[Senate Hearing 108-]
[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.]
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