    [Senate Hearing 108-629]
    [From the U.S. Government Publishing Office]

    AGRICULTURE, RURAL DEVELOPMENT, AND RELATED AGENCIES APPROPRIATIONS FOR
                                FISCAL YEAR 2005

                                  ----------

                            THURSDAY, APRIL 1, 2004

                                           U.S. Senate,
               Subcommittee of the Committee on Appropriations,
                                                        Washington, DC.
        The subcommittee met at 1:08 p.m., in room SD-192, Dirksen
    Senate Office Building, Hon. Robert F. Bennett (chairman)
    presiding.
        Present: Senators Bennett, Burns, and Kohl.

                           DEPARTMENT OF AGRICULTURE

    STATEMENTS OF:
            ERIC M. BOST, UNDER SECRETARY, FOR FOOD NUTRITION AND CONSUMER
                SERVICES
            WILLIAM T. HAWKS, UNDER SECRETARY FOR MARKETING AND REGULATORY
                PROGRAMS
            ELSA A. MURANO, UNDER SECRETARY FOR FOOD SAFETY

                 OPENING STATEMENT OF SENATOR ROBERT F. BENNETT

        Senator Bennett. The subcommittee will come to order.
        And may I begin by thanking everyone for your willingness
    to rearrange your schedule and come at this slightly early hour
    and apologize for being a little late. Senator Byrd cast his
    17,000th vote today on the floor and we lingered to pay tribute
    to him and give him our congratulations.
        This is the second hearing to review the fiscal year 2005
    budget request. We had Secretary Veneman here last week and we
    appreciate how responsive she was on the various topics we
    covered. This week we have several of the Under Secretaries at
    USDA, as well as the Acting Commissioner of the Food and Drug
    Administration.
        So we look forward to hearing your testimonies. I am going
    to try to keep this fairly quick because I do have an
    unavoidable conflict at 2 o'clock and I would like to be
    through before then if we can. If we cannot, we can go over
    that time but I will be unable to participate in that.
        So I have no other further opening statement, other than to
    say welcome to all of you. Thank you for your service to the
    United States of America, your willingness to interrupt other
    careers to render public service.
        This is the last time in this administration we will have
    the opportunity to offer our thanks for what you do. And it
    goes unappreciated and unnoticed too much. So I would like to
    be sure on this occasion to do that.
        Senator Kohl.
        Senator Kohl. I thank you, Mr. Chairman, and we welcome Mr.
    Bost, Dr. Murano, Mr. Hawks and Dr. Crawford.
        For the sake of time, Mr. Chairman, I will forego my
    opening statement but look forward to testimony and to ask
    questions.
        Thank you, Mr. Chairman.

                      PREPARED STATEMENT OF SENATOR DURBIN

        Senator Bennett. The subcommittee has received a statement
    from Senator Durbin which we will insert into the record.
        [The statement follows:]

                Prepared Statement of Senator Richard J. Durbin

        Chairman Bennett, thank you for holding this important hearing
    today. I look forward to working with you and my Subcommittee
    colleagues on the fiscal year 2005 (fiscal year 2005) Agriculture
    budget. Mr. Chairman, I would like to welcome our witnesses Eric Boast,
    Under Secretary for Food, Nutrition, Consumer Services, Elsa Murano,
    Under Secretary for Food Safety, William Hawks, Under Secretary for
    Marketing and Regulatory Programs and Lester Crawford, Acting
    Commissioner for Food and Drug Administration.
        I'd like to take a few minutes this morning to talk about some very
    important issues under USDA's jurisdiction.
        An issue of great importance to me is dietary supplements.
    Obviously, I was pleased about the ban on ephedra and Dr. McClellan's
    commitment to look at citrus autantium, aristolochic acid and usnic
    acid: all supplement ingredients I believe are dangerous. I was also
    pleased to see FDA take action against anabolic steroids.
        I want to see progress toward protecting the public from dangerous
    supplements continue. However, I believe several critical changes need
    to be made to the Dietary Supplement Safety and Education Act to make
    your job easier. First, I believe we need to require that supplement
    manufacturers report to the FDA when serious adverse events occur. I'm
    not talking about someone getting a little dizzy from taking a
    supplement. I'm talking about death, incapacity and hospitalization.
        It is absolutely necessary that we know when a product is harming
    people. The Office of the Inspector General at HHS estimates that the
    FDA receives reports of less than 1 percent of all adverse event
    associated with dietary supplements. How can the FDA effectively
    protect the public if it doesn't know when a product is causing harm?
        The Institute of Medicine's report that came out today supports a
    mandatory system of adverse event reporting. It says, ``while
    spontaneous adverse event reports have recognized limitations, they
    have considerable strength as potential warning signals of problems
    requiring attention, making monitoring by the FDA worthwhile''.
        The second change I would like to see made to DSHEA is a
    requirement to pre-market safety review of supplements containing
    stimulants. I don't believe that every natural substance needs to be
    subject to pre-market safety testing, but at the very least, DSHEA
    should be changed so stimulants are tested before marketed. When a
    supplement raises people's blood pressure, increases their metabolism
    and constricts their blood vessels, it is only prudent that we test the
    product before it is marketed.
        Another issue of importance deals with childhood obesity. Under
    Secretary Bost, I know that you've been working with my staff to
    develop a school-based demonstration project in Illinois to help
    students make better food choices while they are at school.
        I've been in school cafeterias. I've watched students pass by the
    fresh vegetables and go straight for the fries. I've also seen them put
    fruit on the tray and then dump the tray after lunch, fruit untouched.
    We have to do a better job of helping our young people understand
    nutrition and why it matters.
        I want to commend you and your staff for your efforts to work with
    us to develop some innovative demonstration projects in Illinois
    schools to help students make better food choices.
        Chairman Bennett and Senator Kohl, thank you again for the
    opportunity to talk about these issues and the fiscal year 2005 Budget.

        Senator Bennett. Thank you very much. Let us go in the
    following order: Mr. Bost, who is the Under Secretary for Food,
    Nutrition, and Consumer Services of the USDA; William Hawks who
    is the Under Secretary for Marketing and Regulatory Programs;
    Elsa Murano, who is the Under Secretary for Food Safety. And
    then, with the USDA having been heard from, we will turn to the
    Acting Commissioner of the FDA, Dr. Lester Crawford.
        Mr. Bost.

                           STATEMENT OF ERIC M. BOST

        Mr. Bost. Good afternoon and thank you very much, Mr.
    Chairman. Good afternoon, Senator Kohl.
        Thank you for this opportunity to present the
    Administration's budget request for fiscal year 2005 for the
    Food, Nutrition, and Consumer Services.
        You have my written testimony so I will try to be brief.
        Since I have been Under Secretary, I have focused my
    attention and energy on these priority challenges facing the
    nutrition assistance programs: expanding access to programs so
    that all eligible persons may participate; addressing the
    epidemic of obesity that threatens the health of individual
    Americans, our economy and health care system; and improving
    the integrity with which our programs are administered at all
    levels.
        Let me just briefly review some of our accomplishments over
    the course of the last 3 years. We have reached substantially
    more participants in each of our major programs, 5.8 million
    more people in Food Stamps; 1.6 million more children receiving
    a free or reduced priced lunch; over 1.4 million more children
    receiving a school breakfast; and over 400,000 more women,
    infants and children participate in the WIC program each month
    since January of 2001.
        We have successfully implemented the provisions of the 2002
    Farm Bill that met the Administration's goals, including the
    important steps of restoring Food Stamp benefits to legal
    immigrants and increasing flexibility for the States.
        We have also expanded the Electronic Benefits Transfer,
    EBT, to all 50 States, the District of Columbia, Puerto Rico
    and the Virgin Islands. EBT now delivers over 95 percent of all
    food stamp benefits. At some point in time we are going to have
    to change the name because there will no longer be any food
    stamps.
        We reduced food stamp payment errors for the 4th year in a
    row, the lowest that it has ever been in the history of the
    Food Stamp Program, at 8.26. We also reduced food stamp
    trafficking to less than 2.5 cents for each benefit dollar
    issued, down by a third since 1996-1998.
        We also promoted healthy lifestyles as a top priority
    through the President's HealthierUS initiative, working with
    public and private partners to promote healthy eating and
    physical activity and to foster a healthy school nutrition
    environment.
        We promoted a healthy way for children and adults across
    the program to increase emphasis on nutrition education. We are
    currently working in concert with the Department of Health and
    Human Services to update the Dietary Guidelines and a revision
    of the Food Guide Pyramid.
        We achieved a clean financial statement for FNS for the
    fifth consecutive year in support of the President's initiative
    to improve financial management across the Government.
        I am very proud of these accomplishments, however much more
    work remains to be done.
        In terms of supporting the goals of the President's budget,
    the President's budget for fiscal year 2005 requests $50.1
    billion in new budget authority.

                               FOOD STAMP PROGRAM

        Food Stamps, at $33.6 billion would serve an average of
    24.9 million people each month. The Administration's budget
    continues the $3 billion reserve appropriated in fiscal year
    2004.

                            CHILD NUTRITION PROGRAM

        In terms of the Child Nutrition Programs, the request of
    $11.4 billion supports an increase in school lunch
    participation from 28 million children to over 29 million
    children. It also supports an increase in school breakfast
    participation of over 1 million children from 8 million to 9
    million children.

                                  WIC PROGRAM

        In our WIC Program, the President's budget proposes $4.8
    billion for WIC Program to provide food nutrition, education
    and a linkage to health care to a record level monthly average
    of 7.86 million needy women and young children. I think this
    speaks clearly to the President's commitment to this program.
    Additionally, the $125 million contingency reserve fund is
    available if there is a need for a increase if participation or
    food cost exceeds our projection.
        One of the things that I believe is very important that we
    are spending a great deal of time on, not only in my area but
    across the country, is addressing the overweight and obesity.
    Poor dietary choices and sedentary lifestyles are having a
    serious impact on the health and well being of this entire
    country.
        The most recent figures indicate that 62 percent of all
    adults in this country are overweight. Estimated health care
    costs at $123 billion, and also 400,000 deaths are directly
    related to us being overweight.
        Senator Bennett. Excuse me. Is that an annual cost of $123
    billion?
        Mr. Bost. $123 billion, that is correct.
        Senator Bennett. Annually?
        Mr. Bost. Annually.
        Senator Bennett. That would pay for a lot of health care.
        Mr. Bost. Yes, but we are eating ourselves to death.
        $20 million for breast feeding peer counseling, $2.5
    million to expand the successful Eat Smart Play Hard campaign
    so we can integrate the nutrition assistance programs to
    promote healthy eating and physical activity. $1.65 million is
    requested to fund the updated 2005 Dietary Guidelines and the
    Food Guide Pyramid. We believe this is very important, given
    the fact that Americans are spending on average $33 billion a
    year on weight loss products, books and et cetera, to help them
    lose weight. We are spending that money even though we are
    getting heavier.

                       NUTRITION PROGRAMS ADMINISTRATION

        In addition, the President's request includes an increase
    of $7 million in our administrative budget which will be
    targeted at improving integrity in the Food Stamp Program,
    improving the accuracy of certifications for free and reduced
    price school meals and invigorating our oversight, training and
    technical assistance activities with our State and local
    partners.
        As a part of our Nutrition Programs Administration, we are
    requesting $152 million, an increase of $14.7 million.
        Our total request for Federal administrative resources,
    including those activities funded directly from the program
    accounts, represents only 0.39 percent of the program resources
    for which we are responsible.

                              PREPARED STATEMENTS

        In conclusion, the President's direction has been very
    clear. The Administration request sets priorities to ensure
    access, maintain and improve integrity and supports our efforts
    to address the public health threat of overweight and obesity
    among all Americans in this country.
        Thank you, Mr. Chairman.
        [The statements follow:]

                       Prepared Statement of Eric M. Bost

        Thank you Mr. Chairman and members of the subcommittee for this
    opportunity to present the Administration's budget request for fiscal
    year 2005 for the Food, Nutrition and Consumer Services (FNCS).
        During the past 3 years as Under Secretary for the Food, Nutrition
    and Consumer Services, I have focused my attention and my energy on
    three central challenges facing the Federal nutrition assistance
    programs: expanding access to the programs so that all eligible persons
    can make informed decisions about whether to participate; addressing
    the epidemic of obesity that threatens the health of individual
    Americans, and our economy and health care system collectively; and
    improving the integrity with which our programs are administered, at
    all levels, so that we are the best possible stewards of the public
    resources with which we are entrusted.
        Let me first review briefly some key accomplishments achieved over
    the last 3 years:
      --We are reaching substantially more participants in each of our
            major programs: 5.8 million more people in food stamps, 1.6
            million more children receiving a free or reduced price school
            lunch, over 1.4 million more in school breakfast, and over
            400,000 more women, infants and children each month in WIC
            since January 2001.
      --We successfully implemented the provisions of the 2002 Farm Bill
            that met the Administration's goals of simplifying policies,
            improving access, and ensuring program integrity, including the
            important steps of restoring benefits to legal immigrants and
            increasing flexibility for the States.
      --We expanded electronic benefits transfer (EBT) to all 50 States,
            the District of Columbia, Puerto Rico, and the Virgin Islands;
            EBT now delivers over 95 percent of all food stamp benefits.
      --We have seen food stamp payment errors fall for the 4th year in a
            row, reaching the lowest level ever--8.26 percent--in 2002.
      --We have reduced food stamp trafficking to less than 2.5 cents of
            each benefit dollar issued, down by one-third since 1996-1998.
      --We have made healthy lifestyles a top priority through the
            President's HealthierUS initiative. We are working with public
            and private partners, such as the National 5 to 9 a Day
            Partnership, to increase fruit and vegetable consumption and
            have developed a soon to be released kit for schools entitled
            ``Fruits and Vegetables Galore: Helping Kids Eat More.'' We are
            also expanding school-based efforts to promote healthy eating,
            and to foster a healthy school nutrition environment through
            technical assistance, training and nutrition education
            materials that help schools assess and improve the school
            nutrition environment, including improvements in school meals
            and overall food policies.
      --We have focused on promoting healthy weight for children and adults
            across programs through the Eat Smart. Play Hard.TM
            campaign, and within programs through Team Nutrition, the Fit
            WIC obesity prevention projects, and efforts to improve Food
            Stamp Program nutrition education.
      --We are working in concert with the Department of Health and Human
            Services to update the Dietary Guidelines for Americans, and we
            are revising the Food Guide Pyramid to ensure that each
            reflects the most comprehensive, up-to-date science available
            in order to provide clear and useful nutrition information to
            American consumers.
      --We achieved a clean financial statement for FNS for the 5th
            consecutive year, in support of the President's management
            agenda initiative to improve financial management across
            government.
        I am proud of these accomplishments, and the hard work that they
    represent from USDA staff, from the Congress, and from our State and
    local program partners. But much important work remains to be done. I'd
    like now to review the budget request and the improvements in
    performance and results that it is designed to support.
        The President's budget for fiscal year 2005 requests $50.1 billion
    in budget authority to continue this critical work. This record request
    reflects the Administration's long-standing commitment to protect our
    children and low-income households from hunger and the health risks
    associated with poor nutrition and physical inactivity through the
    Nation's nutrition safety net. The purposes to which we will put this
    substantial public commitment are clear: first, we seek to improve the
    public's awareness of our programs and ease of access for all eligible
    persons, and second, through both the Federal nutrition assistance
    programs and the Center for Nutrition Policy and Promotion (CNPP), we
    will continue to do our part to address the growing public health
    threat that overweight and obesity poses to all Americans. Finally, we
    will strive to enhance the efficiency and accuracy with which these
    programs are delivered.

                            ENSURING PROGRAM ACCESS

        This Administration has demonstrated a long-term commitment to the
    Federal nutrition assistance programs and to the Americans whom they
    assist. The most fundamental expression of this commitment is making
    certain that sufficient resources are provided for these programs so
    that all who are eligible and in need have ready access to these
    critical benefits. We have delivered to you a budget that funds
    anticipated levels of program participation, while acknowledging the
    inherent difficulties in making such projections.
        For the Food Stamp Program, the budget continues the $3 billion
    contingency reserve appropriated in fiscal year 2004 but also offers,
    as an alternative, a proposal for indefinite budget authority for
    program benefits. This authority would be an efficient way to ensure
    that benefits are funded even as economic circumstances change, a goal
    we all share. In WIC, the $125 million contingency reserve appropriated
    in fiscal year 2003 continues to be available to the program should
    participation or food costs exceed the levels anticipated in the
    budget. Should this not be sufficient, we are committed to working with
    you to ensure that WIC is properly funded.
        Adequate program funding, however, is not enough to ensure access
    to program services for those who need them. Program structure and
    delivery methods must be designed so as not to create the types of
    barriers to program participation that can result in their
    underutilization. As we move forward with the reauthorization of the
    Child Nutrition and WIC Programs, improving program delivery and
    ensuring the access of eligible people who wish to participate will
    remain fundamental principles.

                       ADDRESSING OVERWEIGHT AND OBESITY

        Poor dietary choices and sedentary lifestyles are having a serious
    impact on the health and well being of all Americans. Obesity and
    overweight are widely recognized as a public health crisis. The costs
    of these conditions are enormous--reduced productivity and increased
    health care costs estimated at over $123 billion, and, most sadly,
    unnecessarily premature deaths for over 300,000 Americans annually. The
    Federal nutrition assistance programs can play a critical role in
    combating this epidemic by promoting better diets through nutrition
    education and promotion. These program services, along with the work of
    the Center for Nutrition Policy and Promotion, are an integral part of
    the President's HealthierUS initiative, and the budget reflects our
    continuing commitment to this effort. It includes $5 million for
    ongoing demonstration projects to explore new ways for the WIC program
    to reduce and prevent unhealthy weight among our children. We are also
    seeking $2.5 million to expand our very successful Eat Smart. Play
    Hard.TM campaign, and to develop an integrated, family-
    oriented approach to nutrition education that cuts across all of the
    Federal nutrition programs and complements efforts in schools and other
    program settings to encourage healthy eating and physical activity.
        Our request also supports FNCS' CNPP, which works with the
    Department of Health and Human Services and other agencies to promote
    good nutrition across all segments of the population. The budget
    includes resources that are critical to the development and promotion
    for the updated 2005 Dietary Guidelines for Americans and the
    concurrently revised food guide system, providing essential tools to
    communicate the Guidelines in ways that motivate Americans to improve
    their eating and physical activity behaviors. The requested funding for
    CNPP will enable us to capitalize on the investments we have already
    made with a new opportunity to build upon public awareness of basic
    nutrition messages with an enhanced food guide system that will target
    individual needs.

                    ENHANCING PROGRAM INTEGRITY AND DELIVERY

        With this budget request, we are asking the Nation to entrust us
    with over $50 billion of public resources. We are keenly aware of the
    immense responsibility this represents. To maintain the public trust,
    we must demonstrate our ongoing commitment to be good stewards of the
    resources we manage, as an essential part of our mission to help the
    vulnerable people these programs are intended to serve.
        This is not a new commitment. As I noted earlier, in fiscal year
    2002, the most recent year for which data is available, the Food Stamp
    Program achieved a record high payment accuracy rate of 91.74 percent.
    We have also been working to develop strategies to improve the accuracy
    of eligibility determinations in our school meals programs--an issue of
    mutual concern to all those that care about these programs. The budget
    features dollar and staff year resources which will allow us to
    continue to work closely with our State and local partners on both of
    these essential integrity initiatives--continuing both our successes in
    the Food Stamp Program and our intensified efforts in school meals.
        In the WIC program, we are requesting $20 million to continue our
    initiative to assist States with the modernization of their information
    technology infrastructure. These systems are essential underpinnings
    for the improvements in program management, program integrity, and,
    most importantly, program delivery that need to be achieved. The
    Administration has worked closely with the Office of Management and
    Budget (OMB) and the WIC community to fashion a procurement strategy
    that will ultimately produce a series of core model WIC systems. States
    updating their WIC systems will be able to select from among these
    model core systems as starting points for their own implementation,
    thus reducing their costs.
        In the remainder of my remarks, I'd like to touch on several key
    issues:

                               FOOD STAMP PROGRAM

        The President's budget anticipates serving a monthly average of
    24.9 million persons in fiscal year 2005, an increase of 1.2 million
    over our projections of the current fiscal year. Our $33.6 billion
    request supports this level of service. In addition, the budget
    continues the $3 billion contingency reserve appropriated in fiscal
    year 2004. While the President's budget anticipates continuing
    improvement in the Nation's economy, Food Stamp Program participation
    traditionally continues to rise for some time after the aggregate
    employment begins to improve. Moreover, we have made a concerted effort
    over the last 3 years to raise awareness of the benefits of program
    participation and encourage those who are eligible, especially working
    families, senior citizens, and legal immigrants, to apply. The rate of
    participation among those eligible to participate increased 2 years in
    a row, after 5 years of declines, reaching 62 percent in September
    2001. However, many eligibles remain who could be participating but are
    not. We have been aggressive in promoting the message that the Food
    Stamp Program Makes America Stronger in the sense that the program puts
    healthy food on the tables of low-income families and has a positive
    impact on local economies. We have just recently embarked on a media
    campaign to carry this message and to reach those who are eligible but
    not participating. We have also paid particular attention to those
    legal immigrants who have had their eligibility restored by the Farm
    Bill by carrying messages on Hispanic radio stations across the
    country.
        These factors make this a particularly challenging period to
    forecast program participation and costs. To ensure the adequacy of
    resources available to the program, and as an alternative to the
    traditional contingency reserve, we have proposed indefinite authority
    for program benefits and payments to States and other non-Federal
    entities.

                            CHILD NUTRITION PROGRAMS

        The President's budget requests $11.4 billion to support the
    service of appealing, nutritious meals to children in public and
    private schools and child care facilities through the Child Nutrition
    Programs in fiscal year 2005. In the National School Lunch Program, we
    anticipate serving over 29 million children per day in fiscal year
    2005. Similarly, the School Breakfast Program will serve approximately
    9 million children each school day. The request for budget authority is
    a slight decrease from levels appropriated in fiscal year 2004. This is
    because the rate of program growth in fiscal year 2004, to date, has
    been slightly less than anticipated. As a result, the anticipated
    carry-over resources, in conjunction with the budget request, will
    fully fund the projected level of program activity.
        Several components of the Child Nutrition Programs expire at the
    end of March. We urge the Congress to move quickly to extend these
    provisions before they expire to ensure that all aspects of the Child
    Nutrition Programs continue to operate without interruption. We also
    want to work with the Congress to reauthorize and improve the entire
    range of Child Nutrition Programs, consistent with the principles
    outlined last year. These principles include ensuring that all eligible
    children have access to program benefits as well as streamlining the
    administration of programs to minimize burdens, supporting healthy
    school environments and strengthening program integrity.
        Reauthorization provides an opportunity to address our continuing
    concern that the certifications of children to receive free and reduced
    price meals are not performed as accurately as they reasonably could
    be. Correct certifications are a priority to ensure that school meal
    funds go to those most in need, and the many other Federal, State, and
    local resources that use this same data are properly targeted as well.
        In sum, we are committed to working with Congress to reauthorize
    the Child Nutrition Programs and to reinvesting any savings achieved in
    the process back into these important programs for program
    improvements.

                                      WIC

        In fiscal year 2005, the President's budget request of $4.79
    billion anticipates providing essential support to a monthly average of
    7.86 million women, infants and children through the Special
    Supplemental Nutrition Program for Women, Infants and Children (WIC).
    This is an increase of 60,000 participants per month from anticipated
    fiscal year 2004 participation levels. Additionally, the $125 million
    contingency reserve, appropriated in fiscal year 2003, remains
    available to the program should participation or food costs exceed our
    projections. The Administration remains steadfast in its support of WIC
    and is committed to working with Congress to ensure its proper funding.
    Finally, the request includes $20 million to continue our peer
    counseling initiative that is designed to enhance both rates of
    initiation and duration of breastfeeding among WIC participants.

                 THE EMERGENCY FOOD ASSISTANCE PROGRAM (TEFAP)

        Through TEFAP, USDA plays a critical supporting role for the
    Nation's food banks. This support takes the form of both commodities
    for distribution and administrative funding for States' commodity
    storage and distribution costs. Much of this funding flows from the
    States to the faith-based organizations that are a cornerstone of the
    food bank community. The President's budget requests the fully
    authorized level of $140 million to support the purchase of commodities
    for TEFAP. Additional food resources become available through the
    donation of surplus commodities from USDA's market support activities.
    In recent years, these donations have increased the total Federal
    commodity support provided to the Nation's food banks by almost 300
    percent. State administrative costs, a critical form of support to the
    food bank community, are funded at $50 million in the President's
    request.

                       NUTRITION PROGRAMS ADMINISTRATION

        We are requesting $152 million in our Nutrition Programs
    Administration account, which reflects an increase of $14.7 million in
    our administrative funding. This increase supports the Child Nutrition
    and Food Stamp Programs integrity activities mentioned earlier, as well
    as a number of nutrition guidance initiatives under the Center for
    Nutrition Policy and Promotion. These resources are absolutely critical
    to our ability to successfully execute the mission of the Food,
    Nutrition and Consumers Services. Our total request for Federal
    administrative resources, including those activities funded directly
    from the program accounts, represents only about 0.39 percent of the
    program resources for which we have stewardship. I believe that we need
    this modest increase in funding in order to maintain accountability for
    our $50 billion portfolio and to assist our State and local partners in
    effectively managing the programs.
        Mr. Chairman, I appreciate the opportunity to share my thoughts
    with you, and would be happy to answer any questions you may have.

                                     ______

        Prepared Statement of Roberto Salazar, Administrator, Food and
                               Nutrition Services

        Thank you, Mr. Chairman, and members of the Subcommittee for
    allowing me this opportunity to present testimony in support of the
    fiscal year 2005 budget request for the Food and Nutrition Service.
        The Food and Nutrition Service is the agency charged with managing
    the Nation's nutrition safety net and providing Federal leadership in
    America's ongoing struggle against hunger and poor nutrition. Our
    stated mission is to increase food security and reduce hunger in
    partnership with cooperating organizations by providing children and
    low-income people access to nutritious food and nutrition education in
    a manner that inspires public confidence and supports American
    agriculture.
        In fiscal year 2005, the President's budget requests a total of
    $50.1 billion in new budget authority to fulfill this mission through
    the Federal nutrition assistance programs. With this record request we
    will touch the lives of more than 1 in 5 Americans over the course of a
    year. This includes providing nutritious school lunches to an average
    of 29 million children each school day (NSLP), assisting with the
    nutrition and health care needs of 7.86 million at risk pregnant and
    postpartum women (WIC) and children each month, and ensuring access to
    a nutritious diet each month for 24.9 million people through the Food
    Stamp Program (FSP). These are just 3 of our 15 Federal nutrition
    assistance programs, which also include such important programs as the
    School Breakfast Program (SBP), The Emergency Food Assistance Program
    (TEFAP), the Summer Food Service Program (SFSP), the Child and Adult
    Care Food Program (CACFP), the Food Distribution Program on Indian
    Reservations (FDPIR), and the Commodity Supplemental Food Program
    (CSFP). Through the range of design and delivery methods these programs
    represent, FNS seeks to serve the children and low-income households of
    this Nation and address the diverse ways and circumstances in which
    hunger and nutrition-related problems present themselves.
        The resources we are here to discuss must be viewed as an
    investment--an investment in the health, self-sufficiency, and
    productivity of Americans who, from time to time, find themselves at
    the margins of our prosperous society. Under Secretary Bost, in his
    testimony, has outlined the three critical challenges which the Food,
    Nutrition and Consumer Services team has focused on under his
    leadership: expanding access to the Federal nutrition assistance
    programs, promoting healthy weight to address the problems of
    overweight and obesity; and, improving the integrity with which our
    programs are administered. In addition to these fundamental priorities
    specific to our mission, President Bush has laid out an aggressive
    agenda for management improvement across the Federal Government as a
    whole--the President's Management Agenda. This agenda seeks to protect
    the taxpayers' investment in all Federal activities by enhancing the
    accuracy and efficiency of program delivery and reducing improper
    payments, by improving decision-making through the integration of
    performance information into the budget process, by building
    partnerships with faith and community based organizations, and by
    planning carefully and systematically for the human capital challenges
    looming near for all of the Federal service.

                       THE CHALLENGE OF IMPROPER PAYMENTS

        Benefits of the Federal nutrition assistance programs must be
    carefully targeted and delivered to those who are eligible, in need,
    and wish to participate. Benefit payments made in error increase the
    cost of these programs to the taxpayers and can divert needed
    assistance from eligible participants seeking services. Today I am
    pleased to report to you, for the second year in a row, record high
    payment accuracy rates for the Food Stamp Program. In fiscal year 2002,
    the most recent year for which data is available, the Food Stamp
    Program achieved an accuracy rate of 91.74 percent, 0.4 percent higher
    than fiscal year 2001's record achievement. Despite this success, much
    remains to be done to improve the accuracy and efficiency of benefit
    delivery in all the Federal nutrition assistance programs, not just the
    Food Stamp Program. The President's budget requests additional funding
    to strengthen integrity and program management both at the Federal and
    State levels. Our request includes an increase of $7 million in our
    administrative budget which will be targeted at maintaining our
    continuing success in the Food Stamp Program, improving the accuracy of
    certifications for free and reduced price school meals, and improving
    delivery of program benefits and reinvigorating our oversight, training
    and technical assistance activities for our State and local partners.

                       BUDGET AND PERFORMANCE INTEGRATION

        The President's Management Agenda recognizes that good decision-
    making depends on both the availability of relevant, high quality data
    and using that information in an analytical, business-like approach to
    problem solving. The Food and Nutrition Service has long been a leader
    in the Federal arena. Our entitlement programs are performance funded.
    This requires us to balance, through analysis and insight, an uncertain
    dynamic program demand with the constraints of a fixed appropriation.
    In this year's budget explanatory notes, you will find expanded
    performance information and analysis with clear connections linking
    USDA's strategic plan, our budget request, and program performance.
        Vital to the success of the President's vision of improved Federal
    decision-making and seamless budget and performance integration is an
    adequately funded, properly positioned agenda of performance
    measurement and program assessment. Funding proposed in the request
    would support a range of important program assessment activities:
    focused studies of program operations, development of comprehensive
    measures of program performance to inform and foster outcome-based
    planning and management; and technical assistance to States and
    communities for practical demonstrations of potential policy and
    program improvements. These activities provide a crucial foundation for
    strategic planning and program innovation. This request will allow the
    programs to respond to emerging performance management issues
    identified by the Performance Assessment Rating Tool of the National
    School Lunch Program and Food Stamp Program as well as support
    effective stewardship of the taxpayer investment in nutrition
    assistance.

     REACHING OUT TO THOSE IN NEED THROUGH FAITH-BASED AND OTHER COMMUNITY
                                 ORGANIZATIONS

        To meet our commitment to improve access for all who are eligible,
    we must work closely with our program partners--individuals and
    organizations in communities across America who deliver the Federal
    nutrition assistance programs, and work to make them accessible and
    effective. Faith-based organizations have long played an important role
    in raising community awareness about program services, assisting
    individuals who apply for benefits, and delivering benefits. President
    Bush has made working with the faith-based community an Administration
    priority, and we intend to continue our outreach efforts in fiscal year
    2005. The partnership of faith-based organizations and FNS programs,
    including TEFAP, WIC, NSLP, and the CSFP, is long-established. Indeed,
    the majority of organizations such as food pantries and soup kitchens
    that actually deliver TEFAP benefits are faith-based. Across the
    country, faith-based organizations have found over the years that they
    can participate in these programs without compromising their mission or
    values. They are valued partners in an effort to combat hunger in
    America.

                            HUMAN CAPITAL MANAGEMENT

        The General Accounting Office (GAO), have demonstrated that
    recruiting, developing and retaining a highly-skilled workforce is
    critical to sustaining our public service. This is especially true for
    the Food and Nutrition Service. We currently estimate that up to 80
    percent of our senior leaders are eligible to retire within five years,
    as is nearly 30 percent of our total workforce. FNS must address this
    serious challenge by improving the management of the agency's human
    capital, strengthening services provided to employees, and implementing
    programs designed to improve the efficiency, diversity, and competency
    of the work force. With just nominal increases for basic program
    administration in most years, the Food and Nutrition Service has
    reduced its Federal staffing levels significantly over time. We have
    compensated for these changes by working smarter--re-examining our
    processes, building strong partnerships with the State and local
    entities which administer our programs, and taking advantage of
    technological innovations. We are extremely proud of what we have
    accomplished, but seek additional funding in a few targeted areas to
    address specific vulnerabilities. Full funding of the nutrition
    programs administration requested in the President's budget,
    approximately 0.39 percent of our program portfolio, is vital to our
    continued success.
        Now, I would like to review some of the components of our request
    that relate to these outcomes under each program area.

                               FOOD STAMP PROGRAM

        The President's budget requests $33.6 billion for the Food Stamp
    account including the Food Stamp Program and its associated nutrition
    assistance programs. These resources will serve an estimated 24.9
    million people each month participating in the Food Stamp Program
    alone. Included in this amount, we propose to continue the $3 billion
    contingency reserve provided for the program in fiscal year 2004. The
    importance of this reserve is especially critical in fiscal year 2005.
    While we anticipate that the improvement we are now seeing in the
    general economy will at some point begin to impact the program,
    predicting the turning point of participation is challenging. Our
    request also presents, as an alternative to the traditional contingency
    reserve, a proposal of indefinite authority for program benefits and
    payments to States and other non-Federal entities.

                            CHILD NUTRITION PROGRAMS

        The budget requests $11.4 billion for the Child Nutrition Programs,
    which provide millions of nutritious meals to children in schools and
    in childcare settings every day. This level of funding will support an
    increase in daily School Lunch Program participation from the current
    28.7 million children to over 29.2 million children. This funding
    request also supports an increase in daily School Breakfast Program
    participation from the current 8.8 million to 9.0 million children.
    Requested increases in these programs also reflect rising school
    enrollment, increases in payment rates to cover inflation, and
    proportionately higher levels of meal service among children in the
    free and reduced price categories. We are proposing to extend
    provisions that would expire on March 31, 2004.

                                      WIC

        The President's budget includes $4.8 billion for the Special
    Supplemental Nutrition Program for Women, Infants and Children, the WIC
    program. The request will allow local communities to provide food,
    nutrition education, and a link to health care to a monthly average of
    7.86 million needy women, infants and children during fiscal year 2005.
    We also propose to continue our vital initiatives, begun in fiscal year
    2004, to enhance breastfeeding initiation and duration, improve State
    information technology infrastructure, and to maximize WIC's potential
    to combat childhood obesity. The $125 million contingency fund provided
    for in the fiscal year 2003 appropriation continues to be available to
    the program. These resources are available if costs exceed current
    estimates.

                   COMMODITY SUPPLEMENTAL FOOD PROGRAM (CSFP)

        The Commodity Supplemental Food Program (CSFP) serves elderly
    persons and at risk low-income pregnant and post-partum and
    breastfeeding women, infants and children up to age six. The budget
    requests $98.3 million for this program, the same level appropriated in
    fiscal year 2004. This request may not support the same level of
    program services as in fiscal year 2004 due to the availability of one-
    time carry-over funds from 2003. However, we will take all available
    administrative actions to minimize any program impact. We face a
    difficult challenge with regard to discretionary budget resources. CSFP
    operates in selected areas in 32 States, the District of Columbia, and
    two Indian Tribal Organizations. The populations served by CSFP are
    eligible to receive similar benefits through other Federal nutrition
    assistance programs. We believe our limited resources are best focused
    on those program available in all communities nationwide.

                 THE EMERGENCY FOOD ASSISTANCE PROGRAM (TEFAP)

        As provided for in the Farm Bill, the budget requests $140 million
    for commodities in this important program. Our request for States'
    storage and distribution costs, critical support for the Nation's food
    banks, is $50 million. The Food and Nutrition Service is committed to
    ensuring the continuing flow of resources to the food bank community
    including directly purchased commodities, administrative funding, and
    surplus commodities from the USDA market support activities. Surplus
    commodity donations significantly increase the amount of commodities
    that are available to the food bank community from Federal sources.

                    NUTRITION PROGRAMS ADMINISTRATION (NPA)

        We are requesting $152.2 million in this account, which includes an
    increase of $7 million for the program integrity initiative described
    earlier. Included are also a number of initiatives, under the Food and
    Nutrition Service and the Center for Nutrition Policy and Promotion,
    designed to combat obesity and improve the dietary quality of all
    Americans. Our total request for Federal administrative resources
    represents only about 0.39 percent of the program resources for which
    we have responsibility and sustains the program management and support
    activities of our roughly 1,545 employees nationwide. I believe we need
    these modest increases in funding in order to maintain accountability
    for our $50 billion portfolio and to assist States to effectively
    manage the programs and provide access to all eligible people.
        Thank you for the opportunity to present this written testimony.

        Senator Bennett. Thank you very much. Mr. Hawks.

                         STATEMENT OF WILLIAM T. HAWKS

        Mr. Hawks. Thank you, Mr. Chairman, Senator Kohl.
        It is indeed a pleasure to be with you today to discuss the
    activities of the Marketing and Regulatory Programs.
        Senator Bennett. Would you pull the microphone a little
    closer to you?
        Mr. Hawks. Turning it on will help, as well.
        Senator Bennett. That also helps.
        Mr. Hawks. As I said, it is certainly a pleasure to be with
    you today to discuss the activities of the Marketing and
    Regulatory Programs and the 2005 budget for those agencies
    within Marketing and Regulatory Programs. Those are the Animal
    and Plant Health Inspection Service, Agricultural Marketing
    Service and the Grain Inspection, Packers and Stockyards
    Administration.
        My motto has been working together works. I am holding my
    agencies accountable to make sure that they work.
        I have five goals that I hold them accountable for. The
    first one is to build broader bridges. The second one is to
    move more product. The third goal is to invest in
    infrastructure. The fourth goal is to grow our people. The
    fifth goal is to sell agriculture as a profession.
        The Marketing and Regulatory Program activities are funded
    both by beneficiaries of the program services and by the
    taxpayers. They carry out programs costing nearly $1.8 billion
    with $418 million funded by fees paid by the beneficiaries of
    the services and $449 million collected from Customs receipts.
        On the appropriations side, the APHIS is requesting $893
    million, GIPSA is requesting $44 million, and AMS is requesting
    $87 million.
        APHIS' primary mission is to safeguard animal and plant
    health, address conflicts with wildlife, faciliate safe
    Agricultural trade, promote environmental stewardship, and
    improve animal well being. APHIS has been working to enhance an
    already vigilant animal and plant health monitoring system.
    APHIS trade issues resolution management efforts enabled us to
    negotiate fair trade in the international market. APHIS also
    regulates the movement and field release of biotechnology
    derived plants. Recent developments in biotechnology hold great
    promise as long as we are able to ensure the protection of the
    environment and the safety of the foods.
        GIPSA facilitates the marketing of livestock, meat,
    poultry, cereals, oil seeds and related agricultural products
    and promotes fair and competitive trade. GIPSA is requesting
    increased funding for strengthening efforts to resolve
    international grain trade issues and to provide improved
    technology for the evaluating the value of livestock carcasses.
        AMS activities assist U.S. agricultural industry in
    marketing their products and in finding ways to improve their
    profitability. AMS budget request seeks an increase of $10
    million of appropriated funds to begin investing in a new
    multi-agency web-based supply chain management system to manage
    purchases of $2.5 billion of commodities used in all food
    assistance programs every year. When fully implemented, this
    system will decrease the time for purchases from 24 days down
    to 5 days.

                              prepared statements

        In light of time, this is going to conclude my statement.
    You have my full written statement and I look forward to
    responding to questions.
        Senator Bennett. Thank you very much.
        For the record, without objection, the written statement of
    all of you will be included in the record. Dr. Murano.
        [The statements follow:]

                     Prepared Statement of William T. Hawks

        Mr. Chairman and members of the Committee, I am pleased to appear
    before you to discuss the activities of the Marketing and Regulatory
    Programs of the U.S. Department of Agriculture and to present our
    fiscal year 2005 budget proposals for the Animal and Plant Health
    Inspection Service (APHIS), the Grain Inspection, Packers and
    Stockyards Administration (GIPSA), and the Agricultural Marketing
    Service (AMS).
        With me today are Dr. Charles Lambert, Deputy Under Secretary for
    MRP; Mr. Peter Fernandez, Associate Administrator of APHIS; Mrs. Donna
    Reifschneider, Administrator of GIPSA, and Mr. A.J. Yates,
    Administrator of AMS. They have statements for the record and will
    answer questions regarding specific budget proposals.
        Under my leadership, the Marketing and Regulatory Programs have
    addressed several broad goals and objectives to increase marketing
    opportunities and to protect American agriculture from damages caused
    by pests and diseases.
        Building Broader Bridges.--We strengthened cooperation and
    strategic partnerships with farmers and ranchers, States, foreign
    governments, congressional offices, agricultural commodity and industry
    associations, agricultural scientific groups, and other interested
    parties. We want to ensure that our policies and programs provide the
    most benefits they can to the affected people which demonstrates that
    working together works.
        Moving More Product.--We expanded domestic and international market
    opportunities for U.S. agriculture products including value enhanced
    products and products of biotechnology. We have worked closely with the
    Foreign Agricultural Service and the U.S. Trade Representative to
    aggressively and creatively resolve sanitary, phytosanitary,
    biotechnology, grain inspection, commodity grading and other trading
    issues that limit our potential for growth in international trade.
        Investing in Infrastructure.--We invested in stronger border
    security, pest and disease surveillance and monitoring, laboratory
    capacity such as the National Veterinary Science Lab in Ames, Iowa. We
    increased market news on export markets, made improvements in e-
    Government, enhanced investigations of anti-competitive market
    practices and provided greater support for biotechnology. Agriculture
    that is healthy, both biologically and economically, is a marketable
    agriculture.
        Growing Our People.--We made a concerted effort to recruit,
    recognize and reward accomplishment and inspire current and future
    leaders within MRP. We are making MRP a place where the best and
    brightest want to be, including promising men and women in diverse
    fields such as journalism, accounting, and economics.
        Selling Agriculture as a Profession.--We are creatively marketing
    the vital role that agriculture plays in every American's life to
    assist our efforts to recruit and retain the highest caliber workforce
    for MRP and USDA.

                                FUNDING SOURCES

        The Marketing and Regulatory Program activities are funded by both
    the taxpayers and beneficiaries of program services. The budget
    proposes that the MRP agencies carry out programs costing $1.8 billion;
    with $418 million funded by fees charged to the direct beneficiaries of
    MRP services and $449 million from Customs receipts.
        On the appropriation side, under current law, the Animal and Plant
    Health Inspection Service is requesting $828 million for salaries and
    expenses and $5 million for repair and maintenance of buildings and
    facilities; the Grain Inspection, Packers and Stockyards Administration
    is requesting $44 million, and the Agricultural Marketing Service is
    requesting $87 million.
        The budget again proposes user fees that, if enacted, would recover
    about $40 million. Legislation was submitted in 2003 which would
    authorize new license fees to recover the cost of administering the
    Packers and Stockyards (P&S) Act and authorize additional grain
    inspection fees for developing grain standards. Legislation will be
    submitted soon to enable additional license fees for facilities
    regulated under the Animal Welfare Act. I will use the remainder of my
    time to highlight the major activities and our budget requests for the
    Marketing and Regulatory Programs.

                   ANIMAL AND PLANT HEALTH INSPECTION SERVICE

        The fundamental mission of APHIS is to anticipate and respond to
    issues involving animal and plant health, conflicts with wildlife,
    environmental stewardship, and animal well-being. Together with their
    customers and stakeholders, APHIS promotes the health of animal and
    plant resources to facilitate their movement in the global marketplace
    and to ensure abundant agricultural products and services for U.S.
    customers. We believe that safeguarding the health of animals, plants,
    and ecosystems makes possible safe agricultural trade and reduces
    losses to agricultural and natural resources.
        APHIS builds bridges by working in concert with its stakeholders--
    States, Tribes, industry, and the public--to maintain and expand export
    market opportunities and to prevent the introduction and/or to respond
    to new threats of plant and animal pests and diseases. APHIS invests in
    the agricultural marketing infrastructure that helps protect the
    agricultural sector from pests and diseases while at the same time
    moving more U.S. product.
        I would like to highlight some key aspects of the APHIS programs:
        Safeguarding the Agricultural Sector and Resource Base.--While
    APHIS continues to work closely with the Department of Homeland
    Security (DHS) to exclude agricultural health threats, it retains
    responsibility for promulgating regulations related to entry of
    passengers and commodities into the United States. APHIS' efforts have
    helped keep agricultural health threats away from U.S. borders through
    increased offshore threat-assessment and risk-reduction activities.
    APHIS has also increased an already vigilant animal and plant health
    monitoring and surveillance system to promptly detect outbreaks of
    foreign and endemic plant and animal pests and diseases.
        Management Programs.--Because efforts to exclude foreign pests and
    diseases are not 100 percent successful, APHIS also assists
    stakeholders in managing new and endemic agricultural health threats,
    ranging from threats to aquaculture to cotton and other crops, tree
    resources, livestock and poultry. In addition, APHIS assists
    stakeholders on issues related to conflicts with wildlife and animal
    welfare.
        Moving More Product.--The Trade Issues Resolution and Management
    efforts are key to ensuring fair trade of all agricultural products.
    APHIS' staff negotiates sanitary and phytosanitary (SPS) standards,
    resolves SPS issues, and provides clarity on regulating imports and
    certifying exports which improves the infrastructure for a smoothly
    functioning market in international trade. Ensuring that the rules of
    trade are based on science helps open markets that have been closed by
    unsubstantiated SPS concerns. APHIS' efforts contributed to the opening
    or retention of $2.5 billion in export markets in fiscal year 2003 by
    helping resolve individual trade issues abroad.
        Biotechnology.--Recent developments in biotechnology underscore the
    need for effective regulation to ensure protection of the environment
    and food supply, reduce market uncertainties, and encourage development
    of a technology that holds great promise. APHIS' Biotechnology
    Regulatory Services unit coordinates our services and activities in
    this area and focuses on both plant-based biotechnology and transgenic
    arthropods. We also are examining issues related to transgenic animals.

                           APHIS' 2005 BUDGET REQUEST

        In a year of many pressing high-priority items for taxpayer
    dollars, the budget request proposes about $828 million for salaries
    and expenses. There are substantial increases to support the
    Administration's Food and Agriculture Defense Initiative and to protect
    the agriculture sector from bovine spongiform encephalopathy (BSE). A
    brief description of key initiatives follows.
        A total of about $173 million for Foreign Pest and Disease
    Exclusion.--Efforts will be focused on enhancing our ability to exclude
    Mediterranean fruit fly and foreign animal diseases. We also request
    funds to regulate the possession and transfer of Select Agents, toxins
    and pathogens necessary for research and other beneficial purposes
    which could be deadly in the hands of terrorists.
        A total of about $224 million for Plant and Animal Health
    Monitoring.--APHIS plays a critical role in protecting the Nation from
    deliberate or unintentional introduction of an agricultural health
    threat, and the budget requests $94 million, a $49 million increase, as
    part of the Food and Agriculture Defense Initiative. This includes
    initiatives that enhance plant and animal health threat monitoring and
    surveillance; bolster a National Animal Identification Program; ensure
    greater cooperative surveillance efforts with States; improve
    connectivity with the integration and analysis functions at DHS for
    plant and animal health threats; and boost animal vaccine availability;
    and other efforts. In addition, $50 million is requested for bovine
    spongiform encephalopathy (BSE) activities to accelerate the
    development of a National animal ID effort and to increase testing to
    detect the presence of BSE in the U.S. livestock herd.
        A total of $320 million for pest and disease management programs.--
    Once pests and disease are detected, prompt eradication reduces
    longterm damages. In cases where eradication is not feasible (e.g.,
    European gypsy moth), attempts are made to slow the advance, and
    damages, of the pest or disease. APHIS provides technical and financial
    support to help control or eradicate a variety of agricultural threats.
        The budget proposes $57 million of increased funding for efforts
    against low-pathogenic avian influenza, emerging plant pests (such as
    Citrus Canker and Emerald Ash Borer), tuberculosis, scrapie, and
    chronic wasting disease.
        Other programs offer offsets to those increases. Successes in boll
    weevil eradication efforts allow a reduction in that program. Decreased
    funding is requested for Asian Long-horned Beetle based on the ongoing
    levels of State contributions. Funding is reduced for Johne's Disease
    since it is rather endemic and funds need to be rationed for other
    program needs. The budget also assumes that State cooperators will fund
    a greater share of wildlife management programs.
        A total of $17 million for the Animal Care programs.--APHIS will
    maintain its animal welfare and horse protection programs. The budget
    includes a proposal, similar to fiscal year 2004, to collect $10.9
    million in additional fees charged to facilities and establishments
    required to be registered under the Animal Welfare Act but not
    currently subject to a fee. This includes research facilities,
    carriers, and in-transit handlers of animals. Since these facilities
    are the direct beneficiaries of taxpayer assistance, it is appropriate
    that a portion of the costs be funded by these beneficiaries.
        A total of about $82 million for Scientific and Technical
    Services.--Within USDA, APHIS has chief regulatory oversight of
    genetically modified organisms. To help meet the needs of this rapidly
    evolving sector, the budget includes a request to, in part, enhance the
    regulatory oversight of field trials of crops derived with
    biotechnology. Also, APHIS develops methods and provides diagnostic
    support to prevent, detect, control, and eradicate agricultural health
    threats, and to reduce wildlife damages (e.g., coyote predation). It
    also works to prevent worthless or harmful animal biologics from being
    marketed.
        A total of $12 million for management initiatives.--This includes
    building upon efforts started with Homeland Security Supplemental funds
    for improving physical and operational security, It also includes
    providing the State Department funds to help cover higher security
    costs for APHIS personnel abroad. A portion of the increase would also
    be used for enhanced computer security and eGov initiatives.

            GRAIN INSPECTION, PACKERS AND STOCKYARDS ADMINISTRATION

        GIPSA's mission is to facilitate the marketing of livestock, meat,
    poultry, cereals, oilseeds, and related agricultural products and to
    promote fair and competitive trade for the benefit of consumers and
    American agriculture. It helps move more U.S. product both domestically
    and abroad by investing in domestic infrastructure that supports
    marketing within the grain and livestock industry. GIPSA fulfills this
    through both service and regulatory functions in two programs: the
    Packers and Stockyards Programs (P&SP) and the Federal Grain Inspection
    Service (FGIS).
        Packers and Stockyards Programs.--The strategic goal for P&SP is to
    promote a fair, open and competitive marketing environment for the
    livestock, meat, and poultry industries. Currently, with 166 employees,
    P&SP monitors the livestock, meatpacking, and poultry industries,
    estimated by the Department of Commerce to have an annual wholesale
    value of over $118 billion. Legal specialists and economic, financial,
    marketing, and weighing experts work together to monitor emerging
    technology, evolving industry and market structural changes, and other
    issues affecting the livestock, meatpacking, and poultry industries
    that the Agency regulates.
        We conducted over 1,700 investigations in fiscal year 2003 to
    enforce the Packers and Stockyards Act for livestock producers and
    poultry growers, of which about 95 percent were closed in a year.
    Financial recoveries were $27.2 million.
        The Swine Contract Library began operation on December 3, 2003.
    Producers can see contract terms, including, but not limited to, the
    base price determination formula and the schedules of premiums or
    discounts, and packers' expected annual contract purchases by region.
    Since December 3, GIPSA has experienced approximately 27 ``hits'' each
    day to view the Contract Summary reports and approximately 6 ``hits''
    per day to view the Monthly reports.
        Federal Grain Inspection Service.--FGIS facilitates the marketing
    of U.S. grain and related commodities under the authority of the U.S.
    Grain Standards Act and the Agricultural Marketing Act of 1946. As an
    impartial, third-party in the market, we advance the orderly and
    efficient marketing and effective distribution of U.S. grain and other
    assigned commodities from the Nation's farms to domestic and
    international buyers. We are part of the infrastructure that undergirds
    the agricultural sector.
        GIPSA works with government and scientific organizations to
    establish internationally recognized methods and performance criteria
    and standards to reduce the uncertainty associated with testing for the
    presence of biotechnology grains and oil seeds. It also provides
    technical assistance to exporters, importers and end users of U.S.
    grains and oilseeds, as well as other USDA agencies, USDA Cooperator
    organizations, and other governments. These efforts help facilitate the
    sale of U.S. products in international markets.
        Our efforts to improve and streamline our programs and services are
    paying off for our customers, both in terms of their bottom lines and
    in greater customer satisfaction. FGIS' service delivery costs average
    $0.30 per metric ton, or approximately 0.23 percent of the $14 billion
    value of U.S. grain exports. In fiscal year 2003 alone, more than 1.8
    million inspections were performed on more than 222 million tons of
    grains and oilseeds.
        One indicator of the success of our outreach and educational
    initiatives is the number of foreign complaints lodged with FGIS
    regarding the quality or quantity of U.S. grain exports. In fiscal year
    2003, FGIS received only 13 quality complaints and no quantity
    complaints from importers on grains inspected under the U.S. Grain
    Standards Act. These involved 229,587 metric tons, or about 0.2 percent
    by weight, of the total amount of grain exported during the year.

                          GIPSA'S 2005 BUDGET REQUEST

        For 2005, the budget proposes a program level for salaries and
    expenses of $44 million. Of this amount, $20 million is devoted to
    grain inspection activities for standardization, compliance, and
    methods development and $24 million is for Packers and Stockyards
    Programs.
        The 2005 budget includes the following program increases:
      --$1 million for rapid response teams to closely examine livestock
            marketing to ensure that producers are not unfairly
            disadvantaged by the BSE situation. USDA will use the funds to
            conduct market surveillance and ensure that marketing and
            procurement contracts are honored in the aftermath of the BSE
            finding.
      --About $5 million to significantly upgrade the agency's IT
            functions, including the ability to securely accept, analyze,
            and disseminate information relevant to the livestock and grain
            trades. About $4 million is a one-time increase for investment.
            Currently, GIPSA receives more than 2.5 million submissions
            from stakeholders, all of which are done on paper. The request
            also includes $150,000 to maintain the Swine Contract Library.
      --$1.2 million to monitor the various technologies that livestock and
            meatpacking industries use to evaluate carcasses to ensure fair
            and consistent use of those technologies. Producer compensation
            is increasingly dependent not simply on the weight of the
            animals they bring to slaughter, but the characteristics of the
            carcasses as well (e.g., fat content).
      --$0.5 million to enable GIPSA to better address and resolve
            international grain trade issues, thus precluding disruption of
            U.S. exports. GIPSA has experienced a growing demand for
            cooperative participation with other agencies with
            international trade responsibilities to help expand markets for
            U.S. agricultural products and removing barriers to trade.
        New User fees.--New user fees, similar to those proposed for fiscal
    year 2004, would be charged to recover the costs of developing,
    reviewing, and maintaining official U.S. grain standards used by the
    grain industry. Those who receive, ship, store, or process grain would
    be charged fees estimated to total about $6 million to cover these
    costs. Also, the Packers and Stockyards program would be funded by new
    license fees of about $23 million that would be required of packers,
    live poultry dealers, stockyard owners, market agencies and dealers, as
    defined under the Packers and Stockyards Act.

                         AGRICULTURAL MARKETING SERVICE

        The mission of the AMS is focused on facilitating the marketing of
    agricultural products in the domestic and international marketplace,
    ensuring fair trading practices, and promoting a competitive and
    efficient marketplace to the benefit of producers, traders, and
    consumers of U.S. food and fiber products. The Agency accomplishes this
    mission through a wide variety of publicly and user funded activities
    that help their customers improve the marketing of their food and fiber
    products and ensure that food and fiber products remain available and
    affordable to consumers. The following are just some of the ways that
    AMS is doing its job better in serving its customers.
        Customer Service and Technology.--AMS continues to improve its
    service delivery by taking advantage of new technology to improve
    public electronic access to information and services and to increase
    operational efficiency. For example, the Livestock Mandatory price
    reporting system processes huge amounts of raw data received from
    slaughter facilities that report their transactions involving purchases
    of livestock and sales of boxed beef and lamb, lamb carcasses, and
    imported boxed lamb cuts. These data, including prices, contracts for
    purchase, and other related information, are publicly disseminated in
    over 100 daily, weekly, and monthly reports on fed cattle, swine, lamb,
    beef and lamb meat. AMS continues to make enhancements to existing
    reports and to introduce new reports in consultation with industry
    stakeholders.
        In 2003, AMS began offering automatic e-mail delivery of
    comprehensive Market News information to subscribers. This free email
    subscription service, provided in partnership with the Mann Library at
    Cornell University, provides access to nearly 1,500 daily, weekly and
    monthly market reports covering the six major AMS commodity groups. AMS
    also is developing a Market News web portal that will allow users to
    establish their own unique web pages through which they can immediately
    access preferred market news reports, have the capability to build
    specialized reports, and add customized features including nationwide
    weather reports and metric data conversions. Users will be able to
    access 5 years of data and download it in usable formats, including
    charts, spreadsheets, and graphs. The portal will be available to
    public users later this year for fruit and vegetable reports, and they
    hope to expand it to market reports for other commodities soon
    thereafter.
        Partnerships.--AMS depends on strong partnerships with cooperating
    State agencies and other Federal agencies to carry out many of our
    programs. State agency partners collect data, provide inspection,
    monitoring, and laboratory services for AMS, and otherwise maximize the
    value of both State and Federal resources through sharing and
    coordination. For instance, AMS' Market News program maintains
    cooperative agreements with 40 States to coordinate local market
    coverage with the regional and national coverage needed for AMS market
    reporting. State employees who inspect shipments of seed within a State
    provide information on potential violations in interstate shipments to
    AMS' Federal Seed program. Thirty-three States and territories
    participate with AMS in Pesticide Recordkeeping education and record
    inspection activities and are reimbursed for their services.
    Furthermore, the Pesticide Data program depends on its 10-12 State and
    three Federal partners to collect and test the product samples on which
    the program results are based. In fact, the Pesticide Data program
    directs 80 percent of its funding to its State partners in
    reimbursement for services provided. Another source of support for
    State agriculture programs is AMS' Federal-State Marketing Improvement
    Program (FSMIP), otherwise known as the Payments to States Program. In
    2003, AMS allocated FSMIP grant funds to 20 States for 28 projects of
    local and regional importance, such as marketing studies or developing
    innovative approaches to the marketing of agricultural products.
        Under the National Organic program, AMS program personnel accredit
    State, private, and foreign certifying agents who certify that organic
    production and handling operations are in compliance with the national
    organic standards. As of February 2004, AMS received 137 applications
    for accreditation. Of these, the program has thus far accredited a
    total of 90 certifying agents, including 15 States, and 37 foreign
    certifying agents. AMS also administers two cost share programs through
    agreements with the States that help to offset certification costs for
    organic producers. Additional resources provided in fiscal year 2004
    will allow us to strengthen our support of the National Organic
    Standards Board activities, including technical advisory panel
    evaluations of materials and program evaluations--or peer reviews--and
    to strengthen program enforcement.
        Market Analysis.--In 2003, AMS supported wholesale or farmers
    market facility projects in Mississippi, Georgia, Florida, Oregon,
    Arizona, New York, Texas, American Samoa, Hawaii, and Kentucky. AMS
    also supports marketing and market technology research projects which
    were presented at numerous marketing conferences and workshops. AMS
    supports farmers markets by conducting research on emerging trends in
    market operations and practices and providing research reports,
    reference material and fact sheets to farm vendors, farm market
    managers, and the general public through the AMS website and a
    telephone hotline.
        AMS' Transportation Services Program works with Federal, State, and
    local policy-makers to maintain an efficient national transportation
    system that supports the needs of farmers, agricultural shippers, and
    rural America. AMS conducts and sponsors economic studies of domestic
    and international transportation issues and provides technical
    assistance and information to producers, shippers, carriers, government
    agencies, and universities. Program experts have generated studies and
    reports on U.S. waterways, rail lines and rail car availability; rail
    and shipping rate analyses; geographically disadvantaged farmers and
    ranchers, and many others.
        AMS transportation specialists are often called upon to provide
    information and advice when agricultural transportation is disrupted.
    After September 11, 2001, AMS has increasingly been asked to provide
    more analyses on transportation security for agricultural products. In
    2003, AMS developed a Transportation Security Briefing Book using the
    information currently available. The book provides an overview of the
    agricultural transportation system, existing safety measures, and
    discusses the adverse effects of past disruptions in the system. While
    this is a good start, we have found that much more study is needed in
    this area for all modes of transport, but particularly for trucking,
    which moves 90 percent of agricultural freight for at least one segment
    of its transportation to destination.
        Commodity Purchases.--AMS works in close cooperation with both the
    Food and Nutrition Service (FNS) and the Farm Services Agency (FSA) to
    administer USDA commodity purchases that stabilize markets and support
    nutrition programs, such as the National School Lunch Program, the
    Emergency Food Assistance Program, the Commodity Supplemental Food
    Program, and the Food Distribution Program on Indian Reservations. To
    maximize the efficiency of food purchase and distribution operations,
    AMS, FNS, and FSA each provide a component of program administration
    according to their organizational structure and expertise, but the
    system is complex and requires close coordination. To better coordinate
    the operations between the three agencies and control the vast array of
    details inherent to the procurement process, the Processed Commodities
    Inventory Management System (PCIMS) was developed more than 10 years
    ago to track bids, orders, purchases, payments, inventories, and
    deliveries of approximately $2.5 billion of commodities used in all
    food assistance programs every year and another $1 billion in price
    support commodity products maintained in inventory. PCIMS is still
    being used by the three agencies with modifications having been made
    over the years, when feasible, to add capabilities such as financial
    tracking or to meet changes in program delivery.

                            AMS' 2005 BUDGET REQUEST

        For AMS, the budget proposes a program level of $732 million, of
    which over 88 percent will be funded by user fees and Section 32 funds.
    The budget requests an appropriation of $87 million for Marketing
    Services and Payments to States. The 2005 budget includes an increase
    of $10 million in appropriated funds to improve the information
    technology systems used to manage and control commodity orders,
    purchases, and delivery. Under this proposal, PCIMS would be replaced
    by the Web-based Supply Chain Management System (WBSCM). Implementation
    of WBSCM will improve the efficiency of Federal procurement of
    commodities by reducing ordering and delivery times from 24 days to 5
    days. The 2005 budget also includes an increase of $0.3 million to
    conduct studies aimed at improving the security of the U.S.
    transportation system for agricultural commodities and supplies. The
    budget includes a decrease of $2 million for FSMIP to reflect a
    reduction for a one-time increase in 2004 for creation of specialty
    markets in Wisconsin.

                                   CONCLUSION

        This concludes my statement. I am looking forward to working with
    the Committee on the 2005 budget for the Marketing and Regulatory
    Programs. We believe the proposed funding amounts and sources of
    funding are vital to protecting American agriculture from pests and
    diseases, both unintentional and those caused by terrorist action, and
    for moving more product to foreign markets. It will provide the level
    of service expected by our customers--the farmers and ranchers, the
    agricultural marketing industry, and consumers. We are happy to answer
    any questions.
                                     ______

    Prepared Statement of A.J. Yates, Administrator, Agricultural Marketing
                                    Service

        Mr. Chairman and Members of the Committee, I am pleased to have
    this opportunity to represent the Agricultural Marketing Service in
    presenting our fiscal year 2005 budget proposal. To provide some
    context for our budget proposal, I would like to begin by reviewing our
    agency's mission and describing some of the customer service
    improvements we have made in delivery of our programs.

                                    MISSION

        The mission of the Agricultural Marketing Service--AMS--is focused
    on marketing: to facilitate the marketing of agricultural products in
    the domestic and international marketplace, ensure fair trading
    practices, and promote a competitive and efficient marketplace to the
    benefit of producers, traders, and consumers of U.S. food and fiber
    products.
        We accomplish this mission through a wide variety of publicly
    funded activities that help our customers better market their food and
    fiber products and ensure that food and fiber products remain available
    and affordable to consumers. More specifically, AMS helps to make the
    nation's agricultural markets work efficiently by providing wide and
    equal access to market information for all producers and traders; by
    developing agricultural product descriptions that provide a common
    language for commercial trade; by providing data on pesticide residues
    and microbiological pathogens that support science-based risk
    assessment; by providing ``how to'' technical expertise to growers,
    transporters, and others in the marketing chain; and by helping to
    develop alternative or improved market outlets.
        AMS also offers voluntary fee-based services such as product
    quality grading, contract certification, export verification, and
    quality control services such as plant inspections, equipment reviews,
    and production quality or process control certification. Because these
    voluntary services are available to verify the quality of agricultural
    products and the efficacy of production processes, they support private
    contractual arrangements and marketing claims that can improve
    profitability for U.S. producers in both domestic and international
    markets. In delivering these voluntary services, we remain vigilant
    about their costs, while working in partnership with our customers to
    ensure that marketplace needs are met.

                        CUSTOMER SERVICE AND TECHNOLOGY

        We continue to improve our service delivery by taking advantage of
    new technology--to improve public electronic access to information and
    services and to increase our operational efficiency. For example, the
    Livestock Mandatory price reporting system processes huge amounts of
    raw data--some 2 to 3 million data items each week--received from 112
    slaughter facilities, that report their transactions involving
    purchases of livestock and sales of boxed beef and lamb, lamb
    carcasses, and imported boxed lamb cuts. These data, including prices,
    contracts for purchase, and other related information, are publicly
    disseminated in over 100 daily, weekly, and monthly reports on fed
    cattle, swine, lamb, beef and lamb meat. AMS continues to make
    enhancements to existing reports and to introduce new reports in
    consultation with industry stakeholders.
        In 2003, AMS began offering automatic email delivery of
    comprehensive Market News information to subscribers. Market News
    reports cover prices, volume, quality, condition, and other market data
    on farm products in production areas and at specific domestic and
    international markets. This free email subscription service, provided
    in partnership with the Mann Library at Cornell University, provides
    access to nearly 1,500 daily, weekly and monthly market reports
    covering the six major AMS commodity groups--cotton, dairy, fruit and
    vegetable, livestock and seed, poultry, and tobacco. Users can search
    by keyword or browse by commodity, then subscribe to and receive
    selected reports via email whenever an update is published. This
    initiative is part of the Federal e-government effort to streamline
    government-to-citizen communications.
        AMS also is developing a Market News web portal that will allow
    users to establish their own unique web pages through which they can
    immediately access preferred market news reports, have the capability
    to build specialized reports, and add customized features including
    nationwide weather reports and metric data conversions. Users will be
    able to access 5 years of data and download it in usable formats,
    including charts, spreadsheets, and graphs. The portal will be
    available to public users later this year for fruit and vegetable
    reports, and we hope to expand it to market reports for other
    commodities soon thereafter.

                                  PARTNERSHIPS

        AMS depends on strong partnerships with cooperating State agencies
    and other Federal agencies to carry out many of our programs. State
    agency partners collect data, provide inspection, monitoring, and
    laboratory services for AMS, and otherwise maximize the value of both
    State and Federal resources through sharing and coordination. For
    instance, AMS' Market News program maintains cooperative agreements
    with 40 States to coordinate local market coverage with the regional
    and national coverage needed for AMS market reporting. State employees
    who inspect shipments of seed within a State provide information on
    potential violations in interstate shipments to AMS' Federal Seed
    program. Thirty-three States and territories participate with AMS in
    Pesticide Recordkeeping education and record inspection activities and
    are reimbursed for their services. Furthermore, our Pesticide Data
    program depends on its State and Federal partners to collect and test
    the product samples on which the program results are based. In fact in
    fiscal year 2004, the Pesticide Data program will direct about 80
    percent of its funding to its eleven State partners in reimbursement
    for services provided. The resulting information generated by AMS can
    be utilized by other Federal agencies such as EPA and FDA for policy
    and regulatory actions, as well as other USDA agencies, academia,
    agricultural industry, international organizations, and global traders.
        We work with local and city agencies to improve wholesale, farmers,
    and other direct marketing opportunities. In 2003, our Wholesale,
    Farmers, and Alternative Markets program supported wholesale or farmers
    market facility projects in Mississippi, Georgia, Florida, Oregon,
    Arizona, New York, Texas, American Samoa, Hawaii, and Kentucky. The
    program also supports marketing and market technology research projects
    as well as numerous marketing conferences and workshops. In an effort
    to help link farm direct sales with school nutrition programs, for
    example, AMS organized a workshop focused on farm to school marketing
    in fiscal year 2003 at the first national ``Farm to Cafeteria
    Conference'' in Seattle, Washington.
        Farmers markets directly benefit local producers and continue to be
    an important farm product outlet for agricultural producers nationwide.
    Farmers markets have risen in popularity due to growing consumer
    interest in obtaining fresh products directly from the farm. The number
    of farmers markets has grown by 79 percent between 1994 and 2002 to
    more than 3,100 facilities nationwide. AMS supports farmers markets by
    conducting research on emerging trends in market operations and
    practices and providing research reports, reference material and fact
    sheets to farm vendors, farm market managers, and the general public
    through the AMS website and a telephone hotline. We also participate in
    industry, producer, and academic conferences and training sessions
    across the country.
        Another source of support for local agriculture programs is AMS'
    Federal-State Marketing Improvement Program, or FSMIP. These matching
    grant funds, made available to State departments of agriculture and
    other State agencies, fund 25 to 35 projects each year. In 2003, we
    allocated FSMIP grant funds to 20 States for 28 projects of local and
    regional importance, such as marketing studies or developing innovative
    approaches to the marketing of agricultural products.
        Our National Organic program, in partnership with its advisory
    committee, provides nationwide standards and a certification system for
    the U.S. organic food industry, which has over $8 billion in sales and
    has seen annual growth in excess of 22 percent. Between 1995 and 2000,
    the U.S. organic market expanded by 175 percent and is expected to more
    than double its 2000 value of $7.8 billion to approximately $16 billion
    by 2005. AMS works with the National Organic Standards Board to develop
    standards for substances used in organic production, maintain a
    National List of approved and prohibited substances for organic
    production, and convene technical advisory panels to provide scientific
    evaluation of materials considered for the National List. AMS program
    personnel accredit State, private, and foreign certifying agents who
    certify that organic production and handling operations are in
    compliance with the national organic standards. As of February 2004,
    AMS received 137 applications for accreditation. Of these, the program
    has thus far accredited a total of 90 certifying agents--53 domestic
    certifying agents, including 15 States, and 37 foreign certifying
    agents. AMS also administers two cost share programs through agreements
    with the States that help to offset certification costs for organic
    producers. Additional resources provided in fiscal year 2004 will allow
    us to strengthen our support of Board activities, including technical
    advisory panel evaluations of materials and program evaluations--or
    peer reviews--and to strengthen program enforcement.
        Our Transportation Services Program works with Federal, State, and
    local policy-makers to maintain an efficient national transportation
    system that supports the needs of farmers, agricultural shippers, and
    rural America. The program helps to support farm income, expand
    exports, and maintain the flow of food to consumers. AMS conducts and
    sponsors economic studies of domestic and international transportation
    issues and provides technical assistance and information on
    agricultural transportation, rural infrastructure and access, and food
    distribution to producers, shippers, carriers, government agencies, and
    universities. Program experts have generated studies and reports on
    U.S. waterways, rail lines and rail car availability; rail and shipping
    rate analyses; and geographically disadvantaged farmers and ranchers,
    and many others. The program also produces periodic publications that
    provide information for agricultural producers and shippers on various
    modes of transportation, such as the weekly Grain Transportation
    Report, the Refrigerated Transport Quarterly, quarterly issues of the
    Ocean Rate Bulletin and Agricultural Container Indicators, and the
    semiannual Agricultural Ocean Transportation Trends.
        Our transportation specialists are called upon to provide
    information and advice when agricultural transportation is disrupted,
    such as late in 2002, when a labor stoppage closed the West Coast ports
    and threatened millions of dollars of losses for agriculture from
    commodities spoiled in transit. After 9/11, we are increasingly asked
    to provide more analyses on transportation security for agricultural
    products. In 2003, AMS developed a Transportation Security Briefing
    Book using the information currently available. The book provides an
    overview of the agricultural transportation system, existing safety
    measures, and discusses the adverse effects of past disruptions in the
    system. While this is a good start, we have found that much more study
    is needed in this area for all modes of transport, but particularly for
    trucking, which moves 90 percent of agricultural freight for at least
    one segment of its transportation to destination.
        Finally, AMS works in close cooperation with both the Food and
    Nutrition Service (FNS) and the Farm Services Administration (FSA) to
    administer USDA's nutrition assistance and surplus commodity programs.
    AMS purchases agricultural commodities under authority of Section 32 of
    the Act of August 24, 1935, which permanently authorized an
    appropriation equal to 30 percent of customs receipts to encourage the
    exportation and domestic consumption of agricultural commodities. These
    funds, plus unused balances up to $500 million from the previous fiscal
    year, may be authorized by the Secretary to support markets by
    purchasing commodities in temporary surplus, for domestic nutrition
    assistance programs, for diversion payments and direct payments to
    producers, for export support, and disaster relief.
        AMS retains only about 13 percent of the funds appropriated under
    Section 32. In 2005, AMS expects to retain $800 million, half of
    which--$400 million--will be spent on purchases for the Child Nutrition
    Programs. Most of the rest is available to AMS' commodity purchases
    program for emergency surplus removal. Eighty-six percent of the $6.2
    billion total appropriation will be transferred to FNS to administer
    the Child Nutrition Programs and 1 percent to the Department of
    Commerce to develop fishery products.
        The commodities purchased by AMS are donated to various nutrition
    assistance programs such as the National School Lunch Program, the
    Emergency Food Assistance Program, and the Food Distribution Program on
    Indian Reservations, according to their needs and preferences. In
    fiscal year 2003, AMS purchased 1.46 billion pounds of commodities that
    were distributed by FNS through its nutrition assistance programs.
        AMS purchases the non-price supported commodities--meat, fish,
    poultry, egg, fruit and vegetable products--and FSA supplies the price-
    supported commodities--flours, grains, peanut products, cheese and
    other dairy products, oils and shortenings--that supply the National
    School Lunch Program and other nutrition assistance programs
    administered by FNS.
        To maximize the efficiency of food purchase and distribution
    operations, AMS, FNS, and FSA each provide a component of program
    administration according to their organizational structure and
    expertise, but the system is complex and requires close coordination.
    AMS and FSA purchase for FNS the entitlement commodities provided to
    schools. Schools and other nutrition assistance programs can also
    receive bonus commodities that are purchased to support agricultural
    markets through AMS' surplus commodity program. AMS and FSA are
    responsible for issuing and accepting bids, and awarding and
    administering contracts. FNS is responsible for taking commodity orders
    from the States, monitoring purchases and entitlements throughout the
    year, and the overall administration of the commodity nutrition
    assistance programs. Before a purchase is announced, AMS and FSA
    specialists work with potential vendors, FNS, and food safety officials
    to develop a specification for each product purchased that details
    product formulation, manufacturing, packaging, sampling, testing, and
    quality assurance. After market conditions, availability, and
    anticipated prices are assessed, and recipient preferences determined,
    AMS and FSA invite bids for particular U.S. produced and domestic
    origin food products under a formally advertised competitive bid
    program. Bids received from responsible vendors are analyzed and
    contracts are awarded by AMS and FSA. FSA administers the payments to
    vendors, ensures the proper storage of commodities when needed, and
    assists in their distribution.
        To better coordinate the operations between the three agencies and
    control the vast array of details inherent to the procurement process,
    the Processed Commodities Inventory Management System, or PCIMS, was
    developed more than 10 years ago to track bids, orders, purchases,
    payments, inventories, and deliveries of approximately $2.5 billion of
    commodities used in all domestic and foreign food assistance programs
    every year and another $1 billion in price support commodity products
    maintained in inventory. PCIMS is still being used by the three
    agencies with modifications having been made over the years, when
    feasible, to add capabilities such as financial tracking or to meet
    changes in program delivery.

                        FISCAL YEAR 2005 BUDGET REQUEST

        This leads us to the first of our two budget requests for fiscal
    year 2005, which involves both a multi-agency partnership and an
    electronic (e-) government initiative that will significantly improve
    customer service.

                    WEB-BASED SUPPLY CHAIN MANAGEMENT SYSTEM

        AMS, FNS and FSA are working together to replace PCIMS with a Web-
    Based Supply Chain Management System, or WBSCM. For fiscal year 2005,
    AMS is requesting funding of $10 million in our Marketing Services
    appropriated account to begin developing the entire new system rather
    than each of the three agencies separately requesting portions of the
    funding needed.
        WBSCM has undergone extensive reviews within USDA and was approved
    as one of the Department's selected e-government ``smart choice''
    initiatives. WBSCM is designed to greatly reduce the time required for
    processing purchases; shorten delivery times; improve USDA's ability to
    collaborate with other Departments; improve reporting capability;
    reduce transportation, inventory, and warehousing costs; and enable
    future system updates as needed. Furthermore, the system will create a
    singe point of access for customers, allow us to share information more
    quickly and conveniently, automate internal processes, and assist in
    breaking down bureaucratic divisions. Eventually, WBSCM will be able to
    support agencies that manage similar commodity distribution programs
    for export. The Foreign Agricultural Service, the Agency for
    International Development, and the Maritime Administration, have been
    included in the development phases to ensure the new system can address
    the needs of export programs.
        Over the last few years AMS, FNS, and FSA have undertaken extensive
    business practice reengineering efforts. Since PCIMS was developed and
    ``hard coded'' to automate the business practices of the time, it often
    cannot be modified to accept significant changes in process without
    undue costs. As a result, agency employees frequently have to develop
    electronic entries external to PCIMS and then update the system with
    the results. In contrast, WBSCM is designed to use commercial off the
    shelf software which will speed up implementation, incorporate industry
    and commercial best business practices, and give the agencies the
    flexibility to reconfigure the system after implementation when
    processes change. We expect that increased efficiency, better
    coordination, and improved services will begin as soon as the basic
    system is in place in mid-fiscal year 2007, when WBSCM will provide
    those services being performed by PCIMS. Until then, we must continue
    to maintain the PCIMS system.

                      AGRICULTURAL TRANSPORTATION SECURITY

        Our second proposal this year is to strengthen our agricultural
    transportation security expertise within the Transportation Services
    program. We are requesting $300,000 to produce more in-depth analyses
    of agricultural transportation security. Transportation is a critical
    link in the food supply chain. Closer analysis of the sector will
    provide the information needed for critical assessments of the
    strengths and vulnerabilities of the various transportation modes used
    to move farm inputs, food, and other agricultural products from farm to
    market. These funds will strengthen USDA's Homeland Security efforts by
    helping to safeguard the U.S. food supply and supporting the Department
    of Homeland Security. We will be better able to provide the information
    requested by policy officials in planning strategies to prevent
    potential disruptions, and to provide comprehensive information more
    quickly when any emergencies occur. Our current expertise and
    established contacts with transportation providers give us a distinct
    advantage in addressing agricultural transportation security issues.
    The transportation industry also has a serious interest in protecting
    shipments. For example, the Agricultural and Food Transporters
    Conference (AFTC) recently requested help from AMS in developing
    voluntary security guidelines. AMS is supporting a cooperative effort
    between USDA and the AFTC to prepare a guidebook. With expanded
    information and analysis, we will also be better able to advise
    agricultural producers and shippers on improving their own security.

                             BUDGET REQUEST SUMMARY

        Our total budget request includes $86 million for Marketing
    Services, which includes an increase for pay costs partially offset by
    a decrease for savings associated with information technology. We also
    include a decrease of $2 million in Federal-State Marketing Improvement
    Program grants funding under Payments to States and Possessions. These
    funds were provided in fiscal year 2004 to support Wisconsin specialty
    products. We request $11 million in Section 32 Administrative funds for
    commodity purchasing and $16 million for Marketing Agreements and
    Orders. These requests also include an increase for pay costs. Thank
    you for this opportunity to present our budget proposal.
                                     ______

    Prepared Statement of Dr. Peter Fernandez, Acting Administrator, Animal
                      and Plant Health Inspection Service

        Mr. Chairman and members of the Subcommittee, it is indeed a
    pleasure for me to represent the Animal and Plant Health Inspection
    Service (APHIS) before you today. APHIS is an action-oriented agency
    that works with other Federal agencies, Congress, States, agricultural
    interests, and the general public to carry out its mission to protect
    the health and value of American agriculture and natural resources.
    APHIS strives to assure its customers and stakeholders that it is on
    guard against the introduction or reemergence of animal and plant pests
    and diseases that could limit production and damage export markets. At
    the same time, APHIS monitors for and responds to potential acts of
    agricultural bioterrorism, invasive species, diseases of wildlife and
    livestock, and conflicts between humans and wildlife. APHIS also
    addresses sanitary and phytosanitary trade barriers and certain issues
    relating to the humane treatment of animals. Finally, APHIS ensures
    that biotechnology-derived agricultural products are safe for release
    in the environment. We have developed a strategic plan to help us
    accomplish these objectives, and I would like to report on our fiscal
    year 2003 protection efforts and our fiscal year 2005 budget request in
    that context.

        APHIS' protection system is based on a strategic premise that
    safeguarding the health of animals, plants, and ecosystems makes
    possible safe agricultural trade and reduces losses to agricultural and
    natural resources. All nine objectives in the protection system are key
    components of this strategic premise. Failing to succeed in any one
    objective will eventually lead to overall failure, and American farmers
    will not reach their potential export markets. Additionally, the
    protection system is a key component of USDA's Homeland Security role.
    The United States has a vital stake in the health of American
    agriculture, both economically and in terms of feeding our people and
    many throughout the world. Terrorists could well recognize that vital
    stake and seek to attack it.

    Five Objectives for Safeguarding Health of Animals, Plants, and
            Ecosystems
        Objective 1.1--Conduct offshore threat assessment and risk
    reduction activities.--In this era of increasing globalization and
    advancing technologies, APHIS must constantly assess the exotic health
    threats approaching our borders, and engage in offshore pest or disease
    eradication activities when the threat is imminent and the potential
    impact severe.
        To prevent the introduction of costly foreign animal diseases into
    the United States, our Foreign Animal Diseases (FAD) and Foot-and-Mouth
    Disease (FMD) program works to detect and control outbreaks of animal
    diseases in foreign countries far from our shores. This is our first
    line of defense against foreign animal diseases and has become more
    significant as international trade and travel have increased. APHIS
    conducts operations overseas through bilateral agreements and works
    with multilateral organizations, such as the World Organization for
    Animal Health (OIE). Last year, for example, through an agreement with
    Panama and Mexico, we collected 1,260 samples of suspected vesicular
    disease throughout Central America from field investigations and tested
    the samples in Panama. Fortunately, all tested negative for FMD, while
    639 were diagnosed as vesicular stomatitis.
        Through our Fruit Fly Exclusion and Detection program, we cooperate
    with the Governments of Mexico, Guatemala, and Belize on the Moscamed
    program to eradicate and control the Mediterranean Fruity Fly (Medfly),
    which could cause $2 billion in losses if it became established in the
    United States. Moscamed's current top priorities are to eradicate the
    Medfly from Chiapas, Mexico, and move the barrier south into Guatemala
    in an effort to achieve APHIS' and its cooperators' goal of eradicating
    Medfly from Central America and thereby providing more secure
    prevention against the threat Medfly poses to the United States. A
    major component of the program is the production and release of sterile
    flies to disrupt normal reproduction. In fiscal year 2003, the Central
    America Medfly program produced 2.2 billion sterile fruit flies a week,
    exceeding its goal of producing 2 billion per week. This production
    increase allowed more flies to go to the preventive release program in
    the United States.
        Through our Tropical Bont Tick program, APHIS employees are
    preventing the introduction of heartwater and other diseases
    transmitted by tropical bont ticks into the livestock industry and
    wildlife populations of the United States from affected Caribbean
    islands. The cooperative program has eradicated ticks from six of the
    nine islands involved so far, bringing us closer to our goal of
    eradicating this pest from the Western Hemisphere.
        Objective 1.2--Regulate and monitor to reduce the risk of
    introduction of invasive species.--APHIS regulates the import of
    agricultural products, including commercial shipments and items carried
    into the United States by travelers, to prevent the entry of foreign
    pests and diseases. We work closely with the Department of Homeland
    Security (DHS) to monitor and intercept items that arrive at ports of
    entry.
        In fiscal year 2003, APHIS and DHS agricultural employees inspected
    the baggage of nearly 74 million arriving passengers. Passenger baggage
    is inspected manually, with x-ray technology, or through the use of
    detector dogs. Agricultural inspectors also cleared 54,033 ships and
    3,128,660 cargo shipments. In cooperation with DHS, we increased the
    number of cargo inspections by 43 percent over fiscal year 2002 because
    of the high entry risk of exotic wood boring and bark beetles, like
    Asian long-horned beetle and emerald ash borer. In total, agricultural
    inspectors intercepted 82,631 reportable pests at land borders,
    maritime ports, airports, and post offices. At plant inspection
    stations, our inspectors cleared 176,761 shipments containing over 1.2
    billion plants units (cuttings, whole plants, or other propagative
    materials) and intercepted 4,260 pests.
        Part of APHIS' safeguarding strategy is to prevent the intentional
    introduction of illegal products through market surveys,
    investigations, and enforcement action. In fiscal year 2003, our
    Safeguarding, Intervention, and Trade Compliance (SITC) staff and field
    personnel seized 15,706 illegal plant products and 488 illegal meat,
    poultry, and dairy products and found 112 reportable pests. When SITC
    detects a prohibited item, we identify the item's origin and the
    responsible shippers, importers, and broker. By maintaining the
    relevant information in databases, the program can target specific
    commodities and importers. This year, SITC investigations led to the
    detection of 82 violations at markets and distributors' warehouses.
        APHIS' Animal and Plant Health Regulatory Enforcement program
    conducts regulatory enforcement activities to prevent the spread of
    animal and plant pests and diseases in interstate trade. These
    activities include inspection, surveillance, animal identification, and
    prosecution. This year, APHIS continued the development of a multi-year
    project to improve a headquarters-based, on-line computer system to
    track investigations and automate the enforcement process. The database
    will help our enforcement efforts by allowing APHIS programs and other
    agencies such as the Departments of Homeland Security and Treasury to
    share critical information and identify individuals, companies,
    cargoes, carriers, or pathways posing risk.
        In fiscal year 2003, APHIS conducted 1,782 investigations involving
    plant quarantine violations resulting in 142 warnings, 682 civil
    penalty stipulations, seven Administrative Law Judge decisions, and
    approximately $1 million in fines. Regarding animal health programs, we
    conducted 1,425 investigations, resulting in 210 warnings, 39 civil
    penalty stipulations, five Administrative Law Judge decisions, and
    approximately $44,900 in fines. Also during fiscal year 2003, the
    program conducted 76 investigations of alleged Swine Health Protection
    Act violations in Puerto Rico. This was slightly less than the target
    of 80 investigations, mostly due to providing support for the exotic
    Newcastle disease outbreak in California.
        Objective 1.3--Ensure safe research, release, and movement of
    agricultural biotechnology events, veterinary biologics, and other
    organisms.--The growth of agricultural biotechnology hinges on the
    public's acceptance of this technology as safe, and APHIS' regulatory
    role is key to ensuring global acceptance. In addition to agricultural
    biotechnology, the Agency monitors and regulates to ensure safe
    agricultural research and commercialization activities involving the
    movement of non-indigenous organisms and veterinary biologics.
        APHIS' Biotechnology Regulatory Services (BRS) program, created in
    August 2002, regulates the introduction (importation, interstate
    movement, and field release) of genetically engineered organisms such
    as plants, insects, microorganisms and any other organism that is known
    to, or could be, a pest. APHIS also has determined that BRS may
    potentially regulate animals, insects, and other disease agents
    relevant to livestock health. Through a strong regulatory framework,
    BRS determines the conditions under which genetically engineered
    organisms can be introduced into the United States and allows for the
    importation, interstate movement, and field release of these materials
    only after rigorous conditions and safeguards are put into place. Under
    the authority of the Plant Protection Act of 2000, APHIS can pursue
    penalties for failure to adhere to our regulations, permit conditions,
    and requirements.
        With the creation of our new biotechnology compliance program, we
    have chosen measures that will accurately and visibly reflect the
    effectiveness of our inspection efforts for the testing of products
    that carry a higher degree of perceived risk. We believe that increased
    frequency of inspections--especially at high risk sites--coupled with
    efforts to improve the quality of inspections through expanded
    training, will translate into a high degree of stakeholder and public
    confidence that these products will be safely confined and not
    inadvertently enter the food supply. Our performance target for fiscal
    year 2004 is to inspect 10 percent of low risk sites, 40 percent of
    medium risk sites at least once during the growing season, and 100
    percent of pharmaceutical and industrial sites a total of seven times--
    five times during the growing season and two times afterwards.
        Our Veterinary Biologics program continues to ensure that
    veterinary biologics products are pure, safe, potent, and effective.
    Our goal is to ensure the availability of quality veterinary biological
    products for the diagnosis, prevention, and treatment of animal
    diseases. The program will continue to respond to emerging diseases
    with expedited reviews and inspections for new veterinary biologics,
    and it will follow a risk-based approach to inspect and test other
    products.
        In fiscal year 2003, APHIS performed 78 regulatory actions
    following routine inspections and 24 investigations of possible
    regulation violations. APHIS' Center for Veterinary Biologics found the
    marketing of unlicensed veterinary biologics and false or misleading
    advertising of licensed veterinary biologics in over half of these
    investigations. Through education, cooperation, and regulatory actions,
    APHIS helped industry achieve increased compliance with the Virus-
    Serum-Toxin Act.
        Objective 1.4--Manage issues related to the health of U.S. animal
    and plant resources and conflicts with wildlife. Agricultural
    stakeholders also expect APHIS to help solve many types of health-
    related production issues in the United States. For example, producers
    need help in dealing with area-wide wildlife damage control problems.
    Indigenous pest problems affecting multiple States, such as boll weevil
    and grasshoppers, also require APHIS' attention. We are not alone in
    these efforts and have good relationships are with our State and Tribal
    partners in conducting these eradication and control programs. That
    cooperation, in addition to support from academia and industry, is
    essential for these types of programs to succeed.
        We continue to make progress on a number of other animal health
    programs as well. At the beginning of fiscal year 2003, there was one
    pseudorabies-quarantined premise in the United States, compared to 12
    at the beginning of fiscal year 2002. By the end of fiscal year 2003,
    there were no swine commercial production premises under quarantine for
    pseudorabies. As of September 30, 2003, there were 1,776 flocks
    participating in the Scrapie Flock Certification Program of which 105
    are certified, 1,663 are completely monitored, and 8 are selective
    monitored flocks. This is in comparison to 1,539 flocks enrolled, 78
    flocks certified, 1,452 flocks completely monitored, and 9 flocks
    selectively monitored as of September 30, 2002. To continually improve
    on the 46 States, Puerto Rico, and the Virgin Islands as accredited
    Tuberculosis-free, the program depopulated three dairy herds in
    California, four beef herds in Michigan, and one beef herd in Texas
    during fiscal year 2003.
        Among a number of protection efforts, APHIS' Wildlife Services (WS)
    Operations program works to protect agricultural crops from wildlife
    damage, to protect livestock from predation, and to protect human
    safety by preventing wildlife collisions with aircraft. In fiscal year
    2003, the Agency's beaver damage management activities in several
    States averted $25 million in impending damage to forest and
    agricultural resources, waterways and highway infrastructures. As wolf
    populations continue to increase, so do requests for assistance with
    wolf predation. As a result, APHIS responded to 179 requests for
    assistance with wolf predation on livestock or domestic dogs during
    fiscal year 2003 in Minnesota alone. In the west, APHIS responded to 41
    requests for assistance with gray wolf predation in Idaho and 87
    requests in Montana. Airports reported approximately 6,100 wildlife
    strikes to civil aircraft in 2002, with the U.S. Air Force alone
    reporting more than 3,800 strikes to military aircraft. Wildlife
    strikes cost civil aviation in the United States over $480 million in
    damages in 2002. The requests for APHIS assistance in managing wildlife
    hazards at airports and military air bases continue to increase. In
    fiscal year 2003, APHIS wildlife biologists provided wildlife hazard
    management assistance to over 500 airports nationwide for the
    protection of human safety and property, compared to only 42 airports
    in fiscal year 1990 and 409 airports in fiscal year 2002. At JFK
    International Airport, APHIS biologists have reduced gull strikes by
    over 80 percent in 2000-2003 compared to strike levels in the early
    1990s.
        APHIS' Wildlife Services (WS) Methods Development program, through
    the National Wildlife Research Center (NWRC), functions as the research
    arm of APHIS' Wildlife Services program by providing scientific
    information for the development and implementation of effective,
    practical, and socially acceptable methods for wildlife damage
    management. This helps ensure that high-quality technical and
    scientific information on wildlife damage management is available for
    the protection of crops, livestock, natural resources, property, and
    public health and safety. The program provides technical support for
    the development of 5 drug/vaccine products through Investigational New
    Animal Drug Authorizations under the Food and Drug Administration.
    These materials are under development as wildlife immobilizing agents
    and contraceptive products. APHIS continued to develop and evaluate
    non-lethal methods for managing blackbird damage to sunflowers and rice
    by conducting extensive laboratory testing of registered chemicals for
    bird repellency characteristics. Scientists continued multi-year
    research studies at various airports in the United States to reduce
    wildlife strike hazards. These scientists researched turf management,
    non-lethal repellents, and dispersal techniques to minimize strikes by
    gulls, waterfowl, turkey vultures, hawks, and other species that
    threaten aviation safety. In fiscal year 2003, we met our performance
    target of testing and/or improving 18 wildlife damage management
    methods and will maintain this target for fiscal year 2004.
        APHIS' Animal Welfare program carries out activities designed to
    ensure the humane care and handling of animals used in research,
    exhibition, the wholesale pet trade, or transported in commerce. The
    program places primary emphasis on voluntary compliance through
    education with secondary emphasis on inspection of facilities, records,
    investigation of complaints, reinspection of problem facilities, and
    training of inspectors. However, when necessary, APHIS personnel
    investigate alleged violations of Federal animal welfare and horse
    protection laws and regulations and oversee and coordinate subsequent
    prosecution of violators through appropriate civil or criminal
    procedures. In fiscal year 2003, we conducted 365 animal welfare
    investigations resulting in 172 formal cases submitted for civil
    administrative action. We also issued 90 letters of warning and
    resolved 44 cases with civil penalty stipulations resulting in $56,373
    in fines. Administrative Law Judge Decisions resolved another 58 cases
    resulting in $668,995 in fines.
        Objective 1.5--Respond to emergencies--response planning,
    surveillance, quick detection, containment, and eradication.--Even
    though we devote many resources to pest and disease prevention and
    regulatory compliance to safeguard agricultural health, it is
    impossible to intercept every potential biological threat. APHIS must
    have the capacity to quickly respond in order to limit the spread of
    the outbreak and to eradicate it so that production losses are
    minimized and exports of affected commodities do not suffer long-term
    disruptions.
        APHIS' Emergency Management System (EMS) is a joint Federal-State-
    industry effort to improve the ability of the United States to deal
    successfully with animal health emergencies, ranging from natural
    disasters to introductions of foreign animal diseases. The EMS program
    identifies national infrastructure needs for anticipating, preventing,
    mitigating, responding to, and recovering from such emergencies. By
    Presidential Homeland Security Directive, APHIS is restructuring its
    emergency response systems according to the National Incident
    Management System, or NIMS. APHIS implemented the incident command
    structure in response to the exotic Newcastle disease (END) outbreak in
    California, Arizona, Nevada, and Texas during fiscal year 2003. During
    the END outbreak, APHIS followed the NIMS structure and established
    five incident command posts in three States.
        This same structure was put into place when, on December 23, 2003,
    laboratory testing at the National Veterinary Services Laboratories
    indicated that a single cow, slaughtered on December 9, 2003, in
    Washington State, tested positive for BSE. The world reference
    laboratory in the United Kingdom confirmed these presumptive positive
    results on December 25 for BSE, and we immediately began a swift and
    comprehensive investigation.
        The epidemiological tracing and DNA evidence proved that the BSE
    positive cow was born on a dairy farm in Alberta, Canada in 1997. She
    was moved to the United States in September 2001 along with 80 other
    cattle from that dairy. The epidemiological investigation to find
    additional animals from the source herd led to a total of 189 trace-out
    investigations. These investigations resulted in complete herd
    inventories on 51 premises in three States: Washington, Oregon and
    Idaho.
        On February 9, 2004, APHIS announced that we had completed our
    field investigation of the BSE case in Washington. During our
    investigation, a total of 255 ``Animals of Interest''--animals that
    were or could have been from the source herd--were identified on 10
    premises in Washington, Oregon and Idaho. All 255 animals were
    depopulated and sampled for BSE testing. Results were negative on all
    samples. The carcasses from all of the euthanized animals were properly
    disposed of in accordance with all Federal, State, and local
    regulations. Consistent with international guidelines on BSE, we
    focused on tracing the 25 animals born into the birth herd of the index
    cow during a 2-year window around her birth. Based on normal culling
    practices of local dairies, we estimated that we would be able to
    locate approximately 11 of these animals. In fact, APHIS definitively
    located 14 of these animals.
        We are confident that the remaining animals represent very little
    risk. Even in countries like the United Kingdom where the prevalence of
    BSE has been very high, it has been very uncommon to find more than one
    or maybe two positive animals within a herd.
        Thus far in fiscal year 2004, USDA has transferred $80.4 million
    from the Commodity Credit Corporation (CCC) to APHIS for BSE-related
    activities. APHIS is using these funds to respond to the Washington
    State incident and to enhance BSE surveillance around the country. This
    CCC funding will supplement the funds already set aside for BSE
    surveillance in APHIS' base appropriation. This enhanced surveillance
    plan incorporates recommendations from the international scientific
    review panel and the Harvard Center for Risk Analysis; both have
    reviewed and supported the plan.
        On December 30, 2003, Secretary Veneman announced that an
    international panel of experts would be convened to review our BSE
    investigative efforts and recommend enhancements to our BSE program.
    The panel delivered their report on February 4, 2004, and commended
    USDA for conducting such a comprehensive epidemiological investigation.
    The panel also made recommendations for further enhancements to the BSE
    program. The Secretary applied all of this information in considering
    future actions with regard to BSE, and on March 15, she announced a
    plan to enhance the BSE surveillance program. Previous targeted
    surveillance efforts were designed to detect BSE in the adult cattle
    population at the level of at least one infected animal per million
    adult cattle with a 95 percent confidence level. The goal of the new
    plan is to test as many cattle in the targeted high-risk population as
    possible in 12 to 18 months, and then evaluate future actions based on
    the results of this effort.
        The plan also incorporates random sampling of apparently normal,
    aged animals at slaughter. More than 86 percent of all adult cattle
    processed annually are slaughtered in 40 plants; random sampling
    efforts will be focused on these plants.
        More intensive surveillance will allow us to refine our estimates
    of the level of disease present in the U.S. cattle population and
    provide consumers, trading partners, and industry better assurances
    about our BSE status. Testing will be conducted at USDA's National
    Veterinary Services Laboratories and at participating network contract
    laboratories. As an example, if a total of at least 268,444 samples is
    collected from the targeted population, we believe this level of
    sampling would allow USDA to detect BSE at a rate of 1 positive in 10
    million adult cattle (or 5 positives in the entire country with a 99
    percent confidence level). We also plan on testing at least 20,000 BSE
    slaughter samples from apparently healthy, aged bulls and cows. During
    this effort, we will be utilizing approved rapid screening tests,
    working with industry on disposal issues, and enhancing our BSE
    education and outreach activities.
        USDA remains confident in the safety of the U.S. beef supply. Out
    of an abundance of caution, USDA recalled all meat products processed
    in the affected slaughter plant the same day as the positive cow.
    However, the meat presents an extremely low risk to consumers, because
    all of the central nervous system related tissues--those most likely to
    contain the BSE agent--were removed from the affected animal during
    slaughter and did not enter the human food supply.
        Even with the recent detection, the United States continues to have
    a very low BSE risk. An independent assessment conducted by Harvard
    University in 2001 and again in 2003 demonstrated that even with a
    detection of BSE in this country, United States control efforts would
    minimize any possible spread of the disease and ultimately eliminate it
    from the U.S. cattle population. These controls include a long-standing
    ban on imports of live cattle, other ruminants, and most ruminant
    products from high risk countries; the Food and Drug Administration's
    1997 prohibition on the use of most mammalian protein in cattle feed;
    and an aggressive surveillance program that has been in place for more
    than a decade. In each of the past 2 years, the United States tested
    over 20,000 head of cattle for BSE, which is 47 times the recommended
    international standard.
        We opened the APHIS Emergency Operations Center (AEOC) in March
    2003. The AEOC is a state-of-the-art facility that allows a national
    management response team to communicate with field personnel and USDA
    leadership during an outbreak situation. Communications capabilities
    include video teleconferencing, advanced computer interfaces,
    geographical information system mapping, and a strong multimedia
    component.
        Through the Pest Detection program, APHIS and its State cooperators
    work to ensure the early detection of harmful or invasive plant pests
    and weeds through the Cooperative Agricultural Pests Survey (CAPS)
    program. The CAPS program provides the domestic infrastructure
    necessary to conduct national surveys for plant pests and weeds and
    document the results in a national database, the National Agricultural
    Pest Information System (NAPIS). NAPIS provides a summary of pest
    survey results and allows APHIS to track the spread of pests within the
    United States, demonstrate their presence or absence, plan their
    control, and support the export of agricultural commodities. APHIS is
    currently engaged in a multi-year effort to enhance its early detection
    program through an increased level of communication and cooperation
    with its State partners, increased staffing levels, the use of new
    technology, and a new focus on international pest risk analysis. These
    efforts will help us meet our goal of detecting significant pest
    introductions before a new pest can cause serious damage. Finding newly
    arrived exotic pests before they spread will reduce the money spent on
    costly eradication programs and prevent losses to farmers and our
    natural ecosystems.
        APHIS has completed pest risk assessments for ten of the 18 pests
    on the national CAPS list for fiscal year 2003 and 2004 and is working
    with State cooperators to develop State CAPS lists. We are also
    instituting CAPS committees at the State, regional, and national levels
    to ensure that stakeholders are involved in the process of targeting
    pests for survey. In fiscal year 2003, APHIS and 21 States conducted
    the Exotic Wood-Borer and Bark Beetle Survey, one of our new commodity-
    or resource-based surveys. While the data is still not complete, this
    year's survey turned up evidence of three new forest pests previously
    not known to exist in the United States. We believe that these new
    pests provide strong evidence of the need for the nationally directed
    and risk-based detection program that we are currently implementing.
        APHIS' Animal Health Monitoring and Surveillance program continues
    to conduct activities such as: monitoring and surveillance of various
    animal disease programs, foreign animal disease surveillance and
    detection, emergency disease preparedness and response, animal health
    monitoring, and epidemilologic support and delivery for both ongoing
    disease programs and post-disease eradication programs. For example,
    APHIS completed the Scrapie Ovine Slaughter Surveillance project sample
    collection by gathering 12,508 samples from 22 slaughter plants and one
    slaughter market. Losses from affected flocks cost producers
    approximately $20 to $25 million annually.
        APHIS has been challenged with numerous emergencies over the last
    several years. However, we took quick and aggressive action to address
    the following plant and animal situations: Asian Longhorned Beetle,
    Chronic Wasting Disease, Citrus Canker, Emerald Ash Borer, Exotic
    Newcastle Disease, Karnal Bunt, Mediterranean Fruit Fly, Mexican Fruit
    Fly, Pierce's Disease/Glassy-winged Sharpshooter, Rabies, Spring
    Viremia of Carp, and Tuberculosis. The Secretary used her authority to
    transfer over $378 million to battle these pests and diseases. Without
    the quick detection and early, rapid response, the cost to control
    these outbreaks would have undoubtedly been higher.
    Four Objectives for Facilitating Safe Agricultural Trade
        APHIS' two goals of safeguarding U.S. agriculture and facilitating
    international agricultural trade reinforce each other. By protecting
    and documenting the health of our agricultural products, we can retain
    existing markets and open new markets for our farmers. By facilitating
    safe trade with other countries (including activities such as
    monitoring world agricultural health and helping developing countries
    build regulatory capacity), we help ensure that imported products will
    not threaten our domestic production capability and health status.
        Objective 2.1--Verify and document the pest and disease status of
    U.S. agriculture and related ecosystems.--The World Trade
    Organization's (WTO) Sanitary and Phytosanitary (SPS) Agreement and the
    North American Free Trade Agreement commit countries to recognizing
    disease- and pest-free areas within a country even if a particular pest
    or disease exists elsewhere in the nation. This concept of
    regionalization has resulted in APHIS' becoming increasingly involved
    in demonstrating our pest and disease free status to allow agricultural
    exports to trading partners.
        APHIS' Pest Detection program conducted 150 surveys to document the
    pest status of our plant resources and support U.S. producers' ability
    to export their products. For example, by collecting extensive survey
    data demonstrating the limited distribution of Karnal bunt in the
    United States, APHIS provides assurance to our trading partners that
    the disease is not present in major wheat-producing areas of the United
    States, thereby ensuring annual agricultural exports of up to $5
    billion and supplying the raw ingredients for domestic and foreign
    customers of flour, pasta, and other wheat products. Plum pox is
    another case in which the collection of national data has helped to
    keep budwood markets open by demonstrating the absence of the pest from
    various areas around the United States.
        APHIS officials collaborate with State and other Federal agencies
    to conduct animal health surveillance activities through the Animal
    Health Monitoring and Surveillance (AHMS) program. These activities
    include pre- and post-entry testing of imported animals, sample
    collection at slaughter, and routine testing of animals for export and
    interstate movement. APHIS also conducts surveillance for domestic
    animal disease eradication programs, like brucellosis, tuberculosis,
    chronic wasting disease, and others. This surveillance information
    allows APHIS to make key regulatory decisions. In doing so, APHIS
    strives to preserve U.S. exports markets, protect livestock or poultry
    producers in disease-free areas, and provide the best options possible
    for those producers who are affected by our regulatory decisions.
        When foreign animal disease outbreaks occur in the United States,
    our trading partners routinely ban U.S. animal and animal product
    exports until APHIS has the opportunity to confirm the extent of the
    disease's spread and demonstrate what regulatory actions are being
    taken to contain it. Last year, the poultry breeding and hatchery
    industry lost approximately $1 million per week due to bans by various
    trading partners on U.S. poultry exports because of exotic Newcastle
    disease. Our trading partners will lift such bans in unaffected and
    unregulated areas only if we can convince them that measures are being
    taken to mitigate the risk of the disease's spread via host commodity
    exports. Providing our trading partners accurate and detailed
    information about a foreign animal disease outbreak and the subsequent
    Federal/State disease management response is critical. This information
    gives our trading partners the assurances they need without exposing
    them to undue risk. Such a regionalized approach helps minimize trade
    disruption and negative market reactions.
        Objective 2.2--Certify the health of animals and plants and related
    products for export and interstate commerce.--In carrying out this
    role, APHIS spends well over $100 million on disease diagnostics and
    epidemiology and pest detection infrastructure. This infrastructure
    makes our health certificates credible for trading partners, but it
    also is instrumental for quickly detecting and limiting the spread of
    outbreaks of new pests and diseases, part of our emergency response
    strategy (Objective 1.5).
        The Import/Export program promotes simple, science-based export
    conditions and negotiates requirements based on technical-level
    mitigation and guidelines established by OIE. The program is working
    hard to strengthen its evaluation and risk assessment capabilities to
    meet international and domestic responsibilities and respond to
    international and domestic requests for regionalization in a timely
    manner. For example, during fiscal year 2003 the Import/Export program
    increased its capacity to conduct regionalization analyses for foreign
    markets (import purposes) and domestic markets (export purposes).
    During the early stages of the exotic Newcastle disease outbreak in
    fiscal year 2003, many countries--including all members of the European
    Union--suspended poultry imports from all regions of the United States.
    APHIS, however, identified END-free regions of the country and helped
    these regions regain market access. These actions helped protect the
    entire U.S. poultry export industry, which has an estimated annual
    worth of $2.5 billion.
        APHIS' Agricultural Quarantine Inspection program facilitates the
    export of agriculture shipments through EXCERT, an electronic database
    containing plant health import requirements for over 200 countries.
    APHIS export certifications ensure that U.S. products meet the
    agricultural requirements of the country of destination. In fiscal year
    2003, APHIS issued over 400,000 Federal plant health export
    certificates for agriculture shipments, including the issuance of heat
    treatment certificates for coniferous solid wood packing materials to
    the People's Republic of China.
        Objective 2.3--Resolve trade barrier issues related to animal and
    plant health.--Because of APHIS' expertise in animal and plant health
    issues and our regulatory role (Objective 1.2), the Agency serves as a
    key resource for trade policy agencies, like the Foreign Agricultural
    Service and the U.S. Trade Representative, in resolving sanitary and
    phytosanitary issues that often become trade barriers (Objective 2.3).
    The negotiations that occur to resolve these issues often result in
    trading partners providing additional information about the pests or
    diseases in question, and this information in turn leads to more
    effective preventive regulatory strategies.
        Officials with the Trade Issue Resolution and Management program
    work to minimize trade disruptions caused by animal and plant health
    issues. In fiscal year 2003, APHIS retained poultry markets in Japan,
    Korea, and the Philippines worth over $169 million, expanded market
    access for apples in Mexico worth $88 million, and opened new markets
    for seed potatoes to Uruguay and apricots from the Pacific Northwest to
    Mexico. Additionally, APHIS expanded market access for U.S. cherries,
    canola seed, and potatoes in Mexico, and with the concerted efforts of
    APHIS, Foreign Agricultural Service, and the Office of the United
    States Trade Representative, we retained markets for wheat in Argentina
    and Peru.
        When individual agricultural shipments are held up at foreign
    ports, APHIS attaches correct problems and negotiate with host
    government officials to facilitate the shipment's acceptance. APHIS
    obtained authorization for apples at four additional ports of entry in
    Mexico resulting in the release of a $5 million apple shipment. In
    addition, APHIS facilitated $1 million worth of U.S. cotton in Chile,
    three rice shipments in Costa Rica and Guatemala, the release of $13
    million in citrus shipments held by Japanese officials, and the waiving
    of phytosanitary certification with Romanian officials for soy beans,
    allowing a shipment of 14,000 tons of soybeans valued at over $3
    million.
        Objective 2.4--Provide expertise and training in animal and plant
    health.--The WTO's SPS Agreement requires member countries to provide
    technical assistance to developing countries to enable those countries
    to participate more fully in the global trade arena. Using cooperative
    agreements, preclearance trust fund agreements, and other international
    arrangements, APHIS provides many countries with technical assistance
    to strengthen their animal and plant health infrastructure, risk
    assessment capacity, and food production capabilities (Objective 2.4).
    By doing this, APHIS not only fulfills requirements for the SPS
    Agreement but also improves offshore threat assessment and risk
    reduction capabilities (Objective 1.1).
        APHIS attaches continue to identify specific weaknesses in foreign
    regulatory systems and provide technical assistance where appropriate.
    Capacity building improves foreign countries' regulatory
    infrastructure, U.S. relationships with key foreign officials, United
    States regulatory concepts and approaches, and, ultimately, the
    agricultural health status of the foreign country.
        In fiscal year 2003, the Veterinary Biologics program continued
    working with the Committee of the Americas for the Harmonization for
    Registration and Control of Veterinary Medicines (CAMEVET). The
    objectives of this committee include coordinating technical information
    for the registration and control of veterinary medicines. The intention
    of this program is to exchange information and harmonizes technical
    procedures to improve the quality of veterinary medicines and the trade
    of products among countries in the Americas.
        A part of APHIS' Veterinary Diagnostics program assists foreign
    governments in the diagnosis of animal diseases by maintaining national
    and international laboratory recognition with the highest quality
    reference assistance and by conducting developmental projects for
    rapidly advancing technologies. In fiscal year 2003, as an OIE
    reference laboratory, APHIS' National Veterinary Services Laboratories
    (NVSL) continued to use their diagnostic expertise to provide training,
    consultation, and assistance to both domestic and international
    laboratories. NVSL prioritized the evaluation/validation of new
    technologies such as the exotic Newcastle disease and Avian Influenza
    polymerase chain reaction and Chronic Wasting Disease kits to offer new
    tools for control of certain key diseases. NVSL also shipped 117,095
    vials of reagents to domestic and foreign customers to meet critical
    testing needs. And, NVSL acquired a new chemistry analyzer for blood
    screening purposes and doubled the number of fraudulent cases detected
    over those detected in fiscal year 2002. The fraudulent blood testing
    program at NSVL helps to assure confidence in the health of animals
    exported from the United States to other countries.

                                 NEW DIRECTION

        After evaluating the current challenges and opportunities that
    exist today, APHIS has developed a new strategic plan of action that
    will set the Agency's course over the next 5 years. During this time,
    APHIS is committed to focusing on the following overarching goals:
    safeguarding the health of animals, plants, and ecosystems in the
    United States; facilitating safe agricultural trade; and ensuring
    effective and efficient management of programs to achieve its mission.
        As part of its new strategic plan, APHIS intends to strengthen key
    components of its protection system by focusing on the following
    objectives:
      --Ensuring the safe research, release, and movement of agricultural
            biotechnology;
      --Strengthening the Agency's emergency preparedness and response;
      --Resolving trade barriers related to sanitary and phytosanitary
            requirements;
      --Reducing domestic threats through increased offshore threat-
            assessment and risk-reduction activities;
      --Reducing the risk of invasive species introductions by enhancing
            risk-analysis capabilities; and,
      --Managing issues related to the health of U.S. animal and plant
            resources and conflicts with wildlife.

                        FISCAL YEAR 2005 BUDGET REQUEST

        APHIS has developed its fiscal year 2005 Budget Request in the
    context of the Strategic Plan, the overriding imperative of Homeland
    Security, and the need to restrain Federal spending. The fiscal year
    2005 Budget Request for Salaries and Expenses under current law totals
    $828.4 million or $112 million more than the fiscal year 2004
    Consolidated Appropriations Act. About $8.5 million is for the cost of
    the pay raise.
        The fiscal year 2005 increase, approximately 15.5 percent above the
    fiscal year 2004 appropriation, is for initiatives designed to address
    the increasing threats to the health of American agriculture and
    Homeland Security and to support the President's Food and Agriculture
    Defense Initiative. About 40 percent of the increase, approximately
    $45.4 million, is an investment to substantially reduce the over $378
    million fiscal year 2003 emergency transfers and to protect and expand
    the $53 billion annual agricultural export market by fully funding
    Federal costs up front in the budget. Other notable increases stem from
    the highest priority components of APHIS' Strategic Plan and the Food
    and Agriculture Defense Initiative. APHIS' request for fiscal year 2005
    contains $94.36 million for programs that support the Food and
    Agriculture Defense Initiative, an increase of nearly $50 million over
    fiscal year 2004.
    highest priority components of the strategic plan and homeland security
        APHIS proposes to increase funding for the Biotechnology Regulatory
    Services program by $6.544 million. This will enable us to inspect all
    high risk fields five times during the growing season and two times in
    the subsequent season to provide the maximum confidence level that
    pharmaceutical and industrial developments are managed safely. Such a
    confidence level is necessary to convince skeptics and trading partners
    that these, and other biotechnologically derived products, are safe.
    That confidence is vital to the growth of the industry and American
    agriculture.
        We propose to increase the Import-Export program by $3 million and
    the Pest Detection program by $1.5 million to fulfill APHIS'
    responsibilities under the Bioterrorism Preparedness and Response Act
    of 2002. APHIS must regulate possessors and users of ``select agents,''
    toxins and pathogens necessary for research and other beneficial
    purposes which could be deadly in the hands of terrorists.
        In light of the first BSE case in the United States, we propose
    increasing the Animal Health Monitoring and Surveillance program by an
    additional $8.641 million to support enhanced BSE surveillance to
    maintain the confidence of the American people in the safety of the
    beef supply and allow us to continue our efforts to prevent the
    introduction and spread of BSE in the U.S. cattle population. In this
    program, we also request $33.197 million to accelerate implementation
    of a National Animal Identification program. Timely tracebacks of
    animals are integral to a rapid response and recovery to incursions of
    animal illness and foreign animal disease.
        Early detection of new animal and plant pest or disease
    introductions has the potential to significantly reduce eradication
    costs and producer losses and, accordingly, is a high priority for
    APHIS. We propose to increase the funding available to our State
    cooperators through cooperative agreements for plant pest surveys and
    animal health monitoring efforts by $15.2 million (including $9.1
    million for the Pest Detection program and $6.1 million for the Animal
    Health Monitoring and Surveillance program). In addition to requesting
    increased funding to provide to our cooperators, we are proposing a
    $6.202 million increase for the Pest Detection program to enhance our
    pest detection infrastructure and national coordination efforts. By
    establishing basic capacity in all 50 States now, we will enhance our
    ability to find and contain pests and diseases like citrus canker,
    Asian longhorned beetle, emerald ash borer, Karnal bunt, exotic
    Newcastle disease, and avian influenza before they become widespread
    and require expensive emergency eradication programs. Similarly, we
    request an increase in the Wildlife Services Operations program by $5
    million to expand infrastructure to monitor and gather data on the
    disease status of free-ranging animals and integrate this data with
    existing agricultural animal health monitoring systems. APHIS will use
    this information to detect and respond to disease outbreaks in wildlife
    populations and mitigate the risk of wildlife diseases transmission to
    farmed livestock.
        The budget requests a $5 million increase for the Biosurveillance
    program to enhance several data collection systems already in use,
    allowing us to improve our surveillance capabilities and establish
    connectivity with the integration and analysis function at DHS.
        The increase of $3.149 million in the Trade Issue Resolution and
    Management program will allow APHIS to place more officials overseas to
    facilitate the entry of U.S. agricultural products and to help
    establish international standards based on sound science. Having APHIS
    attaches on site in foreign countries pays dividends weekly. They can
    intervene when foreign officials raise false barriers to the entry of
    individual American export shipments. In 2002, APHIS attaches
    successfully intervened to clear shipments worth $53 million in such
    cases.
        We propose to increases the Low Pathogenic Avian Influenza (LPAI)
    program by $11.783 million to conduct a vigorous surveillance and
    control program in the live bird markets in the Northeast--the most
    threatening continuing reservoir of LPAI in the United States.
    Eliminating LPAI in these markets would help prevent costly eradication
    programs like the one we conducted in Virginia in 2002. It also would
    remove a barrier to poultry exports--a $2.2 billion market--that many
    countries have or are threatening to invoke. OIE is likely to upgrade
    LPAI status to ``List A,'' which could result in more restrictions on
    our exports if we do not move to eradicate LPAI in the United States.
        We also propose to increase the Foot and Mouth Disease/Foreign
    Animal Disease program by $4.229 million to further our goal of
    reducing domestic threats through increased offshore threat assessment
    and risk-reduction activities by placing more officers overseas to
    monitor animal disease incidence and assist foreign countries in
    controlling outbreaks. We propose to increase the Pest Detection
    program by $3.875 million to do the same for plant pests and diseases.
    We request an increase in the Tropical Bont Tick (TBT) program by
    $2.495 million to eradicate TBT from Antigua completely and quickly
    prevent threats to other islands already free, to control and eradicate
    TBT from St. Croix, and establish surveillance on other U.S. islands
    and mainland to determine if TBT has spread.
        We propose to increase the Emergency Management Systems program by
    $10.625 million to enhance animal health emergency preparedness
    throughout the United States and to establish a vaccine bank to
    complement the North American Foot and Mouth Disease Vaccine Bank. This
    additional resource would include vaccines or preventives for other
    foreign animal disease of significance. These efforts will help protect
    our Nation's meat, poultry, and livestock exports, which are valued at
    $7.7 billion annually, and the livestock and poultry industries
    overall, which are valued at $87 billion.
        The budget proposes an increase in the Veterinary Biologics program
    by $1.861 million to increase inspections, licensing, and testing of
    biotechnology-derived veterinary biologics and to enhance tools
    available to the national animal health laboratory network that would
    fulfill international standardization requirements. United States sales
    of agricultural biotechnology products (transgenic seeds [excluding
    rice and wheat], animal growth hormones, biopesticides, and other
    products) are projected to increase from $2.4 billion in 2003 to $2.8
    billion by 2006, an increase of $144 million annually.
        The budget proposes an increase in the Veterinary Diagnostics
    program by $4.347 million to enhance the national animal health
    laboratory network and continue its diagnostic work at the Foreign
    Animal Diseases Diagnostic Laboratory on Plum Island to provide
    critical services to the animal industry and help protect the United
    States herd against potential acts of bioterrorism.
        The request increases the Agricultural Quarantine Inspection
    program by $3 million to enhance operations at the National Germplasm
    and Biotechnology Laboratory to develop technology to detect and
    identify high-risk plant pathogens as well as protocols for quarantine
    testing. These efforts support APHIS' emergency response capabilities,
    eradication programs, pest exclusion activities, biotechnology
    permitting programs, and the newly mandated Select Agents program. This
    increase is offset by a decrease of $2.771 million associated with
    inter-line inspections in Hawaii and a decrease of $1.246 million for
    fiscal year 2004 equipment investments.
        The budget increases the Import/Export program by $1.355 million to
    fully develop and begin implementing an automated system to track
    animal and animal product movements. We are developing this tool in
    response to increasing global trade and travel and demands for
    increased efficiency in tracking animals and animal products entering
    and leaving the country.

                     FUNDING TO CONTINUE EMERGENCY PROGRAMS

        APHIS has been battling several pests and diseases that have
    entered or unexpectedly spread to new areas of the United States over
    the past few years. Finishing the job is important if we are to achieve
    the goals we established when these programs began. Chief among these
    goals is maintaining export markets. Only by aggressively attacking
    pest and disease introductions can we assure trading partners that the
    problems are not endemic to the United States and thus not a reason to
    ban our products from their markets. The budget requests, and the value
    of the industries and markets at stake, follow.
      --Emerald ash borer, $12.5 million, an increase of $11.009 million.
            This pest has emerged as a serious pest in the Northern Midwest
            States and threatens the ash saw timber industry, with a value
            of $25 billion. Much like the Asian Longhorned Beetle, this
            pest probably arrived via non-agricultural imports and reflects
            a new threat; not only do the contents of a container pose a
            risk, so does the container itself. The budget request would
            provide for Federal cost-sharing of 75 percent for this
            program.
      --Glassy-winged sharpshooter (vector of Pierce's Disease), $24
            million, an increase of $1.881 million. Without a program to
            control Pierce's Disease, the U.S. wine industry could face
            losses of $33 billion. The budget request would provide for
            Federal cost-sharing of 57 percent for this program.
      --Citrus Longhorned Beetle (CLHB), $325,000. The CLHB attacks over 40
            varieties of hardwood and fruit trees and has no natural
            enemies. The CLHB could cause $41 billion in losses to forest
            resources nationwide. The budget request would provide for
            Federal cost-sharing of 100 percent for this program.
      --Citrus Canker, $52.5 million, an increase of $19.071 million. This
            program protects the Florida citrus industry worth over $9
            billion. The budget request would provide for Federal cost-
            sharing of 57 percent for this program.
      --Infectious Salmon Anemia, $235,000. This program protects a part of
            the burgeoning aquaculture industry--salmon exports of over
            $100 million annually. The budget request would provide for
            Federal cost-sharing of 47 percent for this program.
      --Spring Viremia of Carp, $285,000. This program protects the common
            and silver carp industries, with a value of $2.8 billion. The
            budget request would provide for Federal cost-sharing of 77
            percent for this program.
      --Chronic Wasting Disease, $20.1 million, an increase of $1.478
            million. In addition to the potential spread to other species,
            this program directly protects the elk farming and antler
            industry (with annual gross receipts of $150 million) and
            white-tailed deer farms (with capital investments estimated at
            $2.5 billion). The budget request would provide for Federal
            cost-sharing of 77 percent for this program.
      --Bovine Tuberculosis, $20.9 million, an increase of $5.998 million.
            This program protects the entire livestock industry, which has
            annual earnings from exports of $5.4 billion. The budget
            request would provide for Federal cost-sharing of 57 percent
            for this program.
      --Scrapie, $20.9 million, an increase of $5.106 million. This program
            minimizes losses to sheep and goat producers, who currently
            incur annual losses of $20-25 million because of scrapie. The
            budget request would provide for Federal cost-sharing of 67
            percent for this program.

                                OTHER INCREASES

        We recognize the need for fiscal restraint, but believe that the
    following additional investments are important if we are to meet the
    challenges facing us.
      --To support the Biotechnology priority, we request an increase of
            $441,000 for the Animal and Plant Health Regulatory Enforcement
            program to help ensure compliance by investigating alleged
            violations of permit restrictions regarding pharmaceutical and
            industrial plants.
      --To further improve our pest and disease surveillance and detection
            capability--both to protect and gain export markets and to
            prevent recurring, costly emergency programs--we request $6.171
            million for the Fruit Fly Eradication and Detection Program to
            increase detection trapping in Florida and California.
      --To provide the funding requested by the State Department in
            providing adequate security for APHIS personnel overseas and to
            continue security and mission critical facilities, we request
            $7.133 million in our Physical/Operational Security program.
      --To establish and maintain liaison positions at key government
            agencies and to investigate and evaluate disposal techniques
            for contaminated biological materials, e.g., animal carcasses,
            we request $932,000 for our Biosecurity program.
      --To continue to modernize our information technology infrastructure
            to include network capacity planning and management,
            implementation of eGov initiatives, and cyber security
            compliance and management, we request $891,000 in our APHIS
            Information Technology Infrastructure program.
      --To increase nematode resistant potato varieties and regulatory
            treatments, we request $184,000 for the Golden Nematode program
            and to maintain current efficiencies, we request $451,000 in
            the Screwworm program.

                                   DECREASES

        To allow us to fund these high priority programs, we offer key
    offsets:
        With $15.585 million in reduced funding for the Johne's program,
    APHIS would rely more on the collaborative working relationship between
    Federal and State animal health workers. For the Boll Weevil program,
    we are proposing that the Federal Government assume 15 percent of
    program costs, which in conjunction with the projections of lower
    nationwide needs, will result in a request of $17 million, a reduction
    of $33.4 million. To offset the $5 million increase for the wildlife
    surveillance system, we assume a $5.556 million increase for State
    cooperators to fund a larger share of the cost of other wildlife
    management programs such as predator, bird, and invasive species
    damage. Funding for the Asian longhorned beetle program is requested to
    be $9.3 million, or a reduction of $20.670 million. The fiscal year
    2005 request is based on an overall program level consistent with the
    $4 million traditionally provided by cooperating (non-Federal)
    agencies. This would change the program from an eradication program to
    a control program. The aim is still to protect $41 billion of U.S.
    forest resources while facilitating the $122 billion trade market with
    China, the source of the pest.
        We also propose a reduction of $10.857 million associated with
    animal welfare user fees. This will allow the industry to cover an
    estimated 66 percent of the cost of enforcing the animal welfare
    regulations.

                                   CONCLUSION

        APHIS' mission of safeguarding U.S. agriculture is becoming ever
    more critical. Although the processes by which we protect America's
    healthy and diverse food supply are being increasingly challenged,
    APHIS is committed to taking the lead in building and maintaining a
    world-class system of pest exclusion, surveillance, detection,
    diagnosis, and response. Like the APHIS Strategic Plan, the APHIS
    Budget consists of interdependent components that only when taken
    together can truly protect the health and value of American agriculture
    and natural resources.
        On behalf of APHIS, I appreciate all of your past support and look
    forward to even closer working relationships in the future. We are
    prepared to answer any questions you may have.
                                     ______

        Prepared Statement of Donna Reifschneider, Administrator, Grain
               Inspection, Packers and Stockyards Administration

                                  INTRODUCTION

        Mr. Chairman and Members of the Committee, I am pleased to
    highlight the accomplishments of the Grain Inspection, Packers and
    Stockyards Administration (GIPSA), and to discuss the fiscal year 2005
    budget proposal.
        GIPSA is part of USDA's Marketing and Regulatory Programs, which
    works to support a competitive global marketplace for U.S. agricultural
    products. GIPSA's mission is to facilitate the marketing of livestock,
    poultry, meat, cereals, oilseeds, and related agricultural products,
    and to promote fair and competitive trading practices for the overall
    benefit of consumers and American agriculture.
        GIPSA serves in both service and regulatory capacities. The Packers
    and Stockyards Programs promote a fair, open, and competitive marketing
    environment for the livestock, meat, and poultry industries. The
    Federal Grain Inspection Service provides the U.S. grain market with
    Federal quality standards, a uniform system for applying these
    standards, and impartial, accurate grain quality measurements that
    promote an equitable and efficient grain marketing system. Overall,
    GIPSA helps promote and ensure fair and competitive marketing systems
    for all involved in the merchandising of livestock, meat, poultry, and
    grain and related products.

                                  ORGANIZATION

        GIPSA comprises 737 employees. Grain inspection services are
    delivered by the national inspection system, a network of Federal,
    State, and private inspection personnel that is overseen by GIPSA. The
    system includes 12 GIPSA field offices, 2 Federal/State offices, and 8
    State and 58 private agencies that are authorized by GIPSA to provide
    official services. This network insures the availability of official
    inspection and weighing services anywhere in the United States. GIPSA
    also maintains 3 Packers and Stockyards Programs regional offices that
    specialize in poultry, hogs, and cattle/lamb.

                        PACKERS AND STOCKYARDS PROGRAMS

        GIPSA's Packers and Stockyards Programs (P&SP) administers the
    Packers and Stockyards Act (P&S Act) to promote fair and open
    competition, fair trade practices, and financial protection in the
    livestock, meat packing, meat marketing, and poultry industries. The
    objective of the P&S Act is to protect producers, growers, market
    competitors, and consumers against unfair, unjustly discriminatory, or
    deceptive practices that might be carried out by those subject to the
    P&S Act. To meet this objective, GIPSA seeks to deter individuals and
    firms subject to the P&S Act from engaging in anti-competitive
    behavior, engaging in unfair, deceptive, or unjustly discriminatory
    trade practices, and failing to pay livestock producers and poultry
    growers. GIPSA initiates appropriate corrective action when there is
    evidence that firms or individuals have engaged in anti-competitive,
    trade, payment or financial practices that violate the P&S Act.
        The livestock, meatpacking, and poultry industries are important to
    American agriculture and the Nation's economy. With only 166 employees,
    GIPSA regulates these industries, estimated by the Department of
    Commerce in fiscal year 2002 to have an annual wholesale value of $118
    billion. At the close of fiscal year 2003, 5,287 market agencies and
    dealers, and 2,067 packer buyers were registered with GIPSA. In
    addition, there were 1,429 facilities that provided stockyard services,
    with an estimated 6,000 slaughtering and processing packers, meat
    distributors, brokers and dealers, and 128 poultry firms running 202
    poultry complexes operating subject to the P&S Act.
        Our regulatory responsibilities are the heart of our mission to
    administer the P&S Act. To this end, GIPSA closely monitors practices
    that may violate the P&S Act. Our top priority continues to be
    investigating complaints alleging anti-competitive, unjustly
    discriminatory, or unfair practices in the livestock, meat, and poultry
    industries. Last year, GIPSA conducted over 1,700 investigations. As a
    result of these investigations, the Packers and Stockyards Programs
    helped restore over $27 million to the livestock, meatpacking, and
    poultry industries. While this is not the largest amount GIPSA has ever
    reported to Congress, it constitutes more than the amount that P&SP
    received in appropriated funding.
        GIPSA divides its regulatory responsibilities into three areas:
    financial protection, trade practices, and competition. In the area of
    financial protection, GIPSA continued to provide payment protection to
    livestock producers and poultry growers in a year where the livestock,
    meatpacking, and poultry industries faced tremendous financial
    pressures. Financial investigations last year resulted in $3.2 million
    being restored to custodial accounts that are established and
    maintained for the benefit of livestock sellers. Livestock sellers
    recovered over $1.5 million under the P&S Act's packer trust
    provisions. During fiscal year 2003, 55 insolvent dealers, market
    agencies and packers corrected or reduced their insolvencies by $6.6
    million. In addition, GIPSA's financial investigators analyzed more
    than 400 bond claims exceeding $7 million. However, GIPSA has no
    statutory authority to compel payment by the trustee or bond surety.
        In its Trade Practices Programs, GIPSA continued to promote fair
    trading between industry participants. Much of GIPSA's work in the
    Trade Practices Program focuses on insuring accurate weights and
    prices. GIPSA continued to work with local states weights and measures
    programs to provide scale training and to secure testing of every scale
    used to weigh livestock or live poultry twice a year. In addition,
    GIPSA initiated or completed 41 investigations of weight and price
    manipulation of livestock. Some of these investigations are on-going.
    GIPSA also investigated the operations of 143 live poultry dealers;
    most of these investigations examined whether live poultry dealers were
    in compliance with contracts entered into with poultry growers. With
    members of the regulated industries, we developed industry standards on
    new technologies that are entering the marketplace to evaluate and
    price livestock purchased on a carcass merit basis. We anticipate
    implementing two more voluntary standards in the next 6 months.
        GIPSA continues to develop its Competition Program. During fiscal
    year 2003, the Competition Branch began or continues evaluations of 31
    complaints regarding attempted restriction of competition, failure to
    compete, buyers acting in concert to purchase livestock, apportionment
    of territory, unlawful price discrimination, and predatory pricing. Of
    these complaints, one firm was brought into compliance, and a second
    firm went out of business. Six of the investigations revealed that the
    concerns raised were not supported by evidence. 23 complaints were
    still pending at the end of the fiscal year. GIPSA continues to work
    closely with the CFTC, attending CFTC Commissioner briefings on the
    cattle, hog, and meat markets.
        GIPSA's Rapid Response Teams remain a powerful tool to address
    urgent industry issues that place the industries in imminent financial
    harm. Last year, GIPSA rapid response teams investigated 59 situations
    across the Nation. During fiscal year 2003, these rapid response
    investigations contributed to returning $5.9 million to livestock
    producers and poultry growers at a cost of $413,010 in salary and
    travel expenses.
        GIPSA continues to work with violating firms to achieve voluntary
    compliance, and GIPSA continues to initiate appropriate corrective
    action when we discover evidence that the P&S Act has been willfully
    violated. During fiscal year 2003, GIPSA, with assistance from the
    Office of the General Counsel, filed 22 administrative or justice
    complaints alleging violations of the P&S Act. This number, similar to
    last year, represents more than a 50 percent increase over the number
    of complaints filed in fiscal year 2001.
        To ensure that producers and growers are aware of the protections
    the P&S Act provides, the Agency provides a hotline (1-800-998-3447) by
    which stakeholders and others may anonymously voice their concerns.
    Last year GIPSA responded to and investigated issues raised by 88
    callers. These calls were in addition to calls received in our regional
    offices. GIPSA also increased its outreach activities. GIPSA conducted
    28 orientation sessions for new auction market owners and managers and
    4 feed mill orientations to educate them about their fiduciary and
    other responsibilities under the P&S Act.
        It is important to note some of the activities that GIPSA has been
    engaged with in recent months. Following the discovery of the bovine
    spongiform encephalopathy (BSE) positive cow in December, 2003, GIPSA
    created Financial Protection, Trade Practices and Competition Task
    Forces to provide protection to livestock producers and members of the
    cattle industry commensurate with its authority under the Packers and
    Stockyards Act. These task forces are based in Denver, Colorado,
    GIPSA's cattle office, and include technical experts from each of
    GIPSA's regional offices and headquarters. The task forces have
    developed strategies to identify and respond to potentially unlawful
    practices unique to current market conditions. Daily Agency-wide
    meetings are being held to inform and share all BSE related information
    so that employees, task forces, and headquarters are all current on the
    latest issues.
        GIPSA's Financial Protection Task Force is monitoring livestock
    markets for financial failures. The Task Force has identified scheduled
    sales at auction markets that were cancelled in the days and weeks
    following the BSE announcement. It's monitoring firms likely to be more
    vulnerable to impacts of the BSE incident, identifying industry changes
    in payment practices, and standing ready to deploy rapid response teams
    to investigate financial concerns in the industry. GIPSA is currently
    conducting several investigations of particularly financially
    vulnerable firms.
        GIPSA's Trade Practices Task Force is reviewing changes in
    marketing and procurement practices implemented by packers in response
    to the BSE incident. GIPSA has been in contact with major packers and
    industry groups to stay current on packer responses. GIPSA is reviewing
    notices sent by packers to livestock producers informing producers of
    purchasing and pricing changes implemented as a result of BSE. GIPSA
    has received complaints from producers who claim that packers have
    changed the payment terms of their contracts and has deployed rapid
    response teams to investigate these complaints. GIPSA's Competition
    Task Force is analyzing, and when warranted, investigating cattle
    markets when anti-competitive practices may be occurring. Several
    investigations have been initiated. The Competition Task Force analyzes
    reported fed-cattle prices in various geographic markets to identify
    abnormal patterns that may indicate violations of the P&S Act. The task
    force assesses whether price differences are the result of normal
    market forces, or packer behavior that may violate Section 202 of the
    P&S Act. When normal market forces fail to explain abnormal prices, the
    Competition Task Force conducts a rapid response investigation to
    determine whether the P&S Act has been violated.
        GIPSA has also communicated with the Commodity Futures Trading
    Commission (CFTC), the Agricultural Marketing Service, Food Safety and
    Inspection Service, the Animal and Plant Health Inspection Service, and
    local and State governmental organizations to discuss issues and
    coordinate plans. GIPSA attends CFTC's surveillance meetings and is
    prepared to work with CFTC on any investigation that may involve a
    potential violation of the P&S Act. GIPSA is actively responding to the
    BSE incident and is prepared to continue enforcement of the Packers and
    Stockyards Act and regulations in light of this situation.
        In addition, this year GIPSA made significant progress on the
    Livestock and Meat Marketing Study for which Congress appropriated $4.5
    million in fiscal year 2003. The study will look at issues surrounding
    a ban on packer ownership. GIPSA, through APHIS, is in the process of
    contracting out the study. Since packers' use of non-spot arrangements
    is intertwined with other advance marketing arrangements throughout the
    supply chain, the study has a broad focus.
        The issues addressed by the study are complex. The research is
    expected to involve several academic disciplines, varied research
    methods, and large amounts of data that are not already available.
    Business schools, economics departments, and agricultural economics
    departments at universities have indicated an interest in bidding, as
    have consulting firms. GIPSA expects to see collaborations of
    disciplines in the bids.
        Contractors are expected to complete the study in phases over 2
    years, with the first reports due 1 year after contract award. Some
    descriptive findings will be released prior to completion of the
    analytical parts of the study. Information about the study, including
    the Federal Register notice, the public comments, and RFP notices, is
    available on GIPSA's website at: www.usda.gov/gipsa, by following the
    ``marketing study'' icon.
        Also in fiscal year 2003, GIPSA completed development of the Swine
    Contract Library as an internet application that meets the requirements
    of the Livestock Mandatory Reporting Act of 1999's amendments to the
    Packers and Stockyards Act. Packers are required to file swine purchase
    contracts with GIPSA, and monthly reports about the number of swine
    expected to be delivered, under contract, to packers.
        The Swine Contract Library includes information from swine packing
    plants with a slaughter capacity of 100,000 swine or more per year. 31
    firms operating 51 plants accounting for approximately 96 percent of
    industry slaughter are subject to the SCL. GIPSA has received over 530
    contracts to date. In the first 2 months of operation, the SCL recorded
    more than 1,400 hits. Through the SCL, producers have the ability to
    see contract terms, including, but not limited to, base price
    determination formula and the schedules of premiums or discounts, and
    packers' expected annual contract purchases by region.
        The Swine Contract Library went live with information on contract
    provisions available to the public in early fiscal year 2004, and is
    available on the GIPSA web site at http://www.usda.gov/gipsa/.

                        FEDERAL GRAIN INSPECTION SERVICE

        GIPSA's Federal Grain Inspection Service (FGIS) facilitates the
    marketing of U.S. grain in domestic and international markets by
    providing the market with services and information that effectively and
    accurately communicate the quality and quantity of grain being traded.
    GIPSA administers its inspection and weighing programs under the
    authority of the U.S. Grain Standards Act, as amended, and the
    Agricultural Marketing Act of 1946 (AMA) as it relates to the
    inspection of rice, pulses, lentils, and processed grain products.
        Providing reliable, high quality inspection and weighing services
    at a reasonable price remains a key commitment of GIPSA and the State
    and private officials comprising the official inspection system.
    Federal export inspection services average $0.30 per metric ton, or
    approximately 0.23 percent of the $14 billion value of U.S. grain
    exports. In fiscal year 2003, more than 1.8 million inspections were
    performed on more than 222 million metric tons of grains and oilseeds.
    Over 84,000 weighing certificates were issued on 91.5 million metric
    tons of grain.
        There have been many changes in official inspection services over
    the past several years to respond to changing market demands. GIPSA has
    programs and services in place to facilitate the loading of shuttle
    trains; to address greater product differentiation; and to provide
    customers with inspection results electronically. These all represent
    steps in the right direction, but we recognize that the market is
    changing daily and we must change with it to remain relevant.
        GIPSA is focusing on a number of key areas to better facilitate the
    marketing of U.S. grain. We are enhancing our international outreach
    capabilities to remove obstacles to U.S. grain reaching world markets.
    We are bringing standardization to domestic and international markets.
    We are focusing on providing the market with the information it needs
    on the end-use functional quality attributes of grain that determine
    its true value in an increasingly quality-specific market. We are
    improving service delivery, and the efficiency and cost-effectiveness
    of the official system.
        International outreach is one component of our efforts to
    facilitate the marketing of U.S. grain. We will continue to expand our
    outreach efforts to support market development around the world. Our
    international customers are making great use of the wide array of
    recently produced multimedia educational materials.
        In recent years, we have significantly expanded our outreach
    efforts to ensure open markets for U.S. grain in Asia and Mexico. Last
    year, GIPSA initiated two 3-month regional assignments, one in Asia and
    one in Mexico, to address immediate and long-term grain marketing
    issues in each region. In Mexico, GIPSA has worked extensively with
    APPAMEX (an organization of Mexican grain importers), the USDA/Foreign
    Agricultural Service (FAS), and USDA cooperator organizations to
    address Mexico's concerns about U.S. grain quality. We have conducted
    in-depth grain grading seminars to educate Mexican buyers, traders, and
    end users on the U.S. grain marketing system, GIPSA's impartial grain
    quality assessment, and U.S. grain standards, sampling procedures, and
    inspection methods. In fiscal year 2003, GIPSA also helped several of
    Mexico's private sector grain elevators and processing facilities set
    up grain inspection laboratories mirrored after GIPSA's. Last fiscal
    year, we also worked with Mexican and Canadian officials to secure a
    trilateral agreement on implementation of the Biosafety Protocol.
        Our international outreach program also includes technical
    consultative services for international customers. In fiscal year 2003,
    GIPSA responded to 17 requests for technical assistance from exporters,
    importers, and end users of U.S. grains and oilseeds, as well as other
    USDA agencies, USDA Cooperator organizations, and other governments.
        Our international outreach are not the only initiatives we have
    underway to improve the standardization of, and in turn, facilitate
    marketing in, domestic and international markets. In the biotech arena,
    GIPSA is helping bring standardization, consistency, reliability, and
    accuracy to the biotech testing entities and tools used by the market.
    GIPSA's test kit evaluation program validates the performance of rapid
    tests for biotechnology-derived grains and oilseeds. Our Proficiency
    Program improves the performance and reliability of government and
    private laboratories in the United States and worldwide that test for
    biotechnology-derived grains. Under this voluntary program,
    participants are evaluated based on results of their quantitative and/
    or qualitative testing of samples of all commercially available corn
    and soybean biotechnology events. More than 88 organizations
    participated in the program in fiscal year 2003, a threefold increase
    from 22 organizations in February 2002.
        In fiscal year 2002, GIPSA established formal research
    collaboration with the National Institute of Science and Technology
    (NIST) to investigate DNA-based testing for biotechnology-derived
    grains and oilseeds, and to investigate the development of reference
    materials and methods for DNA-based testing. Using information obtained
    through confidentiality agreements with life science organizations,
    GIPSA and NIST produced event-specific plasmids for evaluation as
    reference materials and potentially to be in the development of
    reference methods. In fiscal year 2003, GIPSA and NIST hosted a
    workshop entitled AStandard Reference Materials for Biotechnology
    Crops.'' Thirty-six representatives from the life science
    organizations, testing laboratories, test kit manufacturers, food
    processors, Canada, European Union, and Japan attended.
        In fiscal year 2004, GIPSA will continue to collaborate with NIST
    to investigate challenges associated with Polyermase Chain Reaction
    (PCR) technology and develop reference materials to improve the
    reliability and accuracy of DNA-based testing and to harmonize testing
    on a global basis, and will continue to work with NIST to establish
    global agreement on the development of reference materials for
    biotechnology-derived grains and oilseeds.
        Our market facilitation efforts also include bringing standardized
    information to markets. In 1999, wheat importers and exporters asked
    GIPSA to declare that the United States does not produce transgenic
    wheat. In September 1999, GIPSA began, in accordance with the authority
    provided under the U.S. Grain Standards Act (7 U.S.C. 79), issuing the
    following letterhead statement upon an applicant's request: ``There are
    no transgenic wheat varieties for sale or in commercial production in
    the United States.'' The potential deregulation of Round-Up Ready wheat
    added potential uncertainty to world markets. Wheat industry
    representatives anticipate that continued issuance of the current
    statement will be essential to ensure the continued marketing of U.S.
    wheat. To facilitate the marketing of U.S. wheat if deregulation
    occurs, GIPSA has agreed to continue issuing the non-transgenic wheat
    statement, upon request, provided that Monsanto meets several
    requirements verifying that seed has not been sold for commercial
    production.
        GIPSA also continues to ensure that the official United States
    standards are responsive to the needs of the domestic marketplace.
    Developments in plant breeding, the use of new marketing strategies
    such as identity preservation, increasingly complex processing, food
    manufacturing, and feed formulation, and other factors will
    continuously challenge GIPSA to promote current, market-relevant grades
    and standards that reflect required quality characteristics for
    specific end uses. In fiscal year 2003, GIPSA proposed creating two
    subclasses in the class Hard White wheat, which would differ based on
    seed coat color. Seed coat color can be an important quality factor
    depending on the target flour product and the miller's flour extraction
    goal. Also underway are reviews of the soybean standards with a focus
    on test weight, and the sorghum standards to clarify the various class
    definitions and to revise the definition of non-grain sorghum.
        Working closely with barley producers and the barley malting
    industry, GIPSA began developing new official criteria called
    ``Injured-by-Sprout'' in malting barley. Sprouting occurred in barley
    in the U.S. Northern Plains region during 2002, which prevented malting
    barley production contracts from being honored. Barley producers'
    insurance claims also were denied because official procedures to assess
    barley sprout damage differ from those used by the malting industry.
    GIPSA's response is facilitating the marketing of malting barley by
    enabling USDA's Risk Management Agency to implement the new procedure
    for the 2004 barley crop year.
        Other standards enhancements undertaken to facilitate marketing in
    fiscal year 2003 include amendments to the U.S. Standards for Rice to
    establish and add Ahard milled ``rice as a new milling degree level and
    to eliminate the reference Alightly milled.'' These changes better
    align the GIPSA standard with current industry processing and marketing
    standards.
        GIPSA knows that customers also need more information about the
    specific end-use qualities of the products they are purchasing. We are
    focusing on providing rapid testing of end-use functionality factors to
    differentiate the functional qualities that meet specific end-use
    needs.
        GIPSA continues cooperative efforts with groups from Canada,
    Australia, and several European countries to develop and evaluate
    global artificial neural network (ANN) near-infrared transmittance
    (NIRT) calibrations for wheat and barley protein. GIPSA conducted a
    field study on current partial least squares (PLS) wheat protein
    calibrations and the global ANN calibration. GIPSA also evaluated the
    field performance of the ANN barley protein calibration. In fiscal year
    2004, GIPSA will finalize individual instrument standardization
    procedures to support implementation of an ANN calibration for wheat
    and barley protein.
        In April 2003, GIPSA convened a meeting of leading North American
    wheat researchers to generate new avenues of research that would lead
    to rapid tests for wheat end-use functional characteristics, applicable
    at the time of inspection and at other points in the value chain.
    Participants developed a list of quality factors and possible technical
    approaches for measuring them, with the overarching goal of having a
    market applicable test ready for use by May 2006. To help keep
    researchers focused on the task, GIPSA will establish a virtual
    discussion room for researchers to further collaboration on and support
    for this effort, and to help researchers find extramural grant sources.
        GIPSA is working with the United Soybean Board on their ``Better
    Bean Initiative,'' a program directed at improving the nutritional
    composition of U.S. soybean meal and oil. USDA/ARS currently is
    receiving funding to develop measurement technology for meal and oil.
    GIPSA is taking part in the Soybean Quality Trait initiative that is
    seeking to standardize soybean protein, oil, moisture, and fatty acid
    measurements. GIPSA is part of an inter-laboratory collaborative study
    to evaluate the consistency of soybean protein, oil, and moisture
    reference methods. GIPSA is also helping to assemble a soybean sample
    library suitable for use in developing and evaluating near-infrared
    (NIR) calibrations.
        GIPSA is also exploring new approaches to compliment and supplement
    our traditional array of services. In fiscal year 2003, GIPSA continued
    developing a process verification service for grains in response to
    market demand.
        Our efforts to develop new programs did not preclude us from making
    significant improvements to existing ones. During fiscal year 2003,
    GIPSA revised the regulations on reinspections and appeal inspections
    under the U.S. Grain Standards Act to better reflect market needs and
    to remove an inefficient, costly, and unnecessary regulatory
    requirement. Previously, reinspections and appeal inspections for grade
    included a review of all official factors that may determine the grade,
    are reported on the original certificate, or are required to be shown.
    The revised regulations allow interested parties to specify which
    official factor(s) should be redetermined during the reinspection or
    appeal inspection service. To safeguard against inadvertent misgrading,
    official personnel may determine other factors, when deemed necessary.
    In fiscal year 2004, GIPSA plans to propose a similar action for rice
    and pulses and other commodities that are inspected for quality factors
    under the authority of the Agricultural Marketing Act of 1946.
        Improving service delivery is essential, as is improving the
    efficiency and cost-effectiveness of the official system. This will
    include many initiatives, ranging from harnessing technology to improve
    operational efficiency and service delivery to making needed program
    policy changes.
        In addition, GIPSA has dedicated resources to homeland security
    efforts. GIPSA continues to work closely with the USDA Office of Crisis
    Planning and Management (OCPM) to refine the Department's and the
    Agency's Continuity of Operations Plan (COOP) and to support and staff
    the Department's Crisis Action Team (CAT). In fiscal year 2003, GIPSA's
    COOP and CAT representatives participated in numerous USDA and
    Marketing and Regulatory Program-sponsored disaster-related exercises
    and training sessions. They also completed the GIPSA Supplement to the
    USDA Headquarters COOP Plan, which provides guidance for the
    continuation/reestablishment of GIPSA's COOP essential functions,
    including identifying GIPSA's emergency relocation facilities where
    these functions will be performed and GIPSA personnel who will be
    required to perform them. The provisions of the GIPSA Supplement, which
    mirrors the USDA Headquarters COOP Plan, applies only to GIPSA
    headquarters offices in Washington, D.C.
        GIPSA provided technical assistance related to homeland security
    issues to a number of industry and governmental groups, including the
    National Grain and Feed Association Safety Committee, the Security
    Analysis System for U.S. Agriculture (SAS-USA) Technical Advisory
    Committee, the Interagency Food Working Group, and the USDA Homeland
    Security Working Group. The Agency is currently working with the
    National Food Laboratory Steering Committee to coordinate and integrate
    resources to support the key components of the Food Emergency Response
    Network (FERN).
        GIPSA also continued to face challenges in maintaining an
    appropriate operating cushion in its user fee account. During fiscal
    year 2003, GIPSA transferred $2 million from our appropriated account
    to preclude fiscal over-obligation in violation of the Anti-Deficiency
    Act. As of May 31, 2003, the cash balance of GIPSA's user fee account
    had fallen to $2.9 million, a dangerously low amount considering
    GIPSA's monthly obligations of about $3.0 million.
        Due to flat or decreasing exports, and marketing trends that are
    reducing revenue generated by our current fee structure, there has been
    a persistent gap between costs and revenue. GIPSA has absorbed losses
    in its reserve user fee funds. GIPSA has executed many cost-cutting
    measures to reduce obligations. The Agency has cut employment levels,
    closed field and sub-offices, streamlined support staffs, and
    introduced new technology to improve program efficiency.
        In the longer term, GIPSA is pursuing several options to preclude
    future funding difficulties, including implementing a new fee schedule.
    Program efficiencies, such as streamlining the official inspection
    processes using a web-based technology and re-engineering program
    delivery, and opening discussions with stakeholders on how and by whom
    official inspection services should be delivered to American
    agriculture were undertaken. 2005 Budget Request
        To fund important initiatives and address the Agency's
    responsibilities, GIPSA's budget request for fiscal year 2005 is $44.1
    million under current law for salaries and expenses and $42.5 million
    for our Inspection and Weighing Services. There is an increase of
    $662,000 for employee compensation. GIPSA already submitted legislation
    last fall which would collect $29.0 million in new user fees in fiscal
    year 2005, $5.8 million for the grain standardization activities and
    $23.2 million for the Packers and Stockyards Programs. A substantial
    portion of the IT increases will be one-time only requests.
        For grain inspection, the President's fiscal year 2005 budget
    proposes a current law request of $20.0 million; a total increase of
    $1.8 million.
        An increase of $1,300,000 would allow GIPSA to merge data from
    several Agency computer information systems for efficient oversight and
    management of the official grain inspection system and to provide on-
    demand, Web based access to this data by our partners, customers, and
    GIPSA personnel. Management needs a single source to capture
    information about each inspection provided to track work
    accomplishment, technical analysis, and compliance verification. With
    the information reported, GIPSA will be able to automate the generation
    of billings records that will be used by the NFC FFIS to generate the
    invoice for each customer. GIPSA will also use the data system to
    automatically document and generate a statement of fees owed by each
    customer on a monthly basis.
        By implementing this application, GIPSA will be able to retire two
    Unix applications and the computer equipment that it runs on. Retiring
    these Unix applications will allow GIPSA to move towards achieving its
    goal of a common computing environment within and between FGIS and
    P&SP, free up one half of a staff year required today for support, and
    eliminate dependency for support of this application to a single
    developer.
        Also requested is $500,000 to expand GIPSA's technical outreach in
    key international markets, which is required because GIPSA has
    experienced a growing demand for cooperative participation with other
    agencies with international trade responsibilities--for example, State
    Department, U.S. Trade Representative (USTR), Foreign Agricultural
    Service (FAS), and the Animal and Plant Health Inspection Service
    (APHIS)--toward achieving our overall mutual objective of expanding
    markets for agricultural products and removing barriers to trade.
        Modern biotechnology has presented new challenges to U.S. grain
    markets as many countries develop domestic regulations regarding
    biotech grains. GIPSA has served the international grain trade
    community by developing programs to address these emerging needs, and
    working with related agencies--State, USTR, FAS, and APHIS, among
    others--to share information regarding these programs and contribute
    our expertise. For example, China announced broad biosafety regulations
    2 years ago that continue to threaten U.S. soybean exports. Partner
    agencies have sought GIPSA's active participation in negotiations
    challenging this technical barrier to trade. Such issues are likely to
    increase in number and frequency in the future.
        As another example, a new international environmental treaty, the
    Biosafety Protocol, which entered into force in September 2003,
    requires new documentation on biotech grain shipments, and many
    countries already are developing regulations that are unnecessarily
    trade-disruptive. During the years ahead, it will be essential for
    GIPSA to continue in what has been its integral role in an interagency
    process for implementation of the Protocol by contributing expertise in
    grain handling, transportation, and marketing, to prevent unnecessary
    trade disruption.
        The funding increase will enable GIPSA to provide personnel on
    overseas temporary duty to better address and resolve grain trade
    issues, precluding market disruption due to technical differences in
    analytical methods and standards; expand U.S. market share due to
    increased customer satisfaction; and continue to provide critically
    important technical support as the U.S. government seeks to ensure
    practical implementation of new regulatory requirements being developed
    by a growing number of trading partners.
        For the Packers and Stockyards Programs, the President's fiscal
    year 2005 budget proposes a current law request of $24.2 million; a
    total increase of $3.81 million.
        An increase of $1,460,000 for the development of web applications
    which is required because the current database and application
    architecture will not support the volume, security, or recovery
    requirements of GIPSA and USDA as GIPSA moves to support GPEA and OMB
    and USDA eGov initiatives. Further, the Enterprise Architecture project
    completed in 2003 identified fifteen (15) business functions that are
    not supported by any applications within the Packers & Stockyards
    Programs area, seven of those being key business functions. In
    addition, the current applications lack integration on the information
    that is common between the applications, hence requiring duplication
    (albeit minimal) information entry by program users.
        To enable the timely implementation of customer-centric
    applications within the Packers and Stockyards Program, additional
    Information Technology developmental resources are required. Currently
    the Packers and Stockyards Program does not have the web designers or
    programmers that would allow it to rapidly and accurately deploy Web-
    based applications. To supplement the current information technology
    staff and to bring new technology into the program area, GIPSA is
    requesting contracting funds.
        These funds would be used to contract-out the design, development,
    implementation, and maintenance of important Web initiatives as
    identified as part of GIPSA's overall Enterprise Architecture and
    approved by USDA's OCIO. For example, with the requested funding,
    entities regulated under the Packers and Stockyards Act would be able
    to register with GIPSA via the internet, electronically file annual
    reports, and submit bond claims and complaints via the internet. GIPSA
    would be able to increase its efficiency by electronically verifying
    bond and trust accounts with banks, the integration of three stove
    piped applications, and the real-time tracking of the status and cost
    of an investigation. (The submission of annual reports alone would save
    GIPSA over 1,500 hours annually by personnel that are GS14s and 15s.)
    This would allow the Resident Agents to complete an additional 200
    investigations in the future.
        An increase of $150,000 is required to operate and maintain the
    Swine Contract Library (SCL), which is one of GIPSA's Packers and
    Stockyards Programs' (P&SP) first e-government initiatives. As such,
    GIPSA has developed an Internet web site that offers packers the
    opportunity to submit their contracts and anticipated number of hogs
    procured under contract to GIPSA via a secured connection and producers
    the opportunity to view contract information via the Internet.
        The funding increase will be used to operate and maintain the SCL
    system. This position will monitor, review, and analyze the contract
    information and monthly reports submitted by packers, ensure that
    packers are in compliance by examining submissions for completeness,
    consistency, and accuracy, conduct confidentiality analysis on
    information before release, and make the information available at the
    P&SP regional office and on the GIPSA web site. The increase will also
    fund Information Technology services and the annual renewal cost for
    computer software licenses. This IT position will provide software,
    hardware, and web site maintenance for the SCL program.
        An increase of $1,200,000 to support fair and transparent product
    differentiation and valuation which is required because packers
    significantly reduced the numbers of livestock purchased based on live
    weight in recent years. In a stated effort to better meet consumer
    demand and provide greater ``value,'' packers and producers began
    trading livestock through contract and marketing agreement or formula-
    priced transactions. In conjunction with this change in marketing
    methods, packers explored and began using new means of automating the
    evaluation of live cattle and hogs, and carcasses based on new
    technologies, including among other methods, ultrasound and
    photographic imaging.
        Technologies and their applications for evaluating the quality of
    both live animals and carcasses are changing at an accelerating pace.
    Previously, carcass merit purchases were generally based on a carcass
    weight and often one or two grades assigned by USDA graders. Today,
    packers increasingly rely on internally assigned measures of carcass
    quality using modern and complex technologies.
        Live poultry dealers, as well, are exploring new technologies to
    assist in evaluating the quality of birds obtained from poultry
    growers. Implementation of new technologies in the poultry industry may
    supplement or replace the current methods used by live poultry dealers
    to determine bird quality and payment to growers, including contract
    growers.
        The technologies now being implemented by packers have a direct
    effect in determining the prices paid to producers for livestock.
    Technologies being developed by live poultry dealers will likely affect
    prices paid to poultry growers. These changes introduce new risks for
    producers and growers, because these new technologies are not
    standardized and their accuracy is inconsistent.
        This lack of standardization and inconsistent accuracy makes it
    difficult for producers and growers to detect errors and deliberate
    changes in the way the technology is used, leaving producers and
    growers vulnerable to unfair and unjustly discriminatory practices by
    members of the meat packing and poultry industries. A change that
    affects as little as one half of 1 percent of the value of livestock in
    a multi-billion dollar industry can have a huge impact on producers and
    growers over time. Therefore, P&SP needs to dramatically increase its
    monitoring and regulatory presence.
        This increase in funding will provide P&SP ongoing funding to
    obtain industrial engineering expertise in the operation of these new
    electronic evaluation technologies and the methods in which packers and
    live poultry dealers use them; to develop enforcement tools,
    investigation techniques and regulatory policies necessary to continue
    to effectively regulate the meat packing and poultry industries, and
    when appropriate, initiate enforcement action; to educate and inform
    the meat packing and poultry industries about responsibilities under
    the P&S Act with regard to these new technologies; and to educate and
    inform livestock producers and poultry growers about how the electronic
    evaluation technologies are used in the meat packing and poultry
    industries, and how the technologies are regulated by P&SP.
        An increase of $1,000,000 is required because immediately following
    the announcement that a U.S. cow tested positive for BSE, P&SP created
    task forces to provide protection to livestock producers and members of
    the cattle industry. These task forces are developing strategies to
    identify and respond to anti-competitive practices unique to current
    market conditions; monitor markets for financial failures and
    investigate any livestock sale barn or slaughtering facility that
    closes to ensure that any unpaid cattle sellers are identified and
    appropriately compensated and investigate complaints related to
    livestock marketing and procurement contracts.
        P&SP regulates 1,429 posted stockyards, 5,287 market agencies and
    dealers, 2,067 packer-buyers, and 340 bonded packers (those purchasing
    over $500,000 worth of livestock per year). An additional group of
    packers that purchase less than $500,000 are also subject to P&SP
    jurisdiction. A large number of these entities may be adversely
    impacted as the BSE situation develops, creating circumstances that
    require immediate P&SP action.
        P&SP is developing strategies to identify anti-competitive
    practices that could occur as a result of current market conditions.
    These strategies will be implemented and appropriate responses will be
    initiated where anti-competitive conduct is suspected.
        P&SP is looking closely at suspect livestock transactions to ensure
    that market participants are not taking advantage of the unique market
    conditions created by the BSE situation. P&SP will deploy rapid
    response teams to investigate BSE-related complaints. Costs for rapid
    response investigations related to BSE could easily exceed amounts
    typically expended on all other rapid response investigations. In the
    past three fiscal years, P&SP spent $1,372,210 conducting 150 rapid
    response investigations, or an average of 50 investigations per year at
    a cost of $457,403.
        An increase of $1,200,000 will allow the Agency to establish
    computer industry standard hardware, software, and facilities to
    implement the development of customer oriented electronic interfaces to
    the Federal Grain Inspection Program and the Packers and Stockyards
    Program. This will allow for a common Information Technology
    environment for the receipt and delivery of electronic data necessary
    to efficiently conduct the Agency's programs.
        These capabilities will by necessity need to be closely integrated
    with the existing Information Technology Architecture in GIPSA and
    conform to the USDA Enterprise Architecture. The computer equipment
    will be composed of multiple, high performance servers which must
    accommodate the transfer of very large amounts of data securely and
    transparently between themselves and the existing Agency information
    systems. These computer servers must be developed to have the
    capability to implement a wide range of Web based interactive
    applications.
        Finally, an increase of $1,000,000 is needed because in order to
    bring the Information Technology Systems security up to an acceptable
    level within GIPSA, the Agency's network infrastructure must be brought
    up to the standards as depicted in the USDA Enterprise Architecture.
    The Agency will need to add network switches, routers and firewalls to
    bring the network infrastructure up to an acceptable security standard.
    To insure thorough security planning, the Agency will need funding for
    additional contractor support in the development of disaster recovery
    plans, continuity of operations plans, risk analysis, and the
    certification and accreditation of existing information systems.

                                   CONCLUSION

        Mr. Chairman, Members of the Committee, I would like to conclude my
    testimony on the fiscal year 2005 budget proposal for the Grain
    Inspection, Packers and Stockyards Administration with an observation.
        Technological advances in new products and in business practices
    create remarkable opportunities and challenges for producers,
    marketers, and consumers. GIPSA is uniquely situated to facilitate the
    marketing of products at a time when assurances of product content or
    production processes are in demand. Further, GIPSA helps ensure that
    market power by some is not abused. Responding effectively to the needs
    of our stakeholders requires dynamic activity.
        We continue to adapt our efforts, look toward our capabilities,
    work to understand and accommodate the changes, and serve American
    agriculture through our efforts to ensure a productive and competitive
    global marketplace for U.S. agricultural products.
        I would be pleased to address any issues or answer any questions
    that you may have.
        Thank you.

                          STATEMENT OF ELSA A. MURANO

        Dr. Murano. Thank you, Mr. Chairman, Senator Kohl.
        I am glad to have the opportunity to speak to you this
    afternoon regarding the status of the Food Safety and
    Inspection Service programs and on our fiscal year 2005 budget
    request for food safety within the U.S. Department of
    Agriculture.
        As we begin the new year at USDA, I am proud to highlight
    several areas in which we have used science to improve public
    health during the past year.

                                      BSE

        First, though, I want to briefly touch on the Bovine
    Spongiform Encephalopathy or BSE issue. Since December 23rd of
    last year, BSE has been front and center with us, as it has
    with everyone who has concerns about public health and food
    safety. Upon learning of the BSE find, we immediately took
    action to protect the public's health. New regulations were
    published on January 12th, a mere 2 weeks after the BSE case
    was announced, truly a remarkable example of how quickly the
    Bush Administration responded to this threat.
        The removal of specified risk material from the food
    supply, which was the hallmark of these new regulations, was
    indeed the single most significant step we could have taken to
    protect the public's health.

                  SIGNIFICANT FOOD SAFETY ADVANCEMENT OF 2003

        The American public remains confident in the safety of the
    U.S. meat supply, and with good reason. The confidence is due
    in part to the significant advancements that we have made
    during 2003. For example, we have seen a dramatic decline in
    pathogen levels and regulatory samples for Listeria
    monocytogenes, E. coli O157:H7, and Salmonella. In addition, we
    had a striking decline in the number of meat and poultry
    product recalls last year. In fact, the number of class one
    recalls has nearly been cut in half from the total during 2002.
    These are dramatic indicators that our scientifically-based
    policies and programs are working to ensure that the American
    public receives the safest food possible.

                              CHALLENGES FOR 2004

        Despite these advancements, there is always room for
    improvement and FSIS has identified challenges for 2004.
    Through reflection and refinement we have outlined specific
    initiatives to ensure that we continue to improve health
    outcomes for American families. These include improving
    training through the Food Safety Regulatory Essentials program,
    using the recently established New Technologies Office to
    promote and accelerate the use of innovative food safety
    technologies, improving risk assessment coordination to ensure
    the best available information and science is used in policy
    development, continuing to conduct baseline studies to
    determine the nationwide prevalence and levels of various
    pathogenic organisms in raw meat and poultry, and coordinating
    with other Federal agencies to strengthen existing efforts to
    prevent, detect and respond to food related emergencies
    resulting from acts of terrorism.

                        FISCAL YEAR 2005 BUDGET REQUEST

        I will now turn to the fiscal year 2005 budget request for
    FSIS. FSIS is requesting a program level of $951.9 million, a
    net increase of about $61 million from the levels for fiscal
    year 2004. Under current law, we are requesting an
    appropriation of $838.7 million with an additional $113 million
    in existing user fees.
        The budget request will fund increased BSE surveillance
    programs as well as additional training for inspection
    personnel and numerous programs that will continue to keep us
    among the leading public health agencies in the world.
        The budget request includes a $15.5 million increase for
    pay raises in Federal and State programs. The budget request
    includes a $17.3 million increase for humane slaughter
    enforcement and the full cost of in-plant inspection. Included
    in this request is $5 million to continue the humane slaughter
    enforcement work funded in fiscal year 2003.
        The remaining $12.3 million of the $17.3 million is for
    staff support costs that are critically important to
    maintaining front-line inspection.
        The fiscal year 2005 request includes a $33.6 million
    increase for new initiatives that support our goals at FSIS.
    First, we include an increase of $3 million for BSE
    surveillance. The BSE inspection program will add permanent BSE
    control measures in 2005.
        Second, our budget requests $23.5 million to increase
    support for our Food and Agriculture Defense Initiative. Food
    contamination and animal and plant diseases and infestations
    can have catastrophic effects on human health and the economy.
    So, our portion of the Food and Agriculture Defense Initiative
    has five components: the Food Emergency Response Network or
    FERN; data systems to support the Food Emergency Response
    Network; enhancing FSIS laboratory capabilities;
    biosurveillance; and follow-up biosecurity training.
        To improve the infrastructure under FERN, the budget
    request calls for a $10 million expansion. Of that funding,
    $6.1 million would be spent on contracts with state and local
    laboratories and $2.6 million would be used to establish five
    regional hubs and a national operating center to coordinate
    FERN's efforts and conduct training.
        The budget request also includes initiatives to support
    FERN. The Electronic Laboratory Exchange Network, eLEXNET, is a
    national web-based system that allows laboratories to rapidly
    report and exchange standardized data. So the budget request of
    $4 million will be used to make eLEXNET available to additional
    FERN and other food testing laboratories nationwide.
        The budget request includes $2.5 million to enhance our
    laboratory capabilities for detecting new bioterror-associated
    agents and to ensure that our capability and capacity to
    perform toxin and chemical testing is maintained.
        The final new initiative is training, which is a very
    important issue for us. FSIS has been criticized in the past
    for having insufficiently trained field employees. So, we are
    working very, very hard to address these concerns and need
    additional resources in order to significantly improve our
    training. We are requesting $7.1 million, over a 50 percent
    increase in the FSIS training budget for fiscal year 2005.
    Included in the requested training budget is $3.1 million for
    our Food Safety Regulatory Essentials training to supplement
    training for current on and off-line field employees to improve
    enforcement of HACCP and food safety sampling.

                              PREPARED STATEMENTS

        Thank you again, Mr. Chairman and Senator Kohl, for your
    attention. And we certainly look forward to responding to your
    questions.
        [The statements follow:]

                    Prepared Statement of Dr. Elsa A. Murano

        Mr. Chairman and Members of the Subcommittee, I am glad to have the
    opportunity to speak with you regarding the status of the Food Safety
    and Inspection Service (FSIS) programs and on the fiscal year 2005
    budget request for food safety within the U.S. Department of
    Agriculture (USDA).
        In Washington, people talk about their inspiring view of the
    Capitol or the monuments, and the sights that inspire them to work
    harder and better. The view in my office is quite awesome--at once
    humbling and challenging. I am referring to a famous portrait on my
    wall of Louis Pasteur, examining a spinal cord sample. Pasteur
    disagreed with the popular attitude of the day, ``science for science's
    sake;'' he felt that science as a purely academic exercise did not
    properly serve the people of the 19th century. Instead, he believed
    that science should have practical applications that could be used to
    improve the lives of others. As we begin the new year at USDA, I am
    proud to highlight several areas in which we have used science to
    improve public health during the past year. I also will share with you
    our goals for this year, and will conclude with a discussion of the
    fiscal year 2005 budget request.
        First though, I want to briefly touch on the Bovine Spongiform
    Encephalopathy (BSE) issue. Since December 23, 2003, BSE has been
    ``front and center'' with us, as it has with everyone who has concerns
    about public health and food safety. Upon learning of the BSE find, we
    immediately took action to protect the public's health. New regulations
    were published on January 12th, a mere 2 weeks after the BSE case was
    announced--truly a remarkable example of how quickly the Bush
    Administration responded to this threat. The removal of specified risk
    material (SRM) (brain, spinal cord, etc.) from the food supply, which
    was the hallmark of these new regulations, was indeed the single most
    significant step we could have taken to protect the public's health. To
    ensure that these measures are implemented effectively, part of the
    fiscal year 2005 budget request that I will discuss later consists of
    $3 million for the agency to conduct surveillance of SRM and advanced
    meat recovery (AMR). We are confident that the aggressive BSE measures
    we have developed will continue to protect the U.S. food supply.

                  SIGNIFICANT FOOD SAFETY ADVANCEMENTS OF 2003

        The American public remains confident in the safety of the U.S.
    meat supply--and with good reason. The confidence is due, in part, to
    the significant advancements that we made during 2003. One such
    advancement has been the dramatic decline in pathogen levels in
    regulatory samples. Late last year, we released data that showed a 25
    percent drop in the percentage of positive Listeria monocytogenes
    samples from the previous year, and a 70 percent decline compared with
    years prior to the implementation of the Hazard Analysis and Critical
    Control Point (HACCP) program. In June 2003, to further reduce the
    incidence of Listeria monocytogenes, we issued regulations for
    establishments producing ready-to-eat products.
        Our measures to prevent E. coli O157:H7 contamination of ground
    beef have yielded similar results. In September 2002, based on evidence
    that E. coli O157:H7 is a hazard reasonably likely to occur at all
    stages of handling raw beef products, FSIS issued a directive requiring
    all establishments that produce raw beef products to reassess their
    HACCP plans. Last year, FSIS' scientifically trained personnel
    conducted the first-ever comprehensive audits of more than 1,000 beef
    establishments' HACCP plans. A majority of those plants made major
    improvements based on their reassessments, and, as a result, we are
    seeing a substantial drop in the percentage of ground beef samples that
    are positive for E. coli O157:H7. In 2003, of the ground beef samples
    collected and analyzed for E. coli O157:H7, only 0.30 percent tested
    positive, compared to 0.78 percent in 2002--a 62 percent reduction.
    This is a definite improvement, and the strongest signal that science
    can drive down the threat from pathogens.
        In 2002, we issued new enforcement procedures for the Salmonella
    performance standard that are paying off. Instead of waiting for three
    cycles of tests for Salmonella, the failure of the first set now
    triggers an FSIS review of an establishment's HAACP plan. Due to this
    process and other science-based initiatives, the percentage of ``A''
    samples (a sample from a randomly scheduled initial set) positive for
    Salmonella in raw meat and poultry has dropped by 65 percent over the
    past 6 years. Out of the number of random ``A'' samples collected and
    analyzed by FSIS during 2003, only 3.8 percent of the samples were
    positive for Salmonella, as compared with 10.6 percent in 1998. Again,
    this is very good news. The data for these three pathogens validate our
    scientific approach to improving public health through safer food.
        We also had a striking decline in the number of meat and poultry
    product recalls last year. In fact, the number of Class I recalls has
    nearly been cut in half from the total during 2002. This is a dramatic
    indicator that our scientifically-based policies and programs are
    working to ensure that the American public receives the safest food
    possible.
        FSIS has also had great success with its food safety education
    programs. Through new and innovative methods, FSIS is sharing its food
    safety message with the general public, including culturally diverse
    and underserved populations and those at highest risk for foodborne
    illnesses. From March to November 2003, the USDA Food Safety Mobile
    traveled over 24,000 miles and participated in 87 events in 64 cities
    across the country, providing information and publications on food
    safety to approximately 179,000 people face-to-face and making an
    estimated 64.4 million media impressions. Another success story is a
    public service announcement (PSA) featuring former Miss America Heather
    Whitestone McCallum, which has aired 14,448 times since September 2003.
    This PSA ranked in the top 3 percent of all PSA's shown during the
    month of January 2004 along with PSA's by the American Red Cross, the
    Federal Emergency Management Agency (FEMA), and the Department of
    Homeland Security (DHS). We are very proud of these far-reaching FSIS
    food safety education campaigns.

                              CHALLENGES FOR 2004

        Despite the advancements we made last year, there is always room
    for improvement, and FSIS has identified challenges for 2004. Louis
    Pasteur said, ``In the realm of science, luck is only granted to those
    who are prepared.'' Food safety is too important to be left to guess
    work or luck; we must be prepared to identify and meet challenges head-
    on.
        When I joined USDA over 2 years ago, I established five goals--a
    roadmap of improvements for our food safety mission:
      --To improve the management and effectiveness of our regulatory
            programs;
      --To ensure that policy decisions are based on science;
      --To improve coordination of food safety activities with other public
            health agencies;
      --To enhance public education; and
      --To protect FSIS regulated products from intentional contamination.
        Through reflection and refinement, we have outlined specific
    initiatives to make sure we fulfill those goals, thereby improving
    health outcomes for American families. These initiatives were outlined
    in our food safety vision document, Enhancing Public Health: Strategies
    for the Future. This detailed plan will continue to drive our policies
    and actions during this calendar year.

    Initiative One: Training
        In April 2003, FSIS inaugurated new Food Safety Regulatory
    Essentials (FSRE) training, which is designed to better equip
    inspection personnel in verifying an establishment's HACCP food safety
    system. All trainees received training in the fundamentals of
    inspection, covering the Rules of Practice, Sanitation Performance
    Standards, and Sanitation Standard Operating Procedures. FSIS also
    provides food safety training based on the types of products being
    produced at the establishments where inspectors are assigned. As of the
    end of last year, more than 1,000 individuals had completed this
    training regime.
        During 2004, FSIS will continue to train all new entry level
    slaughter establishment inspectors and veterinary medical officers in
    technical, regulatory and public health methods. We are also looking at
    expanding the types of training in the future to meet evolving agency
    needs and challenges.

    Initiative Two: Furthering the Use of Innovative Food Safety
            Technologies
        I believe that we must encourage the use of safe and effective
    interventions. One way we can encourage such intervention is by hosting
    public meetings. In January, in Omaha, Nebraska, FSIS held a public
    meeting to discuss the development and use of new food safety
    technologies to enhance public health. The meeting generated useful
    ideas regarding how plants can best utilize new technologies in their
    operations.
        FSIS established a New Technology Office in August 2003. This group
    is tasked with reviewing new technologies and, where appropriate,
    expediting the use of new technologies at meat and poultry official
    establishments and egg products plants. Our New Technology staff is an
    experienced team of 9 veteran FSIS employees who serve as the single
    portal for all new technology submissions. We designed this group to
    better manage the new technology process and allow for implementation
    as quickly as possible. They also ensure that FSIS personnel are aware
    of new technologies and where they are being used.
        To increase the pool of new technology submissions to the agency,
    we have established an e-mail address, FSISTechnology@fsis.usda.gov,
    through which parties may submit their information. I am happy to
    report that we have received over 30 Notifications and Protocols for
    new food safety technologies since we have streamlined the submission
    process. Of the 27 Notifications received, 19 have been issued letters
    indicating that FSIS has no objections, and 4 are still pending. Once
    the agency issues a no objection letter, the firm that submitted the
    proposal may use the new technology.

    Initiative Three: Risk Assessment Coordination
        In order to better focus its resources on food safety risk
    assessment activities, FSIS established a risk assessment coordination
    team with USDA-wide membership. As risk assessment becomes increasingly
    important as a means of providing the science behind policy decisions,
    the need for such a group within USDA is clear. This group will promote
    scientifically sound risk assessments and foster research to support
    risk assessments.
        Microbial risk assessment is still in its infancy compared to
    chemical risk assessments, so the need to share ideas and resources is
    critical. In November 2003, we started this interactive process by
    holding a public meeting to discuss how the government uses the three
    components of the risk analysis framework--risk assessment, risk
    management, and risk communication--to inform and implement risk
    management decisions. In particular, we examined several crucial
    elements for FSIS to consider in its risk assessments, including how:
      --FSIS can improve the transparency of the risk analysis process;
      --FSIS can balance the need for transparency, stakeholder involvement
            and peer review with the need for timely scientific guidance;
            and
      --Risk assessments can better inform policy development and decision-
            making.

    Initiative Four: Developing a Research Agenda
        In November 2003, FSIS and the Research, Education and Economics
    mission area, announced a unified research agenda to coordinate USDA
    food safety research priorities and needs. For FSIS, research is
    critical to achieving its public health vision. Although FSIS does not
    conduct research itself, the agency must identify its research needs
    based on its public health goals so that the research community can
    meet them. The unified agenda includes research to:
      --Investigate the ecology, epidemiology, virulence and genetic
            characteristics related to pathogenicity for E. coli O157:H7,
            Salmonella, Listeria monocytogenes, and other foodborne
            pathogens to identify targeted control measures;
      --Develop effective on-farm, feedlot, transportation, handling, and
            other pre-processing intervention strategies for reducing the
            incidence and levels of antibiotic resistant microorganisms and
            key foodborne pathogens in meat, poultry, eggs and fresh
            produce;
      --Develop, validate, and transfer technology of new and improved
            processing methods to reduce or eliminate key foodborne
            pathogens in meat, poultry, fresh produce, seafood, and ready-
            to-eat foods; and
      --Develop rapid and sensitive detection methods for abnormal prions
            to prevent the possible spread of transmissible spongiform
            encephalopathies.
    Initiative Five: To Develop Best Practices for Animal Production
        In consultation with producers, researchers, and other
    stakeholders, FSIS is developing a list of best management practices
    for animal production in order to provide guidance for reducing
    pathogen loads before slaughter.
        Last September, FSIS arranged a symposium with USDA partners to
    discuss ways to significantly reduce the levels of E. coli O157:H7 in
    live animals before slaughter. We understand that preventing the spread
    of E. coli and other pathogens on the farm is vital to increasing food
    safety and protecting public health. The dialogue generated at the
    meeting helped us develop guidelines outlining the best management
    practices at the pre-harvest stage, which we expect to publish this
    year. Once these guidelines are published, FSIS will initiate an
    aggressive outreach effort to distribute them to producers.

    Initiative Six: Baseline Studies
        It is imperative that FSIS develops baseline studies. FSIS is
    developing protocols to conduct continuous baseline studies to
    determine the nationwide prevalence and levels of various pathogenic
    microorganisms in raw meat and poultry. The studies will help the
    agency and the industry to better understand what interventions are
    working or how they could be improved. To achieve the agency's goal of
    applying science to all policy decisions, the fiscal year 2004 budget
    included a new $1.7 million initiative to establish a continuous
    baseline program for risk assessments and performance measurement.
        In the past, baseline studies have been used to establish pathogen
    reduction performance standards, which are an important part of
    verifying the sanitary operation of meat and poultry establishments.
    The new baseline studies will take into account regional variation,
    seasonality and other critical factors.
        The continuing nature of the baseline studies will provide
    information on national trends and a tool to assess performance of
    initiatives designed to reduce the prevalence of pathogens in meat and
    poultry products. These baseline studies will also yield important
    information for conducting risk assessments that can outline steps we
    can take to reduce foodborne illness.
        These surveys will also be important in establishing the link
    between foodborne disease and ecological niches, as well as levels and
    incidence of pathogens in meat and poultry. The net result will be more
    targeted interventions and the effective elimination of sources of
    foodborne microorganisms.

    Initiative Seven: Food Biosecurity
        While the events of September 11, 2001, brought the issue of the
    vulnerability of our food supply to the forefront, FSIS' food
    biosecurity efforts did not start on September 12, 2001. FSIS' 100 plus
    years worth of experience in dealing with food emergencies have allowed
    the agency to develop the expertise to protect the U.S. meat, poultry,
    and egg products supply wherever and whenever emergencies or new
    threats arise.
        It is imperative that FSIS coordinates with other public health
    agencies to protect the food supply against intentional harm. The
    agency has improved such coordination, as well as strengthened existing
    efforts to prevent, detect, and respond to food-related emergencies
    resulting from acts of terrorism. With a strong food safety
    infrastructure already in place, FSIS has been able to focus on
    strengthening existing programs and improving lines of communication,
    both internally and externally. Later, when I discuss the fiscal year
    2005 budget request, I will describe the components of our food and
    agriculture defense initiative.

                    ACHIEVING THE NEXT LEVEL OF FOOD SAFETY

        The emergence of previously unrecognized pathogens, as well as new
    trends in food distribution and consumption, highlights our need for
    new strategies to reduce the health risks associated with pathogenic
    microorganisms in meat, poultry and egg products. Through analysis and
    discussions with stakeholders, we have identified three issues that
    need to be addressed to attain the next level of public health
    protection.
    Issue One: To anticipate/predict risk through enhanced data integration
        To better anticipate risks involving meat and poultry products, we
    must have the best available data to clearly identify the extent and
    nature of these risks, so that we may determine an effective response.
    These data consist of regulatory samples, as well as samples collected
    by food processing establishments. Thus, we must improve data analysis
    while encouraging data sharing from all reliable sources.
        With regard to food biosecurity, FSIS works closely with the White
    House Homeland Security Council, DHS, the Food and Drug Administration
    (FDA) and the USDA Homeland Security Staff to develop strategies to
    protect the food supply from an intentional attack. For example, FSIS,
    along with FDA and industry partners, is working with DHS to establish
    new food information sharing and analysis activity for the food sector.
    This public/private partnership will aid in the protection of the
    critical food infrastructure by centralizing the information about
    threats, incidents, and vulnerabilities.

    Issue Two: To improve the application of risk analysis to regulatory
            and enforcement activities
        Food safety problems need to be documented as they occur, so that
    conditions may be analyzed and, if need be, corrected. A better
    understanding of the prevalence and causes of food safety failures
    could allow better assessment of how to best address them. Data
    regarding the causes of food safety violations, either within a
    specific establishment, or within a class of establishments, can be
    utilized in order to better focus prevention and regulatory enforcement
    strategies.
        FSIS is exploring the development of a real-time measure of how
    well an establishment controls the biological, chemical, and physical
    hazards inherent in its operations. Such a predictive model would help
    the agency make resource allocation decisions across the country's more
    than 6,000 meat and poultry establishments to maximize food safety and
    public health protection.

    Issue Three: To better associate program outcomes with public health
            surveillance data
        We have seen notable advances in preventing foodborne illness,
    which the Centers for Disease Control and Prevention (CDC) have
    attributed, in part, to the implementation of HACCP. However, there
    still is a need to determine how specific policies affect public
    health. In order to accomplish this, we need to obtain and document
    data that links foodborne illness outbreaks with specific foods. It may
    then be linked with prevalence data of specific pathogens in specific
    foods. However, to complete the linkage with public health outcomes, we
    need accurate and timely human health surveillance data.
        We have already taken steps to secure such surveillance data, and
    we continue to update our systems. In 1995, FSIS worked with CDC, FDA,
    and public health laboratories in several States to establish FoodNet,
    the Foodborne Diseases Active Surveillance Network, as part of CDC's
    Emerging Infections Program.
        FoodNet includes active surveillance of foodborne diseases, case-
    control studies to identify risk factors for acquiring foodborne
    illness, and surveys to assess medical and laboratory practices related
    to foodborne illness diagnosis. FoodNet provides estimates of foodborne
    illness and sources of specific diseases that are usually found in the
    United States, and interprets these trends over time. Data are used to
    help analyze the effectiveness of the Pathogen Reduction/Hazard
    Analysis and Critical Control Point rule and other regulatory actions,
    as well as public education aimed at decreasing foodborne disease in
    the United States. We are also considering establishing a joint task
    force with CDC to determine ways to improve FoodNet.
        In addition to data collected through FoodNet, FSIS is a partner
    with CDC and State agencies in PulseNet, a national computer network of
    public health laboratories that helps to rapidly identify outbreaks of
    foodborne illness. Laboratories perform DNA ``fingerprinting'' on
    bacteria that may be foodborne, then the network permits rapid
    comparison of the ``fingerprint'' patterns through a CDC database.
    PulseNet is an early warning system that links seemingly sporadic
    illnesses, and enables public health officials to more quickly identify
    and react to the emergence of multi-State illness outbreaks.
        FSIS is also working with CDC's National Center for Infectious
    Diseases to design and support studies that enable definite connections
    to be made between occurrence of specific pathogens in specific foods
    and the occurrence of human foodborne illness.
        FoodNet, PulseNet and other similar programs are excellent examples
    of Federal and State agencies working together to accomplish public
    health goals. These programs will help FSIS and other regulatory
    agencies to focus inspection and enforcement on those practices where
    risk is deemed to be highest, resulting in a more efficient use of
    government resources.

                        FISCAL YEAR 2005 BUDGET REQUEST

        I will now turn to the fiscal year 2005 budget request for FSIS. In
    fiscal year 2005, FSIS is requesting a program level of $951.7 million,
    a net increase of about $61 million from the enacted level for fiscal
    year 2004. Under current law, we are requesting an appropriation of
    $838.7 million, with an additional $113 million in existing user fees.
    The budget request will fund the increased BSE surveillance programs I
    mentioned earlier, as well as additional training for inspection
    personnel and numerous programs that will continue to keep FSIS among
    the leading public health agencies in the world. By continuing the
    principle of making policy based on sound science, we will modernize
    our inspection system to handle the challenges of food safety in this
    century. Implementation of these budget initiatives is imperative to
    help us attain the public health vision we have set for FSIS.
    Supporting FSIS' Basic Mission
        The FSIS budget request for fiscal year 2005 supports the agency's
    basic mission of providing continuous food safety inspection in each
    meat, poultry, and egg products establishment in the United States. The
    budget request includes a $15.5 million increase for pay raises in
    Federal and State programs. In addition, the budget supports an agency-
    wide staff-year ceiling of 9,641, an 84 staff year increase from the
    2004 appropriation level. The budget reflects the proposed calendar
    year 2005 pay raise of 1.5 percent for Federal and State personnel, a
    0.2 percent increase for employee rewards, and the annualized cost of
    the 4.1 percent pay increase for calendar year 2004. The costs also
    include a total net increase of approximately $721,000 for state food
    safety and inspection.
        Two critical elements of FSIS' mission are to continue the
    enforcement of humane slaughter regulations and to provide for the full
    cost of front-line inspection. FSIS will continue strict enforcement of
    its regulations for the humane handling and slaughter of livestock. In
    fiscal year 2003, over 7,600 inspection personnel stationed in over
    6,000 federally inspected meat, poultry, and egg products plants
    verified that the processing of 43.6 billion pounds of red meat, 49.2
    billion pounds of poultry, and 3.7 billion pounds of liquid egg
    products complied with statutory requirements. The fiscal year 2005
    budget request includes a $17.3 million increase for humane slaughter
    enforcement and the full cost of in-plant inspection. Included in the
    request is $5.0 million to continue the work funded in fiscal year 2003
    for fiscal year 2003 through fiscal year 2004.
        The remaining $12.3 million of the $17.3 million is for staff
    support costs that are critically important to maintaining front line
    inspection. Over 80 percent of FSIS costs are for salaries, benefits,
    and travel costs for inspectors to travel between plants. Increases in
    benefit and travel costs cannot be deferred to another year. The
    agency's share of employee benefits costs has been rising in recent
    years by over $4 million annually. The agency has also experienced
    large increases in retirement costs, hiring incentives, and employee
    allowances for the purchase of safety equipment and related items. The
    increase is needed to avoid employment restrictions in the inspection
    program, which would result if unavoidable cost increases are not fully
    funded and must be absorbed.
    New Initiatives
        The fiscal year 2005 request includes a $33.6 million increase for
    new initiatives that support the Department's goals for FSIS.
        First, as I discussed in my opening, the fiscal year 2005 budget
    request includes an increase of $3 million for BSE surveillance. FSIS'
    BSE inspection program will add permanent BSE control measures in
    fiscal year 2005. These control measures will include increased in-
    plant verification of slaughter plant designs for controlling SRMs,
    overtime inspection, and travel for Veterinary Medical Officers to test
    non-ambulatory disabled livestock when they arrive at small slaughter
    plants that do not have a resident veterinarian. In fiscal year 2005,
    FSIS will also perform about 60,000 screening tests at processing
    plants that use AMR equipment, to ensure that SRMs do not enter the
    food supply.
        The fiscal year 2005 budget also requests a $23.5 million increase
    to support our food and agriculture defense initiative. Food
    contamination and animal and plant diseases and infestations can have
    catastrophic effects on human health and the economy. USDA, the
    Department of Health and Human Services and DHS are working together to
    create a comprehensive food and agriculture policy that will improve
    the government's ability to respond to the dangers of disease, pests
    and poisons, whether natural or intentionally introduced. FSIS' portion
    of the food and agriculture defense initiative has five components:
      --Biosurveillance;
      --The Food Emergency Response Network;
      --Data systems to support the Food Emergency Response Network;
      --Enhancing FSIS laboratory capabilities; and
      --Follow-up biosecurity training.
        To finance the biosurveillance component of the food and
    agriculture defense initiative, the fiscal year 2005 budget requests $5
    million. The Homeland Security Council (HSC) Biodefense End-to-End
    Assessment, in cooperation with all relevant U.S. Government agencies,
    identified early attack warning and surveillance as a top priority to
    prepare against a potential bioterrorist attack. The HSC supports an
    interagency biosurveillance initiative to improve the Federal
    Government's ability to rapidly identify and characterize such an
    attack. This initiative will improve Federal surveillance capabilities
    in human health, food, agriculture, and environmental monitoring. It
    will also allow Federal agencies to establish integration capability at
    DHS so that DHS may rapidly compile these streams of data and integrate
    them with threat information.
        FSIS has conducted its own vulnerability assessments of regulated
    domestic and imported products. The assessments identify potentially
    vulnerable products and processes, likely threat agents, and points
    along the production/consumption continuum where attack is most likely
    to occur. The agency will focus its resources on the points of greatest
    vulnerability.
        The second component of the food and agriculture defense initiative
    is the Food Emergency Response Network (FERN). A nationwide laboratory
    system with sufficient capacity to meet the needs of anticipated
    emergences is integral to any bioterror surveillance and monitoring
    system. FERN consists of Federal and State governmental laboratories
    which are responsible for protecting citizens and the food supply from
    intentional acts of biological, chemical, and radiological terrorism.
    Currently, over 60 laboratories, including public health and veterinary
    diagnostic laboratories, representing 27 States and five Federal
    agencies, have agreed to participate in FERN. The goal is to establish
    100 FERN laboratories, creating a network of Federal, State and local
    laboratories that FSIS could call upon to handle the numerous samples
    that would be required to be tested in the event of a terrorist attack
    on the meat, poultry or egg supply.
        To improve the infrastructure under FERN, the budget request calls
    for a $10 million expansion. Of that funding, $6.1 million would be
    spent on contracts with State and local laboratories, and $2.6 million
    would be used to establish five Regional Hubs and a National Operating
    Center to coordinate FERN's efforts and conduct training. In addition,
    during fiscal year 2005, FSIS would also use $1.3 million to establish
    five to seven State laboratories for screening of microbiological
    agents, with more laboratories in the future, based on the availability
    of funds. The staff of these laboratories will receive training,
    perform methods validation, and analyze surveillance and check samples.
        The third and fourth components of the food and agriculture defense
    initiative support FERN. The electronic laboratory exchange network
    (eLEXNET) is a national, web-based system that allows laboratories to
    rapidly report and exchange standardized data. The fiscal year 2005
    budget request of $4 million will be used to make eLEXNET available to
    additional FERN and other food-testing laboratories nationwide. Access
    to properly validated methods used for screening, confirmation, and
    forensic analysis is critical to all laboratories, and laboratories
    need rapid access to new or improved methods that use emerging
    technologies, have greater sensitivity, or are more efficient. FSIS is
    working with FDA to develop a web-based repository of analytical
    methods that is compatible with eLEXNET. The budget request also
    includes $2.5 million to enhance FSIS' laboratory capabilities for
    detecting new bioterror-associated agents, and to ensure FSIS'
    capability and capacity to perform the toxin and chemical testing that
    will be standardized across all FERN laboratories.
        The final component of the food and agriculture defense initiative
    is follow-up biosecurity training for the workforce. Follow-up training
    is essential as part of the ongoing effort to protect the public by
    educating the workforce regarding the latest threat agents and
    countermeasures to those agents. The budget request includes $2 million
    for follow-up training for fiscal year 2005.
        The final new initiative I will discuss is training. FSIS has been
    criticized over the years by the General Accounting Office and the
    Office of the Inspector General for having poorly trained field
    employees. We have been addressing these concerns over the last year,
    but need additional resources in order to significantly improve our
    training. We are requesting $7.1 million--over a 50 percent increase--
    in the FSIS training budget for fiscal year 2005. Of the requested
    training budget, $4.0 million would be used to increase the number of
    entry level inspectors receiving formal classroom training from 20
    percent to 100 percent. Under this proposal, all new inspectors will
    receive formal training on how to identify and respond to food safety
    problems. New employees will be required to demonstrate mastery of
    training in order to be certified to assume inspection duties.
        The requested training budget also includes $3.1 million for Food
    Safety Regulatory Essentials training, to supplement training for
    current on- and off-line field employees to improve enforcement of
    Pathogen Reduction/Hazard Analysis and Critical Control Point
    regulations and food safety sampling. These frontline employees are
    responsible for making the critical decisions to ensure that products
    are safe to eat, so it is essential to have a scientifically and
    technically trained workforce.

    User Fee Proposal
        FSIS' fiscal year 2005 budget also includes a legislative proposal
    to recover the costs of providing inspection services beyond an
    approved 8-hour primary shift. The proposal was submitted to Congress
    last August. If the proposal is enacted, the level of appropriated
    funds needed would be reduced by an estimated $124 million, making the
    FSIS budget request $714.7 million. Under current law in 2005, FSIS
    estimates it will collect $113 million in annual user fees to recover
    the costs of overtime, holiday, and voluntary inspection.

                                    CLOSING

        We intend to continue to engage the scientific community, public
    health experts and all interested parties in an effort to identify
    science-based solutions to public health issues to ensure positive
    public health outcomes. It is our intention to pursue such a course of
    action this year in as transparent and inclusive a manner as is
    possible. The strategies I discussed today will help FSIS continue to
    pursue its goals and achieve its mission of reducing foodborne illness.
        Mr. Chairman, thank you again for providing me with the opportunity
    to speak with the Subcommittee and submit testimony regarding the steps
    that FSIS is taking to remain the world leader in public health. I look
    forward to working with you to improve our food safety system, ensuring
    that we continue to have the safest food supply in the world.

                                     ______

      Prepared Statement of Dr. Barbara J. Masters, Acting Administrator,
                       Food Safety and Inspection Service

        Mr. Chairman and distinguished members of the Subcommittee, I am
    pleased to be here today as we discuss public health and the U.S.
    Department of Agriculture's (USDA) fiscal year 2005 budget request for
    the Food Safety and Inspection Service (FSIS).

    Infrastructure
        FSIS has a long, proud history of protecting public health.
    Although the Agency under its current name was established by the
    Secretary of Agriculture on June 17, 1981, its history dates back to
    1906. FSIS' mission is to ensure that meat, poultry, and egg products
    prepared for use as human food are safe, secure, wholesome, and
    accurately labeled. FSIS is charged with administering and enforcing
    the Federal Meat Inspection Act (FMIA), the Poultry Products Inspection
    Act (PPIA), the Egg Products Inspection Act (EPIA), and the regulations
    that implement these laws.
        Ensuring the safety of meat, poultry, and egg products requires a
    strong infrastructure. To accomplish this task, FSIS has a large
    workforce of approximately 10,000 employees, most of who are stationed
    in the field, dedicated to inspection. In fiscal year 2003, over 7,600
    inspection personnel stationed in over 6,000 federally inspected meat,
    poultry, and egg products plants verified that the processing of 43.6
    billion pounds of red meat, 49.2 billion pounds of poultry, and 3.7
    billion pounds of liquid egg products complied with statutory
    requirements. In addition, we re-inspected 3.8 billion pounds of
    imported meat, poultry and processed egg products from 28 of 33
    countries that we determined have inspection systems equivalent to our
    own. Assuring that these products are safe and wholesome is a serious
    responsibility.
        As you are well aware, these are compelling times in food safety,
    and it is because of your support that we are making real progress in
    improving the safety of the U.S. food supply. I would like to thank you
    for the past support you have given us in our budget requests. Now, I
    would like to tell you how we are fulfilling our responsibilities
    through FSIS' food safety vision and about our initiatives for better
    ensuring the safety of meat, poultry, and egg products.

    Fulfilling the Vision
        The continued mission of FSIS is to ensure that consumers have the
    safest possible food supply. To fulfill this vision, we have set out to
    continuously modernize FSIS' ability to improve the safety of meat,
    poultry, and egg products. Our efforts are paying off, as seen by the
    16 percent decline in foodborne illness over the last 6 years. The
    Centers for Disease Control and Prevention (CDC) attributes these
    results in part to the implementation of the Hazard Analysis Critical
    Control Point (HACCP) system in all meat and poultry plants in the
    United States. However, in spite of these positive trends towards a
    safer food supply, FSIS recognizes that intensified efforts are needed
    to reach the next level of food safety. That is why the agency has
    diligently worked to carry out Dr. Murano's five core goals:
      --To improve the management and effectiveness of our regulatory
            programs;
      --To ensure that policy decisions are based on science;
      --To improve coordination of food safety activities with other public
            health agencies;
      --To enhance public education; and
      --To protect FSIS regulated products from intentional contamination.

    Improving the Management and Effectiveness of Regulatory Programs
        In order for policies and programs to be successful, they must be
    uniformly and correctly applied. Thus, proper training of the workforce
    is essential. In addition, communication to field personnel needs to be
    timely and accurate, with proper supervision from the district and from
    headquarters in order to foster accountability in the system.

    Training and Education
        The key to improving the management and effectiveness of FSIS'
    considerable infrastructure is to ensure that the agency is well
    prepared with the tools necessary to protect the food supply. Training
    is a top priority of the agency. FSIS can only achieve its public
    health, food safety, and food security mission with adequate
    preparation of its workforce through scientific and technical training.
        In April 2003, FSIS began the Food Safety Regulatory Essentials
    (FSRE). The goal of the training is to teach inspection personnel how
    to do their jobs properly, and emphasizes the regulatory decision-
    making thought process both through lecture and workshop examples. In
    fiscal year 2003, FSIS exceeded its goal to train 800 inspectors under
    FSRE. A comparison between pre-test and post-test scores has shown that
    the knowledge improvement of our inspectors has increased by an average
    of 20 percent. Feedback from our inspectors has been extremely
    positive, and industry representatives have noted the positive
    difference that these courses are having on how inspection procedures
    are performed.
        FSIS has also initiated a comprehensive 2-year training and
    education effort designed to ensure that every FSIS employee fully
    understands their role in preventing or responding to an attack on the
    food supply. Last year, over 1,600 employees received food security
    training. By the end of fiscal year 2004, over half of our workforce
    will have received this training. The Law Enforcement Academic Research
    Network (LEARN), which is carrying out the training, has stated that
    this training effort is unparalleled in the Federal sector since it is
    being provided to such a broad base of our employees.
        Another initiative the agency has undertaken to enhance FSIS'
    training effort is taking training opportunities closer to our
    employees. In August 2003, the agency announced new regional training
    centers designed to bring comprehensive workforce training programs to
    FSIS field employees throughout the country. FSIS has established the
    regional training centers in five field locations: Atlanta, GA; Dallas,
    TX; Philadelphia, PA; Des Moines, IA; and Boulder, CO. FSIS has hired
    three of the regional trainers to head the new centers, and expects to
    hire the remaining two trainers by April. In addition, FSIS will be
    providing distance learning that will be easily accessible to our field
    employees. These approaches will allow FSIS to train more inspectors
    each year in various skills to enhance their technical and regulatory
    abilities.
        Another step we've taken is to increase our cadre of scientifically
    trained personnel, known as Consumer Safety Officers (CSOs). CSOs have
    a scientific and technical background and receive additional FSIS
    training that enables them to use a disciplined methodology to assess
    and verify the design of food safety systems. FSIS has trained every
    entering CSO--150 of them--in a cooperative agreement through the Texas
    Agricultural Experiment Station. In fiscal year 2004, the agency plans
    to train 200 additional employees in this program, including employees
    who have been promoted to CSOs, Veterinary Medical Officers, Program
    Investigators, and others.

    Accountability
        FSIS inspection personnel are held accountable for ensuring that
    public health is protected. To emphasize the importance of
    accountability, FSIS created the Office of Program Evaluation,
    Enforcement and Review (PEER) during the agency's recent
    reorganization. PEER serves as a quality control team by ensuring that
    FSIS functions, such as reviews of plants for compliance and food
    safety investigations, are carried out in a way most conducive to
    protecting the public health. PEER retains the role of ensuring prompt
    and appropriate enforcement of the inspection laws. The work of the
    field Program Investigators in PEER places them on a daily basis in
    close proximity to performance and compliance problems and concerns at
    the in-plant level, which affords the agency the ability to deal with
    necessary adjustments and problems in a much more immediate and direct
    fashion than in the past. PEER was formed because a strong quality
    assurance program that uses reviews, evaluations, and audits as its
    tools can have a significant impact on management effectiveness,
    efficiency and policy development.
        Because accountability is crucial in delivering programs in a
    consistent and effective manner, FSIS implemented the Humane Activities
    Tracking (HAT) program in February 2004. This new electronic tracking
    system will document inspection activities to ensure that livestock are
    humanely handled and slaughtered in federally inspected facilities. The
    HAT program will provide FSIS with more accurate and complete data on
    the time spent by FSIS personnel performing nine specific humane
    handling related tasks to ensure humane handling and slaughter
    requirements are met.
        In addition, in November of 2003, FSIS issued an updated directive
    to all inspection personnel and district offices providing specific,
    detailed information about requirements of the Humane Methods of
    Slaughter Act to ensure that verification and enforcement requirements
    are clearly and uniformly understood. In May of 2003, FSIS also issued
    a directive to provide guidance and direction to inspection personnel
    to ensure consistent use of enforcement actions.

               ENSURE THAT POLICY DECISIONS ARE BASED ON SCIENCE

        FSIS continuously reviews its existing authorities and regulations
    to ensure that emerging food safety challenges are adequately
    addressed. In addition, FSIS is committed to continuing its emphasis on
    the use of science, research, and technology in the development of
    improved food safety policies, focused on prevention whenever possible.
    Risk Assessment
        Risk assessment is one tool that can provide FSIS with the solid
    scientific foundation on which to base regulatory and policy decisions.
    In fact, the Agency has used risk assessment to estimate the likelihood
    of exposure to various hazards, and to estimate the resulting public
    health impact. For example, in February 2003, FSIS released a draft of
    a quantitative risk assessment conducted on Listeria in ready-to-eat
    (RTE) meat and poultry products. On February 26, 2003, FSIS held a
    public meeting to discuss the design of the risk assessment, the
    results, and conclusions that could be drawn from it regarding the risk
    of contamination of RTE products with this pathogen during processing.
        The Listeria risk assessment, in conjunction with a previously
    released Food and Drug Administration (FDA)/FSIS risk ranking, peer
    review, and public comment, provided important data enabling FSIS on
    June 6 to publish a final Listeria rule originally proposed in early
    2001. This risk-based regulation will serve as the cornerstone of the
    FSIS efforts to prevent listeriosis from RTE meat and poultry products.
    The rule requires all establishments that produce RTE products that are
    exposed to the environment after cooking to develop written programs to
    control Listeria monocytogenes and to verify the effectiveness of those
    programs through testing. Establishments must share testing data and
    plant-generated information relevant to their controls with FSIS. The
    rule also encourages all establishments to employ additional and more
    effective Listeria monocytogenes control measures.

    Innovative Testing Methods
        In October 2003, FSIS announced the adoption of the BAX system to
    screen for Salmonella in raw meat and poultry products. The Microbial
    Outbreak and Special Projects Laboratory, in collaboration with three
    FSIS field service laboratories, evaluated the BAX system to determine
    whether it would be beneficial to the agency and to determine its
    validity and reliability. FSIS determined that the BAX system was as
    sensitive as the existing method of detecting Salmonella in raw meat
    and poultry products, but also reduced the reporting time for negative
    samples by one to 2 days. FSIS has been using the BAX screening system
    for Salmonella in ready-to-eat meat, poultry and pasteurized egg
    products since February 2003, and for Listeria monocytogenes since
    April 2002. This new measure increases efficiency in detecting
    pathogens and saves valuable agency time and resources.

    Reducing E. coli O157:H7
        FSIS has instituted major changes in its E. coli O157:H7 policy to
    further ensure that beef plants address and reduce the presence of E.
    coli O157:H7. In October 2002, the agency took strong steps to address
    E. coli O157:H7 contamination based on USDA's Agricultural Research
    Service's data and FSIS' draft risk assessment. Those measures are
    starting to pay dividends to the American consumer. Our scientifically
    trained personnel have examined prevention mechanisms at more than
    1,000 beef establishments and a majority of those plants have made
    major improvements based on reassessments of their HACCP plans. As a
    result, we are seeing a drop in the number of E. coli O157:H7 positive
    samples in ground beef. For instance, in E. coli O157:H7 samples
    collected and analyzed during 2003, 0.30 percent tested positive,
    compared to 0.78 in 2002--or a 62 percent reduction.

    IMPROVE COORDINATION OF FOOD SAFETY ACTIVITIES WITH OTHER PUBLIC HEALTH
                                    AGENCIES

        With primary authority over meat, poultry, and egg products, FSIS
    plays an integral role in ensuring the safety of America's food supply.
    As one partner in the U.S. food safety effort, FSIS strives to maintain
    a strong working relationship with its sister public health agencies.
    Cooperation, communication, and coordination are absolutely essential
    if we are to be effective in addressing public health issues.

    BSE Coordination
        The December 2003 discovery of a single case of Bovine Spongiform
    Encephalopathy (BSE) in Washington State provides an excellent example
    of the strong communication ties and the cooperation between USDA and
    its Federal and State food safety partners. The Federal Government's
    swift and substantial reaction to the BSE diagnosis played a vital role
    in maintaining high consumer confidence. FSIS and its sister agencies
    moved effectively and forcefully upon the discovery of a BSE case in
    this country, further strengthening already formidable BSE preventive
    measures. Being a part of the continuous briefings, planning meetings,
    international trade discussions, and all the other events surrounding
    this situation has been both challenging and rewarding. FSIS has worked
    closely with USDA's Animal and Plant Health Inspection Service (APHIS)
    and other mission areas in USDA, FDA, state governments, industry and
    consumers to ensure our BSE prevention and response measures are fully
    effective in the United States.

    MOU with FDA
        Since 1999, FSIS and the Food and Drug Administration (FDA) have
    had a Memorandum of Understanding (MOU) to exchange information on an
    on-going basis about establishments that fall under both jurisdictions.
    FSIS will continue engaging in substantive discussions with FDA and
    other agencies who share public health and food safety
    responsibilities. The Bioterrorism Act of 2001 (Public Law 107-188)
    further enhanced this cooperation by authorizing FDA to commission FSIS
    employees to conduct inspection at dual jurisdiction facilities.

    Public Health Service Commissioned Corps Officers
        In addition to its partnerships with the White House and Federal
    agencies, FSIS has entered into a working relationship with the U.S.
    Public Health Service (PHS) and the Office of the Surgeon General. In
    April 2003, FSIS signed a Memorandum of Agreement with the Surgeon
    General and the PHS that allows expanded numbers of PHS Commissioned
    Corps Officers to be detailed to the agency. FSIS currently has 19 PHS
    Commissioned Corps Officers detailed to the agency and will incorporate
    additional PHS Officers nationwide across all program areas under the
    agreement. Not only will these officers help FSIS respond to foodborne
    disease outbreaks and assist in preventing foodborne illness, but they
    will assist in the agency's homeland security efforts as well. Since
    the Commissioned Corps Officers are available 24 hours a day, 7 days a
    week, this affords a greater flexibility to respond immediately during
    heightened security alerts or an actual threat to the food supply.

    USDA's Unified Food Safety Research Agenda
        Another example of FSIS' commitment to communication, cooperation,
    and coordination was the November 2003 announcement of a unified food
    safety research agenda to improve the efficiency and effectiveness of
    food safety programs. USDA also released a list of additional research
    needs specific to meat, poultry and egg products that FSIS will
    encourage non-governmental entities to address. The government research
    agenda will complement these efforts by industry and academia. USDA's
    Research, Education, and Economics (REE) mission area worked with
    USDA's Office of Food Safety, other government food safety agencies,
    and stakeholders to develop the unified research agenda. The unified
    agenda prioritizes research needs and maximizes use of available
    resources.

                        ENHANCE PUBLIC EDUCATION EFFORTS

        Because everyone has a responsibility for food safety, educating
    the public about this responsibility is a crucial element in FSIS' food
    safety mission. All food preparers, from consumers to food service
    employees, must know and understand basic safe food-handling practices.
    These efforts must be broad enough to ensure that no segment of the
    public is uninformed about safe food handling practices, yet at the
    same time, target various segments of the population to positively
    influence those behaviors that pose the greatest potential risk.
    Communicating with the public about food safety must be accomplished in
    a manner that is easily understandable so that it is useful to every
    segment of the population. Thus, FSIS has considered innovative and
    collaborative methods for delivering the food safety message.

    The Food Safety Mobile
        One such innovative way of spreading the food safety message is
    USDA's Food Safety Mobile, which was introduced in March 2003. This
    eye-catching ``food safety educator-on-wheels'' brings food safety
    information to consumers and builds on our partnerships in communities
    across the country. Through the Food Safety Mobile, FSIS is sharing its
    food safety message with the general public as well as culturally
    diverse and underserved populations and those with the highest risk
    from foodborne illnesses. From March to November 2003, the Mobile
    traveled over 24,000 miles and participated in 87 events in 64 cities
    across the country. These events ranged from county fairs and grocery
    store demonstrations, to the Taste of Minnesota and the Philadelphia
    Thanksgiving Day Parade. FSIS used these opportunities to provide
    information and publications on food safety to approximately 179,000
    people face-to-face at Mobile events. FSIS estimates 64.4 million media
    impressions from the Mobile, and that does not include internet
    exposure.

    Educational Campaign
        FSIS has also been conducting an educational campaign through
    public events and media interviews with national and regional media
    organizations in order to reach more of the population with important
    public health messages. Recent events were held in Houston,
    Philadelphia, Portland, San Francisco, Miami, and the Flathead
    Reservation in Montana. National television interviews have been
    conducted with major television networks, including Fox News, Telemundo
    and Univision. National celebrities, such as former Miss America
    Heather Whitestone McCallum, pop music legend Olivia Newton-John, and
    country singer Wynonna Judd, have also been recruited to help FSIS
    reach even larger audiences with food safety messages through special
    events and the filming of Public Service Announcements (PSA). The
    results have been impressive. The Heather Whitestone McCallum PSA has
    aired 14,448 times since September 2003. This PSA ranked in the top 3
    percent of all PSA's shown during the month of January 2004 along with
    PSA's by the American Red Cross, the Federal Emergency Management
    Agency (FEMA), and the Department of Homeland Security (DHS).

    USDA's Meat and Poultry Hotline
        USDA's Meat and Poultry Hotline is an additional tool that FSIS
    uses to share its food safety message. The Hotline handled over 98,000
    calls and 80 media and information multiplier calls during fiscal year
    2003. Calls included requests from newspapers, magazines, radio,
    television, and book authors, and included live interviews with radio
    and television stations. The Hotline also provides recorded information
    and live assistance for our Spanish-speaking callers. Additionally, the
    Hotline was a key resource for keeping the public informed about the
    BSE situation in Washington and has handled approximately 4,000 calls
    and 1,000 emails concerning BSE since December 23, 2003.

          PROTECT MEAT, POULTRY, AND EGG PRODUCTS AGAINST INTENTIONAL
                                 CONTAMINATION

        In the aftermath of September 11, 2001, there is recognition that
    threats to the well being of the Nation's citizens can come in the form
    of terrorist attacks, including the intentional contamination of food.
    With a strong food safety infrastructure already in place, FSIS has
    been focusing on fortifying existing programs and improving internal
    and external lines of communication. By partnering with other agencies,
    including CDC, FDA, USDA's Agricultural Research Service (ARS), DHS,
    APHIS, the Environmental Protection Agency (EPA), as well as
    international partners such as the Canadian and Mexican governments'
    food inspection agencies, and State and local health agencies, FSIS is
    in a pivotal position to share information and to strengthen critical
    infrastructure protection activities concerning food from farm to
    table.

    FSIS Office of Food Security and Emergency Preparedness
        To date, FSIS has undertaken a number of initiatives to protect
    meat, poultry, and egg products from the potential of a terrorist
    attack. Immediately following September 11, 2001, FSIS established the
    Food Biosecurity Action Team (F-BAT). The charge of F-BAT was to
    coordinate all activities related to biosecurity, counter-terrorism,
    and emergency preparedness within FSIS. These activities are
    coordinated with USDA's Homeland Security Council, other government
    agencies, and industry. Currently, FSIS' newly created Office of Food
    Security and Emergency Preparedness (OFSEP) has assumed the
    responsibilities of F-BAT and serves as the centralized office within
    FSIS for food security issues.
        OFSEP interacts closely with USDA's Homeland Security Council and
    represents the agency on all food security matters throughout the
    Federal Government, as well as in State and local activities. The
    Office's mission is to lead in the development of the agency's
    infrastructure and capacity to prepare for, prevent, and respond to,
    deliberate attacks or other threats to the U.S. food supply. As the
    lead coordinator and primary point of contact on all food security and
    emergency preparedness activities within FSIS, OFSEP focuses primarily
    on:
      --Emergency preparedness and response;
      --Federal/State/Industry Relations;
      --Continuity of operations (COOP);
      --Scientific expertise in chemical, biological, and radiological
            terrorism; and,
      --Security clearance and safeguarding classified information.
        To ensure coordination of these activities involves all program
    areas of the agency, OFSEP established a new standing advisory group,
    the Food Security Advisory Team (FSAT), comprised of representatives of
    the major program areas within FSIS, to provide program-specific
    technical support.

    Expanding Coordination with Federal, State, and Local Agencies
        FSIS collaborates and coordinates closely with its State partners
    to ensure an effective prevention and response program. Some of the
    many state organizations FSIS works with include the Association of
    Food and Drug Officials (AFDO); the Association of State and
    Territorial Health Officials (ASTHO); and the National Association of
    State Departments of Agriculture (NASDA). Most recently, FSIS teamed
    with FDA in cosponsoring a joint meeting between ASTHO and NASDA,
    entitled ``Homeland Security: Protecting Agriculture, the Food Supply,
    and Public Health--The Role of the States.'' The purpose of this
    meeting was to enhance collaboration between State public health and
    agriculture agencies and the Federal Government. Both the Secretary of
    Agriculture and the Secretary of Health and Human Services (HHS) were
    on hand for this joint meeting.
        FSIS also works closely with the White House Homeland Security
    Council, DHS, FDA, and the USDA Homeland Security Staff to develop
    strategies to protect the food supply from an intentional attack. For
    example, FSIS, along with FDA and industry partners, is working with
    DHS to establish a new food information sharing and analysis activity
    for the food sector. This public/private partnership will aid in the
    protection of the critical food infrastructure by centralizing the
    information about threats, incidents, and vulnerabilities.

    Consumer Homeland Security Education
        Because everyone has a stake in a safe and secure food supply, FSIS
    published Food Safety and Food Security: What Consumers Need to Know in
    November 2003, as part of the agency's continuing effort to protect
    public health by preventing and responding to contamination of the food
    supply throughout the farm-to-table continuum. The brochure, developed
    by FSIS, is available in both English and Spanish. In a concise and
    easy-to-follow format, Food Safety and Food Security: What Consumers
    Need to Know, lays out comprehensive and practical information about
    safe food handling practices, foodborne illness, product recalls,
    keeping foods safe during an emergency and reporting suspected
    instances of food tampering. This publication is the latest in a series
    of food security guidelines issued by FSIS that includes FSIS Security
    Guidelines for Food Processors and FSIS Safety and Security Guidelines
    for the Transportation and Distribution of Meat, Poultry and Egg
    Products.

    Ensuring the Safety of Imports
        To further strengthen our import inspection program, we established
    a new position called the import surveillance liaison inspector, using
    funds provided in the fiscal year 2001 Homeland Security Supplemental
    Appropriations Act. These inspectors augment the current activities of
    traditional import inspectors at locations across the country. The
    import surveillance liaison inspectors conduct a broader range of
    surveillance activities, and they coordinate with other agencies, such
    as the APHIS, FDA, and the U.S. Customs and Border Protection within
    the DHS. Currently, 20 of these new inspectors are on board, and we
    anticipate more will be added.

    Laboratories
        Laboratories play a key role in our ability to quickly detect
    contamination of the food supply. FSIS has four ISO accredited
    laboratories--three regulatory laboratories that conduct testing on
    samples of meat, poultry and egg products, and a fourth laboratory that
    focuses on microbial outbreaks. FSIS has increased security at all of
    our laboratories. This includes instituting procedures to ensure proper
    chain of custody and other controls on all samples and materials
    received by the labs. The labs participate in the Electronic Laboratory
    Exchange Network (eLEXNET), which is a system designed to provide a
    secure network in which food safety labs at various levels of
    government can share test data on food samples.
        Furthermore, FSIS laboratories have enhanced analytical capability
    for compounds of concern and developed surge capacity. Our four labs
    have expanded capability to test for non-traditional microbial,
    chemical and radiological threat agents. In addition, the Agency has
    also begun construction of a Bio Security Level 3 facility that will be
    able to conduct analyses on a larger range of potential bioterrorism
    agents.
        FSIS is also represented on the interagency Laboratory Response
    Network and has worked to develop the Food Emergency Response Network
    (FERN) for potential foodborne contamination incidents. FERN was formed
    in 2002 and currently has about 61 members, including FSIS, FDA, and
    state labs. Participation is open to Federal, State, and local
    government labs that are capable of conducting food testing and
    forensic analysis for a wide variety of chemical, biological and
    radiological agents. FERN can help respond to national emergencies,
    including terrorist threats that might affect the food supply. In
    fiscal year 2005, FSIS plans to significantly expand its participation
    in FERN.

                        FISCAL YEAR 2005 BUDGET REQUEST

        I appreciate having the opportunity to discuss a number of FSIS'
    accomplishments with you. Now I would like to present an overview of
    the fiscal year 2005 budget request for FSIS. Implementation of these
    budget initiatives is imperative to helping us attain FSIS' public
    health mission. In fiscal year 2005, FSIS is requesting a program level
    of $951.7 million, a net increase of about $61 million from the enacted
    level for fiscal year 2004. Under current law, we are requesting an
    appropriation of $838.7 million, with an additional $113 million in
    existing user fees.

    Supporting FSIS' Basic Mission
        The FSIS budget request for fiscal year 2005 supports the Agency's
    basic mission of providing continuous food safety inspection in each
    meat, poultry, and egg products establishment in the United States. The
    fiscal year 2005 budget includes $15.5 million in increases for
    mandatory pay raises in Federal and State programs. This includes
    annualization of the calendar year 2004 pay raise, as well as the
    anticipated calendar year 2005 pay raise.
        The fiscal year 2005 budget request includes a $17.3 million
    increase for the full cost of in-plant inspection and enforcement of
    humane handling and slaughter. FSIS employee salary, benefits, and
    inspector travel between plants make up a large portion of the FSIS
    budget and have a serious affect on our ability to staff plants if not
    fully funded. Thus, FSIS requires a $12.3 million increase to avoid
    detrimental employment restrictions within the agency, which would
    result if unavoidable cost increases are not fully funded and must be
    absorbed. An additional $5 million is requested so that FSIS'
    inspection workforce can continue its strict enforcement of regulations
    for humane slaughter and handling of livestock, a top priority at FSIS.

    New Initiatives
        The fiscal year 2005 request includes a $33.6 million increase for
    new initiatives that support the Department's goals for FSIS.
    BSE Surveillance
        First, the fiscal year 2005 budget request includes an increase of
    $3 million for BSE surveillance. FSIS' BSE inspection program will add
    permanent BSE control measures in fiscal year 2005, which include:
    increased in-plant verification of slaughter plant designs for
    controlling specified risk materials (SRMs), overtime inspection, and
    travel for Veterinary Medical Officers to test non-ambulatory disabled
    livestock when they arrive at small slaughter plants that do not have a
    resident veterinarian. FSIS will also perform about 60,000 screening
    tests in fiscal year 2005 at processing plants that use advanced meat
    recovery (AMR) equipment, to ensure that SRMs do not enter the food
    supply.

    Food and Agriculture Defense Initiative
        The fiscal year 2005 budget also requests a $23.5 million increase
    to support a food and agriculture defense initiative in partnership
    with USDA, HHS, and DHS. Food contamination and animal and plant
    diseases and infestations can have catastrophic effects on human health
    and the economy. The three Federal Departments involved are working
    together to create a comprehensive food and agriculture policy that
    will improve the government's ability to respond to the dangers of
    disease, pests and poisons, whether natural or intentionally
    introduced. Our food and agriculture defense initiative has five
    components:
      --Biosurveillance;
      --The Food Emergency Response Network;
      --Data systems to support the Food Emergency Response Network;
      --Enhancing FSIS laboratory capabilities; and
      --Follow-up bio-security training.
        First, the food and agriculture defense initiative will allow FSIS
    to participate in an interagency biosurveillance initiative that would
    improve the Federal Government's ability to rapidly identify and
    characterize a potential bioterrorist attack. Funding this initiative
    will improve Federal surveillance capabilities and enable FSIS to
    integrate with DHS to compile FSIS surveillance information rapidly
    with threat information. This funding would also allow FSIS to focus
    its resources on the vulnerable products and processes identified
    during the agency's vulnerability assessments of imported and domestic
    products; increase regulatory sampling for three additional threat
    agents; add five Import Surveillance Liaison Inspectors, 30 program
    investigators for transportation, distribution, and retail
    surveillance, and two Public Health and Epidemiology Liaison Officers
    to our workforce; and establish a Foodborne Disease Surveillance
    Communication system to coordinate with DHS systems.
        The second component of the food and agriculture defense initiative
    is the Food Emergency Response Network (FERN), which I discussed
    earlier. A nationwide laboratory system with sufficient capacity to
    meet the needs of anticipated emergences is integral to any
    bioterrorism surveillance and monitoring system. The goal is to
    establish 100 FERN laboratories, creating a network of Federal, State
    and local laboratories that FSIS could call upon to handle the numerous
    samples that would be required to be tested in the event of a terrorist
    attack on the meat, poultry or egg products supply. The fiscal year
    2005 budget request would expand FERN to contract with State and local
    laboratories, and to establish five regional hubs and a National
    Operating Center to coordinate FERN's efforts and conduct training. In
    addition, FSIS would also fund the establishment of five to seven State
    laboratories for screening of microbiological agents, with more
    laboratories in the future, based on the availability of funds.
        The third and fourth components of the food and agriculture defense
    initiative provide further support to FERN. The electronic laboratory
    exchange network (eLEXNET), which I mentioned previously, is a
    national, web-based, electronic data reporting system that allows
    analytical laboratories to rapidly report and exchange standardized
    data. The fiscal year 2005 budget request would provide funding needed
    to make eLEXNET available to additional FERN and other food-testing
    laboratories nationwide. In turn, the budget request would enhance
    FSIS' laboratory capabilities in order to detect new bioterror-
    associated agents, and to ensure FSIS' capability and capacity to
    perform the toxin and chemical testing that will be standardized across
    all FERN laboratories.
        Because the realm of biosecurity is ever changing, FSIS must
    provide its workforce with the most up-to-date information necessary to
    ensure that meat, poultry, and egg products are protected from
    intentional contamination. Therefore, the final component of the food
    and agriculture defense initiative is follow-up biosecurity training of
    the workforce. This additional training is essential as part of the
    ongoing effort to protect the public by educating the workforce
    regarding the latest threat agents and countermeasures to those agents.

    Training and Education
        Training is a top priority at FSIS. Our inspection workforce is our
    greatest asset, and this is why FSIS is dedicated to establishing and
    maintaining a comprehensive and fully integrated training program. The
    agency is continuing its extensive training effort by requesting
    approximately $7.1 million, or an increase of 50 percent over fiscal
    year 2004, to train all new inspection personnel and to expand existing
    training programs in fiscal year 2005.
        To ensure that newly hired inspection personnel receive the proper
    orientation and training to perform their jobs when they report to
    duty, FSIS is requesting approximately $4 million in fiscal year 2005.
    The agency has been criticized in the past for not immediately training
    all new employees. This initiative will provide the formal training
    needed to ensure that inspection procedures are performed consistently
    and appropriately under agency policies. This initiative will also
    enable FSIS to place 10 district trainers, in addition to five already
    funded in the agency's baseline, throughout the Nation, to orient and
    train FSIS employees.
        Last year, FSIS began retooling and expanding its existing training
    programs by incorporating a public health focus and integrating
    scientific and technical principles with training on technical and
    regulatory approaches to inspection. Through the $3.1 million requested
    by FSIS in fiscal year 2005, the agency would continue to provide Food
    Safety Regulatory Essentials (FSRE) training to field employees,
    including food inspectors, CSOs, Inspectors-in-Charge, and Compliance
    Officers. The agency will offer the training regionally to accommodate
    inspection staff. Additional computer-based-training will be provided
    to implement the training, and will be catered to the inspection
    personnel's specific food safety responsibilities.

    User Fee Proposal
        Under current law, in 2005 FSIS estimates it will collect $113
    million in annual user fees to recover the costs of overtime, holiday,
    and voluntary inspection. FSIS' fiscal year 2005 budget includes a
    legislative proposal to recover the costs of providing inspection
    services beyond an approved 8-hour primary shift. The proposal was
    submitted to Congress last August. If enacted, the level of
    appropriated funds needed would be reduced by an estimated $124
    million, making the FSIS budget request $714.7 million. This will
    result in significant savings for the American taxpayer.

                                    CLOSING

        The goals and initiatives that FSIS has laid out as its vision
    represent a monumental task. But let me assure you; this is a task that
    we are ready and willing to take on. I believe that with the
    appropriate support, FSIS will be able to achieve its public health
    vision and strengthen the safety of meat, poultry, and egg products.
        Mr. Chairman, this concludes my prepared statement. Thank you for
    your continued support. Thank you also for the opportunity to submit
    testimony to the Subcommittee on how FSIS is working with Congress and
    other partners to achieve its public health vision.

                         ADDITIONAL COMMITTEE QUESTIONS

        Senator Bennett. Thank you very much for your testimony.
        [The following questions were not asked at the hearing, but
    were submitted to the Department for response subsequent to the
    hearing:]

                Questions Submitted by Senator Robert F. Bennett

                                      BSE

        Question. On March 15, 2004, the Department of Agriculture
    announced details for an expanded surveillance effort for BSE. The
    release also stated that $70 million is being transferred from the
    Commodity Credit Corporation (CCC) to test cattle in the high risk
    population. According to the announcement, the $70 million will allow
    testing of 268,000 animals. Using the Department estimate, testing all
    animals destined for export could cost at or near $1 billion.
        In your opinion, do you believe testing 100 percent of the export
    market is possible? Also, any additional comments or updates in regard
    to the cost of animal testing would be appreciated.
        Answer. Although it is logistically possible to test 100 percent of
    the cattle slaughtered in the United States every year, USDA does not
    recommend following this course of action. Testing predominantly young,
    healthy animals beyond the bounds of a scientific surveillance plan
    would create a false sense of security for consumers and could lead to
    either a tiered system (testing for exports but not for domestic
    consumption) or, more probably, testing all cattle slaughtered.
        USDA's targeted surveillance program is designed to identify the
    presence of BSE in the U.S. cattle population if it exists. We
    understand that some in industry have suggested blanket-testing all
    animals presented at slaughter as a means of providing ``BSE-screened
    products'' and easing trade barriers. However, it is our contention
    that current barriers against U.S. beef are scientifically unwarranted,
    and we continue working at the highest levels to reopen foreign markets
    for U.S. producers.
        We must clarify that surveillance testing for BSE--especially if it
    is performed on clinically normal animals at slaughter--is not an
    efficient risk mitigation measure for protecting public health. USDA is
    confident that the removal of specified risk materials, along with
    other measures such as feed practices regulated by the Food and Drug
    Administration address the potential health risk of BSE.
        USDA's BSE surveillance program has always focused testing efforts
    on those animals that fall into the highest-risk category for the
    disease. These include cattle exhibiting signs of neurologic disease;
    condemned at slaughter for neurologic reasons; testing negative for
    rabies and submitted to public health laboratories and teaching
    hospitals; and appearing non-ambulatory (including those exhibiting
    general weakness severe enough to make it difficult but not impossible
    to stand), also known as ``downer cattle.'' We also sample adult cattle
    that have died for unexplained reasons.
        We estimate that approximately 35 million cattle are slaughtered in
    the United States annually. If each one of these animals were to be
    tested, and we included the cost of the test kit, sample collection,
    shipping and handling, laboratory processing and support, training,
    equipment, and other associated fees, USDA estimates that the total
    cost would be between $175 and $200 per animal. Thus, the total cost
    for testing every animal slaughtered could reach as high as $6 to $7
    billion per year.
        Question. The livestock industry and Department of Agriculture are
    working toward reopening export markets in Japan, Mexico, and other
    exporting countries. The controversy arises over testing each animal
    and whether or not animals under the age of 30 months should be tested.
        Do you believe each animal, including those under 30 months of age,
    should be tested prior to export?
        Answer. USDA's targeted surveillance program is designed to
    identify the presence of BSE in the U.S. cattle population if it
    exists. We do not agree that blanket-testing all animals prior to
    export, including those under 30 months of age, is a scientifically
    sound approach to disease surveillance.
        USDA's BSE surveillance program has always focused testing efforts
    on those animals that fall into the highest-risk category for the
    disease. These include cattle exhibiting signs of neurologic disease;
    condemned at slaughter for neurologic reasons; testing negative for
    rabies and submitted to public health laboratories and teaching
    hospitals; and appearing non-ambulatory (including those exhibiting
    general weakness severe enough to make it difficult but not impossible
    to stand), also known as ``downer cattle.'' We also sample adult cattle
    that have died for unexplained reasons.

                                AVIAN INFLUENZA

        Question. The Administration's fiscal year 2005 Budget request
    includes an increase in funding of $11.783 million to address Low
    Pathogenic Avian Influenza (LPAI) in live bird markets.
        Can you update the Committee in regard to ongoing action related to
    avian influenza and explain how the Department would utilize the
    additional funding?
        Answer. APHIS has been working to establish a national LPAI program
    and incorporate it into the National Poultry Improvement Plan (NPIP).
    The national LPAI program will be discussed and hopefully adopted at
    the NPIP meeting in July 2004. The program has drafted a Uniform
    Methods and Rules (UM&R) for the live bird marketing portion of the
    program and the subcommittee of the U.S. Animal Health Association is
    currently reviewing the draft to obtain their recommendations for
    program improvement.
        APHIS would utilize the additional funding for cooperative
    agreements with states that will support the LPAI prevention and
    control program; for indemnities; for additional field personnel,
    equipment, and other resources necessary to assist states with long-
    term prevention and control; for educational materials and training for
    recognition of avian influenza and for biosecurity practices to protect
    against the disease; for development and administration of vaccine to
    support industry when infected with LPAI; and for reagents and other
    laboratory support to incorporate the commercial program through the
    National Poultry Improvement Program (NPIP). This program is currently
    testing poultry breeder flocks and will continue to expand its
    activities until all segments of the commercial industry are monitored
    and certified as avian influenza clean.
        Question. With the discovery of avian influenza, a number of
    countries have banned poultry imports from the United States.
        Can you provide the Committee with an update on poultry export
    markets and exactly what actions USDA is taking to reopen these
    markets?
        Answer. The USDA is currently working with countries that have
    imposed bans on taking the necessary actions to remove the bans on
    exports and reopen all poultry markets. Our actions include:
    depopulating positive testing flocks, cleaning and disinfecting those
    flocks, providing additional surveillance activities to ensure that all
    positive have been removed, and responding to inquiries and
    questionnaires to prove that areas are free of avian influenza and
    trade bans can be removed.
        On April 6, the Canadian Food Inspection Agency (CFIA) recognized
    the United States as free of highly pathogenic avian influenza (HPAI)
    and lifted all HPAI-related importation bans on U.S.-origin birds,
    poultry, and poultry products. Other countries including Armenia,
    Macedonia, and Serbia have removed their bans and have allowed exports
    to enter their country. Several other countries including: Chile, Czech
    Republic, Hungary, Israel, Poland, and Taiwan have reduced their
    restrictions to allow poultry exports from all states except for Texas.

                               CHILDHOOD OBESITY

        Question. Childhood obesity is a growing health concern for many
    Americans. The Department of Agriculture has and continues to conduct
    research to further understand the factors that contribute to obesity.
        Can you update the Committee in regard to actions that the
    Department is taking to inform consumers and to combat obesity?
        Answer. The Department is making a substantial commitment to
    promoting healthy weight through nutrition education and promotion. In
    the Food, Nutrition, and Consumer Services (FNCS) mission area, the
    Food and Nutrition Service (FNS) nutrition education efforts are
    targeted primarily to participants or potential participants in the
    nutrition assistance programs it administers, while the Center for
    Nutrition Policy and Promotion (CNPP) provides nutrition education and
    information for the general public. In addition, the Cooperative State
    Research, Education and Extension Service (CSREES) has a significant
    commitment to nutrition education, as well as the Agricultural Research
    Service and the Economic Research Service, who perform basic and
    applied research supporting this effort.
        FNCS undertakes a range of ongoing activities each year to deliver
    nutrition education and promotion to program recipients; all of these
    include maintenance of proper weight as one component of a healthy
    lifestyle, including:
      --Integrating nutrition and physical activity promotion within and
            across the programs.--The Eat Smart. Play Hard.TM
            campaign for children and their caregivers stresses the need to
            balance what you eat with how active you are, and Team
            Nutrition provides nutrition education for the Nation's
            schoolchildren. Materials such as brochures, activity sheets
            and posters, coordinated with nutrition curricula, are used to
            help children, their parents, and caregivers learn healthy
            eating and active living behaviors.
      --Reshaping nutrition education in the Food Stamp Program.--To target
            activities that promote healthy weight. For example, we are
            developing new nutrition education materials that program staff
            can use to motivate low-income elderly people and women with
            children to improve their eating behaviors.
      --Developing new ways to support healthy weight through the WIC
            program.--The Fit WIC project developed five intervention
            programs that WIC and other community agencies can implement to
            prevent overweight in young children. Educational packages such
            as Fathers Supporting Breastfeeding are used in WIC clinics to
            support breastfeeding. Breastfed babies are less likely to
            become overweight as they grow, and mothers who breastfeed may
            return to pre-pregnancy weight more easily.
      --Promoting healthy school nutrition environments.--Unhealthful
            beverage and food choices at school can undermine children's
            ability to learn and practice healthy eating. We developed and
            are distributing the Changing the Scene action kit to help
            local schools and communities to support healthier eating and
            active living behaviors.
      --Promoting increased fruit and vegetable intake.--Through
            partnerships with other Federal Agencies and the National 5-A-
            Day Program. For example, we worked together to develop the
            Fruits and Vegetables Galore-Helping Kids Eat More tool kit,
            which helps foodservice professionals with planning,
            preparation, and promotion strategies to encourage the children
            they serve to consume more fruit and vegetables. For fiscal
            year 2005, the President's Budget proposes several initiatives
            to enhance these efforts to better address obesity and promote
            healthy weight. These include:
      --The budget requests $20 million, a $5 million increase, to enhance
            WIC breastfeeding promotion efforts through peer counseling.
            The use of breastfeeding peer counselors has proven to be an
            effective method of increasing initiation and duration of
            breastfeeding, and breastfed babies are more likely to maintain
            a healthy weight as they grow.
      --The budget requests $5 million to initiate a new series of WIC
            Childhood Obesity Prevention Projects, which build on the
            success of the Fit WIC projects to work in partnership with
            States on innovative strategies to use WIC to prevent and
            reduce childhood obesity through enhanced nutrition and
            education, physical activity promotion, and environmental
            efforts. Ongoing funding for such projects is critical to
            ensuring continuous improvement in this area.
      --It requests $2.5 million to expand the Eat Smart. Play
            Hard.TM Campaign and establish a cross-program
            nutrition framework to help ensure a comprehensive, integrated
            approach to nutrition education in all FNS nutrition assistance
            programs.
      --The budget includes $1 million for the Center for Nutrition Policy
            and Promotion (CNPP) plans to build on previous work to
            implement the consumer messages developed and pilot tested with
            20- to 40- year-old women, especially low-income women, to help
            consumers aim for a healthy weight.
      --The budget requests as additional $655,000 to complete the
            development of the 6th edition of the Dietary Guidelines for
            Americans, as well as an additional $1 million to update and
            promote the new food guidance system which will update the Food
            Guide Pyramid. CNPP also plans to develop obesity prevention
            materials based on the Dietary Guidelines and the new food
            guidance system, as well as promote the consumption of fresh
            fruit and vegetables. Plans include the development of print
            materials and interactive tools, such as the Interactive
            Healthy Eating Index, that direct dietary guidance to the
            individual to facilitate healthful behavior change.

                    INDEFINITE FUNDING IN THE FOOD STAMP ACT

        Question. The Administration's fiscal year 2005 Budget includes a
    request for new legislative language to allow for indefinite funding
    authority for the Food Stamp Act.
        Can you provide the Committee with an explanation of why this
    legislative language has been requested?
        Answer. The indefinite authority proposal in this year's Food Stamp
    Program budget would provide such sums as necessary to fund program
    benefits and payments to States, in the last 4 months of the fiscal
    year if program needs exceed the anticipated level. It would ensure
    that sufficient resources will always be available to provide access to
    the program for all eligible persons who wish to participate. It can be
    difficult to estimate program needs or the size of an adequate
    contingency reserve, particularly when there are changes in the
    economy. With indefinite authority, if program costs should
    significantly exceed budget estimates, it would never be necessary to
    seek a supplementary appropriation or implement a benefit reduction.
    This proposal would bring the structure of this critical program in
    line with other major social welfare programs that already have
    indefinite authority.
                                     ______

               Questions Submitted by Senator Christopher S. Bond

                         GUIDELINES ON FAT CONSUMPTION

        Question. There is a linear relationship between high transfatty
    acid and high saturated fat intake and chronic disease. We also know
    that the consumption of foods high in these two elements likely
    contribute to the statistics on obesity.
        Does USDA intend to draft guidelines or standards for the
    consumption of these fats?
        Answer. The 2005 Dietary Guidelines Advisory Committee (DGAC) is in
    the process of evaluating the most recent scientific evidence on fatty
    acids and health and is preparing to make science-based recommendations
    specifically for saturated and trans fatty acids consumption. At its
    most recent public meeting held on March 30 and 31, 2004, members of
    the Committee discussed the possibility of setting intake goals for
    both types of these fatty acids--saturated and trans--and also
    discussed the implications these proposed recommendations would have
    for the general public. It is expected that the dietary fat
    recommendations will emphasize the reduction of current intake for
    saturated and trans fatty acids. The Committee is also expected to
    address the need for encouraging product reformulations by food
    manufacturers to reduce unhealthy fats in food products. It should be
    noted that on July 11, 2003, the Food and Drug Administration published
    a final rule requiring food manufacturers to list the amount of trans
    fatty acids on product nutrition labels by January 1, 2006. Some
    manufacturers have already responded to the rule by implementing the
    labeling requirement or by eliminating trans fatty acids from their
    products.
        The Committee is continuing its deliberations on specific fatty
    acid recommendations. However, the final advisory report is expected to
    be submitted to USDA and HHS by June 30, 2004. The final science-based
    recommendations on saturated and trans fatty acids will be incorporated
    in the agency's education and communication efforts after completion of
    the DGAC report.
        In an effort to help Americans reduce their risk of cardiovascular
    disease and improve their health, USDA's proposed new Food Guidance
    System, to be released in 2005, emphasizes consumption of oils instead
    of solid fats in the diet and differentiates between saturated and
    unsaturated fats. The guidance recommends that Americans choose fats
    mostly from foods higher in polyunsaturated or monounsaturated fat, and
    particularly Omega-3 fats such as those found in fish.
        Question. Since not all oils are equally healthy, will USDA provide
    guidelines and or regulations to restaurants and other food
    manufacturers and--more importantly--provide them a roadmap to
    increasing the nutritional content and decrease trans and saturated fat
    levels of their products?
        Answer. The 2005 Dietary Guidelines Advisory Committee (DGAC) is in
    the process of evaluating the most recent scientific evidence on fatty
    acids and health and is preparing to make science-based recommendations
    specifically for saturated and trans fatty acids consumption. The
    Committee is also expected to address the need for encouraging product
    reformulations by food manufacturers to reduce unhealthy fats in food
    products.
        Additionally, researchers from the Agricultural Research Service
    are working with agricultural producers and the fats and oils industry
    to find alternative ingredients and develop oils such as canola and
    sunflower oils with higher levels of the fatty acids that may help
    reduce levels of low-density lipoproteins--or bad cholesterol--without
    reducing the high-density lipoproteins--or good cholesterol. Through
    Federal research and education efforts, these ``heart-friendlier'' oil
    products are expected to be utilized by the food industry, offering
    trans fatty acid-free products in the marketplace.
        Question. Does USDA intend to provide specific guidelines and or
    regulations on the characteristics of healthy oils highlighting those
    oils that have low saturated fat and transfat profiles that can be used
    in most food manufacturing to improve overall health and nutrition of
    those foods?
        Answer. The 2005 Dietary Guidelines Advisory Committee (DGAC) is in
    the process of evaluating the most recent scientific evidence on fatty
    acids and health and is preparing to make science-based recommendations
    specifically for saturated and trans fatty acids consumption. At its
    most recent public meeting held on March 30 and 31, 2004, members of
    the Committee discussed the possibility of setting intake goals for
    both types of these fatty acids and also discussed the implications
    these proposed recommendations would have for the general public. It is
    expected that the dietary fat recommendations will emphasize reduction
    in saturated fatty acids and trans fatty acids. The Committee is also
    expected to address healthy fats and provide intake recommendations on
    how consumers can incorporate ``healthy'' oils in their diets. The USDA
    will incorporate the recommendations from the DGAC into its education
    and communication efforts after completion of the DGAC report. The USDA
    will provide consumers with information on the most common sources for
    ``healthy'' oils to offer them healthy choices in selecting a balanced
    diet.
        Question. Does USDA have this authority?
        Answer. USDA has authority to provide consumers with information on
    the nutritional content of foods, including oils and common sources for
    ``healthy'' oils. USDA attempts to help consumers, producers and
    industry by offering information regarding healthy choices when
    selecting a balanced diet.
        Question. How does USDA intend to incorporate the information it
    hopes to disseminate through the campaigns mentioned in Mr. Bost's
    testimony into USDA run food programs?
        Answer. Nutrition promotion efforts such as the Eat Smart.Play
    Hard.TM campaign and Team Nutrition are designed
    specifically to be delivered through the Federal nutrition assistance
    programs. Materials are developed by the Food and Nutrition Service
    (FNS) and disseminated to State and local program partners through the
    web and direct delivery. Program cooperators also order campaign
    materials through the Department of Commerce's National Technical
    Information Service (NTIS).
        Most of the materials developed to date are designed for use in
    specific programs. Part of the requested $2.5 million increase for
    cross-program nutrition activities will support development of
    nutrition promotion materials that can be integrated into more than one
    program, maximizing the impact of limited nutrition education funding.
        FNS and the Center on Nutrition Policy and Promotion (CNPP) also
    work closely together to ensure that program-based nutrition education
    activities are fully consistent with the Dietary Guidelines for
    Americans and the food guidance system intended to deliver the
    Guidelines to the general population. These agencies confer directly,
    and participate together in the Dietary Guidance Working Group, which
    reviews nutrition education materials to ensure their consistency with
    Federal nutrition policy and guidance. When the new Guidelines and food
    guidance system are finalized, FNS will review all of its nutrition
    education interventions to ensure that they are consistent with the
    updated guidance, and make any needed changes.

                                  SOYBEAN RUST

        Question. In part due to a short U.S. soybean crop in 2003, the
    U.S. livestock industry is expected to import a larger amount of
    soybean meal this year than in the recent past. The usual source for
    U.S. soymeal imports is Brazil, which experienced the arrival of Asian
    soybean rust a few years ago. Since Asian soybean rust has not yet
    arrived in the United States, it is important that we do everything we
    can to delay that arrival as long as possible.
        When will APHIS make a decision about any additional quarantine
    steps for imported soybeans or soybean meal that it will impose, and
    will APHIS consult with the relevant stakeholder groups, such as the
    American Soybean Association and livestock groups, before making a
    final decision?
        Answer. APHIS officials are looking closely at our country's
    importation of soybean seed, meal, and grain. Our analysis to date has
    shown that clean soybean seed and soybean meal--which is a heat-
    treated, processed product--is unlikely to pose any risk of introducing
    this disease. Historically, there has never been a documented instance
    of soybean rust spread through trade. Rather, it is spread naturally
    through airborne spore dispersal. We are currently conducting a risk
    assessment to study the viability of the pathogen. The preliminary
    results of the assessment indicate a very low risk, if any, of
    introducing this disease through imports. We posted our initial risk
    document on the APHIS' Web site and requested public comments. The
    comment period closed April 12, 2004.
        We have been working very closely with the American Soybean
    Association and other stakeholders throughout our efforts to prevent
    and prepare for the introduction of soybean rust. Most recently, USDA
    officials participated in a soybean rust conference that was
    cooperatively organized by USDA, five pesticide companies, and the
    American Soybean Association. The primary goal of the conference was to
    disseminate to soybean farmers the knowledge, information, and
    techniques they will need to manage this pathogen when it reaches the
    continental United States. We are committed to continuing and expanding
    this outreach, including working with the livestock industry, in our
    efforts develop policies for preventing the human-assisted entry of the
    disease. We will ensure that any new regulations regarding soybean
    imports are based on the best available scientific information.
                                     ______

                    Questions Submitted by Senator Herb Kohl

                          COMBATING CHILDHOOD OBESITY

        Question. Mr. Bost, both USDA and FDA have recently announced new
    efforts to combat the increasing problem of obesity. FDA announced the
    ``Calories Count'' program, and USDA has money in several programs,
    including WIC, to help battle this problem. However, for all of the
    government's efforts, all of the money being put into this effort pales
    in comparison to the food industry's billions of dollars worth of
    advertising.
        How can the government successfully get its message out when, at
    first glance, its efforts appear to be dwarfed by the food industry?
    How do your agencies compete with that?
        Answer. USDA has a strong partnership with the Department of Health
    and Human Services, including CDC and FDA, which helps ensure that the
    Federal investment to combat obesity is a collaborative effort with
    consistent messages to the public. USDA plans to capitalize on the
    Federal infrastructure working with the vast network of State, county,
    and other local government agencies and groups to extend the reach of
    their messages and materials. USDA is participating in the creation of
    a new Food Guidance System which would be the cornerstone of other
    Federal nutrition assistance programs. USDA is also actively exploring
    options for partnerships and seeking opportunities to collaborate with
    other health organizations, advocacy and industry groups to help carry
    the Federal Government messages.
        Question. Mr. Bost, the Senate report of the fiscal year 2004
    Agriculture Appropriations bill encouraged the USDA to work with Share
    Our Strength and its Operation Frontline (as well as other innovative
    organizations) to improve eating habits and food budgeting skills of
    program participants. In view of growing concern about obesity and
    health, those objectives seem as valid as ever.
        What progress can the Department report in response to this
    encouragement?
        Answer. Share Our Strength SOS provided my office with a proposal
    for Operation Frontline to provide nutrition education to nutrition
    assistance program participants. I also met with Bill Shore, the
    Executive Director of SOS, to discuss it with him personally before it
    was sent to the Food and Nutrition Service for a more thorough review.
    In our discussion, I learned that the project shares many of the same
    goals as USDA's nutrition education efforts, and uses a model similar
    to that used by State agencies in providing nutrition education and
    promotion to Food Stamp recipients.
        As you know, nearly all of the nutrition education funding provided
    to FNS must be used for grants to State agencies that operate the
    programs, often for specifically earmarked purposes. The Department's
    ability to provide direct funding for organizations such as SOS is thus
    highly constrained, and we were unable to offer a grant to support
    Operation Frontline in response to their proposal. However, I was
    pleased to learn more about their efforts, and value SOS as a non-
    profit sector partner in our shared effort to promote healthy eating
    and wise use of food resources among low-income people.

          COMMODITY SUPPLEMENTAL FOOD PROGRAM FISCAL YEAR 2004 FUNDING

        Question. The Commodity Supplemental Food Program was forced to cut
    nearly 30,000 participants in fiscal year 2004. The current budget flat
    lines program funding, but the carryover funding from the previous
    years is no longer available. It has been estimated that this will
    cause another 30,000 people taken off the roles--all senior citizens.
        How do you propose people at the state level, who actually carry
    out these programs, deal with a cut this deep?
        Answer. About 29,500 fewer caseload slots were assigned in 2004
    than in 2003. However, the caseload of 536,196 allocated in 2004
    exceeds actual participation in any month to date, including the peak
    participation of 526,955 achieved in September 2003. Thus, the caseload
    available in 2004 covered actual nationwide program participation.
        In reference to the President's fiscal year 2005 budget request,
    the $98.335 million requested for the Commodity Supplemental Food
    Program (CSFP) equals Congress' fiscal year 2004 program appropriation,
    and is higher than the $94.991 million requested in the budgets for
    fiscal years 2002 through 2004. However, variables beyond the
    Administration's control have yielded significantly fluctuating levels
    of total program resources over the same period. These variables are
    the amounts that Congress appropriates and cash carryover from the
    previous year, which is determined primarily by the extent to which
    States utilize their assigned caseloads. Even though the fiscal year
    2005 budget request includes an increase over the prior year's request,
    the anticipated lack of cash carryover would result in a projected
    participation decrease of 60,700 nationally.
        The Department will pursue all means to minimize the impact of
    straight-line funding for the program. We also wish to point out that
    we are implementing major initiatives, including more extensive and
    varied Food Stamp Program outreach efforts, which address the
    nutritional needs of the population served by the CSFP. People eligible
    for the program should also be eligible to receive benefits under the
    Emergency Food Assistance Program and the Nutrition Services Incentive
    Program now administered by the Department of Health and Human
    Services. The Food and Nutrition Service will work closely with State
    agencies to help affected individuals meet their nutritional needs
    through these other Federal nutrition assistance programs.

                               FOOD GUIDE PYRAMID

        Question. Mr. Bost, you mentioned in your statement that the FNS is
    currently working on updating the food guide pyramid. I understand that
    you have received a significant number of comments so far on your
    efforts.
        How many comments has FNS received on the proposed food guide
    pyramid?
        Answer. Last September, a Notice was published in the Federal
    Register requesting comments from all stakeholders on the proposed
    technical revisions to the current Food Guide Pyramid. USDA is using an
    open and transparent process to revise the science base and
    communications elements for the current Food Guidance System, the Food
    Guide Pyramid. This process resulted in 255 response letters with 1,101
    separate comments from a broad array of nutrition professionals, health
    organizations, academic faculty, food industry organizations and the
    general public. To continue this transparent process, we have made
    these comments available for anyone to view on our website at http://
    www.usda.gov/cnpp/pyramid-update/index.html.
        Question. Do you believe you will be able to make the June deadline
    for publication?
        Answer. The report to the Secretaries of Agriculture and Health and
    Human Services from the Dietary Guidelines Advisory Committee is
    expected to be finalized by June 30, 2004. The scientific advisory
    report will be published in electronic format on the USDA and HHS
    websites. The two Departments will then jointly review and publish the
    revised Dietary Guidelines, which is anticipated to be released in
    January 2005. The revised Food Guidance System is scheduled to be
    released approximately a month later, in February 2005.

                             LOW-CARBOHYDRATE DIETS

        Question. How is USDA working to take into consideration the
    various low-carbohydrate diets that have become so popular in this
    country?
        Answer. USDA continues to rely on consensus science from
    authoritative bodies and reports such as the report from the Dietary
    Guidelines Advisory Committee, the National Academy of Sciences, and
    USDA's food consumption surveys. USDA's Agricultural Research Service
    has six nutrition research centers that continually explore timely
    nutrition issues. As new weight-loss diet trends emerge, USDA works in
    collaboration with HHS as well as reputable organizations such as the
    American Dietetic Association and the Society for Nutrition Education,
    to plan communications strategies to help guide the American public to
    make healthy food choices.
        Question. Is USDA, NIH or CDC doing any research on the safety and
    validity of these diets?
        Answer. USDA's research is focused on energy balance and nutrient
    adequacy to effect long-term health. For optimal nutrient adequacy, the
    research continues to look at the nutrition requirements that ensure a
    healthy life, maximum vigor and well being and reduced risk of chronic
    disease, not to study the comparative effects of weight-loss diets.
    Where many new diet programs capture the interest of the public and
    come and go, nutritional requirements remain constant regardless of any
    particular diet. Much of our Federal research includes the role of
    carbohydrates, proteins, and fats and other nutrients play in a healthy
    diet.

                        NATIONAL ORGANIC STANDARDS BOARD

        Question. Mr. Hawks, the Organic Foods Production Act is very clear
    that the NOSB should be able to hire their own Executive Director, and
    that that person should report to the NOSB directly. Is the job
    announcement published by USDA intended to meet the requirements of the
    statute in this regard?
        Answer. AMS intends to meet the requirements of the Organic Foods
    Production Act (OFPA) which provides that the Board shall have a staff
    director.
        The General Provisions of the Consolidated Appropriations Act,
    2004, (Title VII) limit the Department's spending authority to ``not
    more than $1.8 million for all advisory committees within USDA. Of this
    total, AMS has been allotted $90,000 for the National Organic Standards
    Board. This means that AMS can spend up to $90,000 of the funds
    appropriated for Organic Standards on the expenses of the NOSB. The
    Organic Foods Production Act requires that Board members be reimbursed
    for their travel expenses, including per diem. AMS cannot transfer
    appropriated funds to the Board to hire its own staff, nor do we have
    the authority to hire or contract for an employee who is not
    responsible to AMS.
        Consequently, AMS recently filled an Advisory Board Specialist
    position. All of the specialist's time is dedicated to NOSB support
    under the direction of the National Organic Program (NOP) Manager. A
    complete description of the Advisory Board Specialist's duties will be
    provided for the record.
        The increased funding provided by Congress in fiscal year 2004 will
    enable the Department to hire additional staff which will further
    increase the program's quantity and timeliness of service.
        [The information follows:]
        Advisory Board Specialist Responsibilities:
      --Bi-annual re-establishment of the NOSB Charter
      --Development and publication of news releases and Federal Register
            notices seeking nominees for NOSB membership
      --Preparation of nominations packages and supporting documents for
            NOSB appointments
      --Development and publication of news releases and Federal Register
            notices alerting the public to NOSB meetings
      --Arranging public meetings; travel, hotel and meeting
            accommodations, and contracting for Court Reporters and Audio
            Visual Equipment
      --Arranging guest speakers at NOSB meetings
      --Reimbursing NOSB members for travel expenses in accordance with
            Federal travel regulations
      --Development, maintenance, and administration of an NOSB website
      --Reporting on Board activities
      --Arranging and participating in NOSB committee conference call
            meetings
      --Developing and publishing rulemaking actions to implement NOSB
            recommendations
      --Contracting with vendors for Technical Advisory Panel (TAP) review
            of petitioned materials
      --Reviewing petitions for compliance with OFPA, its implementing
            regulations, and the petition procedures
      --Communicating with petitioners and the TAP vendors
      --Identifying program needs for which the NOSB can provide advice
      --Reviewing the work of the NOSB for completeness, accuracy, and
            compliance with OFPA, its implementing regulations, and the
            requirements of other Federal entities
      --Performing all activities required for compliance with FACA
      --Representing USDA at all meetings of the NOSB and its committees
        Question. I understand that AMS has contracted with the American
    National Standards Institute to review the National Organic Program.
    Will the ANSI effort be a one-time audit or ongoing oversight panel,
    which is what was envisioned by the statute and the organic community.
    If the ANSI effort is a one-time review, what steps, if any, are being
    taken to create an ongoing Peer Review Panel, to oversee the
    accreditation activities of the National Organic Program?
        Answer. We are in the process of completing an initial peer review
    of the NOP and hope to complete that review later this fiscal year.
    After this review is completed, we will make the results public and
    invite members of industry and the Board to work with us to develop a
    process for ongoing Peer Reviews of the NOP.
        Question. Could you please provide the Committee with a list of the
    policy recommendations made by the NOSB since passage of the final
    organic rule, and what action has been taken by the Department in
    response to those recommendations?
        Answer. The information is submitted for the record.

               NOSB NON-MATERIALS RECOMMENDATIONS SINCE MARCH 2000
    ------------------------------------------------------------------------
               NOSB Recommendations                     AMS Response
    ------------------------------------------------------------------------
    June 2001:
        Recommended regulations pertaining to   The recommendation is
         labels with principal display panel,    covered by existing
         ingredient deck and information panel   standards. Should AMS
         all on a single labeling panel.         determine that there are
                                                 problems with application
                                                 of the standards; AMS will
                                                 engage in rulemaking to
                                                 clarify the requirements.
    June 2001:
        Recommended Peer Review Panel           Review of AMS' accreditation
         procedures for review of                program could not begin
         accreditation program.                  until after certifying
                                                 agents were accredited. AMS
                                                 has contracted with the
                                                 American National Standards
                                                 Institute for review of
                                                 AMS' accreditation program.
                                                 The review is underway.
    June 2001:
        Recommended technical corrections to    AMS has acted on several of
         the final rule.                         the recommended corrections
                                                 and AMS is still working
                                                 with the NOSB on others AMS
                                                 will soon take action on
                                                 the remainder.
    September 2001:
        Recommended Apiculture Standards......  The recommendation is
                                                 covered by existing
                                                 standards. Should AMS
                                                 determine that there are
                                                 problems with application
                                                 of the standards; AMS will
                                                 engage in rulemaking to
                                                 clarify the requirements.
    September 2001:
        Recommended guidance for preservatives  The recommendation did not
         used in vaccines.                       need AMS action beyond
                                                 acceptance and posting on
                                                 the Web. The recommendation
                                                 is posted on the Web.\1\
    October 2001:
        Recommendations on Aquatic Animals....  AMS accepted the
                                                 recommendations. The
                                                 recommendations are posted
                                                 on the Web.\1\
    October 2001:
        Recommendations on Pasture............  The recommendation is
                                                 covered by existing
                                                 standards. Should AMS
                                                 determine that there are
                                                 problems with application
                                                 of the standards; AMS will
                                                 engage in rulemaking to
                                                 clarify the requirements.
    October 2001:
        Recommendation, Principles of Organic   The recommendation did not
         Production and Handling.                need AMS action beyond
                                                 acceptance posting on the
                                                 Web. The recommendation is
                                                 posted on the Web.\1\
    October 2001:
        Recommended procedures for amending     AMS follows the Federal
         the National List.                      Rulemaking procedures for
                                                 amending regulations.
    October 2001:
        Recommended Greenhouse Standards......  The recommendation is
                                                 covered by existing
                                                 standards. Should AMS
                                                 determine that there are
                                                 problems with application
                                                 of the standards; AMS will
                                                 engage in rulemaking to
                                                 clarify the requirements.
    October 2001:
        Recommended Mushroom Standards........  The recommendation is
                                                 covered by existing
                                                 standards. Should AMS
                                                 determine that there are
                                                 problems with application
                                                 of the standards; AMS will
                                                 engage in rulemaking to
                                                 clarify the requirements.
    October 2001:
        Recommended removing handlers from the  AMS has not accepted the
         $5,000 exemption.                       recommendation because it
                                                 would violate the Organic
                                                 Foods Production Act.
    October 2001:
        Recommended adding ``certified'' in     AMS has not accepted the
         front of ``distributor'' in 3 places.   recommendation because
                                                 distributors are not
                                                 required to be certified.
    May 2002:
        Recommended guidelines for determining  The recommendation is posted
         whether a processing technology shall   on the Web.\1\ When AMS
         be reviewed by the NOSB.                further defines what
                                                 materials are subject to
                                                 NOSB review, it may take
                                                 further action on the
                                                 technology recommendation.
    May 2002:
        Recommended guidelines for US/EU        AMS has considered all
         equivalency.                            points within this
                                                 recommendation. USDA and
                                                 USTR are in equivalency
                                                 negotiations with the EU.
    May 2002:
        Recommended that certifying agents use  AMS fully supports the
         the Organic Farm Plan documents         recommendation. The
         developed under an AMS cooperative      recommendation did not need
         agreement.                              AMS action beyond
                                                 acceptance and posting on
                                                 the Web. The recommendation
                                                 is posted on the Web.\1\
    May 2002:
        Recommended that certifying agents use  AMS fully supports the
         the Organic Handling Plan documents     recommendation. The
         developed under an AMS cooperative      recommendation did not need
         agreement.                              AMS action beyond
                                                 acceptance and posting on
                                                 the Web. The recommendation
                                                 is posted on the Web.\1\
    May 2002:
        Recommended clarification on ``access   AMS accepted the
         to the outdoors'' for poultry.          recommendation and used it
                                                 to develop an ``access to
                                                 the outdoors'' policy
                                                 statement for livestock
                                                 which is posted on the
                                                 Web.\1\
    May 2002:
        Recommended a handling operation        The recommendation did not
         ingredient affidavit as guidance to     need AMS action beyond
         handlers and certifying agents.         acceptance and posting on
                                                 the Web. The recommendation
                                                 is posted on the Web.\1\
    May 2002:
        Recommended clarification for section   AMS is working with the NOSB
         205.606 relative to commercially        on this issue. The NOSB is
         available.                              scheduled to provide a new
                                                 recommendation on section
                                                 205.606 at its April 2004
                                                 meeting.
    May 2002:
        Recommended clarification regarding     The recommendation did not
         planting stock for perennial crops      need AMS action beyond
         grown as annual crops.                  acceptance and posting on
                                                 the Web. The recommendation
                                                 is posted on the Web.\1\
    May 2002:
        Recommended guidance on transitional    The recommendation is
         products.                               outside the National
                                                 Organic Standards. AMS will
                                                 take no action beyond
                                                 posting the recommendation
                                                 on the Web.\1\
    May 2002:
        Recommended compost production methods  AMS is working with the
         beyond those specifically addressed     chair of the NOSB Compost
         in the NOP. The recommendation is       Task Force on this issue.
         intended as guidance.                   Specifically, AMS has
                                                 requested scientific
                                                 justification for the
                                                 recommendations. AMS is
                                                 concerned about the
                                                 potential for human
                                                 pathogens in the compost.
    October 2002:
        Recommended regulation changes for      The Organic Trade
         origin of livestock; dairy animals.     Association (OTA) filed its
                                                 own recommendations
                                                 relative to dairy animal
                                                 replacement at the October
                                                 2002 NOSB meeting. The OTA
                                                 and NOSB recommendations
                                                 differ substantially. AMS
                                                 is reviewing this issue.
    May 2003:
        Approved a new recommendation on        The Organic Trade
         origin of dairy animals.                Association (OTA) filed its
                                                 own recommendations
                                                 relative to dairy animal
                                                 replacement at the October
                                                 2002 NOSB meeting. The OTA
                                                 and NOSB recommendations
                                                 differ substantially. AMS
                                                 is reviewing this issue.
    October 2002:
        Recommended criteria for certification  AMS is reviewing this issue.
         of grower groups.
    May 2003:
        Recommended publication of              AMS is reviewing this issue.
         clarification management of breeder
         stock.
    May 2003:
        Recommended regulation change on        AMS is working on a
         chlorine contacting organic food.       rulemaking docket that will
                                                 address this
                                                 recommendation.
    ------------------------------------------------------------------------
    \1\ Website: http://www.ams.usda.gov/nop/indexIE.htm.

                                 BEAVER CONTROL

        Question. How does APHIS/Wildlife Services plan to uphold their
    cooperative responsibility with the Wisconsin Department of Natural
    Resources to provide beaver damage management activities that are being
    requested of them to restore trout streams that have been damaged by
    beavers?
        Answer. APHIS/Wildlife Services (WS) cooperates with the Wisconsin
    Department of Natural Resources (WDNR) to conduct beaver damage
    management on high quality trout streams in Wisconsin. Beaver dam
    building activities can greatly alter the natural flow of a trout
    stream, destroying its ability to support trout. Beaver dams and the
    impoundments they create cause decreased water flow, water warming, and
    increased siltation. They also pose a barrier to trout, interfering
    with spawning. One component of the WS trout habitat protection program
    is to maintain select trout streams in free flowing, natural condition
    in order to improve or restore trout habitat and protect habitat
    improvement structures. The fiscal year 2005 budget will continue to
    fund these programs at current levels.
        Question. Beaver damage to roads, bridges, crops, forests and
    property are also increasing in Wisconsin resulting in an increasing
    number of requests to Wildlife Services for assistance. The State of
    Wisconsin, some counties and some townships provide cooperative funding
    to Wildlife Services for their assistance with beaver damage problems.
        How does Wildlife Services plan to fulfill their cooperative
    responsibilities in responding to Wisconsin citizens' requests for
    beaver damage assistance?
        Answer. APHIS/Wildlife Services (WS) cooperates with a number of
    northern Wisconsin county highway and forestry departments, and
    numerous local township road departments, to provide beaver damage
    management services for the protection of roads and road structures,
    and forestry resources. The fiscal year 2005 budget will continue to
    fund these programs at current levels.

                    BOVINE SPONGIFORM ENCEPHALOPATHY RECALL

        Question. Dr. Murano, during the BSE scare, USDA announced that
    approximately 38,000 pounds of beef were recalled, after originally
    stating that the recall was only 10,400 pounds. Over the course of the
    following few weeks, we read stories about consumers who feared that
    they ate the contaminated meat because they were never informed that
    they purchased a part of the recalled amount, because proprietary
    information, including sales and distribution records, is kept secret
    during a voluntary recall. Further, there was a 3 week delay between
    the time the recall was announced and the time retailers found out
    about it.
        How much of the recalled beef was actually found?
        Answer. FSIS field personnel worked cooperatively with other
    Federal and State partners to conduct recall effectiveness checks on
    100 percent of the establishments that sold or distributed the product
    associated with the recall. FSIS is confident that the product was
    quickly removed from the marketplace. FSIS determined that the
    recalling firm and its customers made extensive efforts to retrieve and
    dispose of the recalled product.
        FSIS announced the recall at 1:00 a.m. on December 24, 2003. Less
    than 18 hours later, over 325 locations--primarily grocery stores--had
    received notifications from their suppliers.
        On February 9, 2004, FSIS issued an update to the recall stating
    that approximately 21,000 pounds of product had been returned. This
    estimate was developed in late January 2004 using information from the
    FSIS investigation, including recall effectiveness checks.
        Question. How long did it take between the time USDA announced the
    recall and the time individual grocery stores found out they had part
    of the contaminated beef? Was the responsibility on the grocers to find
    out for themselves, or were they all informed by either their state
    governments or USDA?
        Answer. FSIS announced the recall at 1:00 a.m. on December 24,
    2003. FSIS issued a press release that was distributed nationally.
    Simultaneously, its recall management division began collecting
    distribution information from the establishments that slaughtered and
    processed meat from the affected animal. Less than 18 hours later, over
    325 locations--primarily grocery stores--had received notifications
    from their suppliers. It is the responsibility of the recalling company
    to notify its customers, including grocers, that they had received
    recalled product. FSIS then conducted effectiveness checks on the
    recall to confirm that the responsibilities of the recalling firm were
    met.
        Question. If USDA had the authority to initiate mandatory recalls,
    do you think consumers would have found out more quickly? Why or why
    not?
        Answer. No establishment has refused to comply with a recall
    requested by FSIS. Should they refuse, then FSIS has the legal
    authority to detain and/or seize meat, poultry and egg products in
    commerce. The current recall process is the quickest way to determine
    where the affected product has been distributed because companies are
    familiar with who their customers are and can notify them much more
    quickly than the Federal Government could. Public health would not
    likely be enhanced by the addition of mandatory recall authority
    because the Agency already has the means to remove product quickly from
    commerce.
        Question. After all of the dust has settled, is USDA looking again
    at its policy of not wanting the authority for mandatory recalls?
        Answer. Through effectiveness checks, public meetings and other
    means, FSIS is constantly reviewing and looking for ways to improve the
    recall process. In December 2002, FSIS held a public meeting to discuss
    improving the process for recalls of meat, poultry and egg products and
    to gather useful input on related topics. FSIS expects to issue a
    revised recall directive in fiscal year 2004 taking into account the
    comments it received at the public meeting. The directive will discuss
    how public notification of recalls is to take place and will provide
    information on the new risk-based system the agency will use for
    determining the scope of effectiveness checks.

                                 SOUND SCIENCE

        Question. Dr. Murano, in your testimony you stated that there was a
    significant drop in E.coli 157:H7 between 2002 and 2003, and credited
    this drop to reassessment of plants' HACCP plans and increased audits.
        Were the same plants that were sampled in 2002 sampled in 2003? If
    not, how can you make a comparison between the two years? Unless the
    exact same plants were sampled, how can you be statistically certain
    that the plants sampled in 2002, but not sampled in 2003 have shown any
    improvement?
        Answer. There are valid methods for analyzing a time series of data
    even though, as in this dataset, there are changes in the
    establishments being sampled from year to year. The analysis conducted
    by FSIS compares over 6,000 scheduled samples of ground beef production
    from fiscal year 2002 with over 6,000 samples of ground beef production
    from fiscal year 2003 and tests whether the populations are the same
    from year to year with respect to the presence of E. coli O157:H7.
    Statistical analysis was done using the Chi-square test to show the
    association between positive E. coli O157:H7 samples and laboratory
    method, season and year. A Poisson regression model was used to
    demonstrate the significant decline in percent positive samples from
    2002 to 2003, after controlling for season and laboratory method. The
    conclusion is that the reduction in E. coli O157:H7 in raw ground beef
    from fiscal year 2002 to fiscal year 2003 was statistically
    significant.
        On April 29, 2004, the Centers for Disease Control and Prevention,
    in its annual report on the incidence of infections from foodborne
    pathogens, noted a decline of 42 percent of illness caused by E.coli
    O157:H7 from 1996 to 2003. Most significantly, between 2002 and 2003,
    illnesses caused by E.coli O157:H7, typically associated with ground
    beef, dropped by 36 percent.
        Question. Further, I have been informed that of the 58,000 samples
    collected for Salmonella in 2002, nearly 40,000 were collected from
    beef products, which have a lower rate of Salmonella than poultry
    products. It would appear that due to the high percentage of beef
    products sampled relative to other products, FSIS would be more likely
    to find a lower rate of positive Salmonella samples than if the
    percentages were weighted for equal comparison. Can you comment on
    this?
        Answer. The agency has seven Salmonella performance standards for
    classes of raw product, and the highest number of samples is for raw
    ground beef because more establishments are subject to this standard
    than other standards.
        On April 29, 2004, the Centers for Disease Control and Prevention,
    in its annual report on the incidence of infections from foodborne
    pathogens, noted that from 1996 to 2003, illnesses caused by Salmonella
    decreased 17 percent and Salmonella Typhimurium (typically associated
    with meat and poultry) decreased 38 percent.
        Question. You mention the new need for new baseline studies in your
    statement. In fiscal year 2004 FSIS received funding for these
    activities.
        What will you do, or are you currently doing, to ensure that these
    studies do not have some of the same problems as the previous studies,
    as outlined by the National Academy of Science? Will FSIS be using any
    of its fiscal year 2005 funding to continue conducting new baseline
    studies?
        Answer. For the current baseline project, using the funds provided
    for fiscal year 2004, the agency developed a study protocol that was
    reviewed by the National Advisory Committee on Microbiological Criteria
    for Foods (NACMCF). FSIS modified the current plans based on NACMCF
    recommendations and will continue to seek comments from the National
    Advisory Committee on Microbiological Criteria for Foods on future
    baseline projects.
        FSIS considers the fiscal year 2004 $1.65 million baseline
    initiative to be an addition to its base program and will continue to
    review funding needs for fiscal year 2005.

                                INSPECTOR TRAVEL

        Question. Dr. Murano, it has been suggested that FSIS inspection
    personnel would benefit greatly from exposure and visits to slaughter
    facilities in different parts of the country, in order to compare
    differing methods of animal handling and slaughter practices to help
    them better enforce HMSA.
        Would you consider making changes to your travel policy to provide
    an employee per diem for time spent visiting slaughter facilities, if
    done as part of an unrelated personal or business trip?
        Answer. USDA is committed to strong enforcement of the HMSA. FSIS
    continually assesses its HMSA oversight and enforcement, primarily
    through the activities of the District Veterinary Medical Specialists
    (DVMSs). As methods are available to improve our HMSA efforts, the
    DVMSs develop strategies for incorporating them into the overall roles
    and responsibilities of the agency. Currently, DVMSs have authority and
    opportunity to travel across district boundaries for humane activities
    when necessary.

                                SAUSAGE CASINGS

        Question. Dr. Murano, this question involves a very specific issue
    related to food safety and sausage production in this time of concern
    about BSE. FSIS interim final regulations issued January 12 identify
    the distal ileum section of beef cattle small intestine as Specified
    Risk Material (SRM) in U.S. animals. In practice FSIS requires that the
    entire small intestine be removed and disposed of as inedible--
    presumably to ensure that the distal ileum is removed--even though I am
    told that the distal ileum can be definitively identified and removed
    without destroying the entire small intestine. This situation has the
    potential to cause harm to that segment of the sausage industry that
    relies on beef rounds as casing for their products.
        Is there a way to ensure that the distal ileum SRM is completely
    removed, while still ensuring the safety and availability of beef
    rounds used as sausage casings?
        Answer. FSIS is aware of the various methods for ensuring that the
    distal ileum is properly removed. FSIS specifically asked for comment
    in a Federal Register notice (January 12, 2004, Docket #03-025IF) on
    this issue and will be analyzing the comments. Meanwhile, FSIS also is
    aware that more than the distal ileum of the small intestine may
    demonstrate infectivity based on preliminary studies from the United
    Kingdom. FSIS is interested in gaining more information about this new
    development as FSIS analyzes the comments.
        Question. I am told that current inventories for sausage casings
    could be exhausted within 2 months. Is it possible to provide further
    regulatory refinements to address this issue within that time frame?
        Answer. Casings made from the small intestine of cattle slaughtered
    after January 12, 2004, are not currently allowed for human
    consumption. FSIS is aware of the demand for sausage casings made from
    the small intestine of cattle. However, in the interest of public
    health, FSIS will be analyzing the comments received on the interim
    final rule published on January 12, 2004, and further considering the
    potential ramifications of new findings that additional sections of the
    small intestine may demonstrate infectivity. FSIS will not change the
    restriction on the use of the small intestine in human food until after
    review of comments received.

                    DEPARTMENT OF HEALTH AND HUMAN SERVICES

                          Food and Drug Administration

    STATEMENT OF LESTER M. CRAWFORD, D.V.M., Ph.D.
        Senator Bennett. Dr. Crawford, we welcome you. I think this
    is your first time in this particular assignment and we look
    forward to hearing from you.
        Mr. Crawford. Thank you, Mr. Chairman and Senator Kohl. It
    is a pleasure for me to be here with my colleagues from USDA.
        I want to thank you for the opportunity to discuss the
    Administration's fiscal year 2005 budget for the Food and Drug
    Administration.
        As we approach our 100th birthday in 2006, our mission of
    promoting and protecting the public health has never been more
    vital. Likewise, the challenges and opportunities we face have
    never been greater.
        This committee's generous support of FDA's mission over the
    past few years testifies to your recognition of the essential
    role our agency plays in the well being of all Americans.
        The President's budget for proposal for fiscal year 2005
    asks you to continue that support. It seeks $1.85 billion, $1.5
    billion in budget authority and $350 million in user fees.
        The budget authority increases total $138.9 and savings
    from administrative efficiencies and deferred facilities
    repairs and improvements of $30.1 million for a net increase of
    $108.8 million.
        The President's budget request also asks you to build on
    your past support by increasing FDA funding in several priority
    areas. For Food Defense and Counterterrorism, we are seeking an
    increase of $65 million. Working with the White House Homeland
    Security Council, FDA and USDA have created a Joint Food
    Defense Budget that will strengthen our ability to protect the
    Nation's food and agriculture supply from threats whether
    deliberate or accidental.
        $35 million is requested to establish a national laboratory
    network to test food samples. $15 million is requested for
    research to protect the food supply by such measures as better
    and faster tests to detect toxic agents in food. $7 million to
    increase FDA's food import examinations to nearly 100,000, six
    times the number we did in 2001. $3 million to increase our
    crisis management capabilities and $5 million to support the
    Administration's biosurveillance initiative.
        For BSE, or mad cow disease, we are requesting an increase
    of $8.3 million.
        Mr. Chairman, FDA is proud, and I think justifiably so,
    that we were able to trace and control all of the meat and bone
    meal associated with the BSE-infected cow discovered late last
    year in the Pacific Northwest. All of the rendering facilities
    we inspected as part of this one BSE case were in full
    compliance with our rules designed to create firewalls against
    BSE in this country. Nevertheless, we can and should do more.
        We have already announced several measures to make those
    firewalls even stronger. With this increased funding, which if
    you approve it would bring our total BSE resources to $30
    million, we will do three things. We will increase our State-
    funded BSE inspections by 2,500, we will add more than 900
    risk-based BSE inspections and 600 targeted animal feed
    inspections, and we will conduct a total of 10,000 BSE
    inspections, 52 percent more than planned for the current year.
        For our Medical Device Program, we are asking for an
    increase of $25 million. We are committed to ensuring that the
    Medical Device User Fee and Modernization Act is implemented in
    a manner that meets its performance goals and that ensure the
    strongest and most effective medical device review program
    possible under the law with available resources. We need this
    increase to meet the appropriations triggers required for the
    Agency to collect medical device user fees. With these
    resources, FDA will meet all of the performance goals by fiscal
    year 2008.
        For the Center for Drug Evaluation and Research move to
    White Oak in Maryland, we are requesting an increase of $20.6
    million in new budgetary authority and $10 million in user
    fees. We will use these resources to relocate the 1,700 review
    staff in the Center for Drug Evaluation and Research to the
    White Oak Campus.
        For medical countermeasures, we seek an increase of $5
    million. We are seeking this amount to bolster FDA's ability to
    help companies develop new medical countermeasures against
    terrorist attacks and to review those products quickly. FDA
    will use this increase to expedite the review of new drug
    applications, biologics license applications, generic drugs and
    over-the-counter medical product countermeasures.
        For the pay increase we request an increase of $14.4
    million. Fully 60 percent of our budget pays the salaries of
    FDA's dedicated expert employees. I need not emphasize here how
    important this money is for our ability to carry out our public
    health mission.
        For administrative efficiencies, this budget request
    includes a reduction of $30 million. These funds will be used
    to partially fund the high priority initiatives I just
    mentioned as well as to support the goals of the President's
    Management Agenda.
        Mr. Chairman, by focusing on the President's highest
    priorities for FDA, in some respects I have only scratched the
    surface of all that we do every day to protect the health of
    Americans.
        An additional agency priority of particular interest to the
    Subcommittee, is lowering the rate of obesity, one of the most
    serious public health issues facing America today. We have just
    finished an FDA obesity working group which prescribes a number
    of recommendations and public input to reforming the food label
    to make it more amenable to the control of obesity, and also
    for demystifying some of the myths that now occur with respect
    to our food supply, not the least of which is confusion about
    carbohydrates and various classifications of carbohydrates.

                               PREPARED STATEMENT

        I can list other additional program priorities, but in the
    interest of time I will submit my statement for the record and
    I appreciate very much the time accorded me.
        Thank you.
        [The statement follows:]

                    Prepared Statement of Lester M. Crawford

    Introduction
        Good morning. Mr. Chairman and distinguished members of the
    Subcommittee, I'm pleased to have the opportunity to speak with you
    today and present to you the Food and Drug Administration's fiscal year
    2005 budget request. I am Dr. Lester M. Crawford, DVM, Ph.D. Acting
    Commissioner, Food and Drug Administration.
        The FDA is responsible for protecting the public health by assuring
    the safety, efficacy, and security of human and veterinary drugs,
    biological products, medical devices, our Nation's food supply,
    cosmetics, and products that emit radiation. The FDA is also
    responsible for advancing the public health by helping to speed
    innovations that make medicines and foods more effective, safer, and
    more affordable; and helping the public get the accurate, science-based
    information they need to use medicines and foods to improve their
    health.
        I'd like to begin by conveying my appreciation to the Subcommittee
    members and their staffs for providing FDA with several key increases
    in the fiscal year 2004 appropriation such as those funds for generic
    drugs, food defense, and medical device review. In a moment, I will
    elaborate on how we have spent or plan to spend those funds in the
    current year. I can assure you that funds appropriated in the current
    year and additional increases appropriated in fiscal year 2005 will
    continue to be spent wisely. The American people would be impressed if
    they really knew how much bang for their buck they get out of FDA.
        I am fully aware of the difficult funding decisions all of you must
    face in the current session, but I want to remind you that marginal
    investments in FDA's programs can have such a positive ripple effect
    across all of your constituencies--from the consumer to the farmer to
    the manufacturer and beyond. FDA is working diligently to reduce
    administrative and IT costs in fiscal year 2004 and 2005. In fiscal
    year 2004, we offered $57 million in IT and administrative savings and
    we have again proposed another $23 million in administrative savings in
    fiscal year 2005, which we are realizing through efficient
    administrative resource management. We will continue to seek
    administrative resource savings in order to support our critical
    mission requirements.

    Executive Summary
        FDA makes substantial and meaningful differences in the lives of
    over 290 million Americans. I am extremely thankful for the
    professional dedication, creativity, and expertise of our staff.
    Through a combination of dedicated and skilled staff, new authorities
    of recently passed legislation, and the resources this Subcommittee
    provides us to carry out our mission, we will be in a better position
    to meet our challenges than ever before.
        The Administration and Congress have an obligation to the American
    public to ensure that adequate and properly targeted resources are
    available for the continued success of the Agency and the success of
    the Federal Government's efforts to promote quality health care. The
    importance and complexity of FDA's work will only increase in the years
    to come as FDA continues to carry out its primary mission of protecting
    and promoting the public health. This means that while more medical
    products and therapies will be available to save and improve lives, FDA
    also must think critically and carefully about how it uses its
    resources to improve the public wellbeing. In guiding us through our
    new Strategic Action Plan that attempts to balance demands with limited
    resources, we will constantly follow the practice of ``efficient risk
    management.''

    FDA's Strategic Plan
        On August 20, 2003, FDA released a 5-Part Strategic Action Plan
    entitled ``Protecting and Advancing America's Health: A Strategic
    Action Plan for the 21st Century.'' This is a dynamic and evolving
    document that outlines how the Agency is taking new steps to protect
    and advance America's public health. In response to various public
    health threats, the Agency developed a core set of consumer-focused
    goals that includes the following: helping consumers get truthful and
    non-misleading information about FDA regulated products; promoting
    quick access to new medical technologies that are safe and effective;
    improving patient and consumer safety; responding to the new challenges
    of bioterrorism and food defense, and building a stronger, science-
    based FDA. These goals were developed and refined in conjunction with a
    number of key healthcare stakeholders, and were based on important
    feedback from the consumer and patient communities. These are among the
    many critical challenges the Agency faces as it moves forward into the
    21st century. I will first discuss these challenges and progress within
    our strategic planning effort, and then will discuss the specifics of
    FDA's 2005 budget request.

    Efficient, Science-Based Risk Management
        In fiscal year 2005, FDA will be charged with regulating over
    150,000 drugs and devices, overseeing the development of almost 3,000
    investigational new drugs, monitoring 125,000 domestic product
    establishments including over 10,000 firms involved in the animal drugs
    and feed process, reviewing and acting upon an estimated 13 million
    import line entries, and the list goes on and on. On top of this
    workload, we cover the full life cycle of nearly all food and medical
    products, and also interact on a daily basis with all facets of Federal
    and State governments, consumers, public and private institutions, and
    foreign entities. Our proposed budget includes the equivalent of 10,844
    full-time employees, including reimbursables. The numbers speak for
    themselves and they explain why we must practice efficient, science
    based risk management in fulfilling our increasingly complex mission.
        FDA's approach entails the use of the best scientific data, the
    development of quality standards, and the use of efficient systems and
    practices that provide clear and consistent decisions and
    communications to the American public and the regulated industries.
    This is achieved by employing principles and technologies that can
    reduce avoidable delays and cost in product approvals, overhauling and
    updating the way medical products are manufactured, implementing more
    effective strategies for food imports and food safety, and by
    implementing an enforcement strategy that combines clear communications
    to industry backed up by effective civil and criminal enforcement, FDA
    will achieve quicker access to safe and effective new products, and
    reduce public health risks without unnecessary costs. Over the past
    year, our work resulted in a wealth of success stories related to
    enforcement, new medical product development, imports and the safety of
    our food supply.
        Our science based enforcement strategy is one based on clarity,
    science, leveraging resources with our enforcement partners in Justice,
    Homeland Security, and the states, and most importantly, deterrence. In
    fiscal year 2003, our efforts led to 341 arrests, 199 convictions,
    fines and restitutions of more than $800 million submitted to the U.S.
    Treasury (including a multimillion dollar settlement for health care
    fraud), 17 injunctions of firms/individuals, nearly 400 criminal cases
    opened, 25 seizures of violative products, and more than 500 Warning
    Letters. Additionally, we took action against drug counterfeiters,
    unscrupulous parties in the dietary supplement industry, and those who
    spread misinformation or commit fraud via false labeling and
    advertising. We remain vigilant when necessary but hold the belief that
    our regulations and the enforcement of the regulations should be no
    more burdensome than necessary. In addition, FDA remains concerned
    about the public health implications of unapproved prescription drugs
    from entities seeking to profit by getting around U.S. legal standards
    for drug safety and effectiveness. Many drugs obtained from foreign
    sources that either purport to be or appear to be the same as U.S.-
    approved prescription drugs are, in fact, of unknown quality. Consumers
    are exposed to a number of potential risks when they purchase drugs
    from foreign sources or from sources that are not operated by
    pharmacies properly licensed under state pharmacy laws. Although some
    purchasers of drugs from foreign sources may receive genuine product,
    others may unknowingly buy counterfeit copies that contain only inert
    ingredients, legitimate drugs that are outdated and have been diverted
    to unscrupulous resellers, or dangerous sub-potent or super-potent
    products that were improperly manufactured. The Agency has responded to
    the challenge of importation by employing a risk-based enforcement
    strategy to target our existing enforcement resources effectively in
    the face of multiple priorities, including homeland security, food
    safety and counterfeit drugs. However, the number of incoming packages,
    as it works today, already overwhelms the system, and this presents a
    significant ongoing challenge for the Agency. The Agency understands
    Congress' desire to address importation of drugs and appreciates their
    understanding of FDA's responsibility to uphold he current law.
        New drug development is an extremely costly process. Today, we see
    cases where the cost of developing a novel drug may reach $800 million
    and take a decade to get from discovery to the marketplace. According
    to a Tufts University study, only 21.5 percent of new drugs
    successfully pass through the clinical phase and gain FDA approval. FDA
    must foster and encourage new product development by ensuring that its
    review and approval processes are efficient, transparent, consistent,
    and predictable. We need to ensure that biomedical innovation leads to
    the quick development of safe and effective medical products. As
    recently discussed in our report entitled ``Innovation or Stagnation?--
    Challenge and Opportunity on the Critical Path to New Medical
    Products,'' FDA, together with academia, patient groups, industry, and
    other government agencies, must embark on an aggressive, collaborative
    research effort to create a new generation of performance standards and
    predictive tools that will provide better answers about the safety and
    effectiveness of investigational products, faster and with more
    certainty. This action promises not only to bring medical breakthroughs
    to patients more quickly, but to do so in ways that ensure greater
    understanding about how to maximize patient benefits and minimize their
    risks. This can be accomplished by developing quality systems for the
    Agency's review procedures, developing guidances in new areas of
    technology development, and continuing encouragement of quality
    improvement in the manufacturing sector.
        We want to build on the past success of industry-supported programs
    such as the drug review process, which is funded by a combination of
    appropriated dollars and user fees defined by the Prescription Drug
    User Fee Act that will allow FDA to collect up to $284 million in
    fiscal year 2005. This program's support helped bring median approval
    times for standard new drug applications from 26.9 months in 1993 to
    15.4 months in 2003. Increased funding for the past several years in
    the generic drugs program has allowed median approval times to drop
    from 39.7 months in 1993 to 17.3 in 2003, and an estimated time under
    17 months with the fiscal year 2004 appropriation. We plan on this kind
    of support translating into similar success for the medical device
    review program with the help of budget authority and user fee dollars
    in fiscal year 2004 and beyond. Increased funding in fiscal year 2005
    will allow the Agency to expedite the speed and quality of the medical
    device review process.
        In the past year, highlights of our medical product review process
    include:
      --in total, approved 483 new and generic drugs and biological
            products, including 21 New Molecular Entities with active
            ingredients never before marketed in the United States;
        --approved 85 new drug applications;
        --approved 373 generic drug applications;
        --approved 25 biologic license applications;
      --generic approvals included drugs for the treatment of hypertension
            and heart failure, the treatment and prevention of
            Cytomegalovirus Retinitis in AIDS and transplant patients; a
            treatment for major depressive disorder; and another for
            impetigo, an infection of the skin;
      --accelerated approvals of a drug used for the treatment of pediatric
            patients with a type of myeloid leukemia--a rare, life-
            threatening form of cancer that accounts for approximately 2
            percent of all leukemias in children, and another for use in
            combination therapy for chronic Hepatitis C;
      --over-the-counter drug approvals including Claritin for allergies
            and Prilosec for frequent heartburn;
      --device approvals included the first drug-eluting stent for
            angioplasty procedures to open clogged coronary arteries,
            clearance of the first device for diabetics which integrates a
            glucose meter and an insulin pump with a dose calculator into
            one device, and an innovative rapid HIV diagnostic test kit
            that provides results with 99.6 percent accuracy in as little
            as 20 minutes.
        Lastly, FDA continues to pursue the most cost effective allocation
    of resources to identify food safety hazards and reduce injury and
    illness associated with food products. In 2003, building on an HHS
    strategic goal, FDA implemented new food security regulations that
    amount to the most substantial expansion of FDA's food safety
    activities in three decades. The Agency also instituted various new
    risk communications to improve upon more routine food safety for
    consumers. Additionally, the Agency continues to practice a cost
    effective allocation of resources through the targeting of field
    resources to imports that present the most significant risk. With no
    sign of import entries decreasing, FDA will intensify these efforts by
    implementing preventative food safety measures through collaborative
    arrangements with domestic and foreign governmental bodies.

    Patient and Consumer Safety
        As beneficiaries of the world's premiere heath care system,
    Americans should not have to endure preventable medical errors and
    adverse events related to medical products, dietary supplements, and
    foods that are responsible for thousands of deaths, millions of
    hospitalizations, and tens of billions in added health care costs.
    Americans deserve better than settling for serious health consequences
    that can't be spotted until many years after a product has been on the
    market. And Americans and their physicians deserve better than having
    to rely on limited and often outdated information about risks,
    benefits, and costs of medical treatments when they are making medical
    decisions--which, these days, are among the costliest and most
    important decisions in their lives. So we are taking new steps to make
    our systems and processes for assuring the safety of food and medical
    products work better than ever, and to build new ways to assure better
    patient safety by taking advantage of modern information technology
    tools. We are thankful for the appropriated increases for patient,
    medical product safety and our various adverse event systems in the
    food and medical product centers that we have received in past years.
        Preventing medical errors is a top priority at the Department of
    Health and Human Services and at FDA, and over the past year, FDA has
    introduced a number of solutions that are enabling a more sophisticated
    and effective 21st century patient safety system, thus helping lower
    healthcare costs and ensure longer, healthier lives for Americans. As a
    result of these new strategic initiatives, more programs are now in
    place to improve consumer safety than at any time in the Agency's
    history. In fiscal year 2003, FDA issued a new proposed requirement for
    bar codes on nearly all prescription drugs and some over-the-counter
    drugs, as well as machine-readable information on blood and blood
    components intended for transfusion, that will result in an estimated
    413,000 fewer adverse events over the next 20 years. FDA has initiated
    partnerships that will allow use of external medical databases to
    investigate specific product safety issues. We continue to encourage
    the development of ``active'' reporting systems that use fast, easy
    web-based reports and systems to get more extensive and timely
    information on new drugs, important complications, and adverse events
    that are not well understood. In fiscal year 2003, we also proposed new
    safety standards to further reduce the incidence of adverse events,
    such as proposed amendments to radiation-safety standards for
    diagnostic x-ray equipment and new antibiotic labeling to prevent drug-
    resistant bacterial strains.
        Through enhanced testing and other improvements in blood safety,
    the risk of transmission of viruses such as HIV, hepatitis B and C has
    been dramatically reduced. While a blood supply with zero risk of
    transmitting infectious disease may not be possible, the blood supply
    is safer than it has ever been. The agency's Center for Biologics
    Evaluation and Research, worked closely with other FDA Centers, the
    Center for Disease Control and Prevention, the National Institutes of
    Health, academic scientists, and the blood and diagnostic industries,
    in an unprecedented team effort that resulted in the development and
    implementation of investigational blood donor screening for West Nile
    Virus within 8 months of when the threat was first recognized. As a
    result, over 1,000 units of potentially WNV infected blood were
    identified and removed this past year before they could be transfused.
        Lastly, the Agency's Center for Food Safety and Applied Nutrition
    launched the CFSAN Adverse Event Reporting System covering all food,
    dietary supplement, and cosmetic products. Consumers submitted and FDA
    reviewed more than 6,000 adverse events and consumer complaints in an
    attempt to ensure consumers are alerted quickly to any potential new
    dangers. Recently, the CFSAN Adverse Event Reporting System provided
    information on the dangers of ephedra, which has been banned by FDA.
        Better Informed Consumers So many of our stakeholders focus their
    attention on our mission to protect public health, and ensure the
    safety of the food supply and the safety and effectiveness of medical
    products or therapies. However, at the beginning of my testimony I
    restated FDA's mission which includes mention of our duty to promote
    public health and ``[help] the public get the accurate, science-based
    information they need to use medicines and foods to improve their
    health.'' The public entrusts our subject matter experts and public
    affairs specialists in Congressional districts across the country at
    the state and local level to provide consumers with the tools they need
    to make better-informed choices. These choices range from diet to
    medical practice recommendations to disease management on the part of
    the individual. Our role as an educator or informer of the public will
    become evermore important as patients make more independent decisions
    about their health and medical care. We must continue to assist the
    public in how to use their health care dollars as we have done with our
    generic drug campaigns, and at times protect them from misleading
    information that could endanger the public's health.
        Providing information on diabetes care and prevention is a top
    priority of FDA and the Administration. In recent years, diabetes rates
    among people ages 30 to 39 rose by 70 percent. Research shows that good
    nutrition lowers people's risk for many chronic diseases, including
    obesity, heart disease, stroke, some types of cancer, diabetes, and
    osteoporosis. For at least 10 million Americans at risk for type 2
    diabetes, proper nutrition along with physical activity can sharply
    lower their chances of getting the disease.
        FDA is also attempting to enhance the consumer understanding of the
    relationship between diet/obesity and chronic disease. A recently
    released report by FDA's Obesity Working Group includes recommendations
    to strengthen food labeling, to educate consumers about maintaining a
    healthy diet and weight and to encourage restaurants to provide calorie
    and nutrition information. It also recommends increasing enforcement to
    ensure food labels accurately portray serving size, revising and
    reissuing guidance on developing obesity drugs and strengthening
    coordinated scientific research to reduce obesity and to develop foods
    that are healthier and low in calories. This effort is important, as a
    new study from Centers for Disease Control and Prevention (CDC) shows
    poor diet and inactivity are poised to become the leading preventable
    cause of death among Americans--causing an estimated 400,000 deaths in
    2000. CDC estimates that 64 percent of all Americans are overweight,
    including more than 30 percent who are considered obese. In addition,
    about 15 percent of children and adolescents, aged 6 to 19, are
    overweight--almost double the rate of two decades ago. FDA must promote
    good nutrition by allowing consumers access to credible, science-based
    information, and fostering competition based on the real nutritional
    value of foods rather than on portion size or spurious and unreliable
    claims. Such labeling can promote better public health by empowering
    consumers to make smart, healthy choices about the foods that they buy
    and consume. This is a high priority for the Administration to ensure
    that health claims are supported by scientific information. President
    Bush continues to emphasize the improvement of health through better
    diets and lifestyles.
        FDA is undertaking major new efforts to ensure consumers have the
    most up-to-date, truthful information on the benefits and risks of FDA
    regulated products. In this arena, FDA fulfills two complementary
    roles: ensuring that the information sponsors provide about products is
    accurate and allows for their safe use; and, communicating directly
    with the public concerning benefits and risks of products FDA
    regulates.
        FDA's strategic plan calls for the Agency to learn how to more
    effectively communicate the risks and benefits of FDA regulated
    products to consumers, as well as those in the health and medical
    professions. The goal is a well-informed public, empowered to make
    better choices to improve their health. Just this past year, FDA has
    been involved in a number of consumer education campaigns related to
    the prudent use of antibiotics, the misuse of pain relievers, the
    parity between generic and name brand drugs, buying medicines and
    medical products online, and several other campaigns aimed at
    addressing a number of areas where the consumer needs to minimize the
    risks and maximize the benefits of medicine use. FDA also teamed up
    with women's health organizations to raise awareness about hormone
    replacement therapy (HRT). The previous year, we conducted a similar
    campaign to raise awareness about diabetes. We spread the word widely
    about these efforts and we almost always try to provide these messages
    in Spanish to reach as much of the public as possible.
    Counterterrorism
        FDA is improving its capability to assess and respond effectively
    to its mission of protecting the security of the Nation's food supply,
    and ensuring the safety and effectiveness of medical products used to
    prepare and respond to biological, chemical, or radiological attacks.
    As Secretary Thompson reported in the July 2003 report entitled,
    ``Ensuring the Safety and Security of the Nation's Food Supply,'' the
    Agency is working with other government agencies and the private sector
    to develop and implement a comprehensive strategy to protect the food
    supply from attack. These include additional staff for food safety
    field activities, greater import presence at our Nation's borders,
    threat assessments, and additional money for food security research.
    FDA's medical product centers are also working harder and more
    creatively than ever to speed the availability of the next generation
    of safer, more effective countermeasures to protect Americans against
    biological, chemical, nuclear, and radiological agents of terrorism.
        In fiscal year 2003, FDA implemented a number of fundamental
    enhancements on both the food defense and medical countermeasures
    fronts, in meeting the objectives of this strategic goal. In direct
    response to this heightened threat, and in conjunction with the
    Department of Health and Human Service's larger counterterrorism
    initiatives, FDA has implemented new steps in food defense that
    represent the most fundamental enhancements in the Agency's food safety
    activities in many years. FDA's implementation of four new food
    security regulations prompted by the Public Health Security and
    Bioterrorism Preparedness and Response Act of 2002 (Bioterrorism Act),
    will be fundamental and long lasting. Two additional regulations are
    expected to be finalized in the near future. The Bioterrorism Act gave
    the Agency some potentially effective tools in identifying, preparing
    for or responding to terrorist attacks on the food supply. The design
    and implementation of these four regulations has also spawned a closer
    working relationship with the U.S. Customs and Border Protection Agency
    (CBP). Our close relationship led to a recent Memorandum of
    Understanding (MOU) between FDA and CBP in December 2003 that allows
    FDA to commission thousands of CBP officers to conduct, on FDA's
    behalf, investigations and examinations of imported foods in accordance
    with the prior notice requirements. This cooperative arrangement with
    FDA's sister enforcement agency was in addition to a more than six-fold
    increase in the number of field examinations of imported foods from
    fiscal year 2001 to fiscal year 2003 (78,000) conducted by FDA
    inspectors and our state partners. Much more needs to be done in this
    area as we note in our Congressional budget request for an increase of
    $65 million.
        Protecting consumers against terrorism also requires that Americans
    have access to safe and effective medical countermeasures. This year,
    FDA has worked closely with scientists and product developers and has
    taken new steps to speed the development of these safe, effective
    treatments and preventive vaccines. FDA works closely with NIH, CDC,
    DHHS, DOD and industry to develop new and improved treatments and
    vaccines to counter smallpox, anthrax, and other potential emerging
    biowarfare and public health threats.
        FDA has had to become more proactive in identifying possible
    products for approval for medical countermeasures due to the fact that
    no known group of patients are currently affected by many of the
    conditions linked to biological, chemical, or radiological agents. So,
    in fiscal year 2003, the Agency issued new guidance on the development
    of Radiogardase (``Prussian Blue'') for treatment of internal
    contamination with thallium or radioactive cesium. Several months
    later, a firm submitted an application and FDA approved Radiogardase to
    treat people exposed to radiation contamination from harmful levels of
    cesium-137 or thallium after identifying existing safety and efficacy
    data. FDA has worked with other government agencies to facilitate the
    development of counter-terrorism products, such as vaccines and immune
    globulins against anthrax, smallpox, and botulism, by resolving
    regulatory issues and developing assays for potency testing. FDA also
    took various steps to make sure that manufacturers of medical
    countermeasures are following Current Good Manufacturing Practices
    (CGMPs). In 2003, FDA determined that CGMP inspections were lacking for
    27 manufacturers of identified medical countermeasures, and the Agency
    took action to address this. Even without the legislation creating
    Project BioShield, an act designed in part to provide incentives for
    developing safer, more effective countermeasures, FDA will remain the
    only governmental Agency involved with the approval of products
    necessary to prevent or treat human exposure to these terrorist agents.
    We hope this Subcommittee supports our $5 million request in fiscal
    year 2005.

    A Strong FDA
        The final goal of our Strategic Plan revolves around our world-
    class, professional workforce that is highly dedicated and committed to
    making a difference. FDA is aware of the need to maintain the highest
    level of public trust in its activities. I believe this component of
    our plan is the bedrock and the most critical component for the success
    of the Agency. For that reason, the Agency must adequately develop and
    support its cadre of experienced physicians, toxicologists, chemists,
    biologists, statisticians, mathematicians, and other highly qualified
    professions. Since 2001 and into the foreseeable future, we have
    continually sought new opportunities to improve our management, and
    efficiencies in our organization, infrastructure and information
    technology. The practice of efficient risk management certainly applies
    here as we must strive to adopt management practices that make the
    Agency's core programs most efficient. The fiscal year 2005 request
    fully funds the $33.1 million ($20.6 million of which is budget
    authority) to complete a part of the work force consolidation at White
    Oak, Maryland.
        FDA's adherences to the strategies and goals of the President's
    Management Agenda have brought about real and positive change toward
    improving the management of the Agency. These five goals are Strategic
    Management of Human Capital, Competitive Sourcing, Improved Financial
    Performance, Expanded E-government, and Budget and Performance
    Integration. Over the past year, FDA management achieved a number of
    milestones in the area of ``Strategic Management of Human Capital,''
    including the development and phased stand-up implementation of the new
    shared service organization (SSO). Consolidation into the SSO, combined
    with improved business processes, will allow FDA to maintain
    administrative service levels with substantially fewer staff. Another
    area of continued progress is towards the goal of ``improved financial
    performance.'' Due to this Subcommittee's continued support, the Agency
    is making progress towards the eventual replacement of its obsolete
    legacy accounting systems. The Department-wide Unified Financial
    Management System will integrate financial management to provide more
    timely and consistent information, and promote the consolidation of
    accounting operations that will substantially reduce the cost of
    accounting services. In addition, FDA has continued its progress
    towards the consolidation of its IT infrastructure by collaborating
    with HHS toward achieving its ``One HHS'' goals and objectives. FDA
    also competed six agency support functions in fiscal year 2003 to
    determine the most efficient organization for running and managing each
    function. The agency determined that the in-house operations for all
    six functions were the most efficient organizations for providing their
    respective services. We estimate savings of $16.3 million over a 5 year
    performance period from just these six organizations. These are just a
    few examples of FDA's outstanding progress in making efficient use out
    of limited resources, and practicing efficient risk management.

    Fiscal year 2005 Budget Request
        As I noted earlier, adequate funding of the Agency's highest
    priorities is vital to our success. Our fiscal year 2005 President's
    budget request totals $1.845 billion, including $1.495 billion in
    budget authority and $350 million in user fees. The Administration
    proposes both increases and savings related to the President's
    initiatives for a net budget authority increase of $108.8 million above
    the fiscal year 2004 Appropriation. Requested increases cover: Cost of
    Living, Food Defense, Medical Device Review, Medical Countermeasures,
    Bovine Spongiform Encephalopathy prevention, and the Agency's
    relocation of the Center for Drugs to the consolidated campus.
    Additionally, the budget includes management savings achieved through
    administrative efficiencies and savings achieved by using carryover
    funds from our Buildings and Facilities account. The user fee increases
    total more than $40 million. This proposed budget will support a total
    of nearly 10,800 full time employees.

    Cost of Living
        Adequate annual pay increases are essential to allow FDA to fully
    utilize programmatic increases. More than 60 percent of FDA's budget
    goes toward paying our highly skilled scientific workforce, far more
    than some Agencies. FDA's labor percentage is higher due to a number of
    reasons, but most importantly because the Agency's diverse workload
    requires numerous interdependent specialists in each of the Agency's
    product areas, the inspectional responsibilities require great
    geographic diversity to perform duties across the country and around
    the world, and the number of personnel necessary to monitor the entire
    life-cycle of all products under the Agency's purview (e.g., clinical
    drug trials to drug application review to advertising of approved
    product to actual effect of drug on patient's health). The lack of cost
    of living increases has the potential to limit or nullify other
    targeted increases towards high priority Administration, Congressional
    and/or mission critical initiatives.
        FDA is thankful for this Subcommittee's involvement in providing
    the Agency with additional funding to cover the cost of inflationary
    pay increases between fiscal year 2002 and fiscal year 2004. We
    approach you once again and request that you provide a $14.4 million
    increase representing a congressionally approved 4.1 percent cost of
    living increase for calendar year 2004 as well as a 1.5 percent
    increase for calendar year 2005 as proposed by the President.

    Food Defense
        As I noted earlier, Food Defense is a major component of FDA's
    strategic goal to protect America from terrorism as it relates to foods
    and medical products under our purview. I am also pleased to report
    that this Subcommittee's support in the hiring of 655 new field staff
    through the fiscal year 2002 supplemental appropriation as well as the
    increases provided in fiscal year 2003 is beginning to produce positive
    results.
        Despite some significant progress over the past year with the rapid
    implementation of the food registration and prior notice regulations
    and systems, increased training and outreach, record amounts of import
    examinations, expanded research programs, daily intelligence briefings
    of FDA officials, etc., additional steps need to be taken to fully
    prepare our Nation to handle various types of intentional attacks on
    the food supply.
        FDA has spent an extensive amount of time over the past year
    coordinating this multifaceted plan with the White House Homeland
    Security Council, the Department of Homeland Security, and the USDA.
    The result is a joint budget developed with USDA and DHS for food
    defense to protect the agriculture and food sectors. Based upon the
    Administration's current knowledge, ability to respond, and capacity to
    handle an actual attack, FDA requests $65 million in increased funding
    to shore up five key areas--$35 million for the Food Emergency Response
    Network [FERN], $15 million for research, $7 million for inspections,
    $3 million for incident management, and $5 million for biosurveillance.
    The investments in these particular areas will help develop awareness
    amongst the various components of the food sector, build upon existing
    surveillance tools, institute prevention techniques to shield against
    an attack, prepare for an attack, and provide the capacity to respond
    if such an event should occur.
        It is also vital that the Agency has the capability to coordinate
    and handle a food defense response with state and local governments and
    other Federal agencies. We are seeking to build a food defense
    laboratory network among states, part of a system called FERN. FERN is
    comprised of labs specializing in food testing for biological, chemical
    and radiological threat agents and these laboratories will have the
    capacity to rapidly test a large number of food products. We need to
    make a distinction here between a corresponding network of labs handled
    by the Centers for Disease Control and Prevention. CDC is in charge of
    the Laboratory Response Network that primarily handles clinical testing
    of human specimens such as blood or urine.
        Another system we will build upon with our fiscal year 2005 request
    is the Electronic Laboratory Exchange Network or eLEXNET. This network
    is the Nation's first seamless, integrated, secure, web-based data
    exchange system for food testing information. eLEXNET allows health
    officials at multiple government agencies engaged in food safety
    activities to compare, share, and coordinate laboratory analysis
    findings on food products. Whereas FERN laboratories are involved in
    the actual analysis of food samples, eLEXNET provides a forum for the
    exchange of laboratory data. FDA is continuing efforts to expand
    eLEXNET to provide better nationwide data on food product analyses by
    regulatory agencies.
        Between fiscal year 2001-2005, FDA will increase the number of
    import food inspections from approximately 12,000 to 97,000. Along with
    increased inspectional needs, FDA must take the lead in conducting or
    overseeing research projects that help us understand the effects of
    contaminated food supplies on people. There are some hostile agents
    capable of entering our food supply that we don't know how they will
    react in humans. This is a complex challenge and we must conduct
    calculated risk assessments and then use limited resources to study
    human food consumption contaminated with these agents. Our food defense
    task is challenging and we will make a concerted effort to gain a
    greater understanding of these threats to the food supply. We currently
    have over 90 research projects devoted to identifying food adulteration
    and we hope to improve testing and identification with these projects.

    Bovine Spongiform Encephalopathy (BSE)
        Although 150 deaths in Europe from variant Creutzfeldt-Jakob
    disease (vCJD) are linked to consumption of beef from cows with BSE,
    the economic impact to the farming communities was also devastating.
    The European Union estimated the cost of BSE contamination in affected
    countries to reach $107 billion and Canada's recent discovery was
    costing an average of $11 million a day in lost exports. The
    Administration is acting vigorously to limit the distribution or spread
    of any products suspected of carrying BSE following the December 23,
    2003 discovery of a Holstein cow with BSE in the state of Washington.
    On January 26 of this year, FDA announced several new public health
    measures to strengthen the five existing firewalls that protect
    Americans from exposure to the agent thought to cause BSE. FDA intends
    to ban from human food, dietary supplements, and cosmetics a wide range
    of bovine-derived material so that the same safeguards that USDA
    implemented for meat products, also apply to food products that FDA
    regulates. FDA will also prohibit certain feeding and manufacturing
    practices involving feed for cattle and other ruminant animals. The
    Agency will strengthen its current controls and implement these new
    protections by publishing two interim final rules.
        In fiscal year 2004, the base budget is $21.5 million for BSE
    activities across all FDA programs. In fiscal year 2005, we request
    $8.3 million for a total of $29.8 million in total funding for this
    initiative. With the increased funding, we will undertake a trilateral
    approach of increased inspections, enforcement activities, and
    education. The requested resources will enable the Agency to increase
    field BSE inspections, sample collections and analyses; increase
    targeted sample collections and analyses of both domestic and imported
    animal feed or feed components; fund 2,500 more state inspections of
    animal feed firms; conduct industry outreach to better inform industry
    of responsibilities and opportunities to prevent BSE from contaminating
    animal feed; and strengthen the states' infrastructures to monitor, and
    respond to, potential feed contamination with prohibited materials. The
    Administration believes that an $8.3 million request is a relatively
    modest increase in light of the potential health benefits and cost
    savings that can be achieved with these resources.

    Medical Device
        Review FDA is committed to ensuring that the Medical Device User
    Fee and Modernization Act (MDUFMA) performance goals are met and that
    the strongest and most effective medical device review program possible
    is available. The Administration requests a budget authority increase
    of $25.5 million for a total of $217 million, the amount needed to
    match the original levels specified by law for fiscal year 2005. On
    October 29, 2003, OMB Director Josh Bolten wrote to Congress describing
    the Administration's commitment to support this program at the level
    intended by MDUFMA in fiscal year 2005 and beyond. Within the approach
    outlined by Mr. Bolten, the Agency is committed to meeting the original
    MDUFMA performance goals.
        As you know, MDUFMA requires that $205.7 million be appropriated in
    budget authority each year for FDA's Center for Devices and
    Radiological Health and related field activities, adjusted for
    inflation (CPI). The President's fiscal year 2005 budget meets the
    MDUFMA threshold for fiscal year 2005 appropriations requirements. We
    look forward to working with Congress to modify MDUFMA to preclude the
    requirement to appropriate the entire ``shortfall'' from fiscal year
    2003 and fiscal year 2004, in order to continue the user fee program
    beyond fiscal year 2005. FDA is committed to achieving the performance
    goals of MDUFMA.
        In fiscal year 2005, FDA will utilize the appropriated increases to
    build upon the success in fiscal year 2003 and fiscal year 2004. In
    fiscal year 2003, FDA invested user fee and appropriated dollars in a
    number of ways that will contribute to the ultimate improvement in the
    review process in later years, including the hiring of more than 50 new
    scientific, medical, engineering, and other review staff and the
    development of process improvements to speed review from beginning to
    end.

    Medical Countermeasures
        Counterterrorism is a major priority for the FDA and the Department
    of Health and Human Services. Speeding the development of safe medical
    countermeasures to improve protection against terrorism and emerging
    diseases requires that Americans have access to safe and effective
    medical treatments. Prior to September 11th, FDA had been engaged in
    coordinated efforts with other Departments to develop and make
    available better countermeasures for biological, chemical and
    radiological attacks. The urgency is far greater now and so in fiscal
    year 2005, FDA will continue to work closely with scientists and
    product developers and take new steps to speed the development of these
    safe, effective treatments. FDA requests $5 million to expedite the
    review of new drug applications, biologics license applications,
    generic drugs and over-the-counter medical product countermeasures. The
    Agency must get involved in each facet of the process from animal
    studies to dosing requirements to the development of postmarket systems
    that will be in place to ensure rapid reaction to adverse events. These
    initiatives are all necessary to ensure that adequate treatments are
    available for a wide assortment of threats. One of these initiatives is
    Project BioShield, a program designed to help ensure that medical
    products are reviewed and approved for safety and effectiveness in the
    event of war or catastrophic events. The first request for proposals
    for procurement of a new generation anthrax vaccine through Project
    BioShield will be initiated shortly.

    Center for Drugs Relocation
        I can only imagine that it is difficult for members of this
    Subcommittee to write home about the funding you helped secure for
    FDA's consolidation of its Washington, D.C. metro area Headquarters
    Offices from 16 locations to three. However, I think they would be
    happy to hear that the eventual settling into the three new sites in
    White Oak, Laurel, and College Park, MD, create greater economies of
    scale and operational efficiencies. The bottom line is that you will
    save the American taxpayers money when this project is complete.
    Although substantial facility needs at White Oak are mostly addressed
    through the GSA appropriation, FDA must continue to seek your support
    for relocation costs. In accordance with the President's Management
    Agenda, the FDA plans to modernize document handling, use shared
    library and conference facilities, reduce redundancies in a wide range
    of administrative management tasks, convert to a single computer
    network, and reduce management layers. Without the requested funds,
    these management improvements and efficiency gains would be
    jeopardized.
        This current plan calls for the relocation of 1,700 drug review
    personnel in April of 2005. The budget funds the total need for this
    move, $33.1 million, and the request includes an increase of $20.6
    million in new budget authority. The remainder would come from $2.4
    million in the base budget, and $10 million in PDUFA user fees. The
    General Services Administration has requested $89 million in their
    fiscal year 2005 budget request to continue construction on the campus.
    If GSA's subcommittee approves the full request, the building
    construction would proceed as schedule. However, if GSA does not
    receive its full request for White Oak, it would have severe financial
    consequences for FDA. In a 2003 GAO report entitled ``Federal Real
    Property: Executive and Legislative Actions Needed to Address Long-
    Standing and Complex Problems,'' the report spells out the Federal
    Government's problems in managing property, including the inefficient
    use of space. FDA would be faced with paying unnecessary rental
    payments for multiple properties unless the funding of construction and
    relocation costs are synchronized as is currently the plan.

    User Fees
        In fiscal year 2005, the Agency expects to collect $350 million in
    user fees, primarily from PDUFA, MDUFMA, and ADUFA fee programs. These
    user fee programs provide substantial funding that compliment budget
    authority resources and allow FDA to meet agreed upon performance
    measures that allow for more rapid reviews of human drugs, medical
    devices and animal drugs. Additionally, the Agency collects modest fee
    amounts for the Mammography Quality Standards Act program as well as
    export certification and color certification programs.
    President's Management Agenda & Administrative Consolidation
        FDA has been very proactive in streamlining its operations and
    reducing its administrative expenses. Since November 2001, the Agency
    has worked with the Department of Health and Human Services to do its
    part to comply with the President's goal to improve the Strategic
    Management of Human Capital across the Federal Government. We have
    demonstrated tremendous success in efforts to delayer our
    organizational structure, consolidate FDA's decentralized Human
    Resources (HR) services to a single FDA HR office which has
    consolidated into the HHS Rockville HR Center; implement a shared
    services organization that makes best use of administrative resources;
    plan for consolidated facilities at White Oak Maryland, consolidation
    of IT activities, and, find efficiencies via competitive sourcing or A-
    76 studies. Thanks to your support, we also continue to improve
    financial management at FDA through the planned implementation of a new
    financial system. In fiscal year 2005, FDA proposes its second straight
    year of reductions by way of $23.1 million in savings achieved through
    a seven and a half percent reduction in administrative staff, or a
    combined reduction of 15 percent between fiscal year 2004 and fiscal
    year 2005. In addition, no request is being made this year in the
    Buildings and Facilities appropriation. This represents a savings of $7
    million that was devoted to higher priority programs. Approximately
    $4.6 million in carryover funds will sustain the program through fiscal
    year 2005.

    Conclusion
        I thank you for your commitment and continued support of FDA. I am
    confident that the information I provide to you today, and any
    additional information provided to the Subcommittee following this
    hearing, will give you further evidence of the Agency's needs in fiscal
    year 2005, and justify the requested increases these priorities. Thank
    you for the opportunity to testify today. I look forward to working
    with all of you and your staffs in the months ahead.

        Senator Bennett. Thank you, sir.
        We appreciate all of you.

                              PROPOSED LEGISLATION

        Mr. Bost, there are several requests in the budget for
    legislative language. One, you have requested a legislative
    proposal to exclude special pay for military personnel deployed
    in a designated combat zone if that pay was not received
    immediately prior to deployment. And second, a request for new
    legislative language to allow for indefinite funding authority
    for the Food Stamp Act.
        Could you furnish the committee with a written explanation
    in both of these cases? Senator Kohl and I have determined that
    we are not going to legislate on an Appropriations Bill without
    the complete cooperation of the members of the authorizing
    committee. You have asked us to do this when it is within the
    purview of the authorizing committee. So I think a clear
    written statement on those two things would be helpful to us as
    we make our decision as to whether or not we are going to
    proceed on that.
        Mr. Bost. Certainly Mr. Chairman. I would be more than
    happy to do so.
        [The information follows:]

        The President's fiscal year 2005 budget includes a provision to
    exclude ``special'' military pay when determining food stamp benefits
    for deployed members of the armed services. Current rules count all
    military pay received by the household as earned income in determining
    household eligibility and benefits. Military personnel receive
    supplements, such as combat or hazardous duty pay, to their basic pay
    when they serve in combat, which could reduce a family's benefits or
    make them ineligible.
        The proposal excludes this income as long as it was not received
    immediately prior to deployment. It supports the families of servicemen
    and servicewomen fighting overseas by ensuring that they do not lose
    food stamps as a result of the additional income resulting from their
    deployment.
        This change is being sought in appropriations language for fiscal
    year 2005 when it is most needed. The cost in fiscal year 2005 is $3
    million. Total cost for fiscal year 2005 to 2009 is $12 million if it
    is needed and enacted in all those years. In fiscal year 2005, we
    expect to help 2,900 military families.
        The indefinite authority proposal in the fiscal year 2005 budget
    request for the Food Stamp Program would provide such sums as necessary
    to fund program benefits and payments to States. It would ensure that
    sufficient resources were always available to provide access to the
    program for all eligible persons who wish to participate. Unlike the
    contingency reserve funds, if program costs should significantly exceed
    budget estimates, it would never be necessary to seek a supplementary
    appropriation or implement a benefit reduction. This proposal would
    bring the structure of this critical program in line with other major
    entitlement programs that already have indefinite authority.

        Senator Bennett. Thank you.

                               FOOD GUIDE PYRAMID

        We have talked to you about the pyramid. I seemed to get a
    lot of publicity the last time I did that. You say it is
    currently undertaking a reassessment. Should we just leave it
    at that and say that it is still being reassessed or do you
    have any progress reports you want to share with us?
        Mr. Bost. We do not really have any progress to report at
    this point but I think it is real important to know that the
    first aspect of that is a review of the Dietary Guidelines.
    Secretary Veneman and Secretary Thompson appointed a group of
    leading scientists and they are in the midst--I think they have
    had two meetings and one is upcoming to review the Dietary
    Guidelines. A review of the Dietary Guidelines will fold into a
    review of the Pyramid itself.
        It is going to come as a result of the challenges we are
    facing concerning obesity and it continues to come under a
    great deal of scrutiny.
        I think the challenge is trying to be everything to
    everyone and that is the biggest challenge. Essentially, we eat
    too much and exercise too little. We are trying to move
    everybody in this country toward a healthy lifestyle.
        Senator Bennett. Thank you.

                     LIVE BIRD MARKETS AND AVIAN INFLUENZA

        Mr. Hawks, the Washington Post has run some stories on live
    bird markets and the fact that these markets may be a breeding
    ground for bird flu or avian influenza. Do you have any
    information you could provide to us here about that issue?
    Should we expect the Department to be taking any action with
    respect to the live bird markets?
        Mr. Hawks. Yes, sir, you sure should. As a matter of fact,
    there is almost $13 million in our 2005 budget request to
    address avian influenza. That encompasses the live bird
    markets.
        We are actually, as we speak, moving forward with plans to
    do more surveillance in those live bird markets, and to do more
    surveillance in general with respect to low path avian
    influenza. We are engaged with the States involved and
    certainly recognize the significance of the live bird markets
    and the need to address them.
        We have already, in the past, actually closed those live
    bird markets. We have what we call a holiday in those bird
    markets. We close them for 3 days. We clean, disinfect and
    depopulate those birds that are there.
        It certainly is an area that is of concern to us.
        Senator Bennett. What about those countries that have
    banned poultry exports from the United States because the bird
    flu? Are we doing anything to try to get those markets
    reopened?
        Mr. Hawks. Yes sir, we sure are. We are very much engaged
    in that.
        We have submitted a significant amount of information to
    our trading partners about what we are doing about the
    epidemiological investigations that are ongoing.
        The one that is the most significant is the high path avian
    influenza in Gonzalez, Texas. We have completed our
    surveillance programs there and have found no additional avian
    influenza.
        I will personally be in Mexico City on April 13th, the week
    after next, to engage in continued discussions with my Mexican
    counterparts to try to reinforce our desire for them to open
    the market and follow the appropriate path.

                        BOVINE SPONGIFORM ENCEPHALOPATHY

        Senator Bennett. While we are on the subject of markets,
    that brings us now to BSE, and the request on the part of some
    countries that there be a 100-percent testing of the export
    market. I understand you are working, as you say, with Mexico,
    also Japan. Is 100-percent testing of the export market
    physically possible? Is that a feasible thing?
        Mr. Hawks. Mr. Chairman, we do not think that is the
    prudent thing to do, to test 100 percent for BSE. As a matter
    of fact, Mexico has opened parts of its market to us. We
    continue to move there. But the Japanese market is the one that
    seems to be the most insistent on an increased level of
    testing. We have communicated earlier this week with the
    Japanese our desire to go to the OIE, the Office of
    International Epizootics, with a panel there to look at our
    proposals and their proposals to make sure that we are taking
    the appropriate scientific measures. But we do not believe that
    100-percent testing is the appropriate path.
        Senator Bennett. Thank you.

                  RECALL REPORT BY OFFICE OF INSPECTOR GENERAL

        Dr. Murano, I was pleased to hear you talk about the
    dramatic decline in recall, but the Office of Inspector General
    has recently released a report--not that recently, but
    September of 2003--a report critical of several aspects of a
    specific recall in Colorado. Is that a one-of-a-kind situation
    that has been dealt with, or do you feel that the OIG has
    raised some issues that should be examined Department-wide?
        Dr. Murano. Thank you, Mr. Chairman. As you know, that
    particular recall took place in the summer of 2002, and as that
    recall was taking place, we identified right away things that
    we needed to correct to improve our effectiveness at overseeing
    how recalls are conducted by companies.
        We identified a lot of the things that ended up in the OIG
    report, many months later. We certainly did not wait for the
    OIG report to start doing something about it, and I think that
    is what has made a big difference in the results that we see
    now.
        Of course, the OIG takes quite a while to put out their
    reports. I think the report came out, as you said, last fall.
    We obviously had been working very, very diligently to address
    a lot of the issues. We have revised a lot of our directives.
    We have put in place new policies, and instituted new training
    modules for our inspectors. I think the proof of it is the
    recent BSE-related recall that we oversaw, because I think in
    that particular case, we were able to conduct effectiveness
    checks in a way that was certainly an improvement over what was
    done back in 2002.

                 MEDICAL DEVICE USER FEE AND MODERNIZATION ACT

        Senator Bennett. Thank you.
        Dr. Crawford, you and I have visited about MDUFMA--I am
    learning the acronyms and how to pronounce them--and as you
    know, I was very supportive of that program, got a commitment
    from OMB. I am pleased to note--and you mention it in your
    testimony--how that is being followed through on.
        There is speculation that we here on Capitol Hill may have
    to go to a year-long continuing resolution if we cannot get the
    appropriations bill through. If they left it to Senator Kohl
    and me, we would get them all through. But people above our pay
    grade seem to have some problem.
        If there is a year-long continuing resolution, what would
    be the impact on MDUFMA?
        Dr. Crawford. Well, Mr. Chairman, we believe that under the
    law we would be required and obligated to continue with the
    user fee program. The problem would be--within the scope of my
    testimony, I mentioned that we will increase the funding for
    the medical device program. The President has asked for the
    increase of funding to $25 million to fully fund this
    particular program.
        Also, within the context of the Administration's budget
    request, we would seek relief from the shortfalls in fiscal
    year 2003 and fiscal year 2004. That probably would not be met
    under a continuing resolution, and so we would have to have
    another plan in place. If the continuing resolution did not
    last too long, I think it would be all right in correcting
    that.
        However, we would be working with OMB to try to get an
    exception under the continuing resolution for this. And I can
    commit to doing that. Working with them is something we always
    do, but we would be particularly interested in getting this
    accomplished.
        I was Acting Commissioner before when we got MDUFMA passed,
    and even though I was here then, I never did learn about the
    acronym. And I appreciate being educated on it.
        I have a real commitment to making this thing work before
    this administration year is up, and I would feel pretty good
    about that.

                               GENERIC BIOLOGICS

        Senator Bennett. A final question. Let's talk about both
    generic versions of biotech drugs and counterfeit drugs. The
    Wall Street Journal ran an article a month or so ago: ``FDA
    Takes Step Towards Allowing Generic Versions of Biotech
    Drugs.'' Are you familiar with that?
        Dr. Crawford. Yes, I am.
        Senator Bennett. Okay. Well, it is clear from reading the
    article that there is much to be learned, and it seems unusual
    to me that FDA is developing scientific guidance on how to do
    something when there is no legal structure by which to do it.
    There are some serious intellectual property and patient safety
    questions.
        First, wouldn't everybody be better off if there was an
    open, transparent, and science-driven process before the FDA
    announces its conclusions?
        Dr. Crawford. Yes, I agree. And I also agree that we will
    need to pay special attention to the regulatory and legal
    framework that will enable this or not enable it to take place.
        When I first testified on this subject some time ago, FDA
    had been in the mode of saying that generic biologics were not
    possible for a number of reasons. Some of them were
    pharmacological, that is, characterizing what is actually in
    the biologic so that it can be transferred from one
    manufacturer to another one, that is, from the pioneer to the
    generic manufacturer. And the second thing was the very legal
    and regulatory constraints that you mentioned.
        But as the science improves, we have no recourse, Mr.
    Chairman, but to be open-minded about it and to receive input
    from the public and from experts in the field, as well as the
    manufacturers. And although we do not know what the path is at
    this point to achieve that or even if it is achievable, we are
    open to suggestions.
        We announced just last week a new initiative at FDA called
    the Critical Path Initiative, in which we are trying to take
    basic research developments and get them from the laboratory to
    the bedside quicker. So we intend a large investment, as much
    as we can afford, in trying to get that kind of thing done. It
    used to be called technology transfer. It is now much more
    complex than that and the tools are better.
        I do not know what the outcome will be. All I can say to
    you is that we are open to suggestions from this committee, of
    course, but from all others.

                               COUNTERFEIT DRUGS

        Senator Bennett. Thank you. And, very quickly, the FDA
    earlier this year issued a report on the issue of counterfeit
    drugs, the efforts of a counterfeit task force. Is that task
    force report now available?
        Dr. Crawford. Yes, it is, and we can make one available to
    the committee. And if we haven't already done that, I
    apologize, Mr. Chairman. But it will be done before very much
    more time passes by, I assure you.
        Senator Bennett. All right. I was going to ask you to list
    the recommendations and so on, but that can be done with the
    submission.
        Dr. Crawford. We will submit that for the record,
    separately if we may.
        [The information follows:]

          Combating Counterfeit Drugs: A Report of the Food and Drug
                                 Administration

                               EXECUTIVE SUMMARY

        The counterfeiting of currency and consumer products are common
    problems that plague governments and manufacturers around the world,
    but the counterfeiting of medications is a particularly insidious
    practice. Drug counterfeiters not only defraud consumers, they also
    deny ill patients the therapies that can alleviate suffering and save
    lives. In some countries the counterfeiting of drugs is endemic--with
    some patients having a better chance of getting a fake medicine than a
    real one. In many more countries, counterfeit drugs are common. In the
    United States, a relatively comprehensive system of laws, regulations,
    and enforcement by Federal and State authorities has kept drug
    counterfeiting rare, so that Americans can have a high degree of
    confidence in the drugs they obtain through legal channels. In recent
    years, however, the FDA has seen growing evidence of efforts by
    increasingly well-organized counterfeiters backed by increasingly
    sophisticated technologies and criminal operations to profit from drug
    counterfeiting at the expense of American patients.
        To respond to this emerging threat, Commissioner of Food and Drugs
    Mark McClellan formed a Counterfeit Drug Task Force in July 2003. That
    group received extensive comment from security experts, Federal and
    State law enforcement officials, technology developers, manufacturers,
    wholesalers, retailers, consumer groups, and the general public on a
    very broad range of ideas for deterring counterfeiters. Those comments
    reinforced the need for FDA and others to take action in multiple areas
    to create a comprehensive system of modern protections against
    counterfeit drugs. FDA discussed those ideas, and considered
    alternatives and criticisms at its public meetings, to develop a
    comprehensive framework for a pharmaceutical supply chain that will be
    secure against modern counterfeit threats. The specific approach to
    assuring that Americans are protected from counterfeit drugs includes
    the following critical elements:

    1. Implementation of new technologies to better protect our drug supply
        Because the capabilities of counterfeiters continue to evolve
    rapidly, there is no single ``magic bullet'' technology that provides
    any long-term assurance of drug security. However, a combination of
    rapidly improving ``track and trace'' technologies and product
    authentication technologies should provide a much greater level of
    security for drug products in the years ahead. Similar anti-
    counterfeiting technologies are being used in other industries, and FDA
    intends to facilitate their rapid development and use to keep drugs
    secure against counterfeits.
        a. The adoption and common use of reliable track and trace
    technology is feasible by 2007, and would help secure the integrity of
    the drug supply chain by providing an accurate drug ``pedigree,'' which
    is a secure record documenting the drug was manufactured and
    distributed under safe and secure conditions.
        Modern electronic technology is rapidly approaching the State at
    which it can reliably and affordably provide much greater assurances
    that a drug product was manufactured safely and distributed under
    conditions that did not compromise its potency. FDA has concluded that
    this approach is a much more reliable direction for assuring the
    legitimacy of a drug than paper recordkeeping requirements, which are
    more likely to be incomplete or falsified, and that it is feasible for
    use by 2007. Radiofrequency Identification (RFID) tagging of products
    by manufacturers, wholesalers, and retailers appears to be the most
    promising approach to reliable product tracking and tracing.
    Significant feasibility studies and technology improvements are
    underway to confirm that RFID will provide cost-reducing benefits in
    areas such as inventory control, while also providing the ability to
    track and trace the movement of every package of drugs from production
    to dispensing. Most importantly, reliable RFID technology will make the
    copying of medications either extremely difficult or unprofitable. FDA
    is working with RFID product developers, sponsors, and participants of
    RFID feasibility studies to ensure that FDA's regulations facilitate
    the development and safe and secure use of this technology. FDA is also
    working with other governmental agencies to coordinate activities in
    this area.
        b. Authentication technologies for pharmaceuticals have been
    sufficiently perfected that they can now serve as a critical component
    of any strategy to protect products against counterfeiting.
        Authentication technologies include measures such as color shifting
    inks, holograms, fingerprints, taggants, or chemical markers embedded
    in a drug or its label. The use of one or more of these measures on
    drugs, starting with those considered most likely to be counterfeited,
    is an important part of an effective anti-counterfeiting strategy.
    Because counterfeiters will adapt rapidly to any particular measure and
    because the most effective measures differ by product, the most
    effective use of authentication technology will vary by drug product
    over time. FDA intends to clarify its policies and procedures to help
    manufacturers employ and update these technologies safely and
    effectively. In particular, FDA plans to publish a draft guidance on
    notification procedures for making changes to products (e.g., addition
    of taggants), their packaging, or their labeling, for the purpose of
    encouraging timely adoption and adaptation of effective technologies
    for detecting counterfeit drugs. FDA also intends to continue to
    evaluate and provide information to stakeholders on forensic
    technologies (e.g., use of product fingerprinting, addition of markers)
    and other analytical methods that allow for rapid authentication of
    drug products. FDA also plans to support the development of criteria
    that contribute to counterfeiting risk, and/or the development of a
    national list of drugs most likely to be counterfeited based on these
    criteria, to assist stakeholders in focusing their use of anti-
    counterfeiting technologies as effectively as possible.

    2. Adoption of electronic track and trace technology to accomplish and
            surpass the goals of the Prescription Drug Marketing Act
        At the time PDMA was enacted the only way to pass on a pedigree for
    drugs was to use paper, which has posed practical and administrative
    challenges. RFID technology, which would provide a de facto electronic
    pedigree, could surpass the intent of PDMA and do so at a lower cost.
    In light of the rapid progress toward much more effective electronic
    pedigrees that can be implemented within several years, FDA intends to
    continue to stay its regulations regarding certain existing pedigree
    requirements to allow suppliers to focus on implementing modern
    effective pedigrees as quickly as possible.

    3. Adoption and enforcement of strong, proven anti-counterfeiting laws
            and regulations by the States
        Because States license and regulate wholesale drug distributors
    they have an important role in regulating the drug distribution supply
    chain. The FDA is working with the National Association of Boards of
    Pharmacy on its effort to develop and implement revised state model
    rules for licensure of wholesale drug distributors. Such rules will
    make it difficult for illegitimate wholesalers to become licensed and
    transact business, thus making it easier to deter and detect channels
    for counterfeit drugs. Some states have already reduced counterfeit
    threats by adopting such measures. FDA will continue working with NABP
    and states to facilitate adoption of the Model Rules.

    4. Increased criminal penalties to deter counterfeiting and more
            adequately punish those convicted
        Although increased criminal penalties would not affect FDA's
    regulatory framework for overseeing the U.S. drug supply, they would
    provide an added deterrent to criminals who work to counterfeit our
    citizens' medications. FDA has requested that the United States
    Sentencing Commission amend the sentencing guidelines to increase
    substantially the criminal penalties for manufacturing and distributing
    counterfeit drugs and to provide for enhanced penalties based on the
    level of risk to the public health involved in the offense.

    5. Adoption of secure business practices by all participants in the
            drug supply chain
        Effective protection against counterfeit drugs includes actions by
    drug producers, distributors, and dispensers to secure their business
    practices such as ensuring the legitimacy of business partners and
    refusing to do business with persons of unknown or dubious background,
    taking steps to ensure physical security, and identifying an individual
    or team in the organization with primary responsibility for ensuring
    that effective security practices are implemented. The wholesalers have
    already drafted a set of secure business practices and FDA will
    continue to work with other major participants of the drug supply chain
    to develop, implement, and disseminate such business practices, through
    such steps as issuing guidance and supporting the development of
    industry best practices. To help ensure secure business practices, FDA
    intends to increase its inspection efforts of re-packagers whose
    operating procedures place them at increased risk for the introduction
    of counterfeit drugs.

    6. Development of a system that helps ensure effective reporting of
            counterfeit drugs to the agency and that strengthens FDA's
            rapid response to such reports
        If counterfeit drugs do enter the American marketplace, procedures
    should be in place to recognize the hazard and alert the public quickly
    and effectively. FDA plans to take new steps to encourage health
    professionals to report suspected counterfeit drugs to FDA's MedWatch
    system. FDA also intends to create a Counterfeit Alert Network to
    provide timely and effective notification to affected health
    professionals and the public whenever a counterfeit drug is identified.

    7. Education of consumers and health professionals about the risks of
            counterfeit drugs and how to protect against these risks
        FDA will develop educational materials, including new tools on the
    FDA website at www.fda.gov, new public service announcements, and new
    educational partnerships with consumer and health professional
    organizations, to help consumers avoid counterfeits. FDA will enhance
    its educational programs for pharmacists and other health professionals
    about their role in minimizing exposure to, identifying, and reporting
    counterfeits.

    8. Collaboration with foreign stakeholders to develop strategies to
            deter and detect counterfeit drugs globally
        Counterfeit drugs are a global challenge to all nations, and
    criminal counterfeiting operations are increasingly operating across
    national borders. FDA intends to work with the World Health
    Organization, Interpol, and other international public health and law
    enforcement organizations to develop and implement worldwide strategies
    to combat counterfeit drugs.
        The steps described in this report are intended to secure the
    safety and of the U.S. drug supply, which the FDA regulates. The FDA
    does not have the legal authority or resources to assure the safety and
    efficacy of drugs purchased from other countries outside our domestic
    drug distribution system, or from unregulated Internet sites that are
    not run by pharmacies licensed and regulated by U.S. States.

    A. Purpose of the Anti-Counterfeiting Initiative
        The actions described in this report are based on the work of an
    internal FDA Counterfeit Drug Task Force \1\, which was formed in July
    2003 by Commissioner of Food and Drugs Mark McClellan, M.D., Ph.D.,
    with the goals of:
    ---------------------------------------------------------------------------
        \1\ The Task Force consists of senior agency staff from the Office
    of the Commissioner (Office of Policy and Planning, Office of External
    Affairs, and Office of the Chief Counsel), Office of Regulatory
    Affairs, the Center for Drug Evaluation and Research, and the Center
    for Biologics Evaluation and Research.
    ---------------------------------------------------------------------------
      --Preventing the introduction of counterfeit drugs and biologics into
            the U.S. drug distribution chain;
      --Facilitating the identification of counterfeit drugs and biologics;
      --Minimizing the risk and exposure of consumers to counterfeit drugs
            and biologics; and
      --Avoiding the addition of unnecessary costs to the prescription drug
            distribution system, or unnecessary restrictions on lower-cost
            sources of drugs.

    B. Scope of the Problem
        FDA believes that counterfeiting is not widespread within the
    system of manufacturing and distributing pharmaceuticals legally in the
    United States, as a result of an extensive system of Federal and State
    regulatory oversight and steps to prevent counterfeiting undertaken by
    drug manufacturers, distributors, and pharmacies. However, the agency
    has recently seen an increase in counterfeiting activities as well as
    increased sophistication in the methods used to introduce finished
    dosage form counterfeits into the otherwise legitimate U.S. drug
    distribution system. FDA counterfeit drug investigations have increased
    to over 20 per year since 2000, after averaging only 5 per year through
    the late 1990's. (See Figure 1--Chart of FDA investigations)
    Increasingly, these investigations have involved well-organized
    criminal operations that seek to introduce finished drug products that
    may closely resemble legitimate drugs yet may contain only inactive
    ingredients, incorrect ingredients, improper dosages, sub-potent or
    super-potent ingredients, or be contaminated. Thus, drug counterfeiting
    poses real public health and safety concerns today, and may pose an
    even greater threat in the future if we fail to take preventative
    measures now. As counterfeiters continue to seek out new technologies
    to make deceptive products and introduce them into legitimate commerce,
    our systems for protecting patients must respond effectively.

        Although exact prevalence rates in the United States are not known,
    outside the U.S. drug counterfeiting is known to be widespread and
    affect both developing and developed countries. In some countries more
    than half of the drug supply may consist of counterfeit drugs. For
    example, recent reports have detailed that more than 50 percent of
    anti-malarials in Africa are believed to be counterfeit. In virtually
    all countries, counterfeit drug operations have been uncovered in
    recent years.

    C. What is in this Report
        The body of this report contains a range of findings that have
    broad support from industry stakeholders and the public to identify and
    address the vulnerabilities in the U.S. drug distribution system to
    counterfeit drugs.
        This report is based on the potential options discussed in the Task
    Force's Interim Report, the comments FDA received in response to that
    report, our internal discussions, and on information gathered and
    reviewed by the Task Force including:
      --Meetings with government agencies, manufacturers, wholesalers,
            retailers, professional and trade associations, standard-
            setting organizations, consumer groups, and manufacturers of
            anti-counterfeiting measures;
      --Reviewing reports prepared by, or on behalf of, Federal and State
            governments;
      --Sponsoring a public meeting where 72 presentations were made
      --Sponsoring a technology forum which included 54 exhibits
      --Reviewing public comments to the anti-counterfeiting initiative
            docket
      --Site visits to manufacturing facilities, wholesale distribution
            centers, retailers, radio-frequency identification (RFID)
            laboratories and pilot facilities;
      --Attendance at stakeholder task force meetings and industry RFID
            feasibility study meetings
      --Meetings with academic and industry experts
        Appendix A contains the Counterfeit Alert Network Co-sponsorship
    agreement. See www.fda.gov/oc/initiatives/counterfeit/ for background
    information that was included in the Task Force's Interim Report
    (released on October 2, 2003) as well as a detailed discussion of the
    comments FDA received. Appendix B contains a more detailed discussion
    of the comments FDA received and considered in developing the final
    report.
        The FDA is grateful for the input and universal support, not only
    with regard to the creation of the task force, but also with regard to
    the need for securing the Nation's drug supply.

    D. Securing our Nation's Drug Supply
        To secure the U.S. drug supply chain, there are several areas that
    deserve attention, including the areas of technology, business
    practices, legislation, regulation, public awareness and education,
    creation of an alert network, and international cooperation.

                                 1. TECHNOLOGY

    a. Unit of Use Packaging
                (1) What FDA sought comment on:
        Whether to package all finished dosage form drugs in unit of use
    packaging as appropriate for the particular product (e.g., tablet,
    multi-dose vial) at the point of manufacture?
                (2) What the comments said:
        Comments cited a large number of benefits, including eliminating
    the need for re-packaging and improved patient compliance, as well as a
    large number of costs, including those associated with shifting
    production from bulk packaging. The cost hurdle to counterfeiters,
    created by unit of use packaging, was said not to be high enough for it
    to be effective as a stand-alone anti-counterfeiting measure. A
    detailed discussion of the comments is in Appendix B.
                (3) Discussion:
        Although single unit containers (e.g., blister packs) usually come
    to mind, unit of use packaging is any container closure system designed
    to hold a specific quantity of drug product for a specific use and
    dispensed to a patient without any modification except for the addition
    of appropriate labeling.
        Unit of use packaging does not create a sufficiently high level of
    security to justify its use as a stand-alone anti-counterfeiting
    measure. However, because of its many other benefits, which may vary on
    a product specific basis (e.g., tablets, liquid forms), manufacturer
    initiated cost-benefit analyses of particular products, starting with
    newly approved products and products that are likely to be
    counterfeited, are likely to show that unit of use packaging could be
    effective as one layer in a multi-layered anti-counterfeiting strategy.
                (4) FDA Conclusions:
        Unit of use packaging can be beneficial in fighting counterfeit
    drugs.
      --It would be beneficial for all manufacturers and re-packagers to
            analyze the costs and benefits of using unit of use packaging
            for each product, starting with newly approved products and
            products that are likely to be counterfeited, and to consider
            implementing unit of use packaging for products where the
            benefits are equal to or outweigh the costs;
      --Unit of use packaging can be helpful, but only as one layer in a
            multi-layered anti-counterfeiting strategy;
      --FDA intends to encourage adoption of unit of use packaging by:
            inviting stakeholders and other interested individuals and
            organizations to submit research on the relative costs and
            benefits of unit of use packaging to assist FDA in developing
            future policy; and encouraging standard setting bodies to
            develop standards for unit of use packaging with the goal of
            reducing its costs (e.g., in areas such as size, shape, and
            pill organization).
    b. Tamper Evident Packaging
                (1) What FDA sought comment on:
        Whether to use tamper evident packaging from the point of
    manufacture, for all dosage forms, active pharmaceutical ingredients
    (APIs), and bulk chemicals?
                (2) What the comments said:
        The comments on tamper evident packaging mirrored the comments on
    unit of use packaging.
                (3) Discussion:
        Decisions to employ tamper evident packaging on prescription drug
    containers as an anti-counterfeiting measure require a product specific
    cost-benefit analysis. As with unit of use packaging, FDA does not
    believe that tamper evident packaging presents a high enough hurdle for
    counterfeiters to make it effective as a stand-alone anti-
    counterfeiting measure.
                (4) FDA Conclusions:
        Tamper evident packaging may be beneficial in fighting
    counterfeiting of prescription drugs.
      --It would be beneficial for manufacturers and re-packagers to
            consider using tamper evident packaging for prescription
            product containers, starting with products likely to be
            counterfeited or newly approved products, where the benefits
            are equal to or outweigh the costs;
      --Tamper evident packing can be helpful, but only as one layer in a
            multi-layered anti-counterfeiting strategy.
    c. Authentication Technology
                (1) What FDA sought comment on:
        Whether to incorporate at least two types of anti-counterfeiting
    technologies into the packaging and labeling of all drugs, at the point
    of manufacture, with at least one of those technologies being covert
    (i.e., not made public, and requiring special equipment or knowledge
    for detection) starting with those products at high risk of being
    counterfeited and where the introduction of counterfeit product poses a
    serious health risk;
        Whether to incorporate a taggant, chemical marker, or other unique
    characteristics into the manufacturing process of all drugs that is
    only identifiable with the use of sophisticated analytic techniques
    starting with those products at high risk of being counterfeited and
    where the introduction of counterfeit product poses a serious health
    risk; and
        Whether to issue FDA guidances concerning the appropriate use of
    anti-counterfeiting technologies and the application and review process
    for labeling and packaging changes or product changes such as
    incorporation of taggants, chemical markers, or other unique
    characteristics into the product for the purpose of product
    authentication.
                (2) What the comments said:
        The comments stressed that there was no ``silver bullet'' anti-
    counterfeiting technology because sophisticated, well-financed
    counterfeiters can defeat any anti-counterfeiting measure. Therefore,
    the best strategy is to use multiple, periodically changing,
    authentication measures on a product specific basis after doing a risk
    analysis that takes into account the risk that the product will be
    counterfeited and the public health risk if the product is
    counterfeited.
        Given the rapid developments in anti-counterfeiting technology and
    the dangers of aiding counterfeiters by locking in or requiring certain
    technologies, most comments stressed that the FDA should not mandate
    the use of specific anti-counterfeiting technologies.
        FDA issuance of guidance concerning the agency's application and
    notification policies and procedures related to incorporating anti-
    counterfeiting measures into products (e.g., taggants), or labeling and
    packaging (e.g., inks, holograms) was universally supported.
        A detailed discussion of the comments is in Appendix B.
                (3) Discussion:
        FDA agrees that the danger of unwittingly assisting counterfeiters
    and stifling technologic development outweigh the benefits that would
    accrue if it were to mandate the use of a specific authentication
    technology at this time. Furthermore, the decision to deploy
    authentication technologies is best made by the manufacturer, based on
    a product specific risk-benefit analysis that, in the future, should
    take into account whether mass serialization and radio-frequency
    identification technology (see below) is being used for tracking and
    tracing the drug.
        However, due to the high costs and technical barriers that
    authentication technologies create for counterfeiters, their use is a
    critical component of any effective multi-layered anti-counterfeiting
    strategy, especially for products that are likely to be counterfeited.
    Therefore, FDA believes that an appropriate role for it is to
    facilitate the use of authentication technologies by reducing any
    regulatory hurdles that may exist relating to their use.
                (4) FDA Conclusions:
        Existing authentication technologies have been sufficiently
    perfected they can now serve as a critical component of any strategy to
    protect products against counterfeiting.
      --The use by manufacturers and re-packagers of one or more
            authentication technologies on their products, particularly
            those likely to be counterfeited, would protect the public
            health and diminish counterfeiting;
      --To facilitate the use of authentication technologies on existing
            products, FDA plans to publish a draft guidance on notification
            procedures for making changes to products (e.g., addition of
            taggants) their packaging, or their labeling for the purpose of
            deterring and detecting counterfeit drugs;
      --FDA plans to continue to evaluate and disseminate information to
            stakeholders on developing forensic technologies (e.g., use of
            product fingerprinting, addition of markers) and other
            analytical methods that allow for rapid authentication of drug
            products.
    d. Identification of Products likely to be counterfeited
                (1) What FDA sought comment on:
        Are all products at high risk for being counterfeited?
        How can products at high risk for being counterfeited be
    identified?
        What criteria should be used to determine if a product is at high
    risk for being counterfeited?
                (2) What the comments said:
        Although a few comments suggested that all products were at high
    risk for being counterfeited, most of the comments FDA received
    supported the idea of developing criteria by which stakeholders could
    determine which products are likely to be counterfeited and/or
    developing a national list of products likely to be counterfeited based
    on these criteria. There was general agreement that the existence of
    state specific lists, each with its own regulatory requirements, could
    inhibit commerce and adversely affect the availability of drugs. FDA
    notes that the State of Florida has already published a list of
    ``specified products'' (i.e., a list of drugs most likely to be
    counterfeited) that is being used to implement state pedigree
    requirements. A detailed discussion of the comments is in Appendix B.
                (3) Discussion:
        Due to the large number of drugs with the potential to be
    counterfeited, FDA does not believe it is possible to create a
    comprehensive list of all such drugs. However, FDA does believe that a
    national list of those drugs most likely to be counterfeited and/or a
    set of criteria to use for determining those drugs would be useful for
    stakeholders to use at their discretion. Uses could include:
      --Assisting manufacturers and re-packagers in making decisions
            whether to use authentication technologies and unit of use
            packaging;
      --Assisting wholesalers in developing purchasing policies and
            allocating resources for detecting counterfeits;
      --Assisting retailers in targeting certain drugs for authentication
            and patient education prior to dispensing;
      --Assisting states in implementing regulatory requirements;
      --Assisting stakeholders in developing migratory paths to adoption of
            mass serialization and electronic track and trace technology.
        FDA strongly supports the development of such a set of criteria, or
    a list based on these criteria, that has the support and participation
    of all stakeholders. Regular input from interested parties as well as
    the ability to add or delete drugs from the list on short notice are
    important parts of the process.
        FDA believes that members of regulated industry are better
    positioned at this time than FDA to develop a process for creating,
    maintaining, and updating such a list (and/or set of criteria).
                (4) FDA Conclusions:
        FDA has concluded that there would be great value in the creation
    of a national list of drugs most likely to be counterfeited based on
    factors that are likely to contribute to counterfeiting risk.
      --FDA intends to encourage stakeholders and standards setting
            organizations to work together to create a national list of
            drugs most likely to be counterfeited, based on an assessment
            of criteria for determining counterfeit risk;
      --The best result would be achieved if all stakeholders, including
            FDA, and other interested parties participate in developing a
            list, or criteria for determining, drugs most likely to be
            counterfeited;
      --Any such list, and/or criteria, would be most effective if made
            publicly available to all stakeholders.
        FDA is aware of only one national list of drugs most likely to be
    counterfeited. The list was developed by the National Association of
    Boards of Pharmacy and is available at www.nabp.org.
    e. Radio-frequency Identification (RFID) Technology
                (1) What FDA sought comment on:
        Whether a pedigree for all drug products can be achieved by phasing
    in track and trace technology (i.e., electronic pedigree) starting at a
    case and pallet level for products likely to be counterfeited and
    progressively including all products at the case, pallet, and package
    level; and
        Whether, as an interim measure, prior to widespread adoption of
    track and trace technology all drugs and biologics likely to be
    counterfeited should be tracked and traced either by limiting the
    number of transactions of the product or by using available track and
    trace technology, identifying the drug at the case and pallet level,
    and preferably at the product level, throughout the distribution
    system.
                (2) What the comments said:
        There was universal support for the adoption of electronic track
    and trace technology. RFID was cited as being the technology with the
    strongest potential for securing the supply chain but that it was not
    ready for widespread commercial use with pharmaceutical products. Many
    costs, potential benefits, and unresolved issues related to RFID were
    cited. The potential benefits included the ability to control inventory
    and conduct rapid, efficient recalls, while costs that could hinder the
    adoption of RFID included purchase of tags and other hardware,
    integration into existing information systems, and compliance with
    regulatory requirements (e.g., labeling, electronic records). Important
    unresolved issues included the need to develop standards and business
    rules for RFID, the need to address database management issues, and the
    need to determine the effect of RFID on product quality.
        FDA was also informed that some companies are planning feasibility
    studies concerning business uses of RFID for early this year and that
    other activities related to creating standards, business rules, and
    migratory pathways for RFID are also ongoing. A detailed discussion of
    these activities and other comments concerning RFID is in Appendix B.
                (3) Discussion
        Use of mass serialization to uniquely identify all drug products
    intended for use in the United States is the single most powerful tool
    available to secure the U.S. drug supply. Mass serialization involves
    assigning a unique number (the electronic product code or EPC) to each
    pallet, case, and package of drugs and then using that number to record
    information about all transactions involving the product, thus
    providing an electronic pedigree from the point of manufacture to the
    point of dispensing. This unique number would allow each drug purchaser
    to immediately determine a drug's authenticity, where it was intended
    for sale, and whether it was previously dispensed.
        Although there is general agreement that widespread use of mass
    serialization is inevitable, several important issues remain
    unresolved, including the migratory paths that participants in the drug
    distribution system will follow as they begin to serialize their
    products, and the most likely timeline for widespread commercial use.
        It currently appears that the technology most likely to bring mass
    serialization into widespread commercial use by the pharmaceutical
    industry is RFID, although two-dimensional bar codes may be used for
    some products. RFID technology includes not only the silicon tags
    containing the EPC, but also antennas, tag readers, and information
    systems that allow all users to identify each package of drugs and its
    associated data. This data can be used not only to authenticate drugs
    but also to manage inventory, conduct rapid, targeted recalls, prevent
    diversion, and ensure correct dispensing of prescriptions.
        Acquiring and integrating RFID technology into current
    manufacturing, distribution, and retailing processes will require
    considerable planning, experience, and investment of resources.
    Currently, some manufacturers, wholesalers, and retailers are
    developing business plans and testing mass serialization using RFID
    while others are taking a wait and see approach. Due to rapid
    technologic advancements, the lack of significant market place
    experience with it in the pharmaceutical supply chain, each participant
    is best situated to determine his optimal paths to adopting it.
        Therefore, FDA has identified near term actions, described below,
    for it to take in order to facilitate the performance of mass
    serialization feasibility studies using RFID, and to assist
    stakeholders as they migrate towards the use of RFID technology.
        In the long term, after there is significant market place
    experience with RFID, FDA plans to propose or clarify, as necessary and
    appropriate, policies and regulatory requirements relating to the use
    of RFID. Labeling, electronic records, product quality, and Current
    Good Manufacturing Practices (cGMP) requirements are issues that have
    arisen in connection with RFID. However, regulatory or policy
    determinations regarding these, or other, issues should not be made
    until they can be informed by sufficient data and significant
    marketplace experience with RFID. FDA has also identified a series of
    actions, discussed below, that would help industry stakeholders and
    standard-setting organizations achieve this goal.
        Lastly, stakeholders will need to ensure that they comply with the
    patient privacy protections provided by the Health Insurance
    Portability and Accountability Act as they implement use of RFID
    technology.
                (4) FDA Conclusions:
        The adoption and common use of RFID as the standard track and trace
    technology, which is feasible in 2007, would provide better protection.
      --Due to industry's current initiatives, mass serialization and RFID
            technology is likely to be adopted according to the following
            timeline:
        January--December 2004
      --Performance of mass serialization feasibility studies using RFID on
            pallets, cases, and packages of pharmaceuticals;
        January--December 2005
      --Mass serialization of some pallets and cases of pharmaceuticals
            likely to be counterfeited;
      --Mass serialization of some packages of pharmaceuticals likely to be
            counterfeited; and
      --Acquisition and use of RFID technology (i.e., ability to read and
            use the information contained in RFID tags and the associated
            database) by some manufacturers, large wholesalers, some large
            chain drug stores, and some hospitals.
        January--December 2006
      --Mass serialization of most pallets and cases of pharmaceuticals
            likely to be counterfeited and some pallets and cases of other
            pharmaceuticals;
      --Mass serialization of most packages of pharmaceuticals likely to be
            counterfeited; and
      --Acquisition and use of RFID technology (i.e., ability to read and
            use the information contained in RFID tags and the associated
            database) by most manufacturers, most wholesalers, most chain
            drug stores, most hospitals, and some small retailers.
        January--December 2007
      --Mass serialization of all pallets and cases of pharmaceuticals;
      --Mass serialization of most packages of pharmaceuticals; and
      --Acquisition and use of RFID technology (i.e., ability to read and
            use the information contained in RFID tags and the associated
            database) by all manufacturers, all wholesalers, all chain drug
            stores, all hospitals, and most small retailers.
      --FDA plans to assist, to the extent necessary and appropriate, in
            facilitating the rapid, widespread adoption of RFID in the drug
            distribution system by working with stakeholders in the
            following areas:
        --Addressing any regulatory and policy issues related to the
                performance of feasibility studies;
        --Addressing any regulatory and policy issues relating to the
                notification requirements associated with implementation of
                RFID;
        --Addressing any product quality concerns and data issues related
                to the performance of feasibility studies;
        --Reviewing protocols for feasibility studies;
        --Working with other governmental agencies to coordinate
                activities;
        --Encouraging stakeholders to convene meetings of supply chain
                participants to identify, discuss, and propose solutions to
                technical, business, and policy issues related to the use
                of RFID technology in the pharmaceutical distribution
                system; and
        --Exploring the need for any other processes and venues that might
                be needed to assist stakeholders as they migrate towards
                the use of RFID technology.
      --FDA intends to regularly review the pace at which RFID is being
            adopted in the U.S. drug distribution system;
      --FDA plans to publish or clarify, as appropriate, regulatory
            requirements, policy guidance, and product quality testing
            requirements related to the use of RFID after sufficient data
            and marketplace experience with RFID are available to
            adequately inform our decision-making; and
      --FDA intends to consider taking further steps to facilitate the
            adoption of mass serialization.
                1. Business steps for industry
        Each industry stakeholder interested in implementing RFID would
    benefit from the following steps:
      --Create an internal team focused on the adoption of mass
            serialization and use of RFID technology;
      --Perform internal feasibility studies to gain experience with mass
            serialization and RFID technology and to identify internal
            business issues requiring resolution;
      --Perform external pilot studies with stakeholders across the supply
            chain to gain experience using mass serialization and RFID and
            to identify opportunities, barriers and external business
            issues associated with them;
      --Develop policy and a business case for the use of mass
            serialization and RFID;
      --Cooperate and work with other stakeholders and government agencies
            to develop infrastructure and information systems to use with
            mass serialization of pallets, cases, and packages of drugs;
      --Participate on standard setting groups developing technical
            standards and business rules for use of mass serialization and
            RFID;
      --Work with government agencies and other members of the supply chain
            to identify and address regulatory and economic issues that
            could delay the adoption of mass serialization and RFID; and
      --Educate other members of the supply chain and government agencies
            about mass serialization and RFID.
        To the extent possible, it would be most useful for interested
    firms to perform these actions concurrently. For example, standards
    development requires knowledge gained from feasibility studies in order
    to move forward, and vice versa.
                2. Standards Setting Issues
        Any effort to develop standards for mass serialization of pallets,
    cases, and packages would be most effective if it addressed the
    following issues:
      --Minimum Information Requirements for the serial number--in the case
            of RFID tags this means containing a mass serialization code
            that uniquely identifies the object to which it is attached
            (e.g., minimum of 96 bits of information);
      --Communication protocol standards--in the case of RFID this means
            standard protocols for interrogating and reading tags;
      --Reader Requirements--Readers of mass serialization codes should be
            interoperable (e.g., readers must use protocols that allow them
            to read multiple classes of tags or bar codes, as applicable)
            and should be able to automatically upgrade software over an
            information network;
      --Pedigree requirements--this means that databases containing
            transaction information should be compatible (e.g., format,
            mark-up language);
      --Information Network Requirements
        --1. Database Structure (e.g., centralized vs. distributive)
        --2. Data ownership
        --3. Data access (to meet business, track and trace, and recall
                needs)
        --4. Data Access controls to assure information security;
      --Software Requirements--all applications should be compatible and
            compliant to assure global interoperability; and
      --Best use of Frequencies--(e.g., 13.56 megahertz on packages and 915
            megahertz on cases and pallets due to interference and read
            range issues).

                2. REGULATORY INITIATIVES AND STATE MODEL RULES

        All levels of government, in addition to the private sector, should
    take responsibility for ensuring the safety and security of the U.S.
    drug distribution system. Each level has a role in deterring and
    preventing the introduction of counterfeit drugs into the Nation's drug
    supply chain. To complement and build on the technology measures
    described above, regulatory and legislative steps at all levels of
    government may be necessary. At the Federal level, FDA is taking steps
    to meet the objectives of the Prescription Drug Marketing Act (PDMA),
    which is intended to address vulnerabilities in the U.S. drug
    distribution system. At the State level, it would be beneficial for
    states to strengthen their provisions governing wholesale distribution,
    as described below in the revised Model Rules for Licensure of
    Wholesale Distributors. And, FDA plans to pursue increased criminal
    penalties for counterfeiting in the United States Sentencing
    Commission's sentencing guidelines.
    A. Prescription Drug Marketing Act (PDMA)
                (1) What FDA sought comment on:
        What are the most effective ways to achieve the goals of PDMA and,
    given recent or impending advances in technology discuss the
    feasibility of using an electronic pedigree in lieu of a paper
    pedigree?
                (2) What the Comments Said:
        Many of the comments that discussed PDMA acknowledged the
    limitations and concerns of full implementation of PDMA. However, many
    comments also supported the use of paper pedigrees for their deterrent
    value and as a means to verify prior sales through due diligence. A
    risk-based approach to implementing PDMA, which focuses on those drugs
    that are at high risk of being counterfeited, was suggested, as well as
    maintaining a full pedigree that documents all sales and transactions
    back to the manufacturer for drugs and high risk. One comment suggested
    an interim solution of ``one forward, one back'' pedigree for high-risk
    drugs. However, a number of the comments noted the high cost and
    incomplete protection provided by such paper requirements, especially
    as a general interim measure; by the time these costly requirements
    were phased in, they could be replaced by a more modern system. A
    majority of the comments supported the eventual use of an electronic
    pedigree for all drug products in the supply chain and indicated that
    an electronic pedigree should be considered as a modern solution to
    fulfilling and exceeding the PDMA goals, and urged FDA to take steps to
    help achieve a reliable pedigree solution as quickly as possible. As
    noted above, FDA believes that substantial progress toward a more cost-
    effective solution than incomplete and costly paper pedigrees is
    possible within the next several years. A detailed discussion of the
    comments is in Appendix B.
                (3) Discussion:
        FDA has worked closely with affected parties to identify and
    resolve concerns related to the implementation of the pedigree
    requirements of the PDMA. Through the various public comment
    opportunities over the years, the agency has heard mixed reviews about
    the value, utility, and difficulty of implementing a paper pedigree
    that identifies each prior sale, purchase, or trade of such drug. The
    comments received in response to questions raised in the Interim Report
    confirm that these concerns continue.
        FDA is encouraged by the enthusiasm and interest that stakeholders
    in the U.S. drug supply chain have expressed toward the adoption of
    sophisticated track and trace technologies that are more reliable than
    paper pedigrees. As discussed above, there appears to be movement by
    industry toward implementation of electronic track and trace capability
    in 2007. When this is in place, RFID should be able to function as a de
    facto electronic pedigree that follows the product from the place of
    manufacturer through the U.S. drug supply chain to the final dispenser.
    If developed properly, this electronic pedigree could be used to meet
    the statutory requirement in 21 U.S.C.  353(e)(1)(A) to provide a
    pedigree under certain circumstances.
        In the interim, until the electronic pedigree is in widespread use,
    voluntary adoption of multi-layer strategies and measures discussed in
    this report would reduce the likelihood that counterfeit drugs will be
    introduced into the U.S. drug distribution system. These measures,
    combined with RFID technology, can help provide effective long-term
    protections that will minimize the number of counterfeit drug products
    in the United States distribution system.
        As discussed in a notice published in the Federal Register in
    conjunction with the publication of this report, FDA plans to continue
    to stay the implementation of 21 CFR  203.3(u) and 203.50. However,
    the agency intends to continue to reassess the stay of implementation
    on an annual basis. The agency will monitor closely whether progress
    toward the implementation of electronic pedigrees continues at the
    rapid pace evident in this task force analysis. Our plan to reassess
    the stay annually is part of the agency's strong commitment to see that
    effective product tracing is implemented as quickly as possible. The
    agency also encourages wholesalers to provide pedigree information that
    documents the prior history of a drug product, particularly for drugs
    most likely to be counterfeited, even when the passing of such a
    pedigree is not required by the Act. The suggestion from the comments
    that there be a one-forward, one-back pedigree for high-risk drugs in
    the interim, until an electronic pedigree is uniformly adopted, may
    have merit. However, FDA believes that Congress would have to amend
    section 503(e) of the Act if such a system is to become a requirement.
                (4) FDA Conclusion:
        Adoption of electronic track and trace technology would help
    stakeholders meet and surpass the goals of PDMA. Therefore, FDA intends
    to focus its efforts on facilitating industry adoption of this
    technology within the next few years.
      --To allow stakeholders to continue to move toward the goal of an
            electronic pedigree, FDA intends to delay the effective date of
            21 CFR  203.3(u) (definition of ADR criterion) and 203.50
            (specific requirements regarding pedigree) until December 2006;
      --By December 2006, FDA intends to determine whether to further stay
            the regulations or take other appropriate regulatory action.
    B. Model Rules for Wholesale Distributor Licensing Strengthened
                (1) What FDA sought comment on:
        How should the NABP Model Rules for Licensure of Wholesale
    Distributors (Model Rules) be updated?
        Whether FDA regulations at 21 CFR Part 205, should be updated, as
    appropriate, to make it consistent with updates to the NABP Model
    Rules?
                (2) What the Comments Said:
        The comments overwhelmingly supported strengthening state
    requirements governing the licensure and oversight of wholesale
    distributors. Many comments cited the systemic weaknesses in the
    oversight of the wholesale drug industry and that existing inspection
    and due diligence processes are often insufficient to detect criminal
    activity. Some comments noted the positive steps already taken by some
    states, such as Florida, toward more effective regulation of wholesale
    distributors. For example, Florida has implemented more stringent
    requirements for licensure, stronger penalties, and due diligence
    requirements. Most comments stated that the full adoption of revised
    NABP model rules would improve security nationwide, and that stricter
    uniform standards were desirable across all 50 states so as not to
    create 50 different sets of criteria and rules for licensing. FDA was
    encouraged to revisit the current minimum standards requirements
    described in 21 CFR Part 205 to assess whether a ``Federal floor'' for
    states would enhance or diminish state efforts to meet the NABP
    recommendations. A detailed discussion of the comments is in Appendix
    B.
                (3) Discussion
        FDA is pleased to recognize the recent efforts by NABP in revising
    the Model Rules. The revised Model Rules significantly strengthen the
    requirements for licensure, as well as put in place or fortify
    requirements that will ensure and protect the integrity of drug
    products as they travel through the U.S. drug supply chain from the
    manufacturer to the consumer.
        NABP sought comment from FDA, as well as interested stakeholders,
    in developing the revised Model Rules. The comments that FDA received
    as part of the anti-counterfeiting initiative have been discussed with
    NABP.
        The revision of the Model Rules sought to enhance the protections
    included in the original version of the Model Rules and close existing
    gaps. The table below contains highlights of the revised Model Rules:

        NABP is taking steps to facilitate implementation of the revised
    Model Rules, including: (1) publishing a list of susceptible products
    and calling for a coalition of national organizations to develop a
    process to maintain and update the list; (2) serving as bondholder for
    wholesalers in order to consolidate the need to hold a bond in all
    states where a wholesaler may do business; and (3) establishing a
    clearinghouse that will list wholesalers who receive accreditation by
    NABP and who have passed an inspection by their newly created
    inspection service, which NABP will conduct in partnership with the
    states. FDA supports NABP's efforts to facilitate adoption and
    implementation of the enhanced Model Rules.
        Counterfeiting is a problem that is not isolated to one state. If a
    state strengthens its licensing requirements while a bordering state
    does not, the counterfeiters and illegitimate wholesalers will likely
    move into the bordering state. Widespread state adoption,
    implementation, and enforcement of the Model Rules would help combat
    counterfeiting.
                (4) FDA Conclusion:
        Because States have an important role in regulating drug
    distributors, adopting and enforcing stronger state anti-counterfeiting
    requirements would help in our collective effort to detect and deter
    counterfeiting.
      --FDA strongly supports the efforts taken by NABP to enhance the
            Model Rules and other actions taken to facilitate
            implementation;
      --FDA supports all efforts by the States to adopt these Model Rules.
            Adoption of the model rules by all States would have a
            significant impact on protecting the Nation's drug supply by
            ensuring that all persons and entities involved in wholesale
            distribution of drug products meet stringent licensing criteria
            and maintained high ethical and business standards;
      --FDA encourages these state actions and the agency intends to
            explore whether and to what extent to revise the current
            minimum standards for state licensing of wholesale prescription
            drug distributors in 21 CFR Part 205.
    C. Higher Penalties for Drug Counterfeiting
                (1) What FDA sought comment on:
        Discuss the advantages and disadvantages of increased penalties for
    counterfeiting drugs
                (2) What the Comments Said:
        There was overwhelming support and unanimous agreement that higher
    penalties for counterfeiting are needed.
                (3) Discussion:
        FDA agrees with comments suggesting that higher penalties deter
    drug counterfeiters.
        Current sentencing guidelines for counterfeit drug distribution are
    not commensurate with the public health threat posed by this criminal
    activity and strengthening the guidelines should help deter such
    conduct in the first instance. Despite the significant threat to public
    health posed by counterfeit drug products, current law provides
    penalties far below the level of some purely economic crimes. For
    example, counterfeiting a prescription drug label (bearing a registered
    trademark) is punishable by up to 10 years in prison, while
    counterfeiting the drug itself is punishable by a maximum of only 3
    years in prison. Therefore, FDA plans to continue to pursue its request
    that the United States Sentencing Commission consider amending the
    sentencing guidelines to substantially increase criminal penalties for
    manufacturing and distributing counterfeit drug products and to
    specifically provide for enhanced penalties based on the level of risk
    to the public health involved in the offense.
                (4) FDA Conclusion
        FDA intends to pursue its request that the United States Sentencing
    Commission consider amending the sentencing guidelines to increase
    substantially criminal penalties for manufacturing and distributing
    counterfeit drugs and to provide specifically for enhanced penalties
    based on the level of risk to the public health involved in the
    offense.
    3. Creation of a Counterfeit Alert Network for Information
            Dissemination and Education
                (1) What FDA sought comment on:
        Whether a counterfeit alert network should be created through use
    of existing, or newly developed, communication tools, that allow
    reception, dissemination, and sharing of information about counterfeit
    drugs in a timely manner;
        What are the capabilities of current communication network, what a
    communication network should have in order to part of a counterfeit
    alert network, and costs associated with developing or adapting current
    systems.
                (2) What the Comments Said:
        The agency received many comments supporting the creation of a
    counterfeit alert network. Most of the comments suggested that the
    agency take steps to build on existing networks and several comments
    offered their organizations' distribution lists or network as a conduit
    for the counterfeit alert network. The agency was advised that the
    counterfeit alert network should not be overused in order to avoid
    alert ``fatigue,'' which could create indifference or doubt regarding
    the importance of the messages. The agency was encouraged to consider
    cost-effective public/private partnerships to design communication
    strategies and facilitate efforts to standardize anti-counterfeit
    communications and to augment and coordinate communication systems. A
    detailed discussion of the comments is in Appendix B.
                (3) Discussion:
        The FDA is committed to informing the public, particularly
    consumers, pharmacists, other health professionals, wholesalers, and
    others involved in the U.S. drug distribution system, about counterfeit
    drug incidents in a timely manner. FDA is also committed to educating
    them about ways to identify and prevent counterfeits from entering into
    this system. To increase awareness of counterfeit drugs and safeguard
    the Nations drug supply, FDA is creating a network of national
    organizations, consumer groups, and industry representatives to deliver
    time-sensitive messages and information about specific counterfeit
    incidents and educational messages about counterfeits in general. The
    network is called the ``Counterfeit Alert Network.''
        Partners in the Counterfeit Alert Network will be required to enter
    into a co-sponsorship agreement with FDA that lays out roles and
    responsibilities. Partners agree to disseminate the FDA time-sensitive
    messages to their members/subscribers/readers in the manner outlined in
    the co-sponsorship agreement, to partner in delivering educational
    messages, and in the case of health professionals, provide a link to
    the MedWatch website to report suspect counterfeits. A copy of the co-
    sponsorship agreement can be found in Appendix C.
        The agency plans to maintain a list (as it does now) of additional
    health professional, consumer, and industry organizations, and media
    outlets to notify when an actual counterfeit incident is confirmed and
    what steps to take to minimize risks and remove the product from the
    U.S. distribution system. This will help ensure the widest possible
    distribution to the appropriate audience's.
        FDA met with consumer groups, pharmacy groups, and physician groups
    to determine the type of information that would be most useful to
    receive from FDA in the event of a counterfeiting incident. FDA intends
    to create templates for standardizing the format and content of health
    professional and consumer information in the event of a counterfeit
    incident that can guide outreach efforts in an efficient manner, while
    assuring the flexibility FDA needs to formulate the messages.
                (4) FDA Conclusions:
        FDA will create a Counterfeit Alert Network that links together and
    enhances existing counterfeit notification systems, to provide for
    timely and effective notification to health professionals and consumers
    of a counterfeit event.
      --FDA is creating a counterfeit alert network to partner with
            national healthcare organizations, consumer groups, and
            industry representatives to deliver time-sensitive messages
            about specific counterfeit incidents and educational messages
            about counterfeits in general, and information about how and
            when to report suspect counterfeit drug products;
      --FDA plans to develop and execute multi-media informational
            strategies for specific audiences to ensure that the messages
            reach the largest number of interested people possible through
            the network;
      --FDA plans to develop internal guidelines for the informational
            contents of outgoing FDA messages that will bemost useful to
            communicate a counterfeiting incident to individual stakeholder
            groups.
    4. Health Professional Reporting Encouraged via MedWatch
                (1) What FDA sought comment on:
        Whether FDA's MedWatch system should be used as a tool to receive
    and disseminate timely information about counterfeit drug products,
    especially identification of suspect drug product?
                (2) What the Comments Said:
        Most of the comments supported the use of MedWatch for reporting
    suspect counterfeit drugs. These comments stated that health
    professionals are familiar with MedWatch and it would be too cumbersome
    and expensive to develop a new system, which people would have to be
    educated to use. One comment believed that reports of possible
    counterfeiting should be separate from MedWatch because it is not
    designed for criminal activity reporting and oversight. Another comment
    stated that because MedWatch is a voluntary reporting system, there
    could be significant under-reporting.
                (3) Discussion:
        For nearly 10 years, MedWatch has been FDA's reporting portal for
    adverse drug reactions and ``product problems.'' These include problems
    with product quality that may occur during manufacturing, shipping, or
    storage, such as product contamination, defective components, poor
    packaging or product mix-up, questionable stability, and labeling
    concerns. If a pharmacist or consumer notices an unexplained change in
    size, shape, color, or taste of their dosage form, or notices that the
    coating is chipped or tablets are cracked, or that the drug is not
    working like it usually does, they may consider that to be a problem
    with their product. These are also characteristics that could occur if
    the product was a counterfeit drug. In fact, in the past, FDA has
    received some reports of suspect counterfeit drugs through MedWatch.
        If a consumer suspects that his or her medicine is counterfeit,
    they are encouraged to contact the pharmacist who dispensed the drug,
    rather than report directly to MedWatch. The pharmacist may have
    information from the manufacturer that the shape, color, or taste of
    the product may have changed, or other information that may be helpful
    in determining if the product may be counterfeit or if the suspicious
    characteristic of the product or its packaging is expected.
        The use of MedWatch is for health professional reporting. This
    would not affect the agreement with the Pharmaceutical Research and
    Manufacturers of America (PhRMA), whereby manufacturers have agreed to
    report counterfeits of their products to FDA's Office of Criminal
    Investigations, within 5 days of becoming aware of the counterfeit.
        FDA has streamlined procedures for processing reports of suspect
    counterfeit drugs. The MedWatch Central Triage Unit (CTU) standard
    operating procedures (SOPs) have been amended to include ``suspect
    counterfeit product'' as a category of reports, so the CTU will know
    where to send the report for expedited processing.
        It is easy and convenient to file a report with MedWatch. All
    reports are confidential and the identity of the reporter is not
    disclosed. FDA encourages reporting using the online reporting form
    that can be found at www.fda.gov/medwatch.
                (4) FDA Conclusion:
        FDA plans to encourage and educate health professionals to report
    suspect counterfeit drugs to MedWatch.
      --FDA plans to encourage and educate health professionals to report
            suspect counterfeit drugs to MedWatch as an overarching
            mechanism to report such information;
      --FDA plans to change the instructions for the MedWatch reporting
            form, both paper and online versions, so reporters will know
            how and when to report suspect counterfeits. Additionally, FDA
            plans to amend the MedWatch website description of product
            problems to include suspect counterfeits.

    5. Secure Business Practices
                (1) What FDA sought comment on:
        Whether to develop sets of ``secure business practices'' which
    would be voluntarily adopted by manufacturers, wholesalers, re-
    packagers, and pharmacies?
        Whether stakeholders should designate an individual or team to
    coordinate security and anti-counterfeiting activities?
        Issuance of an FDA guidance document concerning physical site
    security and supply chain integrity?
        There was no proposal specific to re-packagers. However, FDA
    identified independent re-packaging operations, through several ongoing
    investigations, as a point of entry for counterfeit drugs into the
    distribution system, and some of the proposed options would have had
    the effect of limiting those re-packaging operations.
                (2) What the comments said:
        The comments supported the need for development of secure business
    practices by all stakeholders in the drug distribution chain because
    each stakeholder has a responsibility to ensure that pharmaceutical
    products are authentic. The comments suggested that such practices
    include ensuring the legitimacy of business partners and refusing to do
    business with persons of unknown or dubious background, taking steps to
    ensure physical security, and identifying an individual or team in the
    organization with primary responsibility for ensuring that effective
    security practices are implemented.
        It is critically important that the physical facilities involved in
    the production, distribution, or dispensing of pharmaceuticals are
    secure against counterfeit drugs. In the area of food safety, our
    Center for Food Safety and Nutrition (CFSAN) has issued guidance for
    the food industry on preventive measures that establishments may take
    to minimize the risk that products under their control will be subject
    to tampering or other malicious, criminal, or terrorist actions.
        Although it was acknowledged that re-packagers were required to
    comply with Current Good Manufacturing Practices as set forth in 21 CFR
    210 and 21 CFR 211, due to the involvement of re-packaging operations
    in some recent counterfeiting schemes, FDA was asked to provide more
    oversight and to conduct more frequent inspections of re-packagers.
        See Appendix B for a detailed discussion of actions taken by
    manufacturers, wholesalers, and pharmacists to develop secure business
    practices.
                (3) Discussion:
        Recent counterfeiting cases demonstrate that the current business
    practices of participants in the U.S. drug distribution system are in
    some cases inadequate to prevent the introduction of counterfeit drugs.
    Implementation of secure business practices by participants in the U.S.
    drug supply chain is critical for deterring and detecting counterfeit
    drugs. Therefore, FDA commends and strongly supports efforts to develop
    and implement secure business practices for these participants. FDA
    plans to facilitate and encourage the development of innovative
    approaches to securing business transactions in the drug supply chain.
    The number of stakeholders who have told FDA they are already
    implementing the business practices discussed above is very
    encouraging. In addition to identifying effective security measures,
    the designation of an individual or team to have primary responsibility
    for coordinating security activities helps ensure effective
    implementation.
        FDA agrees that re-packaging operations can be a significant
    vulnerability in the drug supply chain. Although current statutory and
    regulatory requirements allow for appropriate oversight of re-
    packagers, FDA agrees that enforcement of those requirements could be
    strengthened.
                (4) FDA Conclusions:
        For government efforts against counterfeit drugs to be successful,
    drug producers, distributors, and dispensers will have to take
    effective actions to secure their business practices.
      --Efforts by stakeholders to develop the secure business practices
            listed above would help protect the public health and diminish
            counterfeiting;
      --FDA plans to work with individual stakeholders and groups
            representing stakeholders, as necessary and appropriate, to
            continue to develop, make publicly available, and widely
            disseminate secure business practices;
      --Good security practices include designation of an individual or
            team, reporting directly to the organization's senior
            management, to coordinate the security and anti-counterfeiting
            activities for the organization;
      --FDA supports efforts by pharmaceutical manufacturers, wholesalers,
            and retailers to secure their physical facilities against
            counterfeit drugs. FDA plans to issue guidance on physical site
            security that applies to participants in the U.S. drug
            distribution system.
      --FDA plans to make its oversight over re-packagers of drugs a higher
            priority. FDA expects to increase the frequency with which it
            inspects re-packagers whose operations are found to be at
            increased risk for the introduction of counterfeit drugs. The
            increase in frequency will be based on the degree of risk, as
            determined by applying to re-packaging operations the risk
            based model FDA is developing for prioritizing inspections of
            drug manufacturing sites.
    6. FDA'S Rapid Response to Reports of Suspect Counterfeit Drugs
            Streamlined
                (1) What FDA sought comment on:
        Enhancing FDA's internal processes for responding to and
    investigating reports of suspected counterfeit products
                (2) What the Comments Said:
        The comments unanimously supported any efforts by the agency to
    rapidly respond to reports of suspect counterfeit drugs.
                (3) Discussion:
        FDA takes reports of suspect counterfeit products very seriously.
    The agency is proud of its investigative tools and talents and its
    quick response to the public health needs when a counterfeit has been
    reported and has been confirmed. To improve this process, the agency
    evaluated its policies and procedures for responding to reports of
    counterfeit drugs to determine if FDA's response could be more
    efficient. Although FDA has had many positive experiences in responding
    and working with manufacturers and the public, FDA identified several
    ways to further enhance coordination and communication among all
    initial responders within the agency.
        Because different parts of the agency throughout the country may
    receive the potential counterfeiting report, in some instances, it may
    take time for the information to flow to the appropriate people who
    need it to respond efficiently. Therefore, FDA has established an FDA-
    wide rapid response protocol for suspect counterfeit drugs that will
    ensure that specified persons/offices/divisions within the agency are
    notified and engaged as soon as possible after the report is made to
    the agency. Policies and procedures have been or will be amended to
    reflect this streamlined information flow and coordination of agency
    response. Increased coordination and communication will help FDA to
    initiate rapidly any criminal or civil investigation, as well as to
    assess the health hazard of the counterfeit situation so the public
    health response can be launched.
                (4) FDA Conclusion:
        To respond rapidly to a report of a suspect counterfeit, FDA is
    further streamlining its internal processes to respond quickly to
    reports of suspect counterfeit drugs by improving coordination and
    communication among all initial responders in the agency.
      --FDA intends to amend its internal SOPs, where appropriate, to
            provide for more rapid response when a suspect counterfeit is
            reported;
      --FDA intends to build on lessons learned from working with
            manufacturers in past counterfeiting experiences to determine
            how industry/agency collaboration can and should be
            strengthened.
    7. Educating the Public and Health Professionals
                a. Consumers
                (1) What FDA sought comment on:
        As the sophistication of the ``final product'' drug counterfeiting
    operations has increased, the public needs to be more aware of ways to
    identify the risk of counterfeit drugs, receive instructions on ways to
    minimize the chance of receiving fake products and to identify
    potential counterfeits.
                (2) What comments said:
        The comments stated that it is imperative that consumers be
    encouraged to be more proactive in managing their health and be given
    useful tools to be vigilant to help avoid potential counterfeit drugs.
    Consumers should be educated to be aware of noticeable differences in
    their medication, the packaging, or any adverse events. In addition,
    consumers should understand the important role that their pharmacist
    and healthcare providers can play in identifying, reporting, and
    responding to counterfeit drug events. However, the comments warned
    that care should be taken in any education campaign to not
    unnecessarily alarm the public.
                (3) Discussion:
        Despite the growing sophistication of counterfeit drug threats,
    many consumers are not fully aware of these risks. The Agency, in
    conjunction with consumer and patient advocates, as well as industry
    representatives is eager to find additional creative ways to educate
    the public of the potential threat of counterfeit drugs. The messages
    should alert consumers to the risk, offer ways consumers can recognize
    the signs of a potentially counterfeit product, teach them how to
    reduce the risk of exposure and tell them what to do if they suspect
    they have encountered one. Of course, FDA wants to strike an
    appropriate balance in the need to proactively educate consumers
    without causing unnecessary alarm that could interfere with their use
    of prescribed drug regimes. Most important, it is critical to focus
    awareness, and education programs should focus on issues that consumers
    can control.
        FDA has an ongoing educational campaign that is intended to educate
    consumers about the risks of buying medicines online. FDA intends to
    reaffirm this message and focus the educational campaign on teaching
    safe purchasing methods. Particular focus will be placed on encouraging
    the public to seek out the Verified Internet Pharmacy Practice Site
    (VIPPS) seal when purchasing from an online pharmacy.
        In addition, stakeholders indicated that there is a need for
    better, timelier, accurate information about specific counterfeit
    situations. FDA plans to create a counterfeit drug resource page on our
    website. The objective of this webpage is to concentrate customized
    education tools into a resource library that can empower individual
    stakeholder groups.
                (4) FDA Conclusions:
        Educating the consumers about the risks of counterfeits is a
    critical piece in the effort to stop counterfeits from entering the
    stream of commerce.
      --FDA plans to develop additional, multi-layer, consumer-oriented
            educational materials that will help them learn about
            counterfeits, what to watch for, and where to turn for useful
            information if they think they have encountered a suspected
            counterfeit;
      --FDA plans to re-launch the FDA public service announcement (PSA)
            campaign for best online buying practices to educate consumers
            about how to buy drugs online safely, and risks to avoid in
            online purchasing;
      --FDA plans to house on its www.fda.gov website a comprehensive,
            consumer-friendly online library that will contain both general
            and specific counterfeit drug information. It will also contain
            targeted educational materials for various interest groups that
            discuss counterfeit issues generally. In addition, the agency
            intends to develop a new FDA anti-counterfeiting resources icon
            to increase familiarity with the issue.
                b. Pharmacists and Other Health Care Professionals
                (1) What FDA sought comment on:
        Pharmacists need improved tools to receive information and to
    educate themselves about how to handle these situations and to keep
    abreast of current counterfeit events. They need to know how to
    identify and counsel consumers who might have received counterfeit
    products.
        Physicians, nurses and other health professionals also have contact
    with consumers taking pharmaceuticals and can help identify and counsel
    patients that could have accessed a counterfeit. This will require
    these groups keep up to date on current counterfeit events and know
    steps to take to report situations if a counterfeit is suspected.
                (2) What the comments said:
        Groups representing pharmacists and pharmacies recognize the need
    for pharmacists to take a leadership role in the identification of
    counterfeits, prevention of their introduction into the distribution
    chain, and education of consumers about counterfeits.
        The healthcare community indicated that awareness and education
    campaigns are important if its health professionals are to be active
    participants in the fight against counterfeit drugs.
                (3) Discussion:
        Pharmacists and health professionals can play a major role in
    helping identify counterfeits and preventing their introduction into
    the distribution chain. FDA has been working with pharmacy and medical
    professional groups to develop educational materials for pharmacists
    and other healthcare professionals, including doctors, nurses, and
    physician assistants.
                (4) FDA Conclusion:
        FDA plans to enhance its educational programs for pharmacists and
    other health professionals about their role in minimizing exposure to,
    identifying, and reporting counterfeits.
      --FDA intends to work with pharmacy and health care professional
            groups to develop materials to help educate their profession on
            the risk of counterfeits, what to do in case a counterfeit is
            suspected and ways to aid in educating consumers. This will
            include development of clear, concise messages and protocols,
            as well as the establishment of a delivery mechanisms that will
            help them learn about the threat of counterfeits, what to watch
            for, and where to turn for useful information in the case of a
            suspected counterfeit;
      --FDA intends to encourage pharmacy and health care professionals to
            become partners in the agency's newly established Counterfeit
            Alert Network;
      --FDA intends to expand its outreach efforts by presenting at or
            participating in conferences and by publishing articles in
            professional journals and periodicals that target audiences of
            doctors, nurses, pharmacist and hospital administrators to
            educate them about counterfeits and raise awareness of the
            risks;
      --FDA intends to work with health professional trade groups to
            identify or improve data collection/reporting systems that
            could help identify counterfeits as they enter the stream of
            commerce (i.e, include appropriate questions on the ER patient
            admission questionnaire that might help diagnose usage of a
            counterfeit drug.)
    8. International Approach
                (1) What FDA sought comment on:
        Strengthening international cooperation in law enforcement efforts,
    identifying counterfeit products, using anti-counterfeiting
    technologies, and educating stakeholders and consumers
        Whether there should be global standards for packaging of
    pharmaceuticals and the use of anti-counterfeiting technologies
                (2) What the comments said:
        The comments supported FDA involvement in global efforts to deter
    and detect counterfeit drugs.
                (3) Discussion:
        The growing global prevalence of counterfeit drugs must be
    curtailed. The steps described in this report are intended to secure
    the U.S. domestic drug supply. However, as long as counterfeit drugs
    exist worldwide, opportunities could arise for counterfeit drugs to
    find their way into the United States. Many countries have taken steps
    to secure their Nation's drugs supply, while others struggle because of
    limited resources, inadequate regulatory infrastructure, or competing
    national health priorities. The World Health Organization (WHO) has
    taken the lead to increase worldwide collaboration and to develop
    strategies to deter and detect counterfeit drugs. There are several
    international criminal enforcement collaborations, such as the
    Permanent Forum on International Pharmaceutical Crime and the Interpol
    Intellectual Property Crimes Action Group. FDA intends to work with WHO
    and other international organizations to develop and implement
    worldwide strategies to combat counterfeit drugs.
                (4) FDA Conclusions:
        FDA will collaborate with foreign stakeholders to develop
    strategies to deter and detect counterfeit drugs globally.
        Below is a table showing when certain anti-counterfeiting measures
    will be available:

                                   APPENDICES

        Appendix A: Counterfeit Alert Network Co-sponsorship Agreement
         Appendix B: More detailed description of the comments received for
    certain issues (where the comments were diverse or lengthy)

                                   APPENDIX A
               COUNTERFEIT ALERT NETWORK CO-SPONSORSHIP AGREEMENT

    Background
        The U.S. Food and Drug Administration (FDA) is committed to
    informing the public, particularly consumers, pharmacists, other health
    care professionals, wholesalers, and others involved in the U.S. drug
    distribution system, about counterfeit drug incidents in a timely
    manner and educating these parties on ways to identify and prevent
    counterfeits from entering into this system. To increase awareness of
    counterfeit drugs and safeguard the Nations drug supply, FDA will
    create a network of national organizations, consumer groups, and
    industry representatives to deliver time-sensitive messages and
    information about specific counterfeit incidents and educational
    messages about counterfeits in general. FDA also will develop and
    execute informational strategies for specific audiences to ensure that
    the messages reach the largest number of interested people possible
    through the network. The network will be called the ``Counterfeit Alert
    Network.''
        The goals of the Counterfeit Alert Network include, but are not
    limited to:
      --disseminating alert messages to a wide audience about specific
            counterfeit drug incidents in the United States and measures to
            take to minimize exposure (e.g., recall information);
      --outlining the roles and responsibilities of consumers, pharmacists,
            other health professionals, and wholesalers must play to
            identify counterfeit drugs, report suspect counterfeit drugs,
            and prevent them from entering the U.S. distribution system;
            and
      --developing a network of national organizations, consumer groups,
            and industry representatives to help disseminate the
            information.

        [INSERT CO-SPONSIOR ORGANIZATION INFORMATION]

    Importance of the Partnership to FDA and [Organization]
        This partnership will increase the potential audience of FDA's
    important notifications about specific counterfeit drug incidents and
    messages about how and when to report suspect counterfeit drugs. By
    distributing FDA developed messages through the [ORGANIZATION]
    information system, these messages can reach more than [#] people.

    Responsibilities of FDA and [Organization]
        FDA will develop targeted messages, with a particular focus on
    consumers, pharmacists, and other health care professionals when a
    counterfeit drug is found in the U.S. distribution system. FDA will
    also develop educational and informational materials about how to
    detect a counterfeit drug, what to do if a drug is believed to be
    counterfeit, how to report the suspect counterfeit to the FDA, and ways
    to minimize the risk of receiving a counterfeit drug. These materials
    may include: web-based documents, print ads, posters, prepared
    newspaper articles, fact sheets, consumer brochures/pamphlets, and
    informational packets. FDA will provide any logistical and technical
    support, such as writing, layout, designing, and preparing
    illustrations for the products.
        FDA will ensure that all materials are cleared through the Agency
    and the U.S. Department of Health and Human Services before releasing
    material to the [ORGANIZATION] for public distribution FDA will provide
    these materials in a format (hard copy, digital, or electronic) that
    [ORGANIZATION] can use, as appropriate, to create, manufacture, and/or
    have printed in enough quantities to distribute to various audiences.
    FDA will not be responsible for any costs outside of the materials
    already produced by FDA.
        [ORGANIZATION] will distribute in a timely manner FDA's
    notifications about specific counterfeit incidents as an alert through
    an active messaging system (separate email or fax alert
    correspondence). [ORGANIZATION] will facilitate the ability of their
    members/subscribers/website visitors to report suspect counterfeit drug
    products to FDA, e.g., via a link to the FDA Counterfeit Drugs webpage
    or FDA's MedWatch webpage. [ORGANIZATION] will distribute relevant FDA-
    educational messages about counterfeits, covering such issues as
    awareness, recognition, prevention, tracking, and authentication of
    drug products.
        The [ORGANIZATION] will pay for the cost, if any, of printing
    materials, posting materials on its website, email distribution,
    renting ad space, and securing print placement in magazines and
    newspapers, as appropriate. [ORGANIZATION] will make clear, in any
    solicitation for funds to cover its share of the distribution costs
    that it, not FDA, is asking for the funds. [ORGANIZATION] will not
    imply that FDA endorses any fundraising activities in connection with
    the event. [ORGANIZATION] will make clear to donors that any gift will
    go solely toward defraying the expenses of [ORGANIZATION], not FDA.
        FDA and the [ORGANIZATION] I will develop a dissemination plan that
    outlines where and how the educational materials and alert messages
    about specific counterfeit incidents will be distributed to various
    audiences.
        FDA and the [ORGANIZATION] will review this agreement in 2 years
    from the original date of this agreement, but either party to this
    agreement can terminate its participation at any time by notifying the
    other party of its intent to do so in writing.

    Charges
        The [ORGANIZATION] will not sell any educational materials related
    to this joint effort. [ORGANIZATION] will not impose an enrollment or
    registration fee for subscribers to receive this information.
    Independently Sponsored Portions and Endorsements
        All materials and efforts related to the Counterfeit Alert Network
    will be jointly sponsored. FDA staff will not be used to develop,
    promote, or otherwise support any event that is independently sponsored
    by the co-sponsor, although official announcements and brochures may
    contain factual references to the available materials and Counterfeit
    Alert Network messages.
        The [ORGANIZATION] will not use the name or logo of FDA except in
    factual publicity. Factual publicity includes materials provided to
    [ORGANIZATION] on FDA's program and Counterfeit Alert Network
    materials. Such factual publicity shall not imply that the involvement
    of FDA serves as an endorsement of the general policies, activities, or
    products of the [ORGANIZATION]. Where confusion could result, a
    disclaimer should accompany publicity to the effect that no endorsement
    is intended. The [ORGANIZATION] will clear all publicity materials with
    FDA to ensure compliance.

    Records
        Records concerning this partnership shall account fully and
    accurately for any financial commitments and expenditures of FDA and
    [ORGANIZATION]. Such records shall reflect, at a minimum, the amounts,
    sources, and uses of all funds.

    Public Availability
        This co-sponsorship agreement, as well as any financial records for
    this partnership, shall be publicly available.
    Co-Sponsorship Guidance
        FDA and the [ORGANIZATION] will abide by the memorandum of August
    8, 2002, ``Co-sponsorship Guidance,'' issued by the Associate General
    Counsel for Ethics.  DATE FDA Signee DATE NIZAI Director,
    Ethics and Integrity Staff Office of Management and Programs Office of
    Management Food and Drug Administration DATE  deg.

                                   APPENDIX B
                   EXPANDED DESCRIPTION OF COMMENTS RECEIVED

    Technology
                Unit of Use Packaging
        Comments supporting widespread utilization of unit of use
    technology cited:
      --The decreased need for repackaging which is a point of entry for
            counterfeit drugs;
      --Authentication technologies applied by the manufacturer would reach
            the dispensing pharmacy and the patient;
      --The lower cost for utilizing unit of use packaging on newly
            approved drugs;
      --The deterrent value to counterfeiters of the higher costs of
            duplicating unit of use packages;
      --Improvement in patient safety due to reduction in dispensing errors
            and better patient compliance; and
      --Increased pharmacist availability for patient counseling (due to
            reduction in time needed to fill prescriptions).
        Some comments cautioned the FDA against mandating unit of use
    packaging for all drugs citing:
      --The high cost, and length of time, it would take to change
            production lines from bulk to unit of use packaging;
      --The investment made by many pharmacies in re-packaging and pill
            counting equipment;
      --The difficulty of packaging certain products (e. g. vaccines,
            multi-dose liquid formulations) in unit of use form;
      --The need to differentiate repackaging performed under contract to a
            manufacturer or by a pharmacy (which may achieve market
            efficiencies) from repackaging by other entities;
      --The need to perform a careful product-by-product cost-benefit
            analysis on unit of use packaging before creating any
            requirements;
      --The minimal hurdle that unit of use packaging creates for
            sophisticated drug counterfeiters;
      --The need to comply with the Consumer Product Safety Commission
            (CPSC) regulatory requirements for child resistant unit of use
            packaging;
      --The difficulty some consumers (e.g., arthritic patients) may have
            in opening unit of use packaging such as some blister packs;
      --The need for pharmacists to modify prescribed quantities to
            correspond with available unit of use packages which could
            require changes in state law; and
      --The need to establish standards for such things as size and shape
            of unit of use packaging in order to minimize patient confusion
            and address shelf space issues.
    Authentication Technologies
        They supported use of authentication technologies as part of an
    overall anti-counterfeiting strategy and stated that authentication
    technologies serve two purposes:
        They make it more difficult and expensive to produce a copy of the
    drug or its packaging and labeling, and
        They provide a means for determining if a specific drug, package,
    or label is authentic.
        Manufacturers of specific anti-counterfeiting technologies provided
    us with descriptions of their products that were extremely valuable in
    helping us understand how they work, their cost, and how they might be
    incorporated into pharmaceutical products, packaging, and labeling or
    used to detect counterfeit products through forensic and other
    analytical methods, including rapid methods.
        Many comments supported the issuance of an FDA guidance document on
    the use of authentication technologies. They stated that there was no
    clear FDA policy specifically targeted to this important subject. They
    suggested that current FDA policies and practices for New Drug
    Applications (NDAs), Abbreviated New Drug Applications (ANDAs), and
    Biologics License Applications (BLAs), supplements, and other
    notification procedures should be clarified so the policies and
    procedures applicable to use of anti-counterfeiting technologies are
    clearly articulated and available in a single document.
        The following points were made regarding the use of authentication
    technologies on drug products, their packaging and labeling:
      --There is no ``silver bullet'' solution--all anti-counterfeiting
            technologies can be defeated;
      --Because all anti-counterfeiting technologies can be defeated, a
            more extensive approach utilizing layered overt and covert
            technologies that are changed on a regular basis is frequently
            required;
      --Authentication technologies are expensive;
      --Manufacturers should determine which authentication technologies to
            use, on a product specific basis. The FDA should not require
            the use of any specific anti-counterfeiting technology. For
            example: the number and type (e.g., overt, covert) of
            technologies utilized for a given product need to take into
            account the type of product (e.g., solid, liquid), use, cost,
            history of counterfeiting etc.;
      --Repackaging destroys anti-counterfeiting technologies employed by
            the manufacturer;
      --Incorporation of anti-counterfeiting measures into the product,
            packaging, and labeling may be subject to application and
            notification requirements which means that initiating or
            changing such technology could require a significant time and
            expense;
      --Although all products are at risk for being counterfeited there is
            a need to develop criteria or a classification system to help
            identify those products at highest risk for being counterfeited
            and thereby assist stakeholders in identifying products that
            might derive a greater benefit from the incorporation of
            authentication technologies;
      --The large number of available technologies coupled with the number
            of different products stocked in pharmacies and the need to
            change anti-counterfeiting measures make it difficult for
            pharmacists to be knowledgeable about the technologies used for
            a product at any given time;
      --Technologies that do not allow for ``real time'' or consumer
            authentication (e.g., covert technologies known only to the
            manufacturer and/or the FDA) may have an uncertain benefit in
            rapid identification of counterfeit drugs.

    List of Drugs Likely to be Counterfeited
        Many comments stated that it was important for stakeholders to
    allocate financial resources to protect those products that are most
    likely to be counterfeited. There was agreement that the criteria we
    suggested to identify drugs that were likely to be counterfeited were
    correct. These included:
      --Impact on public health if the drug were counterfeited;
      --Drugs history of counterfeiting;
      --Drugs price;
      --Drugs volume;
      --Drugs dosage form;
      --Drugs clinical uses; and
      --Whether similar products had a history of being counterfeited.
        However, there was no consensus on how to apply these, or other,
    criteria in creating a list of such products.
        As stated above, some comments suggested that instead of developing
    a list of drugs likely to be counterfeited, a set of criteria for
    determining whether a drug was at likely to be counterfeited should be
    created. One proposal for such criteria was:
        A drug has been subjected to a seizure or stop sale notice because
    of counterfeiting, or
        There is documentation that a drug was counterfeited and is the
    subject of an investigation by Federal or State authorities AND
        The product is high cost (e.g., over $200 per dose) or high volume
    (e.g., top fifty drugs), or
        The product is used extensively for treatment of HIV/AIDS or
    cancer, or
        The product is injectable, or
        The product distributed in a special or limited way, or
        There are multiple documented instances of pedigrees not being
    passed with the product
    Radiofrequency Identification Technology
        We received a large amount of information on the benefits, costs,
    and unresolved issues relating to RFID. These include:
        Benefits
      --Ability to deter and detect counterfeit drugs;
      --Ability to conduct efficient targeted recalls;
      --Ability to manage inventory;
      --Ability to identify theft;
      --Ability to identify diverted drugs; and
      --Improvement in patient safety by assuring correct dispensing of
            drugs.
        Costs
      --Purchasing hardware (e.g., tags, readers) and software;
      --Integration into legacy information systems;
      --Database creation, security, and maintenance;
      --Integration of RFID technology into existing manufacturing
            processes, distribution procedures;
      --Compliance with regulatory requirements (e.g., cGMP, notification,
            product integrity); and
      --Feasibility studies.
        Unresolved Issues
      --Need for all stakeholders to embrace the technology in similar
            timeframes in order to realize the full potential of RFID
            technology including provision of a universal electronic
            pedigree;
      --Need to develop standards and business rules;
      --Need to address database issues such as structure (e.g., central
            vs. distributive), ownership, access, and security;
      --Clarification of regulatory requirements pertaining to use of RFID
            (e.g., cGMP, electronic records, notification); and
      --Need for a flexible migration path to the use of RFID in order to
            meet the needs of different stakeholders.
        Stakeholder Activities
        We have been informed of several feasibility studies, starting in
    early 2004, that should give members of the supply chain experience
    using RFID as well as provide them with an opportunity to test its
    business uses and identify potential barriers to its acceptance. These
    studies include:
      --Wal-Mart.--Drug manufacturers and wholesalers will attach RFID tags
            to all bottles of controlled substances;
      --Accenture.--Coordinating a study of RFID involving manufacturers,
            wholesalers, and retailers that will explore the use of RFID
            for tracking, tracing, recalls and theft of selected
            pharmaceuticals;
      --CVS.--Is studying the potential benefits that tagging and tracing
            pharmaceuticals and prescriptions in a retail pharmacy would
            have on operating efficiency, quality of patient care, and
            customer service; and
      --Other feasibility studies using RFID are being planned in Europe to
            study the use of serialization for authentication at the point
            of dispensing.
        In addition to feasibility studies, we understand that several
    groups representing many supply chain participants have been meeting to
    discuss ways to facilitate the adoption of RFID. For example the
    Product Safety Task Force (PSTF) convened under the auspices of the
    Healthcare Distribution Management Association (HDMA) is developing
    business requirements and identifying business issues relating to RFID
    technology.
        The PSTF and other stakeholders have informed us that the migratory
    path (or phase in) to widespread use of RFID at a package level could
    vary by stakeholder based on the place of that stakeholder in the
    supply chain (e.g., manufacturer vs. retailer) and on specific costs
    and benefits accruing to that stakeholder (e.g., types of products
    manufactured, number of distribution centers, technology cost per
    product).
        Several migratory paths were mentioned, including:
      --Phasing in use of RFID technology with use at the case and pallet
            preceding use at the package level;
      --Phasing in use of RFID technology starting with use on pallets,
            cases, and packages of ``high risk'' products with gradual
            inclusion of other products at all levels; and
      --Use of RFID technology at the pallet and case level coupled with
            use of 2-D Bar Codes at the package level with gradual phase in
            of RFID technology at the package level.
        According to stakeholders, these paths are not mutually exclusive
    and it is likely all of these, and other, paths will be utilized as
    RFID technology becomes more widely adopted.

    Secure Business Practices
        Below are some of the secure business practices that have been
    developed by participants in the U.S. drug distribution system.

    Manufacturers
        Several manufacturers have announced policies intended to secure
    the supply chain. These policies include:
      --Limiting sales to authorized wholesalers. Authorized wholesalers
            are defined either as wholesalers who purchase a manufacturers
            products exclusively from that manufacturer or as wholesalers
            who purchase a manufacturers product directly from the
            manufacturer or from other authorized wholesalers;
      --Making the list of authorized distributors publicly available;
      --Ability to audit the sales records of wholesale distributors;
      --Working with dispensing pharmacies to ensure they are aware of the
            identities of authorized distributors; and
      --Designation of an individual or team to coordinate security and
            anti-counterfeiting activities.

    Wholesalers
        The Healthcare Distribution Management Association (HDMA) released
    a document entitled ``Recommended Guidelines for Pharmaceutical
    Distribution System Integrity'' which set forth a series of recommended
    actions for wholesalers to take prior to and while conducting business
    transactions with other wholesalers. In essence they comprise a ``due
    diligence'' checklist which includes items such as:
      --Obtaining detailed information about the wholesalers licensure,
            inspection results, history of disciplinary actions, corporate
            officers, owners, and management personnel;
      --Performing a criminal background check on the wholesaler, its
            officers, owners, and other key personnel;
      --Obtaining a credit history and information about its business
            activities, financial status, and liability insurance;
      --Performing a detailed physical site inspection; and
      --Ensure that the wholesaler is in compliance with Federal and State
            requirements, verifies that the wholesaler is an authorized
            distributor for the products being transferred or has a process
            in place for verifying pedigrees.
        Individual wholesalers supported the HDMA guidelines and provided
    FDA with ideas for additional secure business practices including:
      --Not selling pharmaceuticals to other wholesalers at all; and
      --Completely separating the functions of quality assurance and
            compliance from sales and marketing and requiring quality
            assurance and compliance staff to perform due diligence on
            potential business partners.

    Pharmacies and Pharmacists
        We have been informed that several organizations representing
    pharmacies and pharmacists are developing secure business practices as
    a guide for pharmacies and pharmacists. One pharmacy group notified us
    that they have already published a list of strategies to use for
    assuring the integrity of pharmaceuticals. This list includes:
      --Staying informed about reports of counterfeit drugs;
      --Contacting wholesalers to get information about the status of their
            licensure, whether they are authorized distributors, and where
            they source their drugs;
      --Evaluate pharmacy security;
      --Educate hospital staff;
      --Follow up on patient complaints; and
      --Report suspect products.

    Prescription Drug Marketing Act (PDMA)
        A majority of the comments that discussed PDMA noted the
    limitations and concerns of full implementation of PDMA. Such
    limitations include:
      --Paper pedigrees can be forged and counterfeited;
      --Paper pedigrees are logistically difficult to accommodate in the
            drug distribution system;
      --ADRs are not required to pass pedigree information on to the next
            purchaser, so subsequent wholesalers are unable to obtain the
            pedigrees needed to sell their products;
      --The pedigree for a product that circulates several times through
            the supply chain loses all prior sales history if the drug
            product is sold to an ADR;
      --The net effect is that secondary wholesalers who cannot obtain
            pedigrees necessary to legally market drugs could be driven out
            of business; reducing the number of legitimate distributors in
            the system, decreasing competition and increasing prices;
      --Manufacturers do not update their lists of ADRs so it is difficult
            for a wholesaler to obtain ADR status; and
      --Costs of paper pedigrees outweigh the benefits.
        A number of other comments, however, supported the use of paper
    pedigrees for their deterrent value and as a means to verify prior
    sales through due diligence. Comments noted that even forged pedigree
    papers provide an additional opportunity to identify counterfeiters and
    block introduction of counterfeit drugs into the drug supply if
    wholesalers exercise due diligence by tracing the sales through the
    pedigree and identifying the place where the forgery occurred. A few
    comments suggested that FDA should exercise enforcement discretion and
    not take enforcement action against a wholesaler who fails to provide
    pedigree information back to the manufacturer as long as the wholesaler
    provides pedigree information back to the first ADR who received the
    drug from the manufacturer.
        Several comments suggested a risk-based approach to implementation
    of the PDMA, which focuses on those drugs that are at high-risk of
    being counterfeited. Many of these comments suggested that high-risk
    drugs maintain a full pedigree that documents all sales and
    transactions back to the manufacturer. One comment suggested an interim
    solution of ``one forward, one back'' pedigree for high risk drugs.
    This system would be analogous to recent bioterrorism legislation for
    food distributors, whereby participants in the food distribution system
    maintain only those records necessary to identify immediate previous
    sources and immediate subsequent recipients of food. However, comments
    on FDA's food regulations have suggested it will take at least several
    years to phase in the paper recordkeeping requirements. Moreover, in
    contrast to drugs, there are no major steps in development now to
    provide widespread electronic pedigrees for drug products. Finally, as
    noted throughout the riskiest drug products are the ones for which
    modern anti-counterfeiting and track-and-trace methods should be
    implemented soonest.
        Most comments supported the development of an electronic pedigree
    for all drug products in the supply chain and that an electronic
    pedigree should be considered as a long-term solution to fulfilling the
    PDMA requirements codified at 21 CFR 203.50. Given the costs of
    implementing the partial anti-counterfeiting measures included in the
    PDMA, and the expectation of continued significant progress toward
    implementation of modern pedigree systems for drugs, more effective
    modern pedigree systems are likely to be available before it would be
    possible to phase in and achieve compliance with paper pedigree
    requirements.
    Model Rules for Wholesale Distributor Licensing
        The comments overwhelmingly supported strengthening requirements
    governing the licensure and oversight of wholesale distributors. Many
    comments cited the systemic weaknesses in the oversight of the
    wholesale drug industry, prior to Florida's implementation of licensing
    reform, that were described in the Florida Grand Jury Report, such as
    issuing licenses without proper background checks and granting licenses
    despite one or more felony convictions. The comments also stated that
    existing inspection and due diligence processes are often insufficient
    to detect criminal activity. As mentioned above, there was uniform
    agreement that the penalties for counterfeiting drugs are insufficient
    to serve as an adequate deterrent.
        Many comments supported the concept of tighter requirements
    generally, while others gave specific suggestions for improvement. Some
    of the specific suggestions included:
      --Detailed and robust applications that provide greater disclosure of
            information about the applicant and their prior history;
      --Criminal background checks for applicant and company principals;
      --List of prescription drug-related or fraud-related activities that
            are ``not in the public interest'' such that states should deny
            licenses to persons with criminal records for these activities;
      --Pre-license inspection of wholesale distribution facilities;
      --Periodic and unannounced inspections;
      --National clearinghouse for information on wholesale licensure
            status, debarments, exclusions, and/or results of criminal
            background checks;
      --Bonds of up to $100,000;
      --Requiring all wholesalers to transmit pedigree tracing transactions
            back to the manufacturer for susceptible products;
      --Non-ADRs must pass pedigree with all drugs with transaction
            information back to an authorized distributor;
      --Amending the definition of ADR to include those on the
            manufacturers list, have a written agreement currently in
            effect with the manufacturer, or has a verifiable account with
            the manufacturer and minimal transactional or volume
            requirement thresholds from the manufacturer of 5,000 sales
            units within 12 months or 12 purchases (invoices) within 12
            months;
      --Requiring authentication of pedigree if there is reason to suspect
            that the product may be counterfeit, as well as on a random
            basis;
      --Migrating to electronic pedigree;
      --More aggressive penalties and enforcement on state and national
            level;
      --Quickly suspending and/or revoking licenses of violators; and
      --Including due diligence requirements for wholesalers to conduct on
            its suppliers.
        Most comments stated that the stricter standards should be uniform
    across all 50 states so as not to create 50 different sets of criteria
    and rules for licensing.
        Concerns about several provisions in the new Florida and Nevada
    laws regarding licensing of wholesale distributors were expressed. Some
    of the comments described implementation and logistical problems that
    wholesalers have experienced in these states as a result of the new
    law.
        Some comments encouraged FDA to revsit the minimum standards
    requirements described in 21 CFR Part 205 to create a ``Federal floor''
    for States to meet. The comments were not uniform, however, on whether
    such a Federal floor might enhance or deter state efforts to implement
    the complete set of NABP recommendations.
    Counterfeit Alert Network for Information Dissemination and Education
        The agency received many supportive comments about the counterfeit
    alert network concept. Most of the comments suggested that the agency
    use existing networks and several comments offered their organizations
    distribution list or network as a conduit for the counterfeit alert
    network.
        Some comments offered strategic approaches for the development of
    such a network, including suggested concepts for message delivery.
    Suggestions include using active notification via ``push'' e-mail
    technology, validated and secure systems, easily understood language
    with clear and unambiguous messages, multiple notification systems,
    accessible to all stakeholders, no cost for users, timely, visual alert
    to flag importance, redundant delivery vehicles such as email, fax,
    direct mail, and phone, and have an embedded link to take user back to
    FDA or MedWatch website. The comments also suggested that consistency
    is an important element so there is familiarity in times of emergency
    situations. The agency was warned not to overuse the counterfeit alert
    network in order to avoid alert ``fatigue,'' which could create
    indifference or doubt regarding the importance of the messages.
        The agency was encouraged to consider public/private partnerships
    to design communication strategies and facilitate efforts to
    standardize anti-counterfeit communications and to augment and
    coordinate communication systems. The comments also said that costs to
    FDA and private partners should be kept to a minimum.

        Senator Bennett. Thank you. I appreciate the opportunity to
    ask questions of all four of you, and, again, thank you for
    your service.
        Senator Kohl.

                              WIC CONTINGENCY FUND

        Senator Kohl. Thank you, Mr. Chairman.
        Mr. Bost, last week, when Secretary Veneman was here, I
    noted that States are already starting to take action to
    conserve WIC dollars because they are afraid they do not have
    enough money to finish out this year. I said we have a
    contingency fund to prevent things like this from happening and
    States need to be given as much advance notice as possible if
    contingency fund money will be made available.
        At that time the Secretary said that USDA was aware of the
    problem and was looking into it. It has been a week now and we
    have not heard anything, so I would like to ask you the
    question that we asked her: Do you anticipate using any of the
    contingency fund this year? And when will an announcement be
    made with respect to this issue?
        Mr. Bost. Well, Senator Kohl, it is interesting that you
    ask the question because the money was released to several
    States last night.
        Senator Kohl. Last night.
        Mr. Bost. Last night.
        Senator Kohl. That is great. You know, I cannot imagine----
        Senator Bennett. He knew you were going to ask the
    question.
        Senator Kohl. You cannot respond any more quickly than
    that.
        Mr. Bost. Beg your pardon?
        Senator Kohl. That is terrific.
        Mr. Bost. Well, I think to be perfectly----
        Senator Kohl. So the contingency funding is being made
    available.
        Mr. Bost. Well, actually the States should have it in their
    letter of credit as we speak. They probably received it at
    midnight last night.
        Senator Kohl, I think it is really important to note, too,
    that the issue of tracking that information from the States in
    terms of looking at participation and looking at the food cost
    is it is not an exact science. And we have been following it
    for some time. And we were trying to look at being as judicious
    as we possibly could with those contingency funds, but we did
    release them last night to those States that were in need, and
    they will not have to stop serving any clients that are
    eligible.

                                 WIC FOOD COSTS

        Senator Kohl. A follow-up on that. Can you confirm that WIC
    food costs have been higher than anticipated and that the food
    cost assumptions upon which the fiscal year 2005 funding
    request was based are now outdated?
        Mr. Bost. Well, I don't know if I would say that they were
    outdated, but I think the preliminary information that we
    currently have available to us and that we have been reviewing
    would lead us to believe that the overall food costs are a
    little bit higher than estimated.
        The other point I would like to make is that it is not only
    an issue of food cost, but it is also participation rates. In
    some States, the food costs are a little bit higher; in some
    States, it is not. We are watching and tracking it very, very
    closely. It is something that we are very concerned about.
        Senator Kohl. And do you anticipate that this updated data
    and increased participation rate will make it likely that we
    will have to provide some additional resources in fiscal year
    2005 for WIC?
        Mr. Bost. I don't think I have drawn those conclusions at
    this point. It is something we are watching very closely. If we
    see that is indeed the case, we will come and work with you and
    Congress to ensure that the needs of these persons are met.
        Senator Kohl. Good.

                            NATIONAL ORGANIC PROGRAM

        Mr. Hawks, in fiscal year 2004, we provided a significant
    increase in funding to the National Organic Program and
    required that part of the funding be used to meet several
    statutory requirements of the Organic Foods Production Act of
    1990 that have not yet been met. These include directives to
    hire an executive director for the National Organic Standards
    Board, to create an ongoing peer review panel, and to improve
    scientific technical support for the Organic National Standards
    Board.
        Could you comment on the progress of the agency with
    respect to each of these three funding directives?
        Mr. Hawks. Yes, sir. We are making extremely good progress
    toward hiring. I think the executive director is very close to
    being hired. My staff tells me that we are moving judiciously
    in all of these areas with regard to organic.
        Senator Kohl. The peer review panel, do you know if that is
    ongoing or are you moving in that direction? Have you created
    an ongoing peer review panel?
        Mr. Hawks. We are in the process of completing initial peer
    review as we speak.
        Senator Kohl. And, finally, to improve scientific technical
    support for the National Organic Standards Board, any comment?
        Mr. Hawks. Yes, sir. We are doing that. The funds that were
    provided in our 2004 budget are helping us on the technical
    scientific review as well.
        Senator Kohl. That is great.
        Mr. Hawks. We appreciate those funds.

                            ANIMAL FEED INSPECTIONS

        Senator Kohl. Yes, thank you.
        Dr. Crawford, FDA recently announced that they would be
    implementing new rules regarding animal feed as a result of
    BSE, including increasing inspections of rendering plants and
    feed mills. An increase of over $8 million is provided in the
    budget for this purpose. How many rendering plants and feed
    mills are in the United States? Of those, how many handle
    ruminant material prohibited from being used in animal feed?
    And will these inspections, specifically of plants that handle
    ruminant material be physical inspections or paper audits? And
    what about plants that do not handle ruminant material?
        Dr. Crawford. With respect to the number of plants and what
    they handle, if it is agreeable, I would like to submit that
    for the record.
        The second thing is the inspections will be doubled next
    year. We are asking for that in this budget. The kinds of
    inspections will be both physical and also audit types. We
    expect for the plants to know where the material came from and
    where it is going, and we have records access for that. And we
    will be evaluating that.
        The other thing is that we want to know what kinds of
    materials went in there and what the feed was used for and
    whether or not we can trace that in order to be sure that it
    isn't going to the wrong species.
        So it is a fairly complex inspection process that is
    reflected in that $8.3 million more that we want for BSE. One
    of the major things we are trying to do is to control BSE
    because the most likely source of infection is animal feed, as
    you know.
        [The information follows:]

                                  Animal Feed

        As of February 6, 2004, there are 235 rendering plants, 1,085 FDA
    licensed feed mills, and 5,071 non-FDA licensed feed mills in the
    United States. Of these, 157 rendering plants, 310 FDA licensed feed
    mills, and 759 non-FDA licenses feed mills handle materials prohibited
    from being used in animal feed.

        Senator Kohl. All right. Dr. Murano, your budget requests
    an additional $23,500,000 for the Food and Agriculture Defense
    Initiative. Funding is also requested in FDA and other agencies
    for this. It sounds like the increases are going for computer
    system upgrades, increased surveillance, bio-surveillance and
    training.
        For those of us who are not steeped in the language of
    homeland security, can you explain in laymen's terms what this
    money will be used for?
        Dr. Murano. Certainly. As you said very well, this is a
    coordinated effort between ourselves and FDA and other agencies
    as well, because we understand that we must do several things
    to maintain the safety of our food supply from intentional
    attack. One is surveillance, so both we and FDA need funds to
    survey the food supply for specific agents that we do not
    normally test for, for what we deem to be normal contamination
    of food. These are threat agents for which both of these
    agencies have conducted vulnerability assessments to see where
    we are the most vulnerable. We have determined where we are the
    most vulnerable, and are trying to close those gaps and then
    test for the threat agents that we believe are most likely to
    be used.
        Secondly, the Food Emergency Response Network that I
    described very briefly in my opening remarks, is also a joint
    effort with FDA. It is a network of laboratories throughout the
    entire country that have to work together and be well
    coordinated to respond to an event. More importantly, it must
    do the important surveillance work that needs to be done even
    before an event takes place. All of these labs have to be
    coordinated in terms of using the same methods and the
    information has to be shared among all the laboratories. That
    is why part of the funds are being asked for eLEXNET, which is
    a web-based information sharing platform.
        For all of these reasons, we have our budget request and
    FDA has their budget request, but funds are to be used jointly
    to establish a very robust network of 100 labs in this coming
    year.

                                WIC-ONLY STORES

        Senator Kohl. All right. Mr. Bost, I have recently been
    informed about a growing problem that is costing the WIC
    program several million dollars a year. The WIC-only stores
    that, as you know, serve only WIC clients and accept only WIC
    certificates, are increasing in numbers very rapidly. In
    California alone, there were 82 WIC-only stores in 1996, and
    now there are more than 600 across that State.
        The problem with these stores is that they do not have to
    compete in the normal market, and so they are able to charge
    extremely high prices for their products. In California, the
    estimates are that the WIC-only stores charge 15 percent or
    more in addition to normal price for WIC food packages than
    other stores. This is a growing problem, and the WIC program
    obviously is suffering additional, unnecessary, and
    unprogrammed costs because of it.
        With money so tight, obviously, Mr. Bost, we need to do as
    much as we can to control this problem. Can you comment on the
    problem? And to what extent are you aware and consider it
    serious and what you may be doing about it?
        Mr. Bost. Well, interestingly enough, Senator Kohl, I think
    it is important to note that only 2 percent of all the
    authorized WIC vendors are essentially WIC-only. Right now we
    have the WIC-only stores only in California and in the
    Commonwealth of Puerto Rico. So, one, it is not widespread.
        The second point is the fact that we have heard anecdotally
    that the cost to the Federal Government is more. However, the
    service is better than our clients are receiving other places.
    So we are in the process of reviewing that data to make a
    determination, if it is accurate information, generally
    speaking, is the cost more. So we have just started that
    review. I think we actually have two of my senior staff that
    are going to go into some of the stores in California over the
    course of the next couple of months and ascertain exactly what
    the situation is. We are concerned given the fact that we are
    seeing an increase in our overall WIC costs.

                            CRITICAL PATH INITIATIVE

        Senator Kohl. Yes.
        Dr. Crawford, FDA recently announced that they are going to
    use new technologies to help reduce the cost of developing new
    drugs. While the goal of this announcement is definitely
    worthy, announcements such as these raise a question of how
    closely the FDA should be working with the industry that it
    regulates.
        What considerations are being taken before FDA makes a
    decision on something that will cause them to work in close
    collaboration with the industry that you are regulating?
        Dr. Crawford. Thank you, Senator Kohl. As you know, we are
    bound by very strict ethical guidelines to keep us from acting
    and colluding with the industry that we regulate. We have to be
    very careful about that.
        Our record has been good over the years, but we want to
    keep it good and even better. So we are separated from working
    directly with the industry, either in a consulting capacity or
    in any other kind of capacity to improve their bottom line,
    their profitability, and even the approval of these drugs.
        The genesis of this program, which we are very pleased
    with, is some years ago, as you know, there was a move to
    double the National Institutes of Health budget. And so that
    budget went from between $13 and $14 billion, to $27 billion.
    This is expected with some concomitant increases in industrial
    research and development to produce a large number of new
    technologies and scientific developments that could and I
    believe will lead to the capability of this country and its
    pharmaceutical industry producing more useful products, not
    just in the human drug category but probably in other
    categories.
        The bottleneck for these breakthroughs periodically in
    terms of getting the technology from the laboratory to the
    patient and, therefore, saving lives and improving the well-
    being of people in this country and in other countries has
    sometimes been the Food and Drug Administration. Obviously, if
    a large number of new products are developed as a result of the
    NIH research and the research that is taking place in the
    pharmaceutical world, we have to be ready for them. We have to
    know what kinds of categories of products are coming. We have
    to have the personnel that can rapidly, accurately review these
    products so that we are sure they are safe and effective, but
    also to get them to the market as quickly as we possibly can,
    consistent with their safety and efficacy. That needs a new
    mind-set, a new model at FDA, and we call it the Critical Path
    from the laboratory to the patient. It is a modest program to
    begin with, but it does require us to rethink how we do this.
        Now, in saying that, although we will not be divorced from
    cooperating with NIH, we will be distanced from the
    pharmaceutical industry that we regulate as we try to get
    together a new system. So thank you for the question, and I
    assure you we will be separated to the maximum ethical extent.

                            BIOTERRORISM REGULATIONS

        Senator Kohl. Thank you.
        Dr. Crawford, it was recently announced that FDA would
    delay publishing a final rule on contaminated food tracking by
    2 months. The purpose of this rule, as you know, is to help FDA
    track down contaminated food and food ingredients as quickly as
    possible, and it has been lauded by consumer groups.
        Why did the FDA postpone publishing the rule? Can you give
    us a date certain by which the rule will be published?
        Dr. Crawford. Thank you for the question. When the
    Bioterrorism Act was passed in June of 2002, we did get the
    authority to do this kind of thing, the recordkeeping authority
    that you are talking about, as well as three other new
    authorities which enable us to police the food supply better
    than ever before, thanks to the wisdom of the Congress. This is
    something that had been developing for a long time, but the
    advent of the terrorist threats that we are all aware of moved
    the Congress and also moved the agency to work together to try
    to get this passed.
        We are delayed a bit from what we projected in December
    with publishing this final regulation. Exactly when it will
    come out we are not sure at this point. It shouldn't be very
    much longer. We are putting the finishing touches on it, and we
    are working with the administration to get it forward.
        But I wanted you to know and I wanted to say for the record
    that the authority to take these kinds of action exists. We
    just have not implemented the regulations which set out how we
    will do it. But we are acting already and we are protecting the
    food supply through the authorities that were vested in us by
    the Bioterrorism Act.

                                      BSE

        Senator Kohl. Finally, Mr. Hawks, the Secretary announced
    on March 15th that USDA would greatly enhance BSE testing over
    a year to a year and a half period, 12 to 18 months. Do we
    understand that this enhanced testing is scheduled only for
    this limited length of time? And if test results show any
    additional BSE-positive cases in the United States, will USDA
    further enhance testing and continue it for an indefinite
    amount of time? And if so, will CCC funds be used for that
    purpose, or how will these costs be covered?
        Mr. Hawks. Thank you, Senator Kohl. You are exactly right,
    we did announce on March the 15th our enhanced surveillance
    package. We also announced that $70 million would be
    transferred from CCC to implement this enhanced surveillance
    plan. This is in keeping with the international review team
    report, which recommended that we conduct very intensive
    surveillance of the targeted population for a period of 1 year.
    So that is what we have to do. Determinations will be made
    about where we move from here when we see what we find with
    this surveillance plan.
        Our objective is to try to get as many of these samples as
    we possibly can. If we collect approximately 268,000, we
    believe this sampling will show one BSE positive animal in 10
    million adult cattle a 99-percent confidence level. We are very
    committed to this. We are also testing a random sampling of
    normal animals in this process. We are working with the
    industry to make sure that we are able to get these samples as
    well.
        So I think the answer is we will have to see where we are,
    see what the surveillance turns up, and then it would be
    appropriate to make determinations about how to proceed after
    that.
        Senator Kohl. What happens in the public eye, Mr. Hawks? We
    tested one animal for BSE, and there was a panic across our
    country. Suppose you find one other animal or two other animals
    out of--how many do you intend to test?
        Mr. Hawks. We are going to test as many of the target
    population as we possibly can. We have been testing roughly
    20,000 per year for the last 2 years. This year, we had
    intended to test 40,000. Now our goal is to test as many as we
    possibly can for the next 12 to 18 months.
        Senator Kohl. Well, suppose you test 5 million and you find
    five and you announce that. I suppose you would announce that,
    right?
        Mr. Hawks. Well, I think statistically speaking, if we test
    268,000 from the target population, it is almost as good as
    testing----
        Senator Kohl. All right. Suppose you do and you find three
    more or four more.
        Mr. Hawks. The measures that we have already taken to
    protect food safety, including the removal of specified risk
    materials, those measures have been taken to ensure that the
    food supply is safe. And I think whether we find one more, or
    whether we find three more, or if we don't find any more, the
    measures that are in place are there to adequately protect our
    public.
        The U.S. case is totally unlike what happened in Asia. In
    Japan, there was a total loss of consumer confidence. As we
    have seen in this country and in Canada as well, our consumers
    believe that we are doing a good job in protecting food safety.
    I will eat beef quite often. So I think it is very important to
    understand that I have total confidence, Dr. Murano has total
    confidence, because that is her responsibility as well. We
    share those responsibilities.
        Senator Kohl. I thank you so much, Mr. Hawks.
        Senator Burns.
        Senator Burns [presiding]. Senator Kohl, how are you this
    afternoon? I noticed that the chairman here asked me to come
    down here and to really mess up this whole hearing. He sent the
    right guy. And he has already covered a lot of these things:
    obesity, as if he had a problem.
        Senator Burns. And I am glad he took care of that before I
    got here. So let's go down the line.
        By the way, first of all, since I have got you here, Mr.
    Hawks, and most of you, we all know that we probably dodged a
    humongous bullet last December the 23rd and again May the 4th
    up in Canada. We didn't have to go through the situation the
    Canadians went through up there.
        I appreciate your actions, and I know it was the cow that
    stole Christmas, but, nonetheless, it was one of those things.
    And I don't know what my telephone log looks like, but it was
    pretty full.
        I talked to the Secretary yesterday, and I expressed my
    gratitude, and I think it was done as well as it could be done
    for a bureaucracy. So I am happy about that. However, we still
    come under some criticism, but, nonetheless, it is usually
    criticism that probably does not quite understand how the
    system works and what we did.
        If we tested 100 percent--I don't know. You might have
    already been asked this question, and I apologize if you have
    been. If we started testing tomorrow 100 percent of our
    production in the beef market right now, do you think that
    export market would just snap back overnight?
        Mr. Hawks. No, sir, I do not. We did discuss this earlier.
    I think 100 percent testing has absolutely no scientific
    justification. I believe that the path that we are on with the
    aggressive surveillance, with the measures that we have taken
    to remove SRMs and the measures that FDA is announcing to put
    additional firewalls in place are more than adequate to prevent
    the spread of BSE if it is here and also to protect food
    safety.

                         NATIONAL ANIMAL IDENTIFICATION

        Senator Burns. Let me ask you another question. How are you
    moving on the national ID system?
        Mr. Hawks. We are moving very well. As you know, we have
    been developing a plan over a period of years. USAIP has been
    working for over 2 years. They have done a tremendous amount of
    work. The Secretary asked our Chief Informational Officer,
    Scott Charbo, as well as Nancy Bryson, and our Chief Economist,
    Keith Collins to look at this, with each one of them looking
    from their respective viewpoints, the legal, the technological
    and the economic.
        We have put together a plan drawing heavily upon what USAIP
    is doing. It is certainly our intent later this year to be able
    to issue premises identifications, and early next year to do
    individual identifications. We have a few principles that we
    are working on, such as being technology neutral. We want to
    make sure that any system that we put in place does not add
    burden to our producers, as you and I both know and appreciate
    those concerns. We protect confidentiality of information. So
    those are some of the things we are addressing.
        Senator Burns. When can we expect to see that plan?
        Mr. Hawks. You should be able to see that plan real soon.
    It is going through final review at the Department now, and so
    we hope to have that plan to you in the very near future.

                                  BSE TESTING

        Senator Burns. Give me an idea of those packing facilities
    that want 100 percent test in order to maybe get into the
    international market or see what they could do. We have seen a
    reluctance from the USDA for that. Can you give me an update on
    that situation and the position that you have taken?
        Mr. Hawks. Yes, sir. Certainly that is continually under
    review. We do not believe there is, as I have said, a
    scientific justification for doing 100 percent testing. We have
    recently approved some rapid-test test kits for use in our
    surveillance plan. We will continue to review those requests
    that are before us now in the Department of Agriculture, but we
    certainly do not believe there is scientific justification for
    doing 100 percent testing.
        Senator Burns. Tell me, on the test itself, have you
    settled on a particular test?
        Mr. Hawks. No, sir. We have recently approved two rapid
    tests for the surveillance plan. We are continuing to review
    other tests as we speak and hope to have, in the very near
    future, additional test kits approved for use.
        Senator Burns. When will we see those?
        Mr. Hawks. I would hope to see those, as I said, in the
    very near future. I am like you, coming into Government out of
    the private sector. It is very difficult to nail down those
    exact dates as we could when you and I are out there on the
    farm.

                                   DENTICIAN

        Senator Burns. We look at those things. I am not an expert
    on that and I would have none, but I can tell you that I know
    some people that do know the difference. I think false
    positives are always out there, those kinds of situations in
    that respect. Now, age. You have first come out with a system
    to mouth the cattle. That has not been the most accurate
    procedure sometimes. In other words, it all depends on a little
    bit of heredity and genetic makeup of the animal. Also, whether
    it calved and where they are raised. And so, Dr. Murano, you
    want to----
        Mr. Hawks. She is our dentician expert.
        Senator Burns. Are you pretty good on horses?
        Dr. Murano. Sir, I will tell you that we have had to come
    up with a system that would help us determine the age of these
    cattle, and you are correct in that the dentician method is not
    perfect. We all know that. We have instructed our inspectors
    that what they do first and foremost is look, at the records
    that come with the animals, and use that as their main gauge of
    the age of the animal. If those records are complete, that is
    what we go by because that is the most accurate. When those
    records are not accurate or not available--and I presume that
    will be corrected once this animal ID system is all in place--
    the only other method that we have available to us that we know
    is the dentician.
        However, having said that, the regulations that we
    published January 12th are still under an open comment period,
    and we have actively sought the input of the industry, any
    stakeholders, and anyone who may have information and evidence
    on what might be a better method than dentician. We are surely
    open to whatever other suggestions the experts in the field
    have for us, and we will move to do the best job we can and be
    as accurate as possible.

                         NATIONAL ANIMAL IDENTIFICATION

        Senator Burns. With a national ID system and a producer
    that keeps records--and most do now and especially in
    performance herds; we are doing it more with range cattle more
    every day to identify those animals who excel in their
    production and this type thing, I would say--and if we go to
    some sort of a digital ear tag, that at least the week the
    animal was born, it would also be part of that record on that
    ear tag. That is the only thing that I think the ear tag has an
    advantage over a hot iron brand, but that is a westerner
    talking and not the general run of the cattle business.
        So I think we have to approach that because I will tell
    you, being in that business, I sat up there the other day, and
    just to see if I had any talent left at the auction when they
    were selling cattle the other day at the auction. I sat up
    there and I still got the touch, I want you to know, right now.
        Mr. Hawks. Are you looking for a job, Senator?
        Senator Burns. No.
        I tell you how it can go. A farmer came in and set down
    beside me, and there was a little package of calves come in,
    and they probably weigh, I do not know, pretty close to 6 and
    pretty green. And he just leaned over and he said, ``Conrad,
    what do you think those things will weigh?'' And I said, ``Do
    not ask me. I missed the weight of a chicken by 7 pounds one
    time.''
        But I really believe that the national ID system, I think
    you have a working group out there right now that is headed by
    Gary Wilson out of Ohio, and I have talked with him--he was in
    town about a week, week and a half ago--on the national ID
    system, and also on the age, because I will tell you, that age
    is critical. It is critical because we know of people that some
    feed calves, some feed yearlings, and then there is a little
    thing called a heiferette, and we know about those kind of
    stock, but it is critical as far as the return to the producer,
    and also critical to the man who sends them to market for
    slaughter, and how they are graded and this type of thing.
    Right now it is a pretty rapid market out there right now,
    especially on that class of cattle and livestock.
        We would like to see what you have proposed. We would like
    to work with you on that, especially that working group on
    national ID and on age. I also talked to some people that want
    to do some work as far as verification of the animal from birth
    to the grocery store, tests along the way. Because there are
    some plans and programs in the private sector that are being
    developed, but they will depend on--they want to work with the
    Department of Agriculture, because we know when we go into the
    export market, it is the Department of Agriculture who really
    carries the message into the international market. So we want
    to do that if we possibly can.

                         ADDITIONAL COMMITTEE QUESTIONS

        As far as the chickens, I know there are probably some
    people in this room that think chickens is awfully important. I
    am not one of them.
        Only on Sunday every now and again. But I am really
    concerned about the cattle business.
        I do not have any more questions. Senator, are you all
    done?
        Senator Kohl. Yes.
        Senator Burns. I would just be like any other chairman. The
    record will be kept open for a couple of weeks. We may have
    some questions from other committee members that will be
    directed your way. We would appreciate if you would respond to
    those questions both to the committee and to the individual
    member of the committee. We appreciate that very much.
        [The following questions were not asked at the hearing, but
    were submitted to the Department for response subsequent to the
    hearing:]

                Questions Submitted by Senator Robert F. Bennett

                           DRUG INFORMATION WEB SITE

        Question. I noted that the FDA recently launched a web site to
    allow both consumers and the medical community to find comprehensive
    information about FDA-approved drugs quickly and easily. Since the web
    site was launched on March 3, how many ``visitors'' has it had?
        Answer. Drugs@FDA has had 154,065 visitors for the period March 3
    through April 12, 2004.
        Question. Has the FDA received any feed-back from consumers and
    health care professionals about the ease of access, and whether the
    information is comprehensive and useful?
        Answer. Since March 1, 2004 we have received 70 comments on
    Drugs@FDA, version 1. It's important to note that there were two
    previous beta versions of Drugs@FDA on the Internet: beta 1 in June
    2003, and beta 2 from September 2003-March 2004. We received a
    significant volume of very helpful feedback which was incorporated into
    Drugs@FDA, version 1.
        The nature of the comments Drugs@FDA, version 1, ranged from the
    general (5) we liked it or didn't like it to questions about specific
    drug products (25) that were referred to CDER's Division of Drug
    Information for response. Most comments pertinent to Drugs@FDA (40)
    fall in the category of requesting new features. For example, users
    requested the ability to search by indication or drug class, wanted
    more labels added, to obtain NDC numbers and imprint information, to
    have more regulatory terms added to the glossary, links to the Orange
    Book, and even the ability to download the database for analysis.

                             MEDICAL DEVICE REVIEW

        Question. According to the 2003 Annual Report of the Office of
    Device Evaluation, the Center for Devices and Radiological Health was
    meeting or exceeding most of its MDUFMA-prescribed performance goals in
    2002. As previously noted, the fiscal year 2005 budget request includes
    $25.555 million for this user fee program. What will the FDA actually
    do with this increased funding?
        Answer. The FDA commitment letter defines the performance
    objectives FDA is pursuing under MDUFMA. It requires FDA to meet
    challenging objectives for both cycle and decision goals and to pursue
    a variety of other goals that do not involve quantifiable measures of
    progress, such as maintaining current performance in areas where
    specific performance goals are not identified, working with its
    stakeholders to develop appropriate performance goals for modular
    review of PMAs, and working to improve the scheduling and timeliness of
    pre-approval inspections.
        The appropriation requested by the President's fiscal year 2005
    Budget will provide FDA the resources needed to move forward to
    effectively implement MDUFMA. Substantial improvement will be required
    to meet both the fiscal year 2005 performance goals and to lay the
    foundation for the increasingly challenging performance goals of fiscal
    year 2006 through fiscal year 2007.
        The additional funding will be used to:
      --Cover the cost of living increases so that FDA can maintain
            staffing levels and scientific capabilities to meet the demands
            of an increasing workload and new challenges;
      --Enhance the IT systems that support the current review process and
            develop system capabilities to facilitate the submission and
            acceptance of electronic premarket applications;
      --Enhance reviewer training and skill maintenance so that FDA
            reviewers are able to keep pace with rapidly developing and
            increasingly complex device technologies;
      --Employ research and science based activities that provide support
            critical to the device product approval process;
      --Invest in office and laboratory infrastructure to keep pace with
            rapid technological and scientific change in diverse fields of
            expertise;
      --Work with outside experts to develop guidance and standards to help
            industry understand and meet FDA requirements, and to help
            support FDA's role in international harmonization on emerging
            technologies.
      --Expand FDA's small business assistance program as required by the
            FD&C Act. Approximately 35 percent of the PMAs approved last
            year were from first time submitters who needed FDA's
            assistance;
      --Conduct pre-approval inspections of device manufacturers;
      --Enhance policy guidance document development, emergency response,
            review management and risk communication for products developed
            and used to respond to terrorist threats and national security
            crisis; and
      --Contract with professional societies and agencies to address the
            agency's needs, including the need for adequate laboratory
            facilities, to plan bio-effects research, and to develop
            requirements for the safe use of devices.
        Question. Since the agency has already reached most of its MDUFMA
    performance goals, should the FDA be working toward more aggressive
    goals?
        Answer. Although FDA is making satisfactory progress towards
    achieving the ambitious performance goals established under MDUFMA, the
    fiscal year 2003 Office of Device Evaluation/Office of In Vitro
    Diagnostic Device Evaluation and Safety (ODE/OIVD) Annual Report does
    not claim or imply that we ``have already reached most'' of MDUFMA's
    performance goals. MDUFMA's goals are based on receipt cohorts; for
    example, the fiscal year 2003 receipt cohort includes applications
    received from October 1, 2002 through September 30, 2003. For PMAs and
    PMA supplements, the receipt cohort performance data shown for fiscal
    year 2003 in the ODE/OIVD Annual Report represents only receipts
    through March 31, 2003 (6 months of data); for 510(k)s, the receipt
    cohort performance data shown for fiscal year 2003 represents only
    receipts through June 30, 2003 (9 months of data). See the footnotes on
    pages 48, 53, 56, and 68 of the fiscal year 2003 report. Furthermore,
    the results applicable to our MDUFMA performance goals will change over
    time as FDA completes work on pending applications. As of March 31,
    2004, the following fiscal year 2003 applications were still pending
    (the numbers were substantially higher when the fiscal year 2003 report
    was prepared):
      --PMAs--21
      --Expedited PMAs--1
      --180-day PMA Supplements--2
      --510(k)s--316
        Also, the goals become more stringent beginning in fiscal year
    2005.
        The ODE/OIVD Annual Report shows promising progress towards
    achieving MDUFMA's objectives, but those results represent only
    preliminary indicators of performance. FDA will provide quarterly
    reports updating our progress towards achieving MDUFMA's performance
    goals on our MDUFMA web site (www.fda.gov/cdrh/mdufma).

                         MEDICAL DEVICE/DRUG MARKETING

        Question. We have all heard that a particular DC laser surgeon
    fixed Tiger Woods' eyesight, and that former Senator Bob Dole has
    benefited from a particular prescription drug. Now we learn that golfer
    Jack Nicklaus has a new hip made by a particular company. The
    implications here are if it is good enough for Tiger/Bob/Jack, its good
    enough for me. What role does the FDA play in monitoring these types of
    advertisements?
        Answer. FDA regulates drugs and medical devices in the United
    States under the authority of the Federal Food, Drug, and Cosmetic Act
    (FDCA). This authority extends to promotional labeling for all drugs
    and devices and advertising for prescription drugs and so-called
    ``restricted'' devices. (21 U.S.C. 342(a); 352(a), (n), (q), (r);
    362(a).) The Federal Trade Commission (FTC) also has legal authority to
    regulate advertising (15 U.S.C. 52), and takes the lead in regulating
    the advertising of OTC drugs and non-restricted devices. FDA takes the
    lead in regulating the labeling of over-the-counter (OTC) and
    prescription drugs and non-restricted and restricted devices, and the
    advertising of prescription drugs and restricted devices.
        Advertisements for prescription drugs must include, among other
    things, ``information in brief summary relating to side effects,
    contraindications, and effectiveness,'' as specified in FDA
    regulations. (21 U.S.C. 352(n); see also 21 CFR 202.1.) Advertisements
    for restricted devices must include ``a brief statement of the intended
    uses of the device and relevant warnings, precautions, side effects,
    and contraindications. . . .'' (21 U.S.C. 352(r).) Both prescription
    drug and restricted device advertisements also must not be false or
    misleading, meaning they must disclose material risk information. (21
    U.S.C. 352(q)(1) & 321(n); 21 CFR 202.1(e)(5).) FDA's rules for
    prescription drug and restricted device advertising are the same,
    whether the advertising is aimed at a consumer audience or at health
    care professionals.
        The FDCA contains no special rules for celebrity endorsements in
    advertising. In general, an endorsement could be subject to the general
    rules for advertising set forth above. Thus, if a celebrity
    spokesperson were to make a statement in an advertisement for a
    prescription drug or restricted device that is false or misleading, or
    if an advertisement contained a celebrity testimonial but lacked the
    risk information required under the above provisions, FDA likely would
    have authority to initiate enforcement action under the FDCA.
    Statements by independent individuals not speaking on behalf of a drug
    firm are not subject to FDA's advertising jurisdiction. Oral
    representations by paid representatives of drug firms concerning the
    safety or effectiveness of a product might also within FDA's regulatory
    authority if they create a new intended use for a product, for which
    adequate directions would be required in labeling and for which
    premarket approval might be required. (See 21 U.S.C. 352(f)(1), 355.)
        FDA believes consumer-directed advertisements play an important
    role in advancing the public health by encouraging consumers to seek
    treatment. Since 1997, consumer-directed advertisements have been aired
    (on television or radio) for about 98 prescription drugs. Of those, 14
    are intended for under-treated conditions, such as high cholesterol,
    heart disease, and mental health problems like depression. Others are
    for serious conditions such as asthma, Alzheimer's disease, arthritis,
    chronic obstructive pulmonary disease, diabetes, insomnia, migraine,
    obesity, osteoporosis, overactive bladder, serious heartburn, smoking
    cessation, and sexually transmitted diseases.
        FDA held a public meeting to discuss the results of FDA surveys and
    other research on consumer-directed advertising on September 22-23,
    2003. Based in part on discussion at that meeting, FDA has developed
    guidance to encourage advertising that provides risk and benefit
    information appropriate to support conversations between consumers and
    their health care providers. On February 4, 2004, the agency issued
    three draft guidance documents, addressing (1) options for presenting
    risk information in consumer-directed print advertisements for
    prescription drugs, to encourage use of consumer-friendly language and
    formats (2) criteria FDA uses to distinguish between disease awareness
    communications and promotional materials, to encourage manufacturers to
    disseminate disease educational messages to the public, and (3) a
    manner in which restricted device firms can comply with the rules for
    disclosure of risk information in consumer-directed broadcast
    advertising for their products, to help encourage compliance in this
    emerging area of medical product promotion.
        FDA has adopted a comprehensive, multi-faceted, and risk-based
    strategy for regulating consumer-directed advertising of medical
    products. This strategy includes legally sustainable letters, guidance
    development, frequent informal communications with industry and
    advertisers, and research on the public health effects of consumer-
    directed promotional materials. We continue to monitor the impact of
    consumer-directed promotion on the public health.

                       METHYLMERCURY ADVISORY FOR SEAFOOD

        Question. As you will recall, Dr. Crawford, in the Statement of the
    Managers to accompany the fiscal year 2004 Omnibus Appropriations bill,
    the conferees encouraged coordination between the FDA and the EPA on
    what is considered a safe level of methylmercury exposure. I was
    pleased to note that an updated consumer advisory regarding fish
    consumption and methylmercury was released in mid-March. How does this
    new advisory differ from that which was released by the FDA in July of
    2002?
        Answer. The FDA issued an advisory for mercury in fish in March of
    2001; this advisory was then reviewed by the FDA's Food Advisory
    Committee (FAC) in July 2002. There was no new advisory issued in July
    2002. The FAC made six recommendations at their meeting in July 2002 as
    follows:
      --Better define what is meant by ``eat a variety of fish'' so that
            consumers can follow this recommendation effectively;
      --Work with other Federal and State agencies to bring commercial and
            recreational fish under the same umbrella;
      --Publish a quantitative exposure assessment used to develop the
            advisory recommendations;
      --Develop specific recommendations for canned tuna, based on a
            detailed analysis of what contribution canned tuna makes to
            overall methylmercury levels in women;
      --Address children more comprehensively in the advisory to relate
            dietary recommendations in the advisory to the age/size of the
            child; and,
      --Increase monitoring of methylmercury to include levels in fish and
            the use of human biomarkers.
        Based on these recommendations, meetings with stakeholders, focus
    group testing as well as further input from the FACs in December 2003,
    the FDA issued a revised advisory on March 19th 2004. The revised
    advisory differed from the 2001 advisory in a number of ways as
    follows:
      --The 2004 Advisory is a joint advisory by FDA and EPA that addresses
            both commercial caught and locally caught fish and shellfish;
      --The 2004 Advisory more strongly emphasizes the positive benefits of
            eating fish;
      --The 2004 Advisory provides examples of commonly eaten fish that are
            low in mercury;
      --The 2004 Advisory and the Question and Answers section specifically
            addresses canned light tuna and canned albacore (``white'')
            tuna, as well as tuna steaks;
      --The 2004 Advisory recommends not eating any other fish in the same
            week as locally caught fish are consumed (the Advice on the
            amount of locally caught fish to eat is the same as in the 2001
            EPA advisory); and,
      --The 2004 Advisory contains a section that addresses the frequently
            asked questions about mercury in fish.
        The 2004 advisory was revised to provide useful information for
    keeping fish as part of a healthy diet and at the same time reduce the
    exposure to mercury. The 2004 Revised Advisory more accurately reflects
    the purpose of the information.

                           NEW DRUG APPROVAL PROCESS

        Question. The FDA recently issued a report which described the
    decrease in the number of new innovative drug application, and
    recommends reform to the existing regulatory process. I would
    appreciate it if you could explain just exactly what the FDA plans to
    do in this regard.
        Answer. The ``critical path'' is best described as the crucial
    steps that determine whether and how quickly a medical discovery
    becomes a reliable medical treatment for patients. There are certain
    points on this path where difficulties are occurring. FDA believes that
    a major problem in today's drug development process is that the new
    science and scientific tools being used in the discovery process are
    not being harnessed to guide the development process that brings
    products to market. FDA has called for a new focus on modernizing the
    tools that applied biomedical researchers and product developers use to
    assess the safety and effectiveness of potential new products, and the
    manufacturing tools necessary for high-quality mass production of
    cutting-edge therapies. FDA is in a unique position to identify
    scientific challenges that cause delays and failures in product testing
    and manufacturing because of its experience overseeing medical product
    development, assessment, and manufacturing/marketing; its vast clinical
    and animal databases; and its close interactions with all the major
    players in the critical path process.
        FDA, through collaboration with academia, patient groups, industry,
    and other government agencies, will play a major role in identifying
    systemic medical product development problems via development of a
    Critical Path Opportunities List, and in conducting or collaborating on
    research to create a new generation of performance standards and
    predictive tools that will provide better answers about the safety and
    effectiveness of investigational products, faster, with more certainty,
    and at lower costs. Specific examples of critical path efforts include:
    developing guidances and scientific workshops on ``best practices'',
    developing new animal or computer-based predictive models, developing
    new biochemical and genomic assays as biomarkers for safety and
    effectiveness, collaboration on the design of new clinical evaluation
    techniques, and facilitating multi-company studies of technologies
    which no one company could mount. FDA will identify and prioritize the
    most pressing product development problems and the areas that provide
    the greatest opportunities for rapid improvement and public health
    benefits across the three dimensions of the ``critical path''--safety
    assessment, evaluation of medical utility, and product
    industrialization and will facilitate collaborative research in these
    areas.
        Question. A consumer group has expressed the opinion that the FDA
    should approve only drugs which show concrete advantages to drugs
    currently on the market. What is your response to that suggestion?
        Answer. Our present and future mission remains constant: to ensure
    that drug products available to the public are safe and effective. If
    the drug is effective and we are convinced its health benefits outweigh
    its risks, we approve it for sale. Statutory requirements dictate that
    we review products submitted to us requesting approval. From a medical
    perspective, it is desirable for physicians and consumers to have a
    variety of drug treatment choices. Not all people can tolerate a
    specific drug. Not all drugs have the intended affect in every person.
    From an economic perspective, it is also useful to have a market
    featuring a variety of products so that prices are competitive.

                         SEAFOOD INSPECTION/GAO REPORT

        Question. The General Accounting Office recently issued a report on
    the FDA's imported seafood safety program. Basically, GAO found that
    although the FDA has made some progress in the number of foreign firms
    being inspected and the number of seafood products being tested at U.S.
    ports of entry, there is more work to be done. Among other things, GAO
    recommends that the FDA work with NOAA to have NOAA employees provide
    various services under their Seafood Inspection Program. Have you
    reviewed this GAO report? Do you agree with their observations? What
    steps has the FDA taken to work with NOAA in this regard?
        Answer. FDA reviewed the GAO report and provided a lengthy comment
    to the GAO on this particular recommendation. The comment was published
    in the Appendices to the report. In summary, FDA noted that it has a
    long and collegial working relationship with the seafood inspection
    program within the National Marine Fisheries Service (NMFS) and that
    the two agencies will be working together to find better ways of
    integrating their programs. Potential areas of integration were
    described, including the use of NOAA laboratory capacity to carry out
    analyses of seafood samples that FDA takes during the normal course of
    work; the commissioning of NMFS inspectors; the use of NMFS inspectors
    who might already be on site in distant locations; and the issuance by
    NMFS of European Health Certificates for a fee to U.S. industry that
    ships fish and fishery products to Europe. The latter would free up FDA
    resources that are now devoted to that activity.
        We have recently worked with NOAA Fisheries' National Seafood
    Inspection Laboratory (NSIL) located in Pascagoula, MS and the NOAA
    Fisheries' Northwest Fisheries Science Center in Seattle, WA to assess
    the use of NOAA laboratory capacity to carry out analyses of seafood
    samples that FDA takes during the normal course of our work, or during
    ``crisis'' situations. Specifically for chloramphenicol analysis, our
    discussions have resulted in FDA's provisional approval (pending on
    site review) of these laboratory's methods for sample submission,
    custody, routing, and accounting and documentation procedures necessary
    to maintain the regulatory chain of custody and tracking required for
    import collections. While FDA is not able to fund this initiative this
    fiscal year, we hope that we will be able to implement this proposal in
    the future.

                             AGRICULTURAL PRODUCTS

        Question. The White House Office of Science and Technology Policy,
    (OSTP) had recommended approximately 2 years ago (August 2, 2002) that
    various agencies--including the FDA--complete guidelines regarding the
    early safety assessment of agricultural products developed through
    biotechnology for food and feed use. To date, there is no evidence that
    the FDA has acknowledged this mandate nor made any progress towards
    finalizing a policy. The U.S. regulatory system currently imposes a
    zero tolerance on the presence of unapproved biotech-enhanced events in
    food and feed, regardless of the risk level. It does not recognize the
    realities of a biological system. This zero-tolerance' policy exposes
    grain handlers, food processors and feed manufacturers to the risk that
    any trace amounts of biotech-enhanced events in general commodity crops
    that have not been approved for food and feed under the U.S. regulatory
    process could render such crops adulterated and subject to seizure
    under Federal law. Such a policy is inconsistent with other food purity
    standards which have established thresholds for trace amounts of
    unexpected materials. Without having a policy in place, the United
    States risks significant disruptions in global agricultural trade. What
    is the FDA doing to meet their obligations and will they be able to
    complete their work by year's end?
        Answer. On August 2, 2002, OSTP announced proposed Federal actions
    to update field tests requirements for biotechnology derived plants and
    to establish early food safety assessments for new proteins produced by
    such plants. As part of this proposal, FDA announced that it would
    publish for comment draft guidance to address the possible
    intermittent, low level presence in food and feed of new non-pesticidal
    proteins from biotechnology-derived crops under development for food or
    feed use, but that have not gone through FDA's pre-market consultation
    process. FDA is preparing draft guidance and expects to publish the
    draft guidance for comment this year.

                           TRANSGENIC ANIMALS IN CVM

        Question. The FDA has resources in place for regulation of
    transgenic animals in CVM. However, the agency has to date not provided
    any guidance to industry for the regulation of transgenic animals. What
    is the FDA doing to refine and clarify the regulatory process for
    transgenic animals, and when can we expect to see specific regulatory
    guidance published?
        Answer. It is true that CVM has not issued any general guidance to
    industry for the regulation of transgenic animals. Instead, CVM has
    worked with investigators one-on-one to ensure safe and efficient
    development of animal biotechnology products while an interagency group
    led by the White House Office of Science and Technology Policy (OSTP)
    develops a coordinated framework that is appropriate to animal
    biotechnology.
        In 1984, the Federal Government embarked on project to develop a
    Coordinated Framework for regulation of biotechnology products. The
    early efforts focused on plant biotechnology for agricultural purposes.
    The effort has resumed at various times as new categories of products
    became feasible. For example, in May 2000, the White House directed its
    Council on Environmental Quality, ``CEQ'', and Office of Science and
    Technology Policy to conduct an interagency assessment of Federal
    environmental regulations pertaining to agricultural which includes
    both plants and animals, biotechnology and, if appropriate, make
    recommendations to improve them. Information is available on the
    internet at http://www.ostp.gov/html/ceq_ostp_study1.pdf.
        The White House-directed interagency process continues with respect
    to animal biotechnology products. The OSTP has convened over the last
    year an interagency group--which was similar to the group convened in
    May 2000--with FDA, APHIS, EPA, and OMB, represented. The group is
    focusing on the application of the Coordinated Framework to the wide
    range of animal biotechnology products that have been developed since
    the framework was created in the 1980's. There were very few examples
    of animal biotechnology products available to consider in the 1980's
    and only a limited number in 2000. The discussions are continuing,
    using various product examples, and including listening sessions with
    various stakeholders. Ultimately, a seamless Federal oversight system
    for animal biotechnology products is expected.
        Both as part of this interagency process and separately, FDA has
    examined--and continues actively to consider--the many complex legal,
    scientific, and policy issues related to animal biotechnology. FDA has
    a variety of authorities potentially applicable to transgenic animals,
    including FDCA authorities over foods, food additives, and new animal
    drugs. In 2000, FDA commissioned the National Academy of Sciences/
    National Research Council Committee on Agricultural Biotechnology,
    Health, and Environment, (NAS) to identify and rank, where possible,
    potential risks associated with the introduction of animal
    biotechnology into commerce. FDA is using the resulting report
    recommendations, issued in the fall of 2002, as guidance in developing
    an action plan for the future. FDA is also preparing a risk assessment
    on animal clones and considering risk management measures that might be
    appropriate as a condition for marketing animal clones for use in the
    human food chain.
        FDA is also involved in considering issues relating to particular
    applications of animal biotechnology. In March 2003, FDA began
    investigating and contacting universities engaged in genetic
    engineering research to ensure that genetically engineered animals do
    not enter the food or animal feed--as rendered animals--supply. In May,
    FDA issued a letter to the Presidents of the Land Grant Universities
    and posted the letter for more general access on its website.
    Information on the ``Letter from FDA to Land Grant University'', from
    May 13, 2003, may be found on the internet at http://www.fda.gov/cvm/
    biotechnology/LandGrantLtr.htm. Roughly 2 dozen organizations have
    responded to FDA's outreach and identified multiple projects with
    transgenic animals. FDA is monitoring these and other projects as
    appropriate.

                                  FOOD SAFETY

        Question. The Chicago Tribune recently published an article
    regarding the rising threat to the U.S. food supply. Many of the quoted
    experts used the word ``scary'' in describing our vulnerability. What
    strategy, if any, has the FDA adopted to counter intentional tampering
    with the U.S. food supply. An additional $65 million was requested in
    the fiscal year 2005 budget request for food defense. What exactly does
    the FDA plan to do with these funds? What outputs will these funds
    provide?
        Answer. FDA employs five food defense strategies:
      --Development of increased food security awareness among Federal,
            State, local, and tribal governments and the private sector by
            collecting, analyzing, and disseminating information and
            knowledge (awareness);
      --Development of capacity for identification of a specific threat or
            attack on the food supply (prevention);
      --Developing effective protection strategies to ``shield'' the food
            supply from terrorist threats (preparedness);
      --Developing a rapid, coordinated response capability to a terrorist
            attack (response); and,
      --Development of capacity for a rapid, coordinated recovery from a
            terrorist attack (recovery).
        FDA's plan to protect the food supply will be executed on both the
    import and domestic fronts.
        The fiscal year 2005 requested increase of $65,000,000 for
    Counterterrorism food defense includes $35,000,000 (including eLEXNET)
    to establish the Food Emergency Response Network (FERN) for increasing
    lab testing capacity in the event of a threat to the food supply.
    Roughly $23,000,000 of FERN funds will be available to States for
    establishing food lab emergency response capabilities and $5,500,000
    for infrastructure costs. The request also includes $15,000,000 to
    address a significant research need for ensuring that we have the
    capability of detecting or inactivating a broad range of agents that
    could pose serious threats to the food supply; $7,000,000 to increase
    import and domestic inspections activities; $5,000,000 to coordinate
    with and establish connectivity of our existing food surveillance
    efforts to the Department of Homeland Security as part of the
    Administration's bio-surveillance initiative; and $3,000,000 for the
    Emergency Operations Network project to upgrade our crisis/incident
    management capabilities in the event of a potential threat to the food
    supply.
        Funds requested for FERN would establish 15 State food emergency
    response labs, and will also provide an additional 25 labs connected to
    the eLEXNET, plus necessary infrastructure such as a national
    operations center to support participating labs. Research funds would
    ensure that we have the capability of detecting or inactivating a broad
    range of agents that could pose serious threats to the food supply. The
    funds for inspections would result in an additional 37,000 import field
    exams over the projected 60,000 projected level in fiscal year 2004 for
    a total of 97,000 import field exams. It would also allow for increased
    surveillance of our food supply by funding an additional 750 domestic
    establishment inspections. Funds would also upgrade our Emergency
    Operations Center by investing in the Emergency Operations Network, and
    would increase coordination of our food surveillance efforts with the
    Department of Homeland Security.
        Question. Last year, the FDA joined with the U.S. Bureau of Customs
    and Border Protection to develop a program to protect the American
    public from food bioterrorist attacks. There were high hopes that as
    many as 420,000 manufacturing, processing, packing, and holding
    facilities, both in the United States and abroad, would quickly
    register under this program and provide advance notice of imports in
    order to expedite the entry process. According to press reports, only
    about half of those facilities have registered, and food shipments are
    still arriving without prior notice. Why haven't all covered facilities
    complied with these requirements? What efforts have the FDA and the
    Customs Bureau undertaken to make sure that covered facilities
    register? It is estimated that 25,000 shipments of imported food arrive
    at U.S. ports of entry every day. Does the FDA have sufficient
    resources to adequately inspect these shipments?
        Answer. In the Registration Interim Final Rule (IFR), FDA estimated
    that about 420,000 facilities would be covered by the requirements of
    the rule. In the Prior Notice IFR, FDA estimated that it would handle
    25,000 prior notice submissions per day. To clarify the above question,
    FDA has not estimated that the approximately 420,000 facilities
    estimated in the Registration IFR would necessarily provide prior
    notice to FDA.
        FDA is unsure why it has only received approximately 200,000 of the
    expected registrations to date. Because registration is a completely
    new requirement and covers so many food facilities, FDA believes many
    small facilities may still be unaware of the registration requirement.
    FDA continues to place a high emphasis on notifying as many affected
    entities as possible of the registration requirements through outreach.
    On April 1, 2004, FDA completed nine city domestic outreach meetings
    for small businesses and other stakeholders on the registration and
    prior notice IFRs. FDA's international component of Phase II outreach
    has been conducted through the collaboration and cooperation of the
    Department of State through a foreign press conference, Voice of
    America video teleconference, and USDA's Foreign Agricultural Service.
    Worldwide attaches disseminated the Registration and Prior Notice
    interim final rules, compliance policy guidance, and Questions and
    Answers. FDA, with Customs and Border Protection participation, is also
    conducting a series of four outreach meetings in Asia from April 21-29,
    2004. FDA will continue to conduct outreach in order to notify affected
    entities of the registration requirement.
        In response to the question regarding whether FDA has sufficient
    resources to adequately inspect the estimated 25,000 daily shipments of
    imported food arriving at U.S. ports, FDA would like to clarify that
    the goal is not to physically inspect each shipment associated with a
    prior notice submission. However, it is important to note that these
    shipments are reviewed electronically to determine if the shipment
    meets identified criteria for physical examination or sampling and
    analysis or warrants other reviews by FDA personnel. This electronic
    screening allows FDA to concentrate its limited inspection resources on
    high-risk shipments while allowing low-risk shipments to proceed into
    commerce.
        Prior to receiving our prior notice authority, FDA already was
    receiving much of the entry information contained in the prior notice
    submission. However, FDA was not receiving the entry information in
    advance of the shipment arriving in the United States. With the new
    prior notice authority, FDA is receiving the entry information in
    advance of the shipment arriving in the United States (timeframe
    depends on mode of transportation), and thus, the Agency is better able
    to focus inspection resources on those shipments for which there is
    reason to believe they may pose a danger to the food supply.

                         MONOGRAPH DRUG APPROVAL SYSTEM

        Question. The Senate Committee Report to accompany the fiscal year
    2004 Agriculture appropriations bill discussed the interest in the
    establishment of a monograph system for prescription drug products. The
    FDA was asked to provide a report regarding the feasibility and cost of
    such a new monograph system for prescription drug products. What is the
    status of the FDA review of this proposal? If a monograph system is not
    the appropriate way to go, what efforts has the FDA undertaken to find
    a way to preserve health and safety while at the same time encourage
    competition, keep prescription drug prices low, and keep small
    businesses open?
        Answer. In 2003, the Senate Committee on Appropriations asked FDA
    to prepare a report regarding the feasibility and cost of a new
    monograph system for prescription drugs that have been marketed to a
    material extent or for a material time without pre-market approval. The
    agency is currently preparing that report. The report will analyze
    critical issues that would need to be addressed if FDA were to develop
    monographs for the approval of marketed prescription drugs. The report
    will evaluate the cost and feasibility of developing such a system.
        Question. The FDA just extended the comment period for
    consideration of a guidance document regarding enforcement priorities
    for older prescription drugs marketed outside of the current new drug
    approval system. In examining comments, will the FDA examine
    alternative approaches to the enforcement policy, such as a
    prescription drug monograph for these older prescription drugs?
        Answer. In October 2003, the Agency issued a draft Compliance
    Policy Guide (CPG) outlining FDA policies to encourage companies to
    sponsor unapproved drugs through the agency's drug approval process.
    The draft CPG requests public comment and sets forth the agency's
    enforcement approach, explaining that FDA will continue to give
    priority to enforcement actions involving three categories of
    unapproved drugs: Those that pose safety risks; those that lack
    evidence of effectiveness; and those that constitute health fraud. It
    also explains how the agency intends to address those situations in
    which a firm obtains FDA approval to sell a drug that other firms have
    long been selling without FDA approval.
        FDA received requests to reopen the comment period and has reopened
    the comment period until April 27, 2004. The Agency will carefully
    examine all comments, including comments relating to alternative
    approaches that are submitted on the matter.

                            PRESCRIPTION DRUG ABUSE

        Question. Mr. Crawford, last month the FDA joined with the Office
    of National Drug Control Policy, the DEA, and the Surgeon General in
    releasing the President's National Drug Control Strategy. As noted in
    the ONDCP press release, this marks the first time that any
    Administration has included the issue of prescription drug abuse in
    this Strategy. What, exactly, is the FDA's role in this effort? Will
    the FDA be able to fulfill this mission with existing funds and
    authorities? If not, were additional resources requested in the fiscal
    year 2005 budget? Does the FDA need additional statutory authorities?
        Answer. The strategy for reducing prescription drug abuse focuses
    on three core tactics:
        First, Business Outreach and Consumer Protection: FDA will work to
    ensure product labeling that clearly articulates conditions for safe
    and effective use of controlled substances so that commercial
    advertising fully discloses safety issues associated with the drug's
    use. A specific example of this is labeling that properly identifies
    patients for whom these products are appropriate and that recommend a
    ``stepped care'' approach to the treatment of chronic pain, in
    accordance with treatment guidelines.
        FDA will consider Risk Management Programs (RMPs). The Agency will
    evaluate the need for a RMP during the approval process for Schedule II
    opiate drug products. RMPs help ensure the safe prescribing and use of
    these drugs through identification of appropriate patients and
    monitoring for adverse outcomes.
        FDA in conjunction with the DEA and the White House Office of
    National Drug Control Policy (ONDCP) will work with physician
    organizations to encourage comprehensive patient assessment prior to
    prescription of opiate therapy.
        FDA and other Federal agencies are enlisting the support of
    responsible businesses affiliated with online commercial transactions.
    These legitimate businesses will be asked to alert law enforcement
    officials to suspicious or inappropriate activities related to these
    products.
        Second, Investigation and Enforcement: The Internet is one of the
    most popular sources of diverted prescription drugs. An increasing
    number of rogue pharmacies offer controlled substances and other
    prescriptions direct to consumers online.
        FDA's Office of Criminal Investigation (OCI) and DEA work together
    on criminal investigations involving the illegal sale, use, and
    diversion of controlled substances, including illegal sales over the
    Internet. Both FDA and DEA have utilized the full range of regulatory,
    administrative, and criminal investigative tools available, as well as
    engaged in extensive cooperative efforts with local law enforcement
    groups, to pursue cases involving controlled substances.
        FDA and U.S. Customs and Border Protection (CBP), with assistance
    from DEA, continue to conduct spot examinations of mail and courier
    shipments for foreign drugs to U.S. consumers to help FDA and CBP
    target, identify, and stop illegal and potentially unsafe drug from
    entering the United States from foreign countries via mail and common
    carriers.
        Finally, Protecting Safe and Effective Use of Medications: FDA will
    support DEA's efforts with medical associations to identify existing
    best practices in physician training in the field of pain management.
    DEA and FDA plan to develop a mechanism to support the wider
    dissemination and completion of approved Continuing Medical Education
    (CME) courses for use of opioids that include information on the risk
    of abuse and addiction.
        FDA in conjunction with ONDCP and DEA will develop public service
    announcements that appear automatically during Internet drug searching
    to alert consumers to the potential danger and illegality of making
    direct purchases of controlled substances online. Currently, FDA, along
    with its sister agency, the Substance Abuse and Mental Health Services
    (SAMHSA), have jointly developed a public service announcement campaign
    to better educate consumers on the abuse of prescription pain killers.
        FDA did not request additional resources in the fiscal year 2005
    budget in order to participate in the activities stated above. This
    initiative does not require additional regulatory authority.

                                    OBESITY

        Question. In your prepared remarks you discuss the FDA Obesity
    Working Group whose recommendations were recently released as part of
    HHS Secretary Thompson's overarching new national education campaign
    for combating obesity. What is the FDA role in these anti-obesity
    efforts? Which of your Centers is responsible for these efforts? What,
    specifically, is the FDA doing to make sure labels on food is correct,
    and that claims made about food are factual and science-based? What, if
    any, additional plans will be implemented in fiscal year 2005?
        Answer. In support of the President's Healthier U.S. initiative,
    the DHHS established a complementary initiative, Steps to a Healthier
    United States, which emphasizes personal responsibility for the choices
    Americans make for healthy behaviors. One aspect of this initiative
    focuses on reducing the major health burden created by obesity and
    other chronic diseases. Following DHHS' July 2003 Roundtable on Obesity
    and Nutrition, on August 11, 2003, FDA established an Obesity Working
    Group, or OWG, to prepare a report that outlines an action plan to
    cover critical dimensions of the obesity problem from FDA's perspective
    and authorities. This report was released on March 12, 2004.
        There is no simple answer to the problem of obesity. Achieving
    success in reducing and avoiding obesity will occur only as a result of
    efforts over time by individuals as well as various sectors of our
    society. It should be noted, however, that most associations, agencies,
    and organizations believe that diet and physical activity should be
    addressed together in the fight against overweight and obesity.
        The OWG report provides a range of short and long-term
    recommendations to address the obesity epidemic with a focus on a
    ``calories count'' emphasis for FDA actions. These recommendations are
    based on sound science and address multiple facets of the obesity
    problem under FDA's purview, including developing appropriate and
    effective consumer messages to aid consumers in making wiser dietary
    choices; establishing educational strategies and partnerships to
    support appropriate messages and teach people, particularly children,
    how to lead healthier lives through better nutrition; developing
    initiatives to improve the labeling of packaged foods with respect to
    caloric and other nutrition information; encouraging and enlisting
    restaurants in efforts to combat obesity and provide nutrition
    information to consumers, including information on calories, at the
    point-of-sale; developing new therapeutics for the treatment of
    obesity; designing and conducting effective research in the fight
    against obesity; and continuing to involve stakeholders in the process.
        Regarding food labeling, the OWG report contains several
    recommendations based on sound science. I will provide these
    recommendations for the record.
        [The information follows:]
        Publish an advance notice of proposed rulemaking, or ANPRM, to seek
    comment on the following:
      --How to give more prominence to calories on the food label, for
            example, increasing the font size for calories, including a
            column in the Nutrition Facts panel of food labels for percent
            Daily Value for total calories, and eliminating the listing for
            calories from fat;
      --Whether to authorize health claims on certain foods that meet FDA's
            definition of ``reduced'' or ``low'' calorie. An example of a
            health claim for a ``reduced'' or ``low'' calorie food might
            be: ``Diets low in calories may reduce the risk of obesity,
            which is associated with type 2 diabetes, heart disease, and
            certain cancers.''
      --Whether to require additional columns on the Nutrition Facts panel
            to list quantitative amounts and percent Daily Value of an
            entire package on those products and package sizes that can
            reasonably be consumed at one eating occasion--or declare
            quantitative amounts and percent Daily Value of the whole
            package as a single serving if it can reasonably be consumed at
            a single eating occasion; and,
      --Which, if any, reference amounts customarily consumed of food
            categories appear to have changed the most over the past decade
            and hence require updating.
        File and respond in a timely way to petitions the agency has
    received that ask FDA to define terms such as ``low,'' ``reduced,'' and
    ``free'' carbohydrate; and provide guidance for the use of the term
    ``net'' in relation to carbohydrate content of food--these petitions
    were filed on March 11, 2004. Encourage manufacturers to use dietary
    guidance statements, an example of which would be, ``To manage your
    weight, balance the calories you eat with your physical activity.''
        Encourage manufacturers to take advantage of the flexibility in
    current regulations on serving sizes to label as a single-serving those
    food packages where the entire contents of the package can reasonably
    be consumed at a single eating occasion. Encourage manufacturers to use
    appropriate comparative labeling statements that make it easier for
    consumers to make healthy substitutions.
        We believe that if the report's recommendations are implemented
    they will make a worthy contribution to confronting our Nation's
    obesity epidemic and helping consumers' lead healthier lives through
    better nutrition.
        We also believe that the regulatory scheme for claims in food
    labeling, whether health claims, nutrient content claims, or other
    types of claims, are science based, and we continue to consider
    modifications to our regulations to keep up with recent scientific
    developments. Some of the modifications FDA is currently considering
    are described above in the list of topics to be covered by the ANPRM
    the agency intends to issue.

                        ALBUTEROL METERED-DOSE INHALERS

        Question. As noted in the Senate Report last year, there are a
    number of organizations which support the removal of ozone-destroying
    CFC albuterol metered-dose inhalers from the market. The FDA has
    indicated in its regulatory plan that it intends to issue a rule on
    this matter. Proponents of this rule had expected a proposed rule by
    now. When can this Committee expect the FDA to issue a proposed rule to
    remove albuterol metered-dose inhalers from the U.S. market? Can you
    tell us at this time what you expect the effective date would be for
    that rule? When do you expect the FDA will issue a final rule?
        Answer. FDA is currently working on the CFC albuterol proposed rule
    and expects it to publish shortly. The rulemaking process prohibits FDA
    from describing the contents of the proposed rule, so the Agency cannot
    state the effective date of the rule at this time. FDA expects the
    final rule to publish in March 2005.

                    BIOTECH-ENHANCED EVENTS IN FOOD AND FEED

        Question. The U.S. regulatory system currently imposes a zero
    tolerance on the presence of unapproved biotech-enhanced events in food
    and feed, regardless of the risk level. It does not recognize the
    realities of a biological system. This zero-tolerance' policy exposes
    grain handlers, food processors and feed manufacturers to the risk that
    any trace amounts of biotech-enhanced events in general commodity crops
    that have not been approved for food and feed under the U.S. regulatory
    process could render such crops adulterated and subject to seizure
    under Federal law. Such a policy is inconsistent with other food purity
    standards which have established thresholds for trace amounts of
    unexpected materials. Without having a policy in place, the United
    States risks significant disruptions in global agricultural trade. What
    is the FDA doing to meet their obligations and will they be able to
    complete their work by year's end?
        Answer. On August 2, 2002, OSTP announced proposed Federal actions
    to update field tests requirements for biotechnology derived plants and
    to establish early food safety assessments for new proteins produced by
    such plants. As part of this proposal, FDA announced that it would
    publish for comment draft guidance to address the possible
    intermittent, low level presence in food and feed of new non-pesticidal
    proteins from biotechnology-derived crops under development for food or
    feed use, but that have not gone through FDA's pre-market consultation
    process. FDA is preparing draft guidance and expects to publish the
    draft guidance for comment this calendar year.

                              GENERIC BIOLOGICALS

        Question. In your testimony you stressed the importance of being
    ``open-minded'' about the science ``as the science improves.'' Can you
    assure the Subcommittee that the Agency will not adopt an approach that
    resurrects old science, and that the Agency intends to remain open
    minded as it evaluates application of the vast innovation in analytical
    tools to the development and evaluation of follow-on biologicals?
        Answer. We can assure the subcommittee that the Agency will not
    adopt an approach that resurrects or relies on outdated scientific
    techniques in the development and evaluation of follow-on biologics.
    Indeed, the Agency has been very proactive in striving to understand
    and embrace the latest technology used in the characterization of
    biotechnological products. For example, the Agency supports active
    research programs that utilize current technologies in addressing
    mission related research and in developing technologies that help
    address regulatory and scientific issues. These efforts are important
    to ensure that FDA scientists remain current with the latest advances
    in analytical techniques. Scientific staff also participates in
    scientific symposia and extensively interact with colleagues. Indeed,
    many of our scientific staff involved in the regulation of biotech
    products, are located on the NIH campus, which provides an enriched
    research environment utilizing advanced technology that is second to
    none.
        In June 2003, the Agency cosponsored, along with the International
    Association of Biologicals and the National Institute for Biological
    Standards and Control, a conference on the ``State of the Art
    Analytical Methods for the Characterization of Biological Products and
    Assessment of Comparability''. This meeting focused on what current
    analytical technologies can and cannot tell us about the
    physicochemical structure and function of biological therapeutics;
        The Agency's scientists participate yearly in the annual Symposium
    on ``Well Characterized Biotechnological Products'' cosponsored by FDA
    and the California Separation Sciences Society. This symposium includes
    highly technical seminars, workshops, and poster sessions that
    introduce the latest analytical technologies for the evaluation of
    biotechnological products. These technologies are presented by the
    leading academic, Industrial (pharmaceutical and equipment vendors),
    and government scientists;
        The Agency's scientists actively participate in many International
    conferences sponsored by biotech and pharmaceutical organizations (Bio,
    Pharma, and DIA) and other organizations that provide scientific,
    technological and regulatory information to the pharmaceutical
    industry. These conferences frequently present the application of the
    latest analytical methods for the characterization of protein and
    glycoproten therapeutics;
        The Agency also invites innovative scientists from academia and
    industry to present and discuss with FDA scientists the latest advances
    in analytical technology and the development of animal models that
    address some of the current limitations of physicochemical
    characterization of protein products.
        Regarding immune responses to biological therapeutics
    (immunogenicity), which can cause serious adverse events and limit
    product effectiveness, the agency co-sponsored a meeting entitled
    ``Immunogenicity of Therapeutic Biological Products'' in October 2001,
    and has participated in numerous symposia on this topic in national
    meetings. Agency research scientists work with industry and academia in
    bringing to bear, on biological product development, informative animal
    models (transgenic, knockout, and knock-in) to more accurately predict
    the human immune response to various biotech products.
        Question. In your testimony you highlighted the extraordinary
    strides made over the past few years in developing instrumentation and
    other analytical tools that have vastly improved the ability to
    evaluate follow-on biologicals. Please identify for the Subcommittee
    the type of new analytical tools now available to industry and the
    Agency to conduct rigorous evaluations of follow-on biologics.
        Answer. Over the last several years there have been many advances
    in analytical tools that have improved the ability to evaluate follow-
    on Biologicals.
        Electrospray, matrix assisted laser desorption (ES-MS), and fast
    atom bombardment mass spectrometry (MALDI-TOF) have been use in
    conjunction with advances in separation technologies (Reverse Phase-
    High Performance Liquid Chromatography (RP-HPLC), Ion Exchange
    Chromatography, Hydrophobic Interaction Chromatography, Affinity
    Chromatography, and Size Exclusion Chromatography) to identify protein
    and carbohydrate heterogeneities and are very powerful tools for
    characterizing variations in a protein that are typically present in a
    single product.
        Recent advances in mass spectrometry (time of flight, fourier
    transform) have greatly improved the resolving powers of the technology
    and now provide the capability to resolve to within a 1 Da mass
    accuracy, the mass of a protein. In conjunction with powerful
    deconvulution software, this technology allows for very accurate mass
    data and a more comprehensive assessment of the carbohydrate profiles.
    This technology has resulted in a new approach called ``top down'' that
    allows for the analysis of intact proteins. In contrast, the
    traditional approach analyzes protein fragments generated by digestion
    with proteases, making it difficult to provide assurance that minor
    modifications to the protein have been identified.
        Protein aggregates can compromise the quality of a product as it
    relates to its safety and efficacy and are thought to be the most
    important product characteristic in generating immune responses. Such
    aggregates have typically been analyzed by size exclusion
    chromatography (SEC), an analytical method with limitations that result
    in the detection of only a very narrow spectrum of aggregates that can
    form in a protein product. Technological advances in a number of other
    analytical methods such as sedimentation velocity obtained by
    analytical ultracentrifugation and field flow fractionation can detect
    a much wider spectrum of aggregates, many of which are not detected by
    SEC.
        Advances in gel electrophoresis primarily various forms of
    capillary electrophoresis, now provide excellent resolution between
    protein species which differ slightly in net charge and can be coupled
    to various detention methods (UV, fluorescence, MS) for enhanced
    product characterization.
        Surface plasmon resonance technology monitors molecular interaction
    in real time and allows for the accurate detection and quantification
    of the on and off rates (kinetic rate constants) of protein-to-protein
    interactions. This technology has been applied to the design of
    immunoassays used for the detection of host antibodies formed against
    biotechnology products and to the characterization of mAB product
    interactions with their therapeutic target.
        Advances in the understanding of signal transduction mechanisms for
    many protein products have provided for the development of more precise
    in vitro bioassays that monitor an early event in the biological
    function of a protein rather then a cellular response, such as cell
    growth, that is subject to greater variability in outcomes.
        Protein products are not rigid structures and frequently the
    ability to flex and change conformations is critical to a protein's
    function. This property is difficult to detect by convention
    physicochemical techniques. However, advances in scanning probe
    microscopy particularly Atomic Force Microscopy (AFM), facilitate the
    mapping of biological samples to three-dimensional images and are
    capable of detecting multiple conformations. AFM-generated surface
    topology maps can portray in explicit detail the surface features of
    proteins and DNA. The application of this technology is broad and
    includes the study of protein and DNA structure, protein folding/
    unfolding, protein-to-protein interactions, protein-to-DNA
    interactions, enzyme catalysis and protein crystal growth.
        Dynamic light scattering and multi-angle light scattering (LS) are
    beginning to be used in conjunction with advances in separation systems
    such as field flow fractionation and size exclusion chromatography. LS
    can provide absolute molecular weight, root-mean square radius and
    hydrodynamic radius of individual species of product.
        Microcalorimetry allows one to assess the thermodynamic profile of
    a protein, which provides a measurement of the structural stability of
    the protein product or interactions with other proteins. The method can
    determine affinity constants, enthalpy, entropy, heat capacity, Gibbes
    free energy and the number of binding sites, parameters that help
    characterize proteins but have not been routinely employed in the
    biotech industry.
        Fluorescence spectroscopy has been useful in monitoring flexibility
    of proteins and conformational stability.
        Nuclear Magnetic Resonance Spectroscopy (NMR) has traditionally
    been used to identify small molecules and their structures are now
    being applied to solving the structure of much larger and more complex
    biological macromolecules.
        Question. Please outline for the Subcommittee the history of FDA's
    regulation of biologicals, the range and volume of biological approvals
    issued by the Agency over the course of that history, and any other
    factors you consider relevant to FDA's vast scientific expertise that
    is being applied to development of the draft Guidance and that
    ultimately would be brought to bear in evaluating follow-on
    biologicals.
        Answer. The regulation of biologics began in the United States in
    1902, when Congress passed the Virus, Serum and Antitoxin Act (also
    known as the Biologics Control Act of 1902 and as the Virus Toxin Law).
    This law was enacted following the deaths of ten children who had
    received injections of diphtheria antitoxin contaminated with tetanus.
    In 1901, there was a serious epidemic of diphtheria resulting in a
    great demand for the diphtheria antitoxin. At the time, there was no
    requirement for safety testing and none was performed, and the
    manufacturing process was not controlled properly. The tetanus
    contamination was traced to an infected horse whose serum was used in
    producing the antitoxin.
        The 1902 Act required biologics to be manufactured in a manner that
    assured safety, purity, and potency. Provisions of the Act included:
      --Establishment license requirements;
      --Product license requirements;
      --Labeling requirements;
      --Inspection requirements;
      --Suspension/revocation of licenses; and,
      --Penalties for violations.
        The responsibility for implementing this new law was given to the
    Hygienic Laboratory of the Public Heath Service (PHS). In 1903, PHS
    issued regulations that included requirements that inspections would be
    unannounced and licenses were to be issued and re-issued on the basis
    of an annual inspection. The 1902 Act was amended in 1944. One change
    included a requirement that a biological license could be issued only
    upon demonstration that the product and the establishment met standards
    to ensure the continued safety, purity and potency of such products.
    This evaluation was to be made during pre-licensure inspections. These
    provisions are codified in section 351 of the PHS Act (42 U.S.C. 262).
    Another change that occurred at this time was the focal point for
    administering the Act. This responsibility was given to the National
    Institute of Health's National Microbiological Institute. Changes in
    responsibility for regulating biological products under the PHS Act
    occurred in the mid-1950 with the advent of polio vaccines. From 1955
    to 1972, biologics were regulated within the National Institutes of
    Health (NIH), in the Division of Biologics Standards (DBS). In 1972,
    biologic regulation was transferred to the FDA's Bureau of Biologics.
        After this transfer to the FDA began a merger of the regulatory
    requirements of the PHS Act and the Federal Food, Drug and Cosmetic
    (FD&C) Act (21 U.S.C.). Biologics were viewed as biological products
    under the PHS Act, and as drugs under the FD&C Act, subject to
    inspection under the Good Manufacturing Practices (GMP) regulations for
    drugs. The reagent manufacturers were also inspected under drug GMPs
    because there were no device regulations until 1976. Among the several
    changes that occurred, blood banks were required to register with the
    FDA and GMPs for blood and blood products were promulgated. Today one
    of the major responsibilities of FDA is to ensure the safety of the
    Nation's blood supply.
        In 1982, the FDA merged the Bureau of Biologics and the Bureau of
    Drugs into the Center for Drugs and Biologics. After a subsequent
    reorganization the responsibility for biologics regulation was placed
    under the Center for Biologics Evaluation and Research (CBER). The
    responsibilities for regulating biological products has grown and
    become more complex from its beginning in 1902, when technologies for
    producing biological products were in their infancy and the primary
    role was vaccine regulation. Today the regulation of a wide variety of
    novel biological products and their use as therapeutics requires
    knowledge of new scientific developments and concepts of research in
    the relevant biological disciplines. The therapeutic biological
    products that the FDA regulates are on the leading edge of technology.
    Rapid scientific advances in biochemistry, molecular biology, cell
    biology, immunology, genetics, and information technology are
    transforming drug discovery and development, paving the way for
    unprecedented progress in developing new medicines to conquer disease.
        As a representative sample of the range and volume of biological
    products approved, we offer below the fiscal year 2003 approvals.
    CBER's fiscal year 2003 major approvals include all approvals for
    original new BLAs (except those for blood banking), and other approvals
    for original biologic, drug, or device applications or supplements
    (e.g., for new/expanded indications, new routes of administration, new/
    improved tests, new dosage formulations and regimens). Although most of
    the Office of Therapeutics Research and Review's applications were
    transferred to the Center for Drug Evaluation and Research on June 30,
    2003, all major BLA approvals are included in this list for both
    centers.
        [The information follows:]

                         BIOLOGICS LICENSE APPLICATIONS
    ------------------------------------------------------------------------
          Tradename/Proper Name       Indication for Use     Manufacturer
    ------------------------------------------------------------------------
    Pegasys
        Peginterferon alfa-2a.......  Treatment of        Hoffmann-La Roche
                                       adults with         Inc. Nutley, NJ
                                       chronic hepatitis
                                       C who have
                                       compensated liver
                                       disease and who
                                       have not been
                                       previously
                                       treated with
                                       interferon alfa.
    COBAS Ampliscreen HCV
        Hepatitis C Virus (Hepatitis  For the detection   Roche Molecular
         C Virus/Polymerase Chain      of HCV RNA, in      Systems, Inc.
         Reaction/Blood Cell           human plasma.       Pleasanton, CA
         Derived).
    Pediarix
        DTaP & Hepatitis B            Combination         GlaxoSmithKline
         (Recombinant) & Inactivated   vaccine for         Biologicals
         Polio Virus Vaccine.          childhood           Rixensart,
                                       immunization.       Belgium
    COBAS Ampliscreen HIV-1
        Human Immunodeficiency Virus  For detection of    Roche Molecular
         Type 1 (HIV-1/Polymerase      Human               Systems, Inc.
         Chain Reaction).              Immunodeficiency    Pleasanton, CA
                                       Virus (HIV-1) in
                                       human plasma
                                       using Polymerase
                                       Chain Reaction.
    Aralast
        Alpha-Proteinase Inhibitor    Chronic             Alpha Therapeutic
         (Human).                      replacement         Corporation Los
                                       therapy             Angeles, CA
                                       (augmentation) in
                                       patients having
                                       congenital
                                       deficiency of
                                       Alpha-1-
                                       Proteinase
                                       Inhibitors with
                                       clinically
                                       evident emphysema.
    HUMIRA
        Adalimumab..................  Reducing signs and  Abbott
                                       symptoms and        Laboratories
                                       inhibiting the      Abbott Park, IL
                                       progression of
                                       structural damage
                                       in adult patients
                                       with moderately
                                       to severely
                                       active rheumatoid
                                       arthritis who
                                       have had an
                                       inadequate
                                       response to one
                                       or more disease
                                       modifying
                                       antirheumatic
                                       drugs (DMARDs).
    Amevive
        Alefacept...................  Treatment of adult  Biogen, Inc.
                                       patients with       Cambridge, MA
                                       moderate to
                                       severe chronic
                                       plaque psoriasis
                                       who are
                                       candidates for
                                       systemic therapy
                                       or phototherapy.
    Crosseal
        Fibrin Sealant (Human)......  Adjunct to          OMRIX
                                       hemostasis during   Biopharmaceutical
                                       liver surgery.      s, Ltd. Fairfax,
                                                           VA
    Peroxidase Conjugate ORTHO
     Antibody to HBsAG ELISA Test
     System 3
        Antibody to Hepatitis B       Detection of        Ortho-Clinical
         Surface Antigen (Mouse        hepatitis B         Diagnostics, Inc.
         Monoclonal) Enzyme-Linked     surface antigen     Raritan, NJ
         Immunosorbent Assay (ELISA)   in human serum or
         (Antibody to HBsAg/Enzyme     plasma as a
         Immuno Assay (EIA), Version   screening test
         3.0/Monoclonal).              and an aid in the
                                       diagnosis of
                                       potential
                                       hepatitis B
                                       infection.
    Fabrazyme
        agalsidase beta.............  For use in          Genzyme
                                       patients with       Corporation
                                       Fabry disease to    Cambridge, MA
                                       reduce
                                       globotriasylceram
                                       ide (GL-3)
                                       deposition in
                                       capillary
                                       endothelium of
                                       the kidney and
                                       certain other
                                       cell types.
    Aldurazyme
        Laronidase..................  For treatment of    Biomarin
                                       patients with       Pharmaceutical,
                                       Hurler and Hurler-  Inc. Novato, CA
                                       Scheie forms of
                                       Mucopolysaccharid
                                       osis I (MPS I)
                                       and for patients
                                       with the Scheie
                                       form who have
                                       moderate to
                                       severe symptoms.
    FluMist
        Influenza Virus Vaccine       For active          MedImmune
         Live, Intranasal.             immunization for    Vaccines, Inc.
                                       the prevention of   Mountain View, CA
                                       disease caused by
                                       influenza A and B
                                       viruses in
                                       healthy children
                                       and adolescents,
                                       5-17 years of
                                       age, and healthy
                                       adults, 18-49
                                       years of age.
    XOLAIR
        Omalizumab..................  For adults and      Genentech, Inc.
                                       adolescents (12     South San
                                       years of age and    Francisco, CA
                                       above) with
                                       moderate to
                                       severe persistent
                                       asthma who have a
                                       positive skin
                                       test or in vitro
                                       reactivity to a
                                       perennial
                                       aeroallergen and
                                       whose symptoms
                                       are inadequately
                                       controlled with
                                       inhaled
                                       corticosteroids.
    BEXXAR
        Tositumomab and Iodine I 131  Treatment of        Corixa Corporation
         Tositumomab.                  patients with       Seattle, WA
                                       CD20 positive,
                                       follicular, non-
                                       Hodgkin's
                                       lymphoma, with
                                       and without
                                       transformation,
                                       whose disease is
                                       refractory to
                                       Rituximab and has
                                       relapsed
                                       following
                                       chemotherapy.
    Zemaira
        Alpha-1-Proteinase Inhibitor  To use as chronic   Aventis Behring
         (Human).                      augmentation and    L.L.C. King of
                                       maintenance         Prussia, PA
                                       therapy in
                                       individuals with
                                       Alpha-1-
                                       Antitrypsin
                                       Deficiency and
                                       evidence of
                                       emphysema.
    Advate
        Antihemophilic Factor         Indicated in        Baxter Healthcare
         (Recombinant), Plasma/        hemophilia A        Corporation
         Albumin Free Method.          (classical          Westlake Village,
                                       hemophilia) for     CA
                                       the prevention
                                       and control of
                                       bleeding
                                       episodes, and in
                                       the perioperative
                                       management of
                                       patients with
                                       hemophilia A.
    Genetic Systems HIV-1/HIV-2 Plus
     O EIA
        Human Immunodeficiency Virus  For detection of    Bio-Rad
         Types 1 and 2 (HIV-1 and      antibodies to       Laboratories,
         HIV-2/Enzyme Immunoassay      human               Inc. Hercules, CA
         (EIA)/Recombinant and         immunodeficiency
         Synthetic).                   types 1 and 2.
    GAMUNEX
        Immune Globulin Intravenous   Indicated in        Bayer Corporation
         (Human), 10 percent by        primary humoral     Berkeley, CA
         Chromatography Process.       immunodeficiency
                                       and idiopathic
                                       thrombocytopenic
                                       purpura.
    ------------------------------------------------------------------------

        BIOLOGICS LICENSE SUPPLEMENTS (FOR NEW INDICATIONS, NEW ROUTES OF
               ADMINISTRATION, NEW DOSAGE FORMS, IMPROVED SAFETY)
    ------------------------------------------------------------------------
          Tradename/Proper Name       Indication for Use     Manufacturer
    ------------------------------------------------------------------------
    Prevnar
        Pneumococcal 7-valent         New indication for  Lederle
         Conjugate Vaccine             the prevention of   Laboratories
         (Diphtheria CRM197 Protein).  otitis media.       Division Pearl
                                                           River, NY
    Avonex
        Interferon beta-1a..........  Package insert      Biogen, Inc.
                                       revised to          Cambridge, MA
                                       include updated
                                       information
                                       regarding serum
                                       neutralizing
                                       antibodies.
    Pegasus
        Peginterferon alfa-2a.......  Combination         Hoffmann-La Roche
                                       therapy with        Inc. Nutley, NJ
                                       Ribavirin, USP
                                       (COPEGUS), for
                                       the treatment of
                                       chronic Hepatitis
                                       C Virus infection
                                       in adults.
    Aranesp
        Darbepoetin alfa............  Darbepoetin alfa    Amgen, Inc.
                                       Albumin (human)     Thousand Oaks, CA
                                       formulation in
                                       single dose
                                       prefilled
                                       syringes for six
                                       dosage strengths
                                       (60, 100, 150,
                                       200, 300 and 500
                                       micrograms).
    Simulect
        Basiliximab.................  Addition of new     Novartis
                                       single dose 10 mg   Pharmaceuticals
                                       strength of drug    Corporation East
                                       product.            Hanover, NJ
    Avonex
        Interferon beta-1a..........  Package insert      Biogen, Inc.
                                       revised to          Cambridge, MA
                                       include safety
                                       and efficacy data
                                       from a study of
                                       patients who
                                       experienced a
                                       single clinical
                                       exacerbation of
                                       multiple
                                       sclerosis and to
                                       provide a
                                       Medication Guide.
    Betaseron
        Interferon beta-1b..........  To revise the       Chiron Corporation
                                       Clinical Studies    Emeryville, CA
                                       section to
                                       include data from
                                       two studies
                                       conducted in
                                       patients with
                                       secondary
                                       progressive
                                       multiple
                                       sclerosis (MS),
                                       also to update
                                       the Adverse
                                       Reactions and
                                       Warnings sections
                                       to include new
                                       safety
                                       information, and
                                       to provide a
                                       Medication Guide.
    Remicade
        Infliximab..................  For reducing the    Centocor, Inc.
                                       number of           Malvern, PA
                                       draining
                                       enterocutaneous
                                       and rectovaginal
                                       fistulas and
                                       maintaining
                                       fistula closure
                                       in patients with
                                       fistulizing
                                       Crohn's disease.
    Rebif
        Interferon beta-1a..........  Final pivotal       Serono, Inc.
                                       study report that   Rockland, MA
                                       confirms the
                                       results of 48
                                       week data.
    Avonex
        Interferon beta-1a..........  HAS-free liquid     Biogen, Inc.
                                       formulation in a    Cambridge, MA
                                       prefilled syringe
                                       as an alternate
                                       dosage form and
                                       to provide for a
                                       Medication Guide.
    Dryvax
        Smallpox Vaccine, Dried,      Active              Wyeth
         Calf Lymph Type.              immunization        Laboratories,
                                       against smallpox    Inc. Marietta, PA
                                       disease.
    Dryvax
        Smallpox Vaccine, Dried,      Include new safety  Wyeth
         Calf Lymph Type.              information for     Laboratories,
                                       the recent          Inc. Marietta, PA
                                       reports of
                                       cardiac events
                                       and updated
                                       storage period
                                       for the vaccine
                                       after
                                       reconstitution
                                       from 15 days to
                                       90 days.
    Infanrix
        Diphtheria & Tetanus Toxoids  To include in the   GlaxoSmithKline
         & Acellular Pertussis         indication a        Biologicals
         Vaccine Adsorbed.             fifth dose at 4-6   Rixensart,
                                       years of age        Belgium
                                       after 4 prior
                                       doses of Infanrix.
    Enbrel \1\
        Etanercept..................  To expand the       Immunex
                                       rheumatoid          Corporation
                                       arthritis           Seattle, WA
                                       indication to
                                       include improving
                                       physical function.
    Enbrel \1\
        Etanercept..................  For reducing signs  Immunex
                                       and symptoms in     Corporation
                                       patients with       Seattle, WA
                                       active ankylosing
                                       spondylitis.
    Enbrel \1\
        Etanercept..................  To expand the       Immunex
                                       indication to       Corporation
                                       include             Seattle, WA
                                       inhibiting the
                                       progression of
                                       structural damage
                                       of active
                                       arthritis in
                                       patients with
                                       psoriatic
                                       arthritis.
    Kineret \1\
        Anakinra....................  To expand the       Amgen, Inc.
                                       indication to       Thousand Oaks, CA
                                       include slowing
                                       the progression
                                       of structural
                                       damage in
                                       moderately to
                                       severely active
                                       rheumatoid
                                       arthritis, in
                                       patients 18 years
                                       of age or older
                                       who have failed
                                       one or more
                                       DMARDs.
    Synagis \1\
        Palivizumab.................  To expand the       MedImmune,Inc
                                       indication to       Gaithersburg, MD
                                       include children
                                       with
                                       hemodynamically
                                       significant
                                       congenital heart
                                       disease.
    ------------------------------------------------------------------------
    \1\ OTRR product applications transferred to CDER on 6-30-03.

                              NEW DRUG APPLICATIONS
    ------------------------------------------------------------------------
          Tradename/Proper Name       Indication for Use       Applicant
    ------------------------------------------------------------------------
    TriCitrasol Anticoagulant Sodium
     Citrate Conc. 46.7 percent
     Trisodium Citrate, 30 mL
        Anticoagulant Sodium Citrate  triCitrasol, after  Cytosol
         Solution.                     dilution of a       Laboratories,
                                       rouleaux agent,     Inc. Braintree,
                                       is an               MA
                                       anticoagulant
                                       used in
                                       granulocytapheres
                                       is procedures.
    Anticoagulant Citrate Dextrose
     Solution, Solution A, U.S.P.,
     (ACD-A). 50 mL, PN 6053
        Anticoagulant Citrate         To provide for the  Cytosol
         Dextrose Solution (ACD).      use of              Laboratories,
                                       Anticoagulant       Inc. Braintree,
                                       Citrate Dextrose    MA
                                       Solution,
                                       Solution A,
                                       U.S.P., (ACD-A)
                                       50 mL for the
                                       extracorporeal
                                       processing of
                                       blood with
                                       Autologous PRP
                                       systems in
                                       production of
                                       platelet rich
                                       plasma (PRP) for
                                       in vitro use.
    ------------------------------------------------------------------------

                       SUPPLEMENTAL NEW DRUG APPLICATIONS
    ------------------------------------------------------------------------
          Tradename/Proper Name       Indication for Use       Applicant
    ------------------------------------------------------------------------
    Abbokinase
        Urokinase...................  Improvements in     Abbott
                                       the manufacture     Laboratories
                                       and testing of      Abbott Park, IL
                                       the bulk drug
                                       substance and
                                       drug product, and
                                       withdrawal of the
                                       indication for
                                       coronary artery
                                       thrombosis
                                       indication (CAT)
                                       and the Open-Cath
                                       dosage strengths.
    ------------------------------------------------------------------------

                               DEVICE APPLICATIONS
    ------------------------------------------------------------------------
                                        Description and
                Tradename               Indication for         Applicant
                                            Device
    ------------------------------------------------------------------------
    OraSure OraQuick Rapid HIV-1      For the detection   OraSure
     Antibody Test                     of antibodies to    Technologies
                                       HIV-1 in human      Bethlehem, PA
                                       finger-stick
                                       whole blood
                                       specimens.
    MedMira Rapid HIV Test            For detection of    MedMira labs
                                       HIV-1 and HIV-2     Bayers Lake
                                       Antibodies.         Halifax, Canada
    Ortho ProVue, Software Version:   Modular,            Micro Typing
     2.10                              Microprocessor-     Systems Inc.
                                       controlled          Pompano Beach, FL
                                       instrument
                                       designed to
                                       automate in vitro
                                       immunohematologic
                                       al testing to
                                       human blood
                                       utilizing the ID
                                       MTS/Gel
                                       Technology.
    Vironostika HIV-1 Plus O          For the             BioMerieux, Inc.
     Microelisa System                 qualitative         Durham, NC
                                       detection of
                                       antibodies to
                                       Human
                                       Immunodeficiency
                                       Virus Type 1 (HIV-
                                       1), including
                                       Group O, in human
                                       specimens
                                       collected as
                                       serum, plasma, or
                                       dried blood spots.
    ------------------------------------------------------------------------

            DEVICE SUPPLEMENTS (FOR NEW INDICATIONS, IMPROVED SAFETY)
    ------------------------------------------------------------------------
                                        Description and
                Tradename               Indication for         Applicant
                                            Device
    ------------------------------------------------------------------------
    Calypte HIV-1 Urine EIA           HIV-1 Urine EIA to  Calypte Biomedical
                                       include changes     Corporation
                                       to the black box    Alameda, CA
                                       warning statement.
    ------------------------------------------------------------------------

                                     ______

               Questions Submitted by Senator Christopher S. Bond

                             nutritional guidelines
        Question. There is a linear relationship between high transfatty
    acid and high saturated fat intake and chronic disease. We also know
    that the consumption of foods high in these two elements likely
    contribute to the statistics on obesity. Does FDA intend to draft
    guidelines or standards for the consumption of these fats?
        Answer. FDA issued on July 11, 2003 final rules to require that
    trans fatty acids be listed in mandatory nutrition labeling.
    Manufacturers must have this information in Nutrition Facts panels on
    all food packages entering interstate commence by January 1, 2006. On
    July 11, 2003, FDA also published an advance notice of proposed
    rulemaking (ANPRM) to solicit data and information that could be used
    to establish new nutrient content claims about trans fatty acids; to
    establish qualifying criteria for trans fat in current nutrient content
    and health claims; and to consider statements about trans fat, either
    alone or in combination with saturated fat and cholesterol to enhance
    consumers' understanding about such cholesterol-raising lipids and how
    to use the information to make healthy food choices. The agency has
    reopened the comment period to this ANPRM to receive comment on the
    Institute of Medicine's (IOM) December 2003 report on Dietary Reference
    Intakes in which the IOM included a suggested approach for establishing
    a daily value for trans fat. In addition, FDA has scheduled a Food
    Advisory Committee Nutrition Subcommittee meeting at the end of April
    2004 to consider scientific questions related to saturated fat and
    trans fat that may help determine the agency's course for food labeling
    of these fats.
        Question. Will FDA provide guidelines and or regulations to
    restaurants and other food manufacturers and--more importantly--provide
    them a roadmap to increasing the nutritional content and decrease
    saturated fat levels of their products?
        Answer. An important goal of the Nutrition Labeling and Education
    Act of 1990 was to provide incentives to manufacturers to improve the
    nutritional composition of food products. Studies have shown that the
    implementing regulations, which required nutrition labeling on most
    packaged foods, resulted in a significant increase in the number of
    low- and reduced-fat products in the marketplace. We anticipate that
    the new labeling regulations requiring that trans fat be listed will
    have a similar effect, reducing total intake of trans fat. In fact,
    since publication of the final rule requiring the listing of trans fat,
    several food manufacturers and at least one major fast food restaurant
    chain have announced that they are changing the type of fats used in
    order to reduce levels of trans fats.
        Question. Does FDA intend to provide guidelines and or regulations
    on the characteristics of healthy oils' that can be used in most food
    manufacturing to improve overall health and nutrition of those foods?
        Answer. By requiring the saturated and trans fat content to be
    declared in Nutrition Facts panels on most packaged foods, FDA is
    providing an incentive for manufacturers to reduce the levels of those
    fats whose consumption is associated with increased levels of LDL-
    cholesterol.
        Question. Does FDA have this authority?
        Answer. Manufacturers may choose between different food ingredients
    to use in their food products, provided that such ingredients are safe
    for such use under the Federal Food, Drug, and Cosmetic Act (the Act).
    FDA has authority, under section 403(q) of the Act, to require
    nutrition labeling on packaged food products. Restaurant foods are
    exempt unless they make a nutrition claim.
        Question. How will FDA ensure that as they move forward with trans-
    fat labeling that saturated fats will not come back into the diet?
        Answer. Nutrition labeling will indicate the levels of both
    saturated fat and trans fat in most packaged foods. Consumer education
    programs will encourage consumers to look at both types of fats and to
    consider the combined total amount in making purchasing decisions.
                                     ______

                    Questions Submitted by Senator Herb Kohl

                                    OBESITY

        Question. Dr. Crawford, both USDA and FDA have recently announced
    new efforts to combat the increasing problem of obesity. FDA announced
    the ``Calories Count'' program, and USDA has money in several programs,
    including WIC, to help battle this problem. However, for all of the
    government's efforts, all of the money being put into this effort pales
    in comparison to the food industry's billions of dollars worth of
    advertising. How can the government successfully get its message out
    when, at first glance, its efforts appear to be dwarfed by the food
    industry? How do your agencies compete with that?
        Answer. In support of the President's Healthier U.S. initiative,
    the DHHS established a complementary initiative, Steps to a Healthier
    U.S., which emphasizes personal responsibility for the choices
    Americans make for healthy behaviors. One aspect of this initiative
    focuses on reducing the major health burden created by obesity and
    other chronic diseases. Following DHHS' July 2003 Roundtable on Obesity
    and Nutrition, on August 11, 2003, FDA established an Obesity Working
    Group, or OWG, to prepare a report that outlines an action plan to
    cover critical dimensions of the obesity problem from FDA's perspective
    and authorities. This report was released on March 12, 2004.
        There is no simple answer to the problem of obesity. Achieving
    success in reducing and avoiding obesity will occur only as a result of
    efforts over time by individuals as well as various sectors of our
    society. It should be noted, however, that most associations, agencies,
    and organizations believe that diet and physical activity should be
    addressed together in the fight against overweight and obesity.
        The OWG report provides a range of short and long-term
    recommendations to address the obesity epidemic with a focus on a
    ``calories count'' emphasis for FDA actions. These recommendations are
    based on sound science and address multiple facets of the obesity
    problem under FDA's purview, including developing appropriate and
    effective consumer messages to aid consumers in making wiser dietary
    choices; establishing educational strategies and partnerships to
    support appropriate messages and teach people, particularly children,
    how to lead healthier lives through better nutrition; developing
    initiatives to improve the labeling of packaged foods with respect to
    caloric and other nutrition information; encouraging and enlisting
    restaurants in efforts to combat obesity and provide nutrition
    information to consumers, including information on calories, at the
    point-of-sale; developing new therapeutics for the treatment of
    obesity; designing and conducting effective research in the fight
    against obesity; and continuing to involve stakeholders in the process.
        Regarding food labeling, the OWG report contains several
    recommendations based on sound science. I will provide these
    recommendations for the record.
        [The information follows:]
        Publish an advance notice of proposed rulemaking, or ANPRM, to seek
    comment on the following:
      --How to give more prominence to calories on the food label, for
            example, increasing the font size for calories, including a
            column in the Nutrition Facts panel of food labels for percent
            Daily Value for total calories, and eliminating the listing for
            calories from fat;
      --Whether to authorize health claims on certain foods that meet FDA's
            definition of ``reduced'' or ``low'' calorie. An example of a
            health claim for a ``reduced'' or ``low'' calorie food might
            be: ``Diets low in calories may reduce the risk of obesity,
            which is associated with type 2 diabetes, heart disease, and
            certain cancers.''
      --Whether to require additional columns on the Nutrition Facts panel
            to list quantitative amounts and percent Daily Value of an
            entire package on those products and package sizes that can
            reasonably be consumed at one eating occasion--or declare
            quantitative amounts and percent Daily Value of the whole
            package as a single serving if it can reasonably be consumed at
            a single eating occasion; and,
      --Which, if any, reference amounts customarily consumed of food
            categories appear to have changed the most over the past decade
            and hence require updating.
        In addition, FDA will file and respond in a timely way to petitions
    the agency has received that ask FDA to define terms such as ``low,''
    ``reduced,'' and ``free'' carbohydrate; and provide guidance for the
    use of the term ``net'' in relation to carbohydrate content of food--
    these petitions were filed on March 11, 2004.
        FDA will also encourage manufacturers to use dietary guidance
    statements, an example of which would be, ``To manage your weight,
    balance the calories you eat with your physical activity.'' In
    addition, the Agency will encourage manufacturers to take advantage of
    the flexibility in current regulations on serving sizes to label as a
    single-serving those food packages where the entire contents of the
    package can reasonably be consumed at a single eating occasion and
    encourage manufacturers to use appropriate comparative labeling
    statements that make it easier for consumers to make healthy
    substitutions.
        FDA believes that if the report's recommendations are implemented
    they will make a worthy contribution to confronting the Nation's
    obesity epidemic and helping consumers' lead healthier lives through
    better nutrition.
        FDA also believes that the regulatory scheme for claims in food
    labeling, whether health claims, nutrient content claims, or other
    types of claims, are science based, and we continue to consider
    modifications to our regulations to keep up with recent scientific
    developments. A benefit of standardized, science-based terminology, as
    with other terms that FDA has defined that consumers may use to make
    health-based dietary choices--e.g., terminology concerning fat content-
    , is that it allows consumers to compare across products and it
    encourages manufacturers to compete based on the nutritional value of
    the food. However, FDA does not regulate television and other media
    marketing of food products. Some of the modifications FDA is currently
    considering are described above in the list of topics to be covered by
    the ANPRM the agency intends to issue.
        With respect to conveying the report's messages to the public, FDA
    believes that all parties, including the packaged food industry,
    restaurants, academia, and other private and public sector
    organizations in addition to government agencies at all levels, have an
    essential role to play. On April 22, 2004, FDA's Science Board focused
    on specific recommendations from the OWG report. These recommendations
    call on FDA to work through a third-party facilitator to engage all
    involved stakeholders in a dialogue on how best to construct and convey
    obesity messages in the restaurant setting and in the area of pediatric
    obesity education.
        This approach is one example of how the Agency intends, by means of
    public and private partnerships, to leverage its ability to convey
    appropriate messages on obesity to the public with the goal of changing
    behavior and ultimately reversing obesity trends in the United States.

                               IMPORT INSPECTIONS

        Question. Dr. Crawford, the FDA budget this year includes a $7
    million increase to fund 97,000 food import examinations. This is a big
    increase in inspections over any previous year--still, however, less
    than one percent of all of the food imported into this country will be
    inspected. How would you respond to charges that you still aren't
    inspecting nearly enough imported food, especially in light of events
    during the past year where bad food has gotten in and people have died?
    How do we ensure consumers that their food is indeed safe?
        Answer. FDA is appreciative of the additional funding we have
    received for the inspection of domestic firms and for inspections of
    imported foods. FDA believes it is more effective to focus our
    resources in a risk-based manner than to focus simply on increasing the
    percentage of imported food shipments that are physically inspected. It
    is important to note that every shipment of FDA-regulated food which is
    entered through Customs and Border Protection as a consumption entry is
    electronically reviewed by FDA's Operational and Administrative System
    for Import Support to determine if it meets identified criteria for
    further evaluation by FDA reviewers and physical examination and/or
    sampling and analysis or refusal. This electronic screening allows FDA
    to concentrate its limited inspection resources on high-risk shipments
    while allowing low-risk shipments to proceed into commerce.
        Due to constantly changing environments of operation, e.g.,
    counterterrorism and BSE, our domestic inspection and import strategy
    cannot be defined in terms of a percentage of coverage through
    inspections, physical examinations and sample analyses. It needs to be
    a flexible blend of the use of people, technology, information and
    partnerships to help protect Americans from unsafe imported products.
    Accordingly, the Agency is developing and using strategies for
    mitigating risks prior to importation through partnerships and
    initiatives based on best practices and other science based factors
    relevant to the import life cycle, i.e., from foreign manufacturer to
    the U.S. consumer. Recently this principle has been applied in the
    ``Canadian Facility Voluntary Best Management Practices for Expediting
    Shipments of Canadian Grains, Oilseeds and Products to the United
    States'' implemented February 24, 2004, and designed to mitigate the
    potential of mammalian protein prohibited from being fed to cattle or
    other ruminants under BSE-prevention regulations promulgated by CFIA
    and FDA.
        Another piece of the long term solution to a higher level of
    confidence in the security and safety of food products lies in
    information technology that will merge information on products and
    producers with intelligence on anticipated risks to target products for
    physical and laboratory examination or refusal. This strategy would
    rely on data integrity activities that reduce the opportunity for
    products to be incorrectly identified at ports. It would also rely on
    cooperation from producers so that FDA can identify sources that are
    unlikely to need physical testing. However, even with such targeting,
    improvements are limited by the available methodologies for assessing
    threat agents and our ability to predict which tests ought to be used.
        We are ramping up our food inspections, but we recognize that we
    also need to inspect smarter, not just inspect more. That is why FDA is
    making significant investments in technology and information resources
    such as the development of the Mission Accomplishment and Regulatory
    Compliance Services System, MARCS. MARCS is a comprehensive redesign
    and reengineering of two core mission critical systems at FDA: FACTS
    and the Operational and Administrative System for Import Support,
    OASIS. OASIS supports the review and decision making process of
    products for which entry is sought into the United States. We are using
    funds to work to further improve targeting and using force multipliers
    such as IT.
        FDA also has a proof of concept project, called ``Predict,'' with
    New Mexico State University under a Department of Defense contract
    which is being designed to enhance agency capability to rapidly assess
    and identify import entries based on risk using relevant information
    from various sources including regulated industry, trade, other
    Federal, State, and local entities, and foreign industry and
    governments. This project, if successful, will greatly enhance FDA's
    capability to be smarter in directing field activities on products of
    greater risk to public health and safety. The proof of concept project
    is projected to be completed in the Fall of 2004. The relentless growth
    in the volume of domestic as well as imported food products, which are
    increasingly in ``ready for consumer sale packaging.'' Food imports are
    now growing at 19 percent per year. FDA needs to use all the potential
    tools available to improve its efficiency in food security and safety
    coverage.
        In addition, FDA has several strategic initiatives to enhance
    safety. One of these is ``Agency Initiatives to Improve Coverage,''
    which includes the creation of the Southwest Import District to better
    coordinate import activities on the southern border. Another is
    reciprocal FDA and U.S. Customs and Border Protection training to
    improve product integrity of goods offered for import and increase
    enforcement actions by Customs to deter willful violations of U.S. laws
    and regulations. While foreign inspections and border operations
    provide some assurance that imported foods are safe, the agency
    continues to work to foster international agreements and harmonize
    regulatory systems. For instance, we actively participate in the
    Canada/U.S./Mexico Compliance Information Group, which shares
    information on regulatory systems and the regulatory compliance status
    of international firms to protect and promote human health.
        It is very important that American consumers trust the safety of
    the food supply. FDA has made fundamental changes in how we implement
    our mission of protecting the food supply, so that all Americans can
    have confidence that their food has been handled under secure
    conditions that provide assurance of its safety.

                               FDA FOIA POLICIES

        Question. Dr. Crawford, my office has been working with a non-
    profit patient advocacy group, the TMJ Association, in their efforts to
    have two FOIA requests that are well over a year old responded to.
    Their original FOIA request was made on November 1, 2002 (request
    number 02017071), more than 17 months ago, and the subsequent request
    was made on March 25, 2003 (request number 03004361). They have not yet
    received the information requested, and have been unable to get a date
    commitment by FDA as to when the information will be provided. It is my
    understanding that they have been informed that FOIA requests are
    severely backlogged, and the FDA has no idea when they will be able to
    process their request. What is the current backlog for FOIA requests?
        Answer. As of April 28, 2004, FDA has 19,369 pending FOIA
    requests--17,555 have been pending more than 20 days and 1,814 have
    been pending 20 days or less. The Denver District Office is responsible
    for responding to the two requests from the TMJ Association. As of
    April 28, 2004, Denver District Office has 369 pending FOIA requests--
    357 requests have been pending more than 20 days, and 12 requests have
    been pending 20 days or less.
        Question. How many FDA staff are responsible for handling these
    requests? Is this their sole responsibility, or do they have other
    responsibilities as well?
        Answer. For fiscal year 2003 the total number of personnel
    responsible for processing FOIA requests was 91 FTE, 75 full time
    employees, and 16 FTE work years representing personnel with part-time
    FOIA duties in addition to other responsibilities.
        Question. Does FDA need additional staff or resources in order to
    process these requests on a timely basis?
        Answer. In some agency components FOIA is a collateral duty. For
    example, in most FDA field offices, Compliance Officers whose primary
    responsibilities are related to the Agency's regulatory enforcement
    activities also perform FOIA duties as permitted by time and regulatory
    workload. Additional staff devoted to FOIA could shorten the amount of
    time for processing requests.
        Question. What do you believe is a reasonable length of time for a
    group to wait for an information request to be processed and responded
    to?
        Answer. Requests are processed by the agency component that
    maintains the requested records. There are a number of factors that
    must be considered in order to predict a reasonable amount of time for
    a request to be processed. Those factors include the volume of requests
    received by the component, the complexity of requests received, the
    amount of time required to search for records, the amount of time
    require to review the records to determine whether information is
    releasable under FOIA, and the resources available to process requests.
        Question. What is the average length of time it takes to process a
    FOIA request? Can you please explain the severe delay in processing
    this specific one, which has taken over 2 years and apparently has no
    end in sight? Can you please provide me a timeframe within which the
    FDA will respond to these two particular FOIA requests?
        Answer. Under the Electronic Freedom of Act Amendments of 1996,
    agencies are permitted to establish multiple tracks for processing FOIA
    requests based on the complexity of the requests and the amount of work
    and time required to process requests. Some FDA components have
    established multiple processing tracks. Requests are processed on a
    first in, first out basis within each track. The median number of days
    to process requests in the simple processing track is 19 days. The
    median number of days to process requests in the complex processing
    track, for more complicated requests, is 363 days. For requests that
    are not processed in multiple processing tracks, the median number of
    days to process is 44 days.
        Due to a heavy load of regulatory cases in the Denver District
    Office that must be handled by the Compliance Officers in addition to
    staff shortages, FOIA work in the Denver District is being performed by
    one individual on a part-time basis. This has resulted in a significant
    backlog of FOIA requests. The Denver District Office expects to fill
    request 02-17071 from the TMJ Association in six months, and request
    03-4361 in one month.
        Question. What additional efforts can this group undertake in order
    to speed up their request?
        Answer. The Denver District Office expects to fill request 02-17071
    from the TMJ Association in 6 months, and request 03-4361 in one month.
        In addition, the Denver District is reviewing and evaluating its
    FOIA workload and will develop a strategy aimed at reducing the backlog
    of FOIA requests.
        Question. What is the FDA's policy on charging for FOIA requests
    made by non-profit patient advocacy groups?
        Answer. The FOIA sets forth criteria that agencies must follow with
    respect to charging for processing FOIA requests. Non-profit
    organizations are considered Category III requesters. Such requesters
    receive 100 pages of duplication and 2 hours of search at no charge. If
    the number of pages exceed 100 and/or if the amount of search time
    exceeds 2 hours, Category III requesters are charged based on the FOIA
    fee schedule of the Department of Health and Human Services. The fee
    for duplication is $.10 per page, and the fee for search is based on
    the grade level of the individual who processes the request. I will be
    happy to provide the current grade rates for the record.
        [The information follows:]
    Current Grade Rates
        GS-1 through 8--$18.00 per hour
        GS-9 through 14--$36.00 per hour
        GS-15 and above--$64.00 per hour
        In addition, requesters may make a request for waiver or reduction
    of fees if their request meets the following criteria: disclosure of
    the information is in the public interest because it is likely to
    contribute significantly to public understanding of the operations or
    activities of the Government; and, disclosure is not primarily in the
    commercial interest of the requester.

                              IMPLICIT PRE-EMPTION

        Question. Adverse reactions to prescription drugs and other
    medicines take the lives of more than 100,000 Americans each year, and
    millions more are seriously injured. For many years, state tort laws
    have enabled some victims to receive compensation for their injuries.
    It has been brought to my attention that the Food and Drug
    Administration (FDA) has stepped in to protect drug companies from
    liability in some of these lawsuits, potentially robbing individuals of
    their only means of compensation. FDA's actions are even more troubling
    when you consider that these lawsuits have other important purposes,
    such as deterring future bad behavior and providing the American public
    with access to important health and safety information. How many times
    has the FDA interfered in lawsuits, arguing that implicit pre-emption
    prohibits a plaintiff from receiving compensation for their injuries?
    In how many of these cases has a court held that the plaintiff's tort
    claim was implicitly pre-empted by Federal law?
        Answer. In the past several years, the Department of Justice (DOJ)
    has represented the United States in four cases involving state-law
    challenges to the adequacy of FDA-approved risk information
    disseminated for FDA-approved new drugs.\1\ In each case, DOJ contended
    that the state-law claim was preempted by Federal law. In addition, in
    some cases, DOJ argued that the state-law claim was not properly before
    the court by operation of the doctrine of primary jurisdiction.\2\
    ---------------------------------------------------------------------------
        \1\ FDA also periodically becomes involved, through the Department
    of Justice, in cases involving preemption of state-law requirements
    under the medical device provisions of the FDCA, which include an
    express preemption provision, 21 U.S.C. 360k(a).
        \2\ Primary jurisdiction allows a court to refer a matter to an
    administrative agency for an initial determination where the matter
    involves technical questions of fact and policy within the agency's
    jurisdiction. See, e.g., Israel v. Baxter Labs., Inc., 466 F.2d 272,
    283 (D.C. Cir. 1972); see also 21 CFR 10.60.
    ---------------------------------------------------------------------------
        The legal basis for preemption in these cases is FDA's careful
    control over drug safety, effectiveness, and labeling according to the
    agency's comprehensive authority under the FDCA and FDA implementing
    regulations. If state authorities, including judges and juries applying
    state law, were permitted to reach conclusions about the safety and
    effectiveness information disseminated with respect to drugs for which
    FDA has already made a series of regulatory determinations based on its
    considerable institutional expertise and statutory mandate, the Federal
    system for regulation of drugs would be disrupted. I will be happy to
    include information on the four cases for the record.
        [The information follows:]
    Bernhardt
        In 2000, two individual plaintiffs filed product liability actions
    in a New York court against Pfizer, Inc., seeking a court order
    requiring the company to send emergency notices to users of the
    prescription antihypertensive drug CARDURA (doxazosin mesylate) and
    their physicians. The notices would have described the results of a
    study by a component of the National Institutes of Health (NIH) that,
    the plaintiffs alleged, demonstrated that Cardura was less effective in
    preventing heart failure than a widely used diuretic. FDA had not
    invoked its authority to send ``Dear Doctor'' letters or otherwise
    disseminate information regarding a drug that the agency has determined
    creates an ``imminent danger to health or gross deception of the
    consumer.'' (21 U.S.C. 375(b).) The plaintiffs, nevertheless, filed a
    lawsuit under state common law seeking relief that, if awarded, would
    have pressured the sponsor to disseminate risk information that FDA
    itself had not disseminated pursuant to its statutory authority.
        FDA's views were submitted to the Federal district court in the
    form of a Statement of Interest.\3\ The Statement relied on the
    doctrine of primary jurisdiction. The Statement also took the position
    that the plaintiffs' request for a court order requiring the
    dissemination of information about NIH study results to users and
    prescribers of CARDURA was impliedly preempted. According to the
    Statement, the court order ``would frustrate the FDA's ability
    effectively to regulate prescription drugs by having the Court
    substitute its judgment for the FDA's scientific expertise.'' The
    Statement also noted that, if the court granted the requested order, a
    direct conflict would be created between the information required to be
    disseminated by the court and the information required to be
    disseminated by FDA under the FDCA (in the form of the FDA-approved
    labeling).
    ---------------------------------------------------------------------------
        \3\ Statement of Interest of the United States; Preliminary
    Statement, Bernhardt v. Pfizer, Inc., Case No. 00 Civ. 4042 (LMM)
    (S.D.N.Y. filed Nov. 13, 2000).
    ---------------------------------------------------------------------------
        The Statement contended that state law could not provide a basis
    for requiring a drug manufacturer to issue drug information that FDA
    had authority to, but did not, require. Importantly, the submission did
    not argue that the state-law claim was preempted because FDA had
    reached a determination that directly conflicted with the plaintiff's
    view. Nor did it assert that FDA had specifically determined that the
    information on the NIH study requested by the plaintiffs was
    unsubstantiated, false, or misleading. In this sense, the Statement of
    Interest in Bernhardt was the most aggressive, from a legal
    perspective, than the three subsequent DOJ submissions on FDA's behalf
    in preemption cases made during the present Administration.
        The United States District Court for the Southern District of New
    York accepted the primary jurisdiction argument made on FDA's behalf.
    (Bernhardt v. Pfizer, Inc., 2000 U.S. Dist. LEXIS 16963, *9 (whether
    the additional warnings sought by the plaintiffs were appropriate ``is
    a decision that has been squarely placed within the FDA's informed
    expert discretion'').) It did not address the preemption issue. The
    case was voluntarily dismissed on April 22, 2003.
    Dowhal
        In 1998, an individual plaintiff in California asked that State's
    attorney general to initiate an enforcement action against SmithKline
    Beecham and other firms marketing OTC nicotine replacement therapy
    products in California. (These products are marketed pursuant to an
    approved new drug application.) The plaintiff contended that the FDA-
    approved warnings for the defendants' products did not meet the
    requirements of a state statute called the Safe Drinking Water and
    Toxic Enforcement Act (Cal. Health & Safety Code  25249.5 et seq.),
    also known as Proposition 65. From 1996 through 2001, FDA had
    repeatedly advised the defendants that they could be liable under the
    FDCA for selling misbranded products if they deviated from the FDA-
    approved warning labeling for their products. FDA also advised the
    state attorney general in writing in 1998 that the defendants' warning
    in the labeling clearly and accurately identified the risks associated
    with the products and, therefore, met FDA requirements under the FDCA.
    After receiving the letter, the attorney general declined to initiate
    enforcement action.
        Nevertheless, in 1999, the individual plaintiff initiated a lawsuit
    of his own in California state court under Proposition 65's ``bounty-
    hunter'' provision, which empowers individuals to file enforcement
    actions under that statute on behalf of the people of the State of
    California. The lawsuit asked the court to award civil money penalties
    and restitution, and to issue an injunction requiring the defendants to
    disseminate warnings for their products that differed from the warnings
    required by FDA. In 2000, the plaintiff filed a citizen petition with
    FDA requesting that the agency require the defendants to change their
    warnings to reflect the language sought by the plaintiff in the
    lawsuit. FDA rejected the proposed language, determining that it lacked
    sufficient support in scientific evidence and presented a risk of
    mischaracterizing the risk-benefit profile of the products in a way
    that threatened the public health. Although the trial court found for
    the defendant, the California Court of Appeal rejected the defendant's
    contention that the plaintiff's claim was preempted under the FDCA, and
    allowed the lawsuit to proceed. (Dowhal v. SmithKline Beecham Consumer
    Healthcare, 2002 Cal. App. LEXIS 4384 (Cal. Ct. App. 2002), argued,
    Case No. S-109306 (Cal. Feb. 9, 2004).)
        FDA's views were presented to the Court of Appeal of California in
    an amicus curiae (``friend of the court'') brief and to the Supreme
    Court of California in a letter brief and an amicus brief.\4\ All three
    documents explained that the warning language sought by the plaintiffs
    had been specifically considered and rejected by FDA as scientifically
    unsubstantiated and misleading. Including the language would,
    therefore, misbrand those products and cause the defendants to violate
    the FDCA. The documents explained, further, that principles of conflict
    preemption applied to the plaintiffs' claim because it was impossible
    for defendants to comply with both Federal and State law and because
    the state law posed an obstacle to the accomplishment of the full
    purposes and objectives of the FDCA.
    ---------------------------------------------------------------------------
        \4\ Letter from Robert D. McCallum, Jr., Ass't Attorney General, et
    al., to Frederick K. Ohlrich, Supreme Court Clerk/Administrator, Dowhal
    v. SmithKline Beecham Consumer Healthcare LP, et al., Case No. S-109306
    (Cal. filed Sept. 12, 2002); Amicus Curiae Brief of the United States
    of America in Support of Defendants/Respondents SmithKline Beecham
    Consumer Healthcare LP, et al., Dowhal v. SmithKline Beecham, Case No.
    A094460 (Cal. Ct. App. filed Mar. 22, 2002); Amicus Curiae Brief of the
    United States of America in Support of Defendants/Appellants SmithKline
    Beecham Consumer Healthcare LP, et al., Dowhal v. SmithKline Beecham,
    Case No. S109306 (Cal. filed July 31, 2003).
    ---------------------------------------------------------------------------
        The California Court of Appeal rejected the preemption argument.
    (Dowhal v. SmithKline Beecham Consumer Healthcare, 2002 Cal. App. LEXIS
    4384, . . . 16-17 (Cal. Ct. App. 2002) (reversing trial court decision
    granting summary judgment for defendants on preemption grounds).) On
    April 15, 2004, the California Supreme Court reversed the appeals court
    decision, finding a direct conflict between FDA requirements and the
    state-law warning requirement advocated by the plaintiff. (Dowhal v.
    SmithKline Beecham Consumer Healthcare, 2004 Cal. LEXIS 3040.)
    Motus
        Also in 2000, an individual plaintiff sued Pfizer in a California
    court alleging, among other things, that the company had failed to
    fulfill its state common law duty to warn against the risk of suicide
    the plaintiff alleged was presented by ZOLOFT (sertraline HCl), an FDA-
    approved drug in the selective serotonin reuptake inhibitor (SSRI)
    class indicated to treat depression (among other things). On numerous
    occasions, FDA had specifically considered and rejected such language
    for SSRIs as scientifically unsupportable and inconsistent with FDA
    determinations as to the safety and effectiveness of the products.
        The United States District Court for the Central District of
    California (to which the case had been removed on the ground of
    diversity) rejected the defendant's preemption argument, allowing the
    lawsuit to proceed. (Motus v. Pfizer Inc., 127 F. Supp. 2d 1085 (C.D.
    Cal. 2000).) The court later granted the defendant's motion for summary
    judgment on non-preemption grounds (196 F. Supp. 2d 984, 986 (C.D. Cal.
    2001)), and the plaintiff appealed. DOJ submitted an amicus curiae
    brief to the United States Court of Appeals for the Ninth Circuit on
    FDA's behalf.\5\ The brief's arguments were essentially the same as the
    arguments advanced in Bernhardt. In contrast to the situation in
    Bernhardt, however, in Motus, FDA had specifically considered, and
    rejected, the language requested by the plaintiff under state law. The
    appeals court affirmed the trial court's decision earlier this year
    (2004 U.S. App. LEXIS 1944 (9th Cir. February 9, 2004)).
    ---------------------------------------------------------------------------
        \5\ Amicus Brief for the United States in Support of the Defendant-
    Appellee and Cross-Appellant, and in Favor of Reversal of the District
    Court's Order Denying Partial Summary Judgment to Defendant-Appellee
    and Cross-Appellant, Motus v. Pfizer, Case Nos. 02-55372 & 02-55498
    (9th Cir. filed Sept. 3, 2002).
    ---------------------------------------------------------------------------
    In re PAXIL
        In 2001, individuals filed suit in a California court on behalf of
    past or current users of PAXIL (paroxetine HCl) against the drug's
    manufacturer, GlaxoSmithKline (GSK), alleging that the company's
    direct-to-consumer (DTC) broadcast advertisements for the drug failed
    adequately to warn about the consequences of discontinuing the drug. In
    reviewing the new drug application for the drug, FDA had found no
    evidence that it was habit-forming and did not require GSK to address
    that risk in FDA-approved labeling. FDA did, however, require GSK to
    include in labeling statements regarding discontinuation syndrome, and
    the labeling consequently recommends that doctors gradually reduce
    dosages and monitor patients for syndrome symptoms. FDA reviewed
    proposed DTC advertisements GSK had submitted for Paxil that said that
    the drug was not habit-forming. The agency at no time determined that
    this statement was misleading. In August 2002, notwithstanding FDA's
    determination, the court issued a preliminary injunction prohibiting
    GSK from running DTC advertisements stating that Paxil is not habit-
    forming. (In re Paxil Litigation, 2002 U.S. Dist. LEXIS 16221 (C.D.
    Cal. Aug. 16, 2002).)
        On reconsideration, the court declared that the preliminary
    injunction challenged only ``FDA's . . .  determination that the public
    is not likely to equate the words `not habit forming' as used in
    direct[-]to[-]consumer advertisements with no withdrawal symptoms.''
    According to the court, ``The question of how members of the general
    public are likely to interpret (or misinterpret) a statement is within
    one of the courts' core competencies.'' Declaring itself ``unwilling to
    blindly accept FDA's ultimate determination here,'' the court rejected
    the defendants' preemption and primary jurisdiction arguments. It
    nevertheless denied the injunction on the ground that the plaintiff was
    not likely to succeed in demonstrating that ``non-habit forming''
    statement in the advertisement is misleading. Thus, although the court
    ultimately declined to award the injunctive relief sought by the
    plaintiff, it continued to distinguish between FDA's determinations as
    to the adequacy of drug warnings under Federal law, and its own view of
    warnings adequacy under state common law. (In re Paxil Litigation, 2002
    U.S. Dist. LEXIS 24621 (C.D. Cal. Oct. 16, 2002).)
        DOJ submitted to the court a Statement of Interest and a brief
    asserting preemption.\6\ The Statement of Interest contended that a
    court order requiring GSK to remove the ``non-habit-forming'' claim
    from its advertisements for Paxil would be inconsistent with FDA's
    determination that the company's advertisements were proper and that
    Paxil is not, in fact, ``habit-forming.'' The brief contended that the
    court should find the plaintiff's state-law request for a court order
    preempted because it poses an obstacle to achievement of the full
    objectives of Congress ``by attempting to substitute th[e] Court's
    judgment for FDA's scientific expertise.'' As the brief pointed out,
    FDA had specifically reviewed the advertisements, made suggestions
    concerning the proper manner of presenting information relating to
    whether Paxil is ``habit-forming,'' and, in the exercise of its
    scientific and medical expertise, found the advertisements acceptable.
    The brief also included a primary jurisdiction argument. The court
    reversed its earlier award of an injunction prohibiting the
    manufacturer from running advertisements that had been reviewed and
    approved by FDA, but the reversal was based on a ground other than
    preemption. (In re Paxil Litigation, 2002 U.S. Dist. LEXIS 24621 (C.D.
    Cal. 2002).) \7\
    ---------------------------------------------------------------------------
        \6\ Statement of Interest of the United States of America, In re
    PAXIL Litigation, Case No. CV 01-07937 MRP (CWx) (C.D. Cal. filed
    August 20, 2002); Brief of the United States of America, In re PAXIL
    Litigation, Case No. CV 01-07937 MRP (CWx) (C.D. Cal. filed Sept. 4,
    2002).
        \7\ In December 2003 (296 F. Supp. 2d 1374), the litigation,
    consisting of twelve action in eleven Federal judicial districts, was
    centralized for pretrial proceedings in the United States District
    Court for the Central District of California.
    ---------------------------------------------------------------------------
    Conclusion
        As these cases illustrate, courts entertaining lawsuits filed under
    state law do not always defer to FDA on matters that Congress has
    placed squarely within the agency's authority. In FDA regulatory areas
    characterized by comprehensive regulation and requiring a careful and
    expert evaluation of scientific data and public health issues, state
    coregulation can stand as an obstacle to or directly conflict with the
    agency's administration of its statutory mandate. Preemption is the
    constitutionally prescribed mechanism for resolving these conflicts.
        The practice of citing preemption and primary jurisdiction under
    the FDCA in litigation in which the United States is not a party is
    well-established and substantially predates the current Administration.
    DOJ and FDA participation in these cases is unusual. In the current
    Administration, DOJ has participated in private state-law actions on
    FDA's behalf only following a judicial finding that the action should
    proceed, and only to address a state-law finding that, left
    undisturbed, would undermine FDA's execution of its statutory mission
    or directly conflict with Federal law. Responsibility for making final
    decisions whether to make submissions in private lawsuits, on
    preemption, primary jurisdiction, or any other issue, rests with the
    Department of Justice--not FDA itself.

        Question. These arguments conflict with long-standing FDA policy.
    The law appears to contradict what the FDA has argued. What motivated
    FDA to change its policy?
        Answer. The Government's participation in cases arising under
    state-law and presenting preemption issues is consistent with past FDA
    practice and with the pertinent law.
        The principal enabling statute of the Food and Drug Administration
    is the Federal Food, Drug, and Cosmetic Act, FDCA. Under this statute,
    FDA has broad authority to protect the public health by ensuring that
    foods are safe, wholesome, sanitary, and properly labeled, and that
    drugs and medical products are safe and effective. (See 21 U.S.C.
    393(b)(2)(A)-(C).) By operation of the Supremacy Clause of the United
    States Constitution (U.S. Const. Art. VI, clause 2), the FDCA nullifies
    conflicting requirements established by the States in legislation,
    regulations, or common law. (See Gibbons v. Ogden, 22 U.S. (9 Wheat.)
    1, 211 (1824) (Marshall, C.J.).)
        In the past, FDA has addressed conflicting state requirements in
    the context of rulemaking. In 1982, for example, FDA promulgated
    regulations requiring tamper-resistant packaging for over-the-counter
    drugs. In the preamble accompanying the regulations, FDA stated its
    intention that the regulations preempt any state or local requirements
    that were ``not identical to . . .  [the rule] in all respects.'' (47
    FR 50442, 50447; Nov. 5, 1982.) Similarly, in 1986, FDA issued
    regulations requiring aspirin manufacturers to include in labeling a
    warning against use in treating chicken pox or flu symptoms in children
    due to the risk of Reye's Syndrome. In the accompanying preamble, FDA
    said the regulations preempted ``State and local packaging requirements
    that are not identical to it with respect to OTC aspirin-containing
    products for human use.'' (51 FR 8180, 8181; Mar. 7, 1986.) In 1994,
    FDA amended 21 CFR 20.63 to preempt state requirements for the
    disclosure of adverse event-related information treated as confidential
    under FDA regulations. (59 FR 3944; Jan. 27, 1994.)
        In addition, for many years, conflicting state requirements have
    been addressed by FDA through case-by-case participation in selected
    lawsuits to which the
        United States has not been a party. Because FDA lacks independent
    litigating authority, this participation has been by the Department of
    Justice (DOJ) on FDA's behalf. The practice of addressing conflicting
    state requirements through participation in litigation dates back many
    years. For example, DOJ participated on FDA's behalf in favor of
    preemption in both Jones v. Rath Packing Company, 430 U.S. 519 (1977),
    and Grocery Manufacturers of America, Inc. v. Gerace, 755 F.2d 993 (2d
    Cir. 1985). In addition, as discussed in our response to the previous
    question on preemption, FDA has recently participated in several cases
    involving state-law requirements for the communication of risk
    information for prescription drugs. Of note, the first--and most
    aggressive, from a legal perspective--of these submissions occurred
    during the previous Administration--Bernhardt case included in
    materials for the record.

                                     NARMS

        Question. What is the total amount of funding for NARMS, and from
    what account does it come?
        Answer. The total amount of funding for NARMS in fiscal year 2004
    is $7.634 million. This funding is located in the Salaries and
    Expenses, or S&E, account.
        Question. How much is FDA giving to USDA and CDC in fiscal year
    2005? How does that compare to fiscal year 2004? Please describe what
    factors are used to determine the division of funds.
        Answer. At this time, FDA has not determined the exact funding for
    CDC and USDA for NARMS for fiscal year 2005 but plans to make decisions
    by Fall 2004. In fiscal year 2004, FDA funding on NARMS will be reduced
    due to government-wide rescissions. In fiscal year 2004, FDA provided
    funds of approximately $1.6 million to USDA and $2 million to CDC. It
    is important to point out that a large portion of the funds provided to
    CDC is given to the states for the collection, isolation and
    identification of bacterial isolates, which are then shipped to CDC and
    the Food and Drug Administration's Center for Veterinary Medicine--
    NARMS retail arm--for susceptibility testing. In determining the funds
    provided to CDC and USDA, we analyze the entire NARMS program,
    including the retail food arm of NARMS, and strive to fill in data gaps
    and avoid duplication of organisms to be tested.
        Question. How much NARMS money is currently being spent in foreign
    countries, specifically Mexico? How is this money being used?
        Answer. FDA is not spending any current year NARMS funding in
    Mexico or other foreign countries.
        Question. Does USDA or CDC spend any of their NARMS money in
    foreign countries?
        Answer. In fiscal year 2004 FDA is providing USDA and CDC, $1.6
    million and $2 million respectively. FDA does not keep detailed records
    of USDA and CDC funding for NARMS.

                               COUNTERFEIT DRUGS

        Question. In February, FDA released a report on combating
    counterfeit drugs. Several new technologies were mentioned that could
    be used to this effect, including Radiofrequency Identification
    tagging, color shifting inks, and holograms. Specifically regarding
    color shifting inks, which I understand are currently available, has
    FDA taken any action, or do you have any plans to pursue this option?
        Answer. It is true that color shifting ink technology is currently
    available for use on drug packaging and labeling. However, we heard
    uniformly from all stakeholders that this technology is expensive and
    requires significant investment of resources and time prior to
    implementation. Due to the wide variety of products, packaging, and
    labeling on the market, we heard from manufacturers, wholesalers, and
    retailers that the decision to use color shifting inks, or any other
    authentication technology, should be made by the manufacturer after a
    manufacturer initiated product risk assessment. Without such an
    analysis, use of color-shifting ink, or other authentication
    technology, could lead to an unnecessary increase in the cost of drugs
    to consumers. For example, we heard that color-shifting ink could be
    appropriate for use on a very expensive, high volume brand name drug
    product that is likely to be counterfeited, but not on a generic or low
    volume drug product that is less likely to be counterfeited.
        Based on our discussions with manufacturers, we estimate that it
    would take a minimum of six to twelve months to implement a technology
    such as color shifting ink from the time a decision is made to use the
    authentication technology on the packaging and/or labeling of a drug
    product. It could take longer if the technology, e.g., color-shifting
    ink, is used on the product itself because safety studies might have to
    be performed to ensure that the technology, e.g., the ink, does not
    affect the safety or stability of the product.

                            ANIMAL DRUG COMPOUNDING

        Question. Dr. Crawford, on February 10, I submitted a letter to Dr.
    McClellan regarding FDA's new Compliance Policy Guidelines, issued July
    14, 2003, regarding animal drug compounding. I received a response from
    FDA on March 31st, and I thank you for that. However, I do have a few
    more questions in light of the response.
        First, the letter stated that FDA issued the CPG for immediate
    implementation because of the ``urgent need to explain how it intended
    to exercise its enforcement discretion regarding compounded drugs for
    animal use in light of Thompson v. Western States Medical Center.''
    However, this case dealt only with compounding in human drugs, not
    animal drugs. How does this create an urgent need to deal with animal
    drugs?
        Answer. After the Western States decision, FDA revised its
    enforcement policy on pharmacy compounding of human drugs. FDA was
    concerned that without updated guidance regarding compounding of animal
    drugs, the public would remain uncertain about whether and how FDA
    would change its enforcement policy with respect to compounded animal
    drugs. In addition, agency staff would lack clear guidance on
    enforcement matters.
        As FDA stated in its letter, although prior public comment was not
    sought in this case, pursuant to the good guidance practices
    regulations the public was invited to comment on the CPG when it was
    issued and may comment on it at any time (68 FR 41591 (July 14, 2003)).
    FDA has been reviewing those comments and will revise the guidance as
    appropriate upon completion of our review.
        Question. Second, the response states that two Federal appeals
    court decisions have held that ``the Federal Drug & Cosmetic Act does
    not permit veterinarians to compound unapproved finished drugs from
    bulk substances, unless the finished drug is not a new animal drug.
    These cases support FDA's position that new animal drugs that are
    compounded from bulk substances are adulterated under the FD&C Act and
    may be subject to regulatory action.'' I have been informed that the
    cases cited deal only with veterinarians compounding drugs, not
    pharmacists. Why do you limit pharmacists as well as veterinarians? Is
    this supported by any congressionally-enacted statutory authority,
    legislative history or case law?
        Answer. The principle established by the courts applies equally to
    compounding by pharmacists and veterinarians.
        Veterinary medicine has not traditionally utilized the services of
    compounding pharmacies to the extent that they have been utilized
    within human medicine. The increasing activities and presence of
    compounding pharmacies in veterinary medicine is a relatively recent
    development.
        The Federal Food Drug and Cosmetic Act, or ``the Act'', and its
    implementing regulations do not exempt veterinarians or pharmacists
    from the approval requirements in the new animal drug provisions of the
    Act, 21 U.S.C. Section 360b. In the absence of an approved new animal
    drug application, the compounding of a new animal drug from any
    unapproved drug or from bulk drug substances results in an adulterated
    new animal drug within the meaning of section 21 U.S.C. Section
    351(a)(5). The compounding of a new animal drug from an approved human
    or animal drug also results in an adulterated new animal drug within
    the meaning of 21 U.S.C. Section 351(a)(5), unless the conditions set
    forth in 21 CFR 530.13(b) relating to extralable use are met.
        FDA is concerned about veterinarians and pharmacists that are
    engaged in manufacturing and distributing unapproved new animal drugs
    in a manner that is clearly outside the bounds of traditional pharmacy
    practice and that violates the Act--such as compounding that is
    intended to circumvent the drug approval process and provide for the
    mass marketing of products that have been produced with little or no
    quality control or manufacturing standards to ensure the purity,
    potency, and stability of the product.
        Pharmacists and veterinarians who engage in activities analogous to
    manufacturing and distributing drugs for use in animals may be held to
    the same provisions of the Act as manufacturers.
        Question. Finally, the final paragraph of the FDA response states
    ``Accordingly, the regulations that implement AMDUCA provide that
    extralabel use by compounding applies only to compounding of a product
    from approved drugs, and that nothing in the regulations is to be
    construed as permitting compounding from bulk drugs.'' Is there in the
    agency's view anything in AMDUCA's regulations or the Act that is to be
    construed as not permitting compounding from bulk substances?
        Answer. As previously noted, under the Federal Food, Drug and
    Cosmetic Act, in the absence of an approved new animal drug
    application, the compounding of a new animal drug from a bulk substance
    results in a new animal drug that is adulterated as a matter of law.
    This has been FDA's longstanding position, which is supported by two
    Federal appeals court decisions, United States v. Algon Chemical Inc.,
    879 F.2d 1154 (3d Cir. 1989) and United States v. 9/1 Kg. Containers,
    854 F.2d 173 (7th Cir. 1988).
                                     ______

                 Questions Submitted by Senator Byron L. Dorgan

                               DRUG REIMPORTATION

        Question. In Canada and the European Union, all drugs sold in those
    countries must meet the safety requirements of those countries. Given
    that, why is the FDA opposed to legalizing the importation of drugs
    that stayed within their systems? In what areas does the FDA believe
    that the Canadian or European drug regulatory systems are inferior to
    its own? Please provide specific examples.
        Answer. We have concerns about medicines purchased outside of the
    United States because they are typically not FDA-approved and they have
    been manufactured, processed, shipped, and/or held outside the reach of
    the domestic Federal and State oversight systems intended to ensure
    that all drugs are safe and effective for their intended uses. The
    Medicare Prescription Drug, Improvement and Modernization Act of 2003,
    directed the Secretary of Health and Human Services to conduct a study
    on the importation of drugs. The Conference Report detailed the
    information to be included in the study. The information you have
    requested as to assurances of the safety of imported drugs from Canada
    and the European Union is information requested as part of the study.
    We have been actively involved in collecting, analyzing and assessing
    information, including the safety of such products, the economic
    implications, the cost of implementation, and expect to provide a
    comprehensive study to Congress before or by the due date.
        Question. How much funding and new personnel do you estimate that
    the FDA needs in order to implement a safe system of drug importation?
    [In 2000, FDA estimated that it would need $23 million for the first
    year of implementation.] What specific additional authorities does the
    FDA feel it needs to ``police imports''?
        Answer. FDA made several cost estimates during consideration of the
    MEDS Act in 2000 and during consideration of other importation
    legislation. In 2000, FDA estimated that implementation of the MEDS Act
    would cost $21 million in each of the first 2 years following passage
    of the legislation, as the agency drafted implementing regulations.
    Other figures were provided in direct response to particular inquiries.
    It should be noted that the figures previously calculated were specific
    to the different legislation and programs reviewed and include
    limitations on the types of importations. For the MEDS Act, if the
    program was fully implemented, the cost estimates rose to more than
    $100 million per year. The information you have requested as to what
    additional authorities FDA needs to ``police imports'' is information
    that is being assessed as part of the Medicare Section 1122 study.
        Question. The drug importation provision in the new Medicare law
    (Section 1121) gives the HHS Secretary the authority to write
    regulations that ``contain any additional provisions determined by the
    Secretary to be appropriate as a safeguard to protect the public health
    or as a means to facilitate the importation of prescription drugs.'' Is
    this not enough additional authority to allow FDA to police imports?
        Answer. This information will also be assessed as part of the
    Medicare study, as noted above.
        Question. Recently, edible bean shipments were stopped by at the
    U.S. border from Canada because the beans were contaminated with the
    chemical ``Ronilan,'' which is banned from use on edible beans in the
    United States. I come to find out that according to the Food and Drug
    Administration, less than one-half of 1 percent of the edible beans
    imported into the United States are inspected. North Dakota is the
    number one State in dry edible bean production in the country. My
    farmers have a vested interest in seeing that their industry is
    protected the importation of contaminated edible beans. What will the
    FDA do to increase inspections to insure that our edible bean industry
    is protected?
        Answer. Based on sampling conducted and residues found, FDA does
    not believe that additional testing/sampling beyond what is currently
    planned is warranted. The common violations involve a pesticide use on
    a food for which no United States tolerance has been established for
    that particular food although that pesticide has been registered with
    EPA and has a tolerance established on other foods. If new information
    becomes available indicating a compliance problem, whether from FDA
    sampling or other valid sampling, the FDA will consider increasing the
    priority for pesticide testing for dried edible beans.
                                     ______

                Questions Submitted by Senator Dianne Feinstein

                              LARIUM (MEFLOQUINE)

        Question. Mefloquine is an anti-malarial product that is approved
    and prescribed in the United States but is used by consumers overseas
    to prevent or treat malaria infections. There have been many reports in
    the press about mefloquine's potentially dangerous side effects and FDA
    issued a press release describing these side effects. With most of the
    consumers of mefloquine using the product abroad how can we be certain
    that the reporting of adverse events experienced overseas is occurring
    sufficient for adequate assessments of risk and benefit during the
    post-marketing period?
        Answer. Adverse event reporting is voluntary for consumers and
    health care providers. Health care providers or consumers may report to
    the drug manufacturer (who is required to forward the report to FDA
    under 21CFR 314.80) or directly to FDA. The reports received are then
    entered into the AERS database, which is used to evaluate the adverse
    events associated with a particular drug in the aggregate. This data is
    used to identify potential drug safety concerns, on which FDA can
    either take immediate action, or study further in some way. In the case
    of mefloquine hydrochloride, the response to your next question
    demonstrates that we are receiving reports of serious adverse events,
    even though the drug is primarily used while patients are overseas.
        Question. How many and what types of adverse events are being
    reported? Who is submitting the reports, the consumer experiencing the
    adverse event or the practitioner? Given the serious nature and
    potential for long term side effects is there a registry or follow-up
    of consumers of this product, either during use or after finishing use
    of the product?
        Answer. As of April 13, 2004, the FDA's Adverse Event Reporting
    System (AERS) post marketing database contains 2,786 cases with Lariam
    (mefloquine hydrochloride) as a suspect drug. Case reports have been
    received since Lariam was approved in 1989 and continue to come to the
    Agency at a rate of more than 100 per year. For example, AERS has
    received 139 posts marketing adverse event cases1 associated with
    Lariam since April 1, 2003. As with most drugs, many types of adverse
    events are reported for Lariam. However, the largest number of reports
    is for neuropsychiatric events; of the 2,786 Lariam cases in AERS,
    1,821 contain at least one event categorized as neurological and/or
    psychiatric in nature. Seven of the ten events most frequently reported
    for Lariam (see below) are neuropsychiatric in nature:
        Dizziness 381 cases; \1\ Headache 235; Anxiety 360; Fever 196;
    Depression 303; Hallucination 179; Insomnia 268; Diarrhea 169; Nausea
    238; Abnormal dreams 148.
    ---------------------------------------------------------------------------
        \1\ This raw count from AERS probably contains some duplicate
    cases, as well as cases resulting from literature articles and studies.
    ---------------------------------------------------------------------------
        The Lariam labeling (package insert) was recently updated to
    include stronger warnings about neuropsychiatric events. In addition,
    an official Medication Guide discussing neuropsychiatric and other
    adverse events, and describing malaria chemoprevention, is required by
    law to be given to every patient to whom Lariam is dispensed.
        Lariam reports are being submitted from multiple sources.
    According to AERS, of the 2,786 reported cases, 512 cases were reported
    by consumers and 1,540 by health professionals.\2\
    ---------------------------------------------------------------------------
        \2\ The categorization by source includes a large number of cases
    with null values. In addition, more than one source can be indicated
    for a given case (for example, both ``health professional'' and
    ``literature'').
    ---------------------------------------------------------------------------
        Although most Lariam adverse events occur while the users are
    traveling, more than 1,500 of the 2,786 Lariam cases were reported
    from the United States. This indicates that travelers are notifying
    their health practitioners, Roche Pharmaceuticals, and/or the FDA
    directly of adverse events associated with Lariam upon their return to
    this country.
        There is no registry for follow-up of Lariam adverse events. It
    should be noted that post-market reporting is only one component of
    FDA's adverse event monitoring. Controlled comparative trials give us
    the most reliable data, and there are many such trials in the published
    literature. In addition, there are publications describing active
    surveys, which provide information on very large numbers of patients in
    a relatively controlled manner.
        Question. DOD has begun an investigation into psychiatric adverse
    events in soldiers and plans a study of mefloquine. DOD has stated that
    it has not included in its assessments several incidents in soldiers
    who have taken mefloquine or soldiers who do not demonstrate blood
    levels of the drug. FDA's News Release of July 9, 2003 states that
    ``Sometimes these psychiatric adverse events may persist even after
    stopping the medication.'' What is being done by FDA to investigate the
    incidents of suicides in soldiers while on or returning from
    deployment?
        Answer. As a general matter, FDA takes numerous steps to improve
    product and patient safety and reduce medical errors. Suicides in the
    military are not investigated by FDA and would fall presumably within
    the purview of DOD. Frequent discussion between DOD and FDA has
    occurred related to antimalarial prophylaxis, and DOD has not
    communicated concerns regarding soldier suicides and the use of
    Lariam. Since Lariam was approved in 1989, AERS has identified 17
    cases of suicide worldwide, associated with Lariam use. These cases
    are reviewed on an ongoing basis. Many of the cases lack sufficient
    evidence to conclude that the suicide was related to Lariam. The
    relationship between suicide and Lariam is not conclusive since many
    of the cases involve previous psychiatric disease or other confounding
    factors. Only five of the reported cases occurred in U.S. residents,
    and none of them were soldiers. One, however, was a former Marine who
    had taken Lariam while serving in Somalia, more than 6 years before
    his eventual suicide. Suicides have also been reported with other
    antimalarial agents including chloroquine and malarone.
        Current labeling of Lariam includes the following warning:
    Mefloquine may cause psychiatric symptoms in a number of patients,
    ranging from anxiety, paranoia, and depression to hallucinations and
    psychotic behavior. On occasions, these symptoms have been reported to
    continue long after mefloquine has been stopped. Rare cases of suicidal
    ideation and suicide have been reported though no relationship to drug
    administration has been confirmed. To minimize the chances of these
    adverse events, mefloquine should not be taken for prophylaxis in
    patients with active depression or with a recent history of depression,
    generalized anxiety disorder, psychosis, or schizophrenia or other
    major psychiatric disorders. Lariam should be used with caution in
    patients with a previous history of depression. During prophylactic
    use, if psychiatric symptoms such as acute anxiety, depression,
    restlessness or confusion occur, these may be considered prodromal to a
    more serious event. In these cases, the drug must be discontinued and
    an alternative medication should be substituted.
        A Medication Guide was developed that communicates these issues to
    the patient.

                            EMERGENCY CONTRACEPTION

        Question. There are reports in the press that decisions about OTC
    approval of Plan B contraception are being made differently than
    decisions about other products, made outside the Center, at the
    Commissioner level or above. Could you explain if this is true, if FDA
    is politicizing the approval process and why this is the case? Why is
    the Plan B OTC approval being handled differently from other products?
        Answer. The review and decision-making for the Plan B application
    is not being made differently than other applications. The review is
    occurring within the FDA's Center for Drug Evaluation and Research. FDA
    will have signatory authority of the application. The Center commonly
    involves the Office of the Commissioner in prominent regulatory
    decisions.
        Question. Given that advisory committee members voted unanimously
    that Plan B Emergency contraception was safe under OTC conditions of
    use and that studies investigating the OTC instructions, including
    contraindications, side effects and precautions were well understood by
    users of the product and that there was low abuse and misuse potential,
    why has the decision to approve OTC use of Plan B emergency
    contraception been delayed? When does FDA plan to make a decision on
    OTC use of Plan B emergency contraception?
        Answer. Since the December 2003 joint meeting of two FDA advisory
    committees, the sponsors of the supplemental new drug application (NDA)
    submitted additional information to FDA in support of their application
    to change Plan B from a prescription to an over-the-counter product.
    This additional information was extensive enough to qualify as a major
    amendment to the NDA. Under the terms of the PDUFA, major amendments
    such as this automatically trigger a 90-day extension of the original
    PDUFA deadline. The PDUFA extension will permit the FDA to complete its
    review of the application, including additional data on adolescent use
    that was submitted by Barr and WCC in support of the application. The
    new PDUFA deadline is May 21st. Such extensions are required so that
    FDA staff has adequate time to review the additional medical and
    scientific evidence. FDA's final decision will be based on sound
    science and in full compliance with the applicable laws and
    regulations, while taking into consideration the recommendations of
    these advisory committees.
        Question. Plan B, levonorgestrel, has been proven most effective
    when taken within 24 hours of coitus. Retaining prescription status of
    this drug impedes the ability of consumers to use the product when it
    is most effective. If FDA does not anticipate approving Plan B
    emergency contraception for OTC status, please explain the rationale,
    when the product has been identified as safe and effective and eligible
    for transfer to OTC status under the 1951 Durham-Humphrey Amendment to
    the Food Drug and Cosmetic Act, that this change in status was not
    approved?
        Answer. FDA is still reviewing the application, so therefore we are
    unable to answer this question until the review is complete and a
    decision has been made based on this review.
        Question. Some questions were raised by groups against the approval
    of Plan B as an OTC product, that use of an OTC emergency contraceptive
    may promote promiscuity in teens. Studies indicated that this was not
    the case. Is this still an issue for the FDA?
        Answer. FDA is still reviewing the application, so therefore we are
    unable to answer this question until the review is complete and a
    decision has been made that is based on the safety and efficacy in an
    OTC setting, which includes comprehension of the label and usage of the
    product.
                                     ______

                Questions Submitted by Senator Richard J. Durbin

                              DIETARY SUPPLEMENTS

        Question. Do you agree it would be easier for the FDA to remove
    unsafe dietary supplements from the market if supplement manufacturers
    were required to submit serious adverse event reports your agency?
        Answer. Adverse event reports are one way that FDA may become aware
    of a potential safety problem.
        In evaluating the safety of dietary supplements containing a
    particular dietary ingredient, we consider evidence from a variety of
    sources, including: (1) the well-known, scientifically established
    pharmacology of the ingredient or its constituents; (2) peer-reviewed
    scientific literature on the effects of the dietary ingredient or its
    constituents; and (3) adverse events reported to have occurred
    following consumption of dietary supplements containing the dietary
    ingredient or its constituents. Therefore, a conclusion that a
    particular dietary supplement or dietary ingredient should be removed
    from the market will still rest upon a determination that the available
    scientific information supports a finding that is adulterated.
        Question. How do you respond to the IOM's conclusion in their
    recent dietary supplement report that ``a core issue that constrains
    the development and utility of a scientifically based framework for
    evaluating the safety of dietary supplements is the lack of data
    readily available for evaluation? Without amendment to DSHEA by
    Congress, the FDA is not empowered to require the submission to the
    agency of such key information as adverse events.''
        Answer. In evaluating the safety of dietary supplements, FDA relies
    on all available information including, the well-known, scientifically
    established pharmacology of an ingredient or its constituents, peer-
    reviewed scientific literature on the effects of the dietary ingredient
    or its constituents, and adverse events reports. Certainly, FDA
    welcomes the submission of any safety-related information that a firm
    may have, and such information may facilitate FDA's evaluation of the
    potential hazards of a dietary ingredient.
        Such information often does not resolve the safety questions about
    an ingredient, however, that is because the major limitation to
    establishing that a particular dietary ingredient or dietary supplement
    presents a significant or unreasonable risk is the relatively
    incomplete scientific information about the pharmacology and effects of
    many dietary ingredients rather than lack of FDA access to the
    information a firm may have assembled.
        Amending DSHEA to provide FDA access to a firm's safety information
    would not resolve the basic issue that in many cases there is
    inadequate information to understand the risk, if any, that a
    particular dietary ingredient may present to consumers. FDA believes
    that actions to facilitate the conduce of scientific studies of the
    composition, pharmacology, and effects of dietary ingredients would be
    useful in generating the data that the IOM believes is necessary to
    develop a scientifically based framework for evaluating the safety of
    dietary supplements.
        Question. The definitions of ``unreasonable risk'' used by FDA in
    the ephedra rule and the IOM in their report require that only a
    likelihood of future risk be shown, which would allow the FDA to take
    supplements that are harmful off the market faster. Do you agree?
        Answer. Yes. As FDA stated in the ephedra rule, ``unreasonable
    risk'' does not require a showing that a dietary supplement has caused
    actual harm to specific individuals, only that scientific evidence
    supports the existence of risk.
        Question. I am concerned that the FDA does not have the proper
    tools, systems, and resources to promptly implement the new
    ``unreasonable risk'' standard for dietary supplements in future
    situations. For example, the agency's interpretation of the
    ``unreasonable risk'' standard relies in part on an evaluation of the
    benefits (or lack of benefits) of a particular supplement. What
    mechanisms, if any, does FDA have in place to evaluate the benefits of
    dietary supplements?
        Answer. In evaluating the benefits of dietary supplements, FDA
    reviews published studies and other relevant sources of scientific
    information. Collaboration with academic centers such as the National
    Center for Natural Products Research (NCNPR), Federal partners such as
    the National Institutes of Health and the National Center for
    Toxicological Research, and our consumer and industry stakeholders is
    important in developing a comprehensive risk-benefit evaluation of
    dietary supplement products. We believe that efforts to strengthen our
    relationship with scientific centers that emphasize primarily efficacy
    research is the best approach to ensure that such information is
    available, when needed, for safety evaluations under the ``unreasonable
    risk'' standard. Further, it is important to recognize that in
    circumstances in which there is clear and persuasive evidence of a
    substance's risks but information on its benefits is incomplete or
    absent there is no barrier to FDA action. Under the risk-benefit
    analysis that FDA described in the ephedra rulemaking, having efficacy
    data is not a prerequisite for acting against unsafe dietary
    supplements; that is, if there is adequate evidence that a product
    presents a known or reasonably known or reasonably likely risk but
    there is no data sufficient to show that the product has known or
    reasonably likely benefits, FDA can take action against the product
    based on unreasonable risk.
        Question. Commissioner McClellan promised enforcement action
    against bitter orange and usnic acid in the wake of the ephedra
    decision. Yet, all the agency has done so far is to reiterate its
    warnings to the public that these supplements pose hazards. Is the lack
    of efficacy information for these substances hindering prompt FDA
    regulatory action?
        Answer. In a speech at the University of Mississippi in January,
    Dr. McClellan indicated that FDA might ``take a closer look'' at the
    safety of other dietary supplements, specifically naming some ephedra
    substitutes, such as bitter orange (citrus aurantium) as well as usnic
    acid. FDA is actively engaged in coordinating research on bitter
    orange.
        At the present time, FDA is examining the available scientific
    information to determine what safety concerns, if any, may be
    associated with the use of dietary supplements containing bitter orange
    and usnic acid. Although FDA cannot predict ahead of time what the
    findings of this review will be, FDA can assure you that if the
    evidence establishes that the use of these ingredients in dietary
    supplements presents an unreasonable risk of injury or illness, FDA
    will take action to address those risks. In the interim, the Agency
    feels it is important to keep consumers informed of safety concerns
    about these substances so that they may make informed decisions about
    whether or not to use dietary supplements containing them.
        Question. The May 2004 edition of Consumer Reports Magazine
    contains a list of 12 dietary supplement ingredients they recommend
    consumers stay away from. One of the ingredients is andostenedione, and
    anabolic steroid, which has already been banned. Will you commit to a
    full scientific safety review of eleven remaining substances listed by
    Consumer Reports?
        Answer. We continually monitor the marketplace and the scientific
    literature to identify dietary supplements and dietary ingredients that
    may present safety concerns. The potential risks presented by different
    dietary ingredients vary widely. Depending on the specific facts
    surrounding the characteristics and use of each substance and the risks
    it may present, FDA will make every attempt to allocate resources to
    address those that present the most significant public health concerns.
    As part of on-going dietary supplement marketplace monitoring efforts,
    FDA will critically examine the list of substances identified by
    Consumer Reports Magazine and consider the safety risks that they
    present and what action by FDA may be warranted.

                              SUBCOMMITTEE RECESS

        Senator Burns. Dr. Crawford, I did not have a question for
    you. We can get together offline, sir.
        Mr. Bost, nice to see all of you here today, and again,
    thanks for your good work. I think you all are to be commended.
    That is not to say that we should let our guard down because we
    know that we still have--any time that you deal in this area of
    food and food safety and especially for our consumers. They
    come first. I think the industry is of a mindset they want to
    do the right thing but make sure it is the right thing to do,
    that we just do not give some cosmetic look at it and not
    address the real problems.
        Thank you for coming. These hearings are closed.
        [Whereupon, at 2:21 p.m., Thursday, April 1, the
    subcommittee was recessed, to reconvene subject to the call of
    the Chair.]