[Senate Hearing 108-155]
[From the U.S. Government Publishing Office]
AGRICULTURE, RURAL DEVELOPMENT, AND RELATED AGENCIES APPROPRIATIONS FOR
FISCAL YEAR 2004
----------
FRIDAY, MAY 16, 2003
U.S. Senate,
Subcommittee of the Committee on Appropriations,
Washington, DC.
The subcommittee met at 9:32 a.m., in room SD-124, Dirksen
Senate Office Building, Hon. Robert F. Bennett (chairman)
presiding.
Present: Senator Bennett.
DEPARTMENT OF AGRICULTURE
STATEMENTS OF:
KEITH COLLINS, CHIEF ECONOMIST
J.B. PENN, UNDER SECRETARY FOR FARM AND FOREIGN AGRICULTURAL
SERVICES
MARK E. REY, UNDER SECRETARY FOR NATURAL RESOURCES AND
ENVIRONMENT
THOMAS C. DORR, UNDER SECRETARY FOR RURAL DEVELOPMENT
JOSEPH J. JEN, UNDER SECRETARY FOR RESEARCH, EDUCATION, AND
ECONOMICS
OPENING STATEMENT OF SENATOR ROBERT F. BENNETT
Senator Bennett. The subcommittee will come to order.
I apologize to our witnesses for the fact that we are here
on a Friday when many would rather be out on a golf course, but
it is raining so you might as well be in here where it is dry.
But the Senate voted for something like 72 hours--or, no,
it seemed like 72 hours--17 hours yesterday right straight
through, so everything got canceled or postponed.
Senator Kohl, the ranking member of the subcommittee, had a
commitment today that he was unable to break, and I discussed
with him whether we should go ahead today or not. He urged me
to go ahead because we need to be moving ahead with our
appropriations process. And given his previous commitments,
why, we excuse him. Other Senators have run into the same
problem, so that means the witnesses are going to have to bear
with the rather heavy dose of me this morning.
I will not be constrained by any 5-minute rule. Nor will I
go two or three rounds. We will simply start in, and I will
cover as many of my questions as I can, and on behalf of some
of the other Senators, ask theirs as well.
We are pleased this morning to have what are somewhat
familiarly called ``the Unders'' this morning; that is, we have
four Under Secretaries and Dr. Collins, who is the Chief
Economist, and I am sure ranks and is paid as an Under
Secretary of the Department of Agriculture. Title inflation
seems to have set in everywhere. I remember when there was one
Under Secretary in the whole Department. But he is now the
Deputy Secretary, and former Assistant Secretaries have become
Under Secretaries, and I don't know what it is that has become
an Assistant Secretary or how it has worked out.
Nonetheless, these are the men who do much of the heavy
lifting in the Department, and we appreciate your being here
and sharing your testimony with us as we proceed.
prepared statements
This will be the second hearing of this subcommittee
dealing with the 2004 appropriations bill. Last week, we had
Secretary Veneman, who was very helpful to us in her
presentation, and we have another hearing scheduled for next
week.
[The statements follow:]
Prepared Statement of Senator Conrad Burns
Thank you, Mr. Chairman for holding this hearing. I believe we had
a very successful and informative hearing last week and look forward to
today's testimony.
I would also like to thank the witnesses for joining us here today.
Dr. Penn, I know from being in this business for a while that the
only time we hear anything is when we've done something wrong. I would
like to take this opportunity to thank you and your staff for your hard
work on the Drought Disaster package.
As is often the case, the devil is in the details and that was
never truer than in the details of the Crop Disaster Program. I talked
to you a number of times myself on this issue.
Additionally, I have heard from a number of the wheat and barley
producers in Montana and they said you were always responsive to their
concerns and you where willing to work with them on the problems.
Maybe I should repeat that. You were responsive to the concerns of
the agriculture producer. That is what it is all about folks. That is
why are here in the first place. That is why USDA was formed.
Thank you for that willingness to work with producers and I urge
you to get those checks out to the farmers as soon as possible.
______
Prepared Statement of Senator Herb Kohl
Thank you, Mr. Chairman, and welcome to all our witnesses here
today. I will be brief.
Today's panel centers on the mission areas of USDA that have the
most direct impact on Rural America. There is much concern today about
the national economy and how it is suffering compared to recent years.
We must remember that much of Rural America did not share in all the
prosperity that the rest of the Nation enjoyed over the past decade,
and conditions on the farm are, in many cases, worse than ever.
Wisconsin dairy farmers, for example, face record low prices,
increasing costs, and this market squeeze is devastating.
I have some concerns about the delivery of many of the programs
available to support the farm sector. In regard to international
programs, there are tremendous challenges we face regarding trade
impediments and we must not lose sight of our responsibilities
regarding humanitarian food assistance.
In comparison to overall federal spending on research, agricultural
research lags far behind, in spite of the fact that such research is
tied to the production, maintenance, and safety of our food supply.
Clearly, protection of our food supply is one of our greatest
responsibilities.
Mr. Chairman, thank you and I look forward to our witnesses
statements.
______
Prepared Statement of Senator Richard J. Durbin
Chairman Bennett, thank you for holding this important hearing
today on the USDA's fiscal year 2004 Budget. I look forward to working
with you, Senator Kohl, and my Subcommittee colleagues on the farm
economy and rural sector. I would like to welcome our witnesses Keith
Collins, USDA Chief Economist, J.B. Penn, Under Secretary for Farm and
Foreign Agricultural Services, Mark Rey, Under Secretary for Natural
Resources and Environment, Dr. Joseph Jen, Under Secretary for
Research, Education and Economics and Thomas Dorr, Under Secretary for
Rural Development. I would also like to thank others in USDA who
submitted testimony for today's hearing.
I'd like to take a few minutes this morning to talk about some very
important issues that affect the Department, and my home state of
Illinois. When I go back to Illinois, one of the things I hear from
farmers is: How can we get the rural economy back on track? As you
know, there are over 60 million people that call rural America home.
Illinois has a significant rural community so I am pleased to see USDA
is committed to creating new economic opportunities and improving the
quality of life for a diversified rural population.
One issue of importance is to make sure our rural communities have
access to the kinds of technology, business opportunities and
affordable housing that we have in other parts of the country, so that
rural America will not be left behind. We must work on economic growth
in rural America.
Illinois is one of our country's most important agricultural
contributors. Illinois farm land, which accounts for about 27 million
acres, is considered some of the most productive in the world. More
than 76,000 farm families in the state produce corn, soybeans, wheat,
beef, pork, dairy products, and specialty crops. Illinois exports more
than $3.4 billion worth of agricultural products. The state's
agribusiness activity is vibrant. From the Chicago area to Decatur and
throughout Illinois, agricultural processing employs thousands of
people. And our researchers at the University of Illinois as well as at
other institutions, continue to help provide answers to some of the
most common as well as the most complex, agricultural questions we
face.
I would like to bring attention to the USDA's Rural Development
budget. The rural utilities water and waste disposal system is an
important program for Illinois (For fiscal year 2003; total direct
loans, $23 million, guaranteed loans, $1.5 million and grants, $3.4
million) and the rest of the country. As stated by Administrator Hilda
Gay Legg's submitted testimony, the need for water and waste disposal
systems are still significant and are likely to grow as a result of
expanding populations in certain rural areas, changes to water quality
standards, drought conditions and similar factors. I know the
additional funding provided by the Farm Bill helped reduce backlog for
assistance and it is my hope we will be able to reduce the backlog in a
timely manner.
I would also like to take a minute to comment on research and
education and to stress how important I feel they are to USDA. Though
agriculture research we have the opportunity to face challenges to our
Nation's food and agriculture system.
I am planning on introducing legislation again this year to ensure
the safety of genetically engineered foods, a fast-growing segment of
our food supply that shows much promise, but which also must be
adequately regulated to assure consumers of biotech products' safety
and effectiveness. Through genetic engineering, scientists are hoping
to address world hunger, develop new drugs and create alternative fuel
sources to help solve many of the social problems that vex us today. My
bill will ensure these efforts continue, but require a mandatory,
public approval process that deems such foods and products safe before
they are put in the marketplace. In today's global marketplace, it is
critical that we demonstrate the safety of these foods and products
through a scientific-based approval process.
Chairman Bennett and Senator Kohl, thank you again for the
opportunity to talk about these issues and the fiscal year 2004 Budget.
Senator Bennett. Gentlemen, we appreciate your being here.
Let's hear from you, probably from my left to my right. Let's
start with Dr. Jen, who is the--okay. Let's start with my right
and go to your left. We will start with Dr. Collins, who is the
Chief Economist at USDA. Doctor, we appreciate your being here.
For the record, this is Dr. Keith Collins.
OFFICE OF THE CHIEF ECONOMIST
Dr. Collins. Thank you very much, Mr. Chairman. I am happy
to go in whatever order you would desire.
This morning, you are going to hear the budgets profiled
for programs that generally represent American agriculture and
rural areas, and what I think I will do is begin not by talking
about my budget but instead talking a little bit about the
perspective that these programs will operate in, in the current
year, and where the agricultural economy might be heading in
the future.
U.S. AGRICULTURAL ECONOMY
In a nutshell, like most sectors of the U.S. economy, U.S.
agriculture has been restrained by slow global economic growth.
We have had a high value of the dollar over the last couple of
years, lots of production in competing countries. We have had
declining prices. We have had bad weather. And all of these
things have also limited growth.
But the agricultural economy has been improving over the
past year. I think it is going to continue improving, but I
think the recovery is going to be gradual. It is going to be
uneven. And I think in some sectors it will lag, such as in
dairy.
The world economy is expected to grow only about 2 percent
this year. That is about the same rate of growth of the world
economy last year. And some of our major markets are growing
even slower, such as in Japan and the European Union.
Nevertheless, a number of countries appear to be doing better,
such as Latin America, and with that better growth and with a
declining value of the dollar, we think U.S. agricultural
exports will be up $4 billion this year to $57 billion,
although we will again look at that number and possibly revise
it on May 27th.
The stronger exports and the higher farm prices that have
followed from last year's below-trend production are boosting
farm revenues. Farmers' receipts from the sale of products in
the marketplace are expected to be up about $7 billion this
year, exceed $200 billion, and I think that is a very healthy
gain. And we are seeing receipts up for both crops and for
livestock.
I think the most important observation I can make--and we
just released our first forecasts for the 2003-2004 marketing
year--about the coming year, year and a half, is that U.S.
agricultural markets generally look to be in pretty good
balance. If you look at grain stocks, they are in desirable
ranges. Oilseed stocks are, in fact, very low. Cotton and rice
stocks are finally declining after being persistently high for
some time.
Average farm prices are up, and that is leading to very
sharp reductions in the costs of farm programs such as the
Marketing Loan Program.
Crop production this year is expected to rise, assuming we
have average weather, which we can't predict yet at this time.
For example, we expect that wheat production will bound back
and be up 31 percent from last year's drought crop. Corn and
soybeans are expected to also increase, cotton probably
stabilize, and rice decline, and that will help continue the
price increases we have been seeing for cotton and rice over
the past year.
Now, although exports of grains over the past year have
been pretty weak, soybean exports have been record high, and
cotton exports were the highest or we think will be the highest
in 75 years this year.
Looking ahead to the coming season, soybeans exports are
likely to decline as South America continues to expand sharply.
But grain exports should increase and cotton could possibly set
an all-time record high.
Livestock markets are finally looking fundamentally
bullish. We have had weather disruptions and trade disruptions
over the last couple of years, and that has caused liquidations
and prices to go down. I think those downward trends are
beginning to turn, and the recovery could be very sharp over
the next couple of years. But that is a conclusion, I think,
that very much depends on what is going to happen with forage
and range conditions.
You, Mr. Chairman, probably know as well as anyone the
hurdle that livestock producers face because in looking at the
current drought monitor, I see that Utah remains the only State
in the Nation where every single county is either in extreme or
exceptional drought. And so that is a hurdle for livestock
producers in battling back.
With cattle and hog inventories down and poultry output
being cut back, we think that meat production will be lower in
2003. We think it will be lower again in 2004. And that is
going to push prices of cattle, hogs, and broilers up probably
10 to 15 percent this year, and up again next year, and we
could possibly see a record high cattle price in 2004.
Dairy remains our most unbalanced sector. We have weak
demand. We have dairy product stocks at record highs. We have
prices at 20-year lows. Our programs, however, I think have
been stabilizing. We are regularly buying cheese, butter, and
nonfat dry milk, and so far, since the program started, we have
spent about $1.3 billion in the Milk Income Loss Contract
Program.
Summing up, for 2003, net cash farm income is expected to
be up about 11 percent as market receipts grow, Government
payments rise. Excluding Government payments, market income
will be flat, and I think that reflects a sharp increase in
production expenses. We are seeing prices for key input items
up, feeder cattle, fertilizer, and energy-based inputs.
Farmland values remain strong. We think when the final data
come in, they will be up 4 percent for 2002. We are predicting
1.5 percent for 2003. And I think the higher asset values are
keeping the farm balance sheet in reasonably good shape.
The performance of the non-farm economy is also crucial for
farm households since three out of four farm households earn
the majority of their income off the farm.
PREPARED STATEMENT
It is now a way of life for farms to be under pressure
daily to raise productivity, to adopt new technology, to lower
their production costs, to farm sustainably, to raise product
quality, and to respond to consumer tastes and preferences. And
I think as they do these things, they are going to need more
than ever USDA's commodity, conservation, rural development,
and research programs.
And, with that, that completes my comments, Mr. Chairman.
[The statement follows:]
Prepared Statement of Keith Collins
Mr. Chairman and members of the Committee, I appreciate the
opportunity to appear at this hearing to discuss the current situation
and outlook for U.S. agriculture. In general the agricultural sector
should show improvement this year after several years of low prices.
However, recovery is expected to be slow and uneven, with some sectors
such as dairy continuing to lag.
Outlook for United States and World Economies and the Implications for
Agriculture
Macroeconomic factors, such as the exchange value of the dollar and
slow economic growth around the world, have constrained demand for U.S.
agricultural products and farm prices and will continue to do so over
the next year or more.
The past 2 years have been disappointing as far as the U.S. economy
goes. We have been continually pushing out into the future the expected
rebound. Six months ago, the blue chip economists' forecast of U.S.
Gross Domestic Product (GDP) growth for 2003 was 3.5 percent. Now, it
is 2.4 percent, the same as last year's growth rate. The U.S. economy
in 2003 will face some of the same restraints it faced in 2002: excess
capacity, low returns in many sectors, high consumer and business debt,
low consumer confidence, high unemployment, and weak growth in Japan
and Europe.
But on the positive side: interest rates are low; liquidity is
substantial; consumer confidence is rising; oil prices have declined;
and fiscal policy is expansionary and may get more so with enactment of
a growth package that cuts taxes or provides other stimulus.
Unfortunately, though, we do not foresee stronger economic growth for
the United States, such as in the 3 to 3.5 percent range, until 2004,
and unemployment remains high.
When the U.S. economy is very weak, as in the recessions in 1991
and 2001, growth in food consumption slows. It did pick up in 2002, but
was still not very strong, rising only 1.7 percent, which is half the
rate of growth in 1999, when the economy was stronger and consumers
were more confident. With the economy likely to show limited growth
this year, we can expect food spending to be similar to last year,
perhaps slightly stronger.
Consumer spending at grocery stores in 2002 also grew slowly,
rising 1.5 percent. However, sales were up 2.5 percent during the first
quarter of 2003, compared with a year earlier. As the U.S. economy
eventually starts growing faster, the farm economy will benefit from
stronger domestic food sales. As we look to the future, we can expect
American consumers to continue to shift their consumption patterns as
factors like income, population diversity, age, diet and health
awareness drive change. Per capita consumption for such foods as
fruits, vegetables, yogurt, eggs, poultry, grains, and nuts are likely
to grow, while milk, red meats and potatoes may face declines.
World economic growth continues to be slow. Global GDP is forecast
at only 2.0 percent in 2003, similar to last year's 1.9 percent. While
mild U.S. growth will restrain overall foreign growth, growth for most
of our trading partners, with the exception of Japan and the European
Union, is expected to be moderate. Economic growth in Asia is forecast
at 5.4 percent in 2003, down slightly from the 5.8 percent growth in
2002. Mexico's GDP is expected to continue its slow recovery, with 2003
growth forecast at 3.0 percent. Likewise, Brazil and Argentina should
see positive growth this year after the sharp devaluations and
recessions in 2002.
Despite the weak global economy, the value of U.S. agricultural
exports is forecast to reach $57 billion in fiscal 2003, the fourth
consecutive annual increase. We are within striking distance of the
record $60 billion achieved in fiscal 1996. Much of the increase is due
to stronger farm prices rather than volume gains. The value of
agricultural imports has also risen during that same period, but so has
our agricultural trade surplus.
Although the dollar remains relatively strong, especially against
Latin American currencies, it has depreciated against the euro,
Canadian dollar, and the yen. On a weighted-average basis, against the
currencies of our major markets, the dollar has fallen steadily since
early 2002. Although no precipitous drop in the dollar is anticipated,
we are likely to see a slow decline against major currencies over the
rest of the year and into 2004. The United States is running a record
current account deficit, which requires financing from overseas.
However, the combination of low real interest rates in the United
States and a listless economy is unlikely to attract foreign
investment. Thus, for the moment, the fundamental direction for the
dollar has to be down. This is good news for export prospects.
USDA released its long term baseline projections on February 7th.
They suggest some of the export pressures and opportunities U.S.
farmers may face in the future. Exports are seen rising to the 1996
record of $60 billion by 2005 and then to nearly $72 billion by 2010.
But the projected growth is all in intermediate and consumer ready
products. By contrast, bulk commodities are expected to face continued
very strong competition. For many of the bulk products, their best
entry into export growth markets will be in value-added and processed
form, such as feed grains and protein meals exported as meat.
Outlook for Major Crops
Weather remains the dominant factor shaping the near-term outlook.
Drought in key areas in 2002, notably in Australia, Canada, and the
United States, depleted crop supplies in traditional exporting
countries, and drought in Africa expanded global food aid needs.
Weather raised many U.S. crop prices, and these higher prices are
carrying into the first half of 2003. However, a rebound in yields and
strong competition especially from traditional competitors will likely
cause a pull back in prices. The major uncertainty in this conclusion
is the ongoing drought in the west, although precipitation has helped
in recent weeks.
Wheat plantings for 2003/2004 are estimated at 61.7 million acres,
up 1.3 million (2 percent) from 2002, as gains in winter wheat more
than offset lower spring wheat plantings. Winter wheat seedings are 6
percent above last year, with most of the increase in hard red winter
(HRW). Soft red winter (SRW) plantings are down as prolonged wet
conditions resulted in reduced seedings in parts of the Delta,
Southeast, and Atlantic Coast and offset gains in the Midwest. Farmers
indicated in March that they plan to plant 7 percent less land to other
spring wheat and 3 percent fewer durum acres than in 2002.
Wheat prices are down sharply from the highs of last fall and
alternative crops are offering better returns than spring wheat. For
example, contract prices for malting barley are up sharply from last
year, due to drought-reduced supplies in the United States and Canada.
While wheat planted area looks like it will expand less than
previously expected, wheat production is forecast up more than 30
percent from last year's unusually poor crop. Harvested acres are
forecast up 6.9 million acres (15 percent) and yields up 4.8 bushels
per acre (14 percent). If this projection materializes, larger
production would more than offset the smallest carryin stocks since
1996/1997, leaving 2003/2004 supplies almost 185 million bushels above
2002/2003.
Food use likely will increase, but at a rate less than population
growth due to changes in diets and baking technology that have extended
the shelf life of bakery products. Feed and residual use, forecast at
175 million bushels, will be up sharply from the unusually small 125
million bushels in 2002/2003. Reduced wheat prices, especially during
harvest, will promote the use of wheat for feeding. Hog and poultry
feeders in the Southeast and Atlantic Coast areas and cattle and hogs
feeders in the Plains likely will see relatively high prices for corn
during the early summer. These areas had poor corn and sorghum crops in
2002 and will have to bear the cost of transporting feed corn from a
greater distance than usual.
U.S. 2003/2004 wheat exports are estimated at 950 million bushels,
an 8.6 percent increase over 2002/2003 levels. The United States will
face increased competition from expanding production in the major
foreign exporters, especially Australia and Canada, and declining
competition from Russia, Ukraine, and Eastern Europe.
Total wheat use in 2003/2004 is expected to increase about the same
as supplies, leaving ending stocks little changed from a year earlier.
Prices received by farmers are expected to average $3.05 to $3.65 per
bushel, compared with $3.56 in 2002/2003. Large U.S. winter wheat
supplies, declining global imports, and sharply expanding production in
Australia and Canada will provide little opportunity for prices to
rebound as the year progresses. However, if crops in the major foreign
exporters do not rebound strongly from 2002/2003, U.S. prices will rise
sharply to ration limited supplies, because the ``minor'' exporters
will not have the supplies available to step in and meet market needs,
as they did this past year.
U.S. rice producers intend to plant 3.0 million acres in 2003, down
6 percent from last year, and a decline of 8 percent from the preceding
5-year average. Planted area in long-grain rice is down 9 percent from
last year, while combined medium-and short-grain plantings are up 5
percent. Poor market prices is the primary reason for the decline in
expected plantings. The recent strengthening of U.S. prices due in part
to anticipated significant food aid purchases destined for Iraq could
offset some of the expected decline in planted acres.
Assuming trend yields, U.S. rice production in 2003/2004 is
expected to be down about 5 percent from last year's bumper crop.
Average rice yields have jumped higher in the last several years due to
the introduction of higher-yielding long-grain varieties in the South.
Production of long grain rice is expected to be down about 9 percent
from 2002/2003, while combined medium- and short-grain rice production
will be up fractionally. Domestic and residual use is expected to be up
slightly and on trend, while U.S. exports are expected to be down 26
percent from record 2002/2003 levels because of reduced supplies and
keen international competition. Ending stocks are expected to total
22.1 million cwt, about the same as 2002/2003. The season-average price
is expected to be $1.10 per cwt higher than 2002/2003 due to tighter
domestic supplies.
Global rice trade for calendar year 2003 is projected to contract
slightly with global rice prices below the levels of the 1990s. For
example, Thai 100b long grain milled rice was quoted at about $209 per
ton as of early April compared to $194 per ton a year ago and $276 per
ton 2 years ago. In 2002, India subsidized the majority of its exports
in an effort to reduce burdensome stocks thereby pressuring rice
prices. India is currently reviewing its export policy for 2003 and may
decide to reduce the level of export subsidies as its stocks are worked
down.
In 2003, Thailand will continue to be the world's predominant
exporter with exports projected at 7.5 million tons, 4 percent above
2002. The other top exporters will include Vietnam and India at 4.0
million tons each, followed by the United States at 3.4 million tons
and China at 2.25 million tons. Indonesia is projected to be the
largest importer with imports of 3.25 million projected for 2003, 7
percent below 2002. Other large importers include Nigeria at 1.5
million tons, Iran at 1.25 million tons, and the Philippines at 1.2
million tons.
In March, U.S. corn farmers indicated they will plant marginally
fewer acres to corn than the 79.1 million seeded in 2002 and well below
industry expectations for a 1 to 2 million acre increase. The expected
expansion in corn acres may not occur because of lower acres in the
Great Plains, where lack of irrigation water, concerns about high
energy prices, and lack of soil moisture reserves changed farmers'
intentions. Corn harvested acreage for grain is forecast at 72 million
acres and yield is forecast at 139.7 bushels per acre, based on a
simple linear trend over crop years 1960-2001 and is well above the 130
bushels per acre in 2002 and the 1994 record of 138.6. Thus, corn
production is forecast at 10.1 billion bushels, up more than 1 billion
from 2002. However, reduced carryin stocks will be partially offsetting
and total supplies are projected at 11.1 billion bushels, up around 510
million from 2002/2003.
Projected 2003/2004 corn feed and residual use is down slightly
from a year earlier, but food, seed, and industrial use is expected to
increase 4 percent, following a 11-percent gain in 2002/2003. While
most uses are expected to show little change, corn used for ethanol
production is projected to increase 8 percent from the rapidly
expanding levels of 2002/2003.
The global setting for feed grain trade in 2003/2004 is more
favorable than that for wheat, but U.S. corn exports will continue to
face strong competition from corn from Argentina and China and feed
wheat from India and the Black Sea region. However, an expected 20-
cents-per-bushel drop in the U.S. farm price of corn will make U.S.
corn more competitive. China's corn exports continue to be the biggest
unknown. Corn plantings in China are expected to decline as some
producers switch to soybeans in response to various Government
incentives and a reduced protection price for corn. However, the volume
of China's corn exports will continue to largely depend on the level of
Government export incentives. U.S. corn exports are projected at 1,850
million bushels, up 225 million from the 2002/2003 forecast.
Corn ending stocks for 2003/2004 are projected at 1,304 million
bushels, a rise of less than 250 million from the forecast 2002/2003
level. The projected farm price of $1.90 to $2.30 compares with a
forecast price of $2.30 for 2002/2003.
Soybean production in 2002/2003 was 2.7 billion bushels, down about
5 percent from the record level achieved a year earlier. Despite
reduced total use, ending stocks are projected to decline to 145
million bushels, the lowest since 1996/97. At these levels, the soybean
stocks-to-use ratio is the lowest in 30 years. Before the dramatic
expansion of soybean production in South America in recent years,
stocks at these levels would have been associated with much higher
prices. However, with soybean production in South America significantly
exceeding that of the United States, farm level prices are likely to
average only $5.50 per bushel.
Soybean producers in March indicated intentions to plant 73.2
million acres for 2003, down 0.6 million acres from 2002. If realized,
soybean acreage would decline for the third consecutive year. Although
net returns and crop rotations favor a shift toward corn this year as
evidenced by the intentions of producers in the Eastern Corn Belt,
producers in the Northern Plains are planning to further expand soybean
acreage, a trend that began in the mid 1990's. With a return to trend
yields, production is expected to reach 2.9 billion bushels, up 4
percent from 2002.
Domestic soybean meal demand is projected to grow at a moderate 1-2
percent, limited by slow expansion in poultry and hog production and
increased availability of other protein meals. With large competitor
supplies of soybeans, soybean meal exports are likely to remain
relatively weak as well. Soybean meal prices are projected to decline 6
percent from 2002/2003 levels.
Much of the world's 2003/2004 soybean demand growth will come from
China and other Asian markets. Demand is also rising in Latin America,
the Middle East and North Africa. In 2002/2003, China is forecast to
import a record 16.5 million tons, exceeding its domestic soybean
production for the first time. U.S. exports to China will reach record
levels in 2002/2003. However, record South American soybean crops will
leave world supplies high in the fall of 2003, and likely will limit
export growth for the United States for both soybeans and soybean meal.
Consequently, U.S. soybean exports are projected to decline about 5
percent in 2003/2004. With larger supplies and limited demand growth
for U.S. soybeans, ending stocks are expected to increase to above 200
million bushels for 2003/2004. With higher stocks and continued
prospects for larger foreign soybean production, soybean prices are
projected to drop below $5.00 per bushel for the 2003/2004 marketing
year.
Cotton production for 2002/2003 was 17.2 million bales, a reduction
of 15 percent from the preceding year's record. Domestic mill use has
stabilized after a 13-percent drop in 2001/2002 and is forecast at 7.6
million bales. Lower foreign production and higher foreign consumption
are supporting exports at a level near last season's 11.0 million
bales--the current forecast is 10.8 million bales. With total use
approaching that of last season, ending stocks are expected to fall 17
percent to 6.3 million bales. The reduction in stocks, combined with
higher world prices, has raised farm prices more than 40 percent from
last season's 29-year low.
Cotton producers intend to plant 14.3 million acres in 2003, 2
percent more than last year. While cotton prices have risen, so have
prices for alternative crops. The small increase in area is primarily a
result of a more certain environment following passage of the 2002 farm
bill. With average abandonment and yields, production would be about
the same as 2002's 17.2 million bales. Domestic mill use is likely to
stabilize or fall slightly in 2003/2004, as U.S. mills continue to have
difficulty competing with textile imports. Exports, however, could rise
to a record 11.5 million bales. If these forecasts are realized, stocks
would be drawn down to about 4.7 million bales, which is a relatively
tight 25 percent of total use, and cotton prices would likely continue
to rise.
World cotton stocks are forecast to fall to 36.6 million bales at
the end of 2002/2003, their lowest level since 1994/1995. A combination
of lower area and unfavorable weather cut world production more than 10
percent; at the same time, demand has probably has been helped by low
cotton prices vis-a-vis polyester. While global cotton production is
likely to rebound in 2003/2004 in response to higher prices, it will be
difficult to offset the reduction in stocks experienced in 2002/2003
and, at the same time, satisfy further increases in demand. Therefore,
world stocks are anticipated to remain tight through the 2003/2004
season.
U.S. sugar production in 2003/2004 likely will increase, assuming
average weather, following last year's damaging storms in Louisiana and
below-average sugarbeet yields in many northern States. However, if
sugar consumption returns to near-normal growth, supplies likely will
not be burdensome to producers. A major uncertainty in the near future
is how to accommodate a completely integrated North American sweetener
market, as will happen by 2008 under the North American Free Trade
Agreement. Additional uncertainties could develop in the next round of
WTO trade talks, and as the United States works toward bilateral and
regional free trade agreements.
The outlook for U.S. sugar markets largely will be driven by the
sugar program. At present, marketing allotments are being used to
prevent sugar loan forfeitures and maintain the program at no cost to
the taxpayer, as directed by the 2002 Farm Bill. Allotments have been
in effect since October 2002, and raw sugar prices have averaged 22
cents per pound while refined sugar has averaged 27 cents per pound. As
long as sugar imports do not exceed the legislated trigger, marketing
allotments will remain in place and prices likely will continue at
these levels.
At $11.3 billion forecast for 2002/2003, horticultural exports
account for 20 percent of total agricultural exports and a significant
portion of horticultural farm sales. Reduced growth rates began with
the Asian financial crisis and continued with stagnating prospects in
the European Union. While fresh citrus, processed fruits and
vegetables, wine, and nursery/greenhouse products have stabilized,
prospects have been stronger for fresh vegetables and deciduous fruits,
tree nuts, and juices.
The outlook for horticultural crops is a return to trend growth in
farm sales, following a strong performance in 2002/2003. Fruit and
vegetable farmers earned $28.4 billion from the 2002 harvest, up $1.6
billion and well above trend growth. The increase resulted from higher
output and prices. Fruits and vegetables, which have accounted for 30
percent of all horticultural crop values in recent years, are sharply
up from a 22-percent share for 1996. In addition, greenhouse/nursery
crop sales likely will top $14 billion in 2003, increasing $600 million
following flat growth in 2002. Export growth, however, has slowed to
only $200 million annually during the last 5 years, much lower than
$700 million yearly growth leading up to 1997.
Outlook for Livestock, Poultry and Dairy
The livestock, poultry, and dairy sectors experienced a stressful
year in 2002 as weather, disease, trade disruptions, record production,
and low prices affected markets. Price prospects for the livestock and
poultry sectors are much improved for 2003, but the outlook for the
dairy sector remains guarded.
Commercial beef production in 2002 reached a record 27.1 billion
pounds as drought conditions caused producers to continue to reduce
their herds. With record beef production, as well as record pork and
broiler production, Choice Nebraska steer prices fell nearly 8 percent
to $67.04 per cwt.
U.S. commercial beef production is forecast at 26.2 billion pounds
in 2003, 3.2 percent lower than in 2002. After wheat grazed cattle are
placed in feedlots this spring, feeder cattle supplies are expected to
tighten, especially if forage conditions improve, enabling producers to
hold back heifers for herd rebuilding. Cattle slaughter is expected to
decline year-over-year during the second half of the year, ending 3.5
percent lower. Choice Nebraska steer prices in 2003 are forecast to be
$76 per cwt, an increase of 14 percent from 2002. Firm beef demand and
tighter cattle supplies pushed prices to about $78 per cwt in the first
quarter of this year. After a seasonal decline during the spring, steer
prices will then increase to the upper $70's per cwt.
Beef exports in 2002 rebounded from the BSE-reduced import demand
of 2001. Although sales were weak to Japan, U.S. exports to Mexico and
Korea reached record levels. In 2003, beef exports are forecast to be
about the same as in 2002 as Japan remains weak and tighter supplies
limit growth but then rise 3-4 percent in 2004 as the world economy
improves.
Herd liquidation continued for the seventh consecutive year in
2002. The cattle herd on January 1, 2003, was 96.1 million head, about
1 percent lower than a year earlier. Herd expansion is not expected
this year as most heifers retained this year will not calf until 2004.
Signs of heifer retention likely will appear by late May or early June
as producers finalize retention decisions. For 2004, another decline in
beef production is expected and fed cattle prices could reach record
high levels.
In 2002, pork production increased 2.7 percent to a record 19.7
billion pounds. Hog imports from Canada climbed to more than 5.7
million head last year, and 66 percent of the imports were feeder pigs
mainly destined for finishing operations in the Midwest. Increased pork
supplies last year resulted in an average hog price of about $35 per
cwt, nearly $11 below the previous year's price.
Given last year's price weakness, the industry appears not to be
expanding in 2003. Beginning with the 4th quarter of 2002 and
continuing into 1st quarter 2003, producers reduced the number of sows
farrowed by about 2.5 percent. Producers also indicated they intend to
farrow 3 percent fewer sows through August 2003. This would result in a
smaller pig crop and fewer hogs to slaughter in 2003 and into 2004.
Consequently, pork production is forecast at 19.5 billion pounds in
2003, 1 percent lower than in 2002, with another 1 percent drop in
2004. Hog prices are forecast at $38-$39 per cwt in 2003, up 9-12
percent over 2002, with a further price increase in 2004 into the low
$40's per cwt.
Pork exports increased 3.5 percent in 2002, due to rising shipments
to Japan and Korea. In 2003, exports are forecast to increase nearly 3
percent and another 2 percent in 2004.
Whole-bird broiler prices dropped 6 percent to 55.6 cents in 2002.
Parts prices were even weaker as the broiler sector, which exported
nearly 18 percent of production in 2001, was hit with trade disruptions
caused by disease outbreaks and trade disagreements with Russia over
antibiotic use and processing plant inspections. Northeast leg quarter
prices were 28 percent lower in 2002 than in 2001. Meat that could not
be exported led to burdensome broiler stocks which weighed on other
prices. In response to the price weakness last year, broiler producers
began to scale back production in the fall of 2002. Hatchery data
indicates that eggs set in incubators and chicks placed on feed have
been below year ago levels since last September, except for 1 week.
As a result of these cutbacks, broiler production in 2003 is
forecast to increase just 0.2 percent, the smallest year-to-year
increase since the early 1970's. Higher prices may result in production
increases beginning in the later part of the year and continue into
2004 when a 1 percent increase is projected. Broiler prices in 2003 are
forecast at 60-62 cents per pound, up 8-12 percent, and the highest
average price since 1998, and hold there in 2004.
Broiler exports fell nearly 14 percent in 2002 because of disease
outbreaks and a Russian ban on poultry imports. Exports in 2003 are
forecast at 5.0 billion pounds, 4 percent higher than last year. In an
attempt to stimulate domestic production, Russia imposed a 1.05-
million-ton quota on poultry imports for the next 3 years. The quota
goes into effect at the beginning of May, and the quota quantity is
prorated at 744,000 tons for 2003. The United States was allocated
553,500 tons under the quota in 2003. Under this scenario, the United
States will not export to Russia much more than levels from a year ago
because of trade uncertainties early in the year and the quota
limitations beyond April.
In 2002, milk production increased 2.5 percent to 169.8 billion
pounds. Output per cow gained more than 2 percent and the number of
milk cows were slightly higher as producers responded to the high
prices of 2001. However, in the face of expanded production and slowing
demand, the all-milk price fell to $12.11 per cwt, 19 percent below a
year earlier. Prices for butter, cheese, and nonfat dry milk (NDM) were
considerably weaker in 2002 as fat basis commercial use languished at
just 0.5 percent above 2001 and skim-solids use declined. With
increased milk production and weaker commercial use in 2002, Commodity
Credit Corporation (CCC) purchases of nonfat dry milk were 66 percent
higher than in 2001, and cheese purchases were 4 times the level of the
previous year.
For 2003, the all-milk price is expected to drop around 7 percent
to $11.10-11.60 per cwt. Milk production is forecast to increase 1
percent to 171.4 billion pounds on continued gains in output per cow.
Although beginning the year fractionally above 2002, cow numbers are
expected to drop slightly this year. Cow numbers have remained higher
than expected because exits from the dairy industry have been slower
than anticipated over the past year. The Milk Income Loss Contract
program likely has provided many producers with a cushion against low
milk prices. Commercial use is expected to increase about 2 percent in
2003 but not enough to boost prices given the abundant supply of milk
and stored products. As a result, CCC purchases of butter, cheese, and
NDM are expected to remain substantial.
Farm Income Outlook
The U.S. farm economy was under financial stress in 2002, but it is
on an improving footing in early 2003. Some producers, especially those
affected by weather, do face serious problems. However, because of
structural diversity and preventive steps, most in agriculture are
enduring. While prospects for 2003 look stronger for many producers, a
boom is not in sight.
In 2002, farm cash receipts for crops rose slightly, but livestock
receipts fell $10.5 billion as prices fell sharply under the big,
drought-driven increase in meat production and slower meat exports and
lower milk prices. Another factor affecting farm income was the slow
pace of farm program signup, which resulted in $4 billion in government
payments being shifted from the fall of 2002 into 2003. These factors
combined to reduce farm income in 2002 quite sharply and cause it to
drop below the levels we forecast a year ago. Net farm income, which
includes noncash items such as depreciation and inventory change, fell
29 percent in 2002 from the 2001 level. Net cash farm income, which is
gross cash income minus total cash expenses, fell 22 percent.
In 2002, net cash income, the income an operator has left over to
pay living expenses, capital costs and service debt, was at its lowest
level since the mid 1980s. The big drop indicates many producers faced
tight budget constraints in 2002, particularly those in weather-
affected areas. Income declines occurred in all regions and were
especially pronounced for hog and dairy operations. This continues to
pressure input markets such as machinery sales. Many bankers tightened
collateral requirements as their unease grew during 2002. On the other
hand, loan delinquencies have been modest, farm interest rates remain
low, and banks remain in sound condition with ample loanable funds.
Several factors contribute to the economic resiliency of many farm
households. First, three out of four farm households earn the majority
of their income from off-the-farm sources. This reduces the impact of
farm income changes--either up or down--on their well being. Second,
the farms most dependent on farm income are the 10 percent of farms
that produce two-thirds of the output and receive the bulk of U.S.
agricultural support. These farms, on average, have household incomes
that are well above the national average and remained so in 2002.
Third, the value of farm assets continues to grow, giving some
financially stressed producers a chance to weather a down period by
selling some assets or borrowing against them.
For 2003, net cash farm income is expected to rebound by 11 percent
to over $51 billion, as both crop and livestock receipts grow and
government payments rise. If government payments are excluded, net
income from the market is expected to be little changed, as farm
production expenses rise reflecting higher feed and feeder cattle costs
and higher energy and fertilizer expenses. Farmland values remain
strong, rising an estimated 4 percent in 2002, but are expected to rise
at a slower 1.5 percent in 2003, reflecting the reduced cash income in
2002 and restrained market income expectations in 2003. For 2003, with
slow growth in asset values but another boost in debt levels, the farm
debt-to-asset ratio is forecast to move up to 16 percent a still
healthy figure but the highest since 1998.
As always, these observations about the farm economy must be
weighed in light of a number of uncertainties. There are many: the
aftermath of the war in Iraq and its uncertainties; the global economy,
its pace of recovery, the influence of uncertain factors such as SARS
and the behavior of exchange rates; foreign nations' farm and trade
policies, especially China for crop imports and exports, and places
like Russia and Japan for meat imports; and finally, the weather, here
as well as abroad.
FARM ECONOMIC INDICATORS COMMODITY PRICES
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Unit 1997/1998 1998/1999 1999/2000 2000/2001 2001/2002 2002/2003 2003/2004
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Commodity Prices:
Wheat..................................... $/bu............................ 3.38 2.65 2.48 2.62 2.78 3.56 3.35
Corn...................................... $/bu............................ 2.43 1.94 1.82 1.85 1.97 2.30 2.10
Soybeans.................................. $/bu............................ 6.47 4.93 4.63 4.54 4.38 5.50 4.95
Rice...................................... $/cwt........................... 9.70 8.89 5.93 5.61 4.25 4.15 5.25
Cotton.................................... cents/lb........................ 65.20 60.20 45.00 49.8 29.8 \1\ 42.5 ..............
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ August through March average.
FARM ECONOMIC INDICATORS COMMODITY PRICES
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Unit 1998 1999 2000 2001 2002 2003 2004
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Commodity Prices:
Hogs...................................... $/cwt........................... 34.72 34.00 44.70 45.81 34.92 38.50 42.50
Steers.................................... $/cwt........................... 61.48 65.56 69.65 72.71 67.04 76.50 80.50
Broilers.................................. cents/lb........................ 63.00 58.10 56.20 59.10 55.60 61.00 60.50
Milk...................................... $/cwt........................... 15.46 14.38 12.40 14.97 12.12 11.35 11.65
Gasoline \1\.............................. $/gallon........................ 1.07 1.18 1.53 1.47 1.39 1.56 1.43
Diesel \1\................................ $/gallon........................ 1.04 1.12 1.49 1.40 1.32 1.53 1.38
Natural gas (wellhead) \1\................ $per1,000 cubic ft.............. 1.96 2.19 3.69 4.12 2.95 4.52 3.95
Electricity \2\........................... $/kwh........................... 8.26 8.16 8.24 8.48 8.41 8.52 8.37
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Source: Energy Information Administration, Short Term Energy Outlook, April 2003.
FARM ECONOMIC INDICATORS TRADE
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Fiscal Year
-------------------------------------------------------------------------------------------------------------------------------
1997 1998 1999 2000 2001 2002 2003 2004
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Agricultural Trade (Billion $):
Total exports............................................... 57.4 53.6 49.1 50.7 52.7 53.3 57.0 NA
===============================================================================================================================
Asia........................................................ 23.9 19.7 18.5 19.7 20.1 19.4 20.9 NA
Canada...................................................... 6.6 7.0 7.0 7.5 8.0 8.6 9.1 NA
Mexico...................................................... 5.1 6.0 5.7 6.3 7.3 7.1 7.9 NA
-------------------------------------------------------------------------------------------------------------------------------
Total imports............................................. 35.7 36.8 37.3 38.9 39.0 41.0 43.0 NA
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
FARM ECONOMIC INDICATORS FARM INCOME
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Fiscal year
-------------------------------------------------------------------------------------------------------------------------------
1997 1998 1999 2000 2001 2002 2003 2004
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Farm Income (Billion $):
Cash receipts............................................... 207.6 195.8 187.5 193.7 202.8 193.5 200.5 NA
Govt payments............................................... 7.5 12.4 21.5 22.9 20.7 13.1 17.6 NA
Gross cash income........................................... 227.3 222.2 224.0 230.4 238.5 222.5 234.9 NA
Cash expenses............................................... 168.7 167.4 166.9 172.0 178.8 176.2 183.6 NA
Net cash income............................................. 58.5 54.8 57.1 58.4 59.7 46.3 51.3 NA
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Senator Bennett. Thank you very much.
Our next witness will be Dr. J.B. Penn, who is the Under
Secretary for Farm and Foreign Agricultural Services. Dr. Penn?
FARM AND FOREIGN AGRICULTURAL SERVICES
Dr. Penn. Thank you, Mr. Chairman. It is a pleasure to be
with you this morning, and I am pleased that you chose to
describe us as ``Unders'' rather than ``lessers.''
As you know, I represent the Farm and Foreign Agricultural
Service mission area of the Department, and that encompasses
the Foreign Agricultural Service, the Farm Service Agency, and
the Risk Management Agency, and the administrators of those
agencies are with us this morning.
The programs and services of the Farm and Foreign
Agricultural Services mission area are central to the
Department's efforts to meet the challenges of agriculture in
the 21st century and to enhance economic opportunity for
America's farmers. The agencies of our mission area were very
heavily involved in major activities related to the farm
economy during the past year. As you know, the Farm Bill was
enacted last May, and we immediately undertook the massive task
of ensuring timely and effective implementation of that program
and ensuring that we got the benefits to the agricultural
sector on time.
As Dr. Collins noted, severe drought affected major parts
of the country, and our risk management resources were taxed to
meet the failure of the Nation's largest crop insurance company
last year. And now we are very heavily involved in the task of
implementing the Emergency Disaster Assistance Program, which
was enacted on February 20th.
Now, at the same time all of those things were going on,
the workload associated with the very ambitious international
trade negotiation agenda has increased, and we are spending
more and more time maintaining the existing markets that we
have while the trade enforcement responsibilities also continue
to grow.
The 2004 budget proposals that we are discussing today
fully support continuation of all of these activities and
ensure our continued efforts on behalf of America's
agricultural producers.
FARM SERVICE AGENCY
I want to first briefly note the Farm Service Agency. That
is USDA's primary vehicle for delivering assistance, and it is
the one with which farmers and ranchers interact the most
frequently. Because of FSA's important role in operating the
farm programs, our budget proposal places a priority on
enhancing the agency's ability to continue to assist our
producers. We propose a 2004 program level for FSA salaries and
expenses of $1.3 billion to support a ceiling of 5,900 Federal
staff years and 10,800 non-Federal county staff years.
We also continue to strive to modernize our services. One
important effort is the initiative to put the Geospatial
Information System in place to replace hard-copy paper maps and
data files with an integrated digital system. The GIS will
enable producers and our service center agencies to
electronically share and process information on farm records,
soils, and aerial photography in ways that we believe will
dramatically improve efficiency.
The President's budget proposes $42 million under the
Office of the Chief Information Officer for FSA's component of
the common computing environment to support this GIS and
related activities.
Now, the Farm Service Agency also plays a critical role by
providing a variety of direct loans and loan guarantees to farm
families who would otherwise be unable to obtain the credit
they need to continue their farming operations. By law, a
substantial portion of the direct loan funds are reserved each
year for assistance to beginning, limited-resource, and
socially disadvantaged farmers and ranchers. And our budget
proposal includes funding for $850 million in direct loans and
$2.7 billion in loan guarantees, and we believe these amounts
will be sufficient to meet the demand in 2004.
Now, for emergency disaster loans, our carryover funding
from 2003 is expected to provide sufficient credit in 2004 to
those producers whose farming operations have been damaged by
natural disasters.
RISK MANAGEMENT AGENCY
Now, very briefly, the Risk Management Agency. The Federal
crop insurance program, as you know, is an increasingly
important part of the safety net available to our agricultural
producers. In 2002, crop insurance provided $37 billion in
protection on 215 million acres. That is 4 million acres more
insured last year than were insured in 2001. And because of the
drought, we expect indemnity payments on the 2002 crops to
exceed $4 billion, and that is well over $1 billion more than
the indemnities for the 2001 crop.
We are budgeting for slightly lower participation in 2004
based on our latest estimates of planted acreage and expected
market prices for the major agricultural crops.
The 2004 budget requests an appropriation of such sums as
necessary for the mandatory costs associated with the program,
and this will provide resources to meet program expenses at
whatever level of coverage the producers choose to elect.
For salaries and expenses of the Risk Management Agency,
$78 million in discretionary spending is proposed, and that is
an increase of $7.8 million over the previous year.
In addition, we have proposed nearly $9 million for
information technology needs under the common computing
environment. RMA's information technology is aging. The last
major overhaul occurred more than 10 years ago, and this
funding request under the common computing environment will
provide for the needed improvements to RMA's existing
information technology, and it will enable coordination and
data sharing with the Farm Service Agency, a goal that all of
us have long sought to achieve.
FOREIGN AGRICULTURAL SERVICE
Let me finally turn very quickly to the Foreign
Agricultural Service and the international activities of the
Department. The importance of expanding international market
opportunities for America's farmers and ranchers simply can't
be overstated, so expanding market access is among our highest
priorities for agriculture. We continue to pursue trade
expansion efforts, as I noted. We are doing this on several
fronts, negotiation of new trade agreements at the
international level, the regional level, and the bilateral
level, and the plan is that these will reduce barriers and
expand access to critically needed overseas markets.
Our trade policy activities, however, are not limited to
only negotiating new agreements. We have stepped up our efforts
to monitor compliance with existing agreements and then to
ensure that our trade rights are protected. This past year, we
worked hard to resolve important issues such as China's
restriction on soybean imports, implementation of its WTO
accession commitments. We worked on Russia's ban on U.S.
poultry. And we have continuing difficulties with Mexico and
the implementation of NAFTA, which continues to take a lot of
our time.
The Foreign Agricultural Service is the lead agency in the
Department's international activities, and it leads our efforts
to expand and preserve overseas markets. And I am pleased to
say that this month marks the 50th anniversary of the Foreign
Agricultural Service, a very important milestone for that
agency and for USDA.
The budget provides total appropriated funding for FAS of
$145 million for 2004 and supports a number of important trade-
related initiatives. We are proposing 20 additional staff years
for our involvement in the trade negotiations and to bolster
the rapidly growing market access constraints that are related
to sanitary and phytosanitary provisions and to biotechnology.
Finally, the 2004 budget requests additional funds for FAS
for non-discretionary administrative requirements including pay
cost increases, inflation, and higher payments to the U.S.
Department of State for administrative services that they
provide to us at overseas posts.
Now, the United States also continues its commitment to
alleviating hunger and improving food security in developing
countries through the provision of food assistance. The
proposed budget includes a total program level for U.S. foreign
food assistance of nearly $1.6 billion. This includes $1.3
billion for Public Law 480 Title I credit programs and Title II
donations. And the budget also requests $50 million of
appropriated funding for the McGovern-Dole International Food
for Education and Child Nutrition Program. This is a new
program that was included in the Farm Bill, and we hope to soon
have those regulations in final form and to begin operation of
that program.
PREPARED STATEMENTS
Mr. Chairman, let me close by saying that this is a very
modest but positive budget proposal. It provides the needed
resources for the Farm and Foreign Agricultural Services
mission area to continue the important work on behalf of all of
our farmers and ranchers, and it supports some important
investments to ensure that, as we look ahead, we can continue
to provide those benefits in an effective and efficient manner.
Thank you very much. That concludes my statement. Again, it
is a pleasure to be with you today.
[The statements follow:]
Prepared Statement of J.B. Penn
Mr. Chairman and Members of the Committee, I am pleased to appear
before you today to present the 2004 budget and program proposals for
the Farm and Foreign Agricultural Services (FFAS) mission area of the
Department of Agriculture (USDA). Accompanying me this morning are the
Administrators of the three agencies within our mission area: James
Little, Administrator of the Farm Service Agency; Ross Davidson, Jr.,
Administrator of the Risk Management Agency; and Ellen Terpstra,
Administrator of the Foreign Agricultural Service. We also have with us
Kirk Miller, the Department's General Sales Manager, and Dennis Kaplan
from the Office of Budget and Program Analysis.
Statements by each of the Administrators providing details on the
agencies' budget and program proposals for 2004 have already been
submitted to the Committee. My statement will summarize those
proposals, after which we will be pleased to respond to any questions
you may have.
Mr. Chairman, last February, Secretary Veneman released a new
strategic plan that provides the framework for achieving the
Department's policy and program objectives. One of the five primary
goals established in the plan is to ``enhance economic opportunities
for American agricultural producers''. The programs and services of the
FFAS mission area are at the heart of the Department's efforts to
respond to the challenges of the 21st century and enhance economic
opportunities. Through the wide range of services provided by our
agencies--price and income supports, farm credit assistance, risk
management tools, conservation assistance, and trade expansion and
export promotion programs--we provide the foundation for ensuring the
future economic health and vitality of American agriculture.
This past year, the FFAS agencies and programs were challenged by a
number of significant developments to which they responded effectively.
In May, the Farm Security and Rural Investment Act of 2002 (2002 Farm
Bill) was enacted, and we undertook the massive task of ensuring timely
and efficient implementation of this far-reaching and complex
legislation. Sections of the United States experienced drought this
past summer, and our risk management resources were taxed to meet the
most pressing needs of drought-stressed producers. Now, we are
undertaking the task of implementing the supplemental emergency
disaster assistance provisions of the 2003 omnibus appropriations act.
At the same time, the workload associated with our trade negotiation
and enforcement responsibilities has continued to grow, and 2003 will
be a critical year for negotiations aimed at further reducing trade
barriers and opening new markets overseas.
The 2004 budget proposals we are discussing today fully support
continuation of these activities and ensure our continued efforts on
behalf of America's agricultural producers. In particular, the budget
supports the implementation of the domestic commodity and income
support, conservation, trade, and related programs provided by the new
Farm Bill. It fully funds our risk management and crop insurance
activities. It supports the Administration's export expansion goals by
providing a program level of $6 billion for the Department's
international activities and programs. Also, it provides for the
continued delivery of a large and complex set of farm and related
assistance programs, while improving management and the delivery of
those programs.
FARM SERVICE AGENCY
The Farm Service Agency (FSA) is our frontline agency for
delivering farm assistance and is the agency the majority of farmers
and ranchers interact with most frequently. Producers come to FSA to
participate in farm programs, including programs involving direct and
countercyclical payments, commodity marketing assistance loans, loan
deficiency payments, farm ownership and operating loans, disaster
assistance, and conservation programs such as the Conservation Reserve
Program (CRP). Because FSA plays a lead role in implementing provisions
of the new Farm Bill, the budget places a priority on enhancing the
ability of FSA to provide better service to our producers more
efficiently.
Farm Program Delivery
The new Farm Bill signed in May 2002 required immediate action by
FSA to formulate and put into effect a new set of programs for the 2002
crops. With about 2.1 million farms eligible for the complex, new
Direct and Counter-cyclical Payments Program, FSA faced major
implementation challenges. Producers had until April 1, 2003, to
contact their local FSA offices and update bases and yields, and have
until June 2nd to finalize their contracts. Approximately 4 percent of
our producers were required to schedule appointments after the April
1st deadline to select their base and yield option because of the heavy
workload in some of our busier offices. Those late appointments will be
concluded by tomorrow, May 16th, at which time we are confident that
everyone who wanted to update their bases and yields will have been
provided the opportunity to do so. Approximately $4.3 billion in direct
and counter-cyclical payments had been paid out as of April 25th, and
payments have risen rapidly as signup has progressed. In addition, over
$1.3 billion in Milk Income Loss Contract payments have been made to
date to dairy producers, and about $1.2 billion in Peanut Quota Buyout
payments have been made along with Apple Market Loss Assistance and
other payments issued this fiscal year.
Along with implementation of the provisions of the new farm bill,
FSA continues to meet the challenges of simultaneously implementing
provisions of the recently passed $3.1 billion Disaster Assistance
package. In fact, FSA is currently making payments to producers signed
up for the reauthorized Livestock Compensation Program; approximately
$15 million in refunds under the Conservation Reserve Program Refund
Program; and $10 million in grants to Texas farmers for water losses in
the Rio Grande Valley. Sign-up for the $50 million Cottonseed Program
began 2 weeks ago, with payments scheduled to begin at the end of June
and, within a few days, FSA will begin disbursing payments for the $55
million Tobacco Payment Program. On June 6th we will begin accepting
applications for the $2.15 billion Crop Disaster Program and begin
making payments by the end of June. We are also expediting $60 million
in payments to sugarcane producers suffering from devastating hurricane
losses, $1.7 million in assistance to New Mexico producers who incurred
losses from pesticide applications, and $60 million in payments to
sugar beet producers. A disaster assistance website with frequently
asked questions and answers as well as input from farmers, ranchers,
and industry organizations have ensured that the programs are
implemented clearly and effectively.
The magnitude and complexity of the programs being implemented will
continue to reinforce the need to improve customer service efficiency
in FSA and the other county-based conservation and rural development
agencies. FSA will continue to face a substantial workload through
2004, as new Farm Bill programs are implemented. As the initial work
associated with commodity programs signup in 2003 moderates, the
workload associated with supporting the expansion of the Farm Bill
mandated conservation programs will rise in 2004 and beyond.
The proposed 2004 program level for FSA salaries and expenses of
$1.3 billion will support a ceiling of about 5,900 Federal staff years
and 10,800 non-Federal county staff years. The proposed level for 2004
will maintain permanent non-Federal county staffing at prior year
levels, while reducing the number of temporary non-Federal staff, which
had been increased in 2003 and earlier years to support supplemental
assistance programs and to begin Farm Bill implementation in 2002 and
2003. The agricultural assistance title of the 2003 omnibus
appropriations act provides $70 million for the administrative costs of
implementing that title, as well as title I of the 2002 Farm Bill.
Federal staff years for 2004 are near prior year levels except for an
increase of 56 staff years to support the Geospatial Information System
(GIS) initiatives to improve services to producers and enhance
efficiency.
The Administration places high priority on management initiatives
and investments in technology to deliver improved, more efficient
services to rural customers by continuing to streamline and modernize
the field offices and Service Centers. Although we have established a
high number of consolidated Service Centers and have made major strides
in replacing separate-agency, aging information technology systems with
the Common Computing Environment and re-engineered business processes,
additional steps are needed to realize the full benefits.
A key component in these efforts is the continued initiative to put
the GIS in place to replace normal hard-copy paper maps and data files
with an integrated digital system. The GIS will enable producers and
the Service Center agencies to electronically share and process vital
information on farm records, soils, and aerial photography in ways that
can dramatically improve efficiency. The President's budget proposes
$42 million in appropriated funds under the Office of the Chief
Information Officer for FSA's component of the Common Computing
Environment to support GIS and related FSA investments.
FSA also will work on modernizing its farm credit program servicing
activities, and we will review Service Center office processes and
structure to explore additional ways to provide services at lower cost.
Commodity Credit Corporation
Disaster and commodity price and income support programs
administered by FSA are financed through the Commodity Credit
Corporation (CCC). CCC also is the source of funding for a number of
conservation programs administered by USDA, and it funds many of the
export programs administered by the Foreign Agricultural Service. CCC
borrows funds directly from the Treasury to finance those programs.
Changes over the last decade in commodity, disaster, and
conservation programs have dramatically changed the level, mission, and
variability of CCC outlays. CCC net outlays have declined from a record
of $32 billion in 2000 to $22.1 billion in 2001 and $15.7 billion in
2002.
CCC net outlays for 2004 are currently estimated at $15.4 billion,
down approximately $3.8 billion from the revised 2003 estimated level
of $19.2 billion. These estimates reflect the new Farm Bill and the
supplemental emergency disaster assistance provided in the omnibus
appropriations act for 2003.
Annual agriculture appropriations acts authorize CCC to replenish
its borrowing authority as needed from the Treasury, up to the amount
of realized losses at the end of the preceding fiscal year. This
authority provides CCC with the flexibility to request funds as needed
from the Treasury, up to the actual losses recorded for the most recent
year. For 2002 losses, CCC was reimbursed $17.7 billion.
Conservation Programs
Conservation program outlays will account for over 10 percent of
CCC expenditures in 2003. The Farm Bill authorized direct CCC funding
for the CRP administered by FSA and dramatically increased funding for
several conservation programs administered by NRCS. Funds for several
conservation programs are transferred to NRCS and presented in the
budget estimates for that agency.
CRP protects millions of acres of topsoil from erosion and is
designed to improve the Nation's natural resources base. Participants
voluntarily remove environmentally sensitive land from agricultural
production by entering into long-term contracts for 10 to 15 years. In
exchange, participants receive annual rental payments and a payment of
up to 50 percent of the cost of establishing conservation practices.
The 2002 Farm Bill authorized USDA to increase CRP enrollment to
39.2 million acres in fiscal year 2006 through general signups, a
continuous signup, the Conservation Reserve Enhancement Program (CREP),
and the Farmable Wetlands Program (FWP). Since May 5, FSA has been
accepting applications for a Conservation Reserve Program (CRP) general
signup. Current participants with contracts expiring this fall,
accounting for about 1.5 million acres, can make new contract offers.
Contracts awarded under the new general signup will become effective at
either the beginning of fiscal year 2004 or the following fiscal year,
whichever the producer chooses.
The Farm Service Agency will evaluate and rank eligible CRP offers
using the Environmental Benefits Index (EBI) for environmental benefits
to be gained from enrolling the land in CRP. Decisions on the EBI
cutoff will be made after the general signup ends in late May and EBI
numbers of all offers have been analyzed. Those who would have met
previous sign-up EBI thresholds are not guaranteed a contract under the
current signup.
Aside from the general signup, the CRP continuous signup program is
ongoing. USDA has reserved two million acres for the continuous
program, which represents the most environmentally desirable and
sensitive land. USDA is making a special effort to help enhance
wildlife habitats and air quality by setting aside 500,000 acres for
bottomland hardwood tree planting. Continuous signup for hardwood
planting will begin after the general signup is complete.
The President's budget does not request additional appropriated
funding for the Emergency Conservation Program for 2004 because it is
impossible to predict natural disasters in advance and, therefore,
difficult to forecast an appropriate level of funding.
Farm Loan Programs
FSA plays a critical role for our Nation's agricultural producers
by providing a variety of direct loans and loan guarantees to farm
families who would otherwise be unable to obtain the credit they need
to continue their farming operations. By law, a substantial portion of
the direct loan funds are reserved each year for assistance to
beginning, limited resource, and socially disadvantaged farmers and
ranchers. For 2004, 70 percent of direct farm ownership loans are
reserved for beginning farmers and about 35 percent are made at a
reduced interest rate to limited resource borrowers, who may also be
beginning farmers.
The 2004 budget includes funding for about $850 million in direct
loans and $2.7 billion in guarantees. In prior years, the Department
shifted funding from guaranteed operating loans to meet excess demand
in the direct loan programs. The levels requested for 2004 reflect
those shifts and are expected to reflect actual program demand more
accurately. The overall reduction is due primarily to higher subsidy
rates for the direct loan programs, which make those programs more
expensive to operate than guarantees. However, we believe the proposed
loan levels will be sufficient to meet the demand in 2004.
The 2004 budget maintains funding of $2 million for the Indian Land
Acquisition program. For the Boll Weevil Eradication program, the
budget requests $60 million, a reduction of $40 million from 2003. This
reduction is due to the successful completion of eradication efforts in
several areas. The amount requested is expected to fund fully those
eradication programs operating in 2004. For emergency disaster loans,
carryover funding from 2003 is expected to provide sufficient credit in
2004 to producers whose farming operations have been damaged by natural
disasters.
RISK MANAGEMENT AGENCY
The Federal crop insurance program represents one of the strongest
safety net programs available to our Nation's agricultural producers.
It reflects the principles of this Administration contained in the Food
and Agricultural Policy report by providing risk management tools that
are compatible with international trade commitments, creates products
and services that are market driven, harnesses the strengths of both
the public and private sectors, and reflects the diversity of the
agricultural sector.
In 2002, the crop insurance program provided about $37 billion in
protection on over 215 million acres, which is about 4 million acres
more than were insured in 2001. Our current projection is that
indemnity payments to producers on their 2002 crops will exceed $4
billion, which is about $1 billion more than was incurred on 2001
crops.
The crop insurance program has seen a significant shift in business
over the past several years--producers have chosen to buy-up to higher
levels of coverage as a result of increased premium subsidies provided
in the Agricultural Risk Protection Act of 2000 (ARPA). The number of
policies, acres, liability, and premium all increased more than 40
percent for coverage levels 70 percent and higher.
Our current projection for 2004 shows a modest decrease in
participation. This projection is based on USDA's latest estimates of
planted acreage and expected market prices for the major agricultural
crops, and assumes that producer participation remains essentially the
same as it was in 2002.
The 2004 budget includes a legislative proposal to reduce the
percentage of administrative expense reimbursements from 24.5 percent
to 20 percent of premium. This proposal is estimated to save taxpayers
about $68 million in 2004. A 1997 study of the crop insurance program
by the General Accounting Office (GAO) indicated that higher premiums
had resulted in substantially higher reimbursements to the companies
for delivering essentially the same number of policies. In 1998,
Congress responded to that report by imposing the current cap of 24.5
percent on reimbursements. Since that time, Congress has enacted a
number of reforms to crop insurance designed to encourage participation
at higher levels of coverage. Although the number of policies sold has
remained virtually unchanged, total premiums in 2002 are more than 50
percent higher than in 1998, and reimbursements have increased by about
$229 million over that time.
Savings in reimbursements to the companies are achievable. About 95
percent of the policies sold annually are renewals, which require less
work to maintain and service than do policies sold for the first time.
Further, in 2000, Congress passed the Freedom to e-File Act, which
mandated that Federal Agencies provide access to all forms and other
program information via the internet and provide for the electronic
filing of all required program paperwork. Today, the vision Congress
expressed through that mandate is a reality for agricultural producers
participating in the Federal crop insurance program who are doing most
of the paperwork on their own.
The 2004 budget requests an appropriation of ``such sums as
necessary'' as mandatory spending for all costs associated with the
program, except for Federal salaries and expenses. This level of
funding will provide the necessary resources to meet program expenses
at whatever level of coverage producers choose to purchase. The current
projection for the 2004 budget year is that $3.3 billion will be needed
for that purpose.
For salaries and expenses of the Risk Management Agency (RMA),
$78.5 million in discretionary spending is proposed, an increase of
about $8 million above 2003. This net increase includes additional
funding mainly for information technology, maintenance costs, increased
monitoring of the insurance companies, and pay costs.
At this time I would like to return to the budget request for the
common computing environment (CCE). This budget includes about $8.7
million for information technology needs of RMA under the CCE. This
amount is in addition to any funding requested within the salaries and
expenses of RMA. Historically, funding under the CCE has been reserved
for the Service Center agencies. However, in the ARPA legislation
passed in 2000, Congress mandated a new role for FSA to assist RMA with
program compliance and integrity in the crop insurance program. That
mandate has required a greater level of coordination and data sharing
between these two agencies. The best way to ensure the level of
coordination required is to provide funding under the controls of the
CCE.
RMA's information technology system is aging; the last major
overhaul occurred about 10 years ago. Since that time, the crop
insurance program has expanded tremendously. Catastrophic coverage and
revenue insurance products have been initiated and coverage for new
commodities has been added, including many specialty crops and more
recently livestock. In short, RMA's information technology system has
not kept pace with the changes in the program. The funding requested
under the CCE will provide for improvements to RMA's existing
information technology system to improve coordination and data sharing
with the insurance companies and with FSA. The funding will also
provide for the development of a new information technology
architecture to support the way RMA will need to do business in the
future with strong consideration to shared resources under the CCE.
FOREIGN AGRICULTURAL SERVICE
The importance of international markets for America's farmers and
ranchers cannot be overstated and, thus, improving market access and
expanding trade are among our highest priorities for American
agriculture. Expanding international market opportunities is one of the
key objectives set forth in the Department's new strategic plan.
We continue to pursue our trade expansion efforts on many fronts.
At the center of these efforts is the negotiation of trade agreements
that will reduce barriers and improve access to overseas markets. We
expect 2003 will be a crucial year for these efforts. At the World
Trade Organization (WTO) multilateral negotiations, where U.S. remains
committed to an ambitious outcome, we are entering a critical phase.
Having missed the March 31st the deadline for reaching agreement on the
modalities--or formula--for reducing protection and trade-distorting
subsidies, we need to step up our efforts to press for real and
effective trade reform. The next critical milestone will be the
September Ministerial in Cancun. Our trading partners, particularly the
European Union and Japan, must show flexibility and demonstrate their
commitment to reform in order for the Ministerial to give the
negotiations the direction and impetus to conclude next year.
We also are engaged in a number of regional and bilateral
negotiations to establish free trade agreements. Negotiations to
establish a Free Trade Area of the Americas (FTAA) are entering an
important phase. In February, countries tabled specific offers to
reduce trade barriers in key areas, including agriculture. The United
States will host the next FTAA Ministerial in November, and we will be
working diligently to move the negotiations along. Our goal is to
provide greater trade opportunities in this market of 800 million
consumers with an annual Gross Domestic Product of $13 trillion. At the
same time, we will be engaged in negotiations this year with Central
American countries, the Southern African Customs Union, Australia, and
Morocco to reach free trade agreements that will improve trade
opportunities for American farmers and ranchers.
Our trade policy activities are not limited to negotiating new
agreements however. As new agreements have been implemented, we have
stepped up our efforts to monitor compliance and ensure that U.S. trade
rights are protected. These efforts are essential as the Department
continues to work diligently to resolve a number of trade problems,
such as China's implementation of its WTO accession commitments on
tariff-rate quota administration and export subsidy obligations;
Russia's quotas on meat and poultry imports; and Mexico's continuing
implementation of provisions of the North American Free Trade
Agreement.
As traditional trade barriers fall, we find a rise in technical
barriers to trade including resistance to adoption of new technologies,
such as biotechnology, and increased use of sanitary and phytosanitary
measures. It is fundamental to our maintaining market access to
encourage the adoption by our trading partners of science-based
regulatory systems. In this regard, it has become increasingly
important to improve these countries' capacity to trade so that they
can take part in negotiations, implement agreements, and connect trade
liberalization to a program for economic reform and growth. This work
is important because it helps to engage developing countries in the
development and implementation of trading rules and guidelines and,
thereby, helps to ensure the success of the trade negotiating process
and the fair implementation of its results.
Another major focus of activity this year is implementation of the
new Trade Adjustment Assistance for Farmers program that was authorized
in the Trade Act of 2002. Under the new $90 million program, USDA is
authorized to make payments to eligible producers when commodity prices
have been affected by imports. Benefits may be provided when the
current year's price of an agricultural commodity is less that 80
percent of the national average price during a preceding 5-year period
and the Secretary determines that imports have contributed importantly
to the price decline. This has proven a very complex program to put in
place; its administration will involve at least 5 agencies of the
Department. These agencies have worked diligently to design and
establish the program. Proposed regulations for the program were
published on April 23rd, and we are working to have final regulations
in place and to begin accepting petitions for assistance this summer.
FAS Salaries and Expenses
The Foreign Agricultural Service (FAS) serves as the lead agency in
the Department's international activities and plays a critical role in
our efforts to expand and preserve overseas markets. In March, we
observed the 50th anniversary of FAS, an important milestone for the
agency and for the Department.
Much has changed during the past 50 years, not the least of which
is the importance of international markets for U.S. farmers and
ranchers and the FAS programs that support our agricultural community
to take advantage of those opportunities. U.S. agricultural exports
were $2.8 billion during 1953, while imports were higher at $4.3
billion. By fiscal year 2002, exports had grown to just over $53
billion and imports to $41 billion.
This morning, our more immediate concern is ensuring that FAS has
the necessary resources and staffing to continue their important work
as we face new trade challenges together with the U.S. agricultural
community. The budget provides total appropriated funding for FAS of
$145.2 million for 2004, and supports a number of important trade-
related initiatives.
First, an additional 20 staff years are provided to FAS to
facilitate the agency's active involvement in ongoing multilateral,
regional, and bilateral trade negotiations and to bolster its efforts
to address rapidly growing market access constraints related to
biotechnology, and sanitary and phytosanitary measures. These will be
funded from a centralized fund to be established in the Office of the
Secretary to support cross-cutting USDA trade-related and biotechnology
activities.
Funding also is provided to FAS for a trade capacity building
initiative to support a number of critical activities supporting our
trade policy agenda. This includes assistance to countries to implement
the Cartagena Protocol on Biosafety. If countries misinterpret the
Protocol, it can seriously impede international trade, product
development, technology transfer, and scientific research. FAS will
work with developing countries so that science-based, transparent, and
non-discriminatory standards are adopted and, by doing so, will help to
avoid potential disruptions to trade or other problems.
Funding is also provided for a USDA contribution to the Montreal
Protocol Multilateral Fund. The Fund was established in 1991 to help
developing countries switch from ozone depleting substances to safer
alternatives. The USDA contribution will supplement contributions by
the Department of State and Environmental Protection Agency to the Fund
and will further U.S. agricultural interests in the implementation of
the Protocol.
Finally, the 2004 budget requests additional funds for FAS for a
number of non-discretionary administrative requirements, including pay
cost increases, inflation, and higher payments to the Department of
State for administrative services provided at overseas posts.
Export Promotion and Market Development Programs
FAS administers the Department's major export promotion and market
development programs that are key components in our efforts to expand
exports. The 2002 Farm Bill provided increased funding for a number of
these programs in order to bolster our trade expansion efforts on
behalf of U.S. agriculture, and the President's 2004 budget proposals
fully reflect those increases.
For the market development programs, including the Market Access
Program and the Foreign Market Development Cooperator Program, the
budget provides $164 million, an increase of $15 million above 2003.
Included in this amount is $2 million for the Technical Assistance for
Specialty Crops program that was authorized in the Farm Bill. Under the
program, grants are provided to assist U.S. organizations in activities
designed to overcome phytosanitary and related technical barriers that
prohibit the export of U.S. specialty crops. FAS worked very hard in
getting that program up and running so that 2002 programming could be
implemented by the end of last year. Final regulations for the program
are currently under development and are expected to be published in the
near future, which will allow 2003 programming to move forward.
For the CCC export credit guarantees, the largest of our export
programs, the budget includes a program level of $4.2 billion. We
experienced strong growth in the supplier credit guarantee program
during 2002, with sales registrations once again doubling the previous
year's level.
The budget also includes projected program levels of $57 million
for the Dairy Export Incentive Program and $28 million for the Export
Enhancement Program (EEP).
International Food Assistance
The United States continues its commitment to alleviating hunger
and improving food security in developing countries through the
provision of food assistance. The budget includes a total program level
for U.S. foreign food assistance of nearly $1.6 billion. This includes
$1.3 billion for Public Law 480 Title I credit and Title II donations,
which is expected to support the export of 3.1 million metric tons of
commodity assistance. The Farm Bill increased the annual minimum
tonnage for Title II donations to 2.5 million metric tons and, based on
current price projections, the budget provides sufficient funding to
meet that requirement.
The budget also provides $50 million of appropriated funding for
the McGovern-Dole International Food for Education and Child Nutrition
Program. As the Committee will recall, the Farm Bill authorized this
new program, which succeeds the Global Food for Education Initiative
pilot program that the Department carried our during 2001 and 2002. For
2003, the program will be funded through the CCC but, beginning in
2004, is to be funded through annual appropriations. FAS published
proposed regulations for the program on March 26th, and the public
comment period ended on April 25th. Once the final rule is published,
FAS will request proposals from private voluntary organizations, the
World Food Program, and other groups to begin implementation of the
program.
The budget also includes a program level of $151 million for the
CCC-funded Food for Progress programs during 2004. The Farm Bill
authorized an increase in transportation and other non-commodity costs
in order to support the minimum annual program level of 400,000 metric
tons for Food for Progress activities established in the Bill. Finally,
the budget also assumes that donations of nonfat dry milk will continue
under the authority of section 416(b) of the Agricultural Act of 1949.
The value of the assistance and associated costs are projected to total
$118 million.
This concludes my statement, Mr. Chairman. I would be pleased to
answer any questions you or other Members of the Committee may have.
______
Prepared Statement of James R. Little, Administrator, Farm Service
Agency
Mr. Chairman and Members of the Subcommittee, I appreciate the
opportunity to present the fiscal year 2004 budget for the Farm Service
Agency (FSA). This budget supports the FSA programs that will ensure a
strong, viable U.S. agriculture market. Before addressing the details
of the budget, I would like to comment on some of the initiatives that
FSA has undertaken over the last year.
Farm Bill Implementation
Since before the Farm Security and Rural Investment Act of 2003 was
signed on May 13, 2002, FSA employees in headquarters and across the
Nation have dedicated themselves to its effective and timely
implementation.
Producers had until April 1, 2003, to contact their local FSA
offices and update bases and yields and until June 2nd to finalize
their contracts. Approximately 4 percent of our producers were required
to schedule appointments after the April 1st deadline because of the
heavy workload in some of our busier offices. Those late appointments
should be completed by tomorrow, May 16th, at which time we are
confident that everyone who wanted to update their bases and yields
would have been provided the opportunity to do so. As of April 25th,
FSA has issued approximately $4.3 billion in direct and counter-
cyclical payments (DCP)--over $3 billion in direct payments and over $1
billion in counter-cyclical payments to date, and payments have risen
rapidly as signup has progressed. We have worked diligently to ensure
that producers have the information they need to make informed
decisions about program participation. While the DCP Program has been a
major focus, we have also provided a steady stream of information on
other Farm Bill provisions including: the Milk Income Loss Contract
program, the Peanut Quota Buyout program, new loan rates, the addition
of pulse crops, and other issues important to the agriculture
community. As of April 25th, over $1.3 billion in Milk Income Loss
Contract payments have been made to dairy producers. About $1.2 billion
in Peanut Quota Buyout payments have also been made along with the
Apple Market Loss Assistance and other payments issued this fiscal
year.
At the same time, we have worked internally to develop extensive
training sessions and materials to ensure that county office employees
on the front line of program delivery have the information needed to
perform their jobs. Recognizing that the effectiveness and efficiency
of Farm Bill implementation hinges on high quality and timely
information, FSA worked with State extension services and the Farm
Foundation to undertake an extensive training initiative. In August and
September of 2002, four regional train-the-trainer meetings were
conducted to provide representatives of State extension services,
Native American councils and tribal organizations, 1862 and 1890
universities, farm organizations, farm consulting firms, farm
management organizations, farm lenders, and agribusiness leaders with
Farm Bill information. Attendees were able to use materials provided at
the sessions to replicate the training within their own organizations
and train an additional 1,000 trainers. This process allowed local
training for various target audiences of farmers and ranchers across
the Nation. In addition, attendance by the press helped ensure that
early and accurate Farm Bill information was disseminated through the
media. The partnership between Federal, State, and private
organizations was key in alerting producers of the importance of making
informed management decisions regarding the new legislation.
FSA employees at every organizational level have succeeded in
implementing extensive new programs and program changes in record time.
The implementation challenge was complicated by the need to partially
rely on old technology systems. We are in the process of transitioning
to new systems under the Common Computing Environment and look forward
to the benefits of the improvements, once the transition is complete.
Technology has proven to be an invaluable tool. We have
supplemented our FSA website to provide Farm Bill information and
program details, updated enrollment data, and frequently asked
questions. The website offers online program forms to allow producers
to e-file applications in compliance with the Government Paperwork
Elimination Act. We also provided web-based calculation tools such as
the base and yield update analyzer developed in collaboration with
Texas A&M University.
As we continue to administer the Farm Bill programs, we are
committed to utilizing technology and process improvements to further
enhance performance and deliver the quality of service that America's
producers and taxpayers have the right to expect.
Agricultural Assistance Act Implementation
Along with implementation of the new farm bill, FSA continues to
meet the challenges of simultaneously implementing provisions of the
recently passed $3.1 billion Agricultural Assistance Act of 2003. In
fact, FSA is currently making payments to producers signed up for the
reauthorized Livestock Compensation Program; approximately $15 million
in refunds under the Conservation Reserve Program Refund Program; and
$10 million in grants to Texas farmers for water losses along the Rio
Grande River. Signup for the $50 million Cottonseed Program began 2
weeks ago, with payments scheduled to begin at the end of June, and FSA
will begin disbursing payments for the $55 million Tobacco Payment
Program within a few days. On June 6th, we will begin accepting
applications for the $2.15 billion Crop Disaster Program and begin
making payments by the end of June. We are also expediting $60 million
in payments to sugarcane producers suffering from devastating hurricane
losses, $1.7 million in assistance to New Mexico producers who incurred
losses from pesticide application, and $60 million payments to sugar
beet producers.
Civil Rights
To ensure every customer is treated with dignity and respect, FSA
has developed a civil rights action plan to address issues of unequal
access and disparate treatment in the past. The plan ensures that
preventive measures, such as oversight of loan servicing and outreach
at the State level, are in place. We are investigating reports of
disparate treatment in certain locales, taking corrective action where
appropriate. Our actions ensure that FSA employees at every level, in
every part of the country, offer superior customer service.
Program Outreach
FSA's civil rights effort works in tandem with our ongoing program
outreach initiative. For fiscal year 2003, we initiated 16 projects to
reach out to various under-served populations across the country. Nine
of these projects are underway, and six are in the planning stages. One
of the projects is an expansion of the existing American Indian Credit
Outreach Initiative, which originated as a pilot project in Montana and
has achieved resounding success. The project was expanded to 10 States
in fiscal year 2002, and we are expanding to 31 States in 2003.
Warehouse Act Implementation
FSA has also been engaged in implementing revisions in the law
pertaining to federally licensed warehouse operators under the Grain
Standards and Warehouse Improvement Act of 2000. USDA has defined the
issue of Federal preemption as the exclusive jurisdiction of the
Department over a Federally licensed warehouse for activities related
to the merchandising and storage of grain. We have developed an action
plan that improves warehouse regulations and better protects the
interests of producers and other depositors. One measure we are
proposing is to upgrade the net worth and financial reporting
requirements for obtaining a Federal warehouse license. Revised
licensing agreements for commodities other than grains will be
available for review by warehouse operators early this summer, prior to
the start of the 2003 harvest. Licensing agreements for grain elevators
have been postponed in accordance with the moratorium under Section 770
of the 2003 Consolidated Appropriations Resolution.
Management Initiatives
FSA is an active participant in USDA's management achievements,
many of which fall within the scope of the President's Management
Agenda. I would like to highlight a few of our success stories.
Improving Financial Performance.--FSA has demonstrated its
commitment to improving financial performance and accountability by
achieving a clean audit opinion for the fiscal year 2002 financial
statements. A clean audit opinion assures the public that the financial
data is reliable, accurate, and complete, and it enables users to make
informed decisions and manage resources more wisely. The achievement of
a clean audit opinion contributed toward the clean audit opinion for
USDA as well. We have also made progress in fully complying with the
Debt Collection Improvement Act of 1996.
Expanded Electronic Government.--In partnership with other Service
Center agencies, FSA met the requirements of the Freedom to E-File Act
in 2002 by posting over 300 electronic forms for producer access
through our common e-Forms service site located at the following
address: http://forms.sc.egov.usda.gov.
Farm Credit Program Loan Servicing.--FSA is working with the
Department to identify and implement improvements to modernize loan
servicing, including mailings, billings, collections, and
correspondence.
BUDGET REQUESTS
The following highlights our proposals for the 2004 budget for
commodity and conservation programs funded by the Commodity Credit
Corporation (CCC); the farm loan programs of the Agricultural Credit
Insurance Fund; our other appropriated programs; and administrative
support.
COMMODITY CREDIT CORPORATION
Domestic farm commodity price and income support programs are
administered by FSA and financed through the CCC, a government
corporation for which FSA provides operating personnel. Commodity
support operations for corn, barley, oats, grain sorghum, wheat and
wheat products, soybeans, minor oilseed crops, cotton (upland and extra
long staple), rice, tobacco, milk and milk products, honey, peanuts,
pulse crops, sugar, wool and mohair are primarily facilitated through
loans, payment programs, and purchase programs.
The 2002 Farm Bill authorizes CCC to transfer funds to various
agencies for authorized programs in fiscal years 2002 through 2007. It
is anticipated that in fiscal year 2003, $1.5 billion will be
transferred to other agencies.
The CCC is also the source of funding for the Conservation Reserve
Program (CRP) administered by FSA, as well as many of the conservation
programs administered by the Natural Resources Conservation Service.
CCC also funds many of the export programs administered by the Foreign
Agricultural Service. When called upon, CCC finances various disaster
assistance programs authorized by Congress.
Program Outlays
The 2004 budget estimates largely reflect supply and demand
assumptions for the 2003 crop, based on November 2002 data. CCC net
expenditures for fiscal year 2004 are estimated at $15.4 billion, down
about $3.8 billion from $19.2 billion in fiscal year 2003.
The nearly $3.8 billion net decrease in projected expenditures is
attributable to reduced outlays for disaster assistance programs and
several programs such as Milk Income Loss Contract payments, Peanut
Quota Buyout payments, and net marketing assistance loan outlays, which
more than offset increased outlays for direct and counter-cyclical
payments.
Reimbursement for Realized Losses
Annual appropriations acts authorize CCC to replenish its borrowing
authority, as needed, from Treasury, up to the amount of realized
losses recorded in CCC's financial statements at the end of the
preceding fiscal year. For fiscal year 2002 losses, CCC was reimbursed
$17.7 billion.
Conservation Reserve Program
FSA's Conservation Reserve Program (CRP) is currently USDA's
largest conservation/environmental program. It is designed to cost-
effectively assist farm owners and operators in improving soil, water,
air, and wildlife resources by converting highly erodible and other
environmentally sensitive acreage to a long-term resource-conserving
cover. CRP participants enroll acreage for 10 to 15 years in exchange
for annual rental payments as well as cost-share assistance and
technical assistance to install approved conservation practices. The
2002 Farm Bill increased the enrollment ceiling under this program from
36.4 million acres to 39.2 million acres.
The fiscal year 2004 budget reflects funding for general signups in
fiscal years 2003 and 2004, for approximately 2.8 million acres and 1.8
million acres, respectively; 600,000 continuous signup and Conservation
Reserve Enhancement Program acres and 100,000 Farmable Wetlands Program
acres. Since May 5, FSA has been accepting applications for CRP. In
addition to the general signup, CRP's continuous signup program will be
ongoing. In total, two million acres are reserved for the continuous
signup program, which provides for enrollment of the most
environmentally desirable and sensitive land. Included in the two
million acre reserve is 500,000 acres for bottomland hardwood tree
planting to enhance wildlife habitats and air quality. Continuous
signup for hardwood planting will start after the general signup is
complete.
Current participants with contracts expiring September 30, 2003,
account for about 1.5 million acres. These participants can make new
contract offers during the general signup, with an effective date of
October 1, 2004 if they are accepted. All other contracts awarded under
this signup will become effective either at the beginning of next
fiscal year, October 1, 2003, or the following year, October 1, 2004,
whichever the producer chooses.
The Farm Service Agency will evaluate and rank eligible CRP offers
using the Environmental Benefits Index (EBI). Decisions on the EBI
rankings and cutoff criteria will be made after signup ends and after
analyzing EBI rankings of all offers. Those who may have met previous
signup EBI thresholds are not guaranteed a contract under this signup,
as USDA is committed to enrolling acreage which will provide the
greatest environmental benefit.
Overall, CRP enrollment is assumed to gradually increase from 34
million acres at the end of fiscal year 2002 to 39.2 million acres by
fiscal year 2006, while maintaining a reserve sufficient to provide for
a total program enrollment of 4.2 million acres in continuous signup
and CREP. To date, approximately 2.2 million acres are already enrolled
through continuous signup and CREP. In May 2000, new continuous signup
and CREP participants became eligible for additional financial
incentives designed to boost participation. USDA has allocated $147
million for these one-time, up-front incentive payments in each of
fiscal years 2003 through 2006. Actual incentive payments for fiscal
year 2002 were approximately $115 million.
FARM LOAN PROGRAMS
The loan programs funded through the Agricultural Credit Insurance
Fund provide a variety of loans and loan guarantees to farm families
who would otherwise be unable to obtain the credit they need to
continue their farming operations.
The fiscal year 2004 Budget proposes a total program level of about
$3.5 billion. Of this total, $2.7 billion is requested for guaranteed
loans, which are offered in cooperation with private lenders. To align
more closely with actual program demand, the fiscal year 2004 Budget
allocates a larger share to the direct loan programs than the 2003
request. In 2001 and 2002, FSA transferred guaranteed loan funding to
the direct loan programs as provided by law, and we are preparing for a
similar transfer in 2003. By increasing the proportion of direct loan
funding up front, as proposed, we will avert delays that might occur
through an inter-program transfer of funds.
For direct farm ownership loans, we are requesting a loan level of
$140 million. The proposed program level would allow FSA to extend
credit to about 1,200 small and beginning farmers to purchase or
maintain a family farm. In accordance with legislative authorities, FSA
has established annual county-by-county participation targets for
members of socially disadvantaged groups based on demographic data.
Seventy percent of direct farm ownership loans are reserved for
beginning farmers, and about 35 percent are made at a reduced interest
rate to limited resource borrowers, who may also be beginning farmers.
For direct farm operating loans, we are requesting a program level of
$650 million to provide nearly 14,000 loans to family farmers.
For guaranteed farm ownership loans in fiscal year 2004, we are
requesting a loan level of $1 billion, which will provide approximately
3,500 farmers the opportunity to acquire their own farm or to preserve
an existing one. Guaranteed farm ownership loans allow real estate
equity to be used in restructuring short-term debt under more favorable
long-term rates. For guaranteed farm operating loans, we propose an
fiscal year 2004 program level of approximately $1.7 billion to assist
about 10,000 producers finance their farming operations. This program
enables private lenders to extend credit to farm customers who would
not otherwise qualify for commercial loans. We are particularly proud
of our guaranteed loan program, which is one of the most successful in
the government system.
In addition, our budget proposes program levels of $2 million for
Indian tribal land acquisition loans and $60 million for boll weevil
eradication loans. For emergency disaster loans, carryover funding from
2003 is expected to provide sufficient credit to producers whose
farming operations have been damaged by natural disasters.
OTHER APPROPRIATED PROGRAMS
State Mediation Grants
State Mediation Grants assist States in developing programs that
deal with disputes involving distressed farm loans, wetland
determinations, conservation compliance, pesticides, and other
agricultural issues. Operated primarily by State universities or
departments of agriculture, the program provides neutral mediators to
assist producers, primarily small farmers, in resolving disputes before
they culminate in litigation or bankruptcy. States with certified
mediation programs may request grants of up to 70 percent of the cost
of operating their programs.
The fiscal year 2004 Budget requests $4 million for 28 to 32 grants
to States. The $3.9 million available for fiscal year 2003 has provided
grants to 29 States.
Emergency Conservation Program
It is impossible to predict natural disasters and, therefore,
difficult to forecast an appropriate funding level for the Emergency
Conservation Program (ECP). The President's Budget does not include a
request for this program because a significant amount of supplemental
funding provided in fiscal year 2002 for ECP remained available for
carryover to operate the program in 2003 when the fiscal year 2004
budget was prepared. However, because of severe drought, floods,
tornadoes, and other disasters, which have occurred already this fiscal
year, as of April 22, over $22 million has been allocated in fiscal
year 2003 to repair damage to agricultural lands and to provide water
enhancement measures during the drought emergencies. We are currently
reviewing our funds availability.
Dairy Indemnity Program
The Dairy Indemnity Program (DIP) compensates dairy farmers and
manufacturers who, through no fault of their own, suffer income losses
on milk or milk products removed from commercial markets due to
residues of certain chemicals or other toxic substances. Payees are
required to reimburse the Government if they recover their losses
through litigation or other sources. As of April 22, we had paid fiscal
year 2003 DIP claims totaling $213,000 in nine States.
The fiscal year 2004 appropriation request of $100 thousand,
together with unobligated carryover funds expected to be available at
the end of fiscal year 2003, would cover a higher than normal, but not
catastrophic, level of claims. DIP, which was extended through 2007 by
the 2002 Farm Bill, is an important element in the financial safety net
for dairy producers in the event of a serious contamination incident.
ADMINISTRATIVE SUPPORT
The costs of administering all FSA activities are funded by a
consolidated Salaries and Expenses account. The account comprises
direct appropriations, transfers from loan programs under credit reform
procedures, user fees, and advances and reimbursements from various
sources.
The fiscal year 2004 Budget requests $1.3 billion from appropriated
sources including credit reform transfers. The request assumes
decreases in non-Federal county staff years and operating expenses,
partially offset by increases in pay-related costs to sustain essential
program delivery.
In total, the fiscal year 2004 Budget reflects a ceiling of 5,917
Federal staff years and 10,784 non-Federal staff years. The
Agricultural Assistance Act of the 2003 Consolidated Appropriations
Resolution provided $70 million to cover increased administrative costs
needed to implement the disaster provisions as well as the commodity
provisions of the 2002 Farm Bill. Temporary staffing and overtime will
be used to meet this increased workload for the remainder of this
fiscal year. As workload stabilizes in fiscal year 2004, temporary non-
Federal staff years will be reduced from the fiscal year 2003 level, as
is reflected in this request. Permanent non-Federal county staff years
are expected to increase slightly to support the conservation
provisions, where the workload is expected to remain at significant
levels.
Federal staff years will increase by 56 to support the Geospatial
Information Systems initiative, which will be funded by the Common
Computing Environment account of the Office of the Chief Information
Officer. This and other CCE initiatives will lead to more efficient and
effective customer service and will help move FSA and the other Service
Center agencies into the e-Government era, resulting in significant
long-term savings and administrative improvements.
Mr. Chairman, this concludes my statement. I will be happy to
answer your questions and those of the other Subcommittee Members.
______
Prepared Statement of A. Ellen Terpstra, Administrator, Foreign
Agricultural Service
Mr. Chairman, members of the Subcommittee, I appreciate the
opportunity to review the work of the Foreign Agricultural Service
(FAS) and to present the President's budget request for FAS programs
for fiscal year 2004.
This year, as FAS celebrates its 50th anniversary as an agency, we
have an opportunity to review our history and make sure we are prepared
for tomorrow's challenges. In 1953, Secretary of Agriculture Ezra Taft
Benson issued four challenges to the new agency:
--Supply American agriculture with current market information;
--Promote the sale of American farm products abroad;
--Remove obstacles to foreign trade; and
--Help other countries become better customers through technical
assistance, foreign investment, greater use of credit and other
means.
Through all the changes of the past 50 years--new nations, new
technologies, new food and agricultural products, to name just a few--
those activities remain the core of our agency's work. The work we do
supports the Department's strategic objectives of expanding
international market opportunities and supporting international
economic development and trade capacity building.
The challenges the new FAS faced in 1953 are not unlike the
challenges we face today--the excess productive capacity of U.S.
agriculture, continued global agricultural policy reform, weather
uncertainties and competition. At the same time, the U.S. export
situation is incredibly different. During the 1950s, our agricultural
trade balance was awash in red ink. In 1953, for example, U.S.
agricultural imports were $4.3 billion and exports were $2.8 billion,
leaving a trade deficit of $1.5 billion. In sharp contrast, for fiscal
2002, U.S. agricultural exports topped $53 billion and imports were $41
billion, producing a surplus of more than $12 billion.
In the early 1950s, six of our top 10 export markets were in
Western Europe. Now half are in Asia and only two are in Europe. Also,
Canada and Mexico, our partners in the North American Free Trade
Agreement, ranked 1 and 3 in 2002. Together, they took 29 percent of
our total agricultural exports, up from 11 percent in the early 1950s
when Mexico was not even in the top 10.
Bulk commodities dominated the U.S. trade picture back then. The
big three at the time--wheat, cotton and tobacco leaf--accounted for up
to 60 percent of total U.S. agricultural export value. A USDA report at
the time boasted that our soybean exports set a record in 1953--42
million bushels. We now export about a billion bushels a year. In the
early 1950s, meats trailed animal fats in export volume and value, and
horsemeat tonnage beat poultry meat. Like meats, fruits and vegetables
show huge export gains over the past 50 years. In 1952 and 1953
combined, we exported 164 million pounds of fresh apples, compared with
2.9 billion pounds in 2000-2001.
Many factors contributed to these changes. The global marketplace
has grown enormously--more people, more production, higher incomes and
much, much more trade. World population increased from about 2.7
billion in 1953 to a projected 6.3 billion this year. Urban populations
have more than tripled.
Rising incomes have expanded trade not only by generating demand
for more food, but also by helping to alter diets, sharply boosting per
capita global consumption and trade in meats, cereals, fruits and
vegetables, and processed grocery products. At the same time, trade
liberalization, changing market structures and new technologies in
processing, storage and shipping created new opportunities and new
markets.
American producers, processors and exporters took advantage of
these growing opportunities by increasing their productivity, improving
quality and variety, and intensifying marketing efforts. And through it
all, government--including FAS--and the private sector developed a
strong partnership, working together on market development and
promotion programs, market-opening negotiations and new trade
agreements, food and technical assistance, and research and quality
improvements.
While we still face many challenges, we continue to believe that
world markets offer rewarding growth opportunities and play a vital
role in the future strength and prosperity of American agriculture.
FAS Program Activities
Throughout our 50 years, Congress has given us many tools to help
us expand export opportunities for U.S. agricultural, fish, and forest
products. Last year, we continued to use our long-standing export
programs vigorously and have implemented new initiatives contained in
the Farm Security and Rural Investment Act of 2002.
The 2002 Farm Bill established the Technical Assistance for
Specialty Crops program and authorizes $2 million in Commodity Credit
Corporation funds for each fiscal year from 2002 to 2007. We moved
quickly to implement the program and allocated $2 million to 18
entities for fiscal year 2002 under this program, which is designed to
address unique barriers that prohibit or threaten the export of U.S.
specialty crops.
The Farm Bill also increased the Market Access Program to $100
million for 2002, and those funds were allocated to 65 trade
organizations to promote their products overseas. The Farm Bill
increased funds for the Foreign Market Development Program, and FAS
approved marketing plans totaling $34.5 million for 24 trade
organizations for fiscal year 2002.
The Emerging Markets Program is authorized at $10 million each year
to promote increased market access for U.S. commodities and products in
emerging markets. A total of 82 projects were approved for fiscal year
2002. The Quality Samples Program provides funds so U.S. organizations
can provide commodity samples to foreign buyers to help educate them
about the characteristics and qualities of U.S. agricultural products.
FAS allocated $1.6 million in fiscal year 2002 to 21 organizations
under this program.
The export credit guarantee programs facilitated sales of nearly
$3.4 billion in U.S. agricultural products last year. The GSM-102
program helped U.S. exporters register sales of nearly $650 million in
the South America region and over $395 million to Turkey, two areas
where the program is most successful. U.S. exporters continue to
discover the benefits of the Supplier Credit Guarantee Program. We
issued over $452 million in credit guarantees under this program in
2002, and we project continuing growth for this newer GSM program.
With the aid of the Dairy Export Incentive Program (DEIP), U.S.
exporters sold more than 86,000 tons of dairy products in fiscal year
2002. The Commodity Credit Corporation awarded over $54 million in
bonuses to help U.S. dairy exporters meet prevailing world prices and
develop foreign markets, primarily in Asia and Latin America.
On the trade policy front, USDA works to open, expand, and maintain
markets for U.S. agriculture. FAS was a key player in the development
of the comprehensive U.S. agricultural negotiation proposal for the
World Trade Organization (WTO) Doha Development Agenda. The proposal
calls for significant new disciplines in the areas of market access,
export competition, and domestic support.
We also have actively participated in other trade negotiations
including the Free Trade Area of the Americas (FTAA) and the now
completed Singapore and Chile Free Trade Agreements.
While pursuing these new negotiations, we have begun to see the
benefits of earlier agreements. United States exports of forest
products, rice, cotton, citrus, and wheat to Taiwan and China have
increased by over $100 million as a result of their accessions to the
WTO, and U.S. soybean meal and corn exports to Jordan have nearly
doubled as a result of the U.S.-Jordan Free Trade Agreement.
FAS also worked to defend United States access to markets.
Monitoring of trade agreements is essential to ensure that the benefits
gained through long, hard negotiations are realized. Our monitoring of
the Uruguay Round Agreement on Agriculture and the Sanitary and
Phytosanitary Agreement ensured that nearly $1.8 billion in U.S. trade
was protected or expanded. Examples include the monitoring of China and
Taiwan's WTO accession commitments, Venezuela's import licensing for
numerous commodities, and Costa Rica's rice import permits.
In addition, we worked to secure access for U.S. organic exports to
Japan and Europe, averted the imposition of grain import restrictions
by the European Union (EU), and helped open the Australian market to
U.S. table grapes.
To support the U.S. commitment to global food aid efforts, we have
used our assistance authorities to ship commodities from the United
States to needy people around the world. FAS programmed more than 2.4
million metric tons of food assistance in fiscal year 2002 under Public
Law (Public Law) 480, Title I and Section 416(b) of the Agricultural
Act of 1949. These products, valued at $600 million, went to more than
60 countries.
Under the pilot Global Food for Education (GFE) Initiative, which
began in fiscal year 2001, the United States has provided 800,000 tons
of commodities and associated assistance valued at $300 million over a
2-year period to provide school meals for 7 million children in 38
countries.
Our emphasis on trade capacity building and our roles in
international organizations continue to grow. International cooperation
is the cornerstone for building bilateral and multilateral
relationships that can facilitate resolution of trade differences,
expand trade, and promote economic growth. For example, last year we
used several international organization meetings to advance our WTO
proposals. We began our efforts to communicate the important link
between market access and global food security at the Food and
Agriculture Organization's Conference in Rome in November, just prior
to the successful launch of the Doha Development Round. We continued
our efforts at the Finance for Development Conference in Monterrey in
March, the World Food Summit: Five Years Later in Rome in June, the G-8
Summit in Kananaskis, Canada, 2 weeks later, and finally the World
Summit on Sustainable Development in Johannesburg in August.
The meetings provided opportunities for outreach on our WTO
proposal and biotechnology as key to addressing the problem of food
security. Our efforts were carefully crafted to specific audiences. For
example, at the World Food Summit: Five Years Later, Secretary Veneman
identified three U.S. priorities for reducing hunger, with specific
initiatives to boost agricultural productivity in the developing world,
end famine, and alleviate severe vitamin and mineral deficiencies. She
invited other countries to join us in these efforts. The Secretary
announced a USDA-sponsored ministerial-level conference on agricultural
science and technology designed to assist developing countries in
increasing productivity. We sponsored a well-attended event on
biotechnology that included Nobel Peace Prize winning scientist Dr.
Norman Borlaug, bringing greater credibility to the scientific support
behind the technology. Finally, the Secretary met with Latin American
ministers of agriculture in their capacity as members of the Inter-
American Institute for Cooperation on Agriculture. The result of that
meeting was consensus among members on trade capacity building
priorities for IICA, including sanitary and phytosanitary issues and
biotechnology.
It is these relationships and the training we provide that will
help us resolve trade disputes in the future, as well as prepare
developing countries for global trade. Our longstanding training
program, the Cochran Fellowship Program was used to introduce 972
Cochran Fellows from 78 countries to U.S. products and policies in
2002--the largest number of participants in the program's history.
These Fellows met with U.S. agribusiness; attended trade shows, policy
and food safety seminars; and received technical training related to
market development. The Cochran Fellowship Program provides USDA with a
unique opportunity to educate foreign government and private sector
representatives not only about U.S. products, but also about U.S.
regulations and policies on critical issues such as food safety and
biotechnology.
We also collaborated with a diverse group of U.S. institutions in
research partnerships with 53 countries. These research and exchange
activities promoted the safe and appropriate development and
application of products from biotechnology, as well as other areas such
as food safety, improved nutritive value of crops, environmental
sustainability, and pest and disease resistance of crops and livestock.
In the end, the technical assistance that we provide, both our own
and through international organizations, will help build the
institutions needed for developing countries to attract investment and
grow their economies. If our efforts are successful, our food and
agricultural producers will benefit by access to more and better
markets.
Challenges Ahead
Faced with continued growth in our agricultural productivity,
intense competition, and continued aggressive spending on market
promotion by our competitors, we must redouble our efforts to improve
the outlook for U.S. agricultural exports. I would like to discuss our
top priorities for the year.
Continuing Trade Liberalization for Agriculture
At the top of our list is moving forward in the multilateral trade
negotiations on agriculture under the WTO. The United States was the
first WTO member to put forward a comprehensive and specific
agriculture proposal, which has gained support from many WTO members.
As the negotiations progress, it has become clear that two camps have
developed: one that wants to address the inequities of the Uruguay
Round consistent with the Doha mandate and one that does not. The EU
and Japan are in the latter group. Both have indicated resistance to
moving beyond the limited Uruguay Round framework.
We are at a critical stage in the WTO agriculture negotiations. We
were disappointed, but not surprised that resistance to change and
reform stymied agreement on the modalities for cuts in subsidies and
tariffs by the March 31 deadline. The Chair of the agricultural
negotiating group, Stuart Harbinson, is to be commended for his
leadership in moving the process forward. However, his paper was not
completely satisfactory to us. But it did highlight that a large number
of countries, including the United States, are ready to advance
significant reform, to cut subsidies and tariffs substantially.
Along with our comprehensive tariff reduction formula, the United
States has proposed that WTO members engage in negotiations on a
sector-specific basis on further reform commitments that go beyond the
basic reductions that will apply to all products. These would include
deeper tariff reductions, product-specific limits on trade-distorting
domestic support, and other commitments to more effectively address the
trade-distorting practices in the affected commodity sectors. This is
an area where we need support and involvement from our food and
agriculture industry, and we will be seeking their guidance throughout
the negotiations.
So where do we go from here? We cannot lose our commitment to the
Doha Development Agenda effort just because we encounter problems. WTO
members need to keep working, exploring ways to bring parties together,
to match interests so that we can move the process forward. As we work
toward the Cancun Ministerial in September, we will continue to support
the efforts of Chairman Harbinson to advance the negotiations.
Overall, the passage of Trade Promotion Authority (TPA) was great
news for America's farmers, ranchers, and food industry. The United
States can now move forward on its ambitious trade agenda of opening
markets multilaterally in the WTO, regionally, and bilaterally. This
Administration is pressing ahead in its effort to create the largest,
most comprehensive free trade area encompassing 34 democracies in the
Western Hemisphere--a Free Trade Area of the Americas (FTAA). Despite
economic turmoil in Latin America, the negotiations remain on schedule.
In December, the United States, at the Free Trade Area of the
Americas (FTAA) Ministerial in Quito, Ecuador, pushed negotiations
forward to complete the FTAA by January 2005. The ministers energized
market access negotiations and agreed that the United States and Brazil
will co-chair the FTAA process through the conclusion of negotiations.
The next meeting will be in Miami late this year, with another meeting
set for Brazil in 2004.
When completed, the FTAA will provide U.S. producers and exporters
with much greater access to 450 million consumers outside the NAFTA
countries, who will have $2 trillion in income. USDA estimates suggest
that the FTAA could expand U.S. agricultural exports to the hemisphere
by more than $1.5 billion annually.
While we recognize that many challenges lie ahead and that the U.S.
agricultural community has some concerns about the FTAA, we cannot
afford to stand on the sidelines while other countries take away our
potential markets. The reality is that if all Western Hemisphere
countries have preferential agreements among themselves and the United
States is not a party to these agreements, U.S. exports to the
hemisphere would actually decline, perhaps as much as $300 million
annually. So we must be a participant and a leader in these important
negotiations.
In the year ahead, we will also be working on agreements with
Australia, Morocco, five countries in Central America, and the Southern
African Customs Union. As you see, we will be working on many fronts to
continue to improve export opportunities for the American food and
agriculture sector.
We also are actively participating in the Asia Pacific Economic
Cooperation (APEC) forum. We expect APEC to serve a key role in
promoting continued trade liberalization within the region and in the
WTO, and we will be working through the APEC food system to realize
this goal.
We will continue to work with the countries that would like to join
the WTO, such as Russia and Saudi Arabia. Although increasing the
number of members in the WTO is a high priority, we will continue to
insist that these accessions be made on commercially viable terms that
provide trade and investment opportunities for U.S. agriculture. And
when membership in the WTO is achieved, we must continue to monitor
aggressively those countries' compliance with their commitments. We
must ensure that acceding countries implement trade policies and
regulations that are fully consistent with WTO rules and obligations.
Building Trade Capacity
Hand-in-hand with our negotiating efforts are our efforts to help
developing countries participate more fully in the trade arena. Our
trade capacity building efforts are aimed at helping countries take
part in negotiations, implement agreements, and connect trade
liberalization to a program for reform and growth. We will work closely
with the U.S. Trade Representative and the U.S. Agency for
International Development in this effort.
If we are to achieve success in the negotiating process, we must
engage the developing world in the creation and implementation of
appropriate trading rules and guidelines. This will take time, but it
will be worth the investment. These countries represent our future
growth markets. Throughout the year, we will use all of our available
tools--the Cochran Fellowship Program, the Emerging Markets Program,
and our involvement in international organizations such as the Inter-
American Institute for Cooperation on Agriculture (IICA)--to aid in
this important effort.
Addressing Biotechnology Issues
Another priority is how we deal with the issues surrounding
products produced through biotechnology. The increasing number of
countries around the world that are issuing regulations relating to
products of biotechnology present a particular challenge, both for our
infrastructure and for our food and agricultural exports. We are using
every available fora to ensure countries adopt science-based policies
in this area.
For example, last year we participated in the first APEC policy
dialogue on biotechnology, where the 21 APEC member countries reached a
consensus that biotechnology is an important tool with great potential
for food security and the environment. In an effort to foster closer
cooperation, the North American Biotechnology Initiative identified
science, marketing, and regulatory issues as priorities for the three
NAFTA partners. The Philippines enacted well-crafted biotech
commercialization guidelines after 3 years of sustained FAS interaction
through educational events and Cochran Fellowship training programs.
FAS worked closely with third countries and allies within the EU to
counter misinformation and to highlight the practical implications of
EU legislation on biotech food and feed products.
Biotech issues will continue to be important for U.S. agriculture
in the immediate years ahead, whether in the WTO or in our bilateral
relationships with customer and competitor nations alike. We continue
to insist that biotech approval regimes, wherever they exist, must be
transparent, timely, predictable, and science-based.
Maintaining Market Access
Inherent in the FAS mission is the need to anticipate and prevent
disruptions to trade imposed by new market barriers. Perhaps no other
task that we carry out is as important, yet less visible. It is a
measure of our success that so many issues are resolved so quickly,
with so little public awareness. Virtually every day, our overseas and
domestic staff work as a team on a variety of concerns--first to
prevent crises from developing and then to resolve thorny issues should
they arise. They coordinate efforts with a number of USDA agencies, as
well as with private sector companies and associations.
Every year, these activities preserve millions of dollars in trade
that could have potentially been lost by countries imposing new
barriers. Some problems may be resolved quickly with a phone call or a
meeting; others are more complex, and involve multiple U.S. agencies.
Our priorities include resolving poultry trade issues with Russia,
poultry and other issues with Mexico, and tariff-rate quota and biotech
issues with China.
Ensuring World Food Security
We recognize that significant emergency food needs continue to
haunt many in the world and we are working to help address them. Today
the most severe needs are in Mauritania, Sudan, Angola, North Korea,
Afghanistan, southern Africa, and the Horn of Africa. The United States
has delivered or pledged more than 500,000 tons (valued at $266
million) to southern Africa since the beginning of 2002, making us the
largest donor to the World Food Program's (WFP) operations there. The
United States is also providing food aid to Ethiopia, Eritrea, Sudan,
Angola, North Korea, Afghanistan, and many other countries.
However, U.S. food aid donations are determined by the availability
of commodities, budget resources and commodity and transport prices. We
have reduced our reliance on that part of the Section 416(b) program
that depended on the availability of surplus U.S. commodities and have
increased funding under the more traditional Public Law 480 and Food
for Progress authorities. We hope that this change will allow other
governments, private voluntary organizations (PVOs), and the World Food
Program to have a much more reliable picture of how much food aid will
be available from the United States each year.
We also will be implementing the new McGovern-Dole International
Food for Education and Child Nutrition Program. This new program,
established in the 2002 Farm Bill, builds on the pilot Global Food for
Education Initiative that I mentioned earlier. We will be working
closely with the World Food Program and our PVO partners to ensure that
this program gets off to a good start and builds on the success
achieved by the Global Food for Education Initiative.
In addition, FAS continues to assist USAID in its Famine Early
Warning System (FEWS) by providing satellite and crop data. We will
soon launch our effort to track global water resources that will allow
us to measure critical water reservoirs in developing countries.
But despite all our efforts, estimated food aid needs continue to
be high. That is why we continue to press other major donors to
increase their contributions. The United States is working with the G-8
to make this effort multilateral. In addition, we are especially
supportive of the efforts of the WFP's new director to widen the
spectrum of support from private sector organizations.
But we know food aid is not the only tool to achieve world food
security. That is why Secretary Veneman will host a Ministerial
Conference and Expo on Agricultural Science and Technology June 23-25
in Sacramento, Calif. Ministers are being invited from over 180
nations. The conference, also sponsored by the U.S. Agency for
International Development and the Department of State, will focus on
the critical role science and technology can play in raising
sustainable agricultural productivity in developing countries, with the
goal of boosting food availability and access and improving nutrition.
Implementing Program Changes
Our top program priority is developing and implementing the Trade
Adjustment Assistance Program for Farmers, a new program established by
the Trade Act of 2002. Under the program, USDA is authorized to make
payments to eligible producer groups when the current year's price of
an agricultural commodity is less than 80 percent of the national
average price for a previous 5-year marketing period, and the Secretary
determines that imports have contributed importantly to the decline in
price. FAS is currently coordinating efforts with other USDA agencies
to establish the new program. On April 23, we invited public comments
on proposed regulations for the program.
Comments are due by May 23
Another priority is expanding our eGov capability. EGovernment is a
multi-faceted initiative that will change the way we in FAS communicate
with each other, with the rest of government, and most importantly,
with the customers we serve around the world. For FAS, eGov means
making more information and services available online, while organizing
and presenting all of this data in a logical, accessible and useful
way.
Specifically for FAS, this means changing our processes for
producing data and information in ways that make it easier to
categorize, publish and present online. FAS has committed to being an
early adapter in the content management initiative of eGov. Within the
next year, FAS will make most information-collecting forms such as
grant applications and reporting documents interactive and available
online. And in the long term, we will analyze every function and
activity throughout the agency to develop ways to leverage our
information technologies to complete our agency activities faster,
smarter and better.
BUDGET REQUEST
Mr. Chairman, our fiscal year 2004 budget proposes a funding level
of $145.2 million for FAS and 1,005 staff years. The request includes a
number of important trade related activities and non-discretionary
administrative increases.
First, an additional 20 staff years are proposed to facilitate the
agency's active involvement in ongoing multilateral, regional, and
bilateral trade negotiations and to bolster its efforts to address
rapidly growing market access constraints related to biotechnology, and
sanitary and phytosanitary measures. These will be funded from a
centralized fund to be established in the Office of the Secretary to
support cross-cutting USDA trade-related and biotechnology activities.
Additionally, the budget proposes an increase of $500,000 to
support a series of regionally based seminars on the specifics of the
Biosafety Protocol. Representatives from 170 countries are currently
negotiating international provisions governing the shipment and use of
products from biotechnology under the Cartagena Protocol on Biosafety.
Parameters set under this agreement are intended to provide uniform
international requirements for ensuring the safe transport and use of
these products.
The Biosafety Protocol can offer a framework to guide countries
that currently lack national regulatory systems for products of
biotechnology. However, if member countries misinterpret the Protocol,
it can seriously impede international trade, product development,
technology transfer, and scientific research. Through a series of
regional seminars, FAS will work to ensure that the implementation of
these standards under the Biosafety Protocol are science-based,
transparent, and non-discriminatory. These seminars will be coordinated
in conjunction with other USDA agencies such as the Animal and Plant
Health Inspection Service (APHIS), industry representatives, academia,
the non-governmental organization community, and international
regulatory agencies.
The budget also requests $5 million for a USDA contribution to the
Montreal Protocol Multilateral Fund (MPMF). The MPMF was created in
1991 to help developing countries switch from ozone depleting
substances to safer alternatives. Developing countries' commitment to
comply with the Protocol's strict requirements is contingent on
developed countries providing help through the MPMF. Historically, the
Department of State (DOS) and the Environmental Protection Agency have
provided nearly all U.S. payments to the MPMF. This has funded projects
that are leading to the phase out of the production and use by
developing countries of industrial chemicals that deplete the ozone
layer, such as chlorofluorocarbons and halons. In the future, there
will be an increasing focus on reducing the use of methyl bromide. In
recognition of the growing importance of agricultural issues in the
Montreal Protocol process, USDA is requesting a $5 million contribution
to the MPMF.
The budget includes an increase of $4,220,000 for non-discretionary
administrative requirements including:
--An increase of $1,871,000 to cover higher personnel compensation
costs associated with the anticipated fiscal year 2004 pay
raise. Pay cost increases are non-discretionary and must be
funded. Absorption of these costs in fiscal year 2004 would
primarily come from reductions in agency personnel levels,
which would significantly affect FAS trade expansion efforts.
--An increase of $1,539,000 for inflation. Using the OMB economic
assumption of 2.3 percent, this is the amount needed to offset
anticipated inflationary cost growth. This increase is of
particular importance for maintaining FAS offices overseas at
current levels.
--An increase of $594,000 for higher ICASS payments to the Department
of State. The DOS provides overseas administrative support for
foreign affairs agencies through the International Cooperative
Administrative Support Services (ICASS) system. FAS has no
administrative staff overseas, and thus relies entirely on DOS/
ICASS for this support. For fiscal year 2004, DOS has informed
agencies that it anticipates an increase of 6.5 percent over
fiscal year 2003 levels. That 6.5 percent estimate includes
amounts for increasing staffing under the Diplomatic Readiness
Initiative, continuing the Overseas Infrastructure Initiative,
and budgeting for overseas comparability pay.
--An increase of $356,000 for increased overseas rental expenses
arising from the sale of dedicated FAS overseas housing by DOS.
Section 213 of the Foreign Relations Authorization Act, fiscal
year 2003, (Public Law 107-228) repealed Section 738 of the
fiscal year 2001 Agriculture Appropriations Act that limited
DOS's authority to sell ``unneeded'' property by making sales
decisions contingent on FAS approval. In view of this action
and State's intention to sell three additional residences, FAS
is now seeking additional funding to finance moves into
commercial space where government owned space is not available.
--A decrease of $140,000 for the savings associated with
centralization and improvement of information technology.
Savings are associated with consolidated buys for
infrastructure and office automation, and consolidation of
enterprise architecture projects within the Department. USDA
continues to ensure that information technology investments
utilize enterprise licenses for hardware and software where
appropriate and reduce the information technology costs.
Export Programs
Mr. Chairman, the fiscal year 2004 budget proposes $6.2 billion for
programs to promote U.S. agricultural exports, develop long-term
markets overseas, and foster economic growth in developing countries.
The 2002 Farm Bill increased funding for several of these programs in
order to bolster our trade expansion efforts that are reflected in the
President's fiscal year 2004 budget.
Export Credit Guarantee Programs
The budget includes a projected overall program level of $4.155
billion for export credit guarantees in fiscal year 2004.
Under these programs, the Commodity Credit Corporation (CCC)
provides payment guarantees for the commercial financing of U.S.
agricultural exports. As in previous years, the budget estimates
reflect actual levels of sales expected to be registered under the
programs and include:
--$3.3 billion for the GSM-102 program
--$18 million for the GSM-103 program
--$750 million for Supplier Credit guarantees
--$44 million for Facility Financing guarantees Market
Development Programs
Funded by CCC, FAS administers a number of programs to promote the
development, maintenance, and expansion of commercial export markets
for U.S. agricultural commodities and products. For fiscal year 2004,
the CCC estimates include a total of $164 million for market
development programs that includes:
--$125 million for the Market Access Program, an increase of $15
million over the fiscal year 2003 level of $110 million;
--$34.5 million for the Foreign Market Development (Cooperator)
Program, unchanged from fiscal year 2003;
--$2.5 million for the Quality Samples Program, unchanged from fiscal
year 2003; and
--$2 million for the new Technical Assistance for Specialty Crops
Programs. International Food Assistance
The fiscal year 2004 budget continues the worldwide leadership of
the United States in providing international food aid. In this regard,
the fiscal year 2004 proposals total $1.6 billion which include:
--$1.345 billion for Public Law 480,which is expected to provide
approximately 3.1 million metric tons of commodity assistance.
For Title I, the budget provides for a program level of $160
million, which will support approximately 600,000 metric tons
of commodity assistance. For Title II donations, the budget
provides for a program level of $1.185 billion, which is
expected to support 2.5 million metric tons of commodity
donations.
--$151 million for Food for Progress. Funding at the requested level
is expected to meet the minimum tonnage level of 400,000 metric
tons stipulated in the 2002 Farm Bill;
--$118 million for Section 416(b) donations. Under this program,
surplus commodities that are acquired by CCC in the normal
course of its domestic support operations are available for
donation overseas. For fiscal year 2004, current CCC baseline
estimates project the availability of surplus nonfat dry milk
that could be made available for programming under section
416(b) authority; and
--$50 million for the McGovern-Dole International Food for Education
and Child Nutrition Program. The McGovern-Dole program is an
entirely new program, authorized by the 2002 Farm Bill. Fiscal
year 2003 funding for McGovern-Dole is $100 million from CCC
for both commodities and technical assistance. The fiscal year
2004 budget requests appropriated funding of $50 million.
However, programming should not decline significantly in fiscal
year 2004 because of the many programs that will likely carry
over from fiscal year 2003. In developing the fiscal year 2005
budget, the Administration will be in a position to review
program performance during fiscal years 2003 and 2004, and will
make decisions on future funding in accordance with those
results.
Export Subsidy Programs
FAS administers two export subsidy programs through which payments
are made to exporters of U.S. agricultural commodities to enable them
to be price competitive in overseas markets where competitor countries
are subsidizing sales. These include:
--$28 million for the Export Enhancement Program (EEP). World supply
and demand conditions have limited EEP programming in recent
years, and as such, the fiscal year 2004 budget assumes a
continued limited activity. However, the 2002 Farm Bill
includes a maximum annual EEP program level of $478 million
allowable under Uruguay Round commitments and that amount could
be used should market conditions warrant.
--$57 million for the Dairy Export Incentive Program (DEIP), $26
million above the fiscal year 2003 estimate of $31 million.
This estimate reflects the level of subsidy currently required
to facilitate exports sales consistent with projected United
States and world market conditions and can change during the
programming year as market conditions warrant.
This concludes my statement, Mr. Chairman. I will be glad to answer
any questions.
______
Prepared Statement of Ross J. Davidson, Jr., Administrator, Risk
Management Agency
Mr. Chairman and members of the Subcommittee, it is a pleasure to
appear before you to testify in support of the President's fiscal year
2004 budget for the Risk Management Agency (RMA). RMA has made rapid
progress in meeting its legislative mandates to provide an actuarially
sound crop insurance program to America's agricultural producers.
However, more needs to be done. The program is expected to provide
approximately $38 billion in risk protection on about 208 million acres
in 2004, representing approximately 80 percent of the Nation's planted
acres for principal crops.
RMA's primary mission is to promote, support and regulate the
delivery of sound risk management solutions to preserve and strengthen
the economic stability of America's agricultural producers. Our key
objectives in support of that mission are to:
--Provide widely available and effective risk management solutions;
--Ensure customers and stakeholders are well-informed;
--Provide a fair and effective delivery system;
--Maintain program integrity;
--Provide excellent service.
To achieve these objectives, RMA's total fiscal year 2004 budget
request is $3.4 billion. The funding level proposed for the Federal
Crop Insurance Corporation (FCIC) is $3,300,187,000 and for the
Administrative and Operating Expenses the request is $78,488,000. This
budget request includes a legislative proposal to reduce the
administrative expense reimbursement to the insured companies.
FCIC FUND
The fiscal year 2004 budget proposes that ``such sums as may be
necessary'' be appropriated to the FCIC Fund. This ensures the program
is fully funded to meet producers' needs. The current estimate of
funding needs is based on USDA's latest projections of planted acreage
and expected market prices. The fiscal year 2004 budget requests an
increase of $389.2 million from $2.9 billion in fiscal year 2003 to
$3.3 billion in fiscal year 2004. The budget request includes increases
of $69.9 million for Premium Subsidy, $30.3 million for Delivery
Expenses, $10.0 million for mandated Agricultural Risk Protection Act
of 2000 (ARPA) activities, and $346.8 million for reimbursement to the
Insurance Fund for U.S. Treasury transfer for excess 2002 crop year
losses. The legislative proposal is expected to save approximately
$67.8 million in 2004 by reducing the administrative expense
reimbursement rate paid to the insured companies from 24.5 percent to
20 percent. These savings are achievable principally because there has
been a substantial growth in premium dollars and reimbursements have
increased proportionally--in essence, insuring the same number of acres
at higher levels of coverage.
ADMINISTRATIVE AND OPERATING EXPENSES (A&O)
RMA's fiscal year 2004 request of $78.5 million for Administrative
and Operating Expenses represents an increase of about $8 million from
fiscal year 2003. This budget will support increases for information
technology (IT) initiatives in the amount of $5.5 million. These IT
funds are targeted towards the continual maintenance and enhancement of
the corporate operating systems necessary to run the program. Included
in the total request is $1.0 million to expand the monitoring and
evaluation of reinsured companies, and $1.3 million for pay cost for a
staffing level of 568 employees.
Finally, this budget also includes a funding request of about $8.7
million for information technology for the RMA under the Common
Computing Environment (CCE) in the budget of the Chief Information
Officer. This amount is in addition to the funding requested above the
administrative and operating expenses of RMA. Historically, funding
under the CCE has been reserved for the service center agencies. The
Department is working aggressively to coordinate its information
technology resources to ensure greater efficiency in software
development, hardware acquisition and maintenance and in sharing common
data among its various agencies. The best way to ensure the level of
coordination required is to provide funding under the controls of the
CCE.
In addition, RMA has an aging information technology system, the
last major overhaul occurred about 10 years ago. Since that time the
crop insurance program has expanded tremendously. Catastrophic coverage
and revenue insurance products have been initiated and coverage for new
commodities has been added including many specialty crops and more
recently livestock. In short, RMA's information technology system has
not kept pace with the changes in the program. The funding requested
under the CCE will provide for improvements to RMA's existing
information technology system to improve coordination and data sharing
with the insurance companies and FSA. The funding will also provide for
the development of a new information technology architecture to support
the way RMA will need to do business in the future.
PROGRAM HIGHLIGHTS
Board of Directors
A new FCIC Board of Directors (Board) was appointed in 2002. This
Board and I have set an aggressive agenda to address producers' issues
and challenges in the crop insurance program. This agenda increases
participation in the program, ensures outreach to small and limited
resource farmers, expands programs where appropriate, affirms program
compliance and integrity and ensures equity in risk sharing. Nine Board
meetings were held during 2002. The Board approved 26 programs in
fiscal year 2002 and is considering another 18 programs. Private
companies submitted five of the approved programs. Two of these were
livestock programs. RMA is efficiently contracting for and reviewing
new products, and promoting new risk management strategies.
In 2002, RMA provided approximately $37 billion of protection to
farmers, and expects indemnity payments for 2002 losses of
approximately $4.2 billion. The expected loss ratio for 2002 is 1.42
compared to 1.0 for 2001. In 2002, much of the agriculture region
across the United States suffered from severe drought conditions. The
increase in the loss ratio reflects this. As a result, the amount of
claim payments made under the crop insurance program increases
significantly. This shows that the agriculture community is
successfully benefiting from the risk management tools the government
provides. RMA continues to evaluate the crop insurance program to
identify areas for improvement and to create new products for
commodities that are not offered coverage under the current crop
insurance programs so that the government can eliminate or at least
substantially reduce the need for ad-hoc disaster assistance payments
to the agriculture community. The participation rate was approximately
80 percent. While participation in the program is voluntary,
subsidizing the premium paid by farmers for coverage encourages
participation.
Increases in subsidies resulting from the passage of ARPA had a
positive affect on participation. Since 2000, farmers have shown a
trend of choosing to purchase higher levels of buy-up protection and
revenue coverage policies. In 2002, over 50 percent of the insured
acreage was insured at 70 percent or higher level of coverage compared
to only 9 percent in 1998. The high participation rate and the higher
levels of coverage purchases by participants have added to the ability
for Crop Insurance to become the main risk management tool for
America's farmers. We have made additional improvements recently that
will continue this trend. In addition, the increased number of farmers
buying up higher levels of coverage has generated the efficiencies
reflected in the proposal to lower the administrative expense
reimbursement rate.
Program Compliance and Integrity
RMA, with the assistance of the Farm Service Agency (FSA) and
private sector insurance providers, works to improve program compliance
and maintain the integrity of the Federal Crop Insurance Program. In
order to complete ARPA requirements, RMA executed procedures for the
FSA to refer potential crop insurance abusers. RMA established a fraud
case management system and improved the sanction process. In addition,
RMA implemented data mining projects and fine-tuned the data
reconciliation process.
Last year RMA achieved a 700 percent increase in referrals on
possible instances of fraud through data mining and analysis, a
formalized alliance with FSA, and collaboration with approved insurance
providers. These results demonstrated the direct impact of RMA's public
effort to prevent fraud and saw an estimated $94 million reduction in
program costs by preventing potential fraudulent claims during October
2000 through December 2001. This strategy and its effects are discussed
further in the RMA's Program Compliance and Integrity Annual Report to
Congress.
Livestock Insurance Plans
The FCIC Board approved two pilot insurance programs for Iowa swine
producers to protect them from declining hog prices. The two approved
programs are the Livestock Gross Margin Pilot and the Livestock Risk
Protection Pilot. Both policies are available from private insurance
agents. Authorized under ARPA, these types of livestock insurance
programs provide livestock producers with effective price risk
management tools. RMA is providing $19 million in coverage on
approximately 304,000 hogs for the 2003 reinsurance year. Pilot program
length will be determined by farmer participation and financial
performance of the program.
The Livestock Gross Margin (LGM) pilot protects swine producers
from price risks for 6 months and up to 15,000 hogs per period. The
policy protects the gross margin between the value of the hogs and the
cost of corn and soybean meal. Prices are based on hog futures
contracts and feed futures contracts. LGM protects producers if feed
costs increase and/or hog prices decline, depending on the coverage
level selected by the producer. Coverage levels range from 85-100
percent. LGM sales began in July 2002. There are two sale periods each
year--January and July.
The Livestock Risk Protection (LRP) pilot protects producers
against declining hog prices if the price index specified in the policy
drops below the producer's selected coverage price. Swine can be
insured for 90, 120, 150, or 180 days, up to a total of 32,000 animals
per year. Unlike traditional crop insurance policies which have a
single sales closing date each year, LRP is priced daily and available
for sale throughout the year. Coverage levels range from approximately
70-95 percent of the daily hog prices. In addition, the FCIC Board
recently approved LRP for both fed and feeder cattle beginning in 2003.
We expect these programs to be available in late spring.
Adjusted Gross Revenue--Lite
The FCIC Board approved the Adjusted Gross Revenue-Lite (AGR-Lite)
insurance plan in late 2002 and began sales for 2003. This product was
submitted to FCIC through Section 508(h) of the Federal Crop Insurance
Act. AGR-Lite is available in most of Pennsylvania and covers whole
farm revenue up to $100,000, including revenue from animals and animal
products. RMA encourages other states to develop similar programs.
Adjusted Gross Revenue (AGR) Cost-Share Program
ARPA authorized cost-sharing to assist producers in reducing
financial risk through product diversification. To meet this directive,
FCIC announced a cost-share program for AGR insurance that was made
available in 11 underserved Northeastern States: Connecticut, Delaware,
Maine, Maryland, Massachusetts, New Hampshire, New York, New Jersey,
Pennsylvania, Rhode Island, and Vermont. Under this program, FCIC paid
50 percent of the producer-paid premium and the full $30 administrative
fee.
Cost of Production
In 2001, RMA contracted for research and development of a Cost of
Production (COP) insurance pilot program for 12 crops (soybeans, corn,
cotton, wheat, rice, almonds, peaches, cranberries, apricot,
nectarines, onions, and sugarcane). The FCIC Board considered an
initial COP program for cotton this past fall. Expert reviewers and the
Board indicated several significant issues for further review. As a
result, the Board concluded that more work is needed to successfully
bring producers a COP policy to meet their needs. Currently, RMA and
the contractor are working diligently to find solutions to these
issues. Should the issues be resolved and a cotton pilot program is
successful, RMA plans to expand COP coverage to other crops.
Forage and Rangeland
RMA currently offers the Group Risk Plan (GRP) Rangeland Pilot in
twelve Montana Counties. GRP is an alternative risk management tool
based on the experience of the county rather than individual farms. It
indemnifies the insured in the event the county average per-acre yield
(the ``payment yield'') falls below the insured's ``trigger yield.'' We
are doing everything possible to ensure payment yields accurately and
fairly represent the production experience of Montana's rangeland
producers. RMA is diligently working with the Montana Agricultural
Statistics Service as well as the Farm Service Agency (FSA) to obtain
the best data needed to develop appropriate payment yields. While
considerable interest has been generated in the program, we recognize
specific problems need solutions. RMA contracted for an evaluation of
the GRP program and is looking forward to potential solutions for
making this product more effective. RMA also contracted for a
feasibility study specifically for pasture and rangeland. This study
suggested a risk management program could be developed for these
individual crops, and RMA is proceeding with the development in fiscal
year 2003.
Nursery Crops
RMA recently completed work on many significant changes to the
nursery program. RMA will be contracting for a cost benefit analysis
leading to a proposed rule in the Federal Register. The nursery
industry will have the opportunity to comment on the rule, which is
expected to be announced as a proposed rule during the 2003 calendar
year. These changes were in response to producers' requests to modify
the program to align it more closely with production practices and
producer needs, balanced with the need to maintain program integrity.
Research and Development
During fiscal year 2002, over $19 million was obligated to
qualified public and private organizations for research, feasibility
studies, and development of risk management products. This represents
approximately 45 contracts and partnership agreements. Examples include
Florida fruit trees; Hawaii tropical fruit and tree research and
development; livestock disease research and a sorghum pilot program;
risk reduction for specialty crops in the southeast; direct marketing
of perishable agricultural crops; and an apiculture insurance product,
among others.
Risk Management Education
During fiscal year 2002, RMA focused its outreach and education
program on underserved states, specialty crop producers, the Dairy
Options Pilot Program, grants through the Cooperative State Research,
Education, and Extension Service, and the Adjusted Gross Revenue (AGR)
Cost Share Program. In 2002, RMA established cooperative agreements in
historically underserved states with respect to crop insurance; 13
cooperative agreements totaling $1.8 million were established to
deliver crop insurance education to producers in Connecticut, Maine,
New Hampshire, Pennsylvania, Vermont, West Virginia, Delaware,
Maryland, New Jersey, New York, Utah, and Nevada. These cooperative
agreements expand the amount of risk management information available
to producers and promote risk management education opportunities. The
agreements will also inform agribusiness leaders of increased emphasis
on risk management and deliver risk management training to producers
emphasizing outreach to small farms.
In addition, RMA awarded 72 partnership agreements to specialty
crop producers at a total cost of $3.7 million. RMA is in partnership
to deliver risk management education to specialty crop producers with
state departments of agriculture, universities, grower groups, and
private agribusinesses. In conjunction with the Future Farmers of
America, RMA also promotes youth participation and education in
agriculture.
National Outreach Program
RMA has implemented several initiatives to increase awareness and
service to small and limited resource farmers, ranchers, and other
underserved groups. During 2002, customized regional and local
workshops were held in several regions to deliver proven survival
strategies directly to the producers. Forty-five competitively awarded
partnership, with community-based, educational and nonprofit
organizations will use $3.2 million to educate women, limited-resource,
and other traditionally underserved farmers and ranchers. For example,
an agreement with the Agricultural and Land Based Training Association
will provide risk management training to beginning Latino farmers on
the central coast of California. RMA is sponsoring and participating in
approximately 15 Farm Bill briefings nationwide, targeting small and
limited resource farmers and ranchers. In addition, the second national
Survival Strategies for Small and Limited Resource Farmers and Ranchers
is currently scheduled for November 2003 in California.
PROGRAM ISSUES/CONCERNS
RMA received notice in November of the business failure of one of
its larger reinsured companies, American Growers Insurance Company
(AGIC). The Nebraska Department of Insurance took action under state
law to place AGIC under regulatory supervision and later moved to place
the company under a rehabilitation order. RMA has devoted significant
resources to ensure that producers insured by AGIC are paid in full and
on time. Our primary objectives are to protect policyholders, taxpayers
and the integrity of the program. RMA is working with the Nebraska
Department of Insurance to meet these objectives. RMA has established
procedures for policyholders to transfer from AGIC to other approved
providers. The transfer of fall 2003 policies is essentially complete.
Spring policy transfers are being processed. RMA will continue to
provide the necessary oversight, regulatory collaboration, and
resources until the 2002 crop year claims are complete and existing
2003 policies have been transferred to another insurance provider.
PROGRAM STRATEGIES/OVERSIGHT
The President's fiscal year 2004 budget includes $1.0 million for
monitoring and evaluating the reinsured companies. RMA is increasing
oversight of the reinsured companies to promote a fair and effective
delivery system. The actions being taken by RMA are:
--Closer and more frequent monitoring of the current and emerging
financial condition of each reinsured company;
--Greater disclosure and transparency of specific operating expenses,
including distribution system costs, and enhanced assessment of
potential financial and operating exposures;
--Comprehensive reviews of the Federal Crop Insurance Corporation's
product portfolio and all manuals, handbooks and basic policies
to identify process and product efficiencies;
--Comprehensive evaluations of the current regulatory structure and
dispute resolution procedures to identify any changes that
would enable RMA to more proactively and cost-effectively
ensure program integrity, service to the policyholder and
protection of the taxpayers' interests;
--Working with the reinsured companies and other delivery
participants to review the current cost structure of the
industry, to identify and pursue real cost savings, explore
opportunities that may allow more effective risk
diversification consistent with the market orientation of the
program, and explore resource sharing where appropriate and
effective; and
--Increased monitoring and oversight of the insured companies'
financial condition to protect program integrity. If FCIC
determines that a reinsured company is (a) incurring expenses
that jeopardize the financial stability of the company; (b)
accepting business beyond its capacity to service or
financially support that business; or (c) otherwise operating
in a manner that adversely affects its financial condition or
continued participation in the Federal Crop Insurance Program,
then RMA will use all remedies available to protect the
program.
We will also pursue actions necessary to enhance the safety and
soundness of the product delivery system.
CONCLUSION
As shown by my testimony today, the RMA crop insurance plan is
working; higher participation and higher levels of coverage
substantiate that Crop Insurance is becoming the main risk management
tool for America's producers. Over $4 billion in coverage will go
directly to producers this year. Buy-up coverage has dramatically
increased. Insurance coverage has expanded to forage, fruits and
vegetables, nursery products and livestock. Thousands of producers have
participated in education and outreach activities. Cooperative
agreements with state universities and department of agriculture have
been established. New enforcement and sanction authority has been
implemented as provided by ARPA. I ask that you approve this budget so
RMA, under the direction of the USDA, can continue to provide an
actuarially sound crop insurance program to America's agricultural
producers. Thank you, Mr. Chairman and members of this committee. This
concludes my statement. I will be happy to respond to any questions.
Senator Bennett. Thank you very much, Dr. Penn.
Now we go to Mark E. Rey, who is the Under Secretary for
Natural Resources and Environment. Mr. Rey?
NATURAL RESOURCES AND ENVIRONMENT
Mr. Rey. Chairman, I appreciate the opportunity to appear
before you here today to present the fiscal year 2004 budget
and program proposals for the Natural Resources Conservation
Service. In light of the fact that the Senate was in session
late, I will attempt to be very brief.
Before I highlight our vision for 2004, though, I want to
take a moment to mention the diligent work of the NRCS
employees in accountability and results measurements for the
funds provided by Congress last year. NRCS is more accessible
to farmers, ranchers, and the general public, and the public is
getting a good deal for the monies appropriated to NRCS.
This week marks the 1-year anniversary of the signing of
the Farm Bill. This Farm Bill represents historic
opportunities, but it also represents a historic challenge for
our natural resources professionals. The 2004 budget request
for NRCS includes $1.2 billion in appropriated funding and $1.4
billion in mandatory CCC funding for the Farm Bill conservation
programs. That includes $850 million for the Environmental
Quality Incentive Program. The 2004 budget also proposes $704
million for Conservation Operations, which includes $577
million for conservation technical assistance. This will
continue the agency's activities that support locally led,
voluntary conservation through the unique partnership that has
been developed over the years with each soil and water
conservation district.
This partnership provides the foundation on which the
Department addresses many of the Nation's critical natural
resources issues, such as maintaining agricultural productivity
and water quality. It leverages additional investments from
non-Federal sources.
I believe that the NRCS can continue to build upon the
level of excellence demonstrated so far if it is provided the
right support and the needed resources as provided in the
President's budget request. Given the challenges presented by
this Farm Bill, I suggest that we will be pursuing three areas
of emphasis in 2004: first, to provide adequate support for
Farm Bill implementation through a dedicated technical
assistance account; second, to further leverage the assistance
of our conservation partners through a new technical services
provider program; and, third, to ensure adequate support for
conservation operations with an emphasis on developing
technical tools and streamlining efforts to gain efficiencies
where possible.
PREPARED STATEMENTS
In summary, I believe the Administration's 2004 request
reflects sound policy and will provide a greater level of
stability to the vital mission of conservation of private
lands.
Thank you very much.
[The statements follow:]
Prepared Statement of Mark Rey
Mr. Chairman and Members of the Committee, I am pleased to appear
before you today to present the fiscal year 2004 budget and program
proposals for the Natural Resources Conservation Service (NRCS) of the
Department of Agriculture (USDA). First, I would like to congratulate
you Mr. Chairman in your new role for the subcommittee. I would like to
express gratitude to Members of this body for ongoing support of
private lands conservation.
Private Lands Conservation Gains
Mr. Chairman, in order to bring us to a common starting point and
provide a context for the President's fiscal year 2004 Budget
Submission, I would like to take a moment to highlight some of the
impressive gains in conservation that have been realized.
--Farmers and ranchers have reduced soil erosion on cropland and
pasture by 1.2 billion tons from 1982 to 1997 alone.
--Landowners have reduced the loss of wetlands caused by agriculture
to only 27,000 acres per year between 1992 and 1997. That's
down from nearly 600,000 acres a year in the 1950s, 1960s, and
1970s.
--Landowners have used the Wetlands Reserve Program to restore nearly
one million acres of wetlands since 1991.
--They have used the Conservation Reserve Program to produce hunting
and recreation benefits estimated at more than $700 million per
year.
--Since 1999, animal feeding operations have applied nutrient
management on more than 5 million acres.
--They have installed 26,000 waste management systems and completed
more than 11,000 Comprehensive Nutrient Management Plans.
--Through the Grazing Lands Conservation Initiative, owners of
ranchland and pasture have developed grazing management plans
for more than 80 million acres of grazing land since 1999.
--And farmers and ranchers are helping improve air quality by
increasing the amount of carbon stored in the soil through a
process known as ``carbon sequestration.''
All of these accomplishments have led to cleaner air and cleaner
water, and conservation of our soil. But there is much more our private
landowners can do, with the assistance of government and of partners.
USDA will help landowners by offering proper incentives, and pursuing
the science and policies that are needed to create a market for the
additional environmental benefits landowners can produce and want to
produce.
The Administration is investing in private land conservation at an
historic level to make this happen. The President's budget for fiscal
year 2004 includes a record $3.9 billion for conservation on our
Nation's farmlands, more than double the funding level in the past 2
years.
Performance and Results
Mr. Chairman, before I provide the details of our future vision for
fiscal year 2004, I wanted to take a moment to mention our diligent
work in accountability and results measurement for the funds provided
by Congress last year. I am proud of the strong efforts that NRCS has
made in the past year under the leadership of Chief Knight on
performance and results as well as making NRCS more accessible to
farmers, ranchers, and the general public. I believe we are offering
greater value to taxpayers, and can demonstrate increased
accountability to Congress as well.
For fiscal year 2002, USDA received a clean audit opinion for all
Department financial statements.
This clean rating was the result of our staff overcoming many
hurdles such as ascertaining by appraisal the costs of real property,
cleaning up years of neglect in personal property, accelerating month-
end time tables in order to prepare reports, and correcting cash
imbalances with the Department of Treasury. NRCS employees worked many
nights and weekends to ensure the accuracy of reports and to correct
state data that was in the system, leading to the unqualified opinion.
Looking Ahead
Mr. Chairman, last year at this time, we discussed the
Administration's views for the future of agriculture policy and
outlined several conservation provisions of Food and Agriculture
Policy: Taking Stock for the New Century. A year later, virtually all
of the Administration's conservation principles have been advanced in
the form of the new Farm Bill. This Farm Bill represents historic
opportunities, but it also represents a historic challenge for our
natural resource professionals.
The 2002 Farm Bill contains many new conservation programs designed
to protect and enhance the environment. The Department is now faced
with the demanding task of implementing this Farm Bill which provides
more than $17 billion in new funding over the next 10 years. The 2004
budget request in the conservation area recognizes the importance of
this task, as well as the need to continue to support underlying
programs to address the full range of conservation issues at the
national, State, local and farm level.
The 2004 budget request for NRCS includes $1.2 billion in
appropriated funding, and $1.4 billion in mandatory CCC funding for the
Farm Bill conservation programs, including $850 million for the
Environmental Quality Incentive Program. The appropriation request
includes $577 million for conservation technical assistance for the
base programs that support the Department's conservation partnership
with State and local entities. One new element in the NRCS account
structure, proposed initially in a 2003 budget amendment, is a new Farm
Bill Technical Assistance Account that will fund all technical
assistance costs associated with the implementation of all the Farm
Bill conservation programs. In 2004, this new appropriation account is
requested at $432 million.
The 2004 budget for NRCS will also enable the agency to maintain
support for important ongoing activities such as addressing the
problems associated with polluted runoff from animal feeding operations
and providing specialized technical assistance to landusers on grazing
lands. In addition, limited increases will be directed to other high
priority activities such as addressing air quality problems in
noncompliance areas.
Technical Assistance
Technical Assistance funding for conservation programs has been the
subject of ongoing controversy for several years and a topic of
interest to this Subcommittee. A fiscal year 2003 Budget amendment
provided a long-term solution to the technical assistance issue by
establishing a new Farm Bill Technical Assistance account and
dedicating additional resources for this purpose. While Congress
rejected this proposal, we appreciate your taking proactive steps to
deal with the long-standing problem of technical assistance for Farm
Bill conservation programs in the Consolidated Appropriations
Resolution for fiscal year 2003. However, we believe that this
legislation contains many deficiencies. As such, we would like to
continue working with the Subcommittee on an approach that is mutually
acceptable and beneficial.
Conservation Operations (CO).--The 2004 budget proposes $704
million for CO which includes $577 million for Conservation Technical
Assistance (CTA). This will continue the agency's activities that
support locally-led, voluntary conservation through the unique
partnership that has been developed over the years with each
conservation district. This partnership provides the foundation on
which the Department addresses many of the Nation's critical natural
resource issues such as maintaining agricultural productivity and water
quality and leverages additional investment from non-Federal sources.
The CTA budget will also enable NRCS to increase support for
certain activities as well as maintain funding for ongoing high
priority work. For example, increases are provided in the budget for
additional specialized staff and training to help address air quality
problems in areas that are not in compliance with national air quality
standards; to enhance the Customer Service Toolkit which provides NRCS
field staff with the geographic data and technical tools that they need
to adequately deliver farm bill conservation and other field programs;
and to establish a monitoring and evaluation regiment that will provide
more meaningful performance goals and measures for Farm Bill
conservation programs.
Last year, I pointed out the excellent customer service ratings
that NRCS staff has received from an independent analysis. Mr.
Chairman, I believe that NRCS can continue and build upon this level of
excellence, if they are given the right support and the needed
resources as provided in the President's budget request.
Given the challenges presented in the Farm Bill, I suggest the
following areas of emphasis:
--Provide adequate support for Farm Bill implementation through a
dedicated Technical Assistance account.
--Further leverage assistance for our conservation partners and
through the new Technical Service Provider system. These new
sources of technical assistance will complement our existing
delivery system.
--Ensure adequate support for Conservation Operations, with an
emphasis on developing technical tools and streamlining efforts
to gain efficiencies where possible.
Mr. Chairman, in summary, we all know that we are trying to plan
for the future under an atmosphere of increasingly austere budgets and
with a multitude of unknowns on the domestic and international fronts.
But I believe that the Administration's fiscal year 2004 request
reflects sound policy and will provide a greater level of stability to
the vital mission of conservation on private lands. The budget request
reflects sound business management practices and the best way to work
for the future and utilize valuable conservation dollars.
I thank Members of the Subcommittee for the opportunity to appear,
and would be happy to respond to any questions that Members might have.
______
Prepared Statement of Bruce I. Knight, Chief, Natural Resources
Conservation Service
Thank you for the opportunity to appear before you today to discuss
our fiscal year 2004 budget request. I assumed the responsibility of
Chief of the Natural Resources Conservation Service (NRCS) one year
ago, and believe that this period of time has presented one of the most
significant junctures in private lands conservation.
One year ago, we witnessed enactment of one of the most important
pieces of conservation legislation history in the form of the 2002 Farm
Bill. The legislation responds to a broad range of emerging
conservation challenges faced by farmers and ranchers, including soil
erosion, wetlands, wildlife habitat, and farm and ranchland protection.
Private landowners will benefit from a portfolio of voluntary
assistance, including cost-share, land rental, incentive payments, and
technical assistance. The Farm Bill places a strong emphasis on the
conservation of working lands--ensuring that land remaing both healthy
and productive.
The conservation title of the Farm Bill builds upon past
conservation gains and responds to the call of farmers and ranchers
across the country for additional cost-sharing resources. In total,
this legislation represents an authorization of more than $17 billion
in increased conservation spending. In addition, the legislation will
expand availability and flexibility of existing conservation programs,
and increase farmer participation and demand for NRCS assistance.
Three weeks ago, we released the funding allocations to our states
for all of the conservation programs. Through these allocations, more
than $1.8 billion in assistance has been made available to farmers and
ranchers. And beyond allocating the funds, we have been working
expeditiously to set in place the program guidelines and technical
tools needed to implement these conservation opportunities on the
ground. To date, we have published in the Federal Register rulemaking
for every ongoing Farm Bill conservation program NRCS administers. This
includes Final Rules for the Wetland Reserve Program, Wildlife Habitat
Incentives Program, Environmental Quality Incentives Program, and the
Farm and Ranch Lands Protection Program. We are making funds available
under the Grassland Reserve Program. I am also pleased to note that we
had an extremely robust comment period and response from all sectors of
the agriculture and conservation interests to our Advanced Notice of
Proposed Rulemaking on the Conservation Security Program (CSP). We are
currently analyzing and incorporating the feedback we have received as
we begin development of a proposed rule for CSP. Given the widespread
provisions and complexity of the Farm Bill, I think this record is a
testament to the hard work and dedication of our staff and I am proud
of what we have accomplished. One year after enactment, we are open for
business, and ready to the needs of farmers and ranchers.
MEETING EMERGING CHALLENGES
Throughout the course of fiscal year 2002 and fiscal year 2003 as
Congress developed and enacted the new Farm Bill, I am proud of the
proactive steps that our agency took in order to prepare for emerging
challenges. I would like to highlight our work in this area.
Increasing Third-Party Technical Assistance
With the historic increase in conservation funding made available
by the 2002 Farm Bill, NRCS will look to non-federal partners to supply
the technical assistance needed to plan and oversee the installation of
conservation practices. NRCS will use the new Technical Service
Provider (TSP) system to facilitate this technical assistance delivery.
The TSP system ensures that producers have the maximum flexibility for
choosing a third-party provider to work on their land, while also
ensuring that TSP providers are properly certified and meet NRCS
standards.
Expanding Local Leverage
One of the key attributes that NRCS has developed for local
leverage is the Earth Team volunteer program. We, at NRCS, are proud of
the Earth Team's accomplishments and the record expansion that this
program has experienced. The National Earth Team Status Report for
fiscal year 2002 showed a 19 percent increase in the number of
volunteers, a 17 percent increase in the number of volunteer hours and
a 5 percent increase in the number of NRCS offices using volunteer
services over the previous year's figures. For fiscal year 2002, the
total value of volunteer time was more than $17 million, based on the
$16.05 hourly rate established by nationally recognized volunteer
organizations. The total amount invested nationally in the Earth Team
is approximately $199,000, which gives NRCS a return on its investment
equal to $86 for every $1 spent.
Since the Earth Team began in 1982, the number of volunteers has
gone from 327 to more than 38,000 and the number of hours donated has
jumped from 29,100 to 1,089,100. I believe that Earth Team volunteers
will be increasingly important as we move forward to implement the new
Farm Bill and provide more conservation on private lands in the future.
It serves as an excellent example of the kind of partnership effort
needed to accomplish the massive challenge of getting private lands
conservation out to those farmers, ranchers, and private landowners who
need assistance.
Lean and Local and Accessible
One of the core themes that I have stressed to our agency is the
need to be lean and local. Throughout the year, we have worked hard to
provide as much decision-making flexibility to the local level as
possible. In addition, we have worked to provide streamlined business
processes to improve use of valuable staff resources.
One of the most important investments we can make today in improved
efficiency is development of new and improved technical tools for use
by our staff and the general public. Recently, we launched the
Electronic Field Office Technical Guide (EFOTG). The EFOTG provides
conservation information and scientific and technological resources on
the Web in an easy-to-use environment. The electronic technical guides
are linked to 8,000 NRCS web pages and external sites. Content includes
data in technical handbooks and manuals, scientific tools that help
generate conservation alternatives, conservation practice standards,
conservation effects case study reports and other electronic tools for
evaluating the effects of conservation technical assistance. In total,
the EFOTG will make our information more accessible, and supports the
President's Management Agenda for E-Government. The EFOTG is part of
our larger efforts at developing SMARTECH to provide technical
information to a broad base of conservation professionals and the
general public.
Access and Accountability
As a core principle, we need to increase the accessibility of NRCS
to the public, not only by providing conservation data, but also by
making our internal processes more easily understood. This year, we
have taken steps to make items such as our allocation formulas, backlog
and program participation data much more transparent to the general
public. We have worked to foster competition and reward performance, in
our internal functions and also in contracting and cooperative
agreements. Throughout this process, our goal has been to provide the
best and most efficient service to producers at the local level and to
make NRCS more farmer friendly and accessible.
We know this process will take time, and I look forward to
continuing this effort into the future.
DISCRETIONARY FUNDING
While we have come a long way in the past year, the future presents
many emerging challenges and bright horizons. The President's fiscal
year 2004 budget request for NRCS reflects our ever-changing
environment by providing appropriate resources for the ongoing mission
of NRCS and ensuring that new opportunities can be realized.
Conservation Operations
The President's fiscal year 2004 budget request for Conservation
Operations proposes a funding level of $704 million which includes $577
million for Conservation Technical Assistance (CTA). The CTA budget
will enable NRCS to increase support for certain activities as well as
maintain funding for ongoing high priority work. For example, increases
are provided in the budget for additional specialized staff and
training to help address air quality problems in areas that are not in
compliance with national air quality standards; to enhance the Customer
Service Toolkit which provides NRCS field staff with the geographic
data and technical tools that they need to adequately deliver Farm Bill
conservation and other field programs; and, to establish a monitoring
and evaluation regiment that will provide more meaningful performance
goals and measures for Farm Bill conservation programs.
High priority ongoing work that will be maintained includes
addressing water pollution associated with animal agriculture. In
addition to regular technical assistance support provided to grazing
land customers, the budget proposes to maintain funding for Grazing
Land Conservation Initiative (GLCI) at $22 million in 2004. The GLCI is
a private coalition of producer groups and environmental organizations
that supports voluntary technical assistance to private grazing
landowners and managers.
The Conservation Operations account funds the basic activities that
make effective conservation of soil and water possible. It funds the
assistance NRCS provides to conservation districts, enabling people at
the local level to assess their needs, consider their options, and
develop area-wide plans to conserve and use their resources.
Conservation Operations support the site-specific technical assistance
NRCS provides to individual landowners to help them develop plans that
are tailored to their individual economic goals, management
capabilities, and resource conditions. It also includes developing the
technical standards and technical guides that are used by everyone
managing soil and water--individuals, local and State agencies and
other Federal 6 agencies. It includes our Soil Survey and Snow Survey
Programs and other natural resources inventories, which provide the
basic information about soil and water resources that is needed to use
these resources wisely. This basic inventory work contributes to
homeland security as well as to the long-term sustainability of the
Nation's natural resource base.
We have made great strides in developing an effective
accountability system with the support of Congress. This accountability
system has allowed us to accurately track the accomplishments of
Conservation Operations. In fiscal year 2002, technical assistance
supported by Conservation Operations funds enabled land users to treat
9.46 million acres of cropland and 11.5 million acres of grazing land
to the resource management system level (sustainable management). On 7
million acres of cropland that had been eroding at severely damaging
rates, NRCS technical assistance enabled farmers to reduce erosion to
the tolerable rate or less, thus preserving the productive capacity of
the soil.
In fiscal year 2002, NRCS continued to assist producers to respond
to the publics concern about water quality through the development of
regulations addressing water quality at local, State, and Federal
levels. We applied practices to help protect water quality, including
5.4 million acres of nutrient management, 1.84 million acres where
irrigation water management was improved, and 578,419 acres of buffer
practices. All of these activities were supported by Conservation
Operations; in some cases, funds from other Federal programs or State
or local sources were utilized in combination with Conservation
Operations.
Adequate funding for Conservation Operations in 2004 will enable
NRCS to continue to provide assistance to producers across the country.
It will also enable us to increase our attention to critical resource
concerns, such as animal feeding operations and assistance to producers
who will be required to take actions under the new CAFO rule. EPA
estimates that 15,500 producers will come under the new regulatory
framework. Most if not all of these producers will require planning
assistance from NRCS with nutrient management-related concerns.
Another serious concern continues to be the health of private
rangeland and pastureland. The Nation's 630 million acres of non-
Federal grazing lands are vital to the quality of the Nation's
environment and the strength of its economy. In November 2002, we were
successful in issuing new technical guidance to field staff for
conservation assistance on private grazing lands. Our guidance will
help provide producers with the ecological principals associated with
managing their land and implementing a conservation plan that meets
their management objectives and natural resource needs. I believe that
we need to offer a high level of excellence to grazing land and am
proud of the great strides that we are making in this area. Sustained
resources in Conservation Operations will mean that needed expertise
can be brought to bear at the field level on farms and ranches.
Farm Bill Technical Assistance
Fully funding technical assistance for the Farm Bill programs is
essential to ensure the environmental benefits that are expected from
the significant increase in conservation spending. In a 2003 budget
amendment, the Administration proposed establishing a new $333 million
account to fund the technical assistance needed to implement the
conservation programs authorized in the 2002 Farm Bill. The 2004 budget
proposes the Farm Bill Technical Assistance (FBTA) account at a level
of $432 million and would provide technical assistance funding for the
2002 Farm Bill conservation programs which include the Conservation
Reserve Program, the Wetland Reserve Program, the Environmental Quality
Incentives Program, the Wildlife Habitat Incentives Program, the Farm
and Ranchland Protection Program, the Conservation Security Program,
and the Grasslands Reserve Program.
This new account will be used to plan, design, and oversee the
installation of conservation practices, and maximize the amount of
dollars available to help farmers and ranchers install on-the-ground
conservation projects. Establishing one technical assistance account
will also improve the accountability and transparency of the
conservation program's cost of delivery.
Watershed and Flood Prevention Operation (WFPO).--The 2004 budget
proposes funding for the Public Law 566 Watershed Operations, but
requests no funding for the Emergency Watershed Protection program.
With emergency spending being so difficult to predict from year to
year, the budget proposes instead to direct available resources to
those projects that are underway and for which Federal support is
critical for their successful implementation. Funding for the regular
watershed program will also address the backlog of unmet community
needs by ensuring implementation of those watershed projects that are
designed to meet these needs.
Watershed Surveys and Planning.--NRCS works with local sponsoring
organizations to develop plans on watersheds dealing with water
quality, flooding water and land management, and sedimentation
problems. These plans then form the basis for installing needed
improvements. The Agency also works cooperatively with State and local
governments to develop river basin surveys and floodplain management
studies to help identify water and related land resource problems and
evaluate alternative solutions. The 2004 Budget requests $5 million to
ensure that this important work is continued.
Watershed Rehabilitation Program.--One of the agency's strategic
goals is to reduce risks from drought and flooding to protect community
health and safety. A key tool in meeting this goal is providing
financial and technical assistance to communities to implement high
priority watershed rehabilitation projects to address the more than
11,000 dams installed with USDA assistance that will be or are now at
the end of their 50-year life span. Some dams already pose a
significant threat to public safety and these will naturally be the
first to be addressed. The budget proposes $10 million to continue the
work begun in 2002.
Resource Conservation and Development (RC&D).--The purpose of the
RC&D program is to encourage and improve the capability of State and
local units of government and local nonprofit organizations in rural
areas to plan, develop, and carry out programs for RC&D. NRCS also
helps coordinate available Federal, State, and local programs. The 2004
budget proposes a level of $50 million which will support the 368 RC&D
areas now authorized.
FARM BILL AUTHORIZED PROGRAMS
Environmental Quality Incentives Program (EQIP).--The purpose of
EQIP is to provide flexible technical, educational, and financial
assistance to landowners that face serious natural resource challenges
that impact soil, water and related natural resources, including
grazing lands, wetlands, and wildlife habitat management. We have seen
that producer demand continues to far outpace the available funding for
EQIP. During fiscal year 2002, we received 70,000 more applications
than could be funded, representing financial assistance requests of
$1.4 billion for one fiscal year. Projections for the future are that
the demand will continue to eclipse the program. At the end of January
2003, we published revised program rules for EQIP resulting from the
changes enacted in the new Farm Bill. We believe that the increased
program flexibility and improved program features will continue to make
EQIP one of the most popular and effective conservation efforts federal
government-wide.
EQIP was reauthorized by the 2002 Farm Bill through 2007 at a total
funding level of $5.8 billion, including $1 billion for 2004. The
budget proposes a level of $850 million for financial assistance. The
Farm Bill Technical Assistance account will provide the technical
assistance to implement EQIP.
Wetlands Reserve Program (WRP).--WRP is a voluntary program in
which landowners are paid to retire cropland from agricultural
production if those lands are restored to wetlands and protected, in
most cases, with a long-term or permanent easement. Landowners receive
fair market value for the land and are provided with cost-share
assistance to cover the restoration expenses. The 2002 Farm Bill
increased the program cap to 2,275,000 acres. The fiscal year 2004
budget request estimates that about 200,000 acres will be enrolled in
2004.
Grassland Reserve Program (GRP).--The 2002 Farm Bill authorized the
GRP to assist landowners in restoring and protecting grassland by
enrolling up to 2 million acres under easement or long term rental
agreements. The program participant would also enroll in a restoration
agreement to restore the functions and values of the grassland. The
2002 Farm Bill authorized $254 million for implementation of this
program during the period 2003-2007.
Conservation Security Program (CSP).--CSP, as authorized by the
2002 Farm Bill, is a voluntary program that provides financial and
technical assistance for the conservation, protection, and improvement
of natural resources on Tribal and private working lands. The program
provides payments for producers who practice good stewardship on their
agricultural lands and incentives for those who want to do more. In
2004, the budget proposes to cap CSP spending at a total of $2 billion
over ten years.
Wildlife Habitat Incentives Program (WHIP).--WHIP is a voluntary
program that provides cost-sharing for landowners to apply an array of
wildlife practices to develop habitat will support upland wildlife,
wetland wildlife, threatened and endangered species, fisheries, and
other types of wildlife. The 2002 Farm Bill authorized $360 million for
implementation of the program during the period 2002-2007 including $60
million in 2004. The budget proposes to cap WHIP at $42 million for
financial assistance. The Farm Bill Technical Assistance account will
provide the technical assistance to implement WHIP.
Farm and Ranchland Protection Program (FRPP).--Through FRPP, the
Federal Government establishes partnership s with State, local or
Tribal government entities or nonprofit organizations to share the
costs of acquiring conservation easements or other interests to limit
conversion of agricultural lands to non-agricultural uses. FRPP
acquires perpetual conservation easements on a voluntary basis on lands
with prime, unique, or other productive soil that presents the most
social, economic, and environmental benefits. FRPP provides matching
funds of no more than 50 percent of the purchase price for the acquired
easements. The 2002 Farm Bill authorized a total of $597 million for
the program through 2007 including $125 million in 2004. The budget,
partially proposes a level of $112 million in financial assistance. The
Farm Bill Technical Assistance account will provide the technical
assistance to implement FRPP.
Conclusion
As we look ahead, it is clear that the challenge before us will
require dedication of all available resources--the skills and expertise
of the NRCS staff, the contributions of volunteers, and continued
collaboration with partners. Conservation Districts, Resource
Conservation and Development Councils and many valuable partners
continue to make immeasurable contributions to the conservation
movement. It is this partnership at the local level that makes a real
difference to farmers and ranchers. As we move forward, we will
accelerate the use of third-party sources of technical assistance as
well. We recognize that the workload posed by future demand for
conservation will far outstrip our capacity to deliver and seek to
complement our resources with an appropriate system of qualified
expertise.
But it will take a single-minded focus and resolve if we are to be
successful. I am proud of the tenacity that our people exhibit day in
and day out as they go about the work of getting conservation on the
ground and I believe that we will be successful. But it will require
the continued collaboration of all of us, especially Members of this
Subcommittee because available resources will ultimately determine
whether our people have the tools to get the job done. I look forward
to working with you as move ahead in this endeavor.
This concludes my statement. I will be glad to answer any questions
that Members of the Subcommittee might have.
Senator Bennett. Thank you, sir.
We are now going to hear from Thomas C. Dorr, who is the
Under Secretary for Rural Development. Mr. Dorr.
RURAL DEVELOPMENT
Mr. Dorr. Thank you, Mr. Chairman.
I, too, appreciate the opportunity to come before you this
morning to present to you the President's fiscal year 2004
budget request for USDA's Rural Development. But as Mr. Rey
first indicated, I would also like to acknowledge the exemplary
performance of our associates at Rural Development and their
ability to get our programs out in a timely and effective
manner.
This budget strongly supports our vision of Rural
Development as rural America's venture capitalist. Rural
Development provides equity, liquidity, and technical
assistance to finance and foster growth, developing new
opportunities for home ownership, business development, and
critical community and technology infrastructure. It is with
this vision in mind that Rural Development's mission has been
designed to deliver programs in a way that will support, first,
increasing economic opportunity and, second, improving the
quality of life for all rural Americans.
This is a very basic concept to increase economic
opportunity and improve the quality of life. But it is these
fundamental principles that guide our mission at Rural
Development. This organization, which used to be known as the
old Farmers Home Administration, frequently known as the lender
of last resort, is now Rural Development. And we are the
venture capitalist for rural America.
With this renewed sense of understanding and purpose, Rural
Development is utilizing the tools and resources at hand to
support economic growth in rural America. Let me just highlight
some of our more significant efforts.
Our single-family housing program forms the bedrock of our
commitment to rural America. It is a commitment that allows
over 40,000 families annually to realize their dream of home
ownership. This Administration knows that owning a home is the
oldest and best form of building equity, and we must encourage
more families to invest in their future.
We are also providing rural community facility loans and
grants for municipal, health care, child- and adult-care
facilities, as well as public safety equipment of all kinds.
And through our rural business programs, we expect to create or
save through fiscal year 2003 funding over 90,000 jobs through
the Business and Industry Guaranteed Loan Program and 30,000
jobs through local business revolving loan funds.
Additionally, we continue to implement the value-added
Agricultural Product Market Development Grant Program through
which over $57 million has been committed during the last 2
fiscal years and an additional $40 million will be committed
this year.
On April 7th of 2003, we announced a $23 million farm bill-
related Renewable Energy and Energy Efficiency Systems Grant
Program to assist our rural small businesses, farmers, and
ranchers to develop energy-efficient systems. Through these
efforts, along with the tax incentives being considered by
Congress, support for renewable energy ventures will be greatly
enhanced. They can provide an important boost toward America's
overall independence from foreign energy supplies.
An added focus this year is the implementation of the farm
bill Rural Business Investment Program. This is a complex new
initiative, and we are continuing to work with SBA to
coordinate the implementation of this important program.
In our Rural Utilities Program, we are working to support
the build-up of our rural technology infrastructure through
making nearly $1.5 billion in rural broadband access loan funds
available, along with our ongoing efforts through the
telemedicine, distance learning loan and grant program.
Additionally, our Water and Wastewater Program is providing
communities with funding necessary to support the development
of water and wastewater infrastructure.
Finally, I wish to report that our effectiveness in
delivering all of Rural Development programs will ultimately be
measured by a rigorous standard of accountability. We believe
it is essential to be accountable to the Congress, the
President, and, most importantly, the rural citizens which our
programs are intended to benefit. And in that vein, we have
several major initiatives underway.
One of our top initiatives is to look at the effectiveness
of the current cooperative model for assisting farmers and
ranchers, who struggle to convert equity and dreams into the
kinds of economic opportunity they need and desire.
We are also focused on addressing and shoring up our multi-
family housing portfolio. There are many converging dynamics
relative to the current portfolio, which includes aging
building complexes over 20 years of age.
Finally, we must work harder to ensure that the people of
rural America are aware of what is available to assist them
with their local efforts to increase economic opportunities and
to improve their quality of life.
prepared statements
The goal of the President and Rural Development is to
support these communities in their quest for long-term
sustainability and to place at their disposal the tools they
need to succeed. I know you share this common value and desire
to support rural America. We do as well. And, Mr. Chairman, we
appreciate the support this committee has provided to this
mission and to rural America.
At this time I will be happy to answer any questions that
you may have.
[The statements follow:]
Prepared Statement of Thomas C. Dorr
Thank you Mr. Chairman. Mr. Chairman, Members of the Committee, I
appreciate the opportunity to come before this committee to present to
you the President's fiscal year 2004 Budget request for USDA Rural
Development.
This is my first opportunity to appear before you--as Under
Secretary for Rural Development--I am honored by the opportunity
President Bush has given me to serve my country in this position and to
assist him in directing Federal resources to help rural America grow
and prosper in an ever-changing environment.
My own roots in rural America run deep. For all but 9 years of my
life I have lived, worked and enjoyed life on a farm in Northwest Iowa,
and I am appreciative for the values these experiences have instilled
in me.
I seek daily to apply those fundamental values and life experiences
to the way we do business at Rural Development. My goal as Under
Secretary is to pursue a clear vision and encourage a renewed
commitment to the people and communities of rural America. I come to
work each day determined to renew the energy and belief in ourselves
and in all of rural America. By so doing, this will enable us to assure
continued focus on our outreach efforts. This new sensitivity and
belief in ourselves--not just as an agency or department--but our
belief in the good people of rural America will drive all our efforts
in Rural Development.
So I come before this Committee Mr. Chairman with a keen
understanding of rural issues and a strong desire to implement federal
programs provided through this President and Congress in a way that
families and communities can utilize most effectively the available
resources and opportunities.
VISION
The President's 2004 budget proposal is key to economic
revitalization in rural America. It strongly supports our vision of
Rural Development as the Venture Capitalist for Rural America. Rural
Development provides equity, liquidity and technical assistance to
finance and foster growth in existing and new opportunities for
homeownership, business development, and critical community and
technology infrastructure. The return on this equity is the economic
growth realized through direct assistance and incentivizing private
market forces.
So why do I say Rural Development is the venture capitalist of
rural America? Because we, the President, and Congress believe in rural
America. We believe the return on our investment will be a stronger
rural economy and a higher quality of life, along with all the
ancillary benefits derived from utilizing the talents of all rural
Americans. Revitalized economic activity provides new opportunities for
rural youth and helps stem out-migration from rural areas. It is
critically important that we find ways to entice our young people to
stay or even return to Rural America.
MISSION
It is with this vision in mind that Rural Development's mission has
been designed to deliver programs in a way that will support (1)
increasing economic opportunity and (2) improving the quality of life
of rural residents.
Historically, Rural Development has been associated with the old
Farmers Home Administration--the lender of last resort. However, in
order to properly address these mission goals, it is important to
recognize the changes that have occurred throughout rural America. In
the 1980 Census, it was revealed that over 960 counties derived at
least 20 percent of gross income from production agriculture. The 2000
Census data indicated only 262 counties retain that distinction. These
changes in our rural economy drive our efforts today. We must be
aggressive in helping our communities develop new economic vehicles
that will enable them to grow and prosper. The philosophies and drive
of the old Farmers Home Administration no longer apply to today's Rural
Development and today's rural communities.
It is with this renewed sense of understanding and purpose that
Rural Development, under President Bush's leadership, has become rural
America's venture capital firm. I would add that in contrast to reports
that Rural America is dying, there is no reason to believe that we
can't have economic growth in rural America. We have the essential
tools and resources at hand.
RESPONSIBILITIES
Through Rural Development's Rural Business-Cooperative Service;
Rural Housing Service; and Rural Utilities Service we offer a multitude
of programs that support economic development.
Let me share with you a brief overview of the wide range of
programs we administer.
Rural Housing
Housing is important because a home is the basis for the family.
This President feels a safe secure home is the foundation for the
family unit. In addition, owning a home is the oldest and best form of
building equity. This is why the President has proposed a 32 percent
increase for single-family housing direct loans in his 2004 budget.
In general, we provide loans and repair grants for single family,
multi-family, and farm labor housing.
We also provide rural community facility loans and grants for
municipal, health care, child and adult care facilities; as well as
public safety equipment and facilities.
Rural Business-Cooperative Services
Through our rural business programs, we provide Business and
Industry Guaranteed loans,
Fund the Intermediary Relending Program, which provides capital for
local revolving loan funds, and
Have implemented the Value-Added Agricultural Product Market
Development grants programs (VADGs).
Rural Utilities
In our rural utilities program, we support technology
infrastructure through rural Broadband--Telemedicine/Distance Learning;
Rural Community water and wastewater loans and grants; and Electric
and telephone direct and guaranteed loans.
Our programs may be traditional in name--but they must be used in
new and innovative ways.
Rural Business-Cooperative Services should be mindful of the need
to improve business knowledge and skills. Serious attention needs to be
given to business strategies, finance, marketing and decision making
that will enable farmers, business and community leaders to lead
dynamic, creative businesses that can succeed.
Rural Housing Services must think about how its various programs
can serve as a foundation for helping rural families build wealth
through homeownership. We must be aggressive in ensuring that America's
minority families gain access to financial resources that will allow
increased levels of minority homeownership. The President has set a
goal of assisting 5.5 million more minority families in attaining their
dream of homeownership by the year 2010. It is a goal that we are
diligently working to meet.
Finally, our utilities programs must focus on the future.
Technology infrastructure will do for rural America in the 21st century
what railroads did in the 19th century and highways in the 20th
century. Rural America's economic future and her ability to remain
viable in the global community will be dependent upon the development
of the necessary communications infrastructure.
In all of these programs, it is important to remember that our
effectiveness in delivering Rural Development programs will ultimately
be measured by a rigorous standard of accountability. This
accountability applies to our Congress, President and most importantly
the rural citizens, which our programs are intended to benefit.
In that vein, we have several major initiatives underway:
PRIORITY INITIATIVES
One of our top initiatives is to look at the effectiveness of the
current cooperative model for assisting farmers and ranchers. The
traditional cooperative model was developed with good intentions.
However cooperatives are now struggling to convert the equity and
dreams of many rural Americans and agricultural producers into the
kinds of economic opportunity they need and desire. Rural Development's
Rural Business-Cooperative Service group should be at the focal point
of this discussion and we intend to be.
We are also focused on addressing and shoring up our multi-family
housing portfolio. There are many converging dynamics relative to the
current portfolio, including the fact that it is an aging portfolio
with many building complexes over 20 years old.
Another focus is on doing a better job of marketing our programs to
rural America. Simply put, we must work harder to assure that the
people of rural America are aware of what is available to assist them
with their local efforts and initiatives to increase economic
opportunities and improve quality of life. I believe that local
communities are the cradles of innovation and, if properly encouraged
and assisted, they will provide models and vehicles to help all of
rural America better address its changing landscape.
Cooperation, coordination, and collaboration, both within Rural
Development and with other public and private partners will be
essential to maximizing the impacts of our programs. Our commitment
will be evident through an extensive communications effort, to raise
the visibility of Rural Development, and minimize the perception that
programs are operated under individual agencies. We recognize Rural
Development needs to articulate comprehensive development themes, and
not promote individual agencies and their specific programs. We also
recognize there is still a public perception that the Farmers Home
Administration exists, with its role of being the lender of last
resort. Rural Development will engage in a comprehensive communications
plan that will clarify our mission to the public, clearly identify our
accessibility, and underscore our commitment to cooperation,
coordination, and collaboration across our programs.
SUMMARY
Rural communities, much like agriculture, have been undergoing
critical changes that are important to their long-term sustainability
and growth. The goal of the President and Rural Development is to
support these communities and place at their disposal the tools they
need to succeed. I know you share this common value and desire to
support rural Americans in their efforts to capitalize on economic
opportunities and an improved quality of life for their families and
communities. With the support of the President, Congress, and public
and private sector partners, the economic future of rural America will
be strong.
RURAL DEVELOPMENT BUDGET REQUEST
Mr. Chairman, the President's commitment to rural America is
reflected in the budget request for fiscal year 2004. The Rural
Development request totals $2.3 billion in budget authority, to support
$12 billion in direct loans, loan guarantees, grants and technical
assistance, and to pay administrative expenses.
I will now discuss the requests for specific programs. Rural
Utilities Service
The Rural Utilities Service (RUS) provides financing for essential
infrastructure needs including electric, data/telecommunications, and
water and waste disposal services that are prerequisite for economic
development in rural areas. The RUS program request totals nearly $4.9
billion in program level, which is comprised of $2.6 billion for
electric loans, $495 million for rural data/telecommunication loans,
$50 million for Distance Learning and Telemedicine loans, $25 million
for Distance Learning and Telemedicine grants, almost $200 million in
loans and $2 million in grants to support broadband transmission, $1.1
billion for direct and guaranteed Water and Waste Disposal loans, $346
million for Water and Waste Disposal Grants, and $3.5 million for Solid
Waste Management Grants.
Electric program funding will benefit about 3.3 million consumers
from systems improvement, through upgrading almost 187 rural electric
systems. Approximately 59,800 jobs will be created as a result of
facilities constructed with Electric program funds. Almost 133,000 new
subscribers will receive telecommunications service, over 495,000
existing subscribers will receive improved service, and about 11,385
jobs will be generated as a result of facilities constructed with
Telecommunications funds. RUS will be analyzing loans made in 2002 and
2003 to determine ways to improve the electric and telecommunication
programs. This will include a review of potential targeting
opportunities to increase funding to needy areas. Under the Distance
Learning and Telemedicine programs, approximately 140 schools will
receive distance learning facilities and 55 health care providers will
receive telemedicine facilities. Over 40,500 jobs will be generated as
a result of facilities constructed with water and waste disposal
program funds, as about 648 rural water systems and about 347 rural
waste systems are developed or expanded in compliance with the Safe
Drinking Water Act and Federal and State environmental standards.
The Rural Telephone Bank (RTB) was established in 1972 to provide a
supplemental source of credit to help establish rural telephone
companies. This has proved to be remarkably successful, and efforts
have been underway to privatize the bank. In 1996, the RTB began
repurchasing Class ``A'' stock from the Federal government, thereby
beginning the process of transformation from a Federally funded
organization to a fully privatized banking institution. A private bank
will have greater flexibility in providing support to rural America
which will increase economic development opportunities. The fiscal year
2004 budget reflects the Administration's commitment to a fully
privatized RTB that does not require Federal funds to finance the loans
it makes.
I would like to underscore two points in our Rural Utilities budget
request. First, regarding broadband loans, we are building on the
$1.455 billion loan program recently announced. Mandatory funding is
provided for this program under the Farm Bill. For fiscal year 2004, we
are not seeking additional mandatory money, but, rather, are requesting
$9.1 million in discretionary budget authority. We believe programs
should compete for resources through the annual appropriations process.
This level of discretionary budget authority will support almost $200
million of loans, continuing support for expanding broadband access in
rural America. Second, we propose to provide the nearly $1.5 billion
Water and Waste program level by relying on higher loan levels in
meeting communities' needs. This increased reliance on loans is
possible due to the low interest rate environment, the extensive
funding provided in fiscal year 2002 under the Farm Bill, and the
demonstrated needs in the current application pipeline.
RURAL BUSINESS-COOPERATIVE SERVICES
One key to creating economic opportunity in rural areas is the
development of new business and employment opportunities. These
opportunities are essential to retaining youth and ensuring young,
emerging leaders remain in rural areas. But, local lending institutions
frequently do not have the capacity or capital needed to sustain local
businesses and generate new economic growth. Agricultural producers do
not have a ready mechanism, or information necessary, to utilize the
equity available in farmland for other business purposes. Such equity
could be leveraged into other activities, providing capital infusions
into capital-starved areas. Rural Business-Cooperative Services (RBS)
programs, particularly the Business and Industry (B&I) loan guarantee
program, were enacted to supplement the efforts of local lending
institutions in providing capital to stimulate job creation and
economic expansion. Cooperative Services' research and technical
assistance has the capacity to assist in the identification and
creation of new business structures and financing mechanisms to support
innovative capital formation and utilization in rural America.
The RBS budget request for fiscal year 2004 totals about $718
million program level, the bulk of which represents over $600 million
for the B&I loan guarantee program. Additionally, we are requesting to
maintain the fiscal year 2003 President's program levels for the
majority of the remaining RBS programs ($44 million for the Rural
Business Enterprise Grant program, $3 million for the Rural Business
Opportunity Grant program, $40 million for the Intermediary Relending
Program, $15 million for Rural Economic Development loans, and $9
million for Rural Cooperative Development Grants.
The Farm Bill provided mandatory funding for Value-Added grants and
Renewable Energy Systems and Energy Efficiency Improvements. We are not
seeking those mandatory funds, but rather request discretionary funding
to support these programs. As I stated earlier, the Administration
believes programs should compete for funding in the appropriations
process. For fiscal year 2004, we are requesting $2 million for Value-
Added producer grants, and $3 million to support the Renewable Energy
program. Through lessons learned from the Value-Added program
administered with mandatory fiscal year 2002 funds under the Farm Bill,
$2 million can be effectively deployed to promote value-added
activities and stimulate income generation in rural areas. Three
million dollars for renewable energy will assist in fulfilling the
President's Energy Policy that encourages a clean and diverse portfolio
of domestic energy supplies to meet future energy demands. In addition
to helping diversify our energy portfolio, the development of renewable
energy supplies will be environmentally friendly and assist in
stimulating the national rural economy through the jobs created and
additional incomes to farmers, ranchers, and rural small businesses.
RURAL HOUSING SERVICE
The budget request for programs administered by the Rural Housing
Service (RHS) totals $5.7 billion. This commitment will improve housing
conditions in rural areas, and, in particular, improve homeownership
opportunities for minority populations. Rural Development has
implemented a ``5-Star Commitment,'' which supports the President's
homeownership initiative. Under this 5-Star plan, our goal is to
increase minority participation in housing programs by ten percent over
the next few years.
The request for single family direct and guaranteed homeownership
loans totals almost $4.1 billion, which will assist about 49,000
households, who are unable to obtain credit elsewhere. The RHS request
maintains the program level for housing repair loans and grants, $35
million for housing repair loans and almost $32 million for housing
repair grants, which will be used to improve 10,000 existing single
family houses, mostly occupied by low income elderly residents.
This budget also supports my commitment to focus on repair,
rehabilitation, and preservation of multi-family housing projects, with
the goal of developing a comprehensive strategy for program overhaul.
We are proposing a rental-housing request of $71 million for direct
loans, $100 million for multi-family guaranteed loans, $42 million for
farm labor housing loans, $17 million for farm labor housing grants,
and $740 million in rental assistance. RHS has an existing multi-family
housing portfolio of $12 billion, that includes 17,500 projects. Many
of these projects are 20 years old or older, and face rehabilitation
needs. Given the demands for repair/rehabilitation and preservation of
existing projects, and our ongoing study of program alternatives, we
are deferring a request for new construction funding this year.
This budget provides an increase in farm labor housing loans and
maintenance of farm labor housing grants. In total, the farm labor-
housing program will rise to $59 million, which will address pressing
needs for farm worker housing across the country. This program provides
housing to the poorest housed workers of any sector in the economy, and
supports agriculture's need for dependable labor to harvest the
abundance produced by rural farms.
The budget includes $740 million for Rental Assistance, a slight
increase over the current level. These payments are used to reduce the
rent in multi-family and farm labor housing projects to no more than 30
percent of the income of very low-income occupants (typically female
heads of households or the elderly, with annual incomes averaging about
$8,000). This level of funding will provide rental assistance to almost
45,000 households, most of which would be used for renewing expiring
contracts in existing projects.
The request for community facilities funding holds program levels
to the fiscal year 2003 President's Budget--$250 million for direct
loans, $210 million for guaranteed loans, and $17 million for grants.
Community facilities programs finance rural health facilities,
childcare facilities, fire and safety facilities, jails, education
facilities, and almost any other type of essential community facility
needed in rural America. These funds will support 140 new or improved
health care facilities, 370 new or improved public safety facilities,
and 95 new or improved educational facilities.
ADMINISTRATIVE EXPENSES
These requested program levels provide ambitious targets for
accomplishments, for which this Committee will be proud. However,
delivering these programs to the remote, isolated, and low income areas
of rural America requires administrative expenses sufficient to the
task. Over the last several years, Rural Development has administered
growing program levels, and new programs, with modest Salaries and
Expenses (S&E) funding increases. From fiscal year 1996 through fiscal
year 2002 Rural Development's annual delivered program level increased
by 79 percent. Over that same period Rural Development's S&E
appropriation increased 13 percent. Rural Development curtailed
employment, and Full Time Equivalent (FTE) staffing fell 15 percent.
With an outstanding loan portfolio exceeding $86 billion, fiduciary
responsibilities mandate that Rural Development maintain adequately
trained staff, employ state of the art automated financial systems, and
monitor borrowers' activities and loan security to ensure protection of
the public's financial interests. Curtailed S&E funding in the past
strained our ability to provide adequate underwriting and loan
servicing to safeguard the public's interests.
For 2004, the budget proposes a total of $680 million for Rural
Development S&E, an increase of $50 million from the fiscal year 2003
President's Budget. The bulk of this increase is consumed by: pay
costs; automated systems maintenance, enhancement, and operational cost
increases; and funding the mandatory move of staff from downtown St.
Louis to the Goodfellow Facility, a former military instillation.
Twelve million dollars is requested to support enhancements of three
automated financial systems--the Guaranteed Loan System, the Dedicated
Loan Origination System, and the RUS Loan Servicing System, which
maintain accounting and servicing information on direct and guaranteed
loans across the mission area. Over $17 million is needed to fund the
General Services Administration (GSA)-mandated move of Rural
Development staff in St. Louis. We are also requesting $1.6 million to
support several specific initiatives: continuing to monitor guaranteed
single and multi-family housing lenders; funding studies and analysis
of outsourcing; and continued Credit Reform modeling and analysis
support. In fiscal year 2002, Rural Development received a clean audit
opinion for the first time since 1994. However, the Office of the
General Counsel and the General Accounting Office view our cash flow
modeling efforts as short-term solutions, and recommend continued
analysis and refinements. Contract assistance is needed to improve data
collection, sensitivity analysis, and validation. Improvements in
Credit Reform processes provide assurance that program budget cost
estimates are reasonable. Our clean audit opinion was hard-won, and we
thank this Committee for resources provided in the past to achieve this
goal. We are committed to maintaining this high standard.
Rural Development is also requesting a modest (4 FTE) increase in
staffing. These 4 FTEs will be senior analysts, with cutting-edge
financial and analytical skills. They will be spread across the
organization and provide financial and administrative analytical
assistance to senior managers.
Rural Development is very appreciative of the funding provided in
prior years for automated financial systems development, which allowed
Rural Development to continue to support systems for guaranteed loans,
multi-family housing loans, Rural Utilities Service systems
modernization, and the Program Funds Control System. This funding will
allow Rural Development to continue to address long delayed automated
systems development needs, but these are major projects and will not be
completed in 1 year. We urge the committee to fund the President's
fiscal year 2004 $680 million S&E request.
Mr. Chairman, Members of the Committee, this concludes my formal
statement. We would be glad to answer any questions you may have. Thank
you for the opportunity to appear before you to discuss the Rural
Development budget request.
______
Prepared Statement of Hilda Gay Legg, Administrator, Rural Utilities
Service
The fiscal year 2004 budget reflects President Bush's support for
investing in the infrastructure of rural America. It includes $4.9
billion in loan and grant assistance for the on-going electric,
telecommunications, and water and waste programs, which compares to
$4.8 billion in the fiscal year 2003 budget.
TELECOMMUNICATIONS PROGRAM
The building and delivery of an advanced telecommunications network
is having a profound effect on our Nation's economy, its strength, and
its growth. In discussing the importance of advanced, high-speed
access--commonly referred to as ``broadband service''--at the Economic
Forum in Waco this past summer, President Bush said: ``In order to make
sure the economy grows, we must bring the promise of broadband
technology to millions of Americans. And broadband technology is going
to be incredibly important for us to stay on the cutting edge of
innovation here in America.''
Just as our citizens in our cities and suburbs benefit from access
to broadband services, so should our rural residents. Broadband service
is a necessity in rural America, it plays a vital role in solving the
problems created by time, distance, location, and lack of resources.
The promise of broadband is not just ``faster access''.
Today's advanced telecommunications networks will allow rural
communities to become platforms of opportunity for new businesses to
compete locally, nationally and globally, and the funding we are
seeking in the fiscal year 2004 budget request will help us continue to
meet the ``new communications needs'' of rural America and ensure that
no rural resident--from students to parents and teachers, from patients
to doctors, or from consumers to entrepreneurs--will be left behind in
this new century.
Treasury Rate, Guaranteed, and Hardship Loans
Since 1995--when Rural Development implemented Congress' visionary
policy requiring that all Rural Development-financed facilities be
``broadband capable''--every telephone line constructed with Rural
Development financing is capable of providing advanced services using
digital and fiber technologies. These loan programs target the most
rural of our rural communities, towns with populations of less than
5,000 people.
The fiscal year 2004 budget further targets rural areas
experiencing extreme financial hardship, by nearly doubling the amount
of Hardship loan funds available to those borrowers that serve the most
rural, highest cost areas. The budget proposes over $145 million in
direct hardship loans, an increase of approximately $70 million over
the 2003 program level. These loans bear a fixed 5 percent interest
rate to ensure project viability and feasibility, and due to the
extraordinary repayment history, carry a zero subsidy cost--so no
increase in budget authority is necessary. The budget also proposes
$350 million in Treasury rate loans and loan guarantee authority--which
can be provided for a modest subsidy cost of only $125,000. This
represents a cost of just over two one-thousandths of a cent for every
resident in rural America!
Rural Telephone Bank
This budget also reflects the Administration's commitment to
accelerate privatization of the Rural Telephone Bank--as required by
law--and therefore does not request budget authority to support lending
for fiscal year 2004. Today, the bank operates as a supplemental lender
to entities eligible to borrow from the Rural Development program. A
privatized bank would be able to expand or tailor its lending practices
beyond the current limitations imposed as a governmental lender, as
well as leverage its substantial loan portfolio and cash reserves to
extend favorable credit terms to rural companies that do not quality to
borrower from Rural Development.
Broadband Loans and Grants
We are seeking continued support from Congress for funding to
facilitate the deployment of broadband service in rural areas. As part
of the Administration's continuing commitment to invest in rural
America, in January, Rural Development announced the opening of its
``Access to Broadband'' Program as authorized by the Farm Security and
Rural Investment Act of 2002, Public Law 107-171. It is the culmination
of a 2-year pilot program under the Bush Administration that financed
$180 million of loans dedicated to bringing broadband service to rural
communities--where nearly 100,000 customers will receive first-time
broadband service!
This new program will have a profound affect on the lives of rural
Americans. Over the next year, it is expected that $1.4 billion in
loans and loan guarantees will be made to bring the promise of high-
speed access--or Broadband--to our rural communities. This substantial
investment level--nearly $680 million greater than original estimates--
is a result of 2 years of mandatory budget authority for fiscal years
2002 and 2003 and a very favorable subsidy cost/rate. This funding is
``no-year'' money and will remain available until expended. Because of
this enormous lending level leveraged by low subsidy rates, the fiscal
year 2004 budget proposes to eliminate the mandatory budget authority
of $20 million and replace it with approximately $9.1 million in
discretionary authority. This will result in a total loan and loan
guarantee program of approximately $1.7 billion over the first 3 years
of funding (fiscal years 2002 through 2004), versus the estimated $1.2
billion when the Farm Bill was passed.
Even during these fiscally challenging times, Congress has
overwhelmingly supported funding for broadband projects. The proposed
budget seeks to minimize taxpayer costs while providing the investment
level envisioned by Congress and the Administration in the Farm Bill.
The budget also proposes $2 million in grants to provide broadband
service to areas that cannot afford loans. This past year, as part of
the pilot program, Rural Development made available grant funds in a
program called ``Community Connect''--a new and exciting approach to
community funding. Funding is available to provide broadband service to
``connect'' the schools, libraries, police and fire stations,
hospitals, community centers, businesses, and residents--everyone in
the community--and introduce them to the benefits of advanced
communications infrastructure. For some communities, this program will
provide the seeds for sustained economic growth and community
prosperity. The proposed grant authority will enable us to continue to
seek ways to ensure that no one is left behind.
There are many challenges before us and even greater rewards if we
succeed. And the investment IS needed. Much is depending upon a
successful public/private partnership. Rural economies today are much
more than the farm-based economies of a few years ago. And broadband
service not only provides critically needed economic stimuli for rural
communities through e-commerce initiatives and by enticing new
businesses, it creates a new workforce of students educated through
distance learning programs with the skills necessary to compete
globally.
Distance Learning and Telemedicine Loans and Grants
The Distance Learning and Telemedicine program continues its charge
to improve educational and health care delivery in rural America. The
terms ``distance learning'' and ``telemedicine'' are becoming synonyms
for ``opportunity and hope.''
Telemedicine projects are providing new and improved health care
services beginning with patient diagnosis, through surgical procedures
and post-operative treatment. New advancements are being made in the
telepharmaceutical and telepsychiatry arenas and providing health care
options never before available to many medically under-served, remote,
rural areas.
Distance learning projects continue to provide funding for
computers and Internet connection in schools and libraries. The vast
array of study options available to rural students through distance
learning technologies literally brings the world to their doorstep.
The value of these services to rural parents, teachers, doctors,
and patients is immeasurable. Building on advanced telecommunications
platforms, distance learning and telemedicine technologies are not only
improving the quality of life in rural areas, but they are also making
direct contributions to the economies in rural areas by introducing the
skills needed for a high-tech workforce and promoting sound health care
practices, including preventative care initiatives.
Over the past 10 years in which this program has operated, it is
clear that the demand for loans in this program is very small. This is
primarily due to the types of entities that are eligible to borrow--
namely schools and health care providers serving rural areas. In most
cases, schools are prohibited from entering into loan agreements and
would not be able to generate revenues to repay the loan if they could.
The high cost associated with the provision of rural health care limits
the feasibility of telemedicine loans as well. Telemedicine offers a
means to reach the most isolated and poorest residents of the country,
but does not always provide a means for cost recovery. Therefore, in
the fiscal year 2004 budget, $50 million in loans is being requested.
This amount is more than sufficient to cover loan demand based on past
program experience and to meet any demand from larger, consortium-based
entities with the necessary resources to collateralize a loan. The
budget seeks $25 million in grants to continue the tremendously popular
and successful grant program.
Local Television
As you are aware, in December 2000, the Local TV Act, ``Launching
Our Communities' Access to Local Television Act of 2000'', Public Law
106-553 was enacted. The Local TV Act provides for the establishment of
the Local Television Loan Guarantee Board (the Board) consisting of the
Secretaries of Agriculture, Treasury, Commerce, and the Chairman of the
Board of Governors of the Federal Reserve System, or their designees.
The Board is authorized to approve loan guarantees of up to 80 percent
of the total loan amount of no more than $1.25 billion to facilitate
access, on a technologically neutral basis, to signals of local
television stations for households located in nonserved and underserved
areas. This program has been fully funded through fiscal year 2002
appropriations and mandatory funding provided in the 2002 Farm Bill.
Therefore, no additional funding is being requested in the fiscal year
2004 budget.
Telecommunications Program Conclusion
Given the amount of investment capital necessary to deploy advanced
telecommunications technologies--not to mention the lack of available
private capital--it is unreasonable to believe that the private
markets, particularly local banks, can generate the capital required.
Our goal should be to deploy a seamless, Nation-wide broadband
network, where the only thing distinguishing users is their zip code.
Since private capital for the deployment of broadband services in
rural areas is not sufficient, incentives offered by the Rural
Development program are more important than ever before. Providing
rural residents and businesses with barrier-free access to the benefits
of today's technology will bolster the economy and improve the quality
of life for rural residents.
There is no one solution to the complicated issue of bringing
advanced telecommunications services to every citizen. Government
incentives; cost support mechanisms; changes in technologies; and
private investment--each must play a role. Rural Development will
continue to do its part.
ELECTRIC PROGRAM
The Rural Development Electric Program budget proposes a program of
$2.6 billion. This amount includes: a hardship program level of $240
million; a municipal rate program level of $100 million; a $700 million
funding level for Treasury rate loans; and a $1.5 billion funding level
for guaranteed loans through the Federal Financing Bank, which does not
require any budget authority; and $60,000 in budget authority for a
$100 million loan guarantee program for private sector loan guarantees.
In the last 4 fiscal years (1999-2002) RUS had lent over $6.2
billion for distribution facilities. In addition, it is anticipated
that another $2 billion will be lent for distribution purposes in
fiscal year 2003, which will bring the total over $8.2 billion. In the
past 3 years (2000-2002) RUS had lent over $3.8 billion for generation
and transmission facilities. In addition, it is anticipate that another
$1.7 billion will be lent in fiscal year 2003, which will bring the
total to over $5.5 billion. When consideration is given to the amount
we have lent in the last 5 years and the fact that the backlog will
have been reduced to less than 6 months, there is no demonstrated need
for a $4 billion loan program in fiscal year 2004.
An example of how our rural electric borrowers can improve the
economic potential and quality of life in rural communities is the
United Cooperative Service (United) in Cleburne, Texas. United was
created in April 2000, from the consolidation of Erath County Electric
Cooperative Association and Johnson County Electric Cooperative
Association. United provides service to 77,916 consumers, using 8,819
miles of distribution line. In January 2002, Rural Development awarded
a loan to United for $32 million to serve 10,823 new consumers, build
743 miles of new distribution lines, and make other system
improvements.
WATER AND ENVIRONMENTAL PROGRAMS
This budget seeks $346 million in budget authority for Water and
Waste Disposal (WWD) grants; $3.5 million in budget authority for solid
waste management grants; and $35 million in budget authority to support
over $1.1 billion in WWD direct loans and $75 million in guaranteed
loans.
The budget request earmarks $11.8 million for Colonias along the
U.S.-Mexico border, $16.2 million for technical assistance and training
grants, $9.5 million for the circuit rider technical assistance
program, $11.8 million for rural Alaskan villages, $13 million for
Federally Recognized Native American Tribes; and $12.6 million in
budget authority for loans and grants Federally designated Empowerment
Zones and Enterprise Communities. Our budget request will also allow
third-party service providers, such as rural water circuit riders, to
make over 56,000 water and wastewater system contacts to communities
needing technical assistance, and through a clearinghouse effort, take
more than 20,000 telephone calls and an estimated 11,000 electronic
bulletin board and web site contacts.
As a result of Rural Development's strong technical assistance
efforts, both from staff and third-party service providers/contractors,
loan delinquency and loan losses will remain low. Currently, only 1
percent of approximately 8,000 borrowers is delinquent. Since the
inception of the water and waste disposal program, less than 0.1
percent of the amount loaned has been written off.
Rural Development programs improve the quality of life and health
of an estimated 1.4 million Americans in needy communities each year by
providing access to clean, safe drinking water. In addition, new or
improved waste disposal facilities are provided to an estimated 500,000
people living in rural areas. A field network of Rural Development
employees deliver the program through ``hands-on'' technical and
financial assistance under the Rural Community Advancement Program.
The Water and Waste Disposal program has been very successful since
its inception over 60 years ago. A total of over $25 billion in
financial assistance has been provided, about 70 percent of that in the
form of loans; approximately 45 percent of the total has been provided
during the past 10 years. Indications suggest, however, that needs for
water and waste disposal systems are still significant and are likely
to grow as a result of expanding population in rural areas, changes to
water quality standards, drought conditions, and similar factors. The
additional funding provided by the Farm Bill helped reduce the backlog
for assistance. However, the backlog still persists and totals
approximately $2.3 billion. Over the last 3 years, Rural Development
has assisted 1,124 borrowers in moving up to commercial credit in
accordance with its graduation requirement. The loans paid off as a
result of this effort totaled nearly $680 million.
Mr. Chairman, this concludes my testimony for the Rural Development
fiscal year 2004 budget for rural utility programs. I look forward to
working with you and other Committee members to administer our
programs. I will be happy to answer any questions the Committee might
have.
______
Prepared Statement of Arthur A. Garcia, Administrator, Rural Housing
Service
Mr. Chairman and members of the Committee, thank you for this
opportunity to testify on the President's fiscal year 2004 proposed
budget for the USDA Rural Development rural housing and community
program.
Rural Development assists in making rural America a better place to
live and work. Our rural housing loan and grant programs help to
revitalize small towns and rural communities. Most of our customers are
first-time homebuyers who turn to us because we, in many instances,
provide the only opportunity to share in the benefits of homeownership.
As Secretary Veneman said last fall, ``homeownership strengthens our
rural communities and contributes to the overall quality of life for
rural families. USDA works with community organizations, lenders and
individual residents to provide opportunities to the millions who seek
the dream of owning a home.'' We are called upon to be citizen-centered
in President Bush's management agenda. We have responded to this call
with programs that help rural families purchase homes and gain access
to affordable rural rental housing, and we provide financing for
essential community services, such as facilities for health care,
police and fire protection, adult day care, child care, and educational
institutions.
For more than 50 years, Rural Development has assisted some of our
Nation's poorest people who reside in the most remote areas of our
country. Whether on Indian reservations in the Dakotas; the Colonias
along the Mexican border; the isolated pockets of the Appalachian
mountains in West Virginia; or the Mississippi Delta, our programs
provide the essential link to individuals, communities, and financial
markets so that all rural residents may share in our Nation's
prosperity and enjoy the basic human dignities of housing and community
facilities.
Let me share with you how we plan to continue improving the lives
of rural residents under the President's fiscal year 2004 budget
proposal for our rural housing programs.
SINGLE FAMILY HOUSING PROGRAMS
With the $5.67 billion total program funding, more than $4 billion
will be used to make guaranteed and direct Single Family Housing (SFH)
loans. This includes an increase of approximately $400 million more for
direct loans. These funds will assist nearly 49,000 rural families to
purchase homes, and most of them will be first-time homeowners. Of the
SFH funds, $2.5 billion will be available as loan guarantees with
private partners to help approximately 28,500 low- and moderate-income
families become new homeowners. An additional $225 million in loan
guarantees will be used to refinance loans for approximately 2,500
rural families in order to make their payments more affordable. We will
fund another $1.4 billion in direct loans and assist nearly 18,000 low
and very low-income families who cannot obtain credit to purchase homes
without a down payment, or who cannot meet the loan terms offered
through most lenders. In addition, the fiscal year 2004 budget includes
$35 million in direct loans and $31.5 million in grants to
approximately 12,000 elderly and disabled families or individuals to
repair or rehabilitate their homes to decent, safe, and sanitary
housing.
The subsidy cost of operating the SFH direct loan program will be
less expensive in 2004 due primarily to lower interest rates which
reduce the Government's cost of borrowing and more accurate projections
of the financial status of our borrower population. This cost savings
will enable Rural Development to help more families obtain
homeownership and lowers the cost to taxpayers to about $7,000 per home
financed. The loans that we guarantee in the private sector cost
slightly less than $1,500 per home. For rural Americans with very-low,
low, and moderate incomes, the SFH direct and guaranteed loan programs
continue to be the most cost-effective housing programs available.
Five-Star Commitment to Increase Minority Homeownership
President Bush has made a commitment to remove the barriers that
stand in the way of our Nation's minority families obtaining
homeownership.
According to the 2000 census data, minorities represent about 13
percent of rural Americans. In fiscal year 2002, 32.2 percent of the
direct loans and 12.1 percent of the loan guarantees administered by
Rural Development made for single-family home purchases went to
minorities. More than 60 percent of the loans and grants were made to
women or female-headed households. We also help disabled families
remodel, build and afford barrier-free access to housing.
We can do even better.
To implement the President's vision, Rural Development's Under
Secretary Tom Dorr recently announced the USDA Five-Star Commitment to
expand rural minority homeownership. This commitment will help make
housing available to all rural Americans by:
--Lowering fees to reduce barriers to minority homeownership;
--Doubling the number of Mutual Self-Help participants by 2010;
--Increasing participation by minority lenders in our rural housing
programs;
--Promoting credit counseling and homeownership education; and,
--Monitoring lending activities to ensure that we attain a 10 percent
increase in minority homeownership.
Lowering Fees to Reduce Barriers to Minority Homeownership
To encourage more minority participation in the guaranteed single-
family housing loan program, Rural Development recently reduced the
guarantee fee to make homeownership more affordable. Our goal in
reducing the up-front costs is to increase homeownership opportunities
for low- and moderate-income borrowers, particularly minorities. The
fee was reduced from 2 percent to 1.5 percent for purchasing a home,
representing an average savings of $435 per family. Also, the fee was
reduced from 2 percent to 0.5 percent for refinancing a guaranteed
loan, representing an average savings of $1,305 per family.
We closely monitor the other fees charged by participating lenders
in our SFH guarantee program to ensure that fees charged are
reasonable. Further, we work closely on the local level with local non-
profits, which provide our first-time buyers with homeowner education
training, credit counseling, and assistance in obtaining grants for
closing costs and other basic homeowner assistance.
Doubling the Number of Self-Help Participants by 2010
The fiscal year 2004 budget request includes $34 million for the
section 523 Mutual Self-Help Technical Assistance grant program. In
fiscal year 2002, Rural Development partnered with more than 140 groups
to help provide homeownership opportunities to rural families through
this sweat equity' program. Last year, nearly 1,500 families built
their homes through the Self-Help program, representing about 10
percent of the total SFH direct loans. Self-Help grantees assist groups
of six to twelve families as they work together to build their own
neighborhoods. They provide homeowner education, guidance through the
loan application process, and supervision and technical assistance in
building their homes.
The individual successes of our Self-Help borrowers are proof of
the life-altering effect of this program. One example is the Elsie and
George Phillips family of Birdsong, Arkansas. This couple, now in their
80's, recently moved into the new home they helped to build--after
living in a dilapidated trailer for the past 24 years.
Increasing Participation by Minority Lenders in Rural Housing Programs
Rural Development works with more than 3,000 lenders and other
partners in our direct and guaranteed loan programs. Lenders in the
guaranteed program range in size from small hometown banks to large
nationwide lenders. One of our largest lenders, J.P. Morgan Chase
(Chase), recently committed $500 billion to increasing minority
homeownership, in part through our rural housing loan guarantees. Chase
is the largest participating lender and services almost 40,000 rural
housing guaranteed loans, totaling over $3 billion.
Rural Development field employees are trained to reach out to their
respective communities, develop relationships, and enhance partnerships
with lenders and others serving the housing needs of minorities in
rural America.
Promoting Credit Counseling and Homeownership Education
Rural Development has partnered with the FDIC to use its MoneySmart
program to provide homeownership education to our applicants. FDIC has
provided training to our field employees on their program. MoneySmart
provides an additional tool to assist in creating successful
homeowners.
Locally, rural housing partners with many Federal and State
agencies to assure low-income applicants have access to homebuyer
education. These programs, many funded through HUD's HOME program,
provide homeownership education and credit counseling. We have
established effective working relationships with public and private
groups offering these services to rural communities. Our goal is to
assure that homebuyer education programs are available in all rural
areas.
Monitoring Lending Activities
Increasing minority homeownership is a serious matter for us. We
have established goals at the National and State Offices. These goals
are performance-based and at each level of the organization,
performance will be rated, in part, by achievement of the goals.
Rural Housing Programs More Important Than Ever Before
The Home Repair Loan and Grant Program helps very low-income
families whose homes are in need of repair. The program is for those
families who own a modest home in a rural area, but are unable to
obtain financial assistance to repair their homes. The average annual
income of households obtaining home repair assistance last year was
under $10,000. Funds are used to make substandard homes decent, safe
and sanitary through repairs and rehabilitation, including installation
of indoor plumbing, new furnaces, weatherization, safe wiring, new
roofs, and making homes accessible for persons with disabilities.
In its October 2000 report, Opening Doors to Rural Home Ownership:
Outcomes from the National Rural Housing Coalition Rural Home
Symposium, the National Rural Housing Coalition stated, ``Although
poverty has decreased to its lowest level in 20 years, almost all of
the changes occurred in central cities and metropolitan areas. Rural
homeowners are more likely than homeowners as a whole to live in
substandard housing.''
In its December 2002 report Taking Stock: Rural People, Poverty,
and Housing at the Turn of the 21st Century, the Housing Assistance
Council stated: ``Minorities in rural areas are among the poorest and
worst housed groups in the entire Nation, with disproportionately high
levels of inadequate housing conditions. Non-white and Hispanic
households are nearly three times more likely to live in substandard
housing than white rural residents.''
The fiscal year 2004 proposed budget contains $66.5 million to
assist up to 12,000 families with incomes below 50 percent of the area
median income. This includes $35 million in home repair loan funds for
6,000 very-low income families and $31.5 million for grants to assist a
comparable number of elderly homeowners.
Jaime Morales moved to the United States in 1990. In 2002, he and
his wife, Maria, were able to purchase their own modest home in Horizon
City--near El Paso, Texas--for less than $20,000. However, as with many
homes in the Colonias, their house lacked adequate plumbing and needed
other repairs. Jaime could do much of the work needed on the house, but
with limited income from work at a pallet shop, the plumbing would have
to wait. A Rural Development grant of $3,320 has changed that by paying
for a connection to a public water system, the Lower Valley Water
District. We provided funding for piping, a sink, commode, water heater
inside the house, and installation of an individual septic system. This
grant has truly improved the living conditions of Mr. and Mrs. Morales
and their son, Jaime, Jr.
We have a very successful record of working with private and
nonprofit organizations to increase homeownership in rural communities.
In fiscal year 1996, only about 8 percent of the SFH direct loans were
leveraged with funds from additional sources, such as other bank loans,
or were provided with down payment assistance and other grants. In that
year, these other funding sources provided only 3 percent of the total
cost of the home purchase. Last year, more than 55 percent of the loans
were leveraged, with other sources contributing more than $120 million.
This enabled us to assist an additional 2,000 families to own their
home--an expansion of tax dollars of more than 12 percent.
MULTI-FAMILY HOUSING PROGRAMS
Rural Development's Multi-Family Housing (MFH) program together
with Rental Assistance provide decent, safe, and affordable housing to
families who need it the most. The MFH direct loan program is the
largest of the MFH programs, and is a principal source of multi-family
housing for the elderly in rural America. Elderly households make up
approximately 55 percent of the residents in the MFH program. In this
program, we make 1 percent interest loans to private individuals, state
and local housing agencies, and non-profit organizations, who build
apartments and offer them as rental housing, primarily to very low-
income senior citizens and working mothers. The incomes of these
households average about $8,100, well below the poverty level.
Currently, we have a MFH portfolio of about 17,500 projects, which
contains about 450,000 units. The total outstanding indebtedness of
these projects is about $11.9 billion. Approximately 70 percent of the
portfolio is over 15 years old and in need of repair.
The fiscal year 2004 budget proposes that $70.8 million in MFH
direct loans be used to provide much-needed repairs or rehabilitation
to approximately 5,900 projects in the current portfolio. We are not
proposing fiscal year 2004 funding for new construction, however the
budget includes $100 million in guaranteed loans that may be used for
new construction. MFH guarantee loans will build 2,400 apartments and
repair, rehabilitate and pay incentives to owners on 5,900 apartments.
In addition, the request includes $42 million in loans and $17 million
in grants for section Farm Labor Housing (FLH) living units--most of
which will be new construction. These funds will finance over 1,700
apartments for migrant and farm workers. Providing adequate housing to
these workers is essential to having a dependable and available
workforce.
The President's fiscal year 2004 budget requests $740 million for
Rental Assistance (RA) to ensure the integrity and financial stability
of MFH and Farm Labor Housing loan and grant programs. In fiscal year
2004, well over 93 percent of the RA budget will be used to renew more
than 42,000 RA contracts so that elderly, disabled, and female-headed
resident households remain in safe and livable rental apartments they
call home. The remainder of the RA funding will be used to keep rent
affordable when repair and rehabilitation are needed for existing
units. Rental assistance reduces the cost of housing for rural
Americans with very low incomes to no more than 30 percent of their
income.
Over the past year and a half, we have faced the possibility of
losing affordable housing due to borrower prepayment. In 1979, 1988,
and 1992, Congress passed legislative changes to the MFH programs to
restrict a borrower's ability to prepay their loan, thereby protecting
residents from displacement. Recent legal actions brought by borrowers
have challenged the statute that governs the MFH prepayment process.
The future of the MFH program will require continued strategic and
tactical planning and execution to keep affordable housing available to
our residents. Our methods will include a combination of changes to the
program, program incentives to owners, and the establishment of new
partnerships with state and local housing agencies, non-profits, and
faith-based organizations, whose commitment to rural communities is
long-term.
We look forward to working closely with you and your colleagues as
we address the MFH program needs.
Rural Development's MFH program has a long proud history of working
with faith-based organizations to provide housing to rural America. In
fact, since 1975, we have made 125 loans to faith-based organizations
and affiliation of faith-based organizations to construct more than
4,253 units of rental-assisted properties located in 24 states. More
recently, several large national faith-based housing organizations have
been very active in acquiring Rural Development-financed MFH properties
that were in danger of being lost as affordable housing through
prepayment. We encourage nonprofit organizations such as these to take
over preservation properties, as the organizations often bring
additional resident services to the properties. Additionally, their
charters anticipate that they will remain owners in the program for a
significant time period, thereby reducing the chance that a property
will, again, be taken out of the affordable rural housing portfolio.
We are also examining industry-wide asset management practices to
develop our MFH property's capital needs, such as roofing, exterior
siding, major mechanical systems, window and door replacement,
flooring, and rehabilitation of common areas such as laundry rooms,
meeting rooms, and parking lots. Additionally, we have examined several
asset management protocols developed by HUD, and incorporated those
concepts into our recently implemented Multi-Family Information System
(MFIS III). As a result, we can focus more closely on specific asset
management attributes of small, rural apartments.
Based on housing industry standards and our own reserve
requirements, owners will typically need about $10,000 per unit in
rehabilitation funds every 8 to 12 years. Reinvestment of capital in
these properties assures continued modernization of multi-family
housing and protects the value of the property as collateral for the
loan. Timing of these investments and adequacy of additional funding
sources are aspects of capital risk management that must be considered.
It is important to note that capital replacement is needed due to the
normal aging of the physical building. We are working to determine the
best methods to achieve these housing goals and will have a one-time
comprehensive study of our portfolio conducted. We anticipate that the
study will allow us to develop short-term and long-term strategies to
manage and protect this $11.9 billion national asset.
COMMUNITY PROGRAMS
Along with decent and affordable housing, many communities also
have a need for essential community facilities, such as educational
buildings, fire, rescue, and public safety facilities; and child care
centers, health care facilities, and day care and assisted living
facilities for their increasing senior citizen populations. Having
adequate community facilities not only impacts the quality of life for
community residents, but also makes easier for communities to attract
and retain businesses. Rural Development's Community Facilities (CF)
direct and guaranteed loan and grant programs provide funding for these
essential facilities.
The fiscal year 2004 budget includes a program level of $477
million for the CF program: $250 million for direct loans, $210 million
for loan guarantees, and $17 million for grants. This level of funding
will allow us to continue the commitment to educational facilities,
which are especially important in preparing rural children and adults
to compete in the global economy.
In fiscal year 2002, Rural Development assisted 134 communities by
investing $46.7 million in buildings to house public schools, charter
schools, libraries, museums, colleges, vocational schools, and
educational facilities for the disabled. Rural Development also helped
finance the purchase of computers and other technological equipment.
Public safety is often a need in rural communities. In fiscal year
2002, we invested $105.7 million in 537 facilities, including
communications centers, police, fire and rescue stations, civil defense
buildings, and related vehicles and equipment. An example is the
recently opened Central Shenandoah Criminal Justice Training Academy in
Virginia's Shenandoah Valley. Rural Development invested $3.8 million
in direct loan funds and $2.3 million in guaranteed loan funds in this
56,000 square foot facility, which can train 280 students at one time.
The curriculum ranges from basic law enforcement through the most
technical and sensitive issues of homeland security and emergency
preparedness. The academy's membership comprises 57 agencies, including
local police and sheriffs' departments, emergency operations centers,
regional jails, and private police departments. The facility is also
made available to State and Federal agencies for independent training.
In partnership with local and state governments and Indian Tribes,
the CF budget will support more than 140 new or improved health care
facilities, more than 130 new or improved fire and rescue facilities,
and about 50 new or improved child care facilities in fiscal year 2004.
These essential community facilities will create or preserve more than
30,000 jobs in rural America.
Centralized Service Center
The USDA Centralized Service Center (CSC) in St. Louis, Missouri,
provides all written and oral communication to customers in either
English or Spanish to better serve the needs of these customers. At the
CSC, we have used aggressive recruitment and retention initiatives in
order to create a workforce that is 11 percent bilingual. The CSC also
works closely with the National Industries for the Blind and provides
monthly mortgage statements in Braille for blind customers. National
TDD phone service is also available from CSC, as well as e-mail
customer responses for customers with hearing disabilities. Over 10
percent of the CSC employee population have a disability and are
provided special equipment to enhance their productivity and ability to
serve customers.
Rural Development's commitment to helping people become self-
sufficient is also evident in their ongoing Welfare-to-Work initiative.
CSC has worked with the St. Louis Transitional Hope House and the
American Red Cross to employ former welfare recipients. Twenty-six
employees referred through this effort started out as worker trainees.
Eighteen have since been promoted into permanent loan processor
positions. New worker trainees are provided with mentors, and may later
become mentors themselves as they become proficient in the work
environment. One employee who started in the Welfare-to-Work program is
now enrolled in college and pursuing an accounting degree. Another has
obtained rural housing financing and is now a proud single-parent
homeowner.
The CSC has received several individual and Government agency
awards for its initiatives. These include awards from the Council for
Employment of Individuals with Disabilities, the Hispanic Employment
Council, and the Black Employment Council.
eGovernment
Rural Development is actively supporting the President's
eGovernment initiative. We are engaged in implementing a department-
wide electronic government strategy, which calls for greater
integration and collaboration across USDA and across government in
developing and delivering services to citizens and businesses.
When I arrived last year at Rural Development, electronic loan
processing for our SFH direct loan program was performed by a
commercial, off-the-shelf software system. This software, called UniFi,
improved rural housing loan processing nationwide, but was limited by
requiring dedicated computers in each office.
In fiscal year 2002, $1 million was allocated to web enable' the
UniFi software. The primary objective of the project was to convert the
personal computer-based UniFi system to a centralized, web based server
application that allows for multiple-user access and uniformed system
maintenance. All field offices have successfully converted to the
centralized database.
In our SFH guaranteed loan program, the primary platform that
allows guaranteed lenders to interact with us is the Lender Interactive
Network Connection (LINC). LINC was launched in 2001 and we are
continuing with enhancements to improve the transfer of information
between lender-partners and Rural Development.
Rural Development has also implemented an Electronic Data
Interchange and a web-based reporting system that greatly enhances the
ability of our lender-partners to report the status of the guaranteed
loans they service. Lenders can report more data, more frequently, more
accurately, at less expense.
We are very excited about the Automated Loss Claims system that
will be implemented this spring. This web-based system significantly
reduces the paperwork burden on our lenders, allowing them to submit
their loss claims electronically. The Automated Loss Claims system will
significantly speed up the process, saving the government interest
expense. In addition, the Automated Loss Claims system will enable
lenders and Rural Development to gather more comprehensive data on loss
claims--data that will be used in our risk management efforts to
continually reduce the cost of our programs.
Another technology-driven development is our Automated Underwriting
system for guaranteed loans, scheduled for release this summer. This
web-based system will automate the property and applicant eligibility
determinations, streamline the underwriting process, allow for better
and more fair underwriting decisions, improve the quality of our data,
increase our risk management capabilities, and decrease processing time
and costs for both lenders and Rural Development. Lower processing
costs will lead to more affordable mortgages for rural home loan
applicants.
We have developed two databases in MFH that provide accounting and
management information. In fiscal year 2002, a major upgrade converted
the existing system to a web-based format. The upgrade provided
additional eGovernment capabilities by enabling borrowers to submit
information electronically.
Rural Development has played an important role in the USDA's
county-based agency eForm initiative. The eForms website was developed
in response to the requirements of the Freedom to E-File Act (Public
Law 106-222) passed by Congress in June 2000. Through collaboration
with the Farm Service Agency, the Natural Resources Conservation
Service, and Rural Development, customers, producers, partners, and
others have electronic access to forms related to USDA programs. The
website permits Rural Development customers to access and download
forms to apply and participate in our programs.
Rural Development employees and management recognize the tremendous
positive impact of homeownership on the economy, its impact on
families' lives, and on the strength of rural communities. We recognize
that Rural Development cannot address the homeownership and rural
community facilities issues alone, and will continue to identify and
work with partners who have joined with the President to improve the
lives of rural residents. Rural Development will continue to reach out
to and partner with lenders, the many faith-based groups and other non-
profit organizations, as well as Federal, State, local, and Indian
Tribal governments to meet the housing and community needs of low
income families and individuals in rural America.
I hope I have illustrated for you the many ways that Rural
Development's rural housing and community programs improve lives in
rural areas. Mr. Chairman and members of the Committee, with your
continued support, Rural Development looks forward to improving the
quality of life in rural America by providing housing opportunities and
building competitive, active rural communities.
______
Prepared Statement of John Rosso, Administrator, Rural Business
Cooperative Service
Mr. Chairman and members of the Subcommittee, I am pleased to
appear before you today to present the Administration's fiscal year
fiscal year 2004 budget for Rural Development's rural business and
cooperative programs.
Mr. Chairman, the programs and services of Rural Development, in
partnership with other public and private sector businesses, continue
to improve the economic climate of rural areas through the creation or
preservation of sustainable business opportunities and jobs. Rural
Development continues to invest in rural America, especially in the
under-served rural areas and populations. Rural Development programs,
help close the gap in opportunity for these under-served rural areas
and populations, moving them toward improved economic growth by
providing capital, technology and technical assistance. The $718
million requested in this budget for Rural Development programs will
assist in creating or saving about 72,646 jobs and providing financial
assistance to more than 2,269 businesses and cooperatives.
BUSINESS AND INDUSTRY GUARANTEED LOAN PROGRAM
For the Business and Industry (B&I) program, the fiscal year 2004
budget includes $29 million in budget authority to support $602 million
in guaranteed loans. We estimate that the funding requested for fiscal
year 2004 would create or save about 19,156 jobs. We anticipate the
demand for this program to continue to be strong.
The Business and Industry program allows lenders to better meet the
needs of rural businesses. Through the lender's reduced exposure on
guaranteed loans, they are able to meet the needs of more businesses at
rates and terms the businesses can afford. B&I guaranteed loans may
also be used by individual farmers to purchase cooperative stock in a
start-up and existing cooperative established for value-added
processing.
I would like to share a success story to illustrate how this
program has improved the economic climate in an under-served area of
rural America. Finger Lakes Construction in Wayne County, New York, is
a general contractor that specializes in the construction of post frame
and steel frame buildings. They employ 115 people and have built
numerous buildings for residential, commercial, and agricultural
customers throughout central and western New York. The company had
financed a considerable amount of their growth out of cash flow, which
negatively affected their working capital. A $1,062,000 Business and
Industry Loan capitalized those investments, and the company now has
the working capital to meet their goals. The September 11, 2001,
disaster and high out-migration of several New York communities has
seriously affected many businesses, including the construction industry
in many areas of New York state. This B&I guarantee helped to preserve
local jobs within the State.
INTERMEDIARY RELENDING PROGRAM
The fiscal year 2004 budget also includes $17.3 million in budget
authority to support $40 million in loans under the Intermediary
Relending Program (IRP). The initial investment of this proposed level
of funding will create or save an estimated 9,000 jobs. Because these
funds are loaned three or four times by the intermediary over the 30-
year loan term, we estimate that over 30,600 jobs will eventually be
created or saved.
Participation by other private credit funding sources is encouraged
in the IRP program, since this program requires the intermediary to
provide, at a minimum, 25 percent in matching funds. The demand for
this program continues to be strong. To illustrate the benefits IRP
provides to rural America, I would like to share with you a story from
Dimmit County, Texas.
The Neighborhood Housing Service of Dimmit County is a non-profit
organization that has successfully administered $1.75 million in IRP
funds and received an additional $750,000 in fiscal year 2002. The
Neighborhood Housing Service has successfully loaned this money to
businesses in an economically depressed part of Texas. Dimmit County is
a poor community with a large portion of its population at or below the
poverty level, with unemployment in the double digits. Dimmit County
benefits from these loans through the creation of new businesses and
additional employment opportunities. Overall, the Neighborhood Housing
Service has made loans to 15 businesses, created 115 jobs, and
continues to provide the communities with critical loans to support the
livelihood in Dimmit and surrounding counties.
RURAL BUSINESS ENTERPRISE GRANT PROGRAM
For the Rural Business Enterprise Grant (RBEG) program, the fiscal
year 2004 budget includes $44 million. We anticipate that this level of
funding will create or save over 16,300 jobs. The demand for these
grants continues to be strong. The purpose of this program is to assist
small and emerging businesses. It is estimated that each dollar of
investment of an RBEG generates another $2.40 in private capital.
Among the many eligible grant purposes under this program is the
renovation of existing facilities by the grantee to support small and
emerging business development in rural areas. For example, renovation
of an older building in the downtown area of rural Uniontown,
Washington, and converting it into a business incubator was a way for
this community to revitalize their downtown area and spur business
development and job creation. A $75,000 RBEG will help to save and
create 15 jobs in the business incubator. The first tenant of this
building is a bakery, and other space is being prepared for additional
tenants in this small agricultural community.
RURAL ECONOMIC DEVELOPMENT LOAN PROGRAM
The fiscal year 2004 budget includes $15 million in Rural Economic
Development Loans. This program represents a unique partnership, since
it directly involves the rural electric and telecommunications
borrowers in community and economic development projects. It provides
zero-interest loans to intermediaries, who invest the funds locally. In
fiscal year 2002, each dollar invested through these programs attracted
an estimated $9.91 in other capital. This is one reason why Rural
Development is the venture capitalist in rural America. The return on
our equity from rural America is strong.
I'd like to provide an example of how this program can assist. The
Gibson Electric Cooperative was awarded a $400,000 Rural Economic
Development Loan to assist the Williams Sausage Company, Union City,
Tennessee, purchase machinery and equipment for a major expansion of
the plant. The business is a major purchaser of hogs in the region and
provides a market for local farmers in Tennessee, Kentucky, and
Missouri. It is estimated that there will be 60 jobs created and 140
jobs saved by this one business assisted with Rural Economic
Development Loan funds.
RURAL BUSINESS OPPORTUNITY GRANT PROGRAM
The fiscal year 2004 budget includes $3 million for Rural Business
Opportunity Grants to provide much-needed technical assistance and
capacity building in rural areas. The demand for this program continues
to grow. Many rural areas need to develop economic and community
development strategies that will attract private investment capital and
Federal and State assistance. Also, the vast majority of rural
communities are served by part-time officials who do not have the time
or training necessary to compete with large communities for funding
that may be available to them. The funds requested under this program
will provide invaluable assistance to communities as they take their
first step toward overcoming these impediments.
To illustrate, the Irwin County Board of Education in Ocilla,
Georgia, will provide a construction consultant and professional staff
to: (1) oversee the construction of an education facility; and (2) work
with student interns, oversee demonstration projects, and facilitate
meetings and education events. This Agricultural Demonstration and
Education Farm project will cost an estimated $740,000, $45,000 of
which is from a Rural Business Opportunity Grant. This is yet another
example of the value in leveraging Rural Development funds.
RENEWABLE ENERGY GRANTS PROGRAM
The Renewable Energy Systems and Energy Efficiency Improvements
Program was authorized by the Farm Security and Rural Investment Act of
2002. The program authorizes loans, loan guarantees, and grants to
farmers, ranchers, and rural small businesses to: (1) purchase
renewable energy systems; and (2) make energy efficiency improvements.
The fiscal year 2004 budget proposes $3 million in discretionary funds,
rather than mandatory funds authorized under the Farm Bill. The program
supports the President's Energy Policy by helping to develop renewable
energy supplies that are environmentally friendly. In addition, the
program contributes to local rural economies through the jobs created
and additional income to rural small businesses, farmers, and ranchers.
COOPERATIVE SERVICES
The functions of our cooperative programs are authorized under both
the Cooperative Marketing Act of 1926 and the Agricultural Marketing
Act of 1946. Our programs serve as the focal point of national activity
to help farmers and other rural residents help themselves by providing
the necessary advice and assistance.
Rural Development recently produced a report titled ``Cooperatives
in the 21st Century.'' This report identifies the challenges and
opportunities that face farmer cooperatives in the years ahead, and
offers strategies to increase their chances of success. External forces
besetting cooperatives are examined, as are their internal strengths
and weaknesses. Priority issues are listed that cooperative members,
leaders and advisors need to address. The report serves as a catalyst
for further thought and discussion on how farmer cooperatives can
enhance the income and quality of life available to their members.
In addition to providing written assistance, Rural Development
helps cooperatives by providing hands-on instruction. Rural Development
is providing technical assistance to the Southwestern Peanut Growers
Association (SWPGA), a cooperative involving peanut growers in TX, OK,
and NM. The cooperative is making a transition from a Commodity Credit
Corporation (CCC) designated sales agent for government-owned peanuts
to a marketing cooperative. To maintain this activity, SWPGA must
develop a marketing and processing business in the peanut industry.
Rural Development is working with them to develop a business plan.
RURAL COOPERATIVE DEVELOPMENT GRANT PROGRAM
For the Rural Cooperative Development Grants (RCDG) Program, the
fiscal year 2004 budget requests $11 million. Of this amount, up to
$1.5 million would be used for projects, which focus on assistance to
small minority producers through their cooperative businesses. This
program complements our internal National and State Office technical
assistance efforts by encouraging the establishment of centers for
cooperative development. The centers provide expertise for conducting
feasibility analysis, outreach, and other forms of technical assistance
for new and existing cooperatives.
The Farm Bill formalized the value-added grant program authorizing
$240 million in mandatory funding spread over six years. Over the past
two years, 293 grants have been awarded for nearly $57.5 million. This
program has four component parts including value-added producer grants,
agriculture innovation centers, agricultural marketing resource center,
and research on the impact of value-added projects. Eligibility for
this grant program was greatly expanded in the Farm Bill and the
program encourages applications for grants less than the $500,000
maximum allowed to provide benefits to as many producers as possible.
Five hundred thousand dollars will be used for Cooperative Research
Agreement in a competitive program. Cooperative Services will provide a
program of research on applied and theoretical cooperative issues
affecting agricultural and other rural cooperatives. The use of
cooperative agreements requires substantial involvement of our staff
with the universities' and non-profits' staff leveraged to conduct the
research. Personnel and funds for a competitive program are requested
to bring research efforts back up to a level justified by current farm
conditions; rapid industrialization, concentration, and integration in
production agriculture; quickly evolving information, communications,
and biological technologies; and transformation of the social and
economic structures of rural areas. Funds are requested in fiscal year
2004 to fund the cooperative agreements with Cooperative Services
researchers and operations of the direct cost of conducting the
competitive process to be funded out of the Salaries and Expense
account.
One example is the Cooperative Development Center at Montana State
University-Northern. Since the fall of 2000, the Center has helped to
form the Montana Natural Beef (LLC), Amazing Grains Cooperative,
Flathead Native Beef Cooperative and Peaks & Prairies Oil Seed Growers
Cooperative. Seven other cooperative groups are also receiving
assistance. The Center has also conducted workshops on business
formation and marketing; provides assistance in specialty food-product
development, and facilitates business development through the use of a
commercial kitchen.
The Appropriate Technology Transfer for Rural Areas Program (ATTRA)
provides technical information to producers and their advisors on the
best sustainable production practices. We are requesting $2.0 million
for this program. This funding would support responses to over 18,000
direct inquiries from agricultural producers, extension personnel, and
others on sustainable practices that reduce dependence on chemicals and
is more environmentally friendly. ATTRA funding also supports a website
that provides instant information to agricultural producers.
Mr. Chairman, this concludes my testimony for the Rural Development
fiscal year 2004 budget for rural business and cooperative programs. I
look forward to working with you and other Committee members to
administer our programs. I will be happy to answer any questions the
Committee might have.
Senator Bennett. Thank you very much.
Now we go to Joseph Jen, who is the Under Secretary for
Research, Education, and Economics. An economist at one end and
an economist at the other end. Maybe that tells us something.
RESEARCH, EDUCATION, AND ECONOMICS
Dr. Jen. Thank you, Mr. Chairman. I am a biochemist by
training.
Senator Bennett. If you are Under Secretary for Economics,
you are an economist by definition.
Dr. Jen. I do have an MBA, too, so I do qualify for being
an economist. Thank you.
Mr. Chairman, it is my pleasure to appear before you to
discuss the fiscal year 2004 budget for the REE mission area
agencies. REE consists of ARS, CSREES, ERS, and NASS. The
administrators of the agencies are present here today.
Placed in the context of current tight Government spending,
the REE budget that we are here to discuss today reflects a
strong commitment to addressing the challenges facing our
Nation's food and agriculture system. We appreciate your
support for the fiscal year 2003 appropriations. The
President's fiscal year 2004 budget proposes $2.266 billion for
the four REE agencies, about the same as fiscal year 2003
Presidential budget proposal of $2.312 billion.
Science and technology are the foundation of the American
food and agricultural systems. The four REE agencies have been
central to making the discoveries that have given us the most
plentiful, affordable, and safe food supply any nation has ever
known.
The environment surrounding the food and agricultural
system is in constant flux. Today, our farmers and ranchers and
our value-added food industry face stiff competition in
worldwide markets. Many countries now spend a much higher
percentage of their national research dollars on the food and
agricultural system than we do. Constant attention to and
investment in food and agricultural research is necessary to
maintain our leadership in the world.
The remarkable success enjoyed by the food and agricultural
system in this Nation depends heavily on our having a reservoir
of basic scientific knowledge. Technology and mission-oriented
applied research and problem-solving projects must draw from
this reservoir of scientific knowledge. I appreciate very much
your support of the USDA flagship grant program, the National
Research Initiative, NRI, with an increase of $46 million in
the fiscal year 2003 appropriations, raising the total funding
level to $166 million. As a competitive grant, the NRI is open
to the entire research community and provides the most
effective mechanism to attract the best minds in the Nation to
work on food and agricultural research and to add to our
science knowledge reservoir. For the fiscal year 2004 budget,
we propose to increase the NRI to $200 million.
One of the most recent scientific breakthrough areas and
one that represents immense opportunities for the food and
agricultural sector is genomics research. Genomics is where the
21st century biological science is going.
Through the study of genetic makeup of organisms, genomics
links the properties of genes to how plants and animals
function.
Both ARS and CSREES have significantly increased their
genomics programs in recent years. However, fulfilling the
promises of genomics will require additional investments.
In capturing the unique benefits of genomics research and
development, USDA has collaborated with other science
institutions, both in the United States and abroad. The goal is
to achieve direct applications in food and agriculture that
would not likely be addressed without USDA participation and
targeted funding. USDA has worked closely with the National
Science Foundation on the National Plant Genome Initiative and
the Microbe Genetic Project. USDA is leading in the
coordination of Federal research activities related to domestic
animal genomics, including working closely with the National
Institutes of Health.
Our work with other agencies in various research areas is
indicative of a growing collaboration in which REE agencies are
participating. Additionally, the new REE strategic plan asks
the four REE agencies to provide increasing research,
analytical, statistical, economical, and educational services
to other USDA agencies.
The proposed budget provides additional funding for REE
agencies to play a major role in strengthening the Nation's
biosecurity. The safety of our food and security of our food
supply are critical elements of homeland security. Because of
its size, complexity, and integration, U.S. agriculture is
uniquely vulnerable to highly infectious disease and pests,
particularly those diseases not native to the United States.
PREPARED STATEMENTS
With continued investment, REE will be ready to meet the
challenges to agriculture and take advantage of the
opportunities presented by cutting-edge scientific and
technology.
This concludes my statement. Thank you for your attention.
[The statements follow:]
Prepared Statement of Dr. Joseph J. Jen
Mr. Chairman, Members of the Committee, it is my pleasure to appear
before you to discuss the fiscal year 2004 budgets for the Research,
Education, and Economics (REE) mission area agencies of the USDA. I am
accompanied by Dr. Rodney Brown, Deputy Under Secretary of REE and the
Administrators of the four agencies: Dr. Edward Knipling, Acting
Administrator of the Agricultural Research Service (ARS); Dr. Colien
Hefferan, Administrator of the Cooperative State Research, Education,
and Extension Service (CSREES); Dr. Susan Offutt, Administrator of the
Economic Research Service (ERS); and Mr. Ronald Bosecker, Administrator
of the National Agricultural Statistics Service (NASS). Also present is
Mr. Dennis Kaplan of the Office of Budget and Program Analysis of the
Department. Each Administrator has submitted written testimony for the
record.
Placed in the context of current tight government spending, the REE
budget that we are here to discuss today reflects a strong commitment
to addressing the challenges facing our Nation's food and agricultural
system. We appreciate your support in fiscal year 2003 appropriations.
The President's fiscal year 2004 budget proposes $2.266 billion for the
four REE agencies, about the same as fiscal year 2003 presidential
budget proposal of $2.312 billion. The proposed budget requests
increases for higher priority programs by reprogramming lower priority
programs and eliminating completed tasks.
Science and technology are the foundation of the American food and
agricultural system. These four agencies have been central to making
the discoveries that have given us the most plentiful, affordable, and
safe food supply any nation has ever known. Research investments and
scientific advances have caused per acre yields of corn for silage and
milk production per dairy cow to more than double in the last half of
the 20th Century, while household income devoted to food has dropped
from 20.5 to 10.2 percent. It is a phenomenal success story, a story
based significantly on REE agencies' research, education, and economic
and statistical analysis over the years.
The environment surrounding the food and agricultural system is in
constant flux. Today, our farmers and ranchers and our value-added food
industry face stiff competition in worldwide markets. Many countries
now spend a much higher percentage of their national research dollars
on the food and agricultural system than we do. Constant attention to
and investment in food and agricultural research is necessary to
maintain our leadership in the world.
A recent National Academies report on REE, entitled Frontiers in
Agricultural Research--Food, Health, Environment and Communities,
states, ``Recent scientific breakthroughs will make it easier for
agriculture to achieve its potential for delivering a wide array of
benefits to society. For this potential to be realized, the
agricultural research system must take advantage of new opportunities
and relationships. Changing public values and needs will create new
market opportunities and will alter agriculture's relationship to the
food and fiber system, the environment and the fabric of American
society. Research will support agriculture as a positive economic,
social, and environmental force and will help the sector to fulfill
ever-evolving demands.''
The remarkable success enjoyed by the food and agricultural system
in this Nation depends heavily on our having a reservoir of basic
scientific knowledge. Technology and mission-oriented applied research
and problem solving projects must draw from this reservoir of
scientific knowledge. I appreciate very much your support of the USDA
flagship grant program, the National Research Initiative (NRI) with a
significant increase of $46 million in the fiscal year 2003
appropriations, raising the total funding level to $166 million.
However, the NRI funding level is still only one third of the
authorized level of $500 million. As a competitive program, the NRI is
open to the entire research community and provides the most effective
mechanism to attract the best minds in the nation to work on food and
agricultural research, and to add to our science knowledge reservoir.
For the fiscal year 2004 budget, we propose to increase the NRI to $200
million.
One of the most recent scientific breakthrough areas and one that
represents immense opportunities for the food and agriculture sector is
genomics research. Genomics is where 21st century biological science is
going. Genomics and biotechnology provide powerful tools to address
many of the thorny problems that have challenged production agriculture
for years. Called the ``high speed biology,'' genomics permits rapid
understanding and careful use of desired traits in microbes, plants,
and animals. Where previously scientists worked at the cellular level,
they can now work at the molecular-level. Genomics also adds to the
basic science knowledge reservoir. As has been demonstrated in the
study of the human genome, studying the metabolic pathways dictated by
genetic sequences can lead to new knowledge that has unanticipated
beneficial applications.
Through the study of the genetic makeup of organisms, genomics
links the properties of genes to how plants and animals function. For
example, genomics can:
--Eliminate the production of fungal toxins such as aflatoxin.
--Prevent diseases in animals exposed to pathogens, such as foot and
mouth disease.
--Uniformly and reliably produce desirable nutritional
characteristics in commodities such as golden rice, which
contains high vitamin A and iron levels.
--Develop rapid accurate diagnostic tools for monitoring and
detecting animal and plant pathogens, such as Listeria.
--Make production friendlier to the environment, tapping into the
natural defensive resources of agricultural plants and animals.
--Reduce or eliminate the use of many agricultural chemicals and
antibiotics and make the food products that consumers want.
``Molecular-level understanding of life processes'' is one of six
public research and development priorities set out in the fiscal year
2004 budget memorandum from the Directors of the White House Offices of
Science and Technology Policy and Management and Budget. In particular,
the Directors note that ``new applications in health care, agriculture,
energy, and environmental management,'' justify genomics as a priority.
Agriculture lags behind the medical, energy-related, and non-
agricultural basic sciences in making investments in this area. To be a
world leader in agricultural genomics, USDA requires a sustained
investment to engage in genomics research and to cooperate with other
federal agencies.
Both ARS and CSREES have significantly increased their genomics
programs in recent years. However, fulfilling the promises of genomics
will require additional investments. The President's fiscal year 2004
budget provides increases of $13 million in ARS's agricultural genome
budget and $10 million in CSREES' NRI to strengthen both agencies'
genomics programs. An increase of $1.1 million in the ERS' budget will
provide economic data and analysis that complements collateral
biological and bioinformatics research, and serves as the basis for
policy decisions arising from rapid genomics-based development in food
and agriculture.
In capturing the unique benefits of genomics research and
development, USDA has collaborated with other science institutions,
both in the United States and abroad. The goal is to achieve direct
applications in food and agriculture that would not likely be addressed
without USDA participation and targeted funding. USDA has worked
closely with the National Science Foundation on the National Plant
Genome Initiative and the Microbe Project. USDA is leading in the
coordination of federal research activities related to Domestic Animal
Genomics, including working closely with the National Institutes of
Health.
Our work with other agencies in various research areas is
indicative of the growing collaborations in which REE agencies are
participating. The REE agencies are working with the National
Aeronautics and Space Administration on remote sensing, with the Food
and Drug Administration and the Centers for Disease Control on food
safety, with the Environmental Protection Agency on implementation of
the Food Quality Protection Act, and with the Department of Defense and
Department of Energy on biobased products and bioenergy research.
Additionally, the new REE strategic plan asks the four REE agencies to
provide increasing research, analytical, statistical, and educational
services to other USDA agencies.
The proposed budget provides additional funding for REE agencies to
play a major role in strengthening the Nation's biosecurity. The safety
of our food and security of our food supply are critical elements of
homeland security. The budget provides ARS $11.5 million for
biosecurity research with an additional amount for related research on
emerging diseases that may be accidentally or intentionally introduced
into the food system. Because of its size, complexity, and integration,
U.S. agriculture is uniquely vulnerable to highly infectious diseases
and pests, particularly diseases not endemic to the United States.
Working cooperatively with APHIS, the budget provides CSREES with $16
million to maintain a unified Federal-State network of public
agricultural institutions to identify and rapidly respond to high-risk
biological pathogen outbreaks in the food and agricultural system.
Funding of $1 million will support ERS' effort to improve and maintain
a security analysis system initiated with supplemental Homeland
Security funds. Finally, the President's fiscal year 2004 provides ARS
with $22 million to finance additional security assessments and
implement security countermeasures at ARS research laboratories.
Scientific and professional human capital is one of the most
crucial variables affecting the future of our food and agriculture
system. Increases in the budget supporting the research component of
REE are complemented with increases in education, a critical function
of REE. The President's budget provides an increase of $1.9 million for
two higher education programs, Institution Challenge Grants to enhance
institutional capacity and Graduate Fellowship Grants for the
development of expertise. The budget also proposes funds for a program
to further incorporate an international component into teaching,
research, and extension programs at land-grant institutions.
I would now like to turn briefly to the budgets of the four REE
agencies.
Agricultural Research Service.--The Agricultural Research Service
fiscal year 2004 budget requests slightly over $1 billion in ongoing
research and information programs and facilities. Within the total, the
budget proposes increases dedicated toward higher priority program
initiatives of national and regional importance, several of which I
previously described. Offsetting these increases, the budget proposes
redirection or termination of approximately $149 million in current
programs. As the principal intramural biological and physical science
research agency in the Department, ARS continues to play a critical
role for the Department and the larger agricultural community in
conducting both basic and mission-oriented research. Results from ARS'
basic research provide the foundation for applied research carried out
by ARS, academic institutions and private industry. ARS' applied
research and technology development address the research needs of other
USDA agencies, as well as of those engaged in the food and agriculture
sector.
Agriculture is vulnerable to changes in climate. Rising
temperatures, changing amounts of precipitation, increased variability
in weather, and increases in the frequency and intensity of extreme
weather events like drought and floods are predicted to accompany the
intensification of the greenhouse effect. While vulnerable to these
environmental changes, agriculture also offers significant
opportunities to mitigate the increase in greenhouse gases in the
atmosphere. An increase of $6.3 million in the President's budget for
climate change will support research providing information on balancing
carbon storage and agricultural productivity in different agricultural
systems across the Nation.
The Abraham Lincoln National Agricultural Library (NAL), one of
four national libraries, serves as a national resource for information
on food and agricultural sciences. The proposed increase will enhance
NAL's information technologies, increase the volume and quality of
information available, reduce the cost of information and services, and
develop specialized collections. This will include the first steps
towards developing a National Digital Library for Agriculture in
partnership with the land grant universities, to improve NAL's
worldwide customers' access to key digital agricultural information.
The President's budget also provides $2 million to continue a multi-
year plan to address major facility deficiencies.
As discussed above, the budget also proposes $22 million for
security needs at ARS research laboratories.
Cooperative State Research, Education, and Extension Service.--The
President's fiscal year 2004 budget provides just over $1 billion for
the Cooperative State Research, Education, and Extension Service. In
providing critical funding for the research, education, and extension
programs of the Land Grant system and other universities and
organizations across the country, CSREES continues to play a central
role in the generation of new knowledge and technology and the transfer
of that knowledge and technology to stakeholders. Within the
discretionary budget, the funding levels for the six formula programs
are slightly higher than the fiscal year 2003 appropriations, due
principally to restoration of the across-the-board cuts in fiscal year
2003.
In addition to the increases in the NRI and higher education
programs described above, the CSREES budget includes increases to
enhance the agency's capacity to serve its grantees through developing
a new electronic grants application and reporting system and continuing
the design and development of the Research, Education, and Economics
Information system.
The Government Paperwork Elimination Act (GPEA) mandates that
electronic submission, maintenance or dissemination of information be
available as a substitute for paper. GPEA has significant implications
for the agency's management of its grant-making programs. The budget
maintains support for CSREES's activities related to GPEA and
eGovernment.
Economic Research Service.--The Economic Research Service is
provided $76.7 million in the President's fiscal year 2004 budget. As
the Department's principal intramural economics and social science
research agency, ERS conducts research and analysis on the efficiency,
efficacy, and equity aspects of issues related to agriculture, food
safety and human nutrition, the environment, and rural development. In
addition to the increases described above in genomics and homeland
security, the budget includes $9 million to fund ERS' Food Assistance
and Nutrition Research Program. In light of the President's Initiative
on ``Healthier America'' and the current obesity epidemic, data on
consumer nutrition status is critically needed to serve the Nation.
National Agricultural Statistics Service.--The National
Agricultural Statistics Service budget requests $136.2 million, a
decrease of $2.3 million over the fiscal year 2003 Act. NASS's
comprehensive, reliable, and timely data are critical for policy
decisions and to keep agricultural markets stable, and to ensure a
level playing field for all users of agricultural statistics. The
President's budget provides increases in several critical areas of the
NASS program, as well as a decrease of approximately $16 millions in
the Census of Agriculture, which reflects normal changes in the Census
cycle.
An increase of $4.8 million will be directed at restoring and
modernizing the core survey and estimation program to meet the needs of
data users at an improved level of precision. This program has not
received an increase in funding since 1990, leading to a reduction in
the quality of survey data on which estimates are based. Another
increase of $1.6 million will incrementally improve statistically
defensible survey precision for small area statistics that are widely
used by USDA agencies, such as the Risk Management Agency for indemnity
calculations.
To minimize respondent burden, NASS is committed to developing a
system that will allow producers and agri-businesses the option of
electronically filling out and submitting surveys, as mandated by the
GPEA. To that end, the budget requests $3.25 million for NASS's
electronic data reporting initiative. By 2006, most NASS self-
administered surveys will be available electronically and it is
anticipated that the 2007 Census of Agriculture will be electronically
collected.
SUMMARY
In summary, I want to reiterate that, given current budget
constraints, the REE agencies' budgets present a balanced portfolio,
with investments in cutting edge research such as genomics and in
application of the research findings to such issues as biosecurity and
food safety pathogens. The budget also provides new funding in
education to ensure that the Nation has a strong cadre of professionals
in the food and agricultural system. In addition, it recognizes that
statistics and economic analysis are critical for informed decision
making for all parties involved in the system. With these continued
investments, REE will be ready to meet the challenges to agriculture
and take advantage of the opportunities presented by cutting-edge
science and technology. This concludes my statement. Thank you for your
attention.
______
Prepared Statement of Dr. Edward B. Knipling, Acting Administrator,
Agricultural Research Service
Mr. Chairman, and members of the Subcommittee, I appreciate this
opportunity to present the Agricultural Research Service's (ARS) budget
recommendations for fiscal year 2004. The President's fiscal year 2004
budget request for ARS Salaries and Expenses is $987,303,000. This
represents a net decrease of $58.6 million from the fiscal year 2003
adjusted appropriation level. This net decrease results from program
additions and reductions, and increases for pay and operating costs.
The fiscal year 2004 budget also proposes $24,000,000 for the ARS
Buildings and Facilities account. Also included in the President's
budget is the proposed transfer in appropriations from ARS to support
activities included in the budget for the Department of Homeland
Security (DHS).
PROPOSED PROGRAM INCREASES
The fiscal year 2004 President's budget funds a number of new and
expanded priority research initiatives as follows:
Emerging Diseases of Plants and Animals ($12,100,000).--Emerging
diseases are caused by previously unidentified pathogens or new
manifestations of ``old'' diseases. Reemerging diseases occur after
long quiescent periods or upon the introduction of a new pathogen into
a native plant/animal population in a new geographical area. The
globalization of trade, increased international travel of people and
movement of goods, changing weather patterns, genetic shifts in
pathogen populations, and changes in crop management practices all
provide opportunities for the emergence or reemergence and spread of
plant and animal diseases. ARS will use the proposed increase to
develop sensitive diagnostic tests and vaccines to control exotic
diseases. Prevention and control strategies will be developed for
porcine reproductive respiratory syndrome, bovine spongiform
encephalopathy, and Marek's disease (in chickens). Research will also
be conducted on emerging and exotic plant diseases to minimize or
prevent their establishment in the United States.
Sequencing and Bioinformatics ($12,887,000).--The Nation's
agricultural system today faces formidable challenges including new
pests and pathogens from water and soil pollution, environmental
regulations, and the extinction or inaccessibility of genetic
resources. Genomics and biotechnology are critically important for
maintaining and enhancing the production, quality, and safety of plant-
and animal-based food products.
With the proposed increase, ARS will identify the genes that
influence disease resistance, reproduction, nutrition, and other
economically important production traits in livestock and poultry.
Research will identify the genes in Texas cattle fever tick that
contribute to acaracide resistance and host function for babesiosis. In
addition, research will identify and utilize genes and gene products
that influence economically important traits in plants.
Biosecurity Research ($11,500,000).--The General Accounting Office
(GAO) has reported that certain countries are developing biological
warfare agents directed at animal and plant agriculture. The GAO
indicates that U.S. agriculture is a potential target. Disease
outbreaks from a malicious introduction of pathogens could have
profound impacts on the national infrastructure, the domestic economy,
and export markets. Disease pathogens that could be used to debilitate
U.S. agriculture include highly infectious viruses, bacteria,
nematodes, fungi, and insects that attack major commodities, such as
cattle, swine, poultry, cereals, vegetables, and fruits. With the
proposed increase, ARS will develop more rapid and sensitive onsite
pathogen detection and identification tests for animal pathogens. Also,
ARS will develop a genomic analytic sequencing capability which will
assist in determining threatening diseases'/pathogens' geographic
origin and potential for spread.
Biotechnology Risk Assessment ($3,725,000).--The National Academy
of Sciences has identified several areas that need further study, such
as, the characteristics of genetically engineered crops and the long
term ecological impacts of these crops; the effects of genetically
modified organisms on non-target organisms; and the gene spread from
crops to surrounding vegetation. ARS will use the proposed increase to:
determine the rates of gene flow, including transgenes, from crops to
nearby vegetation; develop and test novel strategies to prevent pest
populations from becoming resistant to plant incorporated protectants;
and identify and develop gene technology that will limit transgene
activity to specific tissues.
Invasive Species ($4,202,000).--Invasive insects, weeds, and other
pests cost the Nation well over $137 billion each year. Weeds,
including leafy spurge, melaleuca, salt cedar, water hyacinth, purple
loosestrife, and jointed goat grass, currently infest at least 100
million acres in the United States. They reduce crop yields by
approximately 12 percent and forage yields by 20 percent. Arthropods
(insects and mites), such as the glassy-winged sharpshooter, silverleaf
whitefly, Asian longhorned beetle, pink hibiscus mealybug, Russian
wheat aphid, and Chinese soybean aphid, destroy 13 percent of crop
production each year. With the proposed increased, ARS will perform
research to develop attractants and biological control technologies for
managing invasive insects/weeds. Research will also be conducted on the
relationship of major invasive insects and their natural enemies.
Agricultural Genetic Resources ($3,000,000).--Present support of
the germplasm program is inadequate to prevent the risk of extinction
and loss of genetic diversity. With the availability of new genomic
tools, genetic diversity is extremely valuable for improving
production. ARS will use the proposed increase to collect, identify,
characterize, and maintain germplasm in centralized gene banks. ARS
will also encourage germplasm exchange and distribute research
quantities of healthy, pure, and adequately characterized germplasm.
Managing Wastes to Enhance Air and Water Quality ($2,425,000).--The
management of waste has become increasingly important because of its
far-reaching impacts. Properly managed it can be used to improve soil
properties, as a nutrient source for crops, and for alternative uses,
such as energy production. Improperly used, the waste from 280,000
animal feeding operations around the country poses a threat to soil,
water, and air quality, and human and animal health. With the proposed
increase, ARS will continue to develop cost effective technologies and
management practices which enable producers to capture the value of
manure and other byproducts without degrading environmental quality or
posing a threat to human and animal health.
Biobased Products and Bioenergy from Agricultural Commodities
($6,400,000).--Widely fluctuating energy prices and depressed
agricultural commodity prices have contributed to a renewed emphasis on
expanding the use of biobased industrial products (including fuels) to
improve the Nation's energy security, balance of payments, environment,
and rural economy. By expanding the development of biobased products
and bioenergy, increased demand will be created for agricultural
commodities to strengthen farm product prices and raise farm income;
new opportunities will be provided for business development and
employment growth in rural America; dependence on imported oil will be
reduced and U.S. security enhanced; and environmental quality will be
improved by reducing air pollution and greenhouse gas emissions. With
the proposed increase, ARS will improve the quality and quantity of
agricultural biomass feedstock for production of energy and biobased
products. The conversion of agricultural materials and wastes to
biofuels will be improved. In addition, technologies will be developed
to produce biobased products from agricultural commodities and
byproducts.
Climate Change Research and Technology Initiatives ($6,300,000).--
Climate change encompasses global and regional changes in the Earth's
atmospheric, hydrological, and biological systems. Agriculture is
vulnerable to these environmental changes. The objective of ARS' global
change research is to develop the information and tools necessary for
agriculture to mitigate or adapt to climate change. ARS has research
programs on carbon cycle/storage, trace gases (methane and nitrous
oxide), agricultural ecosystem impacts, and weather/water cycle
changes. ARS will use the proposed increase to develop climate change
mitigation technologies and practices for the agricultural sector.
Research will include land use and land management impacts on carbon
sequestration; measurement, verification, and modeling of carbon
storage; and assessing and managing risks to agricultural production
and water supplies from weather variability.
Agricultural Information Services ($2,000,000).--ARS will use the
proposed increase to begin implementation of the digital library
initiatives recommended by the 2001 Interagency Panel for Assessment of
the National Agricultural Library. These initiatives will provide
improved access to electronic resources, delivery of digital
information to USDA customers, and archiving of USDA digital
publications. The development of information technology to manage and
deliver information will also be continued.
Information Technology Cyber Security ($3,000,000).--Information
technology is critical for the delivery of ARS' research programs. The
use of web-based technology commonly referred to as ``e-Government,''
offers ARS the opportunity to improve the way it conducts business and
exchanges information in achieving its research mission and objectives.
As technology has enhanced the ability to share information
instantaneously, it has also made ARS more vulnerable to cyber security
attacks. ARS' mission critical information systems and networks are now
exposed to an unprecedented level of risk. Of particular importance is
the safety of pathogenic, genomic, and sensitive research information
from being acquired or destroyed by unauthorized intruders through
unprotected/undetected cyber links. ARS will use the proposed increase
to increase the number of cyber security officers and improve and
enhance cyber security tools, training and management plans. In
addition, ARS' servers will be streamlined and centralized.
PROPOSED OPERATING COSTS
In addition to the requested program initiatives, the budget
provides funding to cover costs associated with pay raises effective in
fiscal years 2002, 2003, and 2004. These funds, $31,567,000, are
critically needed to avoid Agencywide erosion of base resources. The
absorption of these costs would reduce the number of essential
scientists and support staff needed to conduct the Nation's Federal
agricultural research program. The absorption reduces funds available
for costly laboratory equipment, materials, and extramural support
essential to these programs.
PROPOSED PROGRAM DECREASES
The President's budget for fiscal year 2004 addresses a number of
national needs and Administration priorities. Two issues of major
concern to the President and the American people are national defense
and domestic security. In this regard, the Department of Agriculture
and ARS, along with most other Federal departments and agencies, are
seeking a slower rate of growth to accommodate the more urgent needs
facing the Country. Furthermore, as a result of additional emergency
spending in fiscal year 2002 and fiscal year 2003, higher deficit
spending is projected this year and in fiscal year 2004, requiring
governmentwide fiscal belt-tightening and the imposition of budget
constraints to curtail spending.
For these reasons the President's fiscal year 2004 budget proposes
decreases in funds supporting ongoing programs in ARS. The program
decreases recommended in the budget amount to $137,006,000.
Approximately 96 percent of this reduction is derived from
Congressionally-designated earmarks appropriated in fiscal years 2001,
2002, and 2003. While these projects are considered to be important,
they are less critical under the current fiscal and economic climate.
The limited resources that are available are needed for higher priority
initiatives. The Department is also proposing the termination of
research currently carried out at Brawley, California; the
Biotechnology Research and Development Corporation, Peoria, Illinois;
and the Animal Health Consortium, Peoria, Illinois. The Department is
also projecting savings associated with program and management
efficiencies to be derived from enhanced information technology
capabilities. The ARS budget also identifies resources from a number of
research projects that will be redirected to meet higher priority
research initiatives that target biosecurity, sequencing and
bioinformatics, emerging and exotic diseases of plants and animals, and
global climate change.
TRANSFER TO THE DEPARTMENT OF HOMELAND SECURITY
The Agency's budget reflects a decrease of $9.1 million. These
funds finance the operating costs and half the research program
currently conducted at the Plum Island Animal Disease Center,
Greenport, New York. These funds will appear in the DHS budget.
PROPOSED INCREASES FOR BUILDINGS AND FACILITIES
The fiscal year 2004 budget recommends an increase of $24 million
for ARS' Buildings and Facilities account. Most of this increase is for
security at ARS' laboratories. Many of the Agency's laboratories are
highly vulnerable to a terrorist attack.
In the aftermath of the September 11, 2001 terrorist attack,
Congress provided supplemental funds to USDA to conduct security
assessments and begin to upgrade security at all of its research
laboratories. ARS has laboratories located at more than 100 sites
throughout the United States and overseas. ARS laboratories which were
most at risk--i.e., the agency's five containment laboratories at Plum
Island, New York; Ames, Iowa; Laramie, Wyoming; Athens, Georgia; and
Frederick, Maryland--had security assessments conducted in fiscal year
2002. The assessments identified possible threats and risks to known
assets, and recommended countermeasures. ARS has initiated security
measures at 24 research locations including all BSL-3 and BSL-2
facilities with inventories of select agents. Other security measures
include background investigations, additional security guards, access
control systems, etc. The proposed increase in fiscal year 2004 will be
used to finance additional security assessments and implement security
countermeasures at ARS locations on a priority basis.
The National Agricultural Library is one of four national libraries
and the largest agricultural library in the world. The library houses a
collection of more than 3.2 million items in 50 different languages. It
serves as a national resource for information on agriculture and
related services. Constructed in 1968, NAL's building requires major
renovation. Since fiscal year 1998, ARS has received funds for
renovation of the library's first floor and other floors and systems.
In fiscal year 2004, ARS is requesting $2 million to continue
addressing the major facility deficiencies.
Mr. Chairman, this concludes my statement. I will be glad to answer
any questions the Committee may have.
______
Prepared Statement of Dr. Colien Hefferan, Administrator, Cooperative
State Research, Education, and Extension Service
Mr. Chairman and Members of the Committee, I appreciate the
opportunity to submit the proposed fiscal year 2004 budget for the
Cooperative State Research, Education, and Extension Service (CSREES),
one of the four agencies in the Research, Education, and Economics
(REE) mission area of the United States Department of Agriculture
(USDA).
The CSREES fiscal year 2004 budget proposal is just over $1
billion. CSREES, in concert with the Secretary of Agriculture and the
intent of Congress, works in partnership with the land-grant university
system, other colleges and universities, and public and private
research and education organizations to initiate and develop
agricultural research, extension, and higher education programs. This
partnership has a breadth of expertise that is ready to deliver
solutions to problems facing U.S. agriculture today.
The broad portfolio of CSREES programs has supported scientific
discovery from idea to application. Formula funds have leveraged
dollars from other sources, provided the start-up funds needed for an
investigator to establish a research program and build the capacity to
compete successfully in a competitive program, and allowed for a rapid
response to emerging problems. Competitively funded research from the
National Research Initiative (NRI) has supported individual
investigators undertaking basic research aimed at generating new
knowledge. Research results are applied to real life problems through
the Cooperative Extension System's educational efforts. Because these
efforts occur primarily at universities, they contribute to an
environment that prepares students to meet the ongoing needs of
agriculture, the environment, human health and well-being, and
communities.
CSREES continues to provide new opportunities for discoveries and
advances in knowledge through our competitive programs such as the NRI
and Integrated Programs. Funding for agricultural research,
particularly that pursued at university campuses, has dramatically
lagged behind funding for other disciplines. The $46 million increase
in fiscal year 2003 for the NRI was a step in reaching the full
authorization level for the NRI. The fiscal year 2004 budget request of
$200 million is based on the same underlying policy objectives, but in
a way that is consistent with increasing overall constraints on the
Department's budget. The NRI will continue to support current high
priority programs with an emphasis on critical areas. Increased
partnerships with other Federal agencies on research topics of mutual
interest will be possible. For example, we will be able to expand
working relationships with the National Science Foundation and
Department of Energy on research of the rice genome. The current
contribution of this partnership has led to a high quality ``draft''
sequence of the rice genome several years ahead of schedule. The
``draft'' sequence is providing valuable information for researchers
studying rice and other cereals and, through genomics technology and
plant breeding, will lead to improved cereal productivity, quality, and
nutritional value. With sequencing complete, it is anticipated that
this collaborative work will continue in developing a functional
genomics program for rice to associate sequence information with
pathways or networks of genes with the goal of increasing our knowledge
of disease resistance, nutritional qualities, growth and development,
fiber quality, oil content and other agriculturally important traits of
rice. The fiscal year 2004 budget request continues support of genomics
with a $10 million increase in animal genomics. NRI funds will be used
to strengthen agricultural research at small and mid-sized institutions
and in States that are less successful in the competitive grants arena.
Innovative multidisciplinary research training will be provided for
agriculture's future scientists in emerging areas such as agricultural
biotechnology, agricultural bioinformatics and functional foods. The
quality of science will increase as more of the best and brightest
scientists from all areas of the United States, and all institutions,
submit proposals to the NRI on critical issues such as emerging
diseases of plants and animals, biosecurity, air quality and food and
nutrition.
CSREES is uniquely positioned to address research, education, and
extension needs to meet the challenges to U.S. agriculture from new and
emerging pests and diseases. Partnering with the University System,
CSREES programs support a vast wealth of expertise in all fields of
plant and animal sciences along with an immense extension and outreach
capability that can be mobilized to provide an immediate response to
critical issues. Program efforts will focus on early intervention
strategies to prevent, manage or eradicate new and emerging plant and
animal disease. Funding also will facilitate rapid response to the need
for improved diagnostic tests for emerging disease agents by building
on the expanding knowledge base of microbial genomics for both animal
and plant diseases. The $2 million increase in the Critical Issues
Program will be used to address emerging plant and animal diseases and
pests such as the Southern pine beetle which is spreading rapidly
across the Southern United States, work on resistant strain genetics
for karnal bunt, Circovirus of swine which causes a multisystemic
disease in piglets, and chronic wasting disease which is now a major
wildlife health crisis in several States, and may be a vector for human
health concerns.
In continuing our efforts for agricultural security, CSREES,
through cooperative efforts with the Animal and Plant Health Inspection
Service, has established a unified Federal-State network of public
agricultural institutions to identify and respond to high risk
biological pathogens in the food and agricultural system. The core of
the network is currently comprised of 5 hub animal diagnostic
laboratories, 7 satellite animal diagnostic laboratories, and 5 plant
diagnostic laboratories dispersed strategically around the country. The
hub laboratories are responsible for deploying standardized diagnostic
approaches for identification of exotic and domestic pests and
pathogens that are of concern to the security of our food and
agricultural production systems. The hub laboratories also serve as the
repository for storing records of typical endemic and chronic pest and
disease problems from the other diagnostic laboratories in their
region. The budget proposal requests $16 million to maintain the
national diagnostic laboratory network.
Sustained support through our formula programs is providing the
foundation for the Federal/State partnership that links science and
technology development directly to the needs and interests of people.
The formula programs provide discretionary resources that foster
regional and national joint planning, encourage multi-state planning
and program execution, and minimize duplication of efforts. Formula
funding is the foundation from which a competitive grant funded program
can be built by developing institutional infrastructure, supporting
preliminary studies to strengthen competitive proposals and bridging
gaps related to scope and continuity of grant supported programs. These
funds, along with matching funds from the States, assure responsiveness
to emerging issues such as foot-and-mouth disease, E. coli, Salmonella,
Listeria, sorghum ergot, potato late blight, Russian wheat aphid, and
swine waste. Formula funds also build and maintain a national base of
scientists and extension educators who can quickly and effectively
mobilize to address these types of critical issues. For example, the
Nevada Cooperative Extension is increasing public awareness and
education to motivate people to report infestations of tall whitetop,
an invasive weed. The noxious weed looks like a delicate, harmless
flower, but it is threatening water quality, wildlife habitat, and the
economic stability of ranchers and farmers. Extension efforts in
informing land-owners of the negative impacts of tall whitetop is a
major step in controlling and eradicating the weed and preserving
thousands of acres of Nevada's lands and waterways. Other important
initiatives formula funds will be used to address include: financial
security, child care, health, entrepreneurship, aquaculture and
hydroponics, community revitalization, youth and youth-at-risk, and
water management. In addition, formula funding supports training of
future scientists and educators. Formula funds provide a platform to
partner with other Federal, State, and county organizations for
providing leadership, research, information, and education to meet the
challenges facing communities.
CSREES continues to expand diversity and opportunity with
activities under 1890 formula and educational programs, and 1994 and
Hispanic-Serving Institutions educational programs. Funding for our
1890 formula programs provides a stable level of support for
implementation of research and extension programming. Funding for the
1994 Institutions strengthens the capacity of the Tribal Colleges to
more firmly establish themselves as partners in the food and
agricultural science and education system through expanding their
linkages with 1862 and 1890 Institutions. Sustained funding for the
Hispanic-Serving Institutions promotes and increases the ability of the
institutions to carry out educational training programs in the food and
agricultural sciences. This proven path of research, extension, and
educational program development rapidly delivers new technologies, of
all kinds, into the hands of all citizens, helping them solve problems
important to their lives.
CSREES also will more effectively reach under-served communities
through the Outreach and Assistance for Socially Disadvantaged Farmers
and Ranchers Program (OASDFR). Responsibility for this program was
transferred to CSREES in fiscal year 2003 to award competitive multi-
year projects to support disadvantaged farmers and ranchers. Increased
funding for the OASDFR program will encourage and assist socially
disadvantaged farmers and ranchers in their efforts to become or remain
owners and operators by providing technical assistance, outreach, and
education to promote fuller participation in all USDA programs.
The higher education programs respond to the development of human
capacity and the need for a highly trained cadre of quality scientists,
engineers, managers, and technical specialists in the food and fiber
system. The fiscal year 2004 budget provides a $1.7 million increase in
CSREES higher education programs for the Food and Agricultural Sciences
National Needs Graduate Fellowship and Tribal Education Equity and
Endowment programs. The International Science and Education Grants
program (ISEP) will support the land-grant community and other campuses
in their efforts to be globally competitive by internationalizing their
agricultural programs. ISEP is designed to assist land-grant and other
campus faculty in bringing world issues and awareness into their
agricultural teaching, research, and outreach programs. Other higher
education programs will provide important and unique support to Tribal
Colleges, the 1890 Land-Grant Colleges and Universities, and the 1862
Land-Grant Universities as they pilot important new approaches to
expanding their programs.
Within the fiscal year 2004 budget request, is a proposed increase
of $2.3 million for the Expanded Food and Nutrition Education Program
(EFNEP). This reflects the Administration's support for strong
nutrition programs for a healthier America. The EFNEP program reaches
low income youth and families, with a heavy focus on the minority
population, with nutrition education that leads to sustainable behavior
change. Since the requested level exceeds that of the 1995 level, 1890
Institutions will be eligible to receive funding under EFNEP, which
reflects the Agency's commitment to more successfully reach minorities.
Increased funding also will allow EFNEP to add a physical activity
focus to help combat the rising problem of obesity in children and
adults.
The Administration strongly believes that peer-reviewed competitive
programs that meet national needs are a much more effective use of
taxpayer dollars than earmarks that are provided to a specific
recipient for needs that are not national. In order to ensure the
highest quality research for these national needs within available
funding, the fiscal year 2004 budget has therefore proposed to
eliminate earmark projects.
In response to the university community's strong desire for Federal
research agencies to support electronic grant activities, CSREES is
committed to streamlining its grant award process and requests
continued support in the fiscal year 2004 budget for this effort.
Through participation in the development of a common Federal electronic
application and reporting system, CSREES is implementing the capability
to electronically receive and process the approximately 6,000 proposals
submitted to the agency which will result in electronically awarding
about 2,000 grants and cooperative agreements annually. The system also
includes electronic distribution to reviewers nationwide, and support
for electronic financial and technical reporting on awards. CSREES is
examining how it can leverage its partnership with the land-grant
university system to result in better access of research, education,
and extension information products useful to the Nation as a whole.
This concept, which has been termed e-Extension, could significantly
extend the ability of these universities and the Department to provide
synthesized and meaningful information to the public.
CSREES, in collaboration with university and other partners,
nationwide, continually meets the many challenges facing the food and
fiber system. The programs administered by the agency reflect the
commitment of the Administration to further strengthen the problem-
solving capacity of Federally-supported agricultural research,
extension, and higher education programs. In addition, we continue to
enhance our responsiveness and flexibility in addressing critical
agricultural issues.
Mr. Chairman, this concludes my statement. I will be glad to answer
any questions the Committee may have.
______
Prepared Statement of Susan E. Offutt, Administrator, Economic Research
Service
Mr. Chairman and members of the Committee, I am pleased to have the
opportunity to present the proposed fiscal year 2004 budget for the
Economic Research Service (ERS).
Mission
The Economic Research Service informs and enhances public and
private decision making on economic and policy issues related to
agriculture, food, the environment, and rural development.
Budget
The Agency's request for 2004 is $76.7 million, which includes
increases for two initiatives and pay costs. The Agency is requesting a
$1.1 million increase to strengthen the economic information and
analytical bases for genomics research, application, and education
program decisions; and a $1 million increase for developing the
Security Analysis System for U.S. agriculture (SASUSA).
ERS Contributions to Mission Area Goals
ERS shares five general goals with its fellow agencies in the
Research, Education, and Economics (REE) mission area: (1) a highly
competitive agricultural production system, (2) a safe and secure food
supply, (3) a healthy and well nourished population, (4) harmony
between agriculture and the environment, and (5) enhanced economic
opportunity and quality of life for all Americans. These goals are
fully consistent with the U.S. Department of Agriculture mission.
Goal 1.--The U.S. agricultural production system is highly
competitive in the global economy.
ERS helps the U.S. food and agriculture sector adapt to changing
market structure in rapidly globalizing, consumer-driven markets by
analyzing the linkages between domestic and global food and commodity
markets and the implications of alternative domestic and international
policies on competitiveness. ERS economists analyze factors that drive
change in the structure and performance of domestic and global food and
agriculture markets; provide economic assessments of structural change
and competition in the agricultural sector; analyze the price impacts
of evolving structural changes in food retailing; analyze how
international trade agreements and foreign trade restrictions affect
U.S. agricultural production, exports, imports, and income; and provide
economic analyses that determine how fundamental commodity market
relationships are adjusting to changing trade, domestic policy, and
structural conditions. Policy makers and the food and agriculture
industry benefit from research contained in reports such as China's
Food and Agriculture: Issues for the 21st Century (March 2002) that
analyze driving forces in global markets, in this case the factors
underlying China's potential as a growing market and competitor; and
Vertical Coordination of Marketing Systems: Lessons from the Poultry,
Egg and Pork Industries (May 2002) that analyze the economic forces
leading to closer coordination of economic activity across the food
marketing chain and measure the consumer benefits.
ERS will continue to work closely with the World Agricultural
Outlook Board (WAOB) and USDA agencies to provide short- and long-term
projections of the United States and world agricultural production,
consumption, and trade. In.2003, several initiatives will increase the
accessibility, timeliness and breadth of the data and analysis. We are
creating dynamic outlook pages that offer the latest outlook
information, data, and links through a central location on the ERS
website--In addition, USDA's agricultural baseline projections will be
available on a more timely basis through the release of components as
they are completed. ERS continues to work closely with the WAOB and
other USDA agencies in developing a ``commodity centers of excellence''
initiative that would provide ``one-stop shopping'' for key USDA data.
The breadth of data was expanded in 2002 when ERS launched a unique
data series of average monthly retail prices for red meat and poultry
based on electronic supermarket scanner data.
ERS continues to expand research on how the dynamics of consumer
demand, notably growing consumption and trade in high value products,
are shaping global markets. To date in 2003, ERS has organized
workshops on global markets for high-value foods and specialized
markets for grains. These workshops brought together international
experts on the food system to discuss the economic implications of the
growing importance of high value products and trade for the food and
agricultural sector. A report analyzing the forces shaping trade in
high value products will be released in 2003. These activities enhance
our analytic understanding of these fundamental market relationships
and continue to improve the analytical base for USDA's foreign market
analysis and projections activity.
ERS continues to conduct research to improve understanding among
decision makers of changes in the agricultural sector structure (for
example, the implications for producers of the increasing replacement
of open markets by contractual arrangements and vertical integration).
ERS is currently examining the potential efficiency-enhancing motives
for the increasing use of contracts by food manufacturers and
processors. ERS released two reports, A Comparison of Vertical
Coordination in the U.S. Poultry, Egg, and Pork Industries (2002) and
Vertical Coordination of Marketing Systems: Lessons from the Poultry,
Egg, and Pork Industries (2002 which concluded that vertical
coordination and integration of marketing systems are designed
primarily to help meet the quality standards of today's consumers. Hog
production, highlighted in Economic and Structural Relationships in
U.S. Hog Production (AER-818), provides a good example of how economic
factors can change animal industry structure and practices, and how
these changes might affect the environment. Following up on the 2001
reports, Concentration and Technology in Agricultural Input Industries
and Public Sector Plant Breeding in a Privatizing World, ERS will
publish The Seed Industry in U.S. Agriculture in 2003. This report
reviews the factors affecting seed production, consumption, and seed
markets, and summarizes the regulatory policy, including the
intellectual property rights (IPR) relating to new plant varieties, the
role of public and private R&D expenditures in plant breeding for U.S.
agriculture, and the influence of concentration on market power and
cost efficiency in the seed industry. At the farm level, the 2003
Family Farm Report--Structural and Financial Characteristics of U.S.
Farms, which will be published later this year, documents the ongoing
changes in farms' structure, financial performance, and business
relationships in response to consumer demands, competitive pressures,
and changing opportunities for farm families.
ERS analysis has supported implementation of the 2002 Farm Security
and Rural Investment (FSRI) Act, and our ongoing research will provide
objective analysis of the impacts of specific programs. Less than one
week after passage of the new farm bill, ERS posted an extensive,
provision-by-provision, ``side-by-side'' comparison of previous and new
legislation that quickly became the most popular product ever posted on
the ERS website. We also had major input into the analysis of the new
farm bill for USDA's official impact analysis. This assessment provided
the groundwork for an ERS report, The 2002 Farm Act: Provisions and
Implications for Commodity Markets that analyzes the legislation's
effects on agricultural production, commodity markets, and net farm
income over the next 10 years.
In addition, ERS will continue to work closely with the Foreign
Agricultural Service and the Office of the U.S. Trade Representative to
ensure that ongoing negotiations in the Doha Development Agenda under
the auspices of the World Trade Organization and regional trade
agreements are successful and advantageous for U.S. agriculture. In the
negotiations, the U.S. seeks to minimize farm trade distortions while
maintaining some level of domestic support. Central to a successful
agreement is domestic and international consensus on the trade
distorting impacts of various types of domestic agricultural policies,
and a recent ERS publication is the first output from ongoing research
on the potential distortions caused by U.S. policies. The report,
Decoupled Payments: Household Income Transfers in Contemporary U.S.
Agriculture, released in February 2002, analyzes the production and
trade impacts of the Production Flexibility Contract (PFC) payments
enacted under the 1996 Farm Act. Using the data on farm households from
the Agricultural Resource Management Survey (ARMS), the report provides
the first data-based analysis of direct payments, and finds little
evidence that the PFC payments distorted markets.
ERS analysis of global food security continues to be used by USDA,
the Agency for International Development, and the Department of State
in decisions about food aid. The analysis also supports decision-making
to meet U.S. commitments to the World Food Summit, where 186 countries,
including the United States, committed themselves to reducing the
number of undernourished people by half by 2015. In June 2002, the
Secretary of Agriculture joined Ministers and Heads of State from other
countries to examine progress in meeting the goal. ERS analysis
informed the delegation and was included in the official documents
distributed on a CD to all participants. Included were ERS reports,
Food Security Assessment 2001 and Issues in Food Security, that provide
projections of future levels of food security for 67 low income
countries and an analysis of the determinants of food security.
Food price determination is increasingly important for
understanding domestic and international market events and
opportunities that promote the security of the U.S. food supply. ERS
systematically examines the factors that help set retail prices,
including an assessment of the roles of the transportation, processing,
manufacturing, wholesaling and retailing sectors; the impact of imparts
and exports; and linkages to the total economy. Also, ERS recently
improved estimates of farm-to-retail price spreads to allow for a
direct link between the demand for diverse products associated with
today's modern food markets and the demand for marketing services.
ERS analyses can help guide and evaluate resource allocation and
management of public sector agricultural research--a key to maintaining
increases in productivity that underlie a strong competitive position
for U.S. farmers. ERS continues to study the economics of adopting
genetically modified seed, the role of patents and intellectual
property rights in fostering innovation, and the potential for
technology transfer to less developed countries.
Seed genetically engineered to control insects and weeds, initially
introduced in 1995, now accounts for nearly 70 percent of U.S. soybean
plantings and nearly half of major crop acreage (corn, soybeans, and
cotton). ERS tracked the introduction of biotechnology into the
agricultural production mainstream, published the first national data
on adoption, and documented the impacts of adopting the technology on
crop yield, pesticide use, production costs, and profits. The report,
Adoption of Bioengineered Crops, issued in May 2002, examined the
adoption pattern of bioengineered crops with input traits for pest
management, and the farmlevel impacts of adopting bioengineered crops.
Data from the ARMS were essential in completing this study.
In a related report due out in 2003, ERS estimates the total
benefits from bioengineered crop adoption, and their distribution
between producers, biotech companies, consumers, and other
stakeholders. In addition to biotech crops that already have a
significant market share, ERS has examined the economics of emerging
biotech crops, such as wheat. Biotech marketing issues have not been
neglected, including estimating the costs of segregating biotech crops,
the ramifications of differing consumer preferences and national
biotech policies on trade flows, the role of the Government in
facilitating market differentiation, and the economics of food
labeling. ERS has also examined consumer attitudes toward biotechnology
and the role of consumer preferences in shaping market trends. Research
anticipating the next wave of biotechnology products for crops modified
to target consumer needs, such as food with altered nutritional
qualities (such as canola with high beta-carotene content), crops with
improved processing characteristics (such as naturally-colored cotton),
or plants that produce specialty chemicals or pharmaceuticals (such as
rabies vaccine in corn), is also being undertaken. This sound research
base has been invaluable in tempering exaggerated claims of costs and
benefits from both sides of the debate.
Recent innovations in agricultural biotechnology have raised
significant policy questions concerning potential research delays, the
optimal intellectual property design for maximizing dynamic innovation
when innovation is sequential, and the potential effects of
concentration of research and market power in the agricultural inputs
industry. In cooperation with researchers at Rutgers University and the
U.S. Patent Office, ERS is creating a classification system and on-line
searchable database of agricultural biotechnology patents and licensing
arrangements. This project will also identify who generates the
innovations, who controls the innovations and, to the extent possible,
who has access to the innovations.
ERS helped the Secretary develop a presentation on the role of
technology transfer in 21st Century agricultural trade for the 5th
Quint Agricultural Ministerial meetings in Nara, Japan, in July, 2002.
The thrust of the presentation was that research and development of
agricultural technologies in developed countries can help developing
countries strengthen their agricultural markets, eventually becoming
better customers for U.S. farm exports. The presentation, and the
research behind it, were highlighted in an organized symposium at the
American Agricultural Economics Association (AAEA) meetings in 2002 and
are featured on the ERS website. The thesis is the rationale for an
international trade and technology exposition planned by the Secretary
in 2003.
ARMS data underlie important estimates of farm income and well-
being, and constitute an essential component in much of ERS's research.
In 2002, the popular farm financial management dataset, providing more
than 5,000 tables covering farm businesses and the ERS farm typology
for farms of all sizes and types across 9 ERS farm resource regions,
was updated with 2001 data. Less well-known are the ARMS data on crop
production practices, made available in 2002 for the first time in more
than 180 tables on irrigation technology and water use, nutrient use
and nutrient management practices, crop residue management practices,
pest management practices and pesticide use, and crop seed variety.
ERS provides regular analysis, based substantially on ARMS data, of
the financial status of the farm sector and farm households. In
addition to informing Federal, State and local policymakers about the
viability of the farm sector and farm households, ERS income estimates
provide official input into U.S. economic estimates disseminated by the
Department of Commerce (DOC) and the Council of Economic Advisors. In
Income, Wealth, and the Economic Well-Being of Farm Households,
published in July 2002, ERS examines the conventional wisdom of
agricultural policy since the 1930's that transfers of money to the
farm sector translate into increased economic well-being of farm
families. The report showed that neither change in income for the farm
sector nor for any particular group of farm business can be presumed to
reflect changes confronting farm households. Farm households draw
income from various sources, including off-farm work, other businesses
operated and, increasingly, nonfarm investments. Likewise, focusing on
a single indicator of well-being, such as income, overlooks other
indicators, such as the wealth held by the household and the level of
consumption expenditures. Using an expanded definition of economic
well-being, the report showed that farm households as a whole are
better off than the average U.S. household, but that 6 percent remain
economically disadvantaged.
GENOMICS
The request for an increase of $1,100,000 is necessary to
strengthen the economic information and analytical bases for genomics
research, application and education program decisions. ERS will play an
integral part in the overall REE fiscal year 2004 genomics initiative
by assuring that as biotechnological advances are made, the Department
anticipates and understands their implications for consumer behavior,
farm and food industry structure, and other social aspects of genomic
developments. Experience with earlier applications of biotechnology to
agriculture have demonstrated the importance of anticipating,
monitoring and accommodating consumer demands and societal preferences
to the extent science allows. The ERS initiative is designed
specifically to complement collateral biological and bioinformatics
research, and to serve as a basis for policy decisions likely to arise
in the face of rapid genomics-based development in food and
agriculture.
Goal 2.--The food production system is safe and secure.
ERS research is designed to support food safety decision-making in
the public sector and to enhance the efficiency and effectiveness of
public food safety policies and programs. The program focuses on
valuing societal benefits of reducing and preventing illnesses, caused
by microbial pathogens; assessing the costs of alternative food safety
policies; studying industry's incentives, through private market forces
and government regulation, to adopt food safety innovations; and
analyzing consumer demand for food safety and the roles of consumer
information, attitudes, and behaviors. ERS has worked closely with
various USDA agencies and the Centers for Disease Control and
Prevention (CDC) on various pathogen risk assessments and on analyzing
the benefits and costs of implementing the Hazard Analysis and Critical
Control Points (HACCP) rule. ERS and the Food Safety and Inspection
Service (FSIS) work together to identify research projects and
activities that address the needs of the Department.
In fiscal year 2002, ERS published Consumer Food Safety Behavior. A
Case Study in Hamburger Cooking and Ordering, which found that
promoting the benefits to consumers of following food safety
recommendations appears to be influencing cooking and eating behavior.
In fiscal year 2003, ERS will report the findings of the first
nationally representative post-NAACP survey of meat and poultry
slaughter and processing plants, designed to understand how NAACP has
affected firms' costs and investments in food safety control
technologies. The results will provide a baseline for FSIS' future
efforts to monitor industry investments in food safety processes and
technologies.
The ERS research program provides widely-cited quantitative
estimates of the benefits of food safety risk reduction, such as
reduced direct medical costs and indirect costs associated with
productivity losses from foodbome illnesses caused by several major
microbial pathogens. To be launched in fiscal year 2003, ERS has
developed a web-based foodborne illness cost calculator--a tool that
will allow users to explore and revise the assumptions behind the ERS
estimates and develop their own cost estimates for specialized outbreak
scenarios.
SECURITY ANALYSIS SYSTEM
The request for an increase of $1,000,000 will fund the
development, delivery and maintenance of a more extensive and
systematic SAS-USA. SAS-USA supports assessment of potential and actual
threats to U.S. agriculture, including analysis of spatial and economic
consequences of threat scenarios such as a Foot and Mouth Disease
outbreak. The development activities will integrate the data, analysis
functions and supporting software to create the desirable system
capabilities. SAS-USA will provide policy officials with the
information they need to respond effectively to many threats and crises
in the food and fiber system. The system also provides spatial analysis
and display capabilities for an integrated database covering food and
fiber production, processing, transportation, and marketing as well as
related agricultural inputs and natural resources. SAS-USA presents a
framework for information and data integration across the Department
and promotes the development and application of appropriate standards
and methods for data integration.
Goal 3.--The Nation's population is healthy and well-nourished.
ERS helps identify efficient and effective public policies that
promote consumers' access to a wide variety of high-quality foods at
affordable prices. ERS economists analyze factors affecting dietary
changes, and nutrient intakes; as well as trends in America's eating
habits; assess impacts of nutrition assessments and the implications
for the individual, society, and agriculture; and provide economic
evaluations of food and nutrition assistance programs. In fiscal year
2002, ERS completed a major study of how the changing demographics of
the Nation will affect `Americans' future food choices and eating
habits. America's Changing Appetite: Food Consumption and Spending to
2020 (2002) reported the impacts of aging, increased diversity,
educational attainment, income growth, and population expansion on
expenditures for different types of foods, commodity demand, and eating
at home versus away from home. ERS also considers the implications of
food consumption patterns and dietary choices for the structure of the
food system. Farm Business Practices Coordinate Production with
Consumer Preferences (2002) explains how consumer pressures placed on
agriculture for variety, quality, and safety are affecting how the
industry is organized, including the types of buying and selling
arrangements within the food supply chain, and the application of
information technologies.
In fiscal year 2003, ERS research has a major focus on the economic
dimensions of obesity, including understanding the societal costs of
obesity, explaining obesity trends among different demographic and
income groups, and assessing the benefits and costs of alternative
options for influencing Americans' food choices and dietary behaviors,
including roles for nutrition education and food assistance programs.
ERS research on economic incentives and food choices is developing
rigorous empirical studies of food demand, to inform discussion of
topical dietrelated health policy issues.
Through the Food Assistance and Nutrition Research Program (FANRP),
ERS conducts studies and evaluations of the Nation's food and nutrition
assistance programs. FANRP research is designed to meet the critical
needs of USDA, Congress, program managers, policy officials, USDA
program clients, the research community, and the public at large,
concerning the design and effectiveness of food and nutrition
assistance programs, diet quality, and nutrition education. FANRP
research is conducted through internal research at ERS and through a
portfolio of external research. Through partnerships with other
agencies and organizations, FANRP is enhancing national surveys by
adding a food and nutrition assistance dimension. FANRP's long-term
research themes are dietary and nutritional outcomes, food and
nutrition program targeting and delivery, and program dynamics and
administration. Two Congressionally mandated studies have been recently
published: Assessment of WIC Cost-Containment Practices (2003) and
Infant Formula Prices and Availability (2003).
ERS submitted to Congress a report that examined the effects of
tiered meal reimbursement rates for family child care homes
participating in the Child and Adult Care Food Program (CACFP). The
study found that the family child care homes components of the CACFP
became substantially more targeted towards low-income children, and the
number and nutritional quality of meals and snacks in the homes with
the lower reimbursements rates was maintained after tiering was
introduced.
ERS published findings of the first comprehensive government study
of the Emergency Food Assistance.System (EFAS). The reports provide
detailed information about the system's operations and its component
organizations, such as food banks and food pantries. Findings from a
follow-up survey of EFAS clients will be reported this year.
ERS has completed the Congressionally mandated study, Assessment of
WIC Cost-Containment Practices: A Final Report to Congress. WIC State
agencies adopt various cost-containment practices to reduce food costs,
such as limiting food-item selection of WIC participants, limiting
authorized food vendors, and negotiating rebates with food
manufacturers or suppliers. The study found that cost-containment
practices can be relatively inexpensive to operate, reduce food package
costs, and have few adverse impacts on WIC participants in terms of
participant satisfaction, program participation, and product
availability.
The Nutrition Programs title of the 2002 Farm Act require ERS to
conduct an evaluation of USDA's Fruit and Vegetable Pilot Program
(FVPP) for the 2002-2003 school year. The FVPP provides free fruits and
vegetables to children during nonlunch periods in 100 schools in 4
States and the Zuni Pueblo Indian Reservation. The evaluation is
currently being fielded and is on schedule for delivery to Congress by
May 1, 2003.
Goal 4.--Agriculture and the Environment are in Harmony.
In this area, ERS research and analytical efforts, in cooperation
with the Natural Resource Conservation Service (NRCS), support
development of Federal farm, conservation, environmental, and rural
policies and programs. These efforts require analyses of the
profitability and environmental impacts of alternative production
management systems in addition to the cost-effectiveness and equity
impacts of public sector conservation policies and programs.
With passage of the 2002 Farm Bill, USDA looked to ERS to provide
comprehensive and detailed, yet understandable, information to public
and private users, including information on the conservation title
programs. In addition, ERS provided extensive support to other USDA
agencies in developing rules for implementation of the 2002
conservation programs. ERS participated in the Farm Service Agency
(FSA) and the Natural Resources Conservation Service (NRCS) working
groups on the Environmental Quality Incentives Program (EQIP), the
Conservation Reserve Program (CRP), the Conservation Security Program
(CSP), and implementation of conservation technical assistance by
third-party technical service providers. ERS contributed substantially
to the NRCS benefit-cost assessments for EQIP, GSP and the third-party
technical service provider rule. ERS assisted FSA with rulemaking for
the CRP program by suggesting ways to decrease the complexity of the
Environmental Benefits Index (EBI) used by USDA county office staff, as
well as methods to expand the EBI to include program impacts on
nutrient loadings in ground and surface waters.
ERS researchers have actively assisted USDA and the Environmental
Protection Agency (EPA) in assessing the economic costs and benefits of
changes to the rules governing confined animal feeding operations
(CAFOs) under the Clean Water Act, signed on December 16, 2002, with
revisions to the total maximum daily load (TMDL) provisions still being
revised. Following up on the report Confined Animal Production and
Manure Nutrients, published in 2001, a new report titled Manure
Management for Water Quality: Costs of Land Applying Nutrients from
Animal Feeding Operations, expected to be published in July 2003,
analyzes the farm-, regional-, and national-level costs to the
livestock and poultry sector of meeting manure management requirements
similar to those in the December 2002 rule. Results indicate that
meeting a manure nutrient application standard increases the costs of
managing manure. Costs are a function of farm size, acres.of cropland
on the farm, regional land use, willingness of landowners to substitute
manure nutrients for commercial fertilizer, and whether a nitrogen or
phosphorus standard is met.
Public amenities provided by a rural agricultural landscape are
important to many citizens and policymakers. Widespread development of
farmland in some parts of the country is spawning an expanding array of
farmland protection programs by county, State, and Federal governments,
as well as by nonprofit organizations. All 50 States and the Federal
Government have enacted farmland protection programs to help slow the
conversion of farmland to developed uses. Following up on Development
at the urban Fringe and Beyond. Impacts on Agriculture and Rural Land
published in 2001, ERS published Farmland Protection: the Role. of
Public Preferences for Rural Amenities, in October 2002. This report
provides an overview of the rural amenities people care about that are
related to preserving farmland in urbanizing areas. Because farmland
protection programs can preserve only a fraction of land subject to
urban conversion, understanding preference for rural amenities can be
useful for program design. This report and its predecessor were of
great interest to the NRCS Farmland and Ranchland Protection Program
(FRPP) staff, as well as State and local farmland preservation
officials. In consultation with FRPP staff, ERS is continuing research
on farmland protection by examining the relative importance the public
places on various rural amenities, looking at how farmland preservation
effects land conversion rates, and analyzing the implications of FRPP's
selection criteria.
The Department's implementation of the final rule for organic
production and marketing in October 2002 ensured that the goals of the
Organic Foods Production Act of 1990 were met, including certification
by a State or private agency accredited under the national program of
ail but the smallest organic farmers and processors. ERS had a large
impact on the program through its research and data collection on pre-
existing State and private organic certifying organizations, organic
production practices, and organic food marketing. The report Recent
Growth Patterns in the U.S. Organic Markets was published in October
2002 and two new datasets on organic production practices and organic
produce prices were published Updating the initial report of organic
production statistics in 2001, the report U.S. Organic Farming in 2001:
Adoption of Certified System will be published in 2003. In September
2002, ERS, the Agricultural Marketing Service (AMS), and the
Agricultural Research Service (ARS) jointly hosted a workshop for the
Organization for European Cooperation and Development (OECD) on organic
agriculture that presented the latest research in this field to policy
makers from European, Asian, and Latin American countries, as well as
U.S. stakeholders. Participants also visited organic farms in Maryland
and Virginia. The workshop also reviewed the market approaches and
policies used to encourage, certify and regulate organic agriculture,
and explored the trade effects of different policies.
Goal 5.--Enhanced economic opportunity and quality of life for
rural Americans.
ERS research explores how investments in rural people, businesses,
and communities affect the capacity of rural economies to prosper in
the new and changing global marketplace. The Agency analyzes how
demographic trends, employment opportunities and job training, Federal
policies, and public investment in infrastructure and technology
enhance economic opportunity and quality of life for rural Americans.
Equally important is our commitment to help enhance the quality of life
for the Nation's small farmers who are increasingly dependent on these
rural economies for their employment and economic support.
ERS analyzes changing economic and demographic trends in rural
America, with particular attention to the implications of these changes
for the employment, education, income, and housing patterns of low-
income rural populations. Analysis of the 2000 Census data help to
provide the most up-to-date information on the current conditions and
trends affecting rural areas. ERS published Rural Economy at a Glance
(2002), the first in a series of reports that highlight the latest
social and economic data for rural areas, to help policymakers in their
efforts to enhance the economic opportunity and quality of life for
viral people.
ERS researchers assess general approaches to economic development
to determine when, where, and under what circumstances rural
development strategies will be most successful. ERS analysts are
leading a national research effort to assess the effectiveness of
education as a rural development strategy, by analyzing the
relationships between education and economic outcomes for the
individual worker and the rural community. In addition, ERS researchers
are working with USDA's Rural Development mission area to help design
measurable performance indicators for its rural development programs.
For over 30 years, ERS has captured aspects of the broad economic
and social diversity among rural areas in various county
classifications. These typologies have been widely used by policy
analysts and public officials to determine eligibility for and
effectiveness of Federal programs to assist rural America. ERS held a
national conference on measuring rural diversity in 2002 to identify
economic, social, demographic, and policy themes that currently
characterize rural places. ERS researchers are now addressing how these
themes can be translated into a new or refined county classification
system that will be useful to policy decisionmakers.
ERS also continues its long tradition of economic research on the
welfare of disadvantaged population groups in rural areas; including
low-income families, children, the elderly, and racial/ethnic groups,
as well as the Federal assistance programs that serve them. Following
the enactment of the Personal Responsibility and Work Opportunity
Reconciliation Act of 1996, ERS led a national research effort to study
the rural implications of welfare reform. A series of research studies,
sponsored by ERS and published in a monograph, Rural Dimensions of
Welfare Reform (2002), will help to inform the 2003 policy debate over
reauthorization of welfare reform. Another study documents the reversal
of the long-standing trend of Black migration loss from the South and
connects these regional migration patterns to changes in economic
development in the rural South. Other ERS research examines the rapid
growth of Hispanics in rural areas and their role in affecting social
and economic change in their local communities.
ERS will use 2000 Census data on population characteristics and
information on local government finances to identify some of the most
common problems associated with sprawl, such as crowded schools,
shortages of affordable housing, traffic congestion, increased
transportation costs, and strained local government finances.
The farm typology developed by ERS researchers, coupled with a new
accounting stance that views the farm household as a more relevant
decision unit than just the farm business, have been keys to greater
insight into the factors affecting the well-being of farmers, reflected
in the report Income, Wealth, and the Economic Well-Being of Farm
Households, published in July 2002. Those insights lead to greater
consideration of the roles of off-farm employment and wealth as factors
in assessing farm household well-being and the importance and impact of
farm safety net programs. A condensed version of the farm typology was
an important feature in Secretary Veneman's statement of principles for
farm policy, and it continues to inform debates about the incidence of
farm profits and government payments.
CUSTOMERS, PARTNERS, AND STAKEHOLDERS
The ultimate beneficiaries of ERS's program are the American
people, whose well-being is improved by informed public and private
decisionmaking, leading to more effective resource allocation. ERS
shapes its program and products principally to serve key decision
makers who routinely make or influence public policy and program
decisions. This clientele includes White House and USDA policy
officials and program administrators/managers; the U.S. Congress; other
Federal agencies and State and local government officials; and domestic
and international environmental, consumer, and other public
organizations, including farm and industry groups interested in public
policy issues.
ERS depends heavily on working relationships with other
organizations and individuals to accomplish its mission. Key partners
include: the National Agricultural Statistics Service for primary data
collection; universities for research collaboration; the media as
disseminators of ERS analyses; and other government agencies and
departments for data information and services.
CLOSING REMARKS
I appreciate the support that this Committee has given ERS in the
past and look forward to continue working with you and your staff to
ensure that ERS makes the most effective and appropriate use of public
resources. Thank you.
______
Prepared Statement of R. Ronald Bosecker, Administrator, National
Agricultural Statistic Service
Mr. Chairman and members of the Committee, I appreciate the
opportunity to submit a statement for this Committee's consideration in
support of the fiscal year 2004 budget request for the National
Agricultural Statistics Service (NASS). This Agency administers the
U.S. agricultural statistics program, created in USDA in 1863, and,
beginning in 1997, has conducted the U.S. census of agriculture, first
collected in 1840. Both programs support the basic mission of NASS to
provide timely, accurate, and useful statistics in service to U.S.
agriculture.
The continual trend of American farms and ranches to make greater
use of agricultural science and technology has increased the need for
more detailed information. The periodic surveys and censuses conducted
by NASS contribute significantly to the overall information base for
policy makers, agricultural producers, handlers, processors,
wholesalers, retailers, and ultimately, consumers. Voids in relevant,
timely, accurate data contribute to wasteful inefficiencies throughout
the entire production and marketing system.
Official data collected by NASS are used for a variety of purposes.
Absence or shortage of these data may result in a segment of
agriculture having to operate with insufficient information; therefore,
NASS strives to continuously produce relevant and timely reports, while
reviewing priorities to consider emerging data needs. Analyses based on
NASS data were used extensively during development of the Farm Security
and Rural Investment Act of 2002. Additionally, the Act requires
several types of new agricultural data and reinforces the importance of
existing data series to ensure the continuation of farm security and
rural investments. For example, the counter-cyclical payments
established by the Act are determined in part by market year average
prices determined by NASS. Each $0.01 change in the average corn price
will result in a change of more than $75 million in counter-cyclical
payments. Similarly large amounts could be misdirected for the other
program crops. Additional important data for the Act include data that
assists farmers in implementing conservation programs, data on organic
agriculture production, and data that supports socially disadvantaged
farmers and ranchers in receiving and participating equitably in the
full range of agricultural programs offered by the Department. These
are only a few specific data needs critical to the Act's successful
implementation, but they clearly highlight the importance of a strong,
reliable agricultural statistics program.
NASS works cooperatively with each State Department of Agriculture
throughout the year to provide commodity, environmental, economic, and
demographic statistics for agriculture. This cooperative program, which
began in 1917, has served the agricultural industry well and is often
cited by others as an excellent model of successful State-Federal
cooperation. This joint State-Federal program helps meet State and
national data needs while minimizing overall costs by consolidating
both staff and resources, eliminating duplication of effort, and
reducing the reporting burden on the Nation's farm and ranch operators.
The success of this partnership is being demonstrated by NASS through
its State-Federal cooperation during the planning, collection, and
dissemination of the 2002 Census of Agriculture. Improved quality,
efforts to increase total response, and professional customer service
through the use of a toll-free number are direct results of the State-
Federal partnership. NASS's 46 field offices, which cover all 50 States
and Puerto Rico, provide statistical information that serves national,
State, and local data needs.
NASS statistics contribute to providing fair markets where buyers
and sellers alike have access to the same official statistics, at the
same pre-announced time. This prevents markets from being unduly
influenced by ``inside'' information which might unfairly affect market
prices for the gain of an individual market participant. Empirical
evidence indicates that an increase in information improves the
efficiency of commodity markets. Information on the competitiveness of
our Nation's agricultural industry has become increasingly important as
producers rely more on the world market for their income.
Through new technology, the agricultural sector in the United
States is changing rapidly. This also means that the agricultural
statistics program must be dynamic and able to respond to the demand
for coverage of newly emerging products and changing industries. For
example, during 2002, NASS issued the U.S. Dairy Herd Structure report.
This report provided a summary of the changes in the structure of the
U.S. dairy herd by size of operation and geographic location. NASS also
issued an update of the U.S. Hog Breeding Structure report. This report
built on information provided in 2001 and included data on the changes
in the makeup of the breeding herd by size of operation and the
efficiency of the breeding herd in recent years.
Not only are NASS statistical reports important to assess the
current supply of and demand for agricultural commodities, but they are
also extremely valuable to producers, agribusinesses, farm
organizations, commodity groups, economists, public officials, and
others who use the data for decision making. Statistical data are used
in decisions affecting agricultural policy, foreign trade,
infrastructure, environmental programs, research, rural development,
and many other activities.
All reports issued by NASS's Agricultural Statistics Board are made
available to the public at previously announced release times to ensure
that everyone is given equal access to the information. NASS has been a
leader among Federal agencies in providing electronic access to
information. All of NASS's national statistical reports and data
products, including graphics, are available on the Internet, as well as
in printed form. Customers are able to electronically subscribe to NASS
reports by clicking on the appropriate release. A summary of NASS and
other USDA statistical data is produced annually in USDA's Agricultural
Statistics, available on the Internet through the NASS Home Page, on
CD-ROM disc, or in hard copy. All of NASS's 46 field offices have Home
Pages on the Internet, which provide access to special statistical
reports and information on current local commodity conditions and
production.
Beginning in fiscal year 1997, NASS received funding to conduct the
census of agriculture on a 5-year cycle. The transfer of the
responsibility for the census of agriculture to USDA streamlined
Federal agricultural data collection activities and has improved the
efficiency, timeliness, and quality of the census data. Data collection
for the 2002 Census of Agriculture began in December 2002 and will
culminate with the census release in February 2004.
Statistical research is conducted to improve methods and techniques
used in collecting and processing agricultural data. This research is
directed toward providing higher quality census and survey data with
less burden to respondents, producing more accurate and timely
statistics for data users, and increasing the efficiency of the entire
process. For example, NASS has been a leader in the research and
development of the use of satellite imagery to improve agricultural
information through its continued expansion of the Cropland Data Layer
program. The program now includes geographic information data layers
for eight major crop-producing States. The NASS statistical research
program strives to improve methods and techniques for obtaining
agricultural statistics with improved levels of accuracy. The growing
diversity and specialization of the Nation's farm operations have
greatly complicated procedures for producing accurate agricultural
statistics. Developing new sampling and survey methodology, expanding
modes of data collection including Internet contacts, and exploiting
computer intensive processing technology enables NASS to keep pace with
an increasingly complex agricultural industry. Considerable new
research has been directed at improving the 2002 Census of Agriculture,
including the successful use of optical scanning and Intelligent
Character Recognition systems. NASS is also making advancements in
Electronic Data Reporting, with the goal of giving the Nation's farmers
and ranchers the opportunity to respond electronically to the 2007
Census of Agriculture.
Major Activities of the National Agricultural Statistics Service
(NASS) The primary activity of NASS is to provide reliable data for
decision making by conducting unbiased surveys each year and the census
of agriculture every 5 years, to meet the current data needs of the
agricultural industry. Farmers, ranchers, and agribusinesses
voluntarily respond to a series of nationwide surveys about crops,
livestock, prices, chemical use and other agricultural activities each
year. Periodic surveys are conducted during the growing season to
measure the impact of weather, pests, and other factors on crop
production. Many crop surveys are supplemented by actual field
observations in which various plant counts and measurements are made.
Administrative data from other State and USDA agencies, as well as data
on imports and exports, are thoroughly analyzed and utilized as
appropriate. NASS prepares estimates for over 120 crops and 45
livestock items which are published annually in over 400 separate
reports.
The census of agriculture provides national, State, and county data
for the United States on the agricultural economy every 5 years. The
census of agriculture is the only source for this information on a
local level, which is extremely important to the agricultural
community. Detailed information at the county level helps agricultural
organizations, suppliers, handlers, processors, and wholesalers and
retailers better plan their operations. Important demographic
information supplied by the census of agriculture also provides a very
valuable data base for developing public policy for rural areas.
Approximately 60 percent of NASS's staff are located in the 46
field offices; 24 of these offices are collocated with State
Departments of Agriculture or land-grant universities. NASS's State
Statistical Offices issue approximately 9,000 different reports each
year and maintain Internet Home Pages to electronically provide their
State information to the public.
NASS has developed a broad environmental statistics program under
the Department's water quality and food safety programs. Until 1991,
there was a serious void in the availability of reliable pesticide
usage data. Therefore, beginning in 1991 NASS cooperated with other
USDA agencies, the Environmental Protection Agency (EPA), and the Food
and Drug Administration, to implement comprehensive chemical usage
surveys that collect data on certain crops in specified States. EPA
uses the state and national level actual survey chemical data, rather
than worst case scenarios, in the quantitative usage analysis for a
chemical product's risk assessment. Beginning in fiscal year 1997, NASS
also instituted survey programs to acquire more information on
Integrated Pest Management (IPM), additional farm pesticide uses, and
post-harvest application of pesticides and other chemicals applied to
commodities after leaving the farm. These programs have resulted in
significant new chemical use data, which are important additions to the
data base. Surveys conducted in cooperation with the Economic Research
Service also collect detailed economic and farming practice information
to analyze the productivity and the profitability of different levels
of chemical use. American farms and ranches manage nearly half the land
mass in the U.S., underscoring the value of complete and accurate
statistics on chemical use and farming practices to effectively address
public concerns about the environmental effects of agricultural
production.
NASS conducts a number of special surveys as well as provides
consulting services for many USDA agencies, other Federal or State
agencies, universities, and agricultural organizations on a cost-
reimbursable basis. Consulting services include assistance with survey
methodology, questionnaire and sample design, information resource
management, and statistical analysis. NASS has been very active in
assisting USDA agencies in programs that monitor nutrition, food
safety, environmental quality, and customer satisfaction. In
cooperation with State Departments of Agriculture, land-grant
universities, and industry groups, NASS conducted 164 special surveys
in fiscal year 2002 covering a wide range of issues such as farm
injury, nursery and horticulture, farm finance, fruits and nuts,
vegetables, and cropping practices. All results from these reimbursable
efforts are publicly available to benefit all of agriculture.
NASS provides technical assistance and training to improve
agricultural survey programs in other countries in cooperation with
other Government agencies on a cost-reimbursable basis. NASS's
international programs focus on developing and emerging market
countries in Asia, Africa, Central and South America, and Eastern
Europe. Accurate information is essential for the orderly marketing of
farm products. NASS works directly with countries by assisting in the
application of modern statistical methodology, including sample survey
techniques. This past year, NASS provided assistance to China,
Dominican Republic, Ecuador, Ethiopia, Honduras, Kazakhstan, Mexico,
Nicaragua, Russia, South Africa, and Ukraine. In addition, NASS
conducted training programs in the United States for 107 visitors
representing 30 countries. These assistance and training activities
promote better quality data and improved access to data from other
countries.
NASS annually seeks input on improvements and priorities from the
public through displays at major commodity meetings, data user meetings
with representatives from agribusinesses and commodity groups, special
briefings for agricultural leaders during the release of major reports,
and through numerous individual contacts, especially those made at the
grass roots level through NASS's 46 field offices. As a result of these
activities, the Agency has made adjustments to its agricultural
statistics program, published reports, and electronic access
capabilities to better meet the statistical needs of customers and
stakeholders.
FISCAL YEAR 2004 PLANS
The fiscal year 2004 budget request is for $136,182,000, which
includes the following major initiatives.
The 2004 budget includes $25,279,000 for the census of agriculture,
which reflects the decrease in staffing and activity levels to be
realized due to the cyclical nature of the 5-year census program. The
available funding includes monies to finalize analysis, summary, and
dissemination of the 2002 Census of Agriculture. The request also
includes funding for follow-on census activities for the critically
important and timely Farm and Ranch Irrigation Survey, planning for the
Census of Horticultural Specialties, and enhancing list maintenance
activities between census data collection years to ensure a high level
of coverage.
The budget requests an increase of $5,413,000 and 29 staff years to
fund restoration and modernization of NASS's core survey and estimation
program. Funding will be directed at beginning to restore and modernize
the core survey and estimation program for NASS to meet the needs of
data users at an improved level of precision for State, regional, and
national estimates. The program covers most agricultural commodities
produced in the United States, as well as economic, environmental, and
demographic data. This program has not received an increase in funding
since 1990, leading to a reduction in the quality of survey data on
which estimates are based.
The budget includes an increase of $1,600,000 and 6 staff years to
provide for data acquisition for the annual integrated Locality Based
Agricultural County Estimates/Small Area estimation program. Local area
statistics are one of the most requested NASS data sets, and are widely
used by private industry, Federal, State and local governments and
universities. This funding supports the NASS goal to incrementally
improve statistically defensible survey precision for small area
statistics. Proper follow-up data collection activities and redesign of
survey systems will improve the valuable annual county-level data. The
Risk Management Agency (RMA) uses these statistics in indemnity
calculations for Group Risk Plans and the Group Risk Revenue Plans as
part of the risk rating process, which affects premiums paid by
producers. The Farm Service Agency uses county estimates to weight
posted county prices to national loan deficiency payments, and as an
input to assist producers to update their base acreage and yields as
directed by the Farm Security and Rural Investment Act of 2002. In
addition, financial institutions, agriculture input suppliers,
agricultural marketing firms, and transportation companies who provide
billions of dollars of goods and services to farmers and ranchers
utilize county level data to make informed business decisions.
The budget also requests an increase of $4,750,000 and 2 staff
years for collaborative e-Government efforts within NASS and across the
USDA. The increase supports NASS's electronic data reporting initiative
which will provide producers and agri-businesses the option of
submitting reports electronically in order to reduce burden and meet
the mandate of the Government Paperwork Elimination Act. Additionally,
data provided to the public must be made available in the easiest, most
useful, and most versatile manner. In between data collection and
summary data dissemination, electronic processing improvements within
NASS are critical to timely and efficient data management while
safeguarding the security and confidentiality of sensitive data. The
funding also supports NASS's role as the lead agency for two of the
USDA's eGovernment initiatives, Survey Capability and Data Management.
This concludes my statement, Mr. Chairman. Thank you for the
opportunity to submit this statement for the record.
PAYMENTS TO PRODUCERS
Senator Bennett. Thank you very much.
As I listened to all of this testimony together as a body,
I have some reactions, and I apologize if they are a little bit
ragged because I haven't had a chance to think them through and
tighten them up. But let's go into this for just a minute.
Dr. Collins, it seems to me you were saying that payments
go up in good times and payments go up in bad times. Is there
ever any circumstance, any market situation where payments to
the agriculture community can either level out or, glorious day
for the taxpayer, start to come down because the market has
taken over and farmers are prospering as a result of the market
and payments don't need to be made? Could you address that?
Dr. Collins. Certainly, Mr. Chairman. What you have
described is a rare experience in recent years, but it has
occurred, you know, over the last decade. It did occur in 1996.
We had a very strong global economy. It was growing at 3 to 3.5
percent, and I often use that 3 to 3.5 percent as sort of the
threshold for which you see global economic growth effects on
U.S. agriculture, and that is the way things were going in the
mid-1990s. And we had a global drought. For example, the
Australian wheat crop was cut in half, just like it was this
past year. That led to record high farm prices, and we saw
farmers' income from the marketplace was basically their total
income. Government payments all but went to zero during that
period.
But that has been a rare experience in the last 15 years,
and over the last 15 years generally farm payments have been
high. They have been particularly high since the Asian currency
crisis in 1998 and the slow growing economy ever since then.
But 2 years ago, if you just looked on a calendar-year
basis, we were paying farmers about $22 billion or so a year in
Government payments. I think this year in 2003 they will be $17
billion or so. So they are still high, but they have come down,
and they have come down because prices have come up a little
bit, but nowhere near the levels they were in the mid-1990s.
Another factor in this as well is farm programs have
changed since 1996 so that we are now making payments to
farmers that are independent of prices, these so-called direct
payments under the 2002 farm bill. Under the last farm bill,
they were called--a great name--production flexibility contract
payments. But those----
Senator Bennett. Making it impenetrable for the non-
informed to have any idea as to what you are doing.
Dr. Collins. Which some people probably take as an
objective of their work up here. But in the 1996 farm bill,
those payments were about $4 billion a year. Now they are about
$5.2 billion a year. And those are independent of prices. We
are always going to make those payments, at least under the
current legislation. For lots of reasons we decided to do that.
So even today, if prices get very strong and go above the so-
called target prices that we have in law, we are still going to
be making payments to farmers because of those direct payments
that we have in law.
Senator Bennett. Sometime when we are not under this kind
of pressure, I will have to have you explain to me why that is
a good idea.
Dr. Collins. I would be happy to do that.
GUARANTEED FARM LOANS
Senator Bennett. Okay.
Dr. Penn, on the same theme, we come to you, and you are
involved with loan guarantees. Now, that immediately creates in
my mind the question: What is the default rate? Do we get any
interest benefit for having made a loan guarantee? I remember
the great debate over loan guarantees to Chrysler, for example,
when that corporation was in default and headed for bankruptcy
and the country decided that that was not a good idea. And the
United States made millions, ultimately, from Chrysler as they
paid back the fee for the loan guarantees. We didn't have to
make good on any of those guarantees, and we made a little
money.
Is that ever going to happen in agricultural loan
guarantees? What is your failure rate, interest income? Help me
understand how all that works.
Dr. Penn. Okay. There are two loan guarantee programs in
the mission area that I look after. One set of loan guarantees
is to farmers. We guarantee loans that farmers may take out for
land ownership and for operating expenses. This loan program
comes out of the old Farmers Home Administration that Under
Secretary Dorr mentioned. These are loans that are made
largely----
Senator Bennett. I am going to get to him.
Dr. Penn. These are loans that are made largely to people
who don't have an option in the commercial lending system for
the most part. We make both direct loans and guaranteed loans,
and the guaranteed loans are for people who have a little
better credit rating than those for which we make direct loans.
The loans are targeted in part to beginning farmers, minority
farmers, socially disadvantaged farmers. And the thought is, of
course, that the loans serve a social purpose, that they enable
people to stay on the land and they enable people to stay in
rural areas and to be engaged in agriculture.
Now, this program has had a pretty checkered history in
times past. It had default rates that approached 50 percent,
but I understand now that the default rates for these loan
programs are down on the order of 12 or 13 percent in the
current period.
And so this is thought to be a great improvement in the way
these programs are operated, and they are very popular
programs, as you can imagine. And I think that everyone
acknowledges that they are run much more efficiently. They are
run about as much like commercial loan programs as you can,
recognizing, again, that these are for people who don't qualify
for commercial loans and would have no other access to credit.
[Clerk's Note.--The default rate that Dr. Penn refers to actually
is more representative of the delinquency rate for the direct portion
of the farm loan portfolio. Direct loans, and in particular emergency
loans, experienced relatively high default/delinquency rates in years
past, especially during the 1980's. The guaranteed loan program, on the
other hand, has historically had a very low default rate. Over the last
5 years, losses paid vs. unpaid principal outstanding on the guaranteed
portfolio have ranged from a low of 0.6 percent to a high of 1
percent.]
EXPORT CREDIT GUARANTEES
The second set of loan guarantee programs that we operate
in this mission area are the so-called GSM credits, and every
year we guarantee something on the order of $3.5 billion in
agricultural product sales to foreign customers. And this is a
program that we think is very effective in helping us expand
exports, and the default rate on that program in a normal year
is very minimal. We typically don't have very much default in
that program. The defaults that we do have come about from very
unusual circumstances. Iraq is a big creditor to that program
because of hostilities in previous times, as you can imagine.
Poland defaulted back at the height of the Cold War. And there
are some other notable cases like that. But, by and large,
this, too, is a pretty effective program, and it provides
enormous benefits in that it helps us expand our sales abroad
and it is operated at relatively little cost to the Government.
Unlike the loan to Chrysler, we don't make very much money
on these, of course. We don't have an opportunity for that kind
of revenue sharing.
Senator Bennett. Well, first, you say that the default rate
is at a minimum. What is your definition of a minimum?
Dr. Penn. I don't know that exact number. I will have to
get that number for you.
Senator Bennett. It is in the single digits?
Dr. Penn. Single digits. It is very small for that program.
Senator Bennett. Low single digits?
Dr. Penn. Yes.
Senator Bennett. And you say you don't make very much
money. Do you make enough money to cover the default rate? In
other words, do you break even? Do you have any idea about
that?
Dr. Penn. I don't know about that. I will have to find that
out for you.
Senator Bennett. Could you find that out and let me know?
Dr. Penn. I will do that, and we will look over a sweep of
time, like 10 years or some period like that.
[The information follows:]
Export Credit Program Default Rate
The fiscal year 2003 default rate for the GSM Program is
projected to be 7.7 percent. The average default rate for the
last 5 years (1998 to 2002) is 6.7 percent.
The subsidy required to support the GSM program is
relatively low, but USDA does not break even. If the Department
broke even or made money on this program, the program would
have either a zero or a negative subsidy rate. While we try to
minimize losses in this or any other loan program, it should be
noted that these loan guarantees are not issued for the purpose
of making money for the Government. They are issued to
encourage exports to buyers in countries where credit is
necessary to maintain or increase U.S. sales, but where
financing may not be available without such credit guarantees.
FARM PROGRAM POLICY
Senator Bennett. You know, I sit on the Banking Committee
in my other life, and a 12- to 13-percent default rate would
not be considered progress.
Dr. Penn. Right.
Senator Bennett. Now, I realize everything is relative.
Coming down from 50, it is considered great progress. But the
thought occurs to me, if these are people who would otherwise
be unable to stay in farming if you didn't give them the money,
and part of our problem is that we have surpluses, it is going
to sound heartless but the laws of economics say that one of
the ways you could resolve some of the pressures on the farm
situation as a whole would be to say you folks ought to find
another line of work, and particularly, if I recall your
testimony correctly, a very large percentage of them already
have found another line of work and are getting--what was the
number?--three-quarters of their revenue from something else.
Does it really make sense in terms of national policy for
the Federal Government and the Federal taxpayer to be keeping
excess capacity in place in this particular part of the economy
to the tune of subsidizing bad credit risks at the rate of 13
percent? Now, this is a policy question, obviously, that the
Congress has to answer. But as I get myself into these issues,
coming from a businessman's background, this is the obvious
question that comes out of the testimony we have had here this
morning.
Do you have any comments? Or, Dr. Collins, you are sitting
there at least paying attention.
Mr. Dorr, I am going to get to you because we have got the
same kinds of situations where you are, and any comments that
any of you might have.
Dr. Penn. Well, let me say that is the age-old dilemma--how
do you allow resources to exit from any sector of the economy
where new technologies are being introduced. And this is an
age-old question in farm policy circles, keeping resources in
when you have got an abundance of commodity on the market and
people are always decrying low prices.
But, on the other side of the question, there is the
thought that there is some benefit in keeping people in rural
areas and maintaining the areas' viability. I am sure Mr. Dorr
will tell you all about worrying about the vitality of rural
communities and keeping a critical mass there. And so there are
trade-offs, I think, in providing subsidies to keep people in
certain parts of the country or providing subsidies when they
move to another part.
So this has been an ongoing-old discussion, but I think it
is one that the Congress has confirmed time after time. It is a
decision made by the Congress, as you indicate.
RURAL DEVELOPMENT CREDIT PROGRAMS
Senator Bennett. Well, let's get to Mr. Dorr. Here we have
got people who, without this kind of assistance from the
Federal Government, could not economically survive. So you are
coming along and giving them Federal subsidies in the houses
that they otherwise couldn't afford, and this becomes a double
incentive for people to remain in an uneconomic kind of
activity.
Now, is that a harsh summary of where we are? I am
deliberately putting it in as stark terms as possible in order
to provoke conversation. But I find it very interesting when we
are talking about rural development to hear you discuss multi-
housing family projects. One doesn't think of multi-housing
family projects in terms of rural areas. One thinks of wide
open spaces. And if we are talking about the social good of
being out where the deer and the antelope play, the deer and
the antelope don't require a multi-housing family portfolio.
So shifting the focus now to you and your area of
responsibility, what is your default rate? What happens to any
interest income that comes off of these loans? And is the
Federal Government making enough money on the interest to cover
all of its costs?
Mr. Dorr. Well, they are obviously very thought-provoking
questions, and as Dr. Penn has indicated, they are kind of age-
old questions when it comes to what is occurring in rural
America.
Our programs run the gamut from housing to utilities to
community facilities to a number of things. Interestingly
enough--and I have said this before--our programs historically
deal with the other 62 or 63 million rural Americans who aren't
directly impacted by the traditional Title I and Title II
programs.
DELINQUENCY AND DEFAULT RATES
In our single-family housing program, in our direct
program, our delinquency rate is running about 13.5 percent.
The interesting thing about that is last January 30th, the
Chase Home Finance folks made a major announcement of an
additional commitment of a half trillion dollars of funds to
the minority home ownership issue across the country. We were
invited to attend, and at that particular event, we were told
that one of the best places they liked to invest--and they have
determined this over the last 6 to 8 years--is rural America.
They made this announcement in front of a large group of folks,
including a number of major money center bank officials. They
said there are two reasons why they like to invest in rural
America:
Number one, it is a great place to invest. There are
significant opportunities.
And, number two, the default rate is less than what it is
in urban areas. Low default rates in these rural, growing,
regional, developing areas are, quite frankly, very intriguing.
When you make the jump, for example, over to our community
facilities programs, we have very, very low default rates. Just
the other day I was looking at some where we actually had a
negative subsidy rate relative to the way it was scored. These
funds are typically used for fire houses, day-care centers,
medical facilities, those sorts of things. And they seem to be
quite effective.
In our business and industry loan program, I think in 1983,
our default rate was about 20.9 percent. In 2002, that default
rate was down to a little over 10 percent. Our goal is to get
it to 4 percent, and I think that we will make significant
progress in that way.
One of the other things that we do, however, is that we are
involved in a number of entrepreneurial, value-added
development and loan and loan guarantee programs, in
conjunction with the ability to finance the build-out of the
kind of infrastructure that rural America needs to grow. There
are a number of areas of rural America that are growing, and
they are benefiting from these programs and they are creating
other job opportunities not directly related to production
agriculture.
So, in my view, there are a number of these programs that
are quite successful, and have very reasonable default rates.
We know that some of them have, at least at this time with the
low interest rates we have, negative subsidy rates. So I think
that there is some progress being made, quite frankly.
Senator Bennett. The picture I am getting is that the
Federal Government is doing everything it can to sustain people
in an uneconomic activity. Obviously, I am very interested in
that because of the number of rural people in Utah, and when I
visit the rural communities in my State, they all complain that
there is not enough economic activity and they all complain
that their kids can't find jobs and they have to migrate to the
cities and isn't it awful that we are losing this wonderful
rural way of life.
At the same time, I happen to have a steel mill in the
State of Utah, and the steel mill is now closed. And they tried
to get some Federal help to keep the steel mill alive, and the
reality is that there is a world overcapacity for production of
steel. And the world overcapacity of the production of steel is
bringing the price of steel down. That is what happens.
I keep saying to my colleagues, if I could control what we
carve in marble around here, along with all of the pleasant
Latin phrases--maybe I ought to figure out how this reads in
Latin. You cannot repeal the law of supply and demand. We keep
trying in Government, with wage and price controls and all
other kinds of things.
In the steel industry, people have finally resigned
themselves to the fact that the law of supply and demand, which
cannot be repealed, has decreed that some of these steel plants
around the world are going to have to close until supply and
demand come into equilibrium again. And some of them are going
to be American plants. And, unfortunately, one of them happens
to be in the State of Utah.
Now, that is a wonderful plant. It is modernized and it is
environmentally friendly, and in many ways it is probably the
low-cost producer in the United States. But it is closed, for a
variety of reasons that I won't bore you with. And unless the
demand for steel around the world--because we are, again, in a
global market--firms up rather dramatically rather soon, it is
going to stay closed. And the people who used to work in the
steel plant are going to have to do something else.
The picture I am getting here is that the same forces would
dictate that there are some farms that are going to have to
disappear and, indeed, have been disappearing. But the Federal
Government is going to stand here kicking and screaming to say
we won't allow real market forces to take place here, and I
guess we are back to Congress has made the decision that that
would be just too socially disastrous to allow that to happen.
But setting that aside for a moment--it is probably a good
thing I am all alone.
SUPPLY CONTROL
None of my colleagues will have any memory of this, but
setting that aside for a moment, from a straight economic
analysis isn't it true that the Federal Government has
perpetuated oversupply and thereby a situation where, if people
are going to continue to live in that world, they are going to
have to be subsidized by taxpayers?
Dr. Collins. I will take a shot since you said from a
straight economic point of view, and relieve my colleagues of
having to answer that one.
I think you are right. I think that has been the long-term
history of farm programs. Some people call it a cheap-food
policy. Other people call it trying to expand production as a
policy objective. Other people call it trying to have a policy
of place, where we ensure that there is adequate production
regionally dispersed across a varied array of commodities so we
can ensure the rural infrastructure.
Whatever the policy objective that people put on it, I
think the effect has been to cause production to be higher than
it would probably otherwise be. That is demonstrated by 50
years of supply control programs that we had in place until
1996. And we still continue to have some forms of supply
control programs, such as the Conservation Reserve Program,
probably the single biggest one that we continue to have and
have ever had in history.
And now we have marketing assistance loan programs which
economists call ``coupled.'' They are tied to production, they
are tied to price, and they create distorted economic
incentives.
So I agree with that. The terms that you used in your
discussion so far have been terms like ``economics'' and terms
like ``social choice,'' and that is what a lot of this has come
down to. It is the trade-off between the degree of efficiency
you want in the agricultural sector versus social policy. To
get efficiency in a sector like Dr. Penn described, one where
technological change has caused rapid advances in production,
then you are going to have resources leave the sector. You can
define the word ``crisis'' by the speed with which resources
have to leave the sector. And if they have to leave very
rapidly, then people would call that a crisis. When there is a
crisis, Congress addresses that with social policy, programs
for places, and that is what we have had in agriculture.
But, fortunately, there has been a great debate about this
in recent years. The old theory about agriculture was you had
inelastic demand, so if you got a sudden increase in production
due to technology or good weather, that caused prices to go way
down and people couldn't withstand those low prices, and they
would be driven unnecessarily out of agriculture, so you had to
provide them support. And when prices went way down, because
supply was also inelastic, they wouldn't cut back on their
production.
So the old school story about agriculture was this
inelastic supply and this inelastic demand prevented resources
from leaving agriculture until people lost their farm and lost
everything. And then a few years later, who knows? Demand might
be better, and those people would unnecessarily have lost
everything.
So that was sort of the logic that drove these programs.
But the vision of agriculture has changed a lot over the last
20 years. Now we see an agriculture that is dominated by a
small number of farms. They have highly skilled operators. They
are well capitalized. There are all kinds of risk management
tools available to them today. It is not the same farm that was
there when these farm programs were designed.
So there is this new thinking about how well farmers can
respond versus the old thinking about how farmers can respond,
and Congress is sort of torn between those two views. It has
been slowly over time reforming farm programs to move them
toward the new view, and I think we were on a good path to do
that--until the last couple of years. The last couple of years
have sort of knocked us off that path a little bit. And so
where we go from here on out is going to be determined by
people with vision like yours versus people who have other
visions.
Senator Bennett. You are making an assumption about me from
my questions, but you are probably right.
Let me ask if those farmers, as you describe them, who are
now very large and well capitalized and very efficient and take
advantage of all of the research that comes out of Dr. Jen's
effort and so on, do they receive the bulk of the payments?
Dr. Collins. They do. Payments historically are tied to
production. They produce the most. They get most of the
payments.
Senator Bennett. That strikes me from an economic point of
view as really quite perverse.
Dr. Collins. Well, that is----
Senator Bennett. You do not have to comment if you do not
want to, but----
Dr. Collins. No comment.
Senator Bennett. Dr. Jen, let us get to you then. As you
add to this over production by your research and demonstrate
how people can get far better yield per acre and more nutrition
per calorie or whatever it might be, what is the impact? I mean
that is implied in my question. Is there in fact a significant
impact towards this overall issue of imbalance between supply
and demand? Are you fueling it, and does the money we put into
research exacerbate the efficiency of everything, and thereby
drive up the amount of support that taxpayers have to make?
Dr. Jen. Mr. Chairman, that is a very difficult question to
answer. I would like to choose probably----
Senator Bennett. I will send you the easy ones in writing.
RESEARCH AND AGRICULTURAL PRODUCTION
Dr. Jen. Thank you. Half a century ago, the U.S.
agriculture's goal was mainly trying to win the war on hunger
for this country, and I believe we pretty much have done that,
and what we are trying to do now is eat better, and probably
our next war is a war on obesity in this country.
However, from a researcher and educator point of view--
throw away my economist hat----
Senator Bennett. Your biochemist hat. Go on.
Dr. Jen. I think being the United States, being the most
wealthy and number one country in this world, we probably
should have a responsibility for trying to stamp out hunger in
the world, and I do not believe that war is won. From that
point of view, I think research and education and economic
development, all those things that are in my mission area are
probably needed. I think we have to try to balance how to help
the developing countries, the rest of the world, to eat and
stamp out hunger, yet at the same time how we can keep our
producers on a competitive base and not lose money like you
were saying. So I think from strictly an economic point of
view, I would say that research is still needed.
Senator Bennett. I am not implying that it is not.
Dr. Jen. The other thing also is that I think we are facing
new challenges. Even in production in our country, we are
facing more challenges related to the environment, to limited
resources. We are going to run out of water. We are going to
run out of air, run out of land, as the population increases.
So how do you produce products, food, to feed a growing
population in the world I think is also going to be a part of
the picture, and we are adjusting our research program, toward
that goal.
Lastly, it is interesting listening to my colleagues' and
your discussion on the economy on the farm side. We deal with
not only the production but also the value added, food
processing and the consumer side on this. It just dawned on me
that the U.S. food industry does not come to the Federal
Government for any loans or grants, and they are competing
fairly well on a worldwide basis.
AGRICULTURAL PRODUCT DISTRIBUTION
Senator Bennett. Thank you very much. You see war on hunger
and now a war on obesity. We have not solved the war on hunger
in this country, not because we do not have the production
capability to do so, indeed we do, and we have excess food
sitting in silos various places. This is not the focus of the
Department of Agriculture, but this is a distribution problem,
not a production problem. We have hunger in the State of Utah,
and I and my staff have gone down to the food bank and unloaded
contributions that come from the Boy Scout drives when
everybody leaves a couple of extra cans of tomatoes on their
front porch and the Boy Scouts come and pick them up. At
Christmastime everybody buys extra groceries. I have done it. I
am sure everybody else has. You go to the supermarket, and
standing out in front of the supermarket is somebody from the
Salvation Army, and they do not just tinkle the bell and ask
for quarters any more. They have shopping carts and say,
``While you are in there, buy some extra milk, baby formula,
whatever, whether you have any babies or not, and then as you
leave the supermarket, take that extra sack of food and drop it
in here.'' Then it goes to the food bank, and they need totally
unskilled labor like mine to unload it from the trucks as it
comes in and put it in the places that will ultimately get it
into the hands of the people who need the food.
We underestimate the importance of a distribution system.
The Russians used to be able to raise every bit as much wheat
as they needed, and it rotted at the railhead because they did
not have a distribution system to get it to their people in
their cities, and they ended up importing wheat from the United
States even though they could and did produce enough. This goes
back to Mr. Lenin, who along with all of his other foolishness,
foolishly assumed that the middle man was a capitalist tool and
had to be eliminated, and Mr. Lenin had great efficiency in
doing that. He shot them, and consequently doomed the Russian
economy to 75 years of shortages because he would not pay the
middle man for the value added that was involved in taking the
product from the farm and delivering it to the customer. We
still get some of that rhetoric as people say, ``A bushel of
wheat is worth x at the farm and it costs y at the supermarket
when it is a loaf of bread, and is that not terrible that the
farmer is not getting as much money as the customer is
paying?'' They do not realize that one of the reasons the
farmer is not getting as much money as the customer is paying
is because the customer does not live on the farm. The customer
lives in New York City and there has to be somebody who
refrigerates it and stores it and packages it and puts it on
the supermarket shelf, and gives you the convenience at 7-11
that you can walk in at 2:30 in the morning after the Senate
has been in session and buy yourself a burrito or whatever it
might be.
The efficiency of the distribution system is incredible,
but there are elements of American society to which there is no
distribution system and therefore there is hunger in the United
States, so it is not a production problem. It is a distribution
problem.
Dr. Jen. You are absolutely right, Mr. Chairman. I think I
did say we have largely stamped out hunger.
Senator Bennett. No, I am not quarreling with you. I am
using your statement as a springboard to make another point for
the record, and is this not really the problem in the world? Is
there not really enough food being produced worldwide to feed
everybody on the production side, and the difficulty is
distribution? Is that not the problem? The French will not let
genetically-modified food get into France and the Russians will
not let chicken breasts get into Russia. There are political
barriers. And then you get into the enormous problems of sub-
Saharan Africa and certain parts of South America. It is not a
production problem. We have the food. We would love to get rid
of it under Public Law 480 or any other program. We would love
to get rid of the surplus food around the world to feed people
in the world. We cannot physically get it in there because of
the distribution problem.
Am I off base with all of this? Help me. I am just
exploring with you now that I have the advantage of talking to
you with no competition on either side. Help me understand all
of these issues.
Dr. Penn. I think you are right about the basic problem of
world food supply and demand. I think there are 800 million
people out of the 6 billion in the world today that suffer from
hunger and malnutrition on an ongoing basis. We certainly have
enough food in the world to feed those people. It is a matter
of poverty and a matter of distribution, lack of physical
infrastructure, lack of purchasing power, things of that
nature.
Also there is an ample amount of technology in the world
today to enable a lot of countries to increase their yields.
Yields in many parts of the developing world are a fourth or a
half of what they are in the developed world, and with a little
bit of existing technology, they could improve their food
production and be much more capable of feeding their own
people. As you know, the problems are political. There are
hostilities. The problems still have to do with lack of
development and capital mobilization.
AGRICULTURAL TRADE
We are trying to address a lot of those problems on many
fronts. Improved technology is an immediate one, a direct one.
But this trade agenda that I mentioned is another way in which
we are trying to indirectly get at the hunger and malnutrition
problem. It is pretty clear that those economies around the
world that develop, where consumer incomes grow and people get
fed better, are ones that are open, are ones that are
interconnected in the world, that trade, that attract capital,
that bring in new technology and new management practices.
That is what we think our trade agenda is all about, not
only to expand trade and market opportunities in the short run
for our farmers and ranchers. Over time as these economies
grow, they become much better markets, as you said, for leg
quarters rather than just number two yellow corn. They start
buying meat and poultry products and dairy products and more
processed foods, and that creates economic activity here at
home. So it is sort of a win-win situation to both help combat
hunger and malnutrition and at the same time to improve
opportunities for people here at home.
Senator Bennett. Then come around full circle, lest any of
my rural friends who are listening or watching think I am
willing to let rural America wither on the vine and die in the
name of creative destruction, we could solve many of the
problems in rural America of oversupply and thereby the
requirement for Federal subsidy, if we could open up these
markets. The farmers who are currently drawing Federal
assistance and then creating some of the default rates that you
were talking about, Dr. Penn, and that you were talking about,
Mr. Dorr, those default rates would go down. And Dr. Collins,
the Federal payments would go down if these world markets were
opened up, because as the most efficient producer in the world,
the American farmer, regardless of size, can compete very well
with any other farmer anyplace else.
If we go back to my analogy of the steel mill, it is the
low-cost, high-efficiency steel mills that are going to survive
in the period of lower capacity, and the American farmer is the
low-cost most efficient farmer in the world, and he is the one,
she is the one increasingly, that will survive and do well if
we can get rid of some of these barriers. Is that a fair
statement?
PRODUCTIVITY INCREASES
Dr. Penn. That is very much a fair statement. And you make
another important point, and that is that the world does not
stand still. Dr. Jen and all of his fellow scientists are
always out here trying to increase the productivity of American
agriculture, and the 50-year trend in productivity growth in
American agriculture is about 2 percent a year. So you can see
in a 10-year span of time we will increase our capacity to
produce food and fiber with a given set of resources by 20
percent, not taking account of compounding. When you look at
the domestic market growth, our population grows relatively
slowly, and we increase our aggregate food consumption each
year by about eight-tenths of 1 percent, so over a 10-year span
of time our aggregate consumption will increase about 8 percent
while we have increased our production capacity 20 percent.
So we are constantly adding to this excess capacity which
makes it all the more important that we get access to these
growing markets, and it is in our best interest to see the
developing countries of the world grow and mature so that they
become better markets. It is a very dynamic situation.
Senator Bennett. Mr. Dorr, access to these kinds of
markets, would that not go a long way towards producing the
sort of rural development that you are currently concerned
about?
RURAL JOB GROWTH
Mr. Dorr. I think that will clearly help manifest it. I
think the other side of this issue is the fact that there was a
recent report out of the Third District Federal Reserve Bank of
Philadelphia, pointing out that much of the significant
economic growth both in terms of new businesses as well as jobs
and job growth opportunities during the course of the 1990s
occurred in many of the rural areas in Pennsylvania. Clearly
after having come in from the farm a couple of years ago and
spending a great deal of time in these moving parking lots, I
can understand why people are inclined to keep their rural
residences. So I think there is a change in the economic
structure that is attracting people to rural areas, and we are
involved in building out the infrastructure and sustaining it.
Once the things you discussed with Dr. Jen and Dr. Collins are
manifested, with these other opportunities in which we are
involved in terms of building out the infrastructure, I think
the dynamics of rural America will change in many areas.
MAINTAINING RURAL AMERICA
Senator Bennett. Thank you for this. This has been very
helpful. I wanted just to close it off before I go into some of
the specific questions, with the observation that people who
live in rural areas are smarter than people who live in urban
areas think they are, and one of the reasons they stay there is
partly because of quality of life and partly because of an
understanding that in the information age they can do the kind
of things you just described. So a vibrant, rural America is
important, but we should be doing what we can to see to it that
it is vibrant because of its ability to compete in the future,
rather than vibrant because of its nostalgia for the past.
If we ever did allow rural America to shrivel up and blow
away, we would pay a very significant price for that. I want to
make that clear. From all of my conversation about the economic
side of it, I want to make it clear that the long-term impact
of having rural America dry up and blow away would be very
significant.
If I can just burden you with an observation from an
entirely different circumstance, if you go back in history in
the British Isles, there was a time when the English, for
whatever geopolitical reason, decided it was in their national
best interest to clear the highlands of Scotland. That is a
very antiseptic term to describe what they did. Clearing the
highlands meant literally driving everybody off the land. As a
tourist now, if you go to Scotland 300, 400 years later after
the clearing of the highlands, they are still clear. That is,
you go through the highlands of Scotland and the scenery is
wonderful, but the sense of desolation and barrenness from the
fact that there has been no significant human inhabitancy there
for all those years, since the English literally drove the
Scots out of the highlands and into cities like Glasgow and
Edinburgh, the sense of barrenness and desolation still hangs
over the land. It is almost palpable as you walk around and
say, what a price Great Britain has paid down through the
centuries for the fact that people were driven out of this
area.
Now, we are never going to be quite that dramatic if rural
America sees people leave, but nonetheless, there is a lesson
there that I think we can pay attention to.
Thank you for participating with me in this dialogue as I
try to get my arms around what it is we are doing here and what
it is you are doing. Now a few very parochial questions about
some of the budget issues that you raised which is basically
what we came to talk about.
PATENTS ON ARS PRODUCTS
Dr. Jen, the Agricultural Research Service obtains patents
for products and procedures which result from taxpayer
sponsored research. Then the ARS licenses private industry to
produce consumer goods that allow the technology and resulting
beneficial projects to get in the hands of consumers. We have
been talking about that in the distribution thing. I understand
now that there are more than 600 new patents. How much money
are we talking about? What is the average annual receipt from
licensing these patents, and are those funds just deposited
into the Treasury or does ARS get to keep the money, or do you
have a pizza party at the USDA? What do you do with the money
that comes from the licensing?
Dr. Jen. I think----
Senator Bennett. I am sorry. I should not be that light-
hearted. Obviously, nobody has a pizza party on that.
Dr. Jen. No. Actually, sometimes those patents do produce
unexpected results. One of the patents that ARS had was to
develop a pear bar from pears, and it is very healthy, almost
like a candy or granola bar, but it is a very, very small kind
of commodity. It was actually picked up by a rural community in
Oregon, a town that was going out of existence. ARS licensed
them to put up a little processing plant to produce it. It is
now available in the Northwest United States, the plant employs
90 or 100 people, and that little rural town is revived.
Senator Bennett. But do you get any licensing fees from the
pear bar?
Dr. Jen. I believe we do, I think. But I do not know the
exact number. I am handed just a list here. I think, for
example, in 2002, the total license income is about $2\1/2\
million. The total income is about $4 million. We do receive
some funding out of licensing.
Senator Bennett. Does that go into the General Fund or do
you get to keep it?
Dr. Jen. I believe this money goes back into the ARS
Research Fund. Am I correct? 25 percent goes to the inventor,
and 75 percent back to supporting the administrative operation.
Senator Bennett. Who is the inventor?
Dr. Jen. The scientist who has it.
Senator Bennett. I am a private scientist and----
Dr. Jen. No, no, no. The ARS scientist who develops it.
Senator Bennett. So you could have theoretically a
scientist who earns more money than the President?
Dr. Jen. That certainly is possible. A lot of the faculty
in the universities do that, too.
Senator Bennett. So does the football coach.
Dr. Jen. But I think the number of patents that have been
licensed has not been very, very overwhelming.
Senator Bennett. Thank you very much.
LAMB MEAT ADJUSTMENT ASSISTANCE PROGRAM
Dr. Penn, last week 22 Senators sent Secretary Veneman a
letter requesting that USDA continue for one additional year
the Lamb Meat Adjustment Assistance Program, and in my State of
Utah the lamb is very important, and this has benefited my
producers. As you noted, all of you, that Utah is in the 5th
year of a severe drought, and I understand you have stated that
funding is not available to continue this program.
I have come down from the lofty area of talking about the
overall economic circumstance to taking care of my own
constituents. So you will understand where I am on this. As of
May 6th there was $298 million of uncommitted funds in Section
32, a sum that in all likelihood will not be fully expended in
the remaining 4\1/2\ months of fiscal year 2003, and you can
see where this is going. I would very much appreciate it if you
would sit down with Secretary Veneman and consider all of the
issues confronting the lamb industry and see if there might be
some reprogramming requests or other activity with some of this
money to help us out.
Dr. Penn. Mr. Chairman, I am aware of the program, and I am
aware of the letter, and I am also very pleased to tell you
that the responsibility for that program falls Under Secretary
Bill Hawks' mission area, and you are going to be seeing Mr.
Hawks next week, so I would hope that you would bring up that
issue with him. I will make him aware----
Senator Bennett. Approximately handed off, duly noted.
Dr. Penn. I will make him aware of your concern, so he will
be prepared with a good answer for you.
FOOD SUPPLIES IN IRAQ
Senator Bennett. Dr. Penn, just to give you an opportunity
to make a statement for the record, because of the various
press reports around this issue, let us talk about Iraq for a
minute and the current need for food in Iraq, and there are
those who say we are in a humanitarian crisis there. There are
those who say we are not. There are those who say the Iraqis
have more food now than they did before the Americans and the
British and the Poles and the Australians went in, and that
whatever humanitarian problems there are in Iraq are a holdover
from the old regime that we have not caught up to yet, and
there are those who say, no, no, no, it is all our fault.
I understand that these statements are against the backdrop
of how people felt about the war prior to the war going in, but
can we deal with this in a factual way? Can you give us some
information with respect to food aid in Iraq? Do you believe
that additional food is necessary? Is the distribution system
adequate, and so on? Let us comment on this and try to help set
the record straight.
Dr. Penn. Well, thank you very much for that opportunity. I
have noted the same stories that you have and there is a lot of
conflicting information in the public domain now. Let me start
by saying before the hostilities, the Iraqi people were about
70 percent dependent upon imported food, and this food was
largely paid for through the Oil-for-Food Program, which is a
program that was operated jointly by the United Nations and the
Iraqi authorities, and various countries contracted with the
Oil-for-Food Authority to provide this 70 percent of the food
that the Iraqi people needed.
Before the hostilities started we of course were aware that
they might begin, and were of course doing contingency planning
to make sure that there was not a humanitarian crisis once
hostilities began and once they ended. So there was a lot of
activity to preposition food in the region, and we had reason
to believe that there was a considerable amount of food in the
country at the time hostilities started, that individual
households would have had at least a month's supply and maybe
more of food that was being distributed under the Saddam
Hussein regime.
The U.S. Agency for International Development made
available $200 million to the World Food Program to preposition
food, to get food in the region and have it available so that
in that period when hostilities ended and before a new
distribution system could be established, we could go in and
make sure there was no humanitarian crisis.
In addition to that, the U.S. Government has made available
a substantial amount of resources to provide food for Iraq,
again, to prevent the very kind of humanitarian crisis that you
have talked about. We have drawn upon the Bill Emerson
Humanitarian Trust, which is a food reserve once known as the
Wheat Reserve. It was some of this surplus production that we
have been talking about this morning that was put in a special
reserve for emergency situations like this. So we have made
available wheat and wheat flour, and rice for the Iraqi people
and have begun shipments of that. It is my understanding now,
from all of the information that I see in my position, that
there is more than ample foodstuffs available in Iraq. This is
especially true for wheat, for rice and for sugar. I am talking
about the foreseeable future, and the foreseeable future being
until the end of summer, let us say.
There is a need for vegetable oil and pulses to round out
the ration that the Iraqi families have received, and USAID is
now in the process of purchasing pulses and vegetable oil to
add to the rations that are being sent.
As far as the information that I have available to me
shows, there is no humanitarian crisis. I do think some of
these stories about major problems there, about famine in the
offing, are somewhat self-serving. We know about the size of
the Iraqi wheat crop. We know that crop is being harvested now.
Provision has been made for funds to be available to purchase
that crop from Iraqi farmers. We think it is important to do
that because as we have talked here this morning, the Iraqi
farmers need incentives to go plan the wheat crop for next year
and to begin to plot the irrigated rice crop and other things.
So at the same time that we are trying to meet the
immediate needs of the Iraqi people in terms of diet, we are
also looking ahead to try to get as much production
reinvigorated in the country as we possibly can.
The last part of this is that the Oil-for-Food Program,
which uses Iraqi petroleum money to purchase imported food, is
slated to expire on June 3rd, and it is uncertain whether that
program will be extended or whether that program will be
terminated and the purchasing authority shifted back to Iraq.
We just simply do not know at this point. That is being
discussed. But the Iraqi people do have resources. They have
petroleum resources, and so they do have money to buy food. It
is not like Afghanistan or a lot of other developing countries'
situations.
Senator Bennett. Thank you. I appreciate your sharing that
with us, and that will go a long way with meeting with some of
the rumors, and as you say, self-serving statements as people
try to rewrite history in order to validate their own
prejudices with respect to the American initiative in Iraq.
CONSERVATION PROGRAM TECHNICAL ASSISTANCE
Let us go back to the farm bill for just a minute, and
there has been controversy over the funding for technical
assistance for the mandatory conservation programs authorized
in the 2002 farm bill, and in the fiscal year Omnibus Bill, the
supplemental, we provided direction to USDA with respect to
technical assistance funding, and I believe that there has been
a partial fix at least as a result of the 2003 Omnibus Bill.
Now, Mr. Rey and Dr. Penn, do you support the idea that
funding of technical assistance for CRP and the Wetlands
Reserve Program should be borne by the individual programs, and
if so, do either of you have suggestions as to how we could do
that better?
Mr. Rey. Our suggestion is embodied in our 2004 budget
proposal for the creation of a Farm Bill Technical Assistance
account, and I think if the Congress were to adopt that
proposal, what you would see is a more equitable distribution
of the technical assistance burden across all the programs.
Senator Bennett. Do you have any----
Dr. Penn. I agree.
RURAL DEVELOPMENT FIELD OFFICE CONSISTENCY REVIEW
Senator Bennett. Mr. Dorr, Rural Development has embarked
on a consistency review of all of its field offices. Could you
share with us why you chose to initiate this review and what
the field structure will look like when it is over, or what you
hope it will look like, if you indeed have a predisposition as
to where you hope this will come out? And give us the time
frame in which the review would be completed.
Mr. Dorr. The consistency review that you are referring to
was actually initiated by my predecessor back in 2001, which
was as a result of the reorganization that had taken place at
USDA in the mid 1990s. It was determined at that point by both
my predecessor and his staff, as well as a large number of our
appointed State Directors and their program directors, that
there was a difference of job descriptions and structures that
made a high level of inconsistency in administering our
programs across the country. A team of 10 State directors were
appointed and they reviewed the situation.
They concluded that there were two basic structures that
could be implemented. One they called a two-tier structure and
one a three-tier structure. After considerable evaluation their
recommendations were accepted. The two-tier structure allows
for a State staff with regional locations to deliver programs.
A three-tier structure allows for a State office and some
regional locations, as well as some local locations. The
purpose for the two structures is to allow the State Directors
and their program folks, who understand best how to implement
those programs at the State level, to do so in a way that
effects a consistent and a efficient delivery of our programs
across the States.
State plans were to be into our office by the end of April.
They are undergoing review, and they will be evaluated in the
context of the Secretary's overarching efforts, as well as in
the context of appropriate civil rights, and national, State,
and county organization review processes.
WATER AND WASTEWATER PROGRAMS
Senator Bennett. Thank you. I have another question for
you, Mr. Dorr, but first let me make a general observation
about the State of Utah. Sixty-four percent of the State is
managed by the Federal Government, and your colleague, Mr. Rey,
oversees 13 percent of Utah's land through the Forest Service,
and then over in the Department of Interior with the BLM, they
have the bulk of the rest of it, but the Department of Defense
owns a fairly large chunk of Utah land on which they drop bombs
with a great regularity. In 18 of our 29 counties the Federal
Government owns more than 50 percent of our land. There are
some counties where the Federal Government or the State
Government combined is up to something in excess of 90 percent
of the land. So there is a constant day-in and day-out sense of
the overwhelming presence of the Federal Government when you
get out into rural Utah.
It may not be coincidental that in these counties where the
Federal Government manages more than 70 percent, that is 13 of
the 18 to which I referred, these are the counties with the
highest percentage of people living below the poverty line, and
they probably would not be impressed with my esoteric
discussion of economics here this morning, as I switch hats and
stop being fairly academic about it, and now get real with real
people living in real situations. So I am leading to a
discussion of the grant programs for water and wastewater in
these communities. This is not a case of people being involved
in an uneconomic situation where they ought to change. It is a
case where the county does not get the property taxes, even
though we have built funds, payment in lieu of taxes funds,
they are inadequate in really many instances to meet the
challenges of these counties, and your budget proposes to
reduce the Water and Waste Disposal Grant program by
approximately $245 million.
That leads to the obvious question, if your mission is to
support the infrastructure of rural America, but being very
parochial right now, the infrastructure of rural Utah, how can
we make sure that the counties in this kind of a situation will
be able to maintain safe drinking water and sewer
infrastructure when the Federal Government, which occupies so
much of their county, is in a position where they are cutting
back dramatically on it?
Mr. Dorr. That is a very appropriate question. Congress, in
the last farm bill added about three-quarters of a billion
dollars of additional funds to increase these water and
wastewater programs, which our group at the Rural Utilities
Service was able to get implemented and distributed to many of
these communities by last August. We got the full sum out after
we had utilized our 2002 appropriation.
Quite frankly, we had an opportunity, as a result of
Congress's largesse on that particular issue to address a lot
of the backlog that we were facing.
LOAN TO GRANT RATIO
Historically the loan and grant ratios of those programs,
up until about the mid 1980s, had been in the 65 percent loan
to 35 percent grant rate, perhaps 30/70. Over the last number
of years they had migrated to a 60/40 loan to grant ratio. With
the lowering of interest rates, the need to be careful with how
the administration allocated resources, the decision was made
in light of addressing the backlog of water projects last
summer, that we would try to go with the 75/25 split on the
loan to grant program, which does in fact maintain a total
program approaching what we have this year of about $1.6
billion.
Senator Bennett. Thank you. I am just reminded that in Utah
we get more grants than loans, so if the grants are cut off, we
have a real problem, and I would appreciate it if you would pay
a little attention to the problem.
Mr. Dorr. We will look at it closely.
RESEARCH, PLANNING AND MANAGEMENT
Senator Bennett. Get back to me on that. Thank you.
In that same vein, Dr. Jen, the 2004 budget requests $67\1/
2\ million for new ARS projects, emerging diseases, sequencing,
bioinformatics, biosecurity and so on. On the one hand funding
for waste management research in Mississippi is proposed for
elimination, while on the other hand funding for managing
wastes to enhance air and water quality is requested. Is there
any coincidence or coordination between the fact that Chairman
of this subcommittee is no longer from Mississippi? Is this
sending a message that projects initiated by members of
Congress is a direct result of the regional issues, like the
one I have just raised with Mr. Dorr, is there the message that
member projects are considered less important and that you say,
well, it is nice that the member put that in, but we are going
to do what we want? I am now asking a Senator Byrd type
question.
Dr. Jen. Absolutely not, Mr. Chairman. I do not know the
specifics that you are talking about. We could get an answer
for you from the staff. But research projects do come and go.
Once a project is finished, it should be removed from the books
and new research started. Constant reprogramming is going on
all the time in the ARS, so from year to year there will be
changes. I doubt very much, that it was not coincidental, sir.
Senator Bennett. You think it is coincidental; it is not
causal?
Dr. Jen. That is right. No, it is not causal.
Senator Bennett. In your 2004 budget request for ARS you
assume the elimination of $132.7 million worth or research
projects around the country, projects, livestock, rangeland
studies, biotechnology research, grain disease research, things
of that kind, and you get my attention when we are talking
about bee research in my own State. We are ``The Beehive
State.'' It is in the State seal. Now, all of these research
projects were designed to address real problems facing farmers
and ranchers, and the research is not yet complete. I can
understand if we are cutting funds for areas where the research
is done and saying we cannot afford to initiate any new
research. But it seems to me penny wise and pound foolish if we
say, okay, we are halfway there and now we are going to cut the
funding. Does that not mean that the money that has already
gone in has been wasted if the research is not completed, and
that it is a better use of taxpayer dollars to finish what you
have done, and then, as I say, if resources are considered
scarce, say, all right, we cannot afford to launch these new
projects, but we have to get the dollars' worth for the money
we have already spent to finish up these old projects? Could
you comment on that?
Dr. Jen. In general I could say if we are trying to cut
certain programs it does not necessarily mean that research may
not be continuing. It may have been moved to another location
to continue. Particularly I think in the beehive program there
are five places in the United States that are doing that
research. Given the multidisciplined nature, oftentimes
consolidating those research projects into just one or two
places will give better efficiency of the research dollar than
doing it in five different places. So part of these adjustments
are on that basis. It does not mean that the research is cut.
And also I do not think research programs are normally
terminated before they are completed. However, as research
managers you do sometimes have to call the shots because if it
is up to the researchers, generally, they find one result and
create three more problems, so the researcher would continue on
forever and expand for every single one of them. I think that
is a general answer.
Senator Bennett. That point is very well taken. I remember
one university president said to me, about another project, he
said: This is the perfect research project. The issue is too
important and the solution can never be found.
COUNTRY OF ORIGIN LABELING
Finally, one of the most contentious issues that I have
discovered since I assumed this position is country of origin
labeling. I did not really know anything about that until I got
this assignment, and now I am hearing all kinds of things about
that from a wide variety of directions.
Dr. Jen, you oversee the Economic Research Service, and I
think it would be very helpful for us to have some research on
country of origin labeling, some research on the financial
impact of it, some research on how customers will react.
I will burden you with an experience in another field that
may or may not have relevance here. Some years ago in the
automotive field there was an initiative that was successful,
to put domestic content labeling on automobiles, and it was
initiated primarily by United Auto Workers, who felt that
American purchasers would buy more American cars or would buy
more products on which the UAW worked if they knew what
percentage of the content in that car came from America and
what percentage came from other countries. And great, great
debate, and tremendous difficulty in the Congress getting
domestic content legislation passed. I was familiar with that
and all of the arguments about country of origin labeling come
up. We had a discussion about that with Secretary Veneman.
Domestic content legislation did pass and pretty soon they
were putting on the label on the cars what percentage of the
car was produced in the United States, and which percentage
came elsewhere. And then someone did some research and they
asked customers if they paid any attention to the domestic
content label, and if they did, if it made any difference in
their purchases. The answer came back the majority of
automobile purchasers did not pay any attention whatsoever to
the label, and those that did were looking for German or
Japanese content which made them more likely to buy the car.
Having gone through that experience and now being thrown
into this country of origin labeling, if we can do it without a
lot of money, I would like somebody to do some objective
research to find out how customers will really react in the
supermarket if they have country of origin labeling, and
whether or not the reaction will be perverse to those who are
pushing or the provision because the bureaucratic burden of
country of origin labeling is turning out to be very
substantial, and we had some of that discussion with Secretary
Veneman in her testimony last week, and I think it is not going
to go away as an issue. As I try to deal with the issue, I
would be very grateful if I had some additional information
that would come on the financial implications and the market
implications of what this is going to do once it shows up on
the supermarket shelf and is it all worth it.
Dr. Jen. I think I will take your suggestion. We will ask
ERS and see if, within the funding we have, that study can be
done. I do know that ERS has been doing quite a bit of research
related to what they call traceability, tracing the product
from its origin which would be needed for the country of origin
type of label. They recently had a presentation within the
Department showing that economically it makes absolutely no
sense for doing that.
But what you are asking is if the consumer cares about the
country of origin label, and I do not believe we have done
that, but I could be wrong.
Keith, do you know if we have done that?
Dr. Collins. Mr. Chairman, yes, we have done some work on
consumer valuation of label information like country of origin.
Not only has USDA done some, but the university community has
done a lot as well. I am not sure what you are going to see
from that survey will satisfy you completely because economists
take lots of different approaches and not surprisingly, they
find lots of different answers.
For country of origin labeling, one approach that has been
taken is the so-called contingent valuation, where you ask a
consumer, through a series of questions, how much they would be
willing to pay for such label information. Not surprisingly,
they are willing to pay a fair amount. When you add that up
across 280 million people, it turns out to be a very large
number.
On the other hand, there are other studies that actually
look at what consumers do pay when they have to pay for
information like that, and not surprisingly, it turns out they
will pay a lot less than they say they are willing to pay.
So you get a range of benefit estimates. ERS has in fact
done some work on a mandatory study we had to do a couple of
years ago, that the Food Safety and Inspection Service did for
the Congress on this issue, and they continue to work on this
issue. I might say that the country of origin labeling proposed
rule, being an economically significant rule, will have to have
a very detailed cost benefit analysis in it. That is one that I
will have to sign off on, so I would anticipate that that
analysis will in fact be a state-of-the-art assessment of the
benefits of country of origin labeling, as well as the costs
that would be imposed on all of the different regulated
commodities and entities that country of origin labeling would
affect. Now, that may not come soon enough to satisfy your
quest for the information, and I think if Dr. Jen is willing to
ask ERS to help in that area, that would be very useful, I
think.
Senator Bennett. Thank you. In talking to meat packers,
they say the cow does not care where it is born, that is, there
is no DNA difference in the beef from a cow that is born on one
side of an arbitrary geographic line than a cow that is born on
the other side. If they come from exactly the same stock herd
or stock background, and in most cases they do, that
genetically there is absolutely no difference in the hamburger.
You say the ground beef in this hamburger came x percent from
Canada and x percent from the United States, this becomes maybe
statistically true, but in terms of what the customer eats,
there is absolutely no difference whatsoever.
Dr. Collins. I think this debate will play out on a number
of fronts. It will be not only whether consumers value this
information in making more informed choices. It will be debated
over whether it is a food safety issue. There are a lot of
aspects to this.
But as you say, we do have some experience with other
industries. You mentioned automobiles. Another apparent one
would be the Textile Labeling Act, which every time you look at
the label on your shirt you know what countries your textiles
and your clothes come from, and that has certainly not
dissuaded people from now buying most of their apparel from
overseas sources.
The question is, is it going to be different for food. And
I think I would, rather than try and opine on that here today,
I would wait to see what we develop over the next year as we
develop that rule, but surely the example you gave of German
and Japanese cars, we have seen some of that in food as well.
Like your, earlier mention of the lamb improvement program,
there are a lot of people that prefer New Zealand in the United
States, and will look for New Zealand lamb. So even in food we
have seen some of the examples that you gave.
SUBCOMMITTEE RECESS
Senator Bennett. None of them live in Utah.
Thank you all. We appreciate this. I am particularly
grateful to you for your willingness to participate in a
dialogue aimed at trying to educate a new subcommittee
chairman.
The hearing is recessed.
[Whereupon, at 11:31 a.m., Friday, May 16, the subcommittee
was recessed, to reconvene subject to the call of the Chair.]