[Senate Hearing 106-936]
[From the U.S. Government Publishing Office]
S. Hrg. 106-936
U.S. AGRICULTURE EXPORT PROGRAMS
=======================================================================
HEARING
before the
SUBCOMMITTEE ON PRODUCTION,
AND PRICE COMPETITIVENESS,
OF THE
COMMITTEE ON AGRICULTURE,
NUTRITION, AND FORESTRY
UNITED STATES SENATE
ONE HUNDRED SIXTH CONGRESS
SECOND SESSION
ON
U.S. AGRICULTURE EXPORT PROGRAMS
__________
JULY 18, 2000
__________
Printed for the use of the
Committee on Agriculture, Nutrition, and Forestry
U.S. GOVERNMENT PRINTING OFFICE
70-092 WASHINGTON : 2001
_______________________________________________________________________
For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington, DC
20402
COMMITTEE ON AGRICULTURE, NUTRITION, AND FORESTRY
RICHARD G. LUGAR, Indiana, Chairman
JESSE HELMS, North Carolina TOM HARKIN, Iowa
THAD COCHRAN, Mississippi PATRICK J. LEAHY, Vermont
MITCH McCONNELL, Kentucky KENT CONRAD, North Dakota
PAUL COVERDELL, Georgia THOMAS A. DASCHLE, South Dakota
PAT ROBERTS, Kansas MAX BAUCUS, Montana
PETER G. FITZGERALD, Illinois J. ROBERT KERREY, Nebraska
CHARLES E. GRASSLEY, Iowa TIM JOHNSON, South Dakota
LARRY E. CRAIG, Idaho BLANCHE L. LINCOLN, Arkansas
RICK SANTORUM, Pennsylvania
Keith Luse, Staff Director
David L. Johnson, Chief Counsel
Robert E. Sturm, Chief Clerk
Mark Halverson, Staff Director for the Minority
(ii)
C O N T E N T S
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Page
Hearing:
Tuesday, July 18, 2000, U.S. Agriculture Export Programs......... 1
Appendix:
Tuesday, July 18, 2000........................................... 55
Document(s) submitted for the record:
Tuesday, July 18, 2000........................................... 125
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Tuesday, July 18, 2000
STATEMENTS PRESENTED BY SENATORS
Roberts, Hon. Pat, a U.S. Senator from Kansas, Chairman,
Subcommittee on Production and Price Competitiveness, of the
Committee on Agriculture, Nutrition, and Forestry.............. 1
Kerrey, Hon. J. Robert, a U.S. Senator from Nebraska............. 3
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WITNESSES
PANEL I
Timothy J. Galvin, Administrator, Foreign Agriculture Service,
U.S. Department of Agriculture, Washington, D.C................ 5
Parmer, Hugh, Assitant Administrator, Bureau for Humanitarian
Response, U.S. Agency for International Development,
Washington, DC................................................. 7
Viadero, Roger, Inspector General, U.S. Department of
Agriculture, Washington, DC., accompanied by James R. Ebbitt,
Assistant Inspector General for Audits, U.S. Department of
Agriculture, Washington, DC.................................... 9
PANEL II
Cavanaugh, John, Chairman and CEO, Summit Limited, Omaha,
Nebraska....................................................... 31
Curtis, Marc, Chairman of the Board, American Soybean
Association, Leland, Mississippi............................... 46
Griffith, Bill, U.S. Rice Producers Association, Bolivar County,
Mississippi.................................................... 50
Hamnes, Bruce, National Association of Wheat Growers, Stephen,
Minnesota...................................................... 44
Levinson, Ellen, Government Relations Advisor, Cadwalader,
Wickersham, and Taft, Executive Director, Coalition for Food
Aid, Washington, DC............................................ 33
Molz, Otis H., Chairman of the Board, CoBank, Deerfield, Kansas.. 28
Pine, Roger, Chairman of the Board, National Corn Growers
Association, Lawrence, Kansas.................................. 48
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APPENDIX
Prepared Statements:
Cavanaugh, John.............................................. 89
Curtis, Marc................................................. 111
Galvin, Timothy J............................................ 56
Griffith, Bill............................................... 120
Hames, Bruce................................................. 104
Levinson, Ellen.............................................. 95
Molz, Otis H................................................. 85
Parmer, Hugh................................................. 63
Pine, Roger.................................................. 116
Viadero, Roger............................................... 71
Document(s) submitted for the record:
Position statement submitted by The Coalition to Promote U.S.
Agriculture Exports........................................ 126
Position statement submitted by The USA Rice Federation...... 130
Position statement submitted by, John H. Costello, on behalf
of the Citizens Network for Foreign Affairs................ 134
U.S. AGRICULTURE EXPORT PROGRAMS
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TUESDAY, JULY 18, 2000
U.S. Senate,
Subcommittee on Production and Price Competitiveness, of
the Committee on Agriculture, Nutrition, and Forestry,
Washington, DC.
The Subcommittee met, pursuant to notice, at 2:44 p.m., in
room SR-328A, Russell Senate Office Building, Hon. Pat Roberts,
(Chairman of the Subcommittee,) presiding.
Present or submitting a statement: Senators Roberts and
Kerrey.
OPENING STATEMENT OF HON. PAT ROBERTS, A U.S. SENATOR FROM
KANSAS, CHAIRMAN, SUBCOMMITTEE ON PRODUCTION AND PRICE
COMPETITIVENESS, OF THE COMMITTEE ON AGRICULTURE, NUTRITION,
AND FORESTRY
The Chairman. Good afternoon, and welcome to today's
hearing. This is the Subcommittee on Production and Price
Competitiveness, and we have a hearing today on the export
programs we have available to us within the Department of
Agriculture.
Let me say that by creating jobs and providing very needed
income to rural America, our U.S. agriculture exports will
always be an integral part of a strong national economy. If you
consider that 1 out of every 3-harvested-acres in America is
exported, and over 25-percent of the Nation's farm income is
generated by foreign trade, maintaining a strong and aggressive
trade policy remains one of the Government's most vital roles
for the farming community and for all of our citizens.
I think everyone involved in American agriculture is
interested not only in feeding the people of this country, but
the malnourished and the hungry of the world, and establishing
new markets and hopefully increasing America's agricultural
market share. This hearing should help us examine the current
trade programs and pinpoint our strengths, as well as areas
that would need improvement, as we move into the development of
the new farm bill.
With international discussions underway to ensure free
trade in the world marketplace, the United States has the
weapons in its trade arsenal, if I could refer to it in that
way, that effectively help farmers move commodity surpluses
abroad, meet the international nutrition needs, and develop new
markets without distorting a free trade atmosphere. That is a
tall bill, but it is a bill that we hope that we can
accomplish.
In particular, food aid and credit guarantee programs
remain a cornerstone of our agricultural trade policy.
Unfortunately, these programs have unfairly been subject to
substantial scrutiny in the international arena. We need to
fight to preserve these programs. At the same time, we must
make every effort to ensure these programs do not displace any
commercial sales that would otherwise take place.
As other countries continue to use their export subsidies
and other very questionable trading practices, it is especially
important that the United States effectively utilize the tools
at our disposal, while working to achieve the ultimate goal of
free trade.
As we move into the 21st century and strive to stay
competitive in a changing world market, the credit guarantee
and food aid programs can be better used to be even stronger.
Considerable concerns with the programs still exist in the
areas of monitoring and interagency conflicts, the ever-
present. Bureaucracy, and full implementation. Improvements
should be made.
For example, opening new markets for our Nation's farmers
does little good if the Government is unwilling to use our
credit programs to facilitate a commodity's introduction into
these foreign markets. In addition, the same bureaucratic
hurdles that I mentioned have severely slowed this year's
delivery of food aid to countries in need of relief. This hold-
up is especially counterproductive to our overall trade
objectives because countries that receive food aid will
eventually become trading partners once they are able in terms
of their own economics.
Let me inform the panel and all present I just returned
from Cuba, where I took part in a 10-hour meeting with Fidel
Castro, and probably about a 12-hour meeting with 6-various-
ministers. And I must tell you that many of these concerns, I
think, apply to the situation in regard to Cuba.
I believe that we must achieve real sanctions reform that
will work. However, as far as Cuba is concerned, and to some
degree with the nations of concern that also are affected in
regard to sanctions reform legislation, I must tell you that
our goal should be for a long-term market. But I don't think
that we are going to have any short-term gold mine as far as
sales are concerned.
Simply put, the country of Cuba does not have the cash to
purchase U.S. products. The economy must be allowed to open up
and expand before these commercial sales can take place. As a
matter of fact, in talking to Fidel Castro, we really pressed
very hard to try to see if we could not get what I call a
breakthrough arrangement, a breakthrough sale, to empower the
Cuban people to enable them to have the means to trade with us,
as opposed to the state-owned enterprises, where we always seem
to find the hurdles.
In the interim, we must find ways to provide insurance for
private financing, use our general sales manager [GSM] credits,
and pursue food aid donations. However, I am concerned that the
sanctions language that is proposed in the House--and I am
referring to the nations of concern and Cuba--will tie our
hands in this regard, and I look forward to discussing this
issue with Mr. Galvin, who has had a long and valued experience
in these matters.
In addition, I learned on my trip to Cuba that last year
the European Union made $255 million in agricultural sales to
Cuba under financing programs with 22-percent interest. Cuba
has not and most likely will not repay this principal or
interest. This is, in essence, a $255 million export subsidy
that the European Union is providing to its farmers. I also
look forward to asking Mr. Galvin to comment on how the U.S.
can compete with these kinds of subsidies, and to also discuss
how we can address issues such as these in our World Trade
Organization [WTO] negotiations.
So with those issues in mind, I welcome today's guests.
Because of the magnitude of this issue and its importance to
U.S. agriculture, let me point out that a number of
organizations have expressed a desire to offer testimony before
the Subcommittee. But, unfortunately, time constraints will not
allow us to hear from all the concerned parties, so at this
time I will submit their testimony into the record.
I would like to remind the panelists that your entire
testimony will be submitted for the record, and ask that you
limit your statements to no more than 5-minutes, if that is
possible, so that everybody has ample time to be heard.
We have an outstanding panel in regard to panel number one:
Mr. Timothy J. Galvin, the Administrator of the Foreign
Agricultural Service within the Department of Agriculture. Tim
and I go back a long way; we are sort of bucket-toters in
regard to Capitol Hill experience both on the House side and
the Senate side.
We have Mr. Hugh Parmer, the Assistant Administrator for
the Bureau of Humanitarian Response within the United States
Agency for International Development.
We have Mr. Roger Viadero, the Inspector General of the
Department of Agriculture. Let me say something in regard to
the Inspector General. Back about 4-years ago when we were
trying to basically streamline and save the Food Stamp program
to make it better, Mr. Viadero worked very long and hard on
this issue. He saved the American taxpayer literally billions
of dollars.
His efforts made it possible for us to keep the program, to
eliminate the fraud and abuse. So for the people who receive
food stamps and the people who are involved in the program and
the long-suffering taxpayer, he did an outstanding job. I
wanted to go on record to thank you again for that, Roger, and
welcome you to the panel.
I now turn to my distinguished colleague, the Senator from
Nebraska, for any comments that he would like to make.
STATEMENT OF HON. J. ROBERT KERREY, A U.S. SENATOR FROM
NEBRASKA
Senator Kerrey. Well, thank you very much, Mr. Chairman.
First of all, I welcome the witnesses, and appreciate very much
everybody willing to come, especially Mr. Galvin and John
Cavanaugh, who will testify with a later group of people.
Unfortunately, at least as I look at the appropriations
this year, we have, in my view--though I think the
administration has done a good job in promoting exports, it is
relatively easy for us to take our eye off the ball and to get
distracted and to look for some magical solution to solving our
problems.
It is perfectly legitimate for us to be arguing about this
farm program versus that farm program. I have done a fair
amount of that in the last 12-years that I have been here in
the Senate. But regardless of what kind of farm program we have
got, we have got to continue to work to expand our export
markets, for a whole range of reasons, for humanitarian
reasons, for economic reasons, for reasons of political
stability, especially in Russia that is engaged in the most
important democratic experiment on the planet.
If that experiment is successful, there is no question in
my mind that there will be enormous benefits that will accrue
to the United States as a consequence of that success. So we
have a stake in every single case to successfully transitioning
to a market economy and to a liberal democracy, being able to
successfully figure out the things that the United States has
done to develop productive agriculture, and there is a whole
range of things that we have done.
However, again, I have got to emphasize, Mr. Chairman,
there is a tendency especially, I think, on the congressional
side to forget that we have got to support this export effort.
I know that in our Ag appropriations bill, we have a sufficient
amount of money to prevent further downsizing of the FAS. We
downsized six Foreign Ag Service offices around the world,
including Tokyo, which Nebraskans consider a very prime market
for our beef, and obviously a very, very important part of our
capacity to be able to support about 100,000 jobs in the State
of Nebraska that are involved with beef in one way, shape, or
form.
Ag approps on the Senate side has a $4.2 million increase;
the House has nothing. Ag approps also has, I think, $1.1
billion of emergency spending. I don't know what the Republican
caucus talked about, but one of the things we talked about in
our caucus is some of our guys are already talking about
another ad hoc disaster program, which Bev Paul is morally
opposed to, she tells me, who works for me.
But we could be knocking on the door, Mr. Chairman, of
spending $40 billion direct, and I think we have got to balance
those expenditures with more direct expenditures, trying not
just to promote and to move exports through the export
enhancement program and other export efforts, but through the
P.L. 480 Food for Peace program and other efforts like that.
There are very few situations where we have an intersection
of things that are in our economic interest and our moral
interest and in our interest in trying to promote political
stability throughout the world as there is in the promotion of
good export policies.
So I appreciate very much, Mr. Chairman, your holding these
hearings because I think we have to expand beyond what we are
currently doing our support for export policies, at the same
time that we continue to ask those who are engaged either on
the Government side or on the private sector side, how do we do
this better, how do we do this so that it does reduce worldwide
suffering, how do we do this so it does promote the development
of private sector agriculture, how do we do it so that it does
promote the values and the interests that the United States of
America hopes to be promoting through these policies.
So I look forward to the testimony of the witnesses.
The Chairman. I thank my distinguished colleague. I would
only add that my predecessor in the House used to have a saying
that in western Kansas, similar to western Nebraska, if you
don't sell it, you smell it, and the taxpayer has certainly
done that to a great degree.
It was just about 2-weeks ago I was in the constant
listening that we do to our farmers and ranchers, and he said,
Pat, you know, it is about time we took a gun to a gun fight.
And he was referring to the competition that we have overseas.
I think there is a belief on the part of many in agriculture
that we certainly need to improve, to have an export program
that is more consistent, more aggressive.
I am not trying to question the ability or the record of
any of our panel here, but I think it is obvious what we face.
Let me point out that Mr. Galvin used to work for a Congressman
by the name of Berkley Bedell, and Berkley Bedell and I
attended the first meeting of the export enhancement program,
when we thought it was going to move product, but then it
became sort of a--I am not sure what it became, sort of a
foreign policy, I guess, jump ball, and they had a working
group trying to figure out where we could apply this.
I would also point out the Public Law 480 program, the Food
for Peace program, which has been such an outstanding program
for so many years, was first written by the Honorable Cliff
Hope, who was a Congressman from the 1st District of Kansas,
and we need to build on that.
I thank my friend for his comments.
Let's start with you, Tim. Thank you so much.
STATEMENT OF TIMOTHY J. GALVIN, ADMINISTRATOR, FOREIGN
AGRICULTURAL SERVICE, U.S. DEPARTMENT OF AGRICULTURE,
WASHINGTON, DC.
Mr. Galvin. Thank you, Mr. Chairman, and Senator Kerrey. It
is a real pleasure to be before the Subcommittee this afternoon
to review the export and market development programs for U.S.
agriculture.
I would like to ask that my full statement be made a part
of the record.
The Chairman. Without objection.
Mr. Galvin. After three straight years of decline, we now
expect that U.S. agricultural exports will reach $50 billion
for fiscal year 2000, up $1 billion from last year. While
export values remain below the peak of 1996, demand is
expanding more rapidly than anticipated. In 2000, the world
economy is expected to return to a growth rate rivaling the
high recorded in 1996. So while the forecast is far short of
the $60 billion recorded in 1996, it shows that U.S. exports
are turning around and once again moving in the right
direction.
The fact that export volume actually increased by more than
15-percent last year, even as export value fell, confirms that
one of the major factors suppressing the export outlook has
been the recent string of worldwide production increases for
major commodities. We have now seen four, going on five,
straight years of record or near-record production for grains
and oilseeds, and the result is being felt in our export values
and certainly at the farm gate. A rather strong U.S. dollar has
also hindered our foreign sales, as have economic crises in
Asia, Russia, Brazil, and elsewhere, although they seem to be
abating.
The staff at USDA, including the Foreign Agricultural
Service, has been working hard to bring about and sustain the
current upturn. Through our broad array of export programs,
including the market access program, the foreign market
development programs, the dairy export incentive program, our
food aid and export credit guarantee programs, we have been
very aggressive in using our authorities to increase exports
and help our farmers and ranchers earn a better income from the
marketplace.
To illustrate the extent of our efforts to support U.S.
agricultural exports, I would like to take a few moments to
highlight activities under our export credit guarantee and food
aid programs.
Over the past 2-years, export credit guarantee programs
have supported sales of more than $7 billion in U.S.
agricultural products. For FY 2000 to date, we have announced
the availability of more than $5 billion in export credit
guarantees for sales to countries where lack of credit might
otherwise present a barrier to sales.
Last year, USDA used its food aid programs to move nearly
8-million metric tons of farm surpluses to help relieve hunger
abroad. This was the largest quantity in recent history and it
is in addition to the quantities provided by our friends at
AID. U.S. commodities were shipped to 50 countries, from the
unprecedented assistance package for Russia, to food for Kosovo
refugees, famine victims in Africa and North Korea, and
hurricane victims in Central America and the Caribbean. Once
again this year, USDA will donate significant amounts of food
aid to needy countries, including about 5.4-million-tons-of-
wheat, rice, soybean products, and milk powder, and again this
is in addition to what AID provides.
We are also working to improve long-term opportunities for
our farmers and ranchers. Last year, the President announced
sweeping sanction reforms that open new markets to U.S.
agricultural exports. Despite continuing sanctions on most
other products, American farmers and ranchers are now able to
sell their commodities to Iran, Libya, Sudan, and North Korea.
Already, there have been corn sales to Iran, wheat sales to
Sudan and Libya, and wheat donations to North Korea through the
World Food Program.
During this past year, USDA also helped to reach two major
trade agreements with China. The agreement on U.S.-China
agricultural cooperation resulted in sales of U.S. meat,
citrus, and wheat. USDA also helped negotiate the U.S.-China
WTO accession agreement, which offers major long-term benefits
for U.S. agriculture. We understand that the Senate has a full
agenda, but we are very hopeful that a vote can occur on
granting permanent normal trade relations to China in the
immediate future. This is an opportunity for our farmers and
ranchers that we must not let slip away.
Three weeks ago, the United States presented an ambitious,
comprehensive negotiating proposal for the next round of WTO
agricultural talks. It establishes a blueprint for meeting the
goals we have been talking about for more than a year--
eliminating export subsidies, lowering tariffs and expanding
TRQs, disciplining state trading enterprises, and facilitating
trade in products of new technologies such as biotechnology.
It also seeks to cap trade-distorting domestic support at
an equal, fixed percentage of a country's total value of
agricultural production. If we have heard one thing from U.S.
producers over the past several years, it is that we must level
the playing field by avoiding further across-the-board
percentage cuts that leave our farmers at a disadvantage.
With our new WTO proposal, the U.S. is very much in a
leadership position in Geneva. In the months ahead, we will
continue to work closely with our farmers, ranchers,
processors, Congress, and our private sector advisory
committees to refine our negotiating proposal further. The U.S.
has proposed concluding the negotiations by the end of 2002 and
reaching agreement on the fundamentals of further reform by the
mid-term of the negotiations.
As USDA moves ahead with these efforts, we face many
challenges. For example, we must continue to do more with less,
as resources for administering our export market development
programs have not increased. If the U.S. is going to be
competitive, especially as nations compete for access to
markets opening in China, Vietnam, and elsewhere, we will need
to redouble our efforts.
Mr. Chairman, that concludes my statement and I would be
happy to answer any questions.
[The prepared statement of Mr. Galvin can be found in the
appendix on page 56.]
The Chairman. We thank you, Tim.
Mr. Parmer.
STATEMENT OF HUGH PARMER, ASSISTANT ADMINISTRATOR, BUREAU FOR
HUMANITARIAN RESPONSE, U.S. AGENCY FOR INTERNATIONAL
DEVELOPMENT, WASHINGTON, DC.
Mr. Parmer. Thank you very much, Mr. Chairman, and I also
would like to have my written remarks submitted to the record,
please.
The Chairman. Without objection.
Mr. Parmer. I had a brief prepared oral statement, Mr.
Chairman, but in the course of your statement and Senator
Kerrey's statement, you made the point about food aid leading
to agricultural markets for American products. That was one of
the major points of my oral statement. And then Senator Kerrey
made the point about food aid representing a unique
circumstance where our agricultural economic interests and our
humanitarian ethic meet. And so I am left with very little in
terms of an oral statement.
I would like to take the opportunity, if I could, to put
just briefly a human face for you on food aid as I have seen it
in the 2 \1/2\ years that I have been in this role. One of the
first things I think we all have to recognize is that the bulk
of United States humanitarian assistance around the world is
food assistance. It is the point of the lance of the U.S.
capability in responding to humanitarian disasters, whether
they be man-made or natural.
I remember, Mr. Chairman, when I was in Kosovo the first
time, which was in September of 1998, and I was in a truck
delivering United States food aid to people who had been driven
from their homes by Serbian paramilitary and police forces. We
were way up in the mountains 1-day and I came upon a group of
people. There were 5-little-huts in the village and they were
250 people trying to live there, drinking water out of a
polluted stream.
As I spoke with them through my translator, one of the
people as we handed out some United States food assistance
said--I said, what else do you need? And they said, we need
peace. And I said, well, I can't bring peace; I bring food.
That is a matter for diplomats and perhaps soldiers. And the
gentleman to my left said something and my translator said--I
said, you have to pray for peace. And he said, we will pray for
peace; we will put our faith in God and the United States of
America.
In the mountains of the Dominican Republic during Hurricane
George, by United States Blackhawk helicopters accompanied by
special forces soldiers, we were delivering United States food
aid to people who had been cut off for over a week. And because
we were fearful that people would rush the helicopter in their
need for some sustenance, we had taken the local bishop along
with us, and he and I were out in our shirt sleeves passing out
50-pound-bags that said ``a gift of the people of the United
States.'' An elderly woman as we finished grabbed me by the arm
and said something. Well, I think I speak Spanish, but I did
not understand her, and I turned to the bishop and he said, she
said God bless America.
Finally, I was back in Kosovo after the war with a member
of the United States Congress and we were traveling, again,
looking at the aftermath and we met with a gentleman whose
family was living under a tent. I said, this is really bad,
maybe I could find you a place in town. He said to me, this is
not so bad, we lived in the mountains and we lived on leaves
and grass last winter, but now we are here and we are safe and
we are alive.
And I said, well, are you sure you don't want to go to
town? He said, no, I can't, I would have to leave what you gave
me. And he opened the tent to show me those bags of food that
said ``gift of the people of the United States,'' and he said,
you know, we have enough and we are safe. And I said, and you
are free. And then he cried and I cried, and then the Member of
the United States Congress shed a few tears as well.
So I appreciate the kind words you have said about the Food
for Peace program. I think it is one of the most marvelous
programs that I have an opportunity to administer, in what is
the best job in Government, I think. I think you all know that
we get a little over $800 million of appropriations; we have
for the last few years. Over 70-percent of that is spent right
here in the United States with agricultural producers and
transporters and private voluntary organizations here in the
United States.
This need for food internationally is not going to go down.
The population in these low-income countries, particularly with
the AIDS problem as severe as it is--AIDS strikes generally
those people who are in the most productive age ranges, so
agricultural production, we believe, is going to go down at the
same time that the need for food in these countries and the
ability to pay for that food is going to go up.
I would urge the Congress, and I am very grateful to the
Senate for fully enacting the requested appropriation of $837
million for P.L. 480, Title II. Whatever influence you have
with your colleagues across the way we would be deeply grateful
for as well. That is nowhere near too much food. There are 800-
million-hungry-people in the world. That is a little over a
buck apiece.
So I would say to you we are grateful for the bipartisan
support that Food for Peace has enjoyed. We look forward to
continuing to work with the committee and the Congress. And I
personally want to thank the Senate who confirmed me a few
years ago for an opportunity to serve in what is really the
best job in the U.S. Government.
[The prepared statement of Mr. Parmer can be found in the
appendix on page 63.]
The Chairman Mr. Viadero, and he is ably accompanied by Mr.
James Ebbitt, the Assistant Inspector General for Audit.
STATEMENT OF ROGER C. VIADERO, INSPECTOR GENERAL, U.S.
DEPARTMENT OF AGRICULTURE, WASHINGTON, DC.; ACCOMPANIED BY
JAMES R. EBBITT, ASSISTANT INSPECTOR GENERAL FOR AUDITS, U.S.
DEPARTMENT OF AGRICULTURE, WASHINGTON, DC.
Mr. Viadero. Mr. Chairman and members of the Subcommittee,
I appreciate the opportunity to be here today to testify about
our work on the Department's food aid assistance programs. With
me is James R. Ebbitt, Assistant Inspector General for Audit.
I have a prepared statement, Mr. Chairman, which I would
like to submit for the record and summarize here this
afternoon.
The Chairman. Without objection.
Mr. Viadero. Thank you.
Since 1994, the Office of Inspector General has been
involved in evaluating various aspects of the Department's food
aid assistance programs. We have evaluated and monitored almost
$3 billion in food aid assistance in the newly independent
states of the former Soviet Union; evaluated the Department's
control over private voluntary organizations, or PVOs, in the
Food for Progress program; and investigated several elaborate
schemes to defraud the Department's export programs.
Our reports identified that cooperating sponsors, both
foreign governments and PVOs, did not always comply with their
agreements. Also, the Department needed to better monitor these
programs. I would like to note that the Department has
implemented positive changes in response to many of our audit
recommendations.
Let me first highlight our work on the 1999 Russian food
assistance agreements. In December of 1998, the Governments of
the United States and Russia entered into agreements that
provided over 3-million metric tons of commodities. The
agreements' goals were to provide contributions to the Russian
pension fund and to distribute food directly to the most needy
groups in Russia. From the outset, we monitored FAS' efforts to
minimize the potential misuse of the commodities.
In February 1999, and as a result of our observations in
Russia during May 1999, we made recommendations that included
increasing the size and effectiveness of the on-site monitoring
staff and verifying the financial integrity of private Russian
institutions that would handle monetized proceeds. We believe
that FAS made a significant effort to establish controls and
strengthen its monitoring efforts.
Let me now focus on the Department's actions to address our
concerns. These concerns fall into two categories. First,
cooperating sponsors did not always comply with agreements.
Second, the Department needed to strengthen its management
controls over these programs.
In the first category, we found that cooperating sponsors
did not always comply with their agreements because they did
not file required reports, follow monetization requirements,
and effectively control the commodities they received. In 1994,
we first reported that because reports were not filed, the
Department had no reasonable assurance that more than $99
million in donated commodities were properly used.
In 1994, we also reported that sponsors did not follow
monetization requirements because they abdicated their control
and violated the agreements. In 1994, we first reported that
cooperating sponsors did not effectively control the
commodities they received. As an example, a sponsor's control
did not prevent the unauthorized diversion of almost 2,000
metric tons of donated butter valued at in excess of
$2,800,000.
For one case we investigated in 1995 involving vegetable
oils, the U.S. company defrauded the program by failing to
deliver 4,200,000 pounds of oil and diverting an additional 1
million pounds of product. As a result of this scheme, the
Department was defrauded of over $2 million in vegetable oil.
This case represents one of the largest successful prosecutions
involving Commodity Credit Corporation [CCC], contract fraud.
Effective controls over the monetized proceeds derived from
commodities are also essential--a weakness we reported in 1999.
FAS officials recently informed us that their compliance staff
would begin to monitor the use of monetized proceeds.
As part of the second category of concerns, we found that
management controls needed to be improved. In 1994, we reported
that since effective management controls had not been
instituted, the Department would be unable to recognize when
commodities were at risk. The Department's improvements
included publishing regulations and increasing oversight
visits.
During 1999, we reported that the Department had improved
its monitoring of private voluntary organization activities.
However, we found PVO reports were not timely reviewed. These
reports were held up until the grant close-out reviews were
performed, a process that was significantly backlogged. As of
September of 1998, 130 of 185 agreements for fiscal years 1992
through 1996 were in the process of being closed. In response
to us, the Department developed a plan and time frame to
eliminate this backlog and develop procedures to ensure that
future reviews are timely performed.
Now, what does FAS need to do to look to the future? If the
Department authorizes greater use of monetization of
commodities, we believe that FAS will need to be vigilant in
monitoring that intended recipients receive the commodities and
the monetized proceeds are used for the intended purposes. This
means timely reporting by sponsors and timely review by FAS, as
well as increased on-site presence by FAS where large programs
are operating.
Thank you for your kind comments at the opening of the
hearing, Mr. Chairman. I would also extend an invitation on the
very topic of food stamps, and particularly EBT. We are
presenting testimony tomorrow before Mr. Kasich's committee in
the House, and we would very much appreciate it if you would
like to attend.
Thank you so much.
[The prepared statement of Mr. Viadero can be found in the
appendix on page 71.]
The Chairman. We always had to give Mr. Kasich a Ritalin
pill when he started out. I don't know if you will want to do
that or not, but thank you for your testimony.
I think I will start with Mr. Galvin. Tim, I think you are
aware that I recently visited Cuba, and I appreciated your
advice and your suggestions prior to that with Senator Akaka
and Senator Baucus. I think we have an opportunity. I am not
very sanguine about this. I think long term we can make some
progress, but short term we really have some problems, it seems
to me, some complexities to work out.
But my question is if you take up the complexity of the
situation--I am going to put you on the spot here a little
bit--would adopting the sanction removal language that is being
discussed in the House of Representatives be sufficient to help
our farmers really penetrate this market?
And I will add on my second part of this. Does the
administration prefer the House or Senate version of the Cuban
sanction removal? Do you believe that it is important to retain
the ability to feed the island's population through food aid
programs or help our importers that are working to establish
credit purchase in regard to U.S. commodities with export
credits?
Mr. Galvin. Thank you, Mr. Chairman. I think, given some of
the constraints in the House language, we would find that the
potential trade with Cuba would be very limited indeed. The
prohibitions on government credit, private credit, that sort of
thing, would, I think, vastly limit the potential, especially
given, as you pointed out in your earlier comments, that the
Cuban people themselves don't have much to trade in return. So
their purchasing power is rather limited. In addition, as you
pointed out, we certainly already face some competition in that
country, given the presence of the EU and Canada and others.
With regard to which legislation we prefer, I think the
President has been very clear in his public statements that he
wants to see us trade food and medicine with Cuba, as well as
the other countries that we lifted sanctions against last year.
He has indicated that he prefers the flexibility of the type
offered by Senator Lugar in his earlier bill, and he and Deputy
Treasury Secretary Eizenstat and others have indicated concerns
about restraints on the President's authority in the House and
even the original Senate bill, restraints in terms of the 60-
day notice period before any future sanctions could be imposed,
as well as, again, the limits on credit, and that sort of
thing.
The Chairman. I appreciate your candid answer. This also
applies to the other nations of concern. It not only applies to
Cuba, if you have a major market like Iran where you are trying
to achieve a breakthrough. And I know the administration is
trying to do this on a case-by-case basis. I get calls about
every week from Secretary Eizenstat and others within the State
Department indicating some progress.
It seems to me that if that bill would pass, we would take
about one step forward in regard to, I guess, public attention,
but maybe five steps back in our ability to actually make some
progress. That is an editorial comment on my part.
We have a lot of low commodity prices. We have come through
some very depressed times in our markets. There is a concern
that the large food aid shipments are displacing potential
commercial markets. What effect has the food aid program had on
world commodity prices, and what efforts does the USDA take in
approving the food aid programs so that you do not displace the
domestic markets or disrupt any free trade in the world
marketplace?
Mr. Galvin. We think there has been minimal impact in terms
of displacement and a depressing effect on world prices. In
fact, one of the reasons that it takes so long in some cases to
provide this food aid and do the agreements that we have to
reach with each of the 50-recipient-countries is that we have
to go into each one of those countries each year and do an
assessment of their own production, their own consumption, and
then estimate what their commercial purchases might be absent
any sort of food aid.
So we have to go in and do a careful assessment and
determine the so-called usual marketing requirements, and on
that basis make a judgment as to how much food aid we could put
in there without displacing commercial sales, without
destroying the local incentive to produce, and that sort of
thing. So we believe that we are very careful, and again this
is one of the things that results in this taking a bit more
time than we always want to see happen.
Senator Kerrey. Could I just follow up on that line of
questioning? The Chairman invited me to do this.
You have raised a subject, it seems to me, that is critical
to examine, and that is aid can have a negative impact. We see
it here in the United States. I mean, there are all kinds of
examples. The most recent one is we are urging USDA to allow
haying and grazing on CRP land, and my alfalfa guys are nervous
that, that could crop the market for alfalfa, which is not a
program crop. So we see it all the time, and that is one
concern, provide a subsidized sale into a Nation as a
consequence of humanitarian concern that could hurt the market
price for products in that country, decrease the profit for
established growers and processors, and actually produce
economic dislocation as a consequence. That is concern number
one.
Concern number two, which is an even larger one in some
ways especially for emerging democracies and emerging market
economies like Russia, where there is an argument going on
inside the nation--the argument is the Government does it best,
rather than having the market do it, so that the second concern
is the assistance reinforces and strengthens preexisting
government agencies as opposed to reinforcing and strengthening
emerging individuals who are trying to survive in the
marketplace.
How do you assess that, and do you think that we have
mechanisms in place that enable us to direct the aid in a
fashion that increases the chances that the private sector in
those nations will continue to strengthen and grow?
Mr. Galvin. Well, it is a real balancing of interests, and
sometimes that is very difficult. I believe the Subcommittee
has a copy of the chart that we passed out showing how we
really ramped up food aid from 1998 to 1999. A big part of that
increase is represented by the food aid to Russia, which was a
bit over 3-million-metric-tons in 1999. We had to make a
judgment that much of it should go to the Government in the
sense that they were best equipped to see that was distributed
to the people in need.
The Chairman. Can I challenge that, though?
Mr. Galvin. Yes.
The Chairman. Were they best equipped? Didn't they have a
conflict of interest, in that they would prefer that the
Government agencies stay strong relative to the private sector?
Mr. Galvin. That is right, they do, and we would like to
see more of it go to the private sector, more of it monetized.
But as Mr. Viadero pointed out in his statement, when you go to
monetize a commodity or to provide it to all these different
private sector interests that have good ideas that are trying
to change things, that just means that you are dealing with a
whole lot more folks, and it takes a much larger administrative
capability than we currently have to make sure it is done
right.
The Chairman. In fact, let me tie into what Mr. Viadero was
saying. It seems to me that one of the things we have to be
careful of doing is that in discovering evidence of fraud in
transactions in the private sector, we don't want those
fraudulent transactions, or shouldn't let those private
transactions that are fraudulent spook us into doing more
business with governments that might not look like they are
fraudulent, but in fact might be just as fraudulent as what is
going on in the private sector, especially in terms of the
desire, it seems to me, that we ought to have on our part
especially in Russia, but I would say everywhere. We ought to
be trying to promote stable private sector economies, as
opposed to stable government economies which are never very
stable.
Mr. Galvin. We most certainly want to do that.
The Chairman. As we send Mr. Viadero out to do his good IG
work, which we need to do because the taxpayers are concerned
about how the money is being spent, do we have to be careful
not to overreact to instances of private sector fraud and alter
our policies in a fashion that may make it difficult for the
private sector in those countries to develop?
Mr. Galvin. I understand. All I can say is that it is an
extreme challenge in the case of operating in Russia. That was
why a decision was made last year that a lot of the proceeds
that would follow from monetization would go into the Russian
pension fund as opposed to being put in different sorts of
agricultural development accounts, that sort of thing, just
because of the concern about fraud and misuse. But we continue
to be engaged with Russia, looking for opportunities to support
the reform that is occurring there. Under Secretary Schumacher
was in Russia on that point just about 10-days ago.
The Chairman. Well, I would observe that just taking
Russia, but I would do it with all countries, I would set some
sort of objective goals that say, okay, here is the percent of
the agricultural economy in Russia that is handled by the
Government and here is how much of it we have in the private
sector, and we have a goal of increasing the percentage of
private sector agriculture, both production and processing,
from whatever it is today to a higher number in 10-years or 5-
years, or whatever the number is.
It puts some sort of benchmark out there to determine
whether or not--and it is USAID as well, and it can be P.L.
480, it can be Commerce Department programs. It seems to me
that we ought to set some objective goals of increasing private
sector activity because if we don't set those goals, we will
never know whether or not we are achieving any progress.
Mr. Galvin. Well, I can tell you that is certainly our
objective in a number of countries, to try to encourage reform
where we can, given the limits on our capabilities.
The Chairman. It is those limits that I think are
important, Tim. We don't want to ask for more reports from you,
but I would hope that in your budget recommendations--and, of
course, I know we are at a crossroads in regard to budget
recommendations with the election coming up and a new
administration coming on. But we will still be here. Well, I
will still be here, at any rate, and you will in spirit, I
know.
Senator Kerrey. No, I won't.
[Laughter.]
The Chairman. Well, we will remember you. That is for sure.
We are going to wrestle with this thing, and all the way
through this you have been indicating ``with the personnel we
have, with the resources we have.'' I have a lot of questions
here for the Inspector General involving some things that I
think are just incredible, and basically it is the lack of
personnel, lack of funds, lack of adequate resources.
It seems to me that if we are going to do the job, we at
least ought to have--I am not saying it is a laundry list or a
wish list, but we have to become much more aggressive. And so
any help you could give us along those lines would be
appreciated by the Subcommittee, and I know you will.
I know you mentioned Secretary Schumacher's trip to Russia,
and I think he just returned about a month ago. Was that
basically to oversee the shipments of food aid, or is there a
possibility of additional shipments? I know that the Russian
crop--they have a shortfall.
Mr. Galvin. He was there primarily to see how our current
food aid effort is going, and he was pleased to note that we
are ahead of schedule in terms of these payments into the
pension fund that I mentioned. So we believe that things are
going well. But he was also there to assess as best we could
current needs in Russia, and I think he has talked about the
obvious need for more feed grains and soybean meal if they hope
to sustain, much less rebuild their livestock industry.
The Chairman. Mr. Parmer indicated that USDA reported that
800-million-people in the world are food-insecure. Boy, there
is a PC word. They are hungry. Food-secure. Who the heck put
that together? That is not my staff. Somebody must have written
that.
Each night, 300-million-children go to bed hungry. That
puts it in stark numbers. Those numbers come from the Economic
Research Service, and they publish a report on the world's food
security each year. I think every member of the Senate and the
House are in agreement this is a global problem. It can't be
ignored. However, the FAS Deputy Administrator of Export
Credits, Mary Chambliss, characterized this year's food aid
program best at the Food Aid Forum just last month when she
said one word summarized this year's program--late.
My question is, if we all recognize the severity of the
hunger situation and the understanding of the problem, why on
Earth did it take over 6-months, after the beginning of this
fiscal year, for the Department to announce the particulars of
the food aid program? What role did interagency interaction
play in this delay? What steps were taken to ensure that those
nations in most need were not left without food while they were
awaiting a decision, and what steps are being taken to make
sure that such delays do not occur again next year?
Tim, you knew we were going to ask the question, so if you
would like to respond, we would be happy to have you.
Mr. Galvin. Well, as you point out, there is an interagency
process involved in making these decisions. Mr. Schumacher does
chair the Interagency Food Aid Advisory panel that looks at all
the recommendations in terms of allocations by country and that
sort of thing. But in the end, what is agreed to is a consensus
sort of view, and other agencies certainly have an opinion in
that.
All I can say is, yes, it does take a lot of time,
including the kind of time I mentioned earlier to do these
needs assessments in each country so that we can assure that
the amount of food that is programmed is appropriate. But we
are always looking for suggestions on how to improve the
process. It certainly isn't perfect and we are open to
recommendations.
The Chairman. That might even be the topic of a separate
hearing. I am reminded of Mr. Parmer's personal experience over
and over again. I had the same experience in Kosovo. Senator
Kerrey has been involved in this, where you look people in the
eye and it is a little tough to explain that to somebody who is
going through a real problem in terms of the delay.
I sent a letter to President Clinton, along with the
distinguished Chairman of the full committee, in regard to the
Iranian market. In the past year, it seems to me that America
sent 600,000-tons-of-corn, worth about $60 million, to Iran. We
can certainly sell more to this important market.
I make a speech in farm country that Iran purchased 6-
million-metric-tons--that is about half of the Nebraska wheat
crop and one-third of the Kansas wheat crop--from our
competitors. And we have tried very hard to use agriculture
basically as a tool for peace, a tool for better understanding
between our two countries. We know we have some other problems
with Iran. 1.7-tons-of-wheat from Canada, worth about $200
million--a member of my staff just came back from Canada and
learned that Iran will most likely be Canada's number one
customer again this year.
I think it can be a very large market, especially for
wheat, but we can't compete without some kind of foreign
assistance. I would call it a subsidy or an investment. We need
the tools at our disposal. The GSM program is not available to
Iran. I talk to Secretary Eizenstat about every 2-weeks about
this, and here again we are on a case-by-case basis, and I
encourage that. I don't want to put in statute what is in the
House language in regard to sanctions reform and say you can't
use these. Then you have got 535 people horsing around with
this in terms of trying to get an answer.
The exporter today is in a swamp, or what I call export
purgatory, to try to figure out where the heck we are. But we
have this working group, and I would tell Senator Kerrey that
about every second foggy night at Foggy Bottom I am trying to
figure out where the working group is and will they allow the
sale. Well, we are allowing pistachios and rugs to come into
this country, and perhaps we can allow a sale and we are not
quite sure with GSM yet, but maybe. And then, of course, a lot
of that depends on the category of the country in regard to
state terrorism and some of our national security concerns.
I am not asking a question, I am making a speech, but
basically does the Department have any plan to expand the
export credit program's use around the world? You announced 18-
months ago that we were going to eliminate food and medicine
from the sanctions. We are doing it on a case-by-case basis,
but it is pretty slow. So, you know, can you give me an update?
Mr. Galvin. Well, there are no current plans to allow GSM
financing in those formerly sanctioned countries.
The Chairman. Nations of concern.
Mr. Galvin. Nations of concern.
The Chairman. We don't call them rogue nations anymore;
they are nations of concern.
Mr. Galvin. That is right, and that is not simply a
departmental decision. That is an administration position.
The Chairman. Well, shucks.
[Laughter.]
We are just going to have to have meaningful dialogue there
as best we can.
Let me just follow on. The next question is if, in fact,
our competitors are doing that, and they are--France, the
European Union, Canada, Australia making those sales to those
countries--it follows with the rhetoric that the President has
made in regard to sanctions. What is the obstacle here? What
can we do to push that on over?
Mr. Galvin. Well, I think there are concerns that somehow
this financing will directly benefit the Governments of these
countries.
The Chairman. It can only be used for food. I mean, you
can't monetize it for something else. That is what the programs
are for. We have designed those programs like that. That is
what they are for.
Mr. Galvin. I understand. I am just trying to convey what
some of the concerns are.
The Chairman. What can we do to compete with the unfair
subsidies that the other countries are using to facilitate
their Ag exports? Are our current policies and programs
sufficient? That is a big-ticket item. You have been in this
business a long time. There are a lot of complexities out
there--nations of concern, the Cuba situation, the WTO. We have
the GMO issue, we have almost every other issue I can think
of--the value of the dollar, record crops, all sorts of things.
Have you come up with any ideas, Tim, as to an improvement
with the current programs that could tailor into what I
consider to be an unfair advantage by our competitors?
Mr. Galvin. Well, as I have pointed out, we are using GSM
and food aid programs essentially at record levels, and
certainly using the Section 416 program at virtually
unprecedented levels. It was a big boost to wheat, for example,
in 1999. If you again look at the chart, the big red bar there
is about 6-million-tons-of-wheat that we programmed under food
aid last year.
We have some, I would call them rather minor
recommendations for improving the operation of the 416 program
and some of our other authorities. We provided that to the
House at their hearing 3-weeks ago and we would be glad to
provide those same recommendations to the Subcommittee if you
would like.
The Chairman. I have a great suggestion for you. You are
going to like this, okay? I know the announcements are very
difficult if you consider that the 416 program is dependent on
the surpluses within the CCC, and the Department must wait for
the final harvest numbers before any surplus projections are
made.
Let me tell you that last year researchers at Kansas State
University, home of the ever-optimistic and fighting Wildcats,
developed a remote sensing model, and it was 95-percent
accurate in predicting the Iowa corn harvest by 2-months in
advance of the actual harvest, even better than Senator
Grassley. The Department of Agriculture did not get their final
numbers until after harvest.
Why couldn't you be better able to use technology like
remote sensing to help speed up the process of determining the
particulars of the Section 416 program?
Mr. Galvin. Honestly, I don't feel that is a limitation on
our operations right now. We clearly have plenty of
commodities. We know that there is quite a bit more on the way.
That is not the real constraint right now.
The Chairman. Yes, but the announcements are made late in
part because you have got to wait on those numbers. Is that not
correct?
Mr. Galvin. Well, I think the delay is more the result of
the interagency process.
The Chairman. Well, you know we are going to have surplus.
Mr. Galvin. There is no question.
The Chairman. Look at the corn carryover that we have got
and the wheat carryover we have got. I mean, you know that is
going to be the case.
Mr. Galvin. Right.
The Chairman. You have as much commodity as you want to use
in any of the program crops.
Mr. Galvin. Right, but I think the bigger problem is the
fact that it takes a while to get a decision out of the
interagency process, as you pointed out and as everybody
understands. And even once that happens, then, and it comes
back to FAS simply to administer the decisions made, we frankly
face a situation where our budget has been frozen for 3-years
now.
And I know I just sound like a bureaucrat asking for more
staff and more resources, but it is a fact that our agency
appropriation has been frozen for 3-years now. As a result, we
have lost staff. We have people operating with Pentium 90s that
crash two and three times a day as they are trying to program
all this data and get these agreements out the door, and it is
just a real limitation on our----
The Chairman. It is a real problem, and I think we should
do something about that. I think we are penny-wise and pound-
foolish.
Senator Kerrey. Let me follow on that. First of all, do you
have suggestions on the interagency process? Do you think you
are willing to share with us how to expedite that process? Do
we need to consider, for example, changes in the law that would
give FAS more authority, that would specify that we want the
process to occur in ``x'' number of days? We are doing that all
the time with export of technology products that are getting
slower and slower and slower. We set a time limit on the
process itself.
Mr. Galvin. I might simply point out that I believe
Congresswoman Kaptur is looking at just that sort of thing in
the House and has a proposal along those lines.
Senator Kerrey. So your answer would be, yes, that you have
some ideas on how to expedite the process? I mean, is it
uncomfortable for you to make those suggestions?
Mr. Galvin. I can't speak on behalf of the administration
on that point here today.
Senator Kerrey. So we could go to the Old Ebbitt Grill and
have a couple of beers and you would tell me what you think
ought to be done?
[Laughter.]
Is that a yes?
[Laughter.]
On the budget thing, Tim, simultaneous with the freezing of
the budget over the last 3-years, although, as I said, the
Senate Ag appropriations has some additional resources for
FAS----
The Chairman. Yes, we have better numbers.
Senator Kerrey. Simultaneous with that, what we are hearing
from the private sector--and by the way, we will see votes just
breeze through the Senate for ad hoc disaster assistance,
another $6 billion for emergency this, emergency that. There is
no trouble getting enough votes to do that.
The Chairman. It sounds like you have been at the Old
Ebbitt Grill here lately.
Senator Kerrey. And we will get tied up in knots and have
very close votes on market access promotion for $90 million.
The Chairman. That is true.
Senator Kerrey. I think the Congress really has to come to
terms with this schizophrenia that it has got over agriculture
programs and understand that no matter what you do, no matter
how you slice this thing, I think relative to what we ought to
be doing, we are spending too little to promote our exports. We
just aren't doing it. You can't just put words in the air about
it. We have got to actually do it, and if you don't do it, you
are going to lose the market share. The markets get more and
more and more competitive.
One of the things that I hear is that we spend this money
to open the market itself, although, again, to be clear, I
think it is less than we ought to be doing. We could give more
resources to the IG to make sure we are not wasting that money.
Mr. Viadero. We would gratefully accept them, Senator.
Senator Kerrey. But at some point, you know, you have got
to put the money on the table to promote the market because it
creates jobs in the United States. But at the same time that we
are doing that, what I am hearing is either our own Government
or increasingly foreign governments are putting new
requirements on the exporters for labeling, for product
registration, for certification, new national standards that
are being put up.
The companies are saying is FAS prepared to help us with
this? And the answer has got to be no, because I hear you
saying you have got to do more with less and you just can't do
it. So it seems to me there is an urgency here to stop this
game of starving FAS, on the one hand. On the other hand, the
next statement we make, we kick you in the rear end for not
doing more. I mean, you can't have it both ways.
Again, this Ag appropriations bill is going to be a great
example. We are going to have $1.1 billion of emergency
assistance on that thing, while we are struggling to get
another couple hundred million dollars for FAS. It is nuts. I
mean, the priorities are wrong. I don't know whether it ought
to be $10 or $20 million, or whatever the dollar amount ought
to be, but something is out of whack here because to hear us
talk, you would think we had doubled our bet on export
promotion. To hear both Republicans and Democrats talk when it
comes to agriculture, you look at the budget numbers and you
think we would double it up, that we are just awash with cash.
But we are not, just the opposite.
Is that your experience? I mean, do you listen to us talk
and sort of scratch your head and wonder whether or not we know
what the hell we are talking about?
The Chairman. We will hold you harmless on that.
Mr. Galvin. Thank you.
The Chairman. Or you can take the Fifth.
Senator Kerrey. Or do you just scratch your head and wonder
if I know what the hell I am talking about?
The Chairman. You can take the Fifth Amendment, Tim, if you
would like.
Senator Kerrey. If we are going to hold on to market share
and get more market share both in the raw products and I would
say in the value-added--I mean, if you want to have a higher
standard of living in the United States of America, it is the
value-added you have got to follow, and we are just barely in
the game in the value-added.
Mr. Galvin. If you look at some of our major program tools
in this area, the cooperator program, for example, has been
frozen at $30 million basically for 10-years now. The MAP
program is now down to $90 million; it used to be better than
$200 million. This is what really moves the high-value
products. It is an area where our competitors are clearly
spending more, both by their governments as well as by their
private sector.
The Chairman. Let me interrupt you and just say we had to
change the name to get the $90 million.
Mr. Galvin. Right, I understand, yes.
Senator Kerrey. So, anyway, your answer would be yes? I
mean, your answer would be that you think that we are not
spending enough money to promote exports in the United States
of America, things that are either grown here or processed here
in the United States?
Mr. Galvin. I would point out that one of the
recommendations from the administration in the last couple of
years has been to allow us to use unused EEP balances each year
for some of these other activities from food aid to other
things.
The Chairman. Would you say that if a company expects to
get assistance from FAS to do some of the certification work,
the registration work, the forms that are going to be required
for labeling and national standards--if they expect the FAS to
do it with the current budget instructions, that is an
unreasonable expectation?
Mr. Galvin. Well, we are going to try very hard just as we
do right now on the biotech front, on problems with new
pesticide standards in Taiwan. And I could go on and name item
after item after item. We are still going to continue to try,
but I think we could do better if we had more resources.
Senator Kerrey. But did I detect earlier in your testimony
as well that you talked about the negotiations that are going
on in OECD and in the Uruguay Round and that you believe that
the WTO is a vehicle that the United States of America should
use to----
The Chairman. Here, just read my question.
Senator Kerrey. In your testimony, you briefly touched on--
I can't do it, I can't do it. It is a Kansas dialect.
[Laughter.]
The Chairman. It is not written in red.
Senator Kerrey. Do you think that strengthening the WTO
and/or reforming the WTO, or however you want to describe it,
is something that this Congress ought to put high on our agenda
as we try to figure out how to promote exports and increase
jobs here in the United States?
Mr. Galvin. I would say we have been very pleased to get
the strong bipartisan support that we have received from
Congress on this issue. A whole lot of people lined up to
endorse the proposal that we tabled in Geneva a couple of weeks
ago, and I think it was understood by the other countries there
that the proposal has strong bipartisan backing back home, and
that sent a very strong signal. So I think Congress is right to
place a priority there and I think that message has been sent.
The Chairman. Why are those talks stalled so much? Why are
they stalled so much? Actually, that is what I wanted you to
ask.
Mr. Galvin. Well, I think agriculture has always been a
contentious part of these sort of talks, but we are pleased
that now we have sort of got things going again in agriculture,
in part, because agriculture and services were part of the
built-in agenda. But I do feel like the proposal that we laid
down here a couple of weeks ago is really going to breathe some
new life into the process.
I think it is also understood, however, that we are only
going to be able to get so far just on agriculture before we
really have to launch a broad round that affects other subjects
like industrial sectors and that sort of thing.
The Chairman. I know you are not going to do this, but this
has happened time and time and time again where agriculture
ends up being the caboose because it too damn difficult to do.
And you cannot do that or we will have another tear gas round
in Seattle.
Mr. Parmer, I am going to ask you a similar question to the
one I asked Mr. Galvin in regard to Cuba. Would the sanction
removal language being discussed by the House enable you to
meet the hunger needs on the island through food aid?
Mr. Parmer. Well, first of all, Mr. Chairman, as I am sure
you know, the P.L. 480, Title II, emergency program, the
humanitarian program, contains ``notwithstanding'' language. If
there were, for example, a major hurricane that struck Cuba
and----
The Chairman. Well, they are suffering from drought right
now, and on the east side of Cuba the lines are growing longer
and longer. You have the families standing in line for an hour
or two to get the milk ration, and it is getting worse.
Mr. Parmer. If that situation were to reach the point where
it constituted an immediate humanitarian crisis, I believe that
under the existing law we could, in fact, provide humanitarian
assistance to Cuba.
When I first came here in the spring of 1998, the drought
situation in Cuba was very bad, and I can tell you that we had
under active consideration a Food for Peace emergency response
to deal with that drought. And you may recall that somewhere in
that period, Premier Castro announced that he would not accept
any humanitarian assistance from the United States. So I think
that from an emergency point of view, we really don't need any
authority other than what we have right now to deal with
humanitarian crises.
The Chairman. OK, but now the question I had was--and I am
not clear on this. Of course, I think the reason I am not clear
is because we haven't seen the final language of the compromise
that is being shaped in the House. But I am not sure that under
the House language, you would be permitted to do what you have
said.
Mr. Parmer. Senator, because of our belief, at any rate,
that sanctions do not apply to humanitarian response, the
language in our legislation says ``notwithstanding any other
provision of law or rule or regulation.''
The Chairman. We will have to check on that because I think
that is very important. Let me also point out that in my
discussions with Fidel Castro, I think it is obvious that he
does not want the blockade lifted because it gives him a very
good excuse as to why his failed policies are not working. And
he certainly doesn't want to become dependent on the U.S. for
his food supply, and it puts his whole perception of the
revolution in a very bad light if he has to accept that kind of
relief. Now, those are big-time hurdles, so I wanted to get
that out.
In April, you moved under the umbrella of the State
Department. How has this marriage worked out?
Mr. Parmer. Well, it is an interesting one to observe
because it was a compromise that resulted from a lot of
negotiations. What happened was that USAID remained an
independent agency, but our administrator is subject to the
authority of the Secretary of State.
So the way that has developed, Mr. Chairman, is that
clearly, if the Secretary of State gives an order to the
Administrator of USAID and he passes that down the chain of
command, that is an order that will be obeyed. Conversely,
however, if an assistant secretary of State for, let's say,
Africa, to use that as an example--they have no line authority
to compel or to make orders within the Africa Bureau of USAID.
I would say so far it seems to be working rather well, and I
think it has increased coordination between State and USAID.
The Chairman. Well, let me raise just a Hobson's choice.
Every administration has a foreign policy agenda, every
administration has target countries. How do you make sure that
the assistance programs are based or targeted on the
humanitarian need if, in fact, there was some kind of a--or
that wouldn't be just based simply on whatever administration
was in power in terms of their foreign policy agenda?
Mr. Parmer. It is an inherent conflict and it is not
entirely resolved by the present system. And I am not sure that
there is not something healthy about that. I think that there
ought to be a certain personal view, not total independence
from your country's foreign policy, obviously, but a certain
level of independence within the administration so there is a
strong voice advocating humanitarian perspectives to counter-
balance sometimes.
The Chairman. Here is the example that I would give. We
have spent a great deal of time in the Balkans. I am not going
to go into that in terms of that whole debate. We also have
360-million-people in what I call the Southern Command, or what
Marine General Charles Wilhelm calls his Southern Command, 31
nations in the Southern Hemisphere, average age about 15, 16-
years old, most of them malnourished.
Now, in terms of our foreign policy and what affects our
daily lives and pocketbooks and how much energy we get from
Venezuela, Mexico, etc., etc., immigration, sitting right next
door, a lot of resources have been taken more especially within
the Department of Defense, but also in regard to the USDA, from
that area and focused on the Balkans. I have some problems with
that, and you folks could certainly indicate in terms of the
targeting and the criteria where it is most needed. That is
sort of where I am driving at.
Mr. Parmer. I think that your question may have more
relevance as it relates to overall USAID, the development end,
as opposed to the humanitarian response end that I am in. We
respond to humanitarian crises wherever they are--North Korea,
for example, Afghanistan. I may be reflecting back a little on
your earlier question, but we don't make our priorities based
on what the State Department tells us. Our priorities for the
delivery of humanitarian assistance are determined by our
assessment of where the humanitarian need is greatest.
The Chairman. That is the answer I am looking for, that is
precisely the answer I am looking for.
We have got a $67 million funding discrepancy for commodity
donations between the House and Senate version of the Ag
appropriations bill. We have the Ag bill up this afternoon. How
would such a decrease from the administration's request in
fiscal year 2000 affect your ability to meet the hunger needs?
There is a softball for you.
Mr. Parmer. I think I talked earlier about the number of
hungry people in the world. And, you know, a dollar apiece is
certainly not an adequate amount of money for the United States
to believe that it is going to deal with the hunger issues that
we face around the world.
Cutting from that level, quite frankly, I think, would
cause us to try and make priority decisions we don't want to
make. Is a hungry kid in East Timor a little less important
that is programmed for food currently than a hungry kid in
Ethiopia. Those are not decisions that we want to make, and
again I commend the Senate for the level of support, your
support for the administration's recommendation. And I am very
hopeful that when the process is all over, we won't have to
establish those kinds of terrible priorities.
The Chairman. Are there too many agencies involved in the
food aid program and too many agencies involved in the decision
making process for food aid allocations?
Mr. Parmer. We work awfully well with the folks at the
Department of Agriculture and it is a very symbiotic
relationship. We couldn't have met the needs that existed in
the world in the last 2-years if it hadn't been for our friends
at USDA and the availability of 416(b). That is something that
Congress needs to look at on a longer-term basis.
One of the reasons that you have delays, as you mentioned
earlier, Mr. Chairman, is because when you are dealing with a
commodities surplus mechanism as a primary mechanism for
humanitarian response, you really can't make long-range plans
because you do have to have a knowledge of what those surpluses
are going to be. And I think in the future, from what these
folks tell us it looks to us like there are adequate surpluses
in the immediate future, but look 5-years down the road. With
P.L. 480, Title II, we know what we have, we know what is
available. We can program it, we can direct it, and we can be
ready to respond to crises like the almost famine in the Horn
of Africa.
The Chairman. Who makes the decision on what commodities
are chosen, and what part does OMB play in that?
Mr. Parmer. I am not aware of OMB playing a part in the
selection of the commodities. I would let my friends from
Agriculture correct me if that at any time becomes the case.
But generally speaking, we respond to requests from the World
Food Program and from non-governmental organizations.
Food for Peace does only limited government-to-government
food, and so essentially what we do is we look at the requests
that come in from either the international organization, World
Food Program, or from the NGOs, and from that we determine the
mix of commodities that are needed. And we communicate those
needs to the Department of Agriculture, who again does our
purchasing for us.
The Chairman. In your opinion, what changes need to be made
to the food aid program? If you could just name one or two to
make it more effective, what would you do?
Mr. Parmer. Well, I want to join Tim in not wanting to
sound like a bureaucrat, but the truth of the matter is we
administer at Food for Peace an $800 million-plus program with
28 Government employees. We don't have the resources to really
handle the level of program we have today without people
working evenings and weekends. And there is nothing wrong with
that in the short term and when you have a crisis, but it is a
regular pattern of life at USAID's Food for Peace office.
There is a proposal, I understand, in the House that would
allow us to use some P.L. 480, Title II, funding for program
administrative costs to hire personal service contractors to
supplement the activity. I very strongly recommend the Congress
favorably consider that. Food for Peace folks are good people
and hard-working people, and they are overworked.
The Chairman. One of the more surreal experiences I had in
my life is when I was able to go to North Korea with Senator
Stevens. We were trying to arrange a third-party grange sale at
that particular time in our efforts to open doors with North
Korea, or at least have a dialogue. It didn't work. Now, the
situation hopefully has improved rather dramatically with the
negotiations with the South Koreans and the North Koreans.
The USDA recently announced a food aid donation to North
Korea. This is repeat question; you may not know the answer. If
the sanctions language proposed by the House is enacted, would
you be able to make a similar donation to North Korea in the
future?
Mr. Parmer. Again, Senator, since we have operated under
the presumption, and our legal people haven't brought to us a
concern about the language affecting our ``notwithstanding''
authority, I'm sorry I probably don't have a precise answer.
But I will get one not only because you asked for it, but
because the raising of the question concerns me.
The Chairman. I wanted to just very briefly go back to the
OMB role and the role they play in the food aid program, in
general. Is it simply oversight or do they make decisions on
recipient nations? In other words, you make a decision as to
where it goes, what commodity, etc., etc. I have just had a
feeling down through the years, both Republican and Democrat
administrations, that depending on which Senator or Congressman
calls and the budget numbers and what happens to be deficient
in terms of price in that particular area that we get decisions
that may or may not be very wise.
Mr. Parmer. Mr. Chairman, OMB has no input into the
selection of countries for the Title II Food for Peace program.
The Chairman. Can they overrule USDA and USAID on the
recommendations?
Mr. Parmer. I don't know about their legal capabilities.
The Chairman. Of course, they can overrule damn near
anything, come to think of it.
Mr. Parmer. That has never happened in the 2 \1/2\ years I
have been there.
The Chairman. I appreciate that. I have no further
questions, Mr. Parmer.
Do you want to ask Mr. Parmer questions?
Senator Kerrey. Mr. Viadero, in the P.L. 480 program, under
Title I authorities, the United States Department of
Agriculture can grant credit assistance, 30-years with
extensions, to governments or private sector entities, and it
has traditionally been used for government assistance.
In 1999, I don't know what it was. Was it 1.7-million-
metric-tons or some such number like that? After the 1998
collapse, we had a big shipment to Russia, and I think it has
only been used--in fact, in later testimony Mr. Cavanaugh
points this out, that it has been used once for providing
assistance to private sector entities that are looking for
credit assistance to make a purchase from the United States of
America.
And given my belief that it is in our interest to promote
the development of the private sector not just in Russia but
elsewhere, are you able to assist USDA, Mr. Viadero, ahead of
time, before there is fraud, in coming up with procedures under
which they might be able to minimize fraud?
There is a lot of uncertainty, to put it mildly, inside of
Russia and in the private sector, and the risk of fraud may
deter--you may not think this, but people are afraid of you,
and they are afraid the IG is going to come in and examine them
and say, you have just done something horrible and there is
going to be a big hearing, and so forth. So they may be
reluctant to do something that might make sense just because
they are not certain they can do it and adequately minimize the
opportunity for fraud in the transaction.
Are you able to provide assistance to USDA in making
certain that we peremptorily minimize that opportunity?
Mr. Viadero. I thank both of you gentlemen for having this
hearing, if nothing else for this opportunity to answer this
very question. We are just flat out of money.
Senator Kerrey. Oh, gee, not you, too.
[Laughter.]
Senator Kerrey. Has anybody in this room got plenty of
money?
[Laughter.]
Mr. Viadero. We are pooling our resources for a Metro
ticket back to the building from here.
This is my sixth year as Inspector General and we have been
zero--I shouldn't say zero. We have been flat-lined; we have
zero budget increase in 6-years, zero budget increases in 6-
years. I have a 24-percent reduction in staff.
Do we think we can forestall this or get ahead of the
curve, take a proactive approach? I guarantee we can. I will
put it in writing to you that we can. Do we bring in
exponentially more? Yes. Are the agencies afraid of us? That is
a perception issue. We have alliances, we have working
relationships so far as operating as a management advisory
service within the Department with many of the large mission
areas. I don't know what else we can do.
I realize I am not a warm, fuzzy guy. I am neither a
liberal nor a compassionate conservative. I think we covered
both bases on that one. But I will say that this is the one
hearing where I can use two quotes from two great Americans,
the first one from Henry Wallace, former Vice President and
Secretary of Agriculture, that so long as there is hunger,
there are no food surpluses. Number two, from another great
American, Dwight Eisenhower--this is a good quote--the
unaudited deteriorates. And this is what we have here.
Senator Kerrey. I will give you one from Al Capone, who
said a smile will get you a long way in life, but a smile and a
gun will get you further.
[Laughter.]
Senator Kerrey. And you, Sir, have a gun with a bullet in
it.
Mr. Viadero. Coming from the Bronx, we could arrange that.
But quite seriously, we get involved in these issues after
they have occurred, after they have occurred. Now, what do we
have to do? Now, we have to put on the black suit.
Senator Kerrey. Your answer is, yes, if the resources were
there, you could assist in reducing the potential for fraud in
the Title I program of P.L. 480? If USDA says you are right, it
is in our interest to promote the private sector in Russia, we
want to use more of that Title I to go for private sector
assistance, you could, if you had the resources, assist the
USDA in reducing the potential for fraud in those transactions?
Mr. Viadero. Unequivocally, yes.
Senator Kerrey. Thank you.
Mr. Viadero. Thank you.
The Chairman. How many billions did you save the taxpayer
when you had that string operation with regard to the Food
Stamp program?
Mr. Viadero. On Operation Talon, Sir?
The Chairman. Yes, Sir.
Mr. Viadero. Thank you, Sir. Our Operation Talon, where we
went out and apprehended fugitive felons based upon the law
that you assisted us in passing at that hearing on February 5,
1995----
The Chairman. This was not planned, Senator Kerrey.
Mr. Viadero. I remember it was a five-hour hearing without
a break, vividly. But I will say we have saved millions to
date.
The Chairman. Sixty billion?
Mr. Viadero. Yes sir, millions.
The Chairman. There is your payoff.
Mr. Viadero. And I would like to point out that is cash in
the pocket. That is not economic loss prevented. Those are
people that were justifiably removed from the rolls of food
stamps. These were convicted felons that belonged in jail under
the custody of the Department of Corrections and not out
receiving food benefits from the Department of Agriculture.
The Chairman. Let me give you an example. It says I am
astounded and disappointed. I am not astounded, but I am
disappointed about FAS's attempt to retroactively amend the
fiscal year 1993 contract for the PVO that, for lack of a
better term, stole $14 million from the American taxpayer.
Could you elaborate for us a little bit on this issue? What
halted the efforts to stop this retroactive amendment?
Mr. Viadero. Yes, Sir. I would like to start by saying it
is a mixed bag. We had some $3.6 million unresolved in the Fund
for Democracy and Development, and basically no contracts were
involved. We uncovered last year there was a fraudulent wire
transfer for some $980,000 that we were able to track down in
FDD. They have since recovered $966,000, or 98.6-percent, of
that money. However, none of that money has yet to be returned
to FAS or any other agency of the Department so it could be,
again, put back into this specific program. So there is roughly
$1 million right there.
In addition, we have another organization by the name of
Citihope for some $14 million. Again, we have unresolved issues
with them, and my office's recommendation was to suspend and
debar Citihope until something good happens there. Well,
nothing good has happened there and FAS hasn't done anything.
They haven't responded to the recommendation. We just felt that
this was an unnecessary expenditure, and again this----
The Chairman. When did you make a recommendation?
Mr. Viadero. That recommendation went out in 1999, Senator.
The Chairman. And still you have no determination?
Mr. Viadero. No, Sir, not as we speak. For both of the
gentlemen present, this is not rocket science. We are not doing
necessarily financial reviews, debits and credits. This boils
down to two questions. Are there controls in place, yes or no?
And are they working, yes or no? These are more compliance
audits than substantive or financial audits.
Again, I don't know what to say other than this isn't
astrophysics here. That is all we want to do, is get some
control. We want to find some reliable factor out there that we
can hang our hat on the audit side of the house to say the
money that this body on the Hill appropriated for this program
is properly spent.
The Chairman. I think you will get an answer.
There is obviously a problem with the ability of the PVO
organizations being able to defraud our current system. I have
several other examples here. I am not going to go into that. I
am not speaking in a derogatory manner in regard to the fine
work that the PVOs do. The vast majority are fine and
upstanding organizations. They fill a very crucial need in
regard to what we see in the world.
But what can we do to prevent this from happening again? Is
there a legislative fix that we need here or is it
administrative, or is it resources again? Obviously, it is
resources. I don't want to go back down that trail.
Mr. Viadero. I think it is both, or shall we say all three.
And, of course, the link between the administrative and the
legislative one is the resource one. That is the link, and we
more than concur with your statement that the vast majority of
the PVOs are upstanding organizations doing the right thing for
the people in the world.
Again, we only highlight the ones that we found problems
with, and that is again, Mr. Kerrey, the nature of the IG job,
because we got in late. We would like to be included in and
folded in the process early to work with FAS, as we do with
other mission areas in the Department.
The Chairman. Well, they have got a tremendous backlog of
cases. I am reading here in terms of staff information--your
report is dated September 1998--the FAS had not completed the
monitoring of 130 of 185 Food for Progress agreements signed in
fiscal years 1992 through 1996.
Do we have a time frame that the Department has established
to try to eliminate this backlog?
Mr. Viadero. Well, I understand that as of today--and I say
as of today; that is, all the backlog cases that have been
closed, in other words not open. The only ones they haven't
gone over to date as of today are those where there is current
activity, especially current monetization of the commodities.
The Chairman. I would tell Senator Kerrey I am not too sure
but that we ought not have a separate hearing in regard to this
particular problem. We have other panelists that have waited
patiently. I have got one other one.
It is apparent that improper monitoring has cost the CCC
millions of dollars. How much of this money has been returned?
Mr. Viadero. Again, I have to go back to your first
question, and that is the mixed-bag answer, Sir.
The Chairman. Senator Kerrey, do you have any more
questions of the Inspector General?
Senator Kerrey. No. I have got one for you, but I will wait
until the end of the hearing.
The Chairman. All right.
Let's welcome the second panel. Many thanks to the first
panel, and we thank you for your contributions. I think it has
been most helpful.
I would like to welcome to the hearing Mr. Otis Molz, the
Chairman of the Board of CoBank, from Deerfield, Kansas; Mr.
John Cavanaugh, a former colleague and a good friend, and
Chairman and CEO of Summit Limited, of Omaha, Nebraska; and
Ellen Levinson, of Cadwalader, Wickersham and Taft. She is the
Executive Director of the Coalition for Food Aid here in
Washington.
We want to welcome the panelists. I think you have heard
our admonitions in regard to your statements. Please feel free
to summarize. And you don't have to ask; without objection, all
of your statements will be made part of the record.
Otis, please proceed.
STATEMENT OF OTIS MOLZ, CHAIRMAN OF THE BOARD, COBANK,
DEERFIELD, KANSAS
Mr. Molz. Thank you, Mr. Chairman. My name is Otis Molz. I
am a farmer and rancher from Deerfield, Kansas, and Chairman of
the Board of CoBank. I am accompanied today by Candace Roper, a
CoBank vice president and division manager. Ms. Roper has just
returned to the U.S. after a 3 \1/2\-year stint as head of
CoBank's Singapore-based Asian regional office. In that
capacity, Ms. Roper worked extensively with foreign purchasers
of U.S. agricultural products, exporters, foreign banks, and
the U.S. Department of Agriculture's GSM programs. We
appreciate this opportunity to provide testimony on the
importance of the GSM export loan guarantee programs.
Historically, CoBank has been the most significant
financial institution participating in the GSM loan guarantee
programs, accounting for nearly one-half of all the guarantees
issued. Since 1982, the bank has provided about $25 billion in
loans to support the export of agricultural products. About 90-
percent of this financing was provided in connection with the
GSM loan guarantee.
CoBank has offices in Singapore, Mexico City, Buenos Aires,
as well as throughout the United States. We have correspondent
banking relationships with more than 500 banks in 80 countries,
and have financed the export of about 45 different agricultural
products, everything from apples to wheat, and chicken feet to
recycled telephone poles.
In one important respect, CoBank is different from every
other bank that operates in the international marketplace. We
are involved in a transaction only when a foreign purchaser
wants to acquire a U.S. agricultural product. Our competitors
in the financial services industry, including U.S. banks, do
not necessarily care if the transactions they finance result in
the sale of U.S. products. International banks will
aggressively pursue the opportunity to finance a country's
purchase of a product without regard to the origin of the
product. CoBank is unique because we are in the business of
matching foreign purchasers with only U.S. sellers. That is the
reason we have provided far more financing under the GSM
program than all other U.S. banks combined.
Today, I would like to comment on four topics: first, the
importance of the GSM program in opening foreign markets to
U.S. products; second, the GSM program changes; three, the
value of the GSM program from the perspective of the foreign
purchaser; and, fourth, the need for trade sanction reform.
First, the GSM program continues to be a critical tool in
opening and maintaining markets for U.S. agricultural products.
Ten years ago, Korea was a major user of GSM loan guarantees.
It was the GSM program that was instrumental in introducing
Korean consumers to U.S. food products. As the Korean economy
grew, that Nation began making cash purchases of imported food.
The volume and value of U.S. products being purchased was
increasing and the need for financing was decreasing. However,
the recent Asian financial crisis has caused Korea to once
again begin making use of the GSM program. The point is the GSM
program has been a critical tool for ensuring access for U.S.
exports to this important market, no matter where the country
is in the economic cycle.
I have included another example in my written statement of
the benefits of being a reliable trade partner that relates to
Mexico. It illustrates an important point, and I would like to
call it to the committee's attention. To summarize this point,
it would be very short-sighted to curtail the program or
bargain away its key benefits to U.S. agricultural exporters
during the trade negotiations because of market conditions at
this particular time.
My comments in regard to the value of the GSM program to
purchasers: Recently, the U.S. has had to defend the GSM
program in trade negotiations. In particular, some of our
competitors have been calling for a maximum tenor for export
credit guarantees on all commodities of 180 days. We are
concerned that the importance of tenor, the duration of the
loan, is underestimated.
In many cases, the tenor of financing is the factor that
determines who will ultimately make the sale. Tenor of the
financing is often more important than the price of the product
which is set in the world marketplace or the interest rate on
the loan. GSM provides for tenors that are typically
unavailable in the market, and this is a crucial strength of
the program. Shortening the tenors of GSM-supported financing
substantially decreases its economic benefit and the
attractiveness of U.S. products. The current two-year tenures
in Mexico and Korea and other markets already adversely affect
export volumes in these markets, and the contemplated reduction
in tenures to markets such as Turkey will have the same effect.
Number three, the current GSM program rules prohibit a
single entity from both issuing a letter of credit and being
the beneficiary of the CCC's payment guarantee. The USDA is
considering a proposal to end that prohibition. Effectively,
this will mean that a single or related financial institution
could be on both sides of the same export transaction, largely
removing the checks and balances that exist when one bank has a
vested interest in making certain that the counterparty is
making every effort to meet its obligation.
This change could lead to abuse of the program by banks
that have operations in many countries. The change would make
it possible for a bank with branches in two countries to
receive payment twice, once from the purchaser in the foreign
country and once from the U.S. Treasury when the foreign bank
fails to make payments to its related institution in the U.S.
Presumably, USDA would not allow such an abuse to occur
more than once. However, this reform which was implemented
several years ago to ensure the integrity of the program and
the arms-length relationship between lenders should be
retained. We have shared with the Department of Agriculture
several other suggestions for improving the operation and
utilization of the GSM program. A few of these suggestions are
also included in my written testimony.
Finally, the trade sanctions reform. Mr. Chairman, I would
be remiss if I didn't take this opportunity to comment on the
need for trade sanctions reform. I am not qualified to provide
advice on our Nation's foreign policy positions with regard to
specific countries. However, the general observation, it would
seem to me, is that our Government is too quick to impose
sanctions on too many countries.
Mr. Chairman, I would personally take this opportunity to
commend you on your initiative with Cuba. From my perspective
as a producer who knows that almost 40-percent of what I raise
must be sold to foreign purchasers, I am troubled that I am
locked out of markets that are being served by my competitors
in other countries. And we know from experience that once we
but ourselves off from a market, it is difficult to reestablish
the U.S. as a reliable source of products.
I also have a perspective on this matter as an ordinary
citizen who cherishes the freedoms we enjoy in the U.S. I have
had the good fortune to travel to many parts of the world. As a
result of my travels, I am convinced that through trade we can
share our culture and values with people who live in countries
that do not enjoy our freedoms. By doing so, we plant the seeds
for democracy and the free enterprise system. When we turn our
backs on those countries, we miss an opportunity to demonstrate
the benefits of our political and economic system.
Mr. Chairman, I appreciate the opportunity to appear here
today and I would be pleased to respond to questions.
[The prepared statement of Mr. Molz can be found in the
appendix on page 85.]
The Chairman. We thank you, Otis.
John.
STATEMENT OF JOHN J. CAVANAUGH, CHAIRMAN AND CHIEF EXECUTIVE
OFFICER, SUMMIT LIMITED, OMAHA, NEBRASKA
Mr. Cavanaugh. Thank you, Mr. Chairman. It is a pleasure to
be here this afternoon with you and with my longtime friend and
colleague from Nebraska, Senator Kerrey. We are going to miss
him tremendously, as I am sure you will, and I am happy that he
invited me to be with him before he leaves in December.
Mr. Chairman, this is an extremely important and I think
timely hearing, and you and the committee are to be commended.
The American farmer continues to be the envy of the world for
his productivity and efficiency, while remaining the perpetual
economic victim of an erratic and at times capricious global
market. The challenge for American policymakers is to match the
American farmer's genius for producing food with creating a
global trading system and marketplace equal in efficiency.
I have a very specific and narrow recommendation that I
think can be implemented immediately and have positive effects
not only on the current crop cycle but long-term effects.
P.L. 480, Title I, provides for government-to-government
sales of agricultural commodities to developing countries under
long-term credit arrangements. In 1996, the Congress exercised
considerable foresight in amending the Title I loan authority
provisions to include permitting loans to private entities, in
addition to foreign governments. To date, this authority has
been utilized only for a single facility financing in
Indonesia.
P.L. 480, Title I, government-to-government commodity loans
have been utilized successfully to facilitate the sale of
millions of tons of American agricultural commodities to
developing economies throughout the world. In 1991, Title I was
used to finance the sale of 1.7-million-metric-tons of
agricultural commodities to Russia in the wake of the 1998
Russian economic collapse, which occurred at the same time that
Russia experienced the lowest grain harvest in 40-years.
This sale occurred at a time when all Russian credit
facilities, both public and private, had collapsed as a result
of the devaluation of the ruble and the fall of the Russian
government. The sale succeeded in stabilizing Russian food
supplies during this critical period in Russia's transition,
and no doubt contributed to the social stability leading up to
the successful democratic transfer of power in the elections.
Without this utilization of P.L. 480, Title I, authority,
Russia would have no doubt experienced a much more severe
economic and social crisis during the past 12-months, and
American farmers would have lost an opportunity to sell these
commodities.
But this transaction was not without its negative short-
term and long-term consequences as well. The use of the
Government-to-government loan authority resulted in the Russian
government directing all commodity sales through former Russian
government monopoly trading organizations, to the detriment of
what had been a rapidly developing private commodity trading
structure.
Consequently, private traders and food processors were
further disadvantaged because they were denied access to
commodities and credit. Traders also experienced the
revitalization of government trading monopolies which had
collapsed in the face of market competition.
Second, deliveries of the commodities to Russia and
distribution of the commodities within Russia were based upon
Russian Federal and regional government goals and directives
rather than actual market demand for specific commodities,
resulting in disparities in pricing and utilization of the
commodities delivered.
Third, significant increases in Russian domestic poultry
and pork production resulting from the widespread availability
of American feed, corn and soy meal at affordable prices were
not sustainable because of the lack of a follow-on program and
the failure to revive commercial trading structures and credit
facilities.
Finally, the use of the proceeds from the sale of the loan
commodities were directed at funding the Russian pension system
rather than reinvested in improving Russian agricultural
production or reviving commercial trade with U.S. commodities.
The Russian food crisis continues today, and I have
provided you with a rather dramatic chart which I think tells
the whole story of the Russian agricultural collapse from 1990
to the present, and it continues. This is a chart of Russian
livestock inventories and feed grain utilizations, and if you
track this dramatic decline, which I think is the most dramatic
decline of any agricultural producing country in the
industrialized world, in the history of the world, this chart
could be matched with a similar decline in protein consumption
and nutrition health among the Russian people.
In fact, Russian meat consumption has declined from 70-
kilograms-per-person in 1990 to less than 42 today. The United
States' average consumption is 123, and Russian meat
consumption is the lowest in the industrialized world. That
coincides with a similar decline in life expectancy in Russia,
which in the last 10-years has resulted in male life expectancy
declining to 59-years, which also is the lowest in the
industrialized world. So this is a crisis that is ongoing and
that is not over.
What I think essentially, Mr. Chairman, could be done and
should be done is USDA should respond to the market
opportunities in Russia, and should be strongly encouraged to
use the private sector loan authority granted by Congress in
1996 in any future P.L. 480, Title I, lending program for
Russia.
Extending long-term commodity loans to private
organizations focused on development of private agriculture and
commercial trade in Russia will have immediate and long-term
benefits to Russia and for American producers. Expanding a
private, market-based Russian agricultural sector represents
large long-term market opportunities for American producers and
food processors. Reviving the commercial food trade with
Russia, disrupted in 1998, and building an expanded
agricultural market for American farmers should be a major goal
of U.S. trade and economic policy for Russia.
I do want to point out, Mr. Chairman, that in the past year
U.S. policymakers have withheld support for further development
of the private sector in Russia, adopting a wait-and-see
approach to the new Russian government. The result has been a
further weakening of the private sector in Russia at a critical
time in the Russian evolutionary process.
All of the USDA private sector development initiatives have
been held in suspension in the interagency review process, in
which all USDA program initiatives are reviewed by the State
Department, Treasury, OMB, and NSC. Rather than achieving the
goal of coordinated policy initiatives toward Russia, the
process seems to produce a policy paralysis.
During the past year, all private sector initiatives to
develop and revive the agricultural sector in Russia and
commercial trade have been stymied by this interagency review
process. As a result, the current market opportunities for U.S.
commodities are not being met.
Thank you, Mr. Chairman.
[The prepared statement of Mr. Cavanaugh can be found in
the appendix on page 89.]
The Chairman. We are happy now to welcome you, Ellen, and
please proceed.
STATEMENT OF ELLEN S. LEVINSON, GOVERNMENT RELATIONS ADVISOR,
CADWALADER, WICKERSHAM AND TAFT, AND EXECUTIVE DIRECTOR,
COALITION FOR FOOD AID, WASHINGTON, DC.
Ms. Levinson. Thank you, Mr. Chairman. I appreciate the
opportunity to testify today before the Subcommittee regarding
agricultural programs. I am going to focus my remarks on food
aid.
I am Government Relations Advisor at the firm Cadwalader,
Wickersham and Taft, and I have been very fortunate since 1985
to work on behalf of private voluntary organizations and serve
as Executive Director of the Coalition for Food Aid.
The PVOs, or private voluntary organizations. I represent
have extensive experience in food aid. They have been
conducting programs overseas for 50 or more years. They are
very accountable for their resources. Under the P.L. 480, Title
II program, which is actually reserved for PVOs and the World
Food Program primarily, PVOs have losses of less than 1-percent
of the commodities that are provided.
They also are very concerned about the impact of their
programs, and this is perhaps their biggest focus. What more
can we do than just deliver food? That is what they want to
focus on. What can we do to improve people's lives in the long
term?
In order to achieve those goals, multi-year programs are
very important. P.L. 480, Title II permits this, and it is a
very important part of the food aid program. Thus, one of our
first recommendations is, please, if you can, increase the P.L.
480, Title II program. We see multiple additional uses in child
development. We see additional uses for HIV/AIDS. We see it for
agricultural and irrigation projects, and also private sector
micro-enterprise. These are all the kinds of programs that are
being conducted under the Title II program. I know the remarks
of Mr. Parmer tended to focus on emergency assistance, but
under the Title II program--75-percent is for development, and
it does have an impact.
We do need some reforms in how that program is being
administered. I appreciate the hearing today because I feel--I
wrote a lot of this in my testimony there is a need to
streamline at USAID. PVOs don't want to sound like cranks, but
they are cranks when it comes to having to deal with all the
paperwork, and I have to say we need to respect that. I think
there is a reason for it.
They don't need to be constantly micromanaged. There needs
to be a balance, and I hope there is a way to move forward.
PVOs try to work with USAID on streamlining, but I always feel
that everyone becomes overcome by events. In a sense, they
start on a process to talk about reengineering food aid
programs and then something else comes up. PVOs have to do
environmental impact reviews, or decide what to do about
liability issues, and people get sidetracked. PVOs don't have
endless staff, and so it is hard for them to keep track of all
of this. So, anything we can do streamline would be
appreciated.
I also want to address something very, very important at
USDA. PVOs are active under the 416 program, but their activity
is extremely limited, and this is because of the way the
program is administered. This year more than ever, it was a
mess, and that is because of the big word you said, Mr.
Chairman--late. It is more than late.
This Food Assistance Policy Committee, this interagency
group, from my outside perspective, seems to have interfered
greatly in the proper procedures for the Section 416 program.
Tonnages of commodities should have been announced publicly.
All organizations--private voluntary organizations, World Food
Program, governments--should have all had the opportunity to
come in with good proposals. Then you would see good market
analysis being done, good planning of programs.
My members, the PVOs who are my members, worked with the
American Soybean Association and the United Soybean Board, and
created excellent proposals that could not get into the mix or
be considered, and this is because behind closed doors the Food
Assistance Policy Committee chose the countries and the
allocations. I really feel sorry that Tim Galvin couldn't speak
openly to this, and I guess he can't, but this isn't how it
should be and there is a better way.
I also want to mention Food for Progress. This is a
wonderful program. It can be terrific. It is limited to
500,000-metric-tons in current law. I highly recommend doubling
that. The emerging markets that we are seeing today are
demanding assistance. If we want them to have good private
sector growth and development, we really need to lend a hand.
This program could do it, and can do more. USDA received 150
proposals for FY 2000 for that program and, of course, can't
get anywhere near funding it. So anything you can do in that
area would be very positive.
The Chairman. Why don't you just briefly explain that
program real quickly?
Ms. Levinson. Sure. Food for Progress, which I have to give
credit to Senator Helms for from 1985--he was the one who put
it in the Food Security Act originally. It has been modified
since then. It was established basically to help countries that
are transitioning to market economies, particularly to improve
their agricultural sectors in private sector marketing and
production.
It hasn't been used very well for that purpose because,
again, when there was the dissolution of the Soviet Union, a
lot of the food was provided almost like an emergency program.
It was like putting a band-aid on rather than actually looking
for the long-term benefits.
It has changed. USDA has done a great job of changing how
it administers this program and is trying very hard now to
focus more on development. And it could do a lot more, not only
in the former Soviet Union. We have proposals in for Africa.
There are a lot of African countries making reforms. You have
Latin American countries and Asian countries, as well, that are
making reforms.
When there is a structural adjustment program and a
government is you are changing, basically cutting back on
budgetary outlays, and also floating its your currency, what
happens is that there are a lot of structural imbalances that
occur in the economy and you are not able to all of a sudden
reform everything. You don't have rule of law. You are not able
to have fair trade or fair internal processes. It is very hard
to make those transitions; it takes a lot of work. And I think
that it would be very helpful if Food for Progress could be
used more effectively to help the private sector in those
countries during these transitional periods. So, that is that
program.
The Chairman. Give me an example where you think this has
worked.
Ms. Levinson. Where Food for Progress currently works?
The Chairman. Yes.
Ms. Levinson. Well, actually, there are programs right now;
there have been some in the NIS that have worked. What they did
is they sold the commodity and they used the proceeds for
things like private sector credit, and those have worked. We
also see the same kind of thing in Africa. We have recommended
quite a few programs in Africa for Food for Progress and for
416, and I hope that some of those could be----
The Chairman. Can you tell me what that budget was?
Ms. Levinson. For Food for Progress?
The Chairman. Yes.
Ms. Levinson. Well, it is capped at 500,000-metric-tons. It
is funded through CCC.
The Chairman. Oh, I see.
Ms. Levinson. I don't know the cash outlays. The
transportation costs are capped at $30 million, and that limits
how much tonnage you can ship. Transportation can be very
expensive to many of these countries. So if you lift the cap on
commodities, you must also lift the cap on transportation in
order to ship more commodities. They go hand in hand.
The Chairman. I am sorry I interrupted you. I just wanted
to get that clarity on this program.
Ms. Levinson. The other things I was going to mention are
really very much along the lines of what you have been saying
today. First of all, for the future, besides the increases in
tonnages there needs to be more flexibility. Could you really
consider ways--I think USDA is open to this and I would like
USAID to be more open.
There has been collaboration between PVOs and the
agriculture community, for example what I was saying before
about the soybean producers working with PVOs. They work
jointly on market analysis to choose the right commodity for
programs in specific countries and literally work together on
deciding the right commodity and program development. I would
like to see more collaboration and encouragement along those
lines.
I also hope that for the Section 416 program, which is
based on surpluses, this current fiscal year is already pretty
much past, so, we can't do much more, but for the upcoming
fiscal year, to encourage the administration to announce the
program as early as possible. You raised that issue, I know,
and it is extremely important.
If you could put the notice in the Federal Register so
everybody has access, which is how it used to be done, and do
it early enough. That would help USDA so it is not stuck in the
last few months of the fiscal year trying to program all this
tonnage, because that is not effective. Plus, it makes it very
difficult for USDA then to review a hundred proposals or so,
proposals that they could receive from PVOs. So it limits
access by PVOs.
I really hope that something more could be done for a mix
of commodities under 416. Section 416 is not a panacea, it is a
year-by-year program, so we don't see it as a long-term panacea
for emergency needs or for humanitarian needs otherwise. In
order to have an effect long term, you really need to have
multi-year programs. But in the short term it could do some
very good things in a country if the programs are well
developed.
I will leave you with that. I have many other comments in
my testimony. Thank you.
[The prepared statement of Ms. Levinson can be found in the
appendix on page 95.]
The Chairman. I want to thank all the panelists not only
for their testimony, but specifically for their suggestions.
Ellen has 19 of them here, I would tell Senator Kerrey, and I
am not trying to disparage that. I think she has some very good
suggestions.
Senator would you like to start off with the panel?
Senator Kerrey. Well, actually, for both Ms. Levinson and
Mr. Cavanaugh, and perhaps Mr. Molz as well, you heard the
question that I was asking the Inspector General earlier. I
think one of the problems that USDA has--and I suspect
specifically to Russia it is apt to be there under Title I as
they consider whether or not they are going to do a loan to a
private sector company inside of Russia that all published
accounts say is suffering from significant corruption in the
private sector.
So, now, we have got corruption in the private sector and
an Inspector General that is going to check the transaction
that I do. There isn't a government agency that has ever been
created by human beings that didn't set up procedures that
penalize mistakes much more than it rewards doing the right
thing. So you are always sitting out there sort of risk-averse,
trying to make sure you don't have 100 actions and have 99 of
them that are perfect and 1 of them that is wrong. The one that
is wrong could cost me my job.
So they are sitting in that operating environment knowing
that they are not likely to--the sort of ``what have you done
for me lately'' mentality; they are worried about that. I am
wondering if you have given some thought, either one of you--I
mean, you are likewise asking for increasing flexibility, but
that flexibility produces a risky environment for the
individual who is making a decision on the Government side, who
then could get investigated by IG and find themselves with a
career-ending decision.
Mr. Cavanaugh. Well, if I might just speak to the
narrowness of what I am proposing in terms of having an
expanded utilization of the Title I loan authority to private
organizations, that would be envisioned that private U.S.
organizations would be the borrowers of the commodities. You
would put them in the place of the Russian government, who was
the borrower this year and historically throughout the use of
the program.
There are a lot of implications to this, one of which is--
and the reason I think it has such great potential is that you
would be able to lend the commodities to private U.S.
organizations with good credit ratings, with good performance
ratings, and with a detailed plan of development.
The way this program would work, the way I would envision
it, is what you would do is you would sell the commodities. You
would establish an escrow account from the initial proceeds
assuring repayment of the long-term low-interest loan. You
would deploy the rest of the proceeds into some detailed
development purpose.
In the case of Russia, what is critically needed today are
commercial credit facilities. So what we would envision is
recycling the proceeds from the first sale into a credit
facility that would immediately transition into the commercial
markets. That is what is missing in Russia today. We dumped our
commodities in last year through the Russian government and we
have no residual benefit, when Russia is right now at a
critical stage in which it needs to be bridged back into the
commercial world. It has the financial capacity to do that. It
doesn't have the structures to do that, and we should be using
our development assistance, our financial assistance, to build
those structures, because we don't want to continue and we
don't want to be facilitators of reviving the Russian state
structure with our own structures.
We want to be capitalizing on what is this huge potential.
This is, without question, a 10-year stable market to rebuild
the feed industry in Russia, to rebuild their domestic
production. They might at some point become self-sufficient,
but in the interim, right now, they should be major customers
of ours. They have the potential to be commercial customers. We
haven't used our programs and our resources intelligently
enough, strategically enough, to get ourselves to that
position.
What you will see in terms of what has happened to Russia
is they had a huge ramp-up in pork production and poultry
production based on the 1999 shipment. In May of this year,
that fell off the charts and poultry prices skyrocketed in
Russia. Poultry and meat prices skyrocketed in Russia because
in May when the feed ran out, they had no commercial ability to
replace that. They had no government program in place to
replace it, and we sat here unable to make a follow-on
decision, which gets you into this interagency process. So
there wasn't a continuing strategy. We simply laid the
commodities out there and now we are sitting here wondering
what to do.
Senator Kerrey. Well, there are several ways you can
approach this, but you wonder if what is needed isn't almost a
presidential assistant who is assigned the job of sorting this
all out, with the direction of, in this case, promoting the
development of the private sector inside of Russia and working
out the checks that make certain that we minimize the
opportunity for fraud.
If I am the Agency making the decision, if I do a $500
million loan to a Russian agency and they default on the loan,
we don't call it fraud. So the IG is going to look at something
like that and they may say, well, gee, you know, you paid your
money, took your chances, no big deal. But if it is a private
sector entity and there is a fraudulent transaction and they
are in default there, it is really bad, even though the impact
is the same as far as the taxpayer is concerned. The impact is
exactly the same, but one is encouraged and one is very much
discouraged with the penalties that are applied for making a
mistake.
So it seems to me some sort of procedural changes that
reinforce from the top--if you don't get it reinforced from the
top, it isn't going to happen, it just is not going to happen.
You are talking about fairly substantial change with risk, and
you need somebody up there with significant authority that can
direct it to happen and then measure it.
We have been talking about private sector development in
Russia. I don't see a lot of progress in the agriculture sector
over the last 10-years. There is a little toe-hold that has
been established, but in part I think it is because we have not
set benchmarks to determine whether or not we have been
successful or whether or not we have failed.
Mr. Cavanaugh. When you talk about the delay in granting
the overall monetization approvals, there has been no approval
of any Russian private sector development programs under 416
this year.
Senator Kerrey. And I would say to both you and Ms.
Levinson, I think the biggest reason for that and the
unwillingness to grant flexibility is they are afraid to do it.
It is risky, it is risky to do it, and there can be
consequences for making those kinds of mistakes. So it seems to
me that permission has got to be granted to do this with
checks, with reasonable controls.
There are a lots of ways to set up a control system and
minimize the opportunity, not eliminate the opportunity--you
are always going to have mistakes made--but to minimize. It
seems to me there is an urgency to do it. Otherwise, you are
just going to get a bottleneck and nothing happens.
Mr. Cavanaugh. That is where we are right now.
The Chairman. Let me ask Otis a question, if I might. I
want to come back to your testimony, Otis, about the
administration's proposed changes in the GSM program. Would you
go over that again in regard to how they could affect your
operation, CoBank's operation? You raised some concern, I
think.
Mr. Molz. Well, in regard to the terms of the contracts,
the mere availability of loan guarantees is not enough to make
the program successful. Lots of times, the tenure is more
important than the other terms of the guarantee, like the
interest rate, and so forth.
The other concern was in regard to having an entity on both
sides of the transaction, which has been prohibited previously
in law, and we would hope that the law would prevail in that
respect and that would be continued. Now, the CCC has
administrative authority to make changes, but we would hope
that the law would prevail. And the committee needs to monitor
that and keep that prohibition in place.
The Chairman. OK, I thank you very kindly.
I think all the witnesses heard my concern in regard to
nations of concern, but more particularly in regard to Cuba.
Any ideas?
Ellen, what you say really strikes home. And, John, it is
the same thing as well. You meet with the Cuban ministers and
you meet with the state-owned enterprises that actually run the
Catholic relief service programs. And then you talk to our
people and they say, you know, we have made adjustments, we
have exempted the food and medicine, and we have a streamlined
procedure that is expedited. As a matter of fact, you can even
get financing. It is like two different ships at night; they
just don't--now, I have no illusions about the Castro
government and what they will and won't do. Don't misunderstand
me.
Do you have any suggestions in regard to which of these--
you have the experience in Russia, John. And, Ellen, you have
got several good ideas where we could--you know, what I am
looking for here is right now they desperately need powdered
milk. And it just seems to me that perception-wise--and in
talking with the commandante for 10-hours, we were trying to
figure out what kind of a breakthrough, not a sale, but an
accommodation that could empower individual Cubans, much in the
same fashion you are talking about with Russia, John. I am not
sure what kind of a program we have that could scale all of the
political problems that we have with this issue.
Do you have any thoughts about this? I am sort of fishing
here for your response.
Mr. Cavanaugh. Let me tell you how I view what you have in
terms of program right now, and if you used it coherently,
looking at these emerging markets, what it would look like to
me in a master plan.
You have 416(b), which is basically a donation program run
through PVOs, and if you directed that at economic development
segments in particular economies and building private
structures, whether they are in Cuba, whether they are in Iran,
whether they are in Pakistan or Indonesia or Russia, that is
almost a cornerstone of developmental direction using our food
product as a development tool.
What I am proposing is a second stage which really leads to
the third stage, which is the GSM program, where you actually
have viable commercial structures. But in the second stage,
rather than--and I think we are caught in a mind set of P.L.
480, Title I, loans to governments because we have done that
for 30-years.
The Chairman. Sure.
Mr. Cavanaugh. And we really in some respects are still
treating Russia like the former Soviet Union, in the sense that
we see this huge market potential and what we want them to do
is organize themselves so we have one buyer who is reliable and
a good credit risk. It is not that way and it is not going to
be that way again, and we really need to look at Title I as
this interim step. What the name of the game is to use that
step to build private structures, private commercial
structures.
Senator Kerrey, I think that, if properly implemented, you
do treat this as a real commercial structure. You would get
better pricing of the product by the private entities who would
take the loans than you did in the Government-to-government
program. You would get better marketing in the sense that--in
some aspects of the delivery of the program last year, they did
things differently everywhere.
In St. Petersburg and Leningrad, what they did was deliver
the soy meal, and they authorized through the oblast every farm
in the region got 100 tons of the soy meal. All those little
farmers didn't know what to do with it. A lot of them weren't
feeding, so they all sold it to a distributor, who sold it to
another distributor down the line. That was a very inefficient
way of doing that.
If you would have had a private borrower running that
program rather than the Government, you would have targeted in
exactly on the feeders and the emerging feeders and the feed
mills because that is the way the business would be done. You
would have cut out another step.
Senator Kerrey. By the way, I think one of the points that
you almost have to make as you are doing that is that we
shouldn't fear the successful development of the Russian
economy, because we can see in the decline of the consumption
of protein all by itself what happens when you have got a
decline in their economy. They have an inability to purchase
the value-added products that at the end of the day we need to
sell in order to lift our standard of living. So their
purchasing capacity declines if they are not able to make the
successful transition to a market economy in the agriculture
sector.
Mr. Cavanaugh. I apologize. That is a little bit of a long
answer.
Senator Kerrey. Well, Ms. Levinson did something that was
very unkind in her testimony. She includes an excerpt from the
Senate Agriculture Committee report from the 1990 farm bill,
and here is what it says. ``If any message regarding the P.L.
480 program came through loud and clear to the committee, it
was the wide-ranging expressions of concern from both inside
and outside the administration''--and here is the key phrase--
``that bureaucratic procedures and delays have seriously and
adversely affected U.S. food aid programs. This frustration has
been focused on the food aid subcommittee of the Development
Coordinating Committee. The DCC is an interagency group
comprised of USDA, AID, State, Treasury, OMB, and occasionally
the National Security Council. Just as an employee can't work
well with five bosses, Public Law 480 doesn't work well with
five agencies overseeing its operations. This bill makes
specific Government agencies responsible.''
Well, apparently, it didn't because we are right back in
the same--whatever we did in 1990 didn't work. Maybe it
improved things at the margin and we would make a case, but we
have got a problem when the person who understands what needs
to be done, who was here earlier--I mean, I have got to haul
him down to the Old Ebbitt Grill to find out what he actually
thinks needs to be done, and even then I am not certain either,
A, he is going to tell me what needs to be done or, B, I am
going to remember it.
Both of you have watched--Mr. Molz as well--this Government
operation. I think you can be sympathetic to the dilemma that
they are in. The decisionmaking process is flawed. It rewards
people who avoid risk and rewards people who prolong the
process of decisionmaking. That is what we had in 1990, that is
what we had in 1996, that is what we have in 2000. How do we
change that?
Ms. Levinson. I think there are so many issues wrapped up
in what you are asking. The problem isn't just a question of
interagency; it is intra-agency as well, of course. There are
difficulties within agencies.
If I may, I would like to start with this concept of Cuba
and some other countries that are difficult countries, not
rogue, but let's just say difficult, because besides a Cuba or
an Iraq, for example, you are dealing with countries that are
difficult otherwise when you are dealing with food aid.
You are reaching countries that are undeveloped. They have
poor infrastructure. Their government structures are weak.
There is really a lot of internal corruption, what you and I
would call corruption, but is normal business in the country
because they don't have contract laws. They don't have
enforcement, they don't have a reliable judicial system. So you
are really operating--and PVOs are used to this; I mean, my
members are very used to that.
So they have a delicate balancing act between working with
the recipient country government, meaning a relationship, and
also working at the local level, very targeted, in the
communities, so that their programs really can be effective
because they have people there on the ground.
So I think one of the most important elements to consider
is, is it possible to program food aid in a way that there is
an intermediary such as a PVO there that can take that kind of
responsibility, has ground experience, really has the
experience to work there. This helps to mitigate the risk for
USDA and USAID. They cannot be in all those communities. They
cannot be there monitoring all those communities. It is really
up to a reliable partner. So choosing reliable partners with a
good track record, I think, is number one. And I think that
could work even in Cuba, if you had reliable partners. I know
Catholic Relief Services has raised this before, to have an
intermediary that is reliable that can work locally.
We have also seen some very good work done where you
monetize commodities. For example, on 416, because it is short
term, you can monetize and put that in an account and use this
for private sector development. And there are many models of
this and they have been done successfully all over, and I hope
that we could build on that.
I think one of the things USDA needs to do is, on
monetization, not try to be in such a rush; in other words,
give some more time for an organization; when it sells the
commodity and puts the money into an account, give it a longer
term to spend that money effectively and focus on the effective
use of the money rather than trying to get it off the books in
2-years or something, so maybe a longer-term outlook.
Another way to mitigate, I think, this risk is multi-year
programming, in general. What Mr. Cavanaugh is referring to is
at two levels. One is assuming our Government is so together
and coordinated that the State Department, AID, NSC and
everyone, even if they sit together, can come up with a plan
for Russia. Now, I wouldn't presume that, and we can't assume
that is ever really going to happen. So let's drop that off the
books for a minute because I think that is pie in the sky.
So I think really finding at the second level reliable
methods, reliable partners, not just relying on foreign
governments but really good intermediaries, and using them to
make things work better is really the best we can do, and
having them on the ground with multi-year programming. We can't
always have some master plan for a country, and then, of
course, events occur and that master plan will be changed in a
year anyway. So that is why it is good to rely on partners. So
I hope that maybe addresses that. And powdered milk sounds
great to me if there is a way to do it.
Senator Kerrey. Well, Mr. Chairman, just in the interests
of making certain that we get--I guess there is one more panel.
The Chairman. Well, we have the growers. I did this once
when I used to be somebody in the House of Representatives,
when I was chairman, and I can't remember what hearing it was,
but we actually had the commodity growers, the farmers, testify
first. It made the Department of Agriculture mad as hell, but
we got them first. And they have been waiting patiently, and we
have four very fine individuals who have a lot of experience in
this, so we do want to get to the panel.
Senator Kerrey. Let me say to you, Mr. Chairman, my guess
is the final panel is not going to do anything other than cause
me to feel even stronger about it. I really think this is the
pointed end of a very important spear. I am a person who
graduated from the University of Nebraska in 1965, right in the
teeth of the Cold War when they had a thing called the
Selective Service and they were drafting us to go off and fight
real wars in Vietnam and elsewhere.
Now, what we are looking at is a different kind of war, and
it is a war to make democracy work and it is a war to make free
markets work. Of the all the Federal efforts we have got going,
this is the most important one. Will it benefit farmers in the
State of Nebraska? Yes, but there is a far bigger benefit, in
my view. There is a humanitarian mission that is enormously
important, and it does link to eventual trade and it can link,
as well, to confidence-building on the democratic side and on
the free market side.
It can establish friendships that will make it possible for
us to do things that we otherwise could not do. There is
nothing quite like a friendship to give people confidence they
can do things together. I mean, that is what you and did on
crop insurance. We surprised everybody and nobody gave it any
attention because it was 96 to 4, and it has got to be 50-49
before it gets in the newspaper. But it seems to me that this
is vital and that it is still dysfunctional. I mean, I think
you and I ought to----
The Chairman. Well, we ought to spear-head this and we
ought to take the suggestions by John, by Ellen, by Otis, and
by others and see if we can't come up with a specific
recommendation. And I will commit that we will do this. After
all, that is the job of the Subcommittee.
Senator Kerrey. Mr. Chairman, I am willing to go so far as
to say that we need to shift the authorities. I am in 12-years
of doing this sort of thing, and these decisions get hung up at
OMB. They get hung up at the National Security Council.
The Chairman. Yes, they do.
Senator Kerrey. They get hung up God knows where. You don't
know where they are. Maybe the IRS is making some of the
decisions, for all I know. I don't know, but it's like you are
chasing it around and nobody has to accept any responsibility
for it because nobody has any real authority. The authority is
all cut up and divided all over the place, so there is no
master plan.
John, you used those two words together, and this is as far
away from a master plan as I have ever seen. You know, it is
one thing if it was something that wasn't terribly important.
But 10-years from now, I hope we are able to look back and see
fewer missed opportunities. The opportunities we have missed in
Russia break your heart, given the consequences of bad
decisionmaking. They just break your heart.
The Chairman. Well, we have successfully poked them, I
think, in the eye in so many different policy areas. The
stability of Russia, more especially with Mr. Putin at the
helm, and what we are involved in terms of our mutual
discussions with that country are absolutely imperative.
Senator Kerrey. What I am saying, Mr. Chairman, is I think
we ought to think about even converting this to some
legislative recommendations that will cause people to say, oh,
my God, Roberts and Kerrey are doing it again.
The Chairman. Can we make that Kerrey and Roberts?
[Laughter.]
Senator Kerrey. When the French were playing one of their
games, you and I introduced legislation that said that the
French had to put a label on their wine that said this bottle
may include dried animal blood. Well, that got attention, and
all of a sudden the French cared about us and who we were.
The Chairman. I sort of hoped you wouldn't mention that
again.
[Laughter.]
We want to thank the panel for indulging the Kerrey-Roberts
show here for a while.
Senator Kerrey. Thank you.
The Chairman. I would like to welcome Bruce and Marc and
Roger and Bill. We have got the Rice Producers Association from
Mississippi. We have got the National Corn Growers from
Lawrence, Kansas. We have Marc Curtis, the Chairman of the
Board of the American Soybean Association, and Bruce Hamnes of
the National Association of Wheat Growers.
Gentlemen, I apologize to you that we are getting you on at
10-minutes after five, and my sincere apologies. Rest assured,
all of your statements will be made part of the record. And we
will start with Bruce, go to Marc, to Roger, and to Bill, and
we welcome you to the panel. Thank you for the job you are
doing on behalf of our beleaguered producers.
Pour yourself a glass of water and start off.
STATEMENT OF BRUCE HAMNES, NATIONAL ASSOCIATION OF WHEAT
GROWERS, STEPHEN, MINNESOTA
Mr. Hamnes. Mr. Chairman and members of the Subcommittee,
thank you for the opportunity to provide the wheat industry's
perspective on the benefits of the current export programs and
the future of these programs. I am Bruce Hamnes, a wheat grower
from northwest Minnesota, and I have been a wheat grower since
1963.
Let me begin by saying that the importance of the USDA
export programs for U.S. wheat cannot be overstated. U.S. wheat
growers export nearly 50-percent of their production, making
flexible, effective, and fully funded export programs critical
to our long-term success.
I commend you on the timeliness of your review of export
programs, their future, and on their value in facilitating the
market development and promotion process. We believe that these
programs must be protected and allowed to expand under the
rules of the World Trade Organization. As the negotiations of
the next round are just beginning, it is appropriate to make it
very clear to our trading partners that we believe these
programs are not trade-distorting and that the industry expects
our negotiators to protect them and our Government to employ
them aggressively.
Market promotion and development are ``green box,'' or non-
trade-distorting activities under current WTO rules. The trend
toward reduction and elimination of trade-distorting programs
clearly puts added emphasis on market promotion and development
activities. These activities should be utilized to their
fullest extent as a significant element in the foundation of
future agriculture policy.
Equally as important as the WTO negotiations is the need to
expand these programs to the maximum extent possible in the
upcoming farm bill discussions. Freedom to Farm made great
strides toward improving flexibility and opportunity for
American farmers. However, as historical support was
eliminated, use of agricultural export programs remained
stagnant, and in some cases decreased, as U.S. farmers were
sent out into the world market to survive without their
traditional tools of support.
Well-funded export programs, which are a necessary part of
the equation, were not reinforced. Now is the time to correct
that oversight. As we embark on the debates surrounding the new
farm bill, export programs that give American farmers and
ranchers the tools to survive in the new economy must not be
overlooked or taken for granted. Maintaining and increasing the
export market for U.S. wheat is absolutely essential. What we
don't use or export will sit in our bins and depress prices.
The preliminary year-end sales figures for marketing year
1999-2000 show that 79 countries purchased wheat on a
commercial basis from the United States. Another 14 countries
received U.S. wheat solely as a result of food aid, and 21
countries that received wheat donations also purchased U.S.
wheat on a commercial basis.
We must have access to a variety of export programs that
provide flexibility in reaching our customers around the world.
Let me list the specific issues affecting export programs now
used to move U.S. wheat in the world market. You have more
detail before you in my written testimony: the foreign market
development program, the Market Access Program, export credit
guarantee programs, International Monetary Fund, food aid, and
the Export Enhancement Program. Sanctions must continue to be
reformed so that all markets are open and these programs are
available. The export of American agricultural product is
possible because of a large group of dedicated in the USDA who
depend on you for their funding and to whom the industry is
indebted. They make our export programs work.
Now, what is in the future of agriculture export marketing?
Every Nation has in place a set of policies and programs that
are designed to help meet its citizens' food and fiber needs,
as well as capitalize on potential trade opportunities. The
Uruguay Round of GATT and the WTO have not changed this. The
playing field is not level. Our national policies and programs
must be equally competitive.
American agriculture cannot compete against foreign
governments. The U.S. must develop a comprehensive trade
strategy for American agriculture that reflects the dynamics of
the global marketplace and world competition. This includes
passing fast track negotiating authority, responsible oversight
of the WTO negotiating process, meaningful unilateral sanctions
reform, the granting of permanent normal trade relations for
China, and an unshakable commitment to provide American
agriculture with the proper tools to develop markets and
promote agricultural goods.
We must tell the world that we are serious about
negotiating, and fast track is an important part of that
message. The paper tabled last month by the U.S. Trade
Representative's office in Geneva before the WTO is a positive
start toward efforts to promote free and fair trade in
agriculture. Meaningful unilateral sanctions reform must be
implemented to ensure that the U.S. is considered a reliable
supplier of agricultural products to the world.
If Congress fails to grant China permanent normal trade
relations in a timely and honorable manner, we can expect to
see very few, if any, sales in the future. There is no issue
more important to the future of the industry than finalizing
this process.
We believe that the Market Access Program should be funded
at no less than $200 million, and foreign market development
should be no less than $42 million. While the EEP program must
be maintained to counter unfair trade practices, we support
congressional direction to the Secretary to use the unexpended
funds in market promotion and development programs.
The Foreign Agricultural Service and APHIS must be funded
at levels that allow for adequate personnel and programs to
meet the demands of opening and expanding world markets. In a
dynamic, competitive world market, we need to strengthen the
programs that will enable agricultural marketing development
organizations to continue their partnership with Congress, the
USDA, and the industry to maintain a growing market share in an
extremely competitive world market.
Thank you for the opportunity to discuss the export
programs and their importance to the future of our industry.
[The prepared statement of Mr. Hamnes can be found in the
appendix on page 104.]
The Chairman. Well, we thank you, Bruce, for a very
comprehensive statement. Let me just say for the record that I
would wave the flag for every one of your suggestions as we
mount the parapets of a strong and consistent export policy.
Marc, please proceed.
STATEMENT OF MARC CURTIS, CHAIRMAN OF THE BOARD, AMERICAN
SOYBEAN ASSOCIATION, LELAND, MISSISSIPPI
Mr. Curtis. Thank you, Mr. Chairman, and good afternoon. I
am Marc Curtis and I am Chairman of the American Soybean
Association. ASA represents 28,000-producer-members on issues
of importance to all soybean farmers. We compliment you on
having this hearing and we appreciate the opportunity to
present our views on some important issues.
Exports are vital to maintaining and enhancing soybean
prices and U.S. soybean farmer profitability. One out of every
two bushels of annual soybean production must be exported in
the form of soybeans, soybean oil, and soybean meal. The
importance of export markets has only increased, as U.S.
soybean acres have increased from 62.5-million in 1995 to 74.5-
million this year.
The 1996 FAIR Act introduced changes in U.S. farm policy
that have heightened the importance of having effective export
programs and trade policies. Elimination of crop acreage bases
and set-asides in favor of full planting flexibility on all
crop land has made U.S. agriculture truly market-oriented and
market-dependent. This linkage was recognized by the authors
and supporters of Freedom to Farm when it was enacted 4 years
ago. It has been reiterated on various occasions since then,
including in a letter of May 17, 1998, from major farm
organizations to the administration and congressional
leadership.
The need for strengthening export programs and trade
policies have been a top priority of ASA, and actions needed to
make the current domestic program successful. Unfortunately,
many of the initiatives urged by ASA and other farm groups
since 1996 have either been ignored or given only partial
attention by the administration and Congress.
The exception, of course, has been the area of trade
policy, with the House approval of China PNTR as a solid
victory for U.S. agriculture. ASA strongly urges the Senate to
take similar actions as soon as possible, and certainly before
the August recess. Also, the WTO negotiating position tabled by
the administration in Geneva last month contains a number of
positive proposals to reduce import tariffs, eliminate export
subsidies, and balance trade-distorting domestic support
programs.
On the other side of the ledger, however, we are very
concerned about the inability of Congress and the
administration to support reform of the unilateral economic
sanctions on agricultural exports, as provided for in
legislation authored by Senator Ashcroft and others. We will
remain uncertain over the status of a new WTO round until
Congress provides trade negotiating authority and comprehensive
talks are finally launched.
In addition, there simply has not been enough attention
given to support for programs designed to enhance U.S.
competitiveness in the short and long term. I was going to
comment on five areas, but in the interest of time let me just
touch on one and move to some recommendations we would like to
make.
Humanitarian food assistance; we have heard a lot about
that already this afternoon. Ms. Levinson in the panel before
me commented about our joint effort this past year in this
program. The declining U.S. commitment to support humanitarian
food assistance during the past 20-years is one of the most
tragic casualties of the effort to balance the Federal budget.
Between 1985 and 2000, Congress and the administration
agreed to reduce by more than half, funding for our core food
aid program; P.L. 480, from $2.2 billion to $1 billion. Worse,
funding for the market development portion of P.L. 480, Title
I, has been greatly reduced. As commodity surpluses have grown
since 1997, the administration has turned increasingly to
donations under Section 416(b) to offset the decline in P.L.
480 programming.
In March 1999, ASA submitted to USDA a list of potential
recipients of soy products under Section 416 totaling $1
billion. ASA also worked with soy processors and private
voluntary organizations to develop 14 proposals that would not
displace commercial sales covering 21 countries. These were
submitted to the USDA last November.
In February of this year, the Department announced its
Section 416 allocation for this year. Soy products totaled only
425,000-tons, a fraction of ASA's request, and included only
two of the proposals and five of the countries targeted by the
ASA. ASA estimated that this program would have raised prices
and reduced LDP payments to farmers by as much as $2.5 billion,
which has not been disputed by anyone.
During my years as ASA president, this was the most
frustrating issue I faced. I do not understand why this
administration can choose not to invest $1 billion to save up
to $2.5 billion for the taxpayers and help feed poor, starving
people around the world, and help U.S. farmers in the process,
just to say that we didn't give farmers more money. ASA has
renewed its request for a substantial increase in soy product
exports this year under P.L. 480 and the Food for Progress
program, as well as under 416.
Facing another large soybean crop, we are calling on
Secretary Glickman to designate soybeans, soybean meal, and
soybean oil as surplus commodities, and that USDA purchase a
substantial quantity of these products using CCC Charter Act
authority. We ask that these actions be taken as quickly as
possible this fall to ensure a positive impact on prices at
harvest, which would reduce LDP outlays on the 2000-soybean-
crop.
Let me skip now to our recommendations, Mr. Chairman. U.S.
agriculture is owed a substantial back debt of funding for
export programs. ASA recommends the following actions to
restore the competitiveness of U.S. exports and reduce price-
depressing surpluses.
Point one: authorize funding of the foreign market
development program of not less than $40 million. Establish an
export program task force to work with USDA to identify
additional markets to utilize the maximum $5.5 billion in
export credit guarantees. Have a task force also work with
exporters to determine how terms should be adjusted to make the
supplier credit program effective for bulk commodities. Restore
the Food for Peace program to its 1985 level of $2.2 billion
under a super P.L. 480 initiative, with substantial funding
utilized under the Title I market development portion of that
program.
Pass legislation authorizing unused EEP funds to be used
for market development and export assistance activities. Expand
exports of soybeans and soybean products, including soy protein
products, under Food for Progress and Section 416. Have the
export program task force develop recommendations on how the
interagency Food Aid Policy Committee can streamline its review
process in order to expedite USDA recommendations on Section
416 and other food aid initiatives.
Direct the task force to work with the World Food Program
and PVOs to develop an international school lunch program or a
child development program with the goal of providing nutritious
meals for the preschool and school-age children of the world's
poorest countries. And, finally, provide FAS and APHIS with
additional staff and budget resources to support trade-related
activities.
Mr. Chairman, many of these programs would take substantial
funding increases, and we realize that it would have to be
ramped up over a number of years. But in this time of
increasing surpluses and low prices, if we are to correct the
situation and relieve the Government of having to provide
supplemental support payments in the range of $17 to $19
billion a year, we have to do something and do it soon.
[The prepared statement of Mr. Curtis can be found in the
appendix on page 111.]
The Chairman. Well, your point is well taken about that.
That is for sure. Thank you, Marc.
We now welcome Roger Pine, who is from Lawrence, Kansas,
and is the Chairman of the National Corn Growers Association.
Roger.
STATEMENT OF ROGER PINE, CHAIRMAN OF THE BOARD, NATIONAL CORN
GROWERS ASSOCIATION, LAWRENCE, KANSAS
Mr. Pine. Thank you, Mr. Chairman. My name is Roger Pine.
Our family raises corn, soybeans, wheat, and turf grass near
Lawrence, Kansas. I am here today as Chairman of the National
Corn Growers Association. We appreciate the opportunity to
appear before this subcommittee to discuss ways to improve U.S.
exports.
U.S. corn farmers are efficient, but our export performance
does not always reflect that comparative advantage. Ten-years-
ago, the United States controlled over 80-percent of world corn
exports. This crop year, our market share is estimated at 59-
percent. World and U.S. corn exports increased during the
1970s, but have not grown since. Domestic farm policy and an
ill-advised grain embargo limited U.S. corn exports in the
first half of the 1980s.
Once farmers were permitted to use certificates to redeem
price support loans at local market prices, U.S. corn exports
began to increase. But weak export performance in the 1990s has
contributed to the high stock levels and low prices that plague
producers today.
CCC export credit guarantee programs facilitate commercial
sales of U.S. agricultural products to creditworthy foreign
customers. The CCC guarantees payments due from foreign banks
enabling U.S. financial institutions to offer competitive
credit terms. The GSM-102 is the most significant program for
corn exports. This program offers customers up to 3-years to
repay loans. Mexico has been the largest user of GSM-102 credit
guarantees for feed grain purchases this fiscal year. Turkey
and South Korea have also used the program extensively.
The U.S. and other members of the OECD are currently
negotiating changes to export credit guarantee programs. Our
competitors are demanding that we drastically shorten the
repayment period for GSM loans. NCGA supports efforts to
complete OECD negotiations. However, we must insist that our
loan guarantee programs meet the credit needs of our export
customers.
Export price subsidies have cheapened grain on world
markets. The U.S. proposal for agricultural trade reform in the
WTO calls for the elimination of export subsidies. This is an
objective that NCGA fully supports. The Market Access Program
and the Foreign Market Development Cooperator Program help fund
private sector market development activities. These programs
boost exports through advertising, trade servicing, technical
assistance, and other non-price market development activities.
We spend only a fraction of what our competitors spend on
market development activities. It is time for Congress to
demonstrate that the United States is prepared to invest in new
markets with increasing funding for MAP and FMD.
The United States has shared our abundance with developing
countries in times of famine and food shortages. Besides
addressing critical food needs, our food aid and donation
programs are an important part of broader foreign assistance.
The United States individually and through international
organizations can help developing countries meet critical food
and health needs. Children provided proper nutrition, health
care, and educational opportunities today will become more
productive adults who will buy more U.S. products.
If U.S. farmers are to remain competitive in the global
market, they must be able to deliver their products to domestic
and world markets efficiently and cost effectively. We urge
Congress to provide adequate funding to upgrade our river
transportation system to reduce costly delays and expedite the
movement of corn and other products.
The U.S. has imposed unilateral trade sanctions more often
than any other Nation. Sanctions encourage the use of trade-
distorting domestic farm programs in every country that is
unwilling to trust the United States as a reliable supplier of
food. Congress must exempt commercial sales of food, feed, and
other agricultural products from unilaterally imposed
sanctions. Finally, the Senate must pass PNTR for China without
amendment. This legislation will open the world's biggest
country to U.S. corn farmers.
This subcommittee provided the leadership to improve the
crop insurance program to make adequate risk management tools
affordable. We thank you for that leadership and for the
financial assistance to help farmers faced with low commodity
prices. We hope that the suggestions you hear today will lead
to improved export programs and higher prices in the future.
Thank you for allowing me to present the views of the
National Corn Growers Association.
[The prepared statement of Mr. Pine can be found in the
appendix on page 116.]
The Chairman. Well, we sure share that goal, Roger.
OK, Bill, you are next.
STATEMENT OF BILL GRIFFITH, U.S. RICE PRODUCERS ASSOCIATION,
BOLIVER COUNTY, MISSISSIPPI
Mr. Griffith. Chairman Roberts and members of the
Committee, my name is Bill Griffith. I am a third-generation
rice, soybean and wheat farmer from Boliver County,
Mississippi. I currently serve as Chairman of the Rice
Committee of Mississippi Farm Bureau, and also the National
Rice Committee of the American Farm Bureau. I am here today
representing the U.S. Rice Producers Association.
There are several major points I would like to address as
part of my testimony today. Federal export programs must assist
all forms of commodities. The future of our industry, both long
term and short term, will be determined by our Government
export policies and programs.
Export credit guarantees are an effective form blind export
success. We do not need to tamper with the USDA GSM export
credit guarantee program. This program has been very successful
in opening and maintaining export markets. This program by its
very design encourages overseas buyers and purchasers of U.S.
products on commercial terms. This design makes rice growers
and exporters equally eligible for credit guarantees. This form
blind design is prevalent for every major commodity except rice
and a number of other USDA food aid and export programs.
An innovative success story is the quality samples program
recently used by our fellow producers in Mississippi. This
innovative program has many good points. This program allows
the producer to ship a sample of a new rice variety to a
foreign buyer for testing in the market. As a result, the
overseas buyer has already agreed to purchase more rice in the
coming year and the use of the USDA to promote the purchase.
The quality sample program is a good example of an ingenious
new program that helps farmers market their crops directly to
foreign buyers.
We urge the Congress and the USDA to continue supporting
these types of programs. We also urge Congress to take another
look at brand advertising programs for the purpose of making
this type of program available to commodity groups.
Traditionally, USDA food aid and export programs need producer-
friendly improvements. There are many other USDA programs
designed to increase exports of U.S. farm commodities that
should not be overlooked in our quest to improve the health of
farmers.
Rice is the only remaining major farm commodity that our
Government repeatedly fails to offer and make available to
potential customers in its unprocessed form. USDA's management
of P.L. 480 and other food aid programs continue to
discriminate unfairly against rice producers.
For example, Grains Jamaica, the main importer of U.S.
rice, still contends that they would make a 100-percent U.S.
market if they were allowed to import rough rice under P.L.
480. I have to wonder how the wheat producers would react if
they were told that they could only ship wheat flour to a P.L.
480 customer. Or what is the soybean producers were told that
they could only ship soybean oil?
All forms of rice should be considered in international
trade negotiations, and we are hopeful that the U.S.
negotiators will consider rough rice while discussing policy
issues with the European Union and others at the upcoming WTO
meeting.
Unilateral sanctions hurt U.S. farmers. More than anything,
we would like to see our farm and export programs work to raise
farm income. We believe this can be accomplished by removing
the trade embargo against Cuba. Cuban citizens consume 400,000-
tons-of-imported-rice, all of which is produced by our
competitors. This would be the greatest single action that
Congress can take this year to raise prices and export
opportunities for the U.S. rice farmer.
In conclusion, we already have the tools for expanding
overseas sales and giving farmers a hand up in improving their
current plight. When considering the food aid programs, we
encourage this committee to allow the U.S. rice industry to
break with a 45-year tradition and allow all forms of rice to
be programmed. We thank you for seeing the need to help us with
these issues, and we are grateful for your time and concern.
Thank you.
[The prepared statement of Mr. Griffith can be found in the
appendix on page 120.]
The Chairman. Thank you, Bill. Bill, give a quick summary
on the quality samples program. I was reading about that in
your statement and I know that you didn't have enough time to
go over that. I think that is the Missouri rice producers.
Could you just give me a quick summary of that?
Mr. Griffith. Well, what they did was they have got a
variety--now, this is what I have been told. I haven't talked
to any of the producers themselves, but I understand they have
a variety that they are working with a country that wants them
to buy the rice and to use it.
The Chairman. But that importer, according to your
testimony, spent a sizable amount of their money to advertise
its own brand of this product. And then on that label, it said
it was a product of Missouri. So you have got a quality sample
there or a program, a new variety, and with USDA help, the
importing country actually helped pay for that.
Mr. Griffith. Yes, Sir.
The Chairman. You have described it as ingenious. I think
that really attracted my attention. Then on page 5, you
indicated, ``When considering food aid programs, we urge this
committee to allow the rice industry to break with the 45-years
of tradition and allow forms of rice to be programmed.'' Do you
have support for that across the board?
Mr. Griffith. Mr. Chairman, speaking as a rice farmer, I
understand there are complications maybe with some that would
rather have the rice milled. But as far as a rice farmer's
standpoint, we don't care if it is cracked, split, milled,
whatever. We just want it out of our surplus and moved on to
another country.
We don't really think that rice has been treated fair
because it has always been it has to be milled, and we think
that if a foreign country wants to buy unprocessed rice, let
them buy unprocessed rice. Why not? As long as the surplus can
come down, it would sure benefit the United States rice farmer.
The Chairman. You said that about the most important thing
we could do is to facilitate the opening up of trade with Cuba.
I will report to you that virtually every Cuban minister I
visited with this weekend, and that includes even discussion
with Fidel Castro, when you mention commodities--obviously, I
was going to try to mention wheat and corn, Roger, and
soybeans, Marc, but I was sort of leading off with wheat--it
always came back to rice, and that they are importing all that
from Vietnam. It is a poor product and it takes forever, and it
just doesn't make any sense.
I am just not sure we have heard a great deal of
discussion, and you have been very patient in the audience, as
to what kind of a program we could devise, and then if you
could get past the political opposition of the Cuban government
and all of that, you know, to get that done. I agree with you,
but I must say that I don't think that the House bill--and I am
just going to be very frank--helps us much.
As a matter of fact, I think that is more of a headline
than it is a specific step forward. It is about five steps
backwards. And I am not too sure we can do that this year. I am
just not sure that the politics of it--and there is a lot of
politics involved, to say the least--will be enable us to do
that.
But I want to make a promise to you. I mean, if I had to
spend 10 hours with Fidel and all the ministers and go down
there, I think rice is the one where we can get the
breakthrough. We talk about powdered milk and that would be the
humanitarian issue. But that makes sense to me; that makes a
lot of sense. It also makes sense in regard to the strategic
national security issue in regard to Cuba.
Castro is 74-years old. He was talking about his own
transition, and the more we are able to empower the individual
Cuban and have that wherewithal so that infrastructure can
withstand that transition, the better off we are going to be.
So I really encourage your activities and your support and
any suggestions that you might have. Do you have any
suggestions along those lines?
Mr. Griffith. Well, I don't know what the statistics are
now, but back in February, of course, our rice surplus was
about like the rest of the commodities. I mean, it is just
overflowing. That is the reason our markets are down so much.
Back in February, we had 425,000-tons too much. Well, you can
see in my statement there that they eat 400,000.
The Chairman. There you go.
Mr. Griffith. So, you know, that right there would have
taken care of us. It is like every time we can get a buyer,
there is a sanction thrown on them. I can't remember what year
it was, but it was back in the late 1980s, Iraq bought 90-
percent of Mississippi rice. Well, I think the following year
or maybe the year after that was when they invaded Kuwait.
The Chairman. I remember that debate. As a matter of fact,
we were suspending trade relations with Iraq, and some fellow
named Roberts got up and said once again the farmer is being
disadvantaged. That was on about a Friday, and on about a
Tuesday he invaded Kuwait, and I was trying to revise and
extend my remarks.
[Laughter.]
But the point was still well taken. Obviously, when you
have a national security threat, you know, that is the case.
Let me ask all of you something, if I might. The Department
of Agriculture is in Paris discussing the United States export
guarantee program as we try to achieve some progress in the WTO
and all of that. We have got a sticking point, and that is the
issue of the loan duration period.
Can you give me each commodity's view on that? Should all
commodities receive equal treatment? I know some want a longer
period, some want shorter. I would prefer longer, but where are
you on that?
We will start out here with wheat, Bruce. Do you have any
commentary?
Mr. Hamnes. One-year to 18-months.
The Chairman. Marc, any comments?
Mr. Curtis. Yes. Of course, we want to see the negotiations
completed in OECD. We made that commitment in the Uruguay
Round. We are very afraid that if it gets into the present
negotiations for the new WTO treaty that it will be done away
with completely. So we think it is very important that the
negotiations be completed in OECD.
Of course, we want terms as long as we can get them, but
the soybean industry wants to be very emphatic in the fact that
we want to be treated equitably. We are not willing to stand
aside and let one commodity get 2-years and us get 1-year, and
so on. We have to all get the same.
The Chairman. Roger?
Mr. Pine. It is 3-years now, isn't it, I think? We could
probably do a little bit less than that, but we don't want to
go too far down. I would say a year-and-a-half to 2-years.
The Chairman. But you are consistent with the others.
Everybody is in the same boat.
Bill, do you have a----
Mr. Griffith. It is about the same here, Mr. Chairman. It
is working right now for us.
The Chairman. We have only got 31-working-days-left in this
Congress, and you all indicated that the number one issue of
concern--or I think you did--was the successful passage of
PNTR, and I think that is going to happen. There is some
question as to whether we will take that up in the Senate prior
to the convention break in August or whether or not it will be
the first thing that we take up in regard to September. But I
want to emphasize the bipartisan support of the Subcommittee
and the Committee in that behalf.
Other than PNTR, is there anything--there is a tax package
that we passed, but unfortunately it got taken out, that was
part of the ledger that I kept talking about clear back in
1996, and then also sanctions reforms. Is there anything else
you think we ought to be doing here in the last 31-days that we
could actually do, where we could get a concerted effort in
behalf of all of our farm organizations and our commodity
groups?
[No response.]
All right. Any final comment?
[No response.]
We thank you for coming, and the Subcommittee stands
adjourned.
[Whereupon, at 5:44 p.m., the Subcommittee was adjourned.]
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July 18, 2000
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