, Federal Grain Inspection Service, Grain Inspection, Packers and Stockyards Administration.
Thanks to Mr. Baker and to Mr. Shipman and other top managers, the Federal Grain Inspection Service has worked hard to contain costs. Of course, as in all agencies and Departments of the Federal Government, cost control remains a top concern and a top priority.
Innovative ideas to contain costs will have to be constantly evaluated. I am especially pleased with the agency's efforts to work with grain exporters on automated systems.
In a time of depressed farm prices, it's only natural that many producers, including those in the agricultural third district of Nebraska, which I represent, have concerns about grain quality issues.
Nobody in the industry likes to see grain sales lost because of legitimate grain quality problems. Unfortunately, however, unfavorable news stories can many times distort the complexities of grain quality analysis and the heighten the distrust of our Inspection Service.
But distorted news stories should not prevent us from honestly looking at ways to improve our grading and inspection process. Our wheat producers in my part of the country have expressed concerns about grade requirements for wheat, as is the case in other parts of the country as well.
They support substantially stricter grade requirements for wheat dockage in relation to the grading factors of foreign material, and narrowing the allowable levels of total defects.
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In addition, they have requested a change to the U.S. Grain Standards so as to report protein on a dry-matter basis. Any changes to the standards should be thoroughly analyzed and researched.
Another concern of my producers and others as well is uniform units of measure for grain sorghum. Producers and marketers of grain sorghum find it very confusing that the unit of measure for sorghum is often quoted in both bushels and hundredweights.
Other feed grains such as corn, barley, and oats, are consistently quoted in bushels. I would hope that the USDA would consider an addition to the grain standards for grain sorghum.
The second panel this morning consists of representatives of the grain trade community who will discuss the functions assigned to the Federal Grain Inspection Service. I am especially pleased that Mr. Greg Hoelck, president of the Hastings Grain Inspection of Hastings, NE, and a constituent of mine, is here today.
In addition, Mr. Bob Peterson , representing the Transportation, Elevator, and Grain Merchants Association is a former Nebraskan from my district.
I look forward to the testimony today on this most important subject of grain standards. I would now yield to the ranking member, the gentleman from Minnesota, Mr. Minge.
OPENING STATEMENT OF HON. DAVID MINGE, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MINNESOTA
Mr. MINGE. Thank you. I concur in your statement, and I welcome the witnesses. I apologize for my tardiness here, and look forward to your testimony. Thank you very much.
Mr. BARRETT. Thank you, Mr. Minge. Any opening statements, without objection, may be introduced for the record at any particular point in time during this hearing.
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[The prepared statement of Mr. Stenholm follows:]
PREPARED STATEMENT OF HON. CHARLES W. STENHOLM, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS.
Mr. Chairman, thank you for holding this hearing to begin the process of reauthorizing portions of the U.S. Grain Standards Act.
Given today's world market, it is important that our producers and grain merchants have the best technical support possible to help them compete in that marketplace.
I have every confidence in the Federal Grain Inspection Service of GIPSA and I look forward to working with the Department as we continue the process of considering the administration's proposals.
I also want to commend the agency for the initiative they have taken in trying to ensure that the marketplace has reliable tools available in the area of genetically enhanced commodities.
I appreciate the witnesses taking the time to appear before this subcommittee this morning, and I look forward to hearing their testimony.
Mr. BARRETT. We're pleased, of course, to have our first panel with us today, Mr. James Baker and Mr. David Shipman, and I would invite you gentlemen to share with the subcommittee at this point in time. Mr. Baker.
STATEMENT OF JAMES R. BAKER, ADMINISTRATOR, GRAIN INSPECTION, PACKERS AND STOCKYARDS ADMINISTRATION, U.S. DEPARTMENT OF AGRICULTURE; ACCOMPANIED BY MR. DAVID R. SHIPMAN, DEPUTY ADMINISTRATOR, FEDERAL GRAIN INSPECTION SERVICE.
Mr. BAKER. Good morning, Mr. Chairman. Mr. Chairman, you are probably right on target on my appearance here, but I appreciate the opportunity today, and it's an honor to be here to discuss the reauthorization of the United States Grain Standards Act. I ask that my complete written statement be submitted for the record.
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Mr. BARRETT. Without objection.
Mr. BAKER. We have three core business practices in our Grain Inspection Program. We establish the official U.S. standards for grain. These grades and standards are measured and provide integrity for the producer in the marketplace.
We establish the grain standards testing methods, and apply these grades and standards in the marketing process of grain.
We manage the official inspection and weighing system. It is a network of Federal, State, and private agencies that provide impartial, third-party application of the grades and standards.
Services are mandatory for the export market, and they are voluntary in the domestic market.
On September 30 of this year, provisions of the U.S. Grain Standards Act will expire. These provisions concern the financial aspect of our program such as the authority to collect user fees and the authority to establish and Advisory Committee.
I believe it's in the best interest of American agriculture to reauthorize these provisions. Authority to assess and collect fees is essential if we're to operate an inspection and weighing program.
I believe our track record speaks for itself. We have to continue to maintain reasonable fees.
In fact, the cost of our export services today is less per metric ton that it was when we were reauthorized in 1994.
We need the authority to maintain an Advisory Committee that is so essential to our operations.
While we held various meetings to receive customer feedback, the Advisory Committee is my overall means of receiving input and guidance from a cross sector of the entire grain industry, from the producer to the exporter.
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In addition to reauthorizing the current provisions, we are seeking new legislative authority: First, to permit, on a case-by-case basis, more than one official agency to operate in a single geographical area.
The current law allows only one agency per designated area. We want to capture the benefit of needed market competition and still maintain the highest level of accuracy and integrity.
Number two is to prohibit adding bleach, vanilla, or cinnamon or other similar substances to grain to disguise the quality. We currently have no authority to prohibit this practice.
Number three: Permit the use of taking a sample other than after final elevation at certain grain facilities—quality factors at the export shipments.
This is necessary to further improve the efficiency of the market and enhance our testing qualities and value-enhanced traits. This is especially true in IP'ng shipments.
And last, eliminate mandatory annual testing of all official equipment. This is not necessary or appropriate for some types of equipment that we use.
Permit me now to take a few moments to brag about our program and the people that work in this important role in American agriculture.
We facilitate the marketing of America's grain in the world and world markets. Buyers around the world recognize and rely on our inspection and weighing certificates.
How reliable are we? Consider this; that we receive complaints from foreign buyers on less than 1 percent of the grain exported.
We help open markets around the world. We developed and now provide testing for TCK smut in wheat, a key factor in the recent U.S.-China Agriculture Agreement.
We meet with representatives from around the world. Last year we met with 89 trade teams from 50 different countries to educate them about our inspection system to help them establish their own standards and to address the concerns about grain quality and quantity.
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We work hard to ensure that the program is cost-effective and customer-driven. Our people are professionals and committed to the job they do.
We have reduced staffing and have streamlined our field structure from 31 offices down to 21 since 1994. Last year the official system conducted approximately 2 million inspections on 228 million metric tons of grain.
We engineered our quality assurance program. We're doing the job right the first time, and spend less time and money to correct mistakes.
We automated our export inspection plan. We have improved the accuracy and timing of our services and allow for a direct sharing with our export grain customers.
We have automated our oversight of the export weighing systems. This improved our oversight and reduced operating costs.
We have established a public/private partnership to automate the inspection process and bring real-time quality information to our customers.
All of these changes have helped us become more efficient and enabled the grain industry to become more productive. That's a key factor in today's competitive global market.
We set the standards of the services and facilitate the marketing development. We established a standard color line for hard white wheat. This has paved the way for increased production and expanded markets for Hard White wheat such as the Pacific Rim countries that currently buy from the Australian White wheat.
We've started research to establish a wheat protein quality reference standard. Millers around the world need this information in the purchase of wheat to meet the individual processing needs.
We've implemented corn oil testing in 1998 to facilitate the marketing of high-oil corn, a new, expanded crop. This better benefits the producer.
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The final area I would like to touch on today concerns biotechnology. Biotechnology has reduced production costs and improved land stewardship.
This same technology has created new market challenges for some buyers to purchase conventional crops separated from biotech crops. GIPSA has no authority nor are we asking we asking for authority to regulate the marketing of biotech crops.
However, we do have the authority and responsibility to facilitate the marketing of all grains and oilseeds. We will bring a greater accuracy and reliability to the biotech testing area.
We are creating a reference library. We will establish sampling procedures for biotech testing. We will evaluate and verify analytical procedures.
We will accredit laboratories to provide biotech testing services for the grain industry.
All of these services and activities are voluntary. GIPSA's grain program is an essential part of American agriculture's handling infrastructure.
We recognize our role and will continue to be innovative, provide the highest quality of service to meet the challenges and changes in the marketplace.
The structure of agriculture is changing. We're changing to meet these needs. Thank you for listening, sir.
[The prepared statement of Mr. Baker appears at the conclusion of the hearing.]
Mr. BARRETT. Thank you, Mr. Baker. Inasmuch as your agency is funded primarily by user fees, give us a little overview on how you have responded to the changing inspection levels and fee income schedules over the last few years, and what's your prognosis for the future?
Mr. BAKER. As cost go up, we'll have to go up; there's no question about it. We have done our best to become more efficient. Even this last year when we went out with the fee increase to offset the Federal Government's automatic inflation increase for employees, we were able to absorb half of it.
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Instead of going out with a 4.8 percent increase, we've gone out with a 2.4 percent increase, so we were able to absorb half of it through efficiency.
But as we become more efficient in trying to meet the changes of the future, we will have to increase our costs as costs go up, but I don't believe we'll have to go in that respect because we'll be more efficient.
But for good quality service, you do have to pay for it.
Mr. BARRETT. Do you think that you have adequate reserves right now?
Mr. BAKER. Sir, we have approximately $7 million in reserve; our goal is to have $10 million, approximately a third of what it costs us to operate annually. We ask that we try to keep $10 million in reserves.
Mr. BARRETT. That $7 million is now in a trust account?
Mr. BAKER. Yes, sir.
Mr. BARRETT. We're going to hear some testimony probably today from other witnesses that we should tighten the cap on administrative and supervisory costs. Your opinion? Your answer is probably the same as you just gave me, right? As costs go up, yours go up?
Mr. BAKER. Yes, sir, but that's an area we've tried to address for the last 6 years, and I think we've done an awful good job of addressing it. And we're comfortable with our present costs. We'll live with whatever you address.
I understand that it's set at 40 percent now, and we're nowhere near that 40 percent. It's probably in the range of 22 to 24 percent when you get into the supervisory area.
Mr. BARRETT. What advantages do you see in moving to the 10-year reauthorization cycle as opposed to the 5-year?
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Mr. BAKER. The biggest advantage is not to have to come up here every year. [Laughter.]
I mean, I have no problem with what Congress sets on the 10-year. The last time they approved a 10-year for the program, and we've asked for ten. Probably the best feeling is that you're not going to give it to us, so we'll take whatever we can get. [Laughter.]
Mr. BARRETT. Well said. The official agencies, I think, would like probably to be extended to about 5 years. Any thoughts there?
Mr. BAKER. We've looked at that, and it's not out of the realm of realization that we do that. But at the present time, the official agencies have to be reauthorized every 3 years. It does keep the official agencies adjusting to change and on their toes.
I know their concerns, and their concerns have been heard by me, and we're addressing that issue.
Mr. BARRETT. Thank you. I was quite struck by the percentage of overall grain shipped that had received complaints. I believe it was 1 percent or less?
Mr. BAKER. Yes.
Mr. BARRETT. But then I am reminded of the problem that occurred in a Jordanian shipment recently. Would you address that?
Mr. BAKER. The complaint came from Jordan that there was insect infestation and other infestation in the grain when it got to the end user. We took the complaint and looked at our sampling procedures and the inspection that we did.
Basically we determined that that happened somewhere after the point of origin and it left our country. It may have happened and we think it happened at the off-loading site in Jordan where it was stored in the warehouses there and then moved to the end users.
Since that time, Jordan has sent a team here to look at our process that we do, and we feel that they are satisfied with the process that we do, and the issue has been resolved.
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Mr. BARRETT. Thank you. That's a pretty significant rate, that 1 percent of less. That caught my attention.
But one other question, Mr. Baker: There is some conversation now—and I just came across this yesterday—about USDA coming up with some proposals for cleaning up our wheat exports.
I'm sure you're aware of it, requiring the industry to provide cleaner wheat for the Department's Food Aid Programs, instructing the Federal Grain Inspection Service to tighten standards for dockage in wheat export shipments, and providing subsidies under the EEP for exporters to clean wheat.
Would you address that? Do you have thoughts on it at this early point in time?
Mr. BAKER. Yes. Let me start by saying that this is producer-driven. Producers feel that the cleaner product would capture more market share. I have no reason to believe that that's not true.
We were asked by—it came primarily from the wheat producers that established cleaners in the Gulf Coast and the Gulf markets, and we could capture larger market share.
The Pacific Rim exporters—I mean, the people that export out of our Northwest have put cleaners in their elevators to try to focus on the Pacific Rim or Japan market, and producers feel that if we had cleaners, we would be able to capture more of the market share globally.
Canada cleans all their grain that's shipped, and producers see that as an advantage in the marketplace. They also get to deal with a group called the Canadian Wheat Board. Producers see that as a disadvantage in the marketplace.
So the USDA is looking at right now whether we could justify putting some type of a grant program in place to assist large export elevators to put in cleaners.
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We have support for it, and we have opposition to it, but the marketplace will usually dominate what happens. And it's something we ought to look at, we ought to look at it and see if it's feasible, if it would actually occur, what would occur out of it would be a greater share of the marketplace abroad. If that would happen, so be it.
Mr. BARRETT. Good, thank you very much. My time has expired. Mr. Minge.
Mr. MINGE. I noted with interest you commented on the 15 member advisory committee.
Mr. BAKER. Yes.
Mr. MINGE. Could you tell us what the makeup of that committee is?
Mr. BAKER. Well, we try to get a cross-section to start with of all our stakeholders that are involved, from the producer all the way through to the end-user, but probably right now the Board as a normal trend would be from three to five producers on the panel, from one to two academia, three or four domestic elevator operators or domestic players, and three to four export operators, and we try to keep a balance in there with those stakeholders.
We have been real successful in keeping a real, good active advisory committee and they advise the Administrator on issues that come before them.
Mr. MINGE. And how are the people selected?
Mr. BAKER. They are nominated by the trade groups. They can also nominate theirself and then the nominations are vetted through USDA and sent to the Secretary of Agriculture for approval.
Mr. MINGE. What is the process that must be followed in order to change the grading standards? Is that done internally? Is that something that you expect would require an Act of Congress?
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Mr. BAKER. I am going to let Dave answer it, but, gosh, it has got to be done internally. It has got to be done with us and we are going to look back to Congress, but go ahead.
Mr. SHIPMAN. We use the Administrative Procedures Act, where we will propose something in the Federal Register, have comments, then publish a final rule, and by law in the statute we can implement that final rule from 1 year after it is announced and we usually try to implement any change in the standard to coincide with crop years.
Prior to actually proposing that we often work with the producer groups, the exporters, the grain handlers and try to reach a consensus. There is a group called the Grain Quality Workshop. They are actually meeting in the very near future here in town, and it is a group consisting of producers, flour millers, processors, and exporters that talk about quality.
Mr. MINGE. I am sure that you are both familiar with the GMO dispute, probably more familiar than any of us, but I am interested in knowing if you are developing a standard as to what GMO Free might be, and if you are working with the Japanese or the Europeans or any others that are demanding something of this type and where that might stand at this point.
Mr. SHIPMAN. At this point we are not talking about trying to define or set any threshold or definition as to what GMO and non-GMO are. What we are doing, the first step, is to standardize the testing. A lot of folks are out there around the world trying to establish tolerances and definitions for biotech, and we are not convinced that the testing technology is advanced enough to implement those tolerances, so we are in the process right now of renovating our laboratory in Kansas City, MO. It is our technical center, where we will have a reference lab.
After we have that established, we are going to be looking at the methodologies that are being used for testing for biotechnology, both the protein-based and the ones that are measuring direct DNA. We want to try to bring some greater standardization and consistency to the testing.
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I think at this point to really be talking about tolerances it is very difficult, because you don't know what level is actually moving in the marketplace.
Mr. MINGE. So approximately how long will it be before that testing work is completed?
Mr. SHIPMAN. We hope to have the renovation of our laboratory completed by July-August timeframe. Prior to that we are going to be going out in the Commerce Business Daily, announcing that we are doing some evaluation of the methodologies that are out in the marketplace, so that could start even in the June timeframe.
Mr. MINGE. And when do you expect you might be considering a definition of what is GMO-free?
Mr. SHIPMAN. That is not on the radar screen right at this time.
I do not know when, and there are so many ramifications within the Department that need to be considered on that. We are challenged right now with just trying to determine whether we can come up with the standardized testing.
Mr. MINGE. Is there another agency at USDA that is also looking at this or at FDA?
Mr. SHIPMAN. Well, FDA can certainly be looking at it, because they are the ones with the authority for any sort of labelling requirements.
We have authority within the United States Grain Standards Act to be setting definitions. We set definitions for waxy corn and other things that facilitate marketing, but we are not at any point at this point where we would be looking to define biotechnology versus non-biotech.
Mr. MINGE. So if it is done at this time, it is done by contract between buyer and seller?
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Mr. SHIPMAN. That is correct.
Mr. MINGE. Thank you.
Mr. BARRETT. The gentleman from North Dakota, Mr. Pomeroy.
Mr. POMEROY. Thank you, Mr. Chairman.
I have concerns regarding in particular quality grade issues, the resulting economic loss to the farmer for quality discounts, and no coverage with Risk Management.
It would seem to me that crop insurance ought to cover production loss issues in an economic sense, not just volume sense, and so if the value of the crop at the elevator is significantly lower than it otherwise would have been but for quality discounts applied, there ought to be attached insurance compensation.
Do you, Mr. Baker, have a response to that?
Mr. BAKER. Not a good one, because I don't feel that Risk Management Agency in any way, and another reason is I have never received many premiums on selling anything in the grain market, but I have lived on discounts, and you are going to continue to have those, but there ought to be some correlation when those discounts are applies that can be offset with the Risk Management.
We worked on this last year, as you well know, in the Sunflower Mill to help adjust our standards to meet—the Risk Management Agency to recognize our standard in their settling on those claims and we go that resolved.
Mr. POMEROY. I do appreciate—first of all, I think you have done a great job with GIPSA, Mr. Baker. I am concerned about—and I appreciate your recognizing the dark raw standard on confectionery sunflowers going forward. We do have the 1999 crop issue for which there was no coverage and I continue to be concerned about that.
As I worked with RMA on this issue, they tell me trying to cover quality discounts exposes the agency to an ever-moving target and from what I am hearing from my farmers, if it is not this discount this year, it is that discount next year, and quite frankly I have come to the conclusion the grain trade is playing some games here.
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Do you have some comment on that?
Mr. BAKER. My experience is the marketplace establishes the discounts based on demand for the product, and, you know, if the demand is good, the discounts are not prevalent, and if the condition of the crop is good you do not see the discounts, but you see conditions of the crop will vary. Discounts will kick in. But we have no authority in that area of establishing what form of discount will be placed on your grain.
In other words, we only measure the quality of the grain and the marketplace determines the discounts.
Mr. POMEROY. Is there some way the USDA looks at and evaluates the legitimacy of the grain trade's discounts, because otherwise it would seem like they have an unchecked opportunity to discount for whatever they want, blend the product, get the market value up on their end while the farmer always gets the short end?
Mr. BAKER. To my knowledge there is no USDA agency that has any leverage in the discounts.
I know we certainly do not have.
Mr. POMEROY. We have got a problem here, I think, because we have got no oversight in terms of the discounts being applied, on the one hand, and we have got on the other hand no Risk Management coverage attaching to meaningfully cover the discounts that the farmer is taking at the elevator, and the result is pure bald exposure for the farmer, and the consequence is devastating.
Mr. Chairman, I would like to introduce this into the record as an exhibit. It is grain receipts from the Geist farm in Hazen, North Dakota.
Mr. BARRETT. Without objection, so ordered.
[The information follows:]
Offset folios 1–7 Insert Here
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Mr. POMEROY. And this shows a significant variance in the falling number grade standard, resulting in a bushel price of $3.04, $1.35, $1.50, $1.71, $1.69—you can see the hellacious impact in a real dollar term as a result of these discounts, but you are telling me there is no institutional oversight on whether those discounts are being fairly applied?
Mr. BAKER. Not that I know of, and Dave will comment on it in a minute.
Mr. POMEROY. OK, Mr. Shipman, as well as Mr. Baker, are you aware of any Office of Inspector General inquiry into the appropriateness of the discounts being applied?
Mr. SHIPMAN. I am not aware of any investigation as to the appropriateness of discounts.
I think that what you will see in the marketplace is certain factors. Falling number is one. Dockage may be another one. Certainly damaged kernels historically will be discounts within the marketplace. They are driven many times, again, on demand.
If we see in the marketplace, which we have in the Pacific Northwest, an export demand for cleaner product, you see discounts adjusted to draw the cleaner product into the market and we saw higher discounts in the countryside.
Mr. POMEROY. How about the demand relative to domestic supply irrespective of customer need, so if you have ample domestic supply, very soft price situation, more aggressive application of discounts?
Mr. SHIPMAN. I don't know if I have—I mean that is a possibility. I could not really——
Mr. POMEROY. From a farmer's perspective, to quote the old cartoon character of Gilda Radner, Emily Latella, ''It's always something.'' And it is always something when it comes to getting discounts that whack the value out of the grain you take to the elevator and there is no RMA coverage for it, and they have told me they cannot insure it because it is always something, something new, something they cannot insure.
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We have got a problem here, Mr. Chairman, and I want to work with GIPSA as we continue to develop answers for it. Thank you.
Mr. BARRETT. Thank you. The gentleman from Kansas, Mr. Moran.
Mr. MORAN. Mr. Chairman, thank you. Thank you for giving me the opportunity to hear from Mr. Baker. In today's farm environment when margins are so tight and docking matters and when foreign markets matter so much to demand for our agricultural exports, I think this is an awfully important topic.
Mr. Baker, would you describe for me the criteria by which grain is inspected in the United States? What are the criteria we look at to make a quality decision about grain?
Mr. SHIPMAN. There is a series of quality factors. We look at test weight. We look at moisture. We look at the cleanliness of the product. We look at whether there is insects or mold damage in the product, so there is a series of physical characteristics and cleanliness characteristics that we look at.
Mr. MORAN. Do you believe that we are examining grain, inspecting grain with sufficient criteria to meet the criteria of the world markets? Is there anything that we do not inspect for that we ought to be inspecting for?
Mr. SHIPMAN. I think whenever the marketplace is demanding for the additional factors we are doing it, if the technology exists.
One area that Mr. Baker mentioned in his testimony was protein quality. There is an increasing demand both from domestic and overseas that we not only measure the quantity of protein, but the quality of it, and we have research efforts underway to try to come up with a quick, reliable methodology to test for protein quality.
Mr. MORAN. How does our inspection system and standards compare with other countries?
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Mr. BAKER. They like to copy ours. The integrity is there and the credibility and the marketplace is reinforced with our standards, and they want to learn about our standards. Yes, sir.
Mr. MORAN. We often hear that the market will not ''pay'' for cleaner grain.
Do other countries receive a higher market price for their grain that is ''cleaner?''
Mr. BAKER. I am not aware of that. I know that Canada cleans their grain, but there is a lot of hands that touch it before the producer gets his check, and I do not know that that is feasible at this time.
Mr. MORAN. Any suggestion that other countries receive a greater market share because of cleaner grain?
Mr. BAKER. No, sir. They get a dependable market share. It is just like me selling some of my grain, in other words, out of a bin on the farm and if it is a good type quality product it is in better demand. It is cleaner and all each time, but they get a dependable share, not a bigger market share, but a dependable share.
Mr. MORAN. What role does the transportation system play in the quality of grain? Where do problems arise in grain quality? Are they in storage or in transportation? I assume the answer can be both, but I would like your analysis of what difficulties we face in the transportation system as far as grain quality.
Mr. BAKER. Timeliness is the big one. There is no question about it. You store—load grain on a railroad car. You handle it it from the bin, the elevator to the railroad car. You may offload it onto a barge. There is another handling. You move the barge to the gulf port or whatever and you offload it again, so handling and timeliness of movement are the two key factors, and if it is not timely moved, you are going to have problems.
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You have insect infestation problems and others that determine the quality of the grain, so timeliness is the biggest.
Mr. MORAN. And your evaluation of whether or not we generally have timeliness in our transportation system?
Mr. BAKER. Yes, sir. Right now it is good. There is no question about it. Now you run on instances where that is not the norm, but as a general rule the transportation system in this country is supportive of moving the grain.
Mr. MORAN. Thank you, sir. Thank you, Mr. Chairman.
Mr. BARRETT. The gentleman from Illinois, Mr. Phelps.
Mr. PHELPS. Thank you. Perhaps a follow-up question. Mr. Baker, would you support the establishment of a standard measurement for grain sorghum, speaking to the comment that I made in my opening statement?
Mr. BAKER. I would want to air it with the industry, the people that produce the grain sorghum and see—and vent it through them and then determine it, but yes, there is room for a standard measurement.
Mr. PHELPS. The concept you could support?
Mr. BAKER. Yes.
Mr. PHELPS. If you had a crystal ball and could look ahead for, well, maybe 5 years or so, what would you see in terms of grain inspection system?
Mr. BAKER. Well, that crystal ball has been clouded for the last 2 years, but anyway we would see more monitoring and less hands-on in our agency. In other words, a lot of our grain inspection today is truly hands-on type of inspecting. We will have more oversight and less hands-on in a monitoring role, and we will look for our technology to provide that assurance that it is well done, but we will be less hands-on and more in a monitoring role.
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Mr. PHELPS. This then would speak to the new lab perhaps specifically in Kansas City?
Mr. BAKER. Yes, sir.
Mr. PHELPS. Fewer hands on, more technology?
Mr. BAKER. That's right.
Mr. PHELPS. OK, thank you.
Mr. BARRETT. Mr. Minge.
Mr. MINGE. I would like to follow up on an issue that I hear about often, talking with farmers in coffee shops, and that is the perception at least that exists in many communities that the farmers are maintaining very clean fields, they are harvesting grain that is of top quality and that unless they themselves organize to market this in an identify-preserved fashion they are losing the benefit of that quality when the export market is really looking for high quality but the standards say that there is a certain amount of foreign matter or a certain amount of grain that may have some contaminant in it that is allowable.
Is there anything that your agency does or any other agency does or you could do to provide a category or classification so that farmers would not have to export—I should not say export—contract to the end-user their specific grain, but instead could receive a premium within the current marketing system for that high quality grain that they may be raising and marketing?
Mr. SHIPMAN. All right, let me take a shot at that, if I may.
A lot of the premiums we are seeing where farmers are contracting directly, they are getting that premium because the ultimate end-user is receiving that IP'd or segregated product and can derive the premium from it, whether it is high oil corn, waxy corn, corn dried a certain way so it has less stress cracks and so forth in it, so I think for the farmer to share in the value of that product it has to be linked directly to the end-user.
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When you are talking the general commodity market, the price that is set there and the basis under which it is operating, it is difficult to say we are going to give a premium for one segment or one farmer when that is channeled into the commodity market and sold at that commodity price.
Mr. MINGE. Well, the complaint that the farmer has is that he has perhaps taken some loss of yield or some additional expense in order to deliver grain that he is proud of and that someone in a distant area has either been marketing grain that was not well cared for and that has been blended in or that there's been blending even at the local elevator and the person on the other end—that is the person that is purchasing the grain—wants the best quality and will pay a premium.
The person that has delivered the lower quality grain has taken a discount at the elevator when he delivered that grain, but the farmer that delivered the premium grain does not get a bonus or a premium for that grain and I am concerned. Is there any way that you have identified or that you have considered or that you can envisage where, aside from identity preserved marketing directly from the farm, that the producers or the farmers can receive that premium?
Mr. SHIPMAN. I do not think that we have identified a way that our agency can help a farmer receive a premium. What we hope that we can do is, especially as crops become more diverse in their quality, be able to provide consistent, accurate measurements of those qualities so that the marketplace can assess the true value of it.
I think that in recent times where you see buyer specification asking for a better wheat quality or protein quality, asking for less dockage, you see farmers that bring the better quality to market avoid discounts and I think that in essence they are receiving a little bit more by avoiding those discounts compared to their neighbor who may bring in the dirtier product.
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We do see, especially in the Pacific Northwest again, greater discounting of higher levels of dockage just because the market is demanding a cleaner product for the export market.
Mr. MINGE. Thank you.
Mr. BARRETT. Thank you, Mr. Shipman, Mr. Baker. We appreciate your testimony and we have appreciated again working with you in the recent past.
Mr. BAKER. It is a real pleasure, and when I came to Washington 6 years ago I did not know there was a Government agency that had people that worked 24 hours a day and 7 days a week and every holiday including Christmas and New Years to help American agriculture, and that is what this agency does on the grain side, and our response time with the people that's here today—they know we are responsive and they know we are dedicated to making American agriculture better.
Mr. BARRETT. The hours that your people work remind me of the House of Representatives. [Laughter.]
Thanks again.
Mr. SHIPMAN. Thank you.
Mr. BARRETT. I'd like to welcome our second panel, our final panel. We invite to the table, Mr. Jerry Cotter, operations director of the Port of Corpus Christi, TX, on behalf of the North American Grain Export Association; also, Mr. Robert Peterson, Transportation, Elevator, and Grain Merchants Association and the National Grain Trade Council from Washington. It's nice to have you back, Bob.
We also have Kendell Keith, president, National Grain and Feed Association from Washington; and Mr. Greg Hoelck, president, Hastings Grain Inspection, Inc., of Hastings, NE. Mr. Hoelck is also president of the American Association of Grain Inspection and Weighing Agencies.
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Gentlemen, you may proceed. Let's start, in deference to Mr. Minge, to the Chair's left, and Mr. Cotter.
STATEMENT OF W. JERRY COTTER, OPERATIONS DIRECTOR, PORT OF CORPUS CHRISTI, TX, ON BEHALF OF NORTH AMERICAN EXPORT GRAIN ASSOCIATION.
Mr. COTTER. Thank you. My name is Jerry Cotter, and I'm Director of Operations for the Port of Corpus Christi, and today I'm testifying on behalf of the North American Export Grain Association, better known as NAEGA, and industry association representing the grain exporters and associate members.
I'm presently a member of the Board of Directors and a past chairman of the Grades and Weights Committee.
The export grain marketing handling industry appreciates the opportunity to be here, Mr. Chairman, and would like to ask that the full statement be submitted for the record.
Mr. BARRETT. Without objection, certainly.
Mr. COTTER. Thank you. We are here in support of FGIS, and the reauthorization, and for the amendments they have asked for within their request.
As you already stated, and as Mr. Baker has already stated, they have five particular things that are going to expire without—if it's not renewed in September. With the exception of the Advisory Committee, they can't operate without the rest of them.
In my testimony today, I will discuss what we believe is the GIPSA and FGIS are doing well, how the agency could improve, and the challenges for the future.
In the view of the exporters, the FGIS has two broad missions: To directly provide service of inspection and weighing of grain for export, or supervise the delegated State agencies that provide export service, and also to provide the structure and administration of the U.S. Grain Standards Act, which benefits all segments of the grain industry.
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My remarks will be made in context in that regard. The FGIS grade and weight certificate commands respect, nationally and internationally; we all know that.
The FGIS does an excellent job in fulfilling its role as an unbiased entity to certify grades and weights in the export markets.
The FGIS has, as stated earlier, responded well to industry cost concerns by reducing staff and by reducing costs. The FGIS has reduced the cost per ton by providing service for the industry.
As previously stated by Mr. Baker, FGIS is also working with industry on a broad number of issues, including automated inspection procedures, biotechnology issues, end-use value characteristic testing, TCK testing in order to open up the markets to China; improved data handling and computerization of operations; computer imaging of grains for inspection purposes and standardization activities.
They communicate well to industry through its Advisory Committee and with all the NAEGA and other grain organizations. They do an excellent job with their Customer Outreach Program.
Areas of concern: Cost control; it's No. 1 as it always has been. We know that, for example, that the sister of cost control is flexibility of operations. We in industry feel that this is the biggest issue there.
FGIS does not control its costs in terms of salary, Congress does. However, in the cost of flexibility or the terms of flexibility of operations, they have been responsive, as best they can within the rules established by the administration.
The export industry has requested cost-saving measures, including new, limited authority to contract for certain services, designation of certain private laboratories to provide certain services, and greater use of intermittent employees.
They have responded by looking at these issues. We applaud them for taking on and absorbing only the 2.4 percent.
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Other critical concerns for the export elevators is the consistency of inspections. When an inspection is performed in an interior in-bound, and is found at export, the inspection criteria does not hold up, chaos is created in the marketplace.
We work with them consistently and hope they continue in their efforts to provide consistency throughout the system. FGIS communicates well with industry. One area that could be improved is the amount of research and who is doing it.
We recommend a research committee or a subcommittee of an already-existing format to be put together to look at this issue. Congress and the executive branch need to better understand and appreciate the agency's multiple functions, and the funding that supports that.
It's an agency that provides many services, not directly related to daily export of grain. It has more broad oversight authority, and the cost of oversight should be borne by the segments in the industry.
Congress may also want to consider revisiting the issue of composition of the Advisory Committee, which has been discussed. GIPSA is funded by user fees and appropriation. We understand that we, as exporters, must pay for the direct service, but we feel that other sectors should pay their way as well.
The time line for changing procedures and regulations is too long. We have to have that looked at to see if we can get greater response.
GIPSA needs to work closely with industry to prepared to provide GMO-trait testing, which has been discussed; identify and provide testing for end use, and continue the development of technology to lower costs.
That concludes my testimony, Mr. Chairman, and I would be glad to answer questions.
[The prepared statement of Mr. Cotter appears at the conclusion of the hearing.]
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Mr. BARRETT. Thank you, Mr. Cotter. Mr. Peterson.
STATEMENT OF ROBERT R. PETERSON, SECRETARY, TRANSPORTATION, ELEVATOR AND GRAIN MERCHANTS ASSOCIATION, WASHINGTON, DC; AND PRESIDENT, NATIONAL GRAIN TRADE COUNCIL, WASHINGTON, DC
Mr. PETERSON. Good morning, Mr. Chairman, it is a pleasure to be here. My name is Bob Peterson, and I appear before you today on behalf of the Transportation, Elevator and Grain Merchants Association and the National Grain Trade Council.
We will make several points in our testimony today. We support reauthorization of the U.S. Grain Standards Act. GIPSA needs to continue to keep costs under control. GIPSA's standardization costs should be borne by appropriated funds, and we want you to know that many grain quality issues are constructively addressed by the Grain Quality Workshops.
We believe FGIS performs an important function, and we support its reauthorization. While there will always be areas and room for improvement, we feel, in general, that FGIS does a good job.
We believe the agency has worked hard to contain costs and to provide good service. We believe that FGIS has a capable management team in place that strives to work with its customers to improve programs and to develop create initiatives to meet customer needs.
We recommend that FGIS be reauthorized for a 5-year period. The cost of the grain inspection system continues to be an issue for the grain industry.
Just as Mr. Cotter said, export grain, where inspection is mandator, carries the biggest burden of FGIS costs. For export elevators, it is not uncommon for inspection and weighing services to be among their biggest expense items.
It is important for FGIS to have the flexibility to be able to adapt to changing workload situations.
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One of the safeguards the industry has against escalating costs is a provision in law that limits administrative and supervisory costs to no more than 40 percent of agency outlays.
In recent years, the actual percentage for administrative and supervisory costs has been closer to 20 percent. We recommend that Congress consider reducing the 40-percent cap to a lower level.
We believe that FGIS standardization costs should continue to be borne by appropriated funds, not by user fees.
FGIS standardization activities benefit all participants in the marketing chain. We do not believe one narrow segment of beneficiaries should be singled out to pay for the standardization program.
Wheat prices, Mr. Chairman, as you pointed out earlier, often lead to heightened farmer concerns over grain quality. In fact, the wheat farm economy of the mid–1980's led several groups to form the Grain Quality Workshop, which has since become a constructive forum for industry, farm groups government, and academic representatives to meet and discuss quality issues on an ongoing basis.
Let me make just some brief comments on a variety of other matters. We are intrigued with the recommendation from the American Association of Grain Inspection and weighing agencies that will develop and implement a national, online, at-line certification and billing program. We believe that there is merit in this idea.
We support FGIS's plan to establish a biotech lab that will evaluate and verify analytical procedures used to detect and quantify biotechnology traits in grains and oilseeds, and establish sampling procedures for use in testing genetically-enhanced grains and oilseeds.
We would recommend that Congress revisit the issue of the composition of the Agency's Advisory Committee. Several years ago, this provision was changed to decrease the number of industry representatives on the committee.
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We believe that change was a mistake. Industry users and customers are among the most knowledgeable participants on the Advisory Committee.
We support FGIS's proposal to provide more flexibility in obtaining samples of export grain. FGIS states that for value-enhanced traits, sampling and testing prior to final elevation may be more appropriate. We agree with the agency and support that recommended change.
Lastly, we support FGIS's proposal to prohibit the disguising the quality of grain as a result of the introduction of non-grain substances and other unidentified grains.
On closing thought Mr. Chairman is that this reauthorization deals with the world as we know it today and with inspection system as we know it today.
Change, though, is taking place in the grain handling and marketing industry at a breathtaking pace. It is an exciting time to be part of the industry, but it is also a very demanding time as the industry realigns.
What all of this tells us is that it would be prudent to leave some flexibility in the statute that allows FGIS and the industry to adapt to a changing marketplace. Thank you.
[The prepared statement of Mr. Petersen appears at the conclusion of the hearing.]
Mr. BARRETT. Thank you very much. I'm not sure where we are in the list of witnesses. Mr. Keith.
STATEMENT OF KENDELL W. KEITH, PRESIDENT, NATIONAL GRAIN AND FEED ASSOCIATION, WASHINGTON, DC
Mr. KEITH. Thank you very much. The National Grain and Feed Association appreciates the opportunity to provide a statement on the U.S. Grain Standards Act. We value the credibility of the official inspection system and believe it provides broad benefits to all people in agriculture.
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In 1998, FGIS announced a strategic plan that in part sought to increase the efficiency of U.S. grain marketing, and to streamline grain inspection and weighing. The agency, since that time, has been working with industry to improve the automation of export facilities, and we applaud that effort.
However, we are concerned that FGIS may lack sufficient managerial flexibility to fully achieve further goals. In 1993, the GAO study found that the use of the official system in the interior markets has declined because of high costs and inflexible service.
While it does appear that the utilization of official services in the interior may have stabilized, we had a 1999 survey or our members that indicated that there is still a major concern about the cost compared to private alternatives.
As a result of that GAO survey, we recommended during the 1993 reauthorization, that Congress require FGIS to conduct pilot programs to open up selected interior official territories to competitive bidding for services. We would support a permanent authorization of that today.
Over the past 10 years in the export sector, FGIS has experienced significant financial losses. Ultimately they have raised fees, and now grain inspection is a major operating expense at export elevators.
We believe that both FGIS and the industry would benefit if FGIS management had additional flexibility to control costs and maximize operating efficiencies.
In this regard, the National Grain and Feed Association recommends that the Congress consider the following policy options during this reauthorization of FGIS:
First, require that the agency management establish a clear system of agency objectives, measurable goals and targets for improving all overall agency and individual employee performance.
Second, to provide additional management authority to the Administrator to achieve objectives, including but not limited to the discretion to use mandated salary adjustments as an incentive-based pay, and a clear ability to use contract employees to provide official services.
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Third, to reduce the 40-percent cap on administrative and supervisory fees to 20 percent. The agency has reported that currently administrative and supervisory costs are in the 22 to 24 percent range. We think this cap may be consistent with the trends within the agency itself.
Concerning the FGIS Advisory Committee, that committee was created to provide advice to FGIS on operations, primarily. It's been useful, but we are concerned that there is not enough industry representation by the people that are paying the bills.
We would recommend that Congress consider requiring that at least 10 of the 15 Advisory Committee members represent companies that are direct users of the Federal system.
Concerning biotechnology, we support what FGIS is doing in establishing the reference lab to give credibility and to quantify the accuracy of commercial tests. We do support this approach and think it's appropriate that FGIS offer this service.
FGIS has also indicated elsewhere that it is considering developing standards for IT systems for grain. Today, our industry has a little different view on that.
We think those activities should be left, whenever possible, to contractual agreements between the buyer and the seller.
Concerning reauthorization and the timeframe for it, between 1976 and 1993, the U.S. Grain Standards Act was amended and reauthorized four times. The reauthorization periods ranged in length between 3 and 5 years.
The agency was again reauthorized in 1993, as you know, for a 7-year timeframe. We understand that FGIS is suggesting that it be reauthorized for 10 years. We believe that in today's rapidly changing environment, that a 10-year reauthorization is simply too long.
We think that Congress should consider reducing that period of reauthorization to no more than 5 years.
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Concerning the other recommendations that FGIS made on legislative change, we support everything that they are recommending, with the exception of the 10-year reauthorization.
I look froward to the questions. Thank you.
[The prepared statement of Mr. Keith appears at the conclusion of the hearing.]
Mr. MINGE [presiding]. Our next witness is Mr. Hoelck, and, Mr. Hoelck, would you proceed.
STATEMENT OF GREGORY P. HOELCK, PRESIDENT, HASTINGS GRAIN INSPECTION, INC., HASTINGS, NE, AND, PRESIDENT, AMERICAN ASSOCIATION OF GRAIN INSPECTION AND WEIGHING AGENCIES.
Mr. HOELCK. Mr. Chairman, the American Association of Grain Inspection and Weighing Agencies, also known as AAGIWA, is the national professional association representing the public and private agencies that are designated and delegated by USDA's Grain Inspection, Packers and Stockyards Administration to weigh, inspect, and grade the Nation's domestic grain.
Its member agencies are located throughout the major grain producing regions of the United States and represents the majority of all official domestic inspections performed under the U.S. Grain Standards Act.
AAGIWA member agencies bring a professional and third-party aspect to the grading and weighing of America's grain. During the Association's 40-plus years of service to the industry, it has assisted its members in performing these services through a national forum that promotes and assists professionalism, technology and performance, while providing a constant dialogue with Government and industry.
AAGIWA wishes to comment on the pending reauthorization of GIPSA beyond its current September 30, 2000 statutory expiration date. In doing so, the Association wishes to support Congressional reauthorization of the agency, and wishes to provide the following observations to the Congress:
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First of all, on the role of GIPSA, there is an important role for a regulatory and supervisory agency in the operation of an official grain inspection system. GIPSA serves to provide an objective, third-party regulatory role which assures credibility and integrity for both domestic and foreign grain handlers, and buyers of U.S. grain.
Its strict Federal standards help maintain the accuracy and consistency that the grain industry has come to expect from the Nation's official grain inspection system.
AAGIWA commends GIPSA for its current record of flexibility and availability to the suggestions and recommendations of its constituency. It has kept an open mind to change, and has made changes when costs and benefits were analyzed and found productive.
This Association views GIPSA as an essential partner in official inspection agencies' efforts to promote and facilitate the movement and trading of the Nation's grain. The assurance of integrity that GIPSA lends to the official grain inspection system is vital to the system's continued existence.
AAGIWA also commends GIPSA's Administrator, James R. Baker, for his professionalism and his strong interest and dedication to the designated and delegated agencies of the official grain inspection system.
He has maintained an open door policy that has benefitted all aspects of the Nation's grain industry, and should serve as an example for future GIPSA administrators.
Now, AAGIWA believes that GIPSA's role in the grain industry must keep pace with the fast-changing needs of its customers, that it must anticipate and react quickly to new trends and technology, and that it must become more efficient and effective as the primary monitor of the U.S. Grain Standards Act.
Towards that end, AAGIWA calls on Congress to consider the following improvements to the official grain inspection system as it reauthorizes GIPSA:
Official agencies currently must be redesignated every 3 years, requiring extensive onsite Federal evaluation and investigative manpower and resources. This designation period should be extended to 5 years or more, with GIPSA maintaining its traditional role of closely monitoring and evaluating official agencies' performance.
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We also believe that establishing a central grain monitoring lab, which GIPSA currently performs quality checks and reinspections at its many regional field offices, resulting in a duplication of staff and resources and a lack of consistency of results.
A central monitoring laboratory or system should be established by GIPSA so that check tests and inspection results are strictly standardized and consistent under the professional auspices of one inspection team.
We believe that such consolidation would decrease regional and intermarket grading differences, eliminate duplication of staff, equipment, and office space, and allow the national system to respond more rapidly to grading problems and customer concerns.
With current video imaging technologies, much of the consolidation could be accomplished in virtual space without the need for additional investments in brick and mortar.
This would include the development and implementation of a national, online, at-line certification and billing program. Currently, each official agency must develop its own system at the expense of uniformity, continuity, and efficiency, to capture and disseminate the same type of inspection data.
In the interest of customer service and efficiency of operation, GIPSA should take the leadership in developing an electronic system that could include the use of bar codes, electronic signatures, password protection for customer data, and digital interfaces to all electronic and laboratory equipment.
This would make all official agencies equal and uniform in their customer services, improve the accuracy of the inspection data, provide instant access to pertinent industry data, and eliminate duplication of factors on PAN tickets, certificates, and billing.
Costs of such a beneficial and uniform system could be borne largely from available Trust Fund monies. Official grain inspection agencies have contributed millions of dollars through agency supervisory fees to GIPSA. These fees have been deposited in an official agency trust fund which currently contains more than $4.7 million of unallocated reserves.
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We believe that a portion of these unallocated reserve funds or the annual dividends, if appropriate, should be invested by GIPSA in equipment or technology to improve the official grain inspection system and make it more competitive and responsive to customers' needs.
The dividends alone from these reserves would go a long way toward improving the system and its outreach. We encourage Congress to provide oversight on the investment of these monies, and to advise and consent on their investment and use.
In conclusion, AAGIWA commends GIPSA for making changes for the betterment of the official grain inspection system, for its integrity, and for its beneficial partnership with the 50 States and private agencies that perform official duties at the local level.
As Congress moves to reauthorize this Federal agency, it is important that new technologies and efficiencies be brought to bear as soon as possible, and that the above-stated fine-tuning be implemented in order to assure the future strength and viability of this valuable national industry system. Thank you.
[The prepared statement of Mr. Hoelck appears at the conclusion of the hearing.]
Mr. BARRETT [presiding]. Thank you, sir.
Mr. HOELCK. Mr. Chairman, I have one other concern that I might bring to you.
Our official agencies have another concern we would like to share with you, and that is the USDA's issuance of warehouse inspection certificates presently that too often tend to be directly competitive with our agency's issuance of what they have considered GIPSA's official inspection certificates.
These certificates include USDA's official seal and are often used in lieu of the official white certificate that denotes service by GIPSA designated and delegated agencies of the Nation's official grain inspection system.
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It is our feeling that either GIPSA and its official agencies should provide the necessary inspection services and issue these certificates or that a more definite differentiation be made by USDA between its official and unofficial certificates.
Mr. BARRETT. Thank you very much.
Mr. HOELCK. You are welcome.
Mr. BARRETT. Mr. Cotter, I believe that your association is moving all of the interior, nearly all of the interior grain, right?
Mr. COTTER. The interior?
Mr. BARRETT. Yes.
Mr. COTTER. Our association is strictly for the export.
Mr. BARRETT. Export, I'm sorry.
Mr. COTTER. That is all right.
Mr. BARRETT. But in any event you are one of the bigger of the big dogs, right? [Laughter.]
Mr. COTTER. Our association represents a number of big dogs, yes, sir. [Laughter.]
Mr. BARRETT. Well, you talk about cost, the cost of FGIS employees as being quite high in comparison to the private sector.
Would allowing them to contract with the private sector provide any particular change or drop in costs in your opinion?
Mr. COTTER. Yes, sir. We feel very strongly that it would. It would give them the flexibility to contract on a basis that would allow the subcontractor or the contractor provide the service on an as-needed basis, rather than having FGIS personnel 100 percent available all the time.
Outsourcing is done right now with industry on all types of matters including we subcontract, for example, with a private inspection agency for our inbound, and they provide the service on an as-needed basis at a much reduced cost.
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Mr. BARRETT. Let me ask you the same question I asked the first panel. How do you feel about the 10-year reauthorization cycle, as opposed to five or whatever?
Mr. COTTER. The question that we have, more than anything else, is with the changes that are occurring within the industry and there is dynamic changes happening within the grain industry and within the grain inspection process, we feel that maybe the 10 years might be a little long in order to come back and reopen some issues.
At the end of the 5 years, which we feel comfortable with, 5 years, a number of issues can be addressed, can be brought up at that time rather than wait for a 10-year cycle.
Mr. BARRETT. Your recommendation then would be 5 years?
Mr. COTTER. My recommendation is 5 years?
Mr. BARRETT. Thank you. Mr. Petersen, have you heard any complaints from the industry regarding testing methods or services provided? Can you share any problems with us?
Mr. PETERSEN. Mr. Chairman, this is a very good time, I think, for reauthorization of the Federal Grain Inspection Service. Most of us at this table have been involved in grain inspection issues for a long time, and we have weathered a number of different reauthorizations, and this last period of several years has been one of the quietest I can think of.
It makes a wonderful time for the agency and allows those of us who work for people who use FGIS services to come up and be a lot more complimentary and a lot more optimistic than we have been able to be in the past.
Dr. Keith may want to add to that.
Mr. KEITH. We are not hearing many complaints from our members concerning FGI services today, no.
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Mr. BARRETT. Mr. Hoelck, would you care to respond to that?
Mr. HOELCK. Well, we obviously, the scrutiny that GIPSA provides on oversight for us and by the agency's responding to the needs of the customers, I feel that everybody has learned from mistakes of the past that maybe perception-wise have caused a lot more concern, but I think that the spirit of the Nation's grain inspection system is very much in tune with what is going on in the consolidation of the grain industry and with the ever-changing needs of the oversees markets.
Mr. BARRETT. Thank you. Pretty positive statements.
Mr. Petersen, do you think that the prices that are charged for inspections are fair, they truly represent the costs involved?
Mr. PETERSEN. Mr. Chairman, how do you answer a question like that? I guess any time you ask—Mr. Cotter can answer that better because he operates an elevator—but any time you ask somebody if what they are paying is fair, it is like Mr. Pomeroy earlier thinking of his constituents in North Dakota and Mr. Minge in yours. Is the price they receive fair?
When demand is weak and supplies are abundant prices are never high enough for farmers, and for the users of service we would always like to see those prices lower, but the big thing is that we are able to see in FGIS the outreach that they have conducted and we think are making a very good and concerted effort to move in creative fashions to find efficiencies, to look ahead and to work with our members and find solutions that, No. 1, preserve the integrity of the system, that is paramount to all of us, and then be able to move on and use more technology and automation.
Mr. BARRETT. Mr. Big Dog, would you care to respond to that? [Laughter.]
Mr. COTTER. I will be glad to comment, sir.
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The cost of FGIS service, while calling it fair, I would not dispute that. It is probably fair. It is a value added service that we get, particularly in the United States with the quality and integrity of the certificate. The concern we have is the escalating cost.
As the markets continue to decline as we fight for our share of the world market, the margins just get closer and closer and if FGIS costs continue to rise, it becomes—it even makes the margins that much closer. It is a volume business, and as the volumes increase, if we can increase the volumes we can keep costs down, but if our volumes stay low, the cost just gets prohibitive.
Mr. BARRETT. Thank you. I see my time has expired. Mr. Minge.
Mr. MINGE. Other than the 10-year reauthorization, is there anything in the requests that have been made by GIPSA that any of you are uncomfortable with? I have looked at the testimony and I have heard the testimony. It is my perception that none of their requests are ones that you are troubled about, right? I just wanted to confirm that.
Mr. PETERSEN. That is correct.
Mr. MINGE. Thank you very much. I appreciate your coming.
Mr. BARRETT. Mr. Moran.
Mr. MORAN. Mr. Chairman, thank you. Mr. Keith, in your testimony you talk about the FGIS experiencing significant financial losses in recent times. Mr. Petersen in his testimony talks about the agency has worked hard to control its costs.
Is there a different story there? Are you talking about two different things? Is there any problem with the agency? Mr. Petersen seems to be complimentary of the efforts to control costs and I think you say the same thing except what is the explanation for the loss?
Mr. KEITH. I will go first, if that is okay.
I think the main problem is the Government work rules in many cases restrict the managerial flexibility of the agency and in some cases people have to be present 100 percent of the time to make or to effect a policy the way it was intended, and we are seeking some, at least some marginal improvement in FGIS' administrators' ability to manage resources, getting a little bit closer to like the private sector.
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We want to make sure that we maintain the integrity of the system and its services are available when they are needed but at the same time we see opportunities if you could manage FGIS more like a business to manage costs better than they are today.
I think that they are doing a good job within the limits of what the Government gives them flexibility for today.
Mr. PETERSEN. Mr. Moran, when I talked to our members putting together our views to come up for this hearing, the biggest concern I heard from them was flexibility and the lack of flexibility, the rigidity in current FGIS—in current Government—I mean it is not FGIS it is current Government work rules and their concern over flexibility in being able to adapt in the future was probably the main thing I heard.
Also what happens, FGIS of course is a user fee based organization. Eighty to 90 percent of their income is for user fee revenues, mostly collected at the export location, so when you have yours where export volumes are low, then FGIS revenues are low and with the current work rules, and they have worked really hard over the last couple of years to try and resize and right size and be able to handle falling volumes and get their workforce downsized, but it is not easy for them to downsize their workforce quickly.
There is usually a year's lag-time by the time they make all these changes to the time that they finally see some of those begin to pay off.
Mr. MORAN. With lack of flexibility, the industry would respond how? If the agency is incapable of keeping its costs low and has inability in changing the workforce rules, then we would see more of what we are seeing at the State and privatization levels?
Mr. PETERSEN. On the export side, the inspection weighing is mandatory.
Mr. MORAN. Right.
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Mr. PETERSEN. So people like Mr. Cotter are stuck, and the bottom line is they are less competitive in world markets because of unrealistically high fees.
Mr. MORAN. Fair enough.
Mr. COTTER. One of the things that we are doing, and FGIS frankly is working with us on this, is trying to get the inspection process as automated as possible at the export facilities to reduce the number of personnel necessary, which in effect reduces cost, so it is another way of doing it, but the real problem is FGIS has been asked to act as a private company in terms of supporting itself, but is locked into the rules of a Government agency within the administration, and it is one that is hamstringing the other.
Mr. MORAN. Mr. Chairman, I don't see any light, so I am going to ask one more question.
Mr. BARRETT. Absolutely. Proceed.
Mr. MORAN. Thank you. Mr. Petersen, in your final paragraph of your testimony you talk about change. Do you have a story? What do you envision the grain marketing business looking like next year, 5 years, 10 years? Is there a crystal ball?
Mr. PETERSEN. My crystal ball is much like Mr. Baker's. I am afraid the last couple of years it's been muddy, but I am totally amazed by this whole development in e-commerce, and I am trying to learn as much about it as I can because some of my constituents who I worked for in the National Grain Trade Council are grain exchanges and e-commerce has huge implications.
E-commerce has huge implications I think for everything we do and indeed it is so difficult, people right now are trying so hard to peer around the corner at what the world may look like 5 years from now and make good decisions today, and if they make good decisions today, then they should still be in business 5 years from today, but the risk of making a bad decision today is just huge.
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Another thing, back to the e-commerce business. We see a lot more marketing systems online developing today. There are several—ICECORP, CYBERCROP and most recently some of our members went together in an adventure called Rooster.com and they are talking about a virtual mall where a farmer can go and buy and sell from his traditional supplier.
Fascinating developments, but we do not know what shape they are necessarily going to take.
Mr. MORAN. Thank you very much, and Mr. Keith, congratulations to your basketball team.
Mr. KEITH. Thank you.
Mr. BARRETT. Thank you for that editorial comment, Mr. Moran.
Mr. MORAN. Not football season.
Mr. BARRETT. Just wait. Go Cowboys. [Laughter.]
I guess one follow-up question to Mr. Hoelck, and that is perhaps because of your unique position. How do you see possible changes in the geographic locations or geographic boundaries to your inspection area affecting your business?
Now that is kind of a loaded question and it is not a deliberate booby trap for you, but I would just be interested in your comments and sharing with the subcommittee—even though they are not here they will be reading the testimony—give me your thoughts on allowing more than one official agency to operate in your area.
Mr. HOELCK. All right. I will do that. [Laughter.]
When Congress mandated FGIS to set up the official agencies in the interior, designated and delegated, there was never anything that said that it was a situation where you could have Congressman Barrett's inspection agency in Lexington and, you know, Tom Osborne's in Cozad, NE.
It was set up to take care of a certain territory and if the rules and regulations were not followed then there were all kinds of bells and whistles that could go off that would allow the GIPSA people to change that and remove the designation or delegation from that particular agency.
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It wasn't set up to be a situation where more intense competition in the certain area was going to be better, because we are not in the business like that, where more is better. It is just a matter that you have to respond to your customers in a timely and cost-effective manner, and so there is an entrepreneurial way about agencies that they know that if their head is in the sand that the industry is going to be watching this and they are going to ask for change, and so I think that by responding to requests on Sunday in Imperial, Nebraska in my case or in Fargo, ND as another one of our member agencies or Champaign, IL, I think that these particular agency managers are there and are meeting the challenge and that to allow a change in the geographic boundaries just for the sake of change does nothing but dilute the product that we bring to the market, and that is the disinterested third party inspection, which is permissive in the interior.
Mr. BARRETT. Thank you very much. I appreciate that answer.
Would anyone else care to take a bite out of that or shall we leave it right there?
Mr. Keith.
Mr. KEITH. I'd just make a comment. Our industry believes in competition and the grain companies taste competition every day as they try to buy and bid for farmers' grain. It is just kind of our nature to think that they would like to have alternatives, and I think that is the reason that our slant is in that direction.
We think there are a lot of official agencies that are doing an outstanding job. We think there's many of them that are giving very good service and are very responsive, but it is both the price of the service and the service itself, the timeliness of it and the delivery of it, that are a concern at times, and we see the potential for the flexibility giving the administrator the right to choose to allow competition in certain areas to better serve the customer base in total, and so that is the reason we favor this.
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It may not be appropriate in every situation, but we think that in general it is not a bad concept. Competition can be good for a marketplace.
Mr. BARRETT. Thank you very much.
Thanks to all of you, gentlemen. We appreciate your testimony. We appreciate your taking your time to share it with the subcommittee.
The Chair would seek unanimous consent to allow the record of today's hearing to remain open for 10 days to receive additional material and supplementary written responses from witnesses to any question posed by a member of this panel. Without objection, it is so ordered.
The hearing of the Subcommittee on General Farm Commodities, Resource Conservation, and Credit is adjourned.
[Whereupon, at 11:35 a.m., the subcommittee was adjourned, subject to the call of the Chair.]
[Material submitted for inclusion in the record follows:]
Testimony of the Grain Inspection, Packers and Stockyards Administration
Good morning, I appreciate the opportunity to be here today to discuss the reauthorization of the United States Grain Standards Act.
While most Americans are familiar with USDA's Choice grade for beef, few outside the industry are familiar with the U.S. grades for grain and oilseeds. Even those who rely on the grades and standards every day may not understand the full breadth of activities undertaken by the Grain Inspection, Packers and Stockyards Administration's (GIPSA) Federal Grain Inspection Service (FGIS) to ensure reliable application of the standards.
Every day buyers and sellers worldwide use the U.S. grades and official inspection system to market grain and oilseeds. Even as new, more sophisticated buyers demand specific quality attributes to better meet their processing needs, the sales contracts use grades as the fundamental starting point to describe quality.
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GIPSA develops the U.S. standards for grain, which entails standardizing testing methodologies to apply the grades and standards and providing an impartial inspection and weighing system consisting of Federal, State, and private laboratories. These activities facilitate the marketing of grains and oilseeds from farm to domestic processor or on to exporters and destinations around the world. Last year alone, the official inspection system conducted nearly 2 million inspections on 228 million metric tons of grain.
The official USDA inspection and weighing system has earned worldwide recognition as being highly reliable and impartial. World markets, whether a private buyer in Japan or government purchasers in China, look for FGIS' name because an official certificate means buyers can confidently expect to receive the quality and quantity of grain for which they paid. The integrity of the system is unquestioned.
As developing countries strive to establish their markets, they look to us to learn how to do it right. This international recognition did not just happen. We have earned it over many years, thanks to the hard work and professionalism of the people who make up the official U.S. grain inspection system. Maintaining the confidence of our international buyers is important not only to those who export grain, but also to all those who produce and market U.S. grain.
This is especially true today, with the changes occurring in American agriculture and global trade. Increased international trade, industry consolidation, and technological advances are influencing how American agriculture operates and, in turn, how we operate. Our grain program is striving not only to improve efficiency and productivity of the government inspection programs but to enable the industry to improve its efficiency and productivity so that it remains highly competitive in today's global market.
REAUTHORIZATION
On September 30, 2000, several provisions of the U.S. Grain Standards Act will expire; specifically, the following sections of the act will sunset: FGIS' authority to collect and invest user fees from official agencies for supervising their performance of official inspection services; FGIS' authority to collect fees to perform original weighing services and to collect user fees from official agencies for supervising their performance of official weighing services; the 40% cap on administrative and supervisory costs; and authority for the Grain Inspection Advisory Committee.
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We believe it is in the best interest of American agriculture that these provisions are reauthorized. Consequently, GIPSA is asking Congress to extend and reauthorize these provisions of the act.
In addition, GIPSA is asking for several new legislative authorities. First, GIPSA wants legislative authority to allow more than one official agency to operate in a single geographic area, on a case-by-case basis. The current law allows only one agency per designated area. We want to capture the benefits of market competition and still maintain the highest level of accuracy and integrity. Further, we want each official provider to service all customers, whether a remote small business or a large multi-national, high volume operation. This amendment will enable us to more effectively facilitate the marketing of grain without jeopardizing the integrity of the system.
GIPSA also is requesting legislative authority to prohibit adding bleach, vanilla, cinnamon, and other similar substances to grain to disguise its quality. If GIPSA finds someone adding a substance to mask and misrepresent the grain's true quality, and if the action results in the false issuance of an official inspection certificate, it is a violation of Section 13(a)(3) of the act, and penalties apply. In reality, adding these substances rarely results in the issuance of a false certificate either because the grain is not officially inspected or because GIPSA detected the additive and graded the grain sample grade. Prohibiting the additive altogether will enhance the integrity of the national grain marketing system.
We also are asking for legislative authority to eliminate the procedural requirement to base export inspections on samples obtained after final elevation of the grain. Obtaining samples after elevation is appropriate, and still will be used for many factors. However, grains and oilseeds with new value enhanced traits require more complicated and time-consuming analysis or identity preservation processes. Conducting certain analyses prior to final elevation will enable the industry to expedite marketing and will improve the testing capabilities of the official inspection system.
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We also are asking for legislative authority to eliminate mandatory annual testing of all official equipment. Annual testing simply is not necessary or appropriate for some types of equipment.
Finally, we are asking to retain authority for our 15-member advisory committee. This committee, representing a cross-section of the industry, including small farmers, processors, handlers, and exporters, advises GIPSA on effective and equitable enforcement of the act.
I'd now like to provide an overview of GIPSA's grain program and highlight the important role it plays in facilitating the marketing of America's grain.
GIPSA administers the United States Grain Standards Act, under which the Agency establishes the official grading standards for grain, develops standard testing methods to measure grain quality and quantity, and provides for the impartial application of the grades and standards through a unique network of Federal, State and private inspection agencies. The act also requires the mandatory inspection and weighing of export grain, with few exceptions, and provides for the voluntary inspection and weighing of grain moving in domestic commerce. Services under the act are performed on a fee basis for both export and domestic grain shipments.
As I mentioned earlier, the U.S. standards and our inspection and weighing system are recognized worldwide as highly reliable. This is best reflected in the number of complaints received from foreign buyers, which has declined 32 percent, from 70 in 1993 to 47 in 1999. For each of the past 7 years, complaints have represented less than 1 percent of the total volume of grain exported from the United States.
The recent U.S./China wheat agreement, which represents the beginning of a great opportunity for American agriculture, relies on GIPSA's TCK (Tilletia controversa Kuhn) testing program. In cooperation with the USDA Agricultural Research Service, we developed an accurate and reliable testing method that both U.S. and Chinese interests embraced.
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We also work with various agencies, non-profit market development groups, and industry representatives to educate prospective buyers and to resolve grain quality or quantity concerns. We assist other countries in the development of their own grain standards and inspection systems. These efforts promote greater harmony between U.S. and international standards, and foster a better understanding of the U.S. grain marketing system, the official U.S. grain standards, and the national inspection system. In fiscal year 1999, GIPSA representatives met with 89 trade teams from 50 countries. This effort reduces the risk of new barriers in today's open and freer global marketplace, enhances purchasers' confidence in U.S. grain, and facilitates the export of U.S. agricultural products.
Our grain inspection program is comprised of 555 full-time, permanent employees and 74 part-time, intermittent, or other employees located at 2 headquarters units, 13 field offices, 2 Federal/State offices, and 6 suboffices. FGIS has headquarters units in Washington, DC, and Kansas City, MO. Field offices are located in Stuttgart, AR; Sacramento, CA; Moscow, ID; Cedar Rapids, IA; Wichita, KS; New Orleans, LA; Baltimore, MD; Minneapolis, MN; Kansas City, MO; Grand Forks, ND; Portland, OR; League City, TX; Toledo, OH; and Olympia, WA. FGIS personnel also are located in eastern Canada to provide inspection of U.S. grain at Canadian ports.
Mandatory inspection and weighing services are provided by GIPSA on a fee basis at 37 export elevators. Under a cooperative agreement with GIPSA, the Canadian Grain Commission provides official services, with GIPSA oversight, at 6 locations in Canada exporting U.S. grain. Eight delegated States provide official services at an additional 19 export elevators under GIPSA oversight. Voluntary inspection and weighing of U.S. grain in domestic commerce are provided by a fee basis by 59 GIPSA-designated agencies.
Technological advances and global trade have altered and will continue to reshape the agricultural landscape and to influence the job we have to do at GIPSA. Our grain inspection program must keep pace with the changing needs of the grain industry, especially in terms of inspection timeliness and the capability to measure new diverse quality attributes. Today's grain market handles a greater diversity of grain quality than ever before and must do so efficiently and productively for American agriculture to remain competitive in the global market. Next-day inspection services that met the markets needs just a few years ago now must be provided in minutes if unit trains, barges, and vessels are to be loaded efficiently. The market must also have the capability to accurately and rapidly measure the quality of grain so that the marketplace starting with farmers have the ability to assess the true value of the grain.
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At previous reauthorization hearings, the last being in 1993, industry representatives articulated the international and national importance of the U.S. grain standards and inspection system. This was generally followed with a cry for improved program efficiencies on the part of GIPSA (formerly FGIS) to reduce operating expenses. While you may very well hear similar testimony today, I believe you also will hear support for the work we have underway and the improvements we have made over the past few years.
Efficiency is of tantamount importance in both our agency operations and to our customers. We have implemented operational and structural changes to improve the efficiency and productivity, not only of service delivery, but, more importantly, to the actual handling and marketing of grain. We began a quality management journey in 1994. We overhauled our strategic planning process and our approach to service delivery. We stopped doing business the same old way and began listening to our customers. We took it upon ourselves to reengineer, streamline, and improve.
Structurally, GIPSA has, over the years, realigned to optimize its staffing levels and organization. Since 1994, the grain program reduced staffing levels by 8 percent and streamlined its field structure from 31 to 21 offices, thereby allowing for more flexible staff utilization and more consistent policy implementation. Our Commodity Testing Laboratory, formerly in Beltsville, Maryland, was merged into our Technical Center in Kansas City, Missouri. The Technical Center is now a model of how streamlining and cross-functional teams can result in cost efficiencies and a sharpened customer service focus.
We reengineered our quality assurance program, already known worldwide for ensuring consistent and accurate inspection and weighing results. By automating to a PC-driven system and decentralizing the process to the local level, our reengineered quality assurance program provides for proactive problem solving and immediate quality control feedback on the front line. We're doing the job right the first time and spending less time and money to correct mistakes.
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To integrate our export inspection process with the export industry's technological advances, GIPSA automated the export inspection statistical shiploading plan, also known as the Cu-Sum Plan. The new system improves the accuracy and timeliness of our services and allows direct data sharing with our export grain customers, thereby eliminating manual data entry and reducing administrative costs both for GIPSA and our customers.
We also are automating our oversight of export scale and material handling systems. These systems significantly improve our oversight capability and, at the same time, reduce our operating costs. As a result of this initiative, we can now recreate the entire loading of an export vessel. By that, I mean every gate opening, scale draft, shipping bin discharge and nearly every other activity occurring during the loading of a vessel can be recreated. If there are any questions about the accuracy of an inspection or weight certificate, we have the data to investigate and verify results.
To further improve the efficiency and productivity of U.S. grain handling, GIPSA established a public/private partnership to automate inspection processes. The goal of this project is to provide as close to real time quality information as possible during the loading of a vessel. The system will provide moisture, dockage, foreign material, test weight, and protein results every 4 to 5 minutes. This information will be electronically provided to the customer. This effort will reduce the agency's operating costs and improved the speed, productivity, and efficiency of export operations essential factors in today's competitive global market. A prototype system is being installed at an export elevator in Destrehan, Louisiana. These are only some of the ways that GIPSA is seeking to enhance the efficiency of our operations. Future technological advances and customer needs will drive even further improvements.
It's been gratifying to see how our efforts are paying off for our customers, both in terms of their bottom lines and in greater customer satisfaction. GIPSA's service delivery costs decreased from $0.27 per metric ton in fiscal year 1994 to $0.22 per metric ton in fiscal year 1999, saving American agriculture over $5 million in fiscal year 1999 alone. These savings in inspection service costs pale in comparison to the savings achieved by the industry thorough improved productivity. GIPSA is proud to be a partner with the industry in realizing that productivity enhancement. Last year, at a single cooperative in Iowa, GIPSA implemented a new, on-site rapid inspection program that saved the customer more than $250,000 per year.
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Meeting our customers needs doesn't stop with efficiency enhancements. It also means we must be ready to meet new and emerging market needs in many areas.
Hard White wheat is an emerging class of wheat with significant potential to expand export markets and better meet the needs of our domestic mills. To help the market realize the potential of this new wheat class, GIPSA has worked closely with producers, breeders, and technical experts to reach a consensus regarding a definition of acceptable color for Hard White wheat. Establishing the standardized color line allows breeders to better target their lines for development. It also provides a definition that all members of the market agree upon and accept, thereby minimizing buyer uncertainty and facilitating greater use of Hard White wheat in breads, pasta, and other products. GIPSA's work in this area paves the way for increased production and more market use of Hard White wheat in the upcoming years.
While we have a long standing and respected program for measuring the quantity of protein in wheat, there is a growing need to measure the quality of protein in wheat. The capability to measure protein quality quickly and accurately would provide processors and foreign buyers with a mechanism to better determine the wheat's value for processing. This, in turn, may provide producers with a mechanism to receive premium pay for premium quality wheat. Since there is no market consensus on how to measure wheat protein quality, GIPSA has initiated research to establish a protein quality reference standard and a rapid and accurate means to apply the standard. We are working with the Agricultural Research Service and with various industry representatives to achieve this goal. GIPSA's efforts have won the support and praise of the U.S. Wheat Associates, the National Association of Wheat Growers, academia, and others in the milling industry.
Measuring oil content in corn is yet another action GIPSA has taken to meet emerging market needs. High-oil corn, primarily used by livestock feeders to enhance weight gain, is one of the fastest growing value-enhanced grains produced in the United States.
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High-oil corn provides producers a price premium based on the analytical results of the oil content. GIPSA implemented a corn oil test using near-infrared technology in 1998, in response to clear market indications that official analysis would facilitate the marketing of this product. In today's market, the primary contractor of high oil corn production recognizes the GIPSA corn oil calibration and testing service as the basis upon which to resolve any questions between the farmer and grain elevator concerning the oil content of the corn. The implementation of the GIPSA calibration introduces an opportunity for impartial analysis to assure producers receive the premiums they deserve.
Perhaps the most recognizable and challenging new market needs are those created by biotechnology. Biotechnology is diversifying grain and oilseed quality, and has the potential to create new market opportunities for America's producers, small and large, as end users seek suppliers of unique quality attributes. While GIPSA, under the United States Grain Standards Act (USGSA), has no authority to approve or release biotech crops, we do have responsibility to facilitate the fair and orderly marketing of grain and grain products, many of which will be bioengineered. To this end, GIPSA will continue to assess the market's needs; meet those needs by providing the standardized testing technology that measures new and enhanced value products; and provide that information to all in the U.S. grain marketing system, from producer to end user.
As we discussed earlier, GIPSA is responsible for establishing the official U.S. standards for grain under the U.S. Grain Standards Act. These standards are used every day by sellers and buyers to communicate the type and quality of cereals, pulses, and legumes bought and sold. Biotechnology is affecting this program in two fundamental ways:
(1) increased market demand for conventional crops has created a need for standardization of reliable testing methodologies to distinguish bioengineered from conventional crops; and (2) an anticipated increase of new value-enhanced traits, whether produced by conventional or non-conventional means, will create an expanded need for standardized testing methodologies to measure the enhanced quality attributes. Without standardized testing methodologies and an agreed-upon means to communicate the results, market risk will increase and the true value of future crops will be less transparent.
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To meet the market's need for impartial, professional verification of biotechnology testing technologies, GIPSA plans to establish a biotech reference laboratory at its Technical Center in Kansas City, MO. The laboratory will begin the process of evaluating and verifying analytical procedures used to detect and quantify biotechnology traits in grains and oilseeds, and establish sampling procedures for use in testing genetically enhanced grains and oilseeds.
The reference laboratory will meet a market need to ensure reliability of biotech crop detection methods and to facilitate information exchange, which, in turn, will decrease transaction costs and increase overall market efficiency. The lab is scheduled to be operational in the late summer of 2000.
GIPSA also plans to increase its ability to measure enhanced quality attributes, whether produced by biotechnology or traditional breeding methods. Analytical tests required to assure the presence or specific content of a value trait are essential to ensure the supplier, including small farmer, receives the financial benefits derived from producing grain with value-added traits.
GIPSA is an integral part of America's grain handling infrastructure—a superior infrastructure of storage facilities, rail lines, and waterways that makes American agriculture preeminently successful in the global marketplace. We recognize our role and will continue to provide all members of the U.S. grain handling system with the innovative, high-quality official inspection services they need to efficiently and effectively meet the challenges of a changing marketing environment.
I appreciate the opportunity to address the Committee and I will be happy to respond to your questions.
Statement of the American Association of Grain Inspection and Weighing Agencies
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The American Association of Grain Inspection and Weighing Agencies (AAGIWA) is the national professional association representing the public and private agencies that are designated and delegated by USDA's Grain Inspection, Packers & Stockyards Administration (GIPSA) to weigh, inspect, and grade the Nation's domestic grain. Its member agencies are located throughout the major grain-producing regions of the U.S., and represent the majority of all official domestic inspections performed under the U.S. Grain Standards Act.
AAGIWA member agencies bring a professional and third-party aspect to the grading and weighing of America's grain. During the association's 40-plus years of service to the industry, it has assisted its members in performing these services through a national forum that promotes and assists professionalism, technology, and performance, while providing a constant dialogue with government and industry.
AAGIWA wishes to comment on the pending re-authorization of GIPSA beyond its current September 30, 2000 statutory expiration date. In doing so, the association wishes to support Congressional re-authorization of the agency, and wishes to provide the following observations to the Congress:
Role of GIPSA. There is an important role for a Federal regulatory and supervisory agency in the operation of an official grain inspection system. GIPSA serves to provide an objective, third party regulatory role, which assures credibility and integrity for both domestic and foreign grain handlers and buyers of U.S. grain. Its strict Federal standards help maintain the accuracy and consistency that the grain industry has come to expect from the Nation's official grain inspection system.
GIPSA's Past and Present Record. AAGIWA commends GIPSA for its current record of flexibility and availability to the suggestions and recommendations of its constituency. It has kept an open mind to change, and made changes when costs and benefits were analyzed and found productive. This association views GIPSA as an essential partner in official inspection agencies' efforts to promote and facilitate the movement and trading of the Nation's grain. The assurance of integrity that GIPSA lends to the official grain inspection system is vital to the system's continued existence.
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AAGIWA also commends GIPSA Administrator James R. Baker for his professionalism and his strong interest and dedication to the designated and delegated agencies of the official grain inspection system. He has maintained an open door policy that has benefitted all aspects of the Nation's grain industry, and should serve as an example for future GIPSA administrators.
Mandate for Change. AAGIWA believes that GIPSA's role in the grain industry must keep pace with the fast-changing needs of its customers; that it must anticipate and react quickly to new trends and technology; and that it must become more efficient and effective as the primary monitor of the U.S. Grain Standards Act. Toward that end, AAGIWA calls on Congress to consider the following improvements to the official grain inspection system, as it re-authorizes GIPSA:
Extend the designation period for official agencies. Official agencies currently must be re-designated every 3 years, requiring extensive on-site Federal evaluation and investigative manpower and resources. This designation period should be extended to 5 years or more, with GIPSA maintaining its traditional role of closely monitoring and evaluating official agencies' performance.
Establish a central grain monitoring system. GIPSA currently performs quality checks and re-inspections at its many regional field offices, resulting in a duplication of staff and resources, and a lack of consistency of results. A central monitoring laboratory or system should be established by GIPSA, so that check tests and inspection results are strictly standardized and consistent under the professional auspices of one inspection team. We believe that such consolidation would decrease regional and inter-market grading differences, eliminate duplication of staff, equipment, and office space, and allow the national system to respond more rapidly to grading problems and customer concerns. With current video imaging technologies, much of the consolidation could be accomplished in virtual space, without the need for additional investments in brick and mortar. This would include the development and implementation of a national on-line, at-line certification and billing program. Currently, each official agency must develop its own system, at the expense of uniformity, continuity, and efficiency, to capture and disseminate the same type of inspection data. In the interest of customer service and efficiency of operation, GIPSA should take the leadership in developing an electronic system that could include the use of bar codes, electronic signatures, password protection for customer data, and digital interfaces to all electronic laboratory equipment. This would make all official agencies equal and uniform in their customer services, improve the accuracy of inspection data, provide instant access to pertinent industry data, and eliminate duplication of factors onto pan tickets, certificates, and billing. Cost of such a beneficial and uniform system could be borne largely from available trust fund monies.
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Provide financial support for the Official System. Official grain inspection agencies have contributed millions of dollars through agency supervisory fees to GIPSA. These fees have been deposited in an Official Agency Trust Fund, which currently contains more than $4.7 million of unallocated reserves. We believe that a portion of these unallocated funds—or the annual dividends, if appropriate—should be invested by GIPSA in equipment or technology to improve the official grain inspection system, and make it more competitive and responsive to customers' needs. The dividends alone from these reserves would go a long way toward improving the system and its outreach. We encourage Congress to provide oversight on the investment of these monies, and to advise and consent on their investment and use.
Summary. In conclusion, AAGIWA commends GIPSA for making changes for the betterment of the official grain inspection system, for its integrity, and for its beneficial partnership with the 60 state and private agencies that perform official duties at the local level. As Congress moves to re-authorize this Federal agency, it is important that new technologies and efficiencies be brought to bear as soon as possible, and that the above-stated fine-tuning be implemented in order to assure the future strength and viability of this valuable national industry system.
Statement of William J. Cotter
I am William J. Cotter, director of operations for the Port of Corpus Christi Authority, Corpus Christi, TX. Today I am testifying on behalf of the North American Export Grain Association (NAEGA), an industry association representing U.S. grain exporters and associate members. I am a member of the NAEGA Board of Directors and past chairman of its Grades and Inspections Committee.
The export grain marketing and handling industry appreciates the opportunity to present its views on the reauthorization of the Federal Grain Inspection Service section of the Grain Inspection, Packers and Stockyards Administration.
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On September 30, 2000, five sections of the act that created FGIS will expire. These five sections give FGIS the authority to:
1. Collect and invest official agency supervision fees for inspection (7 USC 79 (j)(4))
2. Collect original weighing service fees; collect official agency weighing supervision fees (7 USC 79A (l)(3))
3. Provide for a 40 percent cap for total administrative and supervisory costs (7 USC 79(d))
4. Receive Appropriations (7 USC 87h)
5. Advisory Committee Authority (7 USC 87 (j))
With the exception of the last item, FGIS cannot operate without the aforementioned authority.
In my testimony today, I will discuss what we believe GIPSA/FGIS is doing well, how this agency could improve, and the challenges for the future.
BACKGROUND
The nature of the Nation's official grain inspection system has changed and evolved since the U.S. Grain Standards Act was first adopted by Congress in 1916. The FGIS was created in 1976 and assumed the responsibilities of the Grain Division of the USDA's Agricultural Marketing Service.
The mission and activities of GIPSA, as stated in its most recent report to Congress, are:
GIPSA administers uniform, national grain inspection and weighing programs established by the U.S. Grain Standards Act, as amended. Services under the act are performed on a fee basis for both export and domestic grain shipments. The act requires generally that grain be inspected and weighed; prohibits deceptive practices and criminal acts with respect to the inspection and weighing of grain; and provides penalties for violations.
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In administering and enforcing the act, GIPSA:
establishes and maintains official U.S. grain standards for barley, canola, corn, flaxseed, oats, rye, sorghum, soybeans, sunflower seed, triticale, wheat and mixed grain;
promotes the uniform application of official U.S. grain standards by official inspection personnel;
establishes methods and procedures, and approves equipment for the official inspection and weighing of grain;
provides official inspection and weighing services at certain U.S. export locations, and official inspection of U.S. grain at certain export locations in eastern Canada along the St. Lawrence Seaway;
delegates qualified State agencies to inspect and weigh grain at certain U.S. export port locations;
licenses qualified State and private agency personnel to perform inspection and weighing activities;
provides Federal oversight of the official inspection and weighing of grain by delegated States and designated agencies;
provides review inspection services of U.S. grain in the United States and at certain export port locations in eastern Canada;
investigates, in cooperation with the USDA Office of Inspector General, alleged violations of the act and initiates appropriate corrective action;
monitors the quality and weight of U.S. grain as received at destination ports, and investigates complaints or discrepancies reported by importers; and
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assists U.S. trading partners in developing and improving their grain inspection and weighing programs.
The Grain Standards Act provides that official inspection is mandatory at export and voluntary at domestic points. At export locations, FGIS either functions as a direct service provider or delegates its authority to state operated agencies in, for example, California and Washington State. At domestic locations, official services are provided by designated agencies which are either State agencies or privately owned companies. FGIS supervises the services provided by these agencies. Since the last re-authorization in 1993, there has been a very significant growth in the use of non-official inspection agencies for domestic grain inspections.
REMARKS REGARDING FGIS OPERATIONS
In the view of exporters, the FGIS has two broad missions:
1. To directly provide the service of inspection and weighing grain for export or supervise delegated State agencies that provide this service.
2. To provide the structure and administration of the U.S. Grain Standards Act which benefits all segments of the grain industry including producers, processors and consumers.
My remarks will be made in the context of these two broad missions.
WHAT ARE THE SUCCESSES OF FGIS?
1. The FGIS grade and weight certificate commands respect and has great credibility and integrity with importers worldwide. From an exporter's point of view, we would not want to see any actions taken to damage this credibility. FGIS does an excellent job fulfilling the role of an unbiased entity to certify grades and weights to the export markets.
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2. FGIS has responded to industry cost concerns by reducing total staff. From 1993 to 1999 total staff declined from 646 to 555 full-time and 74 part-time employees. Much of this personnel reduction can be attributed to reduced domestic inspections due to increased competition from private unofficial agencies. At export locations there is a greater reliance on temporary help rather than permanent employees. FGIS has reduced the cost per ton of providing the service to the industry.
3. FGIS is working with industry on a broad range of issues, including:
A. Automated inspection procedures
B. Biotechnology testing issues
C. End use value characteristics in grains
D. TCK testing for future exports to China
E. Improved data handling and computerization of operations
F. Computer imaging of grains for inspection purposes
G. Standardization activities
4FGIS has communicated well with the grain trade through its Advisory Committee and with NAEGA committees.
5. FGIS has done an excellent job in its customer outreach program.
WHAT ARE AREAS OF CONCERN OR NEED FOR IMPROVEMENT?
1. The battle for cost control or improvement will never end. As we are all well aware, agriculture and grain exports are an embattled industry. It is an industry constantly in search of ways to reduce costs to improve our competitive position and returns to our shareholders or owners. As long as the industry perceives itself paying more for the direct service than it believes necessary, there will be pressure to reduce costs. We need cost control but not a loss of certificate integrity. Grain inspection is still a labor intensive activity and will be for some time.
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2. The twin sister of cost control is flexibility in operations. As a government agency, FGIS operates by a different set of rules than the private sector. FGIS does not have control over its personnel costs; Congress does. Personnel costs are far higher than would be the case in a similar private sector provider. The export industry has requested FGIS to consider cost saving measures, including new limited authority to contract with the private sector for certain services, designation of certain private laboratories to perform certain services at export elevators in a given port range, greater use of intermittent employees, more careful scrutiny of FGIS employee utilization to determine if more employees at straight time would be more cost-effective than overtime. It is believed by the export elevator operators that there is currently little or no incentive on the part of the FGIS field managers to avoid overtime, as long as there is an employee willing to do the work.
FGIS recently published notice in the Federal Register for a 2.4 percent fee increase due to a 4.8 percent mandated pay increase. Although we may not like higher costs, we commend the agency for absorbing part of the increase through improved efficiencies. FGIS has responded to industry in this case.
FGIS must, by Executive Order, negotiate any change in work procedures with its union representatives. This has made needed changes that would improve operations and flexibility very difficult and time consuming to achieve. The grain trade is dynamic and ever-changing and needs flexibility to compete.
3. Another critical concern for export elevator operators is consistency of inspections throughout the national grain marketing system. Inspection results for the grain going into an export elevator are often determined by an inspection(s) performed in the interior marketplace closer to the production area or sometimes even by an inbound inspection at the export elevator. The owner of the grain and the elevator operator rely on these results for marketing, binning, and eventually loading to ships for export. If the grades for the inbound and export are not consistent, export elevators can be paralyzed, causing costly delays while trying to resolve the discrepancy. For this reason, the export trade always places a high priority on FGIS providing consistency throughout the system.
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4. In general, FGIS has communicated well with the grain trade; but we think there is room for improvement. One area would be to improve communication concerning research that FGIS is contemplating conducting. A research committee or subcommittee of an already existing format could do the job, without forming a new committee. This would help bring more focus to research and help ensure that scarce research funds are well spent.
5. Congress and the Executive Branch need to better understand and appreciate this agency's multiple functions and the funding that supports FGIS activities. As I have stated, this agency has a dual function: (1) act as a direct service provider that is necessary to the conduct of a very large export trade; and (2) serve as the ''keeper of the standards'' for U.S. grains. It is an agency that provides many services, not directly related to the daily export of grain, as noted earlier in this testimony. It is more of a broad oversight regulatory authority. The cost for this oversight should be borne by all segments of the industry.
6. Congress may also want to consider revisiting the issue of the composition of the FGIS Advisory Committee. Several years ago this provision was changed to decrease the number of industry representatives on the committee. We believe that change was a mistake. Industry users/customers are among the most knowledgeable participants on the advisory committee.
GIPSA/FGIS is funded by two methods:
1. User Fees
2. Appropriated Funds
Exporters understand that we must pay for the direct service or supervision and an appropriate amount of overhead to support it. But as an agency with many functions other than grading grain for export, GIPSA/ FGIS benefits all sectors of the U.S. grain production and processing system as well as consumers. Therefore it is critical that appropriated funds or some other funding mechanism are readily available to support these functions. U.S. exporters cannot continue to shoulder more in user fees than their fair share. Each budget cycle we face growing pressure to shift more FGIS costs to user fees which are paid primarily by exporters. It is easy to see exporters as a funding source since we are mandated users of the service.
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The economics of GIPSA/FGIS are much like that of the grain industry. This is a volume-oriented business that has very identifiable break-even volume numbers. It is not by accident that the financial health of FGIS has improved as export volume has risen for the past 3 years. The industry needs volume to survive.
The time line for changing procedures, regulations and practices needs to shrink to accommodate the faster pace of change in business. The Federal system is slow and cumbersome, depending on the change sought. This is an issue that has been discussed with the agency but we feel it needs to be highlighted today. If the Federal system is to be a reliable business partner, it needs to move faster and we need to anticipate change better.
THE FUTURE
This is an exciting and challenging time for Agriculture. The advent of biotechnology holds much promise for the grain industry but great challenges as well. Importers of U.S. grains are becoming much more sophisticated in the specifications that they demand from U.S. grains.
In the future GIPSA needs to work closely with all segments of the grain industry to:
1. Be prepared to provide GMO trait testing as the market may require.
2. Identify and provide the testing of end use value characteristics that processors require and producers need to know.
3. Continue the development of technology that lowers costs and improves delivery of services and data.
4. Identify how GIPSA/FGIS fits into the E-commerce economy.
5. Continue to identify and conduct research that benefits the producer, consumer and the grain handling and processing industry.
6. Have more contact with grain importers to increase FGIS understanding of importer concerns and requirements.
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I will conclude by saying the export industry needs GIPSA/FGIS to be a cost effective, forward-looking business partner that assists U.S. producers and exporters in expanding our share of world grain trade. FGIS is a critical link in the conduct of the U.S. export grain trade.
That concludes my testimony, Mr. Chairman. I will be happy to answer any questions.
Statement of the National Grain and Feed Association
The National Grain and Feed Association appreciates the opportunity to provide this statement on re-authorization of the U.S. Grain Standards Act and the operations of the Federal Grain Inspection Service (FGIS). The FGIS administers the U.S. Grain Standards Act (USGSA) and provides official inspection services to NGFA members. The industry values the credibility and integrity of the official inspection system and believes it provides benefits to U.S. agriculture in domestic and international markets.
The NGFA consists of about 1,000 grain, feed, processing and grain-related companies that operate 5,000 facilities that store, handle, merchandise, mill, process and export more than two-thirds of all U.S. grains and oilseeds. About 70 percent of NGFA member firms are small businesses country elevators and feed mills. Also affiliated with the NGFA are 36 state and regional grain and feed associations.
The FGIS has changed in many ways since Congress authorized it in 1976. These changes include a dramatic downsizing of the Agency in the early 1980's and in 1994 a merger with the Packers and Stockyards Administration (PSA) to form the Grain Inspection, Packers and Stockyards Administration. FGIS is largely a service agency to the commercial grain sector. User fees paid by exporters and domestic commercial shippers and receivers fund approximately 75 percent of agency operations.
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The FGIS and industry maintain a positive working relationship. Agency management routinely meets with NGFA and its Grain Grades and Weights Committee to discuss issues affecting the official system. In 1998, the FGIS announced a strategic plan that, in part, seeks to increase the efficiency of U.S. grain marketing to streamline grain inspection and weighing and provide cost-effective grain inspection and weighing services. We are supportive of these goals but remain concerned that FGIS may lack sufficient managerial flexibility to fully achieve them. The Agency has been working with industry to improve automation at export facilities, an effort we applaud.
The Agency was last re-authorized in 1993. By September 30, 2000, Congress must re-authorize several provisions of the USGSA to allow FGIS to continue providing official services. These provisions include collection of fees for official inspection and weighing activities, the 40 percent cap on administrative and supervisory costs and the authority for the FGIS Advisory Committee. The 2000 Agency re-authorization provides an opportunity for industry and Congress to consider what changes may be needed in the official inspection system to ensure it can continue to meet the needs of the marketplace.
In this regard, we would like to share our perspective on several issues affecting the official system. Several of these issues have been shared with FGIS management and Congress in the past.
THE OPERATING AND COST STRUCTURE OF THE DOMESTIC AND EXPORT OFFICIAL SYSTEM MARKETS
The cost of the official system in domestic and export markets remains a concern to NGFA members.
Official inspection and weighing of U.S. grain in domestic commerce are performed upon request by private agencies or state government entities granted an exclusive license by FGIS to perform official services in a particular area. In 1993, the GAO study found that the use of the official system in the interior markets has declined because of high costs, inflexible service, consolidation within the industry, and increasing acceptance of unofficial and in-house grades by the market. While it appears that utilization of the domestic official system may have stabilized somewhat in recent years, a 1999 survey of NGFA members indicates that cost of service remains a strong concern.
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As a result of the GAO survey, the NGFA recommended during the 1993 re-authorization of the Agency that Congress require FGIS to conduct pilot programs to open selected interior official territories to competitive bidding for services. The Agency began a series of pilot programs in 1995 and the results indicate that granting FGIS permanent authority to allow increased competition within the domestic official system may be beneficial.
The U.S. Grain Standards Act (USGSA) requires that export grain be officially inspected and weighed by FGIS personnel or delegated state government bodies. Over the past 10 years, the FGIS has experienced significant financial losses, seriously depleting the Agency's financial reserves. As a result, the FGIS has instituted a series of fee increases over the last several years that have resulted in making the cost of official inspection one of the top operating expenses at export elevators. While the Agency reported approximately $1.8 million in profits at the end of Fiscal Year 1999, the cost of official inspections at export locations and future management of those costs remains a concern. We believe that both FGIS and industry would benefit if FGIS management had additional flexibility to control costs and maximize operating efficiency.
In this regard, the NGFA recommends that Congress consider the following policy options during the 2000 re-authorization of FGIS:
Require that Agency management establish a clear system of agency objectives, measurable goals, and targets for improving overall agency and individual employee performance. The FGIS Administrator with approval of the Agency's Advisory Committee should establish these goals, objectives and targets;
Provide additional management authority to the Administrator to achieve objectives, including but not limited to the discretion to use mandated salary adjustments as incentive-based pay and the clear ability to use contract employees to provide official services; and
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Reduce the 40 percent cap on administrative and supervisory fees to 20 percent. Reducing the 40 percent cap would be consistent with trends within private industry. Furthermore, the Agency reported in 1995 that administrative and supervisory costs represented 23 percent of total program costs. Thus, a reduction to 20 percent may also be consistent with trends within the Agency itself.
FGIS ADVISORY COMMITTEE
The FGIS Advisory Committee was created to provide advice to the FGIS Administrator on implementation of the USGSA. Over the years, the direct users of the official inspection system—those actually paying for the service—have increasingly come to question the relevancy of the FGIS Advisory Committee to assisting the Agency in its responsibilities. We think a stronger representation by direct users on the Advisory Committee would help address this situation and recommend that Congress authorize that that at least 10 of the 15 advisory committee members represent companies that are direct users of the official system.
BIOTECHNOLOGY
The introduction of corn and soybeans enhanced through the techniques of modern biotechnology for increased insect resistance and herbicide tolerance has raised concerns in some foreign markets and creates the need for accurate and affordable tests to quickly distinguish these new varieties from those developed through conventional plant breeding. Responding to a recommendation from NGFA, the FGIS has announced its plan to establish a reference laboratory at its Technical Center in Kansas City, Missouri to verify the accuracy and repeatability of test kits used to detect biotechnology-enhanced crops. We support this approach.
The FGIS has also indicated that it is considering developing standards for the identity preservation (IP) of grains that either possess or do not possess traits introduced through the techniques of modern biotechnology. The procedures concerning the process to ensure the delivery of non-biotechnology-enhanced commodities often vary between customers. Therefore, we believe that they should be left, whenever possible, to contractual agreements between buyer and seller at this time.
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REAUTHORIZATION
Between 1976 and 1993, the U.S. Grain Standards Act was amended four times, ranging in length from 3 years to 5 years, to re-authorize the activities and programs of FGIS. The Agency was again re-authorized in 1993 for a seven-year time frame. We understand that FGIS is suggesting that it be re-authorized for 10 years. We believe that in today's rapidly changing global business environment a 10-year reauthorization is simply too long. In fact, we believe that, rather than extending the re-authorization period from 7 to 10 years, Congress should consider reducing the period of reauthorization to no more than 5 years.
OTHER POTENTIAL CHANGES
The NGFA is supportive of providing the FGIS Administrator with authority to:
Prohibit the disguising the quality of grain as a result of introduction of non-grain substances, such as cinnamon, vanilla, and bleach;
Eliminate the requirement for mandatory annual testing for all equipment used in the sampling, grading, inspection and weighing when annual testing is not necessary or appropriate for such equipment; and
Obtain samples at export facilities at locations other than after final elevation to accommodate new marketing programs, such as Identity Preserved (IP) programs, for value enhanced crops.
Through its efforts to maintain accuracy and consistency in the official inspection and weighing system, the FGIS assists in maintaining the economic efficiency of the U.S. grain marketing system. The credibility and integrity of the official system is very important to farmers, grain handlers and U.S. exporters. However, managing system costs and improving FGIS management capabilities to reorganize to enhance efficiency and productivity of FGIS employees present challenges to the long-term viability of the system. This re-authorization presents an opportunity for Congress to consider potential changes to the official system to ensure that it will continue to provide a needed and cost-effective market service.
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Testimony of the Transportation, Elevator, and Grain Merchants Association and the National Grain Trade Council
The Transportation, Elevator, and Grain Merchants Association (TEGMA) and the National Grain Trade Council appreciate this opportunity to provide our views on reauthorization of the U.S. Grain Standards Act. The USGSA is the statute that provides the authority for functions provided by USDA's Grain Inspection, Packers, and Stockyards Administration.
I am Robert Petersen and I serve as secretary for TEGMA and as president for the Council. TEGMA is the national trade association representing terminal grain elevator operators, unit train shippers, transportation companies, and others involved in grain marketing. The National Grain Trade Council is a national trade association whose voting members are grain exchanges and national grain marketing organizations. The Council's associate members are grain companies and related businesses.
We will make several points in our testimony today.
We support reauthorization of the U.S. Grain Standards Act.
GIPSA needs to continue to keep costs under control.
GIPSA standardization costs should be borne by appropriated funds.
Many grain quality issues are constructively addressed by the Grain Quality Workshops.
We support GIPSA's establishment of a biotech laboratory.
THE GRAIN INSPECTION PROGRAM
Under the U.S. Grain Standards Act, as amended, GIPSA's Federal Grain Inspection Service provides the U.S. grain market with Federal quality standards and a uniform system for applying them. FGIS has both services and regulatory roles, and was founded to provide impartial, accurate quality and quantity measurements to create an environment that promotes fairness and efficiency.
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The Grain Standards Act provides that official inspection is mandatory at export and voluntary at domestic points. At export locations, FGIS either performs the service directly or delegates its authority to state-operated agencies. At domestic locations, official services are provided by designated agencies which are either state agencies or privately-owned companies. FGIS supervises the services provided by the delegated or designated agencies.
Certain provisions of the Grain Standards Act must be periodically reauthorized. Those provisions include: (1) authority to collect certain fees; (2) a 40 percent cap on the level of administrative and supervision costs; and (3) authority to have an advisory committee.
We believe FGIS performs an important function and we support its reauthorization. While there will always be areas for improvement, we feel in general that FGIS does a good job. We believe the agency has worked hard to contain costs and to provide good service. We believe that FGIS has a capable management team in place that strives to work with its customers to improve programs and develop creative initiatives to meet customer needs. We do not make these comments lightly. We have not hesitated in past reauthorizations to offer frank criticism. This time, though, we believe some plaudits have been earned.
We recommend that FGIS be reauthorized for a 5-year period.
Cost Control. The cost of the grain inspection system continues to be an issue for the grain industry. Export grain, where inspection is mandatory, bears the biggest burden of FGIS costs. For export elevators, it is not uncommon for inspection and weighing services to be among their major expense items. It is important for FGIS to have the flexibility to be able to adapt to changing workload situations. Efficiency will continue to be a key area, along with work processes, automation, and other items as the industry changes. FGIS will need to adapt and change at the same time and not simply assume that they can continue as before and pass those costs along in the form of higher fees. We applaud the agency's efforts to work with grain exporters on automated systems that offer the promise of increased efficiency and reduced costs while safeguarding the integrity of the inspection process.
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We believe the agency has worked hard to control its costs and that will need to be a continued priority. One of the safeguards industry has against escalating costs is the provision in law that limits administrative and supervisory cost to no more than 40 percent of agency outlays. In recent years, the actual percentage for administrative and supervisory costs has been closer to 20 percent. We recommend that Congress consider reducing the 40 percent cap to a lower level.
Standardization Programs. We believe that FGIS standardization costs should continue to be borne by appropriated funds, not by user fees. User fees provide the funding for most of FGIS' budget. The agency standardization, international monitoring, and compliance programs are the only elements supported by appropriated funds. Each budget submitted by this Administration and previous Administration's for perhaps the last 10 years have proposed to fund the cost of the standardization program through increased user fees. We are strongly opposed to that idea.
The standardization program provides several important functions that benefit everyone in the marketing chain. Those functions include: equipment evaluation, calibration, and maintenance; quality assurance; grain standards reviews and revisions; and the portion of the Board of Appeals and Review associated with the Quality Assurance Program.
Grain standards facilitate efficient grain marketing. As such, FGIS standardization activities benefit producers, country and terminal elevator operators, foreign buyers, processors, equipment manufacturers, exports, commodity exchanges, and American taxpayers. Standardization activities lead to higher returns for farmers, more efficiency in the marketing system, and allow the U.S. system to provide the most diverse array of qualities and classes of grain or oilseeds of any country in the world. All participants in the marketing chain benefit from the standardization program. We do not believe one narrow segment of beneficiaries should be singled-out to pay for the standardization program. The program benefits a broad array of the public and the cost should be borne by public funds.
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Grain Quality Issues. Weak prices often lead to heightened farmer concerns over grain quality. It is important to remember that grain cleanliness is a market issue. History shows that grain quality issues tend to emerge in a cyclical fashion. The cycle peaks when prices are low and exports are low and people are looking for someone to blame.
I often refer to an old speech for perspective on grain quality issues. Mike Sanford had spent a distinguished career with Continental Grain Company before retiring and joining the U.S. (Feed) Grains Council. Mr. Sanford spoke at the Feed Grains Council meeting in 1962 on the issue of foreign complaints over grain quality. He began his speech by saying, ''If there is a formula for dealing with complaints about grain, I have not been in the business long enough to learn it.'' He went on to voice this warning to the staff of the market development group: ''never make the mistake of being an apologist for U.S. grain, or let anyone persuade you to talk about quality without talking about prices, for they are inseparable. The only time we are justified in being apologetic is when our U.S. inspection certificates do not tell the truth about quality.''
Grain quality was a huge issue during the weak farm economy of the mid–1980's. In 1984, several groups came together to form the Grain Quality Workshops as a forum for industry, farm group, government, and academic representatives to meet and discuss quality issues. That group still meets today and provides an excellent venue for the disparate parts of the grain marketing industry to meet and discuss issues of common interest.
Topics from the 1999 meeting, for example, included an update on issues before FGIS, a panel discussion on the grain cleaning issue; potential restriction on grain fumigants; developments in biotechnology; as well as issues specific to oilseeds, feed grains, and wheat.
Biotech Laboratory. We support FGIS's plan to establish a biotech lab that will ''evaluate and verify analytical procedures used to detect and quantify biotechnology traits in grains and oilseeds, and establish sampling procedures for use in testing genetically enhanced grains and oilseeds.''
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Other Matters. We are intrigued with the recommendation from the American Association of Grain Inspection and Weighing Agencies (AAGIWA) that FGIS develop and implement ''a national on-line, at-line certification and billing program.'' AAGIWA explains that each official agency must develop its own system to capture and disseminate the same type of inspection data. We believe there is merit in AAGIWA's suggestion that GIPSA take the lead in developing an electronic system that could include the use of bar codes, electronic signatures, password protection for customer data, and digital interfaces to all electronic laboratory equipment.
In other matters:
We would recommend Congress re-visit the issue of the composition of the agency's advisory committee. Several years ago this provision was changed to decrease the number of industry representatives on the committee. We believe that change was a mistake. Industry users/customers are among the most knowledgeable participants on the advisory committee.
We support FGIS' proposal to provide more flexibility in obtaining samples of export grain. FGIS states that for value enhanced traits, sampling and testing prior to final elevation may be more appropriate. Such tests require additional time, are more complex, and can be more costly than tests performed in a field environment. We agree with the agency and support the recommended change.
Lastly, we support FGIS' proposal to prohibit the disguising the quality of grain as a result of the introduction of non-grain substances and other identified grains. FGIS explains that this prohibition would include the introduction of non-grain substances such as cinnamon, vanilla, and bleach.
In conclusion, TEGMA and the National Grain Trade Council:
(1) Support reauthorization of the U.S. Grain Standards Act.
(2) Urge that cost control continue to be a major priority for FGIS.
(3) Believe that GIPSA standardization costs should be borne by appropriated funds.
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(4) Want you to know that many grain quality issues are constructively addressed by the Grain Quality Workshops.
(5) Support GIPSA's establishment of a biotech laboratory.
One closing thought is that this reauthorization proposal deals with the world as we know it today and with the inspection system as we know it today. Change, though, is taking place in the grain handling and marketing industry at a breath taking pace. It is an exciting time to be part of the industry, but it is also a very demanding time as the industry re-aligns. What all of this tells us is that it would be prudent to leave some flexibility in the statute that allows FGIS and the industry to adapt to a changing marketplace.